Closing Bell - Closing Bell: Dow snaps 5-day win streak, American Airlines’ CEO on travel demand, and the dash for trash. 3/21/22

Episode Date: March 21, 2022

Stocks snapping a 5-day win streak after Fed Chairman Jay Powell said inflation is much too high. The CEO of American Airlines on the outlook for travel demand, rising ticket prices and why he doesn��t see more consolidation ahead in the industry. Thoma Bravo’s Managing Partner weighs in on his company’s deal to buy software maker Anaplan. And Bespoke’s Paul Hickey on why there’s been a rally in low-quality stocks recently.

Stocks are firmly in the red after a midday tumble. The most important hour of trading starts now. Welcome to Closing Bell, everyone. I'm Sarah Eisen. Here's where we stand in the market at this hour. Lower across the board, we are off session lows. The Dow is down a little more than 400 points earlier this afternoon. It's down 1%.

It is the first decline for the Dow in six days. The S&P and the Nasdaq also given up some of last week's strong gains. Technology, as you can see, is underperforming there with the Nasdaq also given up some of last week's strong gains. Technology, as you can see, is underperforming there with the Nasdaq down more than 1%. What's working today? Energy. Oil is popping. It's the same fears that's been dominating lately. Ukraine and, of course, the Fed. Here are my top takeaways on some of the biggest stories today. Dealmaking is alive and well. Berkshire buying Allegheny for $11.6 billion. Private equity firm Toma Bravo buys Anaplan, a business software company, for almost $11 billion in a leveraged buyout. Kohl's

says today it's getting multiple offers. All of this is a reminder that with all the doom and gloom lately in the markets, there's a lot of cash on the sidelines. The financing market still appears strong enough and valuations have adjusted. Buyers want in, the environment is still ripe. Canadian Pacific rail workers, the latest to strike as unions have been empowered lately to demand more amid this surge in job openings and demand. Canadian Pacific Railroad is also a major transporter of fertilizer and agriculture to and from the U.S. and Canada. So if this drags on, it's more supply chain backups and more shortages on top of the already extreme price spikes we've seen for these commodities amid shortages from Russia. And speaking of worsening commodity inflation, estimates are changing for consumer

companies that are exposed to these crazy price spikes for energy, grains and vegetable oil from the Russian war. J.P. Morgan today saying Treehouse Foods, Utz Brands and B&G Foods have the highest degree of earnings risk. Also, they cite Campbell's Soup, Conagra and Kellogg saying they're facing headwinds. Analysts at JP Morgan say Hershey and Coca-Cola are best positioned because of limited exposure to the commodities that have jumped. Let's get to our top story, the markets and the Fed. Stocks hitting session lows after Fed Chair Jay Powell said the central bank is open to hiking by more than 25 basis points at a time, if appropriate, to combat inflation. Joining us for our top panel, Paul McCauley, former PIMCO chief economist, and Lizanne Saunders, chief investment strategist at Charles Schwab. It's good to have you both

here. Paul, do you think Chair Powell is prepping the market for a 50 basis point hike, a double, which might come as a surprise? Yes, I think he is. Essentially, today he sang the same hymn he did last week, but he said it with more feeling. He really was seeing today that the Fed's mission is to deal with inflation and he's going to do whatever it takes. And he's not worried about really buckling the economy short term. So he sent a message. Get ready. So, Lizanne, is the market going to be OK with it or not? Last week, it seemed OK with that message. Today, not so much. Well, and also last week, the market had already heard and I think had digested the notion that every meeting was likely to be live, and that didn't have a huge negative impact on the market.

Now that we have a sense that not only every meeting is live but the possibility of 50, maybe you could point to that. And Powell's more hawkish comments is the reason for the weakness today. But we're just in a volatile period of time. There are going to be days where it might explain either a gut move or a down move. Other days it might not. But I think the only reason why a 50 would really surprise markets is if we were in an environment of growth really, really slowing and the Fed having to push into higher recession risk with a 50 versus if growth kind of hangs in there. I think the stomach for the market in terms of digesting 50 would be a little more palatable. Well, I think that's the other huge question for the market right now, Paul, which is can this Fed achieve a soft landing? Powell says it's happened before in the past. What do you think? If they're being this aggressive on

inflation, can the recovery stay intact? I think there's a sporting chance, yes, that he can get a soft landing. And he pointed out that there have been three in the post-World War II period, not just one, which most of us remember. So it's doable. It's not a done deal, but it's doable. And I think he's leaning pretty hard on the fact that the labor market right now is stronger than horseradish. It really, really is. So he thinks that he can lean on the interest sensitive portions of the economy. He can lean on Wall Street and not have a big risk on the interest-sensitive portions of the economy. He can lean on Wall Street and not have a big risk on the job front. So I think it's doable, not a done deal, but doable. And in the months immediately ahead, he simply wants to get the hell away from zero. I like that stronger than, I like

