Closing Bell - Closing Bell: Dow 2-day win streak, Transports tank, and Chipotle bets on the metaverse 4/8/22

Episode Date: April 8, 2022

The Dow closing higher on Friday to notch a 2-day win streak, but the major averages finishing the week in the red. Axonic’s Peter Cecchini and Leuthold Group’s Jim Paulsen debate whether the bull market is still alive despite ongoing Fed fears. Transport stocks having their worst week since October 2020. Evercore ISI’s Jon Chappell weighs in on whether a freight recession is on the horizon and why he prefers the rails over trucking stocks. Renaissance Macro Research’s Jeff Degraaf on how to trade financial stocks ahead of next week’s bank earnings. And Chipotle CEO Brian Niccol on why he sees consumers being a little more discriminate with their spending and whether they will tolerate more price hikes. Plus, he discusses the company’s big push into the metaverse and whether there are plans to start accepting cryptocurrency.

The Dow is jumping and the Nasdaq is falling again. The most important hour of trading starts now. Happy Friday and welcome to Closing Bell, everyone. I'm Sarah Eisen. Here's where we stand in the market. S&P 500 just barely positive. Nasdaq is underperforming and the Dow's been outperforming all day. Up about 200 points right now. Nasdaq down 100 points. It really is a tale of two markets there. Underperformance in technology, that's been a theme as Treasury yields march higher again. Outperformance today in energy, financials, health care and materials. UNH, United Health, biggest contributor to the Dow gains right now. Something else I'm watching

into the close, the U.S. dollar breaking out, surging past 100 for the first time in nearly two years. It's been up every single day this week. The euro on the flip side taking out March lows. Money chases yield and rates, and certainly those rates are rising in the U.S. That strong dollar going to hurt earnings in the coming quarters cuts right into those overseas sales. So far, market appears to be okay with it. Coming up on the show, Brian Nickell, the CEO of Chipotle, will join us. The whole restaurant industry dealing with rising costs, a tighter labor market, and uncertainty surrounding the consumer. That exclusive interview coming up in just a few minutes.

Let's get straight to our top story. Is the Fed bear behind us? Investors were certainly spooked this week by comments from Fed officials Lael Brainard and Jim Bullard. The release of the minutes on Wednesday, but the Dow at least gaining back some ground today. And almost flat for the week. Is the fear priced in? Let's bring in Peter Cicchini from Axonic and Jim Paulson from Luthold Group. On opposite sides of this issue, Jim, you do not think that this is a bear market and we've just seen a bear market rally. You're

more positive. Why? Yeah, I think we had our correction, which you normally get in the second year of a bull market. It probably lasted about a year starting last March, I think. Most stocks haven't done much since. And it did what corrections do, Sarah. It took the concentration of leadership out of new era stocks. It significantly revalued most of the market. And it scared us all to death. And the sentiment indicators are still very pessimistic. And we've done all of that while leaving the fundamentals in the economy really strong, created 525,000 jobs a month in the first quarter. So if I like the combination of a lot of fear, a lot of things to worry about, and good underlying fundamentals, I think that's a dynamite combination for the second leg of the ball.

Peter, why do you disagree? Well, you know, the economy always feels strong like this at inflection points. And, you know, there are sort of three ingredients that typically present themselves prior to the inception of a bear market or even recession. One is a Fed tightening. Two is some sort of a price shock or commodity shock like we're seeing in oil. And fed tightening to is some sort of a price shocker commodity shock like we're seeing oil uh... and then thirdly some sort of a global systemic shock uh... and frankly i think you know i think this is a rare situation where we almost have all three at the same time and so

uh... nominal growth may look strong but that's precisely what it is. It's nominal. Inflation sort of changes the way we need to analyze that data. So then how do you perceive, Peter, what we've seen? I mean, the last week, yes, we're headed for a loss in the S&P of 1 percent, but pretty tremendous resilience in the U.S. stock market to some of those threats that you just outlined. Yeah, not at all unusual to see pretty convex rallies within bear markets. In fact, they can be some of the most tricky rallies to navigate if, in fact, one is looking to hedge risk or reposition a portfolio. But I think that's

precisely what we have here. It's not surprising to me. When I look across at other asset classes, when I look, for example, at speculative grade spreads, you know, they're almost 400 basis points. And I think they are telling us something that perhaps broader equity indices are not. Jim, there's also a troubling fact, which is the leadership in this market has been very defensive. Healthcare, staples, utilities, suggesting that economic weakness is coming. So how do you interpret some of those risks that Peter was talking about? The price shock, the inflation shock, what we're going to see with central banks, and the fact that the market is not exactly sending a bullish signal on the economy?

