Closing Bell - Closing Bell: Markets In Turmoil, Fed Fears & Oy Oil 9/23/22

Episode Date: September 23, 2022

Stocks closing sharply lower to close out a brutal week for the bulls amid rising fears of a global recession. Former Kansas City Fed President Thomas Hoenig discusses whether the Federal Reserve is making a mistake by being so aggressive with its interest rate hikes. Laffer Tengler Investments' CEO Nancy Tengler says the market is starting to price in a policy mistake by the Fed and unveils how she is positioning her clients as a result. JP Morgan Asset Management's David Lebovitz says high quality fixed income is starting to look very attractive as investors seek safety from this market turmoil. Bespoke's Paul Hickey on how this week's huge market sell off could impact historic seasonal patterns. Ariel's Charlie Bobrinskoy says value stocks are the way to play this market sell off, but Edward Jones' Mona Mahajan believes it may be time to buy back into growth stocks. Evercore ISI's Mark Mahaney reveals where he sees longer term opportunities to buy large cap tech stocks. And Raymond James' Pavel Molchanov weighs in on whether there is an opportunity in the energy sector as oil prices fall to the lowest level since January.

It is an ugly finish to an ugly week for the Bulls. The Dow and S&P falling below their June lows. Both indexes now down around 5% just this week. The most important hour of trading starts now. Welcome to Closing Bell. I'm Mike Santoli, in for Sarah Eisen today. We have a big lineup coming your way to help you navigate this sell-off, including David Lebovitz from J.P. Morgan,

former Kansas City Fed President Thomas Honig, Ariel's Charlie Babrinskoy, Mona Mahajan from Edward Jones, and bespoke's Paul Hickey. Let's now get straight to the market dashboard and take a broad look at the S&P 500. As we mentioned, cracking below those mid-June lows. It was June 16th for the closing low, the intraday low, 36.36. We're now almost a half a percent below that right now. This is a two-year chart, kind of interesting to see where we've come from. This takes us basically back to right here.

That's the immediate post-presidential election rally that we got. It started right, I guess, on or right after Election Day in November of 2020. We popped to this level in the 36s, and then we have roundtrip from there. Now, there's a lot of people talking about other levels just below here that might be of significance, including the peak before the pandemic, which is more like in the 3400s. We'll see about that. Things are getting very oversold there. You're seeing a real washout type conditions in the market today. We'll see how it finishes up by the close. Take a look at the energy dynamics here to participating in the downside more than fully today. The XLE is down much more than the market today. You see crude oil has

had a below $80 a barrel print. This is crude oil relative to the XLE, the S&P 500 energy sector. You see how they were tracking perfectly until right around here they kind of diverged a little bit, the dollar being stronger, really accelerated global oil prices going up. Plus, the stocks seem to benefit from the idea that they could still make good cash flows at 80-ish or maybe even lower than that oil. And now they are succumbing as well. There's kind of a no good place to hide type of feel to this market right now. It's unclear if we have to close that gap entirely. Now, for more on this sell off and where it might go from here, let's bring in J.P. Morgan Asset Management Global Market Strategist David Leibovitz. And David, it's great to have you

here today. I mean, the markets are almost in concert. Stocks, bonds, currencies, commodities, repricing for the idea that central banks need to chase inflation and they kind of don't care what the economic damages in the short term in order for them to do that how does an investor navigate that kind of setup. So the first thing that I'll say is that I

think this actually brings us to a much better place than we had been over the course of the summer I recognize the sell off today I recognize the sell off over the past couple of days- but it feels to me like expectations are finally becoming a bit more

aligned- with the way that reality may play out and so there's there's definitely going to be more pain ahead and you know now that we have more clarity on the fed and. You know we'll get some more clarity on inflation

everybody's talking about what that may or may not mean. For corporate profits next year but you know looking at the feds forecasts that came out on Wednesday afternoon. What was so interesting to me is that they see a very tepid pace of

growth with an unemployment rate- that rises in twenty twenty three that is going to be a challenging backdrop- particularly for risk assets and so from an investment standpoint we're really focused on following cash flows and we

actually think high quality fixed income is looking more and more attractive, given where yields have backed up to, particularly over the past couple of days. I guess the question is, if you are an investor and considering equities as well, do you have to essentially assume that you're going to have to ride out a recession of some depth, an earnings decline that is not yet priced into stocks? Or do you think the market has come around to more or less being aligned with that likely outlook? So I do think that there is some additional downside in equities from here. But one of the interesting things that we've been

talking to clients about quite a bit over the past few weeks is that if you go back to the post-World War II period and you look at the average decline in corporate profits during economic recessions- it's about 30%. That said if you isolate the period from the late nineteen sixties through the early nineteen eighties

which I would argue has inflation dynamics more similar to where we are today- the average decline in corporate profits was only 15% and so. You know clearly earnings estimates for 2023 need to continue to adjust lower- but

we don't see as significant downside as some of the more bearish commentators do. In the current environment we we've seen the S. and P. you know kind of retest its its lows here move below the lows of June we think that again there

is some more downside from here- but if the S. and P. were to move below thirty five hundred we we would be buying to us that's a level where stocks the lows of June we think that again there is some more downside from here but if the S&P were to move below 3,500 we would be buying to us that's a level where stocks really begin to look attractive. Yeah I'm not too not too far down from here if indeed we do get there. Now in terms of the global picture which I know is your purview here the U.S. dollar going almost vertical here at a 20-year highs in the on the dollar. We saw what's going on with the British pound today collapsing on some of the fiscal and monetary moves there. Everyone assuming that the rest of the world in some sense, for one reason or another,

is going to be a bit of a mess. What does that mean for assets everywhere? I mean, those stock markets have become even more depressed than ours have. So the stronger dollar has clearly tightened financial conditions and is having an impact on economies around the world particularly- those in the emerging markets when we think about the global picture

though I do think it's important to differentiate. Between developed markets outside of the United States and what's happening. In the emerging world- you know when we look at places like Europe it does seem to us that these elevated energy

prices are going to just be too much for that economy to overcome. The PMI this morning was consistent with growth that is effectively flat and we do view recession risk- as being materially higher in the euro zone than is the case in the