Forrest Radish, especially strong. Lizanne, so what do you do? What do you do with tech stocks? Because they're vulnerable again here. And I see Etsy is one of the bottom performers on the S&P. These are the e-commerce names that rebounded so sharply last week off of sort of depressed levels. Are they still as risky now? We have seen valuations already contract and sort of catch up with what the Fed is doing? Well, there's no there's no real day there. I think we have to get out of the habit as investors of looking at a sector like tech through a monolithic lens. There's a whole host of names in there that have a wide variety in terms of fundamentals on the earnings and profit margin side, and in particular on the valuation side. And in fact, since the Fed last November moved toward normalizing monetary

policy, it's higher quality, more value-oriented factors that have been performing best, even within a sector like tech. So you can put on kind of a lowercase v value cap when looking at stocks and not limit yourself to only the sectors that happen to live in the value indexes. So I think within tech, you want to look for reasonable valuation. You still get hopefully a growth kicker, but that high quality wrapper around it. Again, I wouldn't limit a look for value to only the sectors that live in the value indexes. So you're talking about the mega caps, essentially, which Apple is outperforming today. Tesla is a little higher. AMD, NVIDIA ahead of an investor day. Is that what you're suggesting, Lisanne? No, I'm suggesting quality at the factor level,

even the big five or the big seven, whatever category of the largest names, you can't look at those monolithically at all. You've seen huge divergences across even the big five, certainly down into the big 10 based on differences in fundamentals. So when I say high quality, I'm not talking about some predetermined basket of names based on cap, but the actual fundamentals of strong balance sheets, strong free cash flow yield, rising earnings revisions, lower volatility. Those are the collective group of factors that I would focus on as an investor versus sort of these predetermined groups of stocks. NASDAQ's down a percent. Lizanne Saunders, thank you very much.

Paul McCulley, good to have you here as well on all the Fed speak. After the break, we will talk to American Airlines CEO Doug Parker about how much these rising oil and jet fuel costs are overshadowing what is a booming travel recovery for the airlines. You're watching Closing Bell on CNBC. Dow's down about 350. The airlines have given up earlier gains, now lower for the session along with the broader market. And as oil shoots higher, those rising jet fuel costs are a major expense for the airlines.

I spoke to American Airlines CEO Doug Parker. He's been the CEO almost a decade and today accepted Yale's Legend in Leadership Award ahead of his retirement next week. I asked him about what demand is looking like right now for spring break and into summer. Demand is robust. Certainly demand domestic travel for leisure passengers is as high as it's ever been, where there's no constraints, as there are in the United States, and as there aren't for leisure passengers, demand is as strong as it's ever been. We're still, business is just starting to come back stronger,

but it's coming back as people return to offices. So we know that'll rebound. And then lastly, international travel still has some real constraints, but those will fall over time. We saw just last week the U.K. eliminated all restrictions on travel due to COVID. So hopefully other countries will follow suit, including the United States. And the reality is there's huge pent up demand for travel in all sectors. And where there's and where there are constraints like the domestic U.S., that demand is really, really strong. There's clearly pent-up demand, Doug.

So how durable of a recovery do you see here? It feels really strong. Again, the consumer seems extremely strong. As I just noted, I mean, demand for leisure travel in the U.S. is as high as it's ever been. And business travel is coming back quickly, particularly smaller businesses, those that don't really have the large headquarters and haven't yet been back to business for a while. Their demand is quite strong. So it feels resilient.

It feels as though, again, as constraints go away, demand is there, and it feels like it's going to be there for a while. Oil prices, though, have shot up. Jet fuel prices, I know you're experiencing at 13-year highs. How much does that overshadow the financial recovery that you're experiencing? Well, it hurts, of course, and it's unfortunate. As I'm moving on and leaving the airline to Robert Ice, my successor, I was really hopeful everything was going to be going up, up, up. So things like oil prices, though, you know, are a big factor. It's the second largest expense for airlines.

But, again, either it'll stay there and we'll respond accordingly over time with, you know, being able to recover it through less capacity and higher prices over time, or it will return to a different level where we'll also respond accordingly. But oil prices have always been an issue for airlines over time. Wherever the level ends up, we are able to figure out a way to be profitable at those levels. Right now, we can't respond this quickly, so it's going to have an impact on earnings going forward in the near term. You mentioned the fare and capacity issue. It already feels like fares have gone up. It feels like we're paying more per ticket prices. What should we expect on that front as you do adjust to these higher oil prices?