Well, I think that bear markets don't generally start on day one of Fed tightening. Generally, it takes several in time before that occurs. And I agree that, to his point, there's a lot of things people are worried about. The problem is, I think we've been vetting most of these for quite some time. Most of the last year, we certainly have been vetting the Fed ever since August. You know, I think markets kind of adjusted to that already. A lot of the fixed income markets already adjusted to that already. Look, tightening happens in every recovery. It's just it's part of the success of a recovery where tightening has to be done. That doesn't mean recovery is over by any stretch of the imagination. And this isn't just

nominal growth we've got going on here. As I said, we created 525,000 jobs a month in the first month of payroll. We created 862,000 jobs a month household. That is not the stuff of lack of real growth. That's very strong real growth. Capital good orders going up. Profits keep going up. Estimates of earnings keep going up. These are all signs of a really healthy economy.

And the balance sheets, Peter's point about getting in trouble, I've never seen a household balance sheet this healthy, maybe in my entire career, in terms of liquid and low debt to equity ratios, low debt service ratios. Corporate sector is just about as good because no one's been borrowing a lot of money. I don't know. I think there's really good odds inflation rolls over, Sarah, in the second half of this year, mainly because we got supply coming back with the labor force now surging in recent months that we were missing. And if that happens, a lot of these fears about the Fed and about how high rates have got to go up are going to dissipate and optimism return. Well, you've heard from both camps.

There you have it. Really strong arguments on both sides. Jim and Peter, thank you. Have a great weekend. With a doubt about 200 after the break, burritos go digital. Chipotle stepping into the metaverse this week through a tie up with Roblox. Is it a gimmick or the future of consumer engagement? We'll ask Chipotle stepping into the metaverse this week through a tie up with Roblox. Is it a gimmick or the future of consumer engagement? We'll ask Chipotle CEO Brian Nickell next.

You are watching Closing Bell on CNBC. Today's stealth mover is Rackspace getting wrecked today. Oppenheimer cutting its rating on the cloud computing company to perform from outperform, removing its price target altogether, saying it is in a state of profitless prosperity and that developing a high margin service could take time. Shares are down almost 12 percent. Could your next meal come from the metaverse? Chipotle teaming up with Roblox this week, offering players a chance to score a free real world burrito if they can successfully make a virtual one. And Chipotle CEO Brian Nickell joins me now to talk about that and a lot of other things. Brian, it's always good

to have you. Welcome. Yeah, great to be here. I wouldn't expect anything less from you, your background. You're a CMO of Taco Bell and Pizza Hut. I think that's where we first met. So how big of a marketing opportunity do you see the metaverse as? Look, I think it's where we first met. So how big of a marketing opportunity do you see the Metaverse has? Look, I think it's a tremendous opportunity. We're always looking for new ways to engage with young people and get them excited about engaging with our brand. And, you know, yesterday we had just a great, I would say, kind of launch on National Burrito Day in the metaverse where people got to roll burritos, deliver burritos. It was a lot of fun. You know, we had a big team here, really excited, focused on it.

I got to spend some time with them while we were launching it. It's pretty amazing to see what we can accomplish when we're willing to experiment and kind of try and lead in the way that we engage. What else do you have planned in this space? More with Roblox, other companies or opportunities you're looking at, like Meta? Yeah, you know, obviously the team is always trying to figure out what's next from a standpoint of leading in culture. And, you know, they specifically told me not to give away any of the goods that they've got coming down the ramp here.

But I'm really excited about the experimentation, how we're learning in the space. And I think we can do really clever things that continue to move our purpose forward around, you know, real ingredients, real food, real culinary, even when it happens in the metaverse. Well, let me ask you this. What about everybody has a currency in the metaverse? I think you have burrito this. Everybody has a currency in the metaverse. I think you have burrito bucks. There's the Zuck bucks on meta. But a lot of this is sort of coinciding with the rise in Bitcoin and cryptocurrencies and NFTs and all of that, which I know you're looking into. Is there plans for accepting burritos with Bitcoin if you're going to expand deeper into the metaverse and into these platforms? You know, not right now. What we've been spending our time on is how do we eliminate

any friction in the payment experience, but not going all the way to accepting Bitcoin or the cryptocurrencies. Obviously, we've got our currency in our rewards program that people can reward themselves with and then ultimately redeem at our restaurants. But really, where we've got our currency in our rewards program that people can reward themselves with and then ultimately redeem at our restaurants. But really where we've been focused on right now is how do we make payments as frictionless as possible, whether it's in the restaurant or in the digital space? All right. So back to the real world for a second, Brian. And the market, which has been rough on restaurant stocks, down about 11 percent this year. Your stock has been dragged into the selling. There are some serious concerns about what's happening with the consumer. What are you seeing? Any slowdown in traffic or spending? You know, I mean,

what we're seeing with the consumer is obviously they're going to be a little bit more discriminant in where they choose to spend going forward. And I think that's where we've been very focused on making sure we got a terrific value proposition. You know, luckily, the consumers to date have really got a strong balance sheet. I think the person before you was talking about that. And, you know, they're in a strong position, obviously, as they see gas prices rise, that gives them pause. Other places in the grocery store, you're seeing increased prices. So, you know, what we focused on is how do we make sure we get the best possible experience so when they are ready to spend a dollar in the restaurant industry, they choose Chipotle. And we know that we've got a really powerful value proposition and a uniquely

positioned brand with the culinary and the food that we provide and the way that we give people access. So we're going to see, we continue to see strength in the consumer, but I think they're going to continue to be more discriminant going forward as they decide how to spend their dollars. Well, does that mean that you have to change any plans with price increases? Because you have raised prices, you've seen good pricing power, and you've told us that more price hikes are coming. Is the consumer still willing to tolerate that yeah i mean look unfortunately uh the inflation that we've experienced resulted in the last thing that we'd like to do which is to take price but we did have

to take some price um i've talked about this in the past we've got tremendous i'd say value therefore we have the pricing power to take the pricing when we need to. Ideally, I'd love not to have to keep taking price, but we'll have to see how everything unfolds going forward. You know, the good news is our restaurants have been staffed at a level they've never had been since like 2019. Frankly, we're staffed better than we were.

So we're ready to give people the experiences that they want and expect for the dollar that they're choosing to spend at Chipotle. And whether that's digital or in the restaurant, we're staffed, ready to go with a really energized group of employees that really are passionate about the Chipotle company and our purpose. What's happening on the food cost front for you as we've continued to see these prices of all sorts of commodities go up? Yeah, you know, look, we've seen, we talked about this in our most recent quarter, you know, at the end of the year. You know, obviously we saw some movement in beef. We've seen some

movement in avocados. But, you know, the good news for us is we've been able to work, I think, really closely with our partners. And frankly, the guys in our supply chain have done a phenomenal job working with our partners on ensuring that we're smart about what costs need to be taken on and how we can mitigate the impact of those costs. But, you know, we're continuing to see that inflation move through the supply chain. I'm hoping we're getting close to where it starts to normalize and we don't continue to have the inflation. But we haven't seen it stop yet. Hopefully, we'll see some improvement in supply chain and then we can see some mitigating of the inflation here going forward.

But obviously, we're going to do everything we can to figure out how we minimize the impact on our customer and our teams. So, Brian, I just want to be clear. When you say that you're expecting the consumer to get more discriminant, are you seeing changes, patterns in spending or ordering or behavior from consumers that's leading you to believe there's a shift happening? You know, it's more, you know, we obviously study the consumer from like how they're feeling, what their perceptions are. And what our data tells us is, you know, people are thinking twice about how far they want to drive, how often they want to drive. They're also thinking twice about, you know, whether or not they want to spend their dollar on, you know, a restaurant experience or an entertainment experience. I just think it's becoming more of a, I'd say,

conscious decision on how they're going to choose to spend their next dollar versus maybe a couple of months ago. They're a little bit more loose and optimistic about their financial situation. So I think that really puts the onus on companies like ours to make sure we're. And we want to be a part of a positive experience for consumers so that when they're ready to make that eating decision away from home, Chipotle is the solution. Really good color. Brian, thank you for joining me. Brian Nicol. Yeah, thanks for having me, Sarah. Take care. Just want to show you, you two, what's happening with the market right now. Dow remains higher. We've been wavering between gains and losses all day long, but we've had a little tick up here. Dow up 242.

NASDAQ is still underperforming, but coming off the lows. S&P 500 building on some gains. It's being led right now by energy, financials, and healthcare. Tech and consumer discretionary at the bottom of the pack. After the break, chart watcher Jeff DeGraff says there's a changing trend in the health care and financial sector that is worth your attention. He'll lay that out for us in the charts next. And later, shares of Tesla pulling back today after the company unveiled its much-hyped Gigafactory in Texas. We'll talk to Loop's Gene Munster about what the opening means for Tesla's long-term strategy. Stay with us on

Closing Bell. It does up about 215 points. S&P 500 is just positive. Sector performance diverges. Energy, financials, and healthcare doing well today. Technology, consumer discretionary, industrials, and communication services are all a little bit weaker, but it has been the defensive parts of the market that have led us higher lately, staples in healthcare. Let's bring in Jeff DeGraff of Renaissance Macro Research. On the chart, chart Jeff and you say the one to pay attention to is the financials versus the health care stocks explain the chart and why we should care.