Yeah, there's a combination of high demand. There's actually some restricted supply right now. None of us, I think, are flying as many airplanes as we'd like. A combination of delivery shortfalls and shortage of pilots at the regional airlines has not as much supply. to where fares will still be good, but they're going to be higher than they certainly were during the pandemic when fares were exceptionally low. There's still good values out there. But yeah, definitely, I'd be buying my tickets now if I was looking to buy for the summer. Because the pressure seems to be upward, not downward. How much more can we expect? I don't know, Sarah.

Again, it's all based upon competitive issues and supply and demand. And again, right now, I think we're at competitive levels that are good for consumers. And I don't know for certain actually that they will go up. But what I do know is all those factors, supply, demand, cost of production, are all leaning toward higher prices. What about the number one expense that you have, which is labor? Because that's also been a bit tricky. I know you were able to keep people on the payroll thanks to the stimulus and the bailouts from Washington. But what are you experiencing now when it comes to keeping people and hiring people in this tight labor market?

Yeah, well, at American Airlines, you know, we have no trouble whatsoever attracting people. We pay well, and it's a great place to work. So we don't have any issue at American Airlines per se. Again, some of the smaller regional airlines are having trouble recruiting pilots at this time just because there aren't enough people with enough hours to fly. But that will correct itself over time. And we did see at points in time that some of our suppliers and vendors, you know, fuel trucks and catering trucks, et cetera, not having drivers, but that is all dissipated as well. So we're not seeing any sort

of issue really anymore as it relates to labor. And we're going to hire some 20,000 people at American Airlines this year, and we're going to have a lot more applicants than we have people to hire. As demand returns, we've also seen deals come back. Spirit and Frontier are hoping to merge. First of all, do you think that deal is going to get done in this antitrust environment? Yeah, I'm not quite certain. I don't think that's a transaction that the antitrust department should be concerned about given the size of the two carriers and not a significant amount of overlap. But I haven't

done the work to tell you for certain whether or not they're going to need to do something to get it approved. But certainly doesn't seem to be the size of a transaction that anyone should be worried about for competitive reasons. And you've been through so many deals in your career, American West, and finally, ultimately, what resulted in American Airlines. Do you see more consolidation? How do you see the industry evolving over the next five to ten years? Well, I think right now we have an incredibly competitive structure that also allows the consumer the proper amount of utility.

We have three large hub-and-s spoke carriers that can pretty much take you anywhere, American being one of those, and then a number of other airlines who fly either different systems like Southwest or in smaller parts, smaller footprint like JetBlue or Alaska. You put it all together, it feels like, you know, I think the kind of the right competitive structure for our business. It took us a while to get there. I don't suspect you'll see a lot more consolidation from this point. But again, there may be nothing big that I think is on the horizon.

Doug Barker, CEO of American Airlines, and in all his time at the airline, he went through 9-11, some really difficult periods. He said COVID was the hardest for his airline and for the entire industry. And that $50 billion worth of stimulus, he said, saved them. The entire airline industry would have shut down without it. Let's check in here on the markets. We are seeing the first decline for the Dow in six days. The S&P gives back a little bit, four-tenths after its best week last week since 2020. Down four-tenths of a percent, as I mentioned. Most sectors are lower right now.

What's holding up? Energy, materials, and utilities. What's getting hit the hardest? Technology, consumer discretionary, communication services. The banks are down, though yields are pretty much higher across the board. Coming up, Warren Buffett's powerhouse conglomerate is outpacing the market in a big way lately. And higher today on the back of a multibillion dollar deal. Mike Santoli will be here with the dashboard on Berkshire next. Warren Buffett's Berkshire Hathaway announcing its largest deal since 2016. Earlier this morning, buying insurance company Allegheny for $11.6 billion.

Mike Santoli taking a closer look at Berkshire for the dashboard, which has been doing very well lately. Yeah, Berkshire's on a roll. I mean, Warren Buffett over the decades has kind of come in and out of favor. And right now, investors love every piece of what now makes up Berkshire Hathaway. Now, Allegheny is interesting because it's kind of a baby Berkshire at the core of an insurance company, but also a conglomerate with other businesses. Here is a way to kind of pull apart Berkshire in terms of comparable. So Apple, of course, Berkshire owns five and a half

percent of Apple. That has outperformed the rest of tech. You have United Pacific, of course, that's railroads. Burlington Northern, Santa Fe is at the core of Berkshire as well. All doing well. Chubb, property and casualty insurance business, that's the Geico general re-business within Berkshire. So it's all working together. Value, quality, cash flow, exactly. Energy infrastructure is in there as well, and pricing power with the rail. So, not to say it's going to last forever, but it has actually gotten Berkshire back up to a premium versus where it's traded for the last decade or so. And the signal from the deal today, I mean, they have what, a more than $100 billion pile of cash still.