Sure well- the chart of health care is the XLV which is the health care ETF the chart of financials is the XLF which is the financial ETF. One's breaking out which is the XLV health care and one's breaking down- the financials. And theF, which is the financial ETF. One's breaking out, which is the XLV Healthcare, and one's breaking down, the financials. And the reason it's important, Sarah, is that that's exactly what should be happening as we get into late cycle. These were two sort of holdouts where

a lot of our work was indicating that the market was entering a late cycle. You had energy outperforming. You've had utilities outperforming. Historically, what happens is health care starts to outperform and financials start to underperform. And in the last couple of weeks, that's really started to happen. And so it just reiterates in our view that we're in a late cycle type environment that doesn't necessarily have to be bearish. But certainly it requires more sector focus and making bets in the right spots and not being as diverse as you might otherwise be. So what do you do with bank earnings that are going to start next week? How big of a catalyst do you think that will be for the group and for this notion that we are late cycle? Yeah, I think they're a good place to sell them. You know, I mean, not all financials are bad.

You know, frankly, the insurance names look fantastic. And even within financials, insurance acting well tends to be a little bit more late cycle phenomenon as well. So there's a lot of things triangulating with that. But I would use an opportunity to see the strength in financials, which are oversold. So in fairness, they can bounce. But I'd use the oversold condition in financials as they bounce to lighten up and reallocate those dollars into trends that we think are sustainable. And those trends right here are in health care. Which is the best performing sector of the week, up almost 4 percent. Jeff DeGraff, thank you very much. Thank you. Something from Mike Santoli's dashboard today. Tesla shares have rallied more than 20 percent over the last

month, but the stock is still in the red for the year. Will a new Texas factory and a wave of new products being teased by CEO Elon Musk help drive the stock hire? Tech investor Gene Munster weighs in when we come back. At 224 on the Dow, Elon Musk celebrating the opening of Tesla's new assembly plant in Austin. At the opening event last night, Musk teasing new products in development like the Cybertruck and a robo-taxi. Have a listen. This year is all about scaling up, and then next year there's gonna be a massive wave of new products.

And Musk just tweeting a few moments ago about the price of lithium, which goes into batteries, saying it has gone to insane levels, and Tesla might have to get into mining and refining unless costs improve. Joining us now is Gene Munster from Loop Ventures. Hard to ever know whether it's just a flip comment. Last time he made a comment about Twitter, nobody thought anything of it. And then he became the largest shareholder and joined the board, Gene. So what do you think about Tesla getting into the mining business?

I'm not surprised, just as I was not surprised to see Elon get involved with Twitter. And this is something that seems like it's just kind of a frivolous headline from Friday afternoon, but it's really important to understand the dynamic between Tesla and traditional auto. This is true vertical integration, not only taking it from the point of how the manufacturing facility played out, what they did yesterday at Giga Texas, but going to getting, these are not rare elements, but getting elements and getting contracts on those. They've been doing that for a long time. Now getting into the mining of that, that ultimately is an understanding about what

it takes to build a car, a computer on wheels in the future and this is a step beyond what we've seen with their futures contracts and their uh their deals that they have with other uh elements but again we don't see any traditional auto doing this and i think it's yet score one for elon and his vision just to take it to the next level and i think you you're going to see this. I think there's a high probability that they ultimately go there. Wow. So you think this is a real thing? Gene, I have to ask you about the event last night where there was a lot of excitement and some news. At least they're going to start building the truck next year. But at the same time, one of their biggest factories in Shanghai, I believe, remains closed. There are reports that

it's been closed for at least 12 days. Wasn't this the factory that produced half of Tesla vehicles last year? How much is this going to hurt? Well, it's going to come up. It is something that passes the materiality standpoint for investors. And to simply put numbers around this is they're probably going to miss 30 days of production from Shanghai. That is about 40,000 vehicles. If you put that in the context of the quarter, that's about 8% of the quarter, the 8% of the June quarter, really talking about the June quarter here. If you look at it in a full year context, assuming that the production works itself out, you're looking at a 2% headwind. And so it is something that needs to be factored in. We seen shutdowns before I think what's more important

than what we're seeing in Shanghai and with the truck drivers and the inability to get things moved around I think what's much more important is just the simple demand and if I may say I just quickly frame in what's going on with Tesla demand is that we look at Tesla demand across eight countries all of their different models and this is as of this week, the average wait time is four and a half months. Now to do the same exercise with traditional car makers is difficult because they don't quote lead time. So you have to go through a dealer network. So we called five dealers. It was a small number, but in the U S this week and the average lead time was two months. And so what we're seeing is let's put some weight in

the few calls that we did. And obviously, we have good visibility with Tesla is that their demand essentially is 2x what traditional auto is. And I think that that speaks to that investors are going to be OK with this Shanghai shutdown as long as demand is there. I think that they're going to be OK. That's really interesting information. You're a fan. Gene, thank you for joining us. Thank you, Sarah. Gene Munster. Here's where we stand in the markets as we head into the close. The Dow remains higher and it's had a nice little surge of two hundred thirty three points. Again, we were down today about one thirteen. We've been all over the place up three twenty four earlier. S&P 500 is just flat. It's this tug of war between some of the defensive groups

like healthcare, energy is higher again today as oil prices are, and technology, which is lower, the Nasdaq down a percent. Wall Street is buzzing about oil sticker shock. And we're not talking about crude oil. It's cooking oil. Up next, why that's driving food prices to record highs and the stocks that could benefit.

And remember, you can listen to Closing Bell on the go by following the Closing Bell podcast on your favorite podcast app. What is Wall Street buzzing about? Food prices getting worse. Food costs hitting a record high, according to the UN. And according to the UN, prices in March jumped nearly 13% as the war in Ukraine caused turmoil

for the production of grains and oils. We've reported how major Russian Ukraine are for wheat and barley and corn. Ukraine is also a big producer of sunflower oil, making up 47 percent of the world's exports. It's been a domino effect from there, with other cooking oil prices up, vegetable oil and olive oil, too. And the shocks have now spread beyond there. Look at orange juice. OJ Futures on pace for the fourth positive week in a row, hitting highs we haven't seen since back in 2018. Bank of America today saying food inflation will persist and it could be good for stocks like Kroger. B of A upgrading the grocer to buy from neutral today, saying it expects consumers to accept the bulk of these price increases and to continue eating at home as they shift part of their consumption toward value. Maybe a little bit of a late call. Kroger's already up 36 percent this

year, but it doesn't look like the food inflation shock is coming down anytime soon and in fact appears to be worsening given some of these moves in commodities. When we come back, shares of Robinhood under serious pressure after Goldman Sachs just slashed its rating on the stock. It's now down 16 percent on the week. We'll dive into that call and much more when we take you inside the market zone. 20 minutes left of trading. We are now in the closing bell market zone. Medley Global Advisors Ben Emmons is here to break down these crucial moments of the trading day. Plus, Evercore ISI's John Chappell on this week's rough ride for the transports. And Christina Partsenevelis on another ugly day for chip stocks. We'll kick it off with the major averages on track for weekly losses, though the Dow is trading higher today. NASDAQ

and S&P 500 are lagging. S&P kind of around the flat line. Ben Edmonds, Medley Global Advisors, Managing Director of Global Macro Strategy with me. Let's start with the Nasdaq, Ben, down almost 4 percent for the week as Treasury yields continue to march higher, past 270 on the 10-year today. What does it tell us about just how much of this new reality of Fed tightening and economic slowdown is priced in? It's certainly being priced in as we speak, Sarah, and I think it will probably continue that way. Treasury yields are now on the march to try to price in where the Fed may end up ultimately with its Fed funds rate. If you look at the expectations in the markets, we're now sort of like three and a quarter, three and a half percent that the market expects the Fed funds rate to come out of by next year. The 10-year is going to move towards that level.

That brings us back to 2018 highs. And we know from that time, at that polling point, technology just didn't really trade that well, even though there's a lot of value in tech, I think, at this point. It's just very sensitive to interest rates because it's such an area of high growth and rates rise and growth is being affected. I think that's why tech why tech is trading supporting so would you stay away from the group or would you be looking for some of those value names and if and if you are staying away where do you go instead yeah i look at that as part of a strategy that i've been since this year and you have to really think of this year to stay out of the index you want to be much more equally rated between offense and defense.

We talked previously in another show, and tech is one part of it. You know, there is obviously companies, Microsoft, the fan names that are really strong companies. They're not, I think, unduly punished by higher interest rates, whereas their outlook for earnings and balance sheets are not reflecting any type of weakness. So there is an opportunity to keep in that 50-50 weighted portfolio. But think of the environment too, like rising rates because of inflation

also leads you to other sectors like materials or natural resources to be offensive, even emerging markets. And on the other side, defensive with utilities, as you will. So you get that combination, I think you can outperform the index here. But aren't you getting stretched on some of those defensive plays, like utilities, which are will. So you get that combination, I think you can outperform the index here. But aren't you getting stretched on some of those defensive plays like utilities, which are trading near record highs? It's certainly to be watched because utilities are naturally sensitive to interest rates, which is an interesting divergence. I mean, tech more sensitive to interest rates than utilities. But there's one difference here,