And they've complained, Buffett and Munger, that there hasn't been anywhere to put it. Maybe there are more opportunities. Yes, exactly. First of all, this company very much in tune with what Berkshire does. I think they would have been a buy almost no matter when they were willing to sell. But Berkshire's $750 billion in market cap now. So this isn't big. There's a lot more they could do. Of course, also, the accidental stake was just a couple of weeks ago. I read

somewhere, I think on Twitter, that someone said, you know, treasuries aren't working right now. Berkshire, it's like a safe haven. It absolutely is acting that way. Warren Buffett instead of sovereign debt. I'm glad about it. Berkshire isn't the only company making news in the deal world today. Thank you, Mike, by the way. Private equity firm Toma Bravo is buying software company Anaplan for nearly $11 billion. That stock soaring on the news. We will discuss the deal with the man behind it when Closing Bell returns. Private equity firm Toma Bravo striking a deal today to buy business software company Anaplan for $10.7 billion. Joining us now is Toma Bravo's managing partner who led the deal, Holden Spate.

Holden, thanks for joining us. It's funny, just a few days ago, we found out that this company was the subject of activist pressure. Keith Meister is going to be on with Scott on overtime next hour. But between that and, of course, the public valuation coming down for all of these software names, talk about how this deal got done and whether management was more open to it because of some of those issues. Well, thank you, Sarah, first of all. I'm delighted to be on here today to discuss Anaplan, which is, in our minds, one of the most unique enterprise software companies that we cover. And so we have approached this company

in this market well before any activist disclosure, because this company really, from our standpoint, checks all the boxes. It's got very high revenue quality, very great customer base. It's in a large and dynamic market. It's growing really fast. And as you said, one of the nice things or one of the things that is a trend in our market is over the last five or six months, particularly for really high quality public software companies that have nice revenue growth but very little profit, we've seen very unique operating approach where we work in collaboration with management to turn cash flow, or sorry, to turn revenue multiples into cash flow multiples over our investment horizon. So when all those things came together, we approached the company, but it was, again, well before any activist disclosure. But it sounds like you may have more up your sleeve, given where valuations are in tech right now and software in particular. We think this is a great time. I mean, these are some of the best companies, like I said,

that cover their high growth. They have very high revenue quality. And you're right. We are very busy at the moment. What about the general market environment? And clearly, it's a ripe time for LBOs. We're seeing potential Nielsen deal in the works. There was the Citrix deal. What about the junk bond market and just how generous financing conditions are right now? Because they've certainly tightened as the Fed has started raising rates. They have. Now, what we're doing a lot of in our world is we're buying these really high-growth, market-leading companies at scale.

And we are, I think, probably the market leader in doing that. And those companies that are very high growth, we have a really nice set of private capital sources that we can leverage as well, who recognize that the company's recurring revenue that we're borrowing against is a really attractive asset. And so we're in this deal, as an example, that's kind of what we did. Now it's primarily equity, but we're making our returns on growth and on the top line and growth and profitability, not necessarily on financial engineering. So we think that will continue as well. What is the goal here? Are you trying to go up against with this company and some of the others

that you're building in your portfolio and SAP? that's the competitor we hear about most when it comes to Anaplan, a Salesforce, perhaps an Oracle, they all compete and they're all bigger. You're right. It's situation specific. We've been doing this for about 20 years, buying these companies, running them independently, competing against large guys. There's always been a place for best ofof-breed software. That's still true today. The fundamentals of these companies are amazing. And in many cases, and it's true in this case as well, we're buying the market leader. Some of those names you mentioned are in the market. But Anaplan is gaining market share.

They have been for a very long time. It's cloud native. A lot of the companies you mentioned started with an on-premise solution. And so Anaplan, like many of our companies, are taking market share. What about the notion in the public market that a lot of these companies had a lot of demand pull forward during the COVID pandemic? You saw that with the stock price. Anaplan got as high as in the 80s and that it's going to be tough comparisons and a lot of give back in the coming years, especially as we get back to normal and see a change in

consumer environment. Yeah, they saw some of that, of course, in a way that pullback and then there was a kind of a reversion. And that's really what created this opportunity, to be honest. And so we think we're on the other side of that. I mean, the growth in their last quarter and new bookings year over year was 60 percent, which for a company that's over 600 million in revenue is very unusual. So we think that's created a great opportunity for us. Holden, thank you for joining us to talk about the deal today. We appreciate it. Thank you for your time.