I think. Tech has somewhat more leverage at this cycle than utilities. Maybe that plays a role here. So I think if you spread this out, I think you can play it that way until we get through the data here. So you look ahead of the week. Inflation is really key, I think, in order to stay in trades like utilities. If that comes out worse, then you will take that off. Got it. Ben Ammon, stick around if you would. Dow's up 213. Let's hit shares of Robinhood, dropping sharply today on the heels of a downgrade at Goldman Sachs to sell from neutral. The firm says street estimates are just too high and notes fading retail engagement among the lower end customer base as a headwind. Let's

bring in Bob Asani. And Bob, Robinhood priced its shares at $38 when it went public last July, got as high as $80 in August, and now at a new low, around $11. Goldman says now it's going to downgrade it. What do you think of the golf? Thanks. Yeah, isn't that helpful? $38 to $11, now they give us a downgrade. You'd think that'd be enough, by the way. But there's three big problems here. Number one, you touched this on, Sarah. Robinhood lives and dies by retail participation. That's the game. So remember last quarter and the quarter before all the retail traders back. You know what? Turns out retail traders not so back. So as because as the market got grinded down in the last quarter, retail participation pulled back. So that's down. And that's a problem for Robinhood. The other big problem is crypto. They went whole hog into crypto, but crypto volumes were also down about 40 percent in the last quarter, not showing signs of coming back. Finally, you've got very limited path to profitability. This is the big problem. You know this, Sarah. They're raising interest rates aggressively. When you have a company that has a very limited path to profitability, they're not going to make money this year, probably not next year. You're going to get clobbered. You saw this with the Cathie Wood stocks, all this stuff,

even with growth. If you have low margins or declining volumes or flat margins, or you have a very limited ability to make money, you're going to get clobbered. And Robinhood is getting clobbered along with everybody else in that group. Bob, what are you seeing broadly as far as retail participation? And how do you track it? You just look at GME and AMC for a gauge? What do you see there? No, there are private estimates based on there are various tapes that you have to report to, including what's called the TRF, the Trade Reporting Facility, and they watch fluctuations in that. So I'll give you a general idea. In the old days, I mean, before the pandemic, we used to work on the assumption

retail was about 15% of the volume by shares outstanding. It went, the estimates got up to somewhere around 22% or so last quarter, the end of last quarter, the estimates got up to somewhere around 22 percent or so last quarter, the end of last quarter, the end of last year. The ones I just saw this afternoon were at 17 percent. So that's not nothing. I mean, that was a significant move, but it's definitely trending down. Sarah. Got it. Bob, it's an important trend. Keeping high on it. Bob Azani. It has been a rough week for the Dow transports, down more than 6 percent since Monday. They're actually tracking for the worst week since October 2020. Let's bring in Evercore transportation analyst John Chappell. John, what changed this week? Well, it wasn't so much this week, Sarah. It really started last week. There was a couple

indicators that confirmed people's views that there was double buying, triple buying ahead of the last peak season. That means inventories may reset a little bit higher at the same time when consumer demand starts to downshift a little bit. You talked about food prices earlier in the segment. You have higher gas prices. People are spending more on services than goods. And if inventories reset at the same time where the consumer wallet pendulum starts to shift back toward services, there's a fear that that's going to weigh on freight demand, especially coming off the best 18-month period in several decades.

Yeah, people are talking about a freight recession. Is that something you're seeing and hearing from these companies? Yeah, you know, I think it's a little early to throw out the R word. You know, we're coming from a very elevated level, and I think we need to put that into perspective. Truck pricing, ex-fuel prices are down 30 percent, which in one month is a very big move, but it's far from recessionary levels. And as long as we don't go into a broader economic recession, even as the pendulum shifts a little bit and inventories reset a little bit higher, I think it's a little strong to be calling for a recession. Because the other side of the equation is there's the demand side and there's the supply side. In the trucking market specifically, there's very low barriers to entry.

And every other prior strong cycle has been ruined by all these dollars that the trucker's been making going into new capacity. They can't do that now because the OEMs don't have the chips, just like the automakers don't have the chips. So ordering of new capacity has been very low, well below replacement levels. If the demand side starts to flash a warning yellow flag, it means you probably don't get that rush to add to new capacity too, which may not take it as low as prior down cycles. There's some good individual stock stories here within the transports. UPS becoming sort of a battleground. I know you don't cover it, but you do, I think, prefer the rails over the trucking stocks. Why? I do. A couple of reasons. I mean, first of all, the rails have

commodity exposure that the trucking stocks don't. So everything that's going on in Eastern Europe right now and how that translates into Western Europe with coal, with ag, even with crude by rail, that's going to be beneficial to the rails. The other thing is the rails have very good pricing power that will carry them through the back half of this year, and they won't be immune to a drop in consumer spending, but it just hits their bottom line a lot less. So for those reasons, we think the rails are a very good safe haven. They're pretty good inflation hedges. And on a relative basis, we think they'll do much better than a trucking market, especially as pricing started to turn over. So what do you see there in terms of valuations, given the slide we've seen

in the group? And how does that setup look into earnings? Yeah, it's a really interesting question. So like the rails look pretty, well, they did look pretty expensive about a week and a half ago relative to the broader market. I think you have to look at the rails relative to the S&P.