For the next one, I guess. All right. Talk to you soon. Holden Tate of Toma Bravo. Is this crypto's coming of age moment on Wall Street? It's The Buzz today and we've got the details next. Dow's coming off the lows down 273. We'll be right back.

What is Wall Street buzzing about today? A crypto first. Goldman Sachs just became the first major U.S. bank to make an over-the-counter Bitcoin options trade. That basically means a direct customized trade, either for the bank or on behalf of clients. It was executed by Michael Novogratz's Galaxy Digital and does mark a major milestone in the development of crypto markets for institutional investors. As CNBC.com's Hugh Sun reports, it's different than the exchange products because Goldman takes on a bigger risk here, acting as a principal in the transaction.

It shows perhaps a growing trust on the part of Goldman Sachs and the asset after Wall Street has shunned crypto for years, finally. Or perhaps they're just trying to meet growing customer demand for Bitcoin derivatives. Either way, it speaks to a new maturity and potential systemic reach here for crypto. Coming up, oil is jumping more than 7% right now. We'll tell you why straight ahead. That story and more when we take you inside the Market Zone. 20 minutes left in the trading day.

We are now in the closing bell Market Zone. CNBC Senior Markets Commentator Mike Santoli here as always to break down these crucial moments of the trading day. We are now in the closing bell market zone. CNBC Senior Markets Commentator Mike Santoli here as always to break down these crucial moments of the trading day. Plus, Goldman Sachs Head of Energy Research Damian Corvalin on where oil prices are heading next. Big pop today. Allied Chief Market and Money Strategist Lindsay Bell here on the Outlook for Earnings season. Welcome, everybody. Stocks are under pressure. Erasing earlier morning gains after Fed Chair Jay Powell suggested a more aggressive interest rate hike path might be necessary to curb inflation. Mike, this is the Dow's first down day in six days. So we're coming off of a big

win streak. Treasuries are worth paying attention to today because we're seeing new 2019 highs, highest since 2019 for both the two year and the-year yield. What does it all tell you about whether last week's move is sustainable? We're seeing a pullback here, but it's not sharp and it's not ugly like we've seen in recent weeks. Yeah, it absolutely got the bond market's attention, repricing the outlook for how soon and how high rates might go. The May meeting, which is the next one, is looking like it might be a half-point increase based on the current odds. Now, what's interesting to me, though, is that the damage is being felt in things like consumer cyclicals. You look at homebuilders or you want to look at, you know, even the auto stocks today.

That's the area that are getting a little bit punished. But in general, the market, to me, after going up 250 plus points on the S&P last week, is basically giving up just, you know, 16 of those. So it seems to me relatively resilient. I think this is going to be the mode, though, where whatever the market gives, the Fed might take as permission to get a little more aggressive. Well, no doubt Boeing is the one of the biggest drags on the Dow today, take about 50 points off the Dow after a China Eastern Airlines Boeing 737 crashed in the mountains in southern China after a sudden sharp descent. 132 people were on the plane.

The cause of the crash still under investigation. Let's bring in our Philip Bofill with the move for Boeing and just what we know so far. Well, Sarah, I think the most interesting thing that people are focused on right now is what would cause a plane flying at 30,000 feet to just drop out of the sky? Because when you look at the descent, this was in less than two minutes when it went from 29,100 feet down to the ground. And so it brings up the question, there was not a catastrophic event that was reported in the air. Was it cockpit confusion? Was it deliberate on the part of the pilots? So many questions here that need to be answered. And we really won't have more details until they recover the flight data recorder as well as the cockpit voice recorder. Keep us posted. Phil, thank you. For now, Boeing is one of the big losers.

Oil making another big move higher today. It's up more than 7 percent. This comes as European nations are once again considering an import ban on Russian oil and following an attack this weekend on Saudi oil facilities. Joining us now is Goldman Sachs head of energy research, Damian Corvalent. And Damian, I guess if you thought that the energy volatility was coming down and that we've seen the high in prices because they did decline sharply last week, that's absolutely wrong. Now, what do we expect? So we think from here the move is still higher. We have a significant supply shock on a market that was already historically tight. And the only buffer you have today really is demand reduction, right? We don't have any

inventory buffer. OPEC has very limited ability to ramp up and no desire to do so. And so really it has to come out of demand. And that takes another meaningful leg higher. Our forecast is 135 for the second half of this year. Now, a lot of uncertainty, you point out, to the price volatility. So you should expect that. But again, we're losing a lot of barrels right now. What about the prospect of Europe joining America's Russia oil embargo? First of all, is that even possible? And second, is that in the market? What would that mean in terms of how much fewer barrels of oil come out of Russia?

So it would be a significant shock for Europe and for Russia. And that's why Europe has been reluctant so far, and particularly countries like Germany, who are very dependent on Russian oil. So you've seen the countries that have implemented it least exposed, right, the UK, the US. Based on recent statement, we would still think Europe waits to implement that because it is a significant shortfall for them. But it clearly tells you which way those sanctions are going, right? The escalating sanctions are the deterrent for other buyers.

And that's why Russian exports are falling right now. You know, under sanctions, you can export energy. But because buyers are reluctant to do so, this is having a material impact already. And what about Saudi, which I mentioned, we saw the attack on the Aramco facility. There's also some articles today discussing the relationship between Biden and the Saudis and how we've lost them a bit. What is the status of that relationship and whether they can step in, Saudi Arabia can step in here and help the U.S. and Europe, the West, meet the demand that's being lost from Russia? A few points there. So first of all, OPEC decisions have to be unanimous, right? So within

the group, you have Russia, you have Iran, Venezuela, who all see some leverage from higher oil prices. So that makes the decision difficult. Until the last few days, second, it wasn't obvious that Russian exports were falling, right? We were still loading barrels contracted before sanctions. I think finally now we're starting to see some evidence of that. You know, third, in this current geopolitical environment, you know, it may take more to see the group respond. Think as well from a Middle East perspective. You know, they're sending a lot of barrels to China.

Russia wants to send barrels there. So that's also complicating their calculus. So in the end, there is a little bit of capacity left. Probably takes sustained high prices to send barrels there. So that's also complicating their calculus. So in the end, there is a little bit of capacity left. Probably takes the same high prices to bring it on, but doesn't really solve anything, right? We're looking at second lowest spare capacity. And if that comes online, there is absolutely nothing left, right? We have zero inventory buffer. We'll have zero spare capacity in a world where high food and fuel prices typically drive social unrest and disruption. So those barrels coming online maybe help prevent rationing, but they don't

really help solve the critical tightness of the oil market, which takes me back to the core of our goal issue, which is there's only one solver, which is reducing demand through higher prices. Mike, Goldman, Damien says $135 price for oil. Can the U.S. economy handle that? The oil names are all working today. But as you mentioned, the consumer names are getting hit. $135, if that's the high, obviously, if the forward curve is still not showing that that's going to be the price for the foreseeable future, yeah, it can handle it. Obviously, it would be a restraint on growth to some degree. I'd like to remind everybody we were up at 100 in the early part of the 2010s for a while

in a much slower growing economy that was even slightly more energy intensive. So I think it can handle it if that's really the only thing that's contending with. Clearly, it won't be the only thing with rates going up, too. Also, in a couple of months, we're going to be lapping, you know, $75 oil from a year earlier. So it does have, if we stabilize in this range,

it's going to have a diminishing year-over-year effect, but still not going to be a help to the economic view. Damian, thank you for joining us. Oh, did you have one final point? Yeah, I think Mike makes a good point, which is, you know, the consumer is much better off

than he was in even summer 2008. So to get significant demand destruction more than the one million barrels per day we expect, you'd need a significant leg higher in prices. And I think that's the core of the price risk, right? You know, 135 is our base case. But if those losses of exports from Russia are two million barrels per day, then the price upside is significantly higher. So I think that's the key risk as well to the forecast. Damian Corvalin, appreciate you joining us from Goldman Sachs. Thank you. Stocks remaining under pressure here following comments from Fed share Jay Powell earlier this afternoon. Now the next big catalyst could be earnings season as we approach the end of the quarter. Joining us now, Ally Invest chief market and money strategist

Lindsay Bell, also a CNBC contributor. Lindsay, keep reading commentary that earnings expectations have not come down enough to reflect the current environment, which is slower economic growth and dealing with these commodity price spikes like oil, like wheat. What do you think has happened to earnings expectations? Are they matched? Are they mismatched? Yeah, I mean, they've been quite, quite resilient, despite all the uncertainties that the market faces, that corporations face right now. We're looking for 2022 earnings growth of 7.5%. That's right in line with the long-term average of about 8% per quarter.