And when we put out our cautious industry outlook last Friday, the rails were trading at over 20 times or the market was trading closer to 18. They've pulled back this week too. I mean, the selling has been completely indiscriminate. So the rails are trading to East Coast guys, Norfolk Southern, CSX, which are two of our top picks, are now trading at roughly 17 times next year's earnings. They're trading at a

market discount at a time where we think that volumes will accelerate in the back half of the year. So I think from the rails, they look pretty good. On the trucking side, the TL guys trade very cheaply. I mean, the lowest multiples they've ever traded at, single digits in some regards. But I don't think valuation really matters on the trucking side. We're such a high on market spot pricing that this is one of those segments where when pricing momentum is working against you, there's almost no floor on valuation. Nobody wants to catch the falling knife or be the last one holding the bag. So we need to have line of sight on the pricing deceleration slowing and getting closer to a bottom. And that's when you start to, you know, bottom pick some of these trucking guys. Got it. John Chappelle, thank you for joining us from Evercore ISI. Also want to

hit the chip stock. They're getting crushed again today. Worst performing subsector right now in the S&P, down more than 6% on the week. NVIDIA, biggest loser in the industry, 13% decline just this week. Christina Partsenevelis joining us now from the NASDAQ. I'm looking at biggest loser in the industry, 13 percent decline just this week. Christina Partsenevelos joining us now from the Nasdaq. I'm looking at the year to date here, 18 and a half percent lower for semis, 20 percent lower for semiconductor equipment. I know they're very cyclical groups tied to the economy, Christina, but you've also got shortages out there in Shanghai under lockdown. How does it all add up? Yeah, you have this situation, especially with the equipment manufacturers right now, ASML, Lam Research, KLA, Applied Materials that are warning their customers that they

may face delays of a year and a half, up to 18 months even. And so when companies that are talking about building plants like Intel, they can't get the equipment. Of course, that's going to create a trickle effect for years to come. All of those equipment makers I just mentioned are down on the week. You talked about NVIDIA. Often this is a play about concern about profitability going forward and not necessarily the next exciting story. So NVIDIA, Micron, all of these companies had the investor days and they talked about the shift into AI, artificial intelligence, the talk about the omniverse, the metaverse. And yet those are exciting stories in the long term. The near term, the focus is around profitability, which is why you're seeing somewhat of a sector

rotation out of semiconductors as the valuations for many of these companies are still very high. But still strong demand, right, Christina? I saw the Taiwan semiconductor posted like highest ever sales overnight, 36% revenue growth and a 12% jump from last quarter. So it's not like there's been any softening. I think cars, right, and smartphones were a big part of the story. But have you seen any softening? Do you expect to see that earnings for the demand side? There was one story that stood out to me today and it was about Samsung.

So Samsung released a new smartphone in South Korea and just weeks after they released it, they've already dropped the price, which would show that demand isn't as strong as what we are expecting. And you see a lot of people talking about weakness in handsets and PCs. So yes, Taiwan Semiconductor is doing well. There is some strength. We're going to need chips when we, you know, connect absolutely everything around the globe. But in the short term, there's some weakness, no doubt. Christina Farsanetalus, thank you. Absolutely. Big story of the week. Vaccine stocks have been all over the map this

week. Pfizer and Moderna moving sharply in opposite directions. Johnson & Johnson just slightly higher on the week. It's actually trading near an all-time high. And a new study out today says COVID vaccines saved the health care system almost $900 billion between December 2020 and March 2022. Let's bring in Meg Terrell, who just spoke with Dr. Anthony Fauci, Meg, about this and a lot more. What did he say? Yeah, Sarah, we talked about these findings, which showed that in addition to those savings to the health care system in terms of dollars, these vaccines also averted more than two million deaths and 17 million hospitalizations between December 2020 and March of 2022. So really, Dr. Fauci is saying everybody who is eligible for a

booster should go out and get one, including folks who is eligible for a booster should go out and get one, including folks who are eligible for a fourth shot. Now, I asked him about the timing on that. He said he'd gotten his and he recommends if you're eligible, go get one. And we talked about what the future is going to look like. He said folks still may need another one in the fall. But here's what he said about after that. People keep asking, gee, does that mean every five months you have to get a boost? I don't think that's going to be the case, Meg. I think what's going to happen is that once we get through this cycle, it likely will be similar to flu.