So it's not really a dire situation. And it comes on the back of what was one of the most strong years from an earnings growth perspective out of very many in 2021. So the comps are a little more difficult. We're still going to get solid growth. And I think what we've been seeing shifting in numbers is really within different sectors. So of course, you're seeing sectors like energy and materials. Those numbers are moving higher along with commodity prices. But then you see consumer discretionary and communication services moving lower along with consumer sentiment. So I think there's some moving parts here.

Time will tell. It's going to be a really interesting earning season because corporate America really has been able to weather a lot of the uncertainty that started in the fourth quarter of last year, including inflation and uncertainty about the Fed and the direction and the path forward there. They weathered that really well in the fourth quarter as the market started turning down. And I expect they're actually going to be able to do the same this quarter. Which sector has the most downside risk? You said energy, obviously, the biggest upside. Which one biggest downside risk given everything that's happening right now?

Yeah, the biggest downside risk, I think, is, you know, most people would probably initially gravitate to the consumer discretionary sector, but it's one of three sectors that is expected to show a decline. It's expected to show a decline of 10 percent in the first quarter. And I actually think that might be a sector where there is opportunity. What we've actually seen is the majority of that pullback in growth is coming from the consumer services sector. And so the consumer, I think, in general remains very, very healthy, just like Mike and your last guest talked about. They have excess savings to the tune of $2 trillion. They have much lower debt levels than they did coming into the pandemic here.

They've really right-sized their balance sheets, and they've shown the ability to absorb higher prices thus far. The job market remains very, very attractive to them and anyone that's looking for a job. So I think the consumer remains very strong. We've seen consumer services, while some of those companies have done really well, like restaurants and hotels, those numbers remain very depressed from an earnings perspective. And I think that that's where you might be able to see actually some upside surprise. I also would look at the tech sector, too. Well, numbers have been pretty steady there so far. Just like last quarter, the expectations coming in are very low. I think this is a sector that a lot of people aren't

expecting too much from, even despite the move back in the stock prices here. So I think that might be an area where you see better growth because growth there has been really good over the last several quarters. But it hasn't really outperformed the S&P 500 in the last couple of quarters. And I think that there's a bigger opportunity coming down the road. Yeah. Tech and consumer discretionary. Mike, remind us where we are on overall market valuations, given where earnings are expected to come in now. We bounced at the lows of last week. It was a little bit over 18 times forward earnings. And those earnings, as Lindsay said, have been basically steady for this year. So we're up probably in the 19-ish range again. So it's down from over 21 to

start the year. Nobody's version of cheap. But it really does depend, I think, on whether we have a bad guidance cycle after first quarter earnings, if that shows you some vulnerability. It's worth keeping in mind, earnings and sales for companies are measured in nominal dollars. We're all worried about inflation here. Inflation, it shows the nominal spending power of the economy. The nominal amount being of output is growing. So that's not to mean it saves multiples. It doesn't mean earnings can hold up perfectly. But that is a little bit of a tailwind in terms of companies making numbers. Lindsay Bell. Lindsay, thank you for the update.

Appreciate it from Ally. Of course. One good test of consumer will be Nike because it reports today after the close, analysts are expecting 71 cents for earnings, $10.59 billion in revenues for the quarter. Nike stock taking a dip today. It's actually now down 20% on the year, Mike, and well off of its highs from last fall. If you think about everything that's been worrying the market lately, a lot of global growth concerns, war in Russia and Ukraine, the spillover effect on Europe, what's happening with China and the shutdowns there in that market

coming off of already a little bit of weaker demand because of some of the nationalism around Chinese brands. That's all being reflected in the Nike share price as well as supply concerns. So I just wonder how much of the bad news is priced in here to Nike because all the analysts still love this name and the strategy. Well, I think the other thing that's part of the context is that it really did. The stock got up to a real hefty premium to the overall market, to its own history. There was this real love for the global brands who could well navigate the supply chain issues. And, you know, it's still now, you know, 35 times earnings. It's like 40 times free cash flow on a forward

basis. So it's still on the richer side, even if it's down discounted in price. So that, to me, has been one of the undertoes for performance here, even if the absolute numbers that they're going to deliver are really not falling off that much at all. NASDAQ is pulling back. As you can see, it is the big underperformer. Tech near the bottom of the pack as growth stocks saw massive rallies last week. Let's bring in Bespoke Investment Group co-founder Paul Hickey. And, Paul, I was going to ask you just how strong this final hour of trading has been,

but we break the streak today, first down day for the Dow in six. But it has been a better tone, and we are off the lows. So what have you noticed? I mean, we're up in the last hour right now here. We're up, you know, I'll get to it in a second. But the rally last week, as you were, you know, you've been discussing, it's been almost a dash for trash and you have it there on the headline. And what we've seen is that the lowest quality stocks have seen the biggest rallies