But of course, the exception to that, he said, is if we get one of these crazy new variants, that really means the vaccines don't work. You're back to square one. However, going into that sort of more regular flu market is something that people are trying to figure out. And as you noted, Pfizer and Moderna going in completely different directions from a stock perspective this week. Jared Holtz at Oppenheimer telling me

it's because Pfizer is trading more defensively with the rest of pharma, which is very popular right now. Moderna trading more like a vaccine stock as it has. But if you look back over the last month, you see Moderna, BioNTech and Pfizer really up quite a bit. Novavax, really the laggard there is it's kind of languishing at the FDA. It's filed its application,

but we don't know when that's gonna get reviewed. And we don't know if this is gonna be part of these booster discussions going forward. Sarah. What did he say about this current wave that we are experiencing of the BA2 variant? How concerned is the White House? And what are we seeing in the data in terms of hospitalizations? The hospitalizations are still very low right now. And that's the main

question. We don't know what's going to happen with that. We have seen them go up in the UK, for example. What he said is that we are in the midst of an uptick in some places and and we don't know how big the wave's going to be, if it's going to be uniform nationally or if we're going to see waves kind of regionally. But one thing he did say is that when you see cases go up, even if it's to a lesser extent, you do see some of the more vulnerable people get impacted by that. And so, of course, they are always worried when you see increasing cases. Meg Terrell. Meg, thank you very much. Talking to Dr. Anthony Fauci. Let's bring back Medley's Ben Emmons on this and the broader market as we go into the close. The Moderna-Pfizer comparison and contrast is pretty interesting because Moderna

trades like a growth stock, and it is, and Pfizer like a healthcare defensive stock. It's like consumer discretionary versus consumer staples. Which defensive sectors do you like best right now, given the fact that we have started to see this move already play out? Still on the staple side, Sarah, that seems to be really where the market is gravitating to. Because, you know, if you're in this sort of phase where the market is uncertain if the economy will or will not major slow down ahead of us, then staples are probably the best bet there. In addition to health care, as Max just outlined, you know, you do have ongoing demand for these vaccine stocks, if you will, vaccines. It's just essential. So I think that is the defensive side of the market that will play well and keep the market at least in some sort of a bind here without seeing a major correction just yet as we're trying to juggle whether we'll be in a recession in the near future or not. We're also looking at the U.S. dollar, and I highlighted

the fact that it went over 100 today, and it's been basically steadily marching higher. Higher interest rates in the U.S., money, which is ironic because a lot of people are talking about the dollar's demise with all this with the Russian sanctions. So, Ben, why isn't that more of a headwind for the market? Because that will cut into earnings. It certainly will at some point. I agree that the dollar strength we have to watch is at the moment not really impacting markets yet because you have other central banks are trying to lift rates, too. And although this dollar is getting with a grind stronger it's not like a surge or so like what

we've seen say back in 2014-15 before the Fed lift off and you have that uncertain environment but if we do break decisively through that 100 barrier it will start impacting emerging markets maybe also developed markets but more, I think this is one dividend of a stronger dollar is that it will affect global commodity prices. It's all settled in dollars. If the dollar gets significantly stronger, global commodity prices will come under pressure, which then eventually takes a bit out this inflation story that we're all worried about. And finally, I just wanted to mention this amazing stat from Bespoke. The five-week increase in the 10-year yield is the largest in more than a decade.

What is that going to do to the economy? And are we seeing a peak in yields anytime soon? I don't think we're at a peak yet. As I mentioned, we have to price in in the 10-year to get to a Fed funds rate of something like, I think, three and a quarter, three and a half percent. So I do think we're just in that thrust back to the highs from 2018. But if you think about what rates do on the economy, it is obviously housing.

It starts to show up there. It will also be in corporate borrowing. Ultimately, that will slow down as rates are too high. And in addition, as we get through this Fed balance sheet contraction, ultimately, the reserves and balances go down. And with higher rates, then you'll get consumer credit affected as well. So I think it's working itself slowly into the economy. But really, we're still in a rising trend for rates.

I think the 10-year rule of the three-year core. We've also uninverted, importantly, on the two-year, 10-year yield curve. Ben Ammons, thank you for joining us. As we head into the close, one minute left to go here. We are looking at the Nasdaq under pressure. That's where it's been all week long. We're down 1.4 percent right now, down about 4 percent on the week, which is amazing considering some of the strength you're seeing in the Dow, for instance, which is doing a lot better for the week and for the day. It's up 114 points, losing a little bit of steam here as we go into the close. The Dow has a lot of the mega caps and a lot of the defensive plays that have just been working lately, like a united health care.

Home Depot's doing better today. Goldman Sachs. We're going into bank earnings next week. We're also going into the CPI report. So we've got a lot of catalysts coming up. Take a look at the S&P 500 right now. And it is lower by about four tenths. We've just lost some ground in the last few moments.

Energy, financials, materials, health care still going strong. Tech consumer discretionary weighing us down. That was the story of the week. And for the week on the S&P 500, we are down a little more than one and a half percent. That's going to do it for me on Closing Bell. Have a great weekend, everyone.