off the lows. And, you know, there's not that much you can read into it. As you've discussed a lot, you know, that can be a dead cat rally or the beginning of a meaningful bounce. But what we have seen is in this last hour strength, four days last week in a row, we were up 33 basis points or more in the last hour of trading. And based on where we are right now, it'll come down to the close. But today could be the fifth straight day where you've seen 33 basis points or more in the last hour of trading. That may not sound like a lot, but the four days is already the longest streak since November 2008, and five days would be the longest streak since July 2002. So, I mean, you don't see this kind of last hour strength all that often and on a consistent basis.

And November 2008, what you have to remember is it wasn't a low for the market as far as the indices were concerned, but it was an internal low for the market, meaning like the indices made lower lows in March, but the average stocks made their lows in November 2008. You saw a similar situation in 2002, in July 2002. The majority of stocks made their lows in July 2002, but the indices bottomed in October 2002. So that's an encouraging sign. Go ahead. No, I was just going to ask you how you read it, basically what you take away from it, and especially that pattern you noticed about what you're calling the dash for trash. So the companies that had had the highest P multiples, right, that don't necessarily have earnings,

the not quality stuff, does that mean they're looking for a bottom? Well, so again, it's a characteristic you see at every rally off the low, whether it's sustainable or not. Take a stock like Square. It's had a rally of 30 percent off the low this year, 60 percent and 50 percent off the low at three different times this year. It's still down 15% year to date. So these types of rallies, you tend to see them, you know, they don't have a whole lot of meeting by themselves. But when you couple them with some other factors like this environment, who wants to hold stocks overnight? When you see the types of headlines. You have a headline risk in Russia, Ukraine, but people are still buying stocks going into the close over the last week here. So I think that's something to be

cognizant of. And right now, yeah, we're up to almost 50 basis points in the last hour of trading right now as we head into the close. So I think that's a positive signal here. Everyone freaked out about what Powell said earlier today. But if you really look at what he was saying, it's not much different than what he was saying last week. We were a little confused why the market was so positive last week on these headlines. We were equally confused today why the market was so negative on these headlines when there really wasn't that much difference on either day. Like what's changed in the last four months? Well, one thing that's happening is that yields are sort of shooting higher here. The 10-year's past 230 right now, and we're looking at fresh highs going back to 2019.

How do you think stocks have been able to absorb these higher yields? So with all these things, like oil. So the first time oil went above 100 in early March, the market freaked out and we sold off. This time we go back above 100 and the market was able to stick with it. We're seeing a similar thing in treasury yields. The first time is shock and investors get worried and then they get used to it and it goes and the market's able to live with it. So I don't think it's, you know, we're not, we're still at, what, you know, 220 on the 10-year, and it's still not that, you know, historically an extreme by any stretch of the imagination. Paul Hickey, always good to get the perspective from Bespoke. Thank you very much.

You just heard the two-minute warning, two minutes left, a little less than that in the trading day. Mike, what do you see in the internals? They're weak, as you might expect, given the fact that the index has been down all day, but really kind of on a mixed level, about 40 percent of all volume on the New York Stock Exchange to the upside. So 40, 60, not really a wash out there. Take a look at new lows and new highs on the New York Stock Exchange, new 52 week highs and lows. This is rare. It has not been the case in a while that you've seen, you know, double the number of new highs versus new lows. Kind of just shows you the correction has been going on for a while that you've seen, you know, double the number of new highs versus new lows. Kind of just shows you the correction's been going on for a while probably.

But that's definitely in the positive column. But you have to see that build. The volatility index has been soft. It's now down below 24. It's holding that big rise and fall, the spike on the chart, which generally means we're on firmer footing. And once it gets well below 30, it shows you that the market has kind of come to some kind of terms with the macro for now. Definitely feels calmer today than the usual sell-offs we've had in the previous weeks. Mike, thank you. As we head into the close, less than a minute to go.

What's working? Anything commodity-related, especially energy with a big jump in oil prices again. Steel stocks are doing well as well. We are off the session lows. The S&P right now is actually trying to go positive. So we're really having a nice little rally here into the close. Looks like we might even end positive. The Dow down 200. The Nasdaq underperforming, but only down a fourth of one, four tenths of one percent. It was down about a percent earlier in the session. Consumer discretionary, the worst performer on the market. That does it for me here

on Closing Bell. Have a good evening. I'll send it into overtime with Scott Wapner.