United States. Meanwhile you have China coming out of a period characterized by COVID lockdowns. We are seeing activity in that part of the world begin to bounce. But what happens in places like China is really going to be a function of what happens in the developed world more broadly, because obviously we are a key source of demand for the goods that they export. And so, you know, to kind of bring it full circle, I think the reality here is that the global story is really going to depend on what happens in our own backyard.

I think the old adage of when the U.S. catches a cold, the rest of the world gets sick is what we really need to keep in mind here going forward. But if for some reason the U.S. avoids a downturn in the economy next year, we actually think that there's some upside, particularly in the emerging world, which has come under significant pressure due to slower growth and the stronger dollar over the course of the year thus far. You mentioned you do see some value here in some safer parts of fixed income. You're getting a little bit of yield up front at this point and rebuild that sort of more reliable cash flows from equities. Do both of those things imply that you think the environment is going to become friendly to bonds and bond like assets? Inflation is peaking and going to come down. The Fed's close to being done. Or is it just a matter of, you know, on a relative basis, they seem safer? Well, I'm not sure that the Fed is close to being done. I think that they put that notion to bed- on Wednesday afternoon. What what I would say here is that it feels like the

direction of travel broadly for the U. S. and the global economy is towards slower growth. And in an environment of slower growth we think that long rates will need to reply reprice lower and so duration which is very much been the

foe of investors so far this year. Arguably should become a bit more of a friend as we look ahead to twenty twenty three- and then on the equity front you know I think what's important to remember is that. The capital markets will bottom

before the economic data troughs and then the- the equity market will begin moving higher before the economic data begins to improve and when we think about what a potential recession could look like in twenty twenty three- we think

that frankly it will be relatively average we don't see it as being a repeat of oh eight. We don't see it as being a repeat of twenty twenty we think a couple of quarters of contraction to the tune of two to three percent in real terms-

and then things are back on track and markets are on more forward footing and so. Now's the time where we've been reminding clients that. In the very short term that there may be a bit more pain. Particularly in risk assets. But the stock market is going to turn itself around well in advance of the economy doing so on its own.

Yeah, that certainly is the way it typically works. David, thanks for the reminder. Good to have you. Thanks for having me. All right. Well, the Fed's rate hike decision on Wednesday sparked this latest round of selling that move and the Fed's policy, one of the biggest policy mistakes in the 110 year history of the Fed, by staying so easy when everything was booming and pointing to, my God, inflation is going to be a terrible problem. And now, oh, yeah, we did goof badly there, which he never really admitted. I mean, he still blames some things on Ukraine and, you know, Putin and the supplies, even the oil is way below that level, way beyond that. I think the Fed is just way too tight. They're going to they're making exactly the same mistake on the other side that they made a year ago.

Joining us now is former Kansas City Fed President Thomas Honig. And Thomas, it's great to have you to weigh in on this. Would you agree, first of all, that it represents an error by the Fed to have been in this position with regard to inflation? And I guess does it matter how we got here in terms of what they have to do now? Yeah, I think, I mean, it's a fair point. The Fed was behind the curve. They should have been at least removing a lot of that accommodation starting in 2021 at the latest. And they delayed throughout the entire year. And therefore, we ended up with the inflationary impulse that we have.

And it's become more embedded. And, yeah, it wasn't all supply side by any means. I mean, with the fiscal expansions and the monetization of the borrowing there. So yes, that was a mistake. But we are where we are. And now that inflation is embedded. And the Fed knows it. And they know they have to get that down from the 8.3, which is actually becoming more and more difficult with time. So they are raising rates. And I think the 4.6 percent number they put in their dot plots, or whatever you want to call it, are realistic and probably where they will be. The question then will be, what will they do in 2023? And I think, I suspect they'll have to go a little bit higher at least. And that's going to put continued pressure on the economy. And I think the odds on inflation are pretty high. Yeah, the 4.6, of course, was the recession from the high. Yeah, gotcha. The 4.6 is the kind of committee's collective projection for the Fed funds rate has to get to

as you as you know. So that seems, you know, it's not too far away from here, a little more than one percentage point higher from here. But looking like they'll get there in kind of a hurry. I mean, it seems that the Fed has concluded by what they're saying and all the signals they're sending that they don't really see an alternative to significant further weakness in employment as a means to get inflation under control. Does that remain a valid approach? In other words, can they not essentially get rates to a certain point and then see exactly how how the data come in from here? Because they do await that two or three months of more friendly inflation numbers? Well, that'll be a decision they have to make, because I do think they're going to have to get tighter than 3 percent.

Everyone, most economists know that. And 4.6 by the end of the year is a likely number. And I think that will slow the economy. But whether it's enough, given the amount of inflation above 8 percent and given the how much it's embedded, I think the possibilities are even more. And then so relying on a modest or continued increase in unemployment to slow to help with inflation, I think, is a low probability, I think they're going to have to tie more. And I think they realize, although he didn't say it, that they're going to have to suffer a recession to get this down. And it's going to be painful, as Powell said. And there's no way to avoid it. I mean, this is where they are. They've got far enough behind.

Now they're in catch-up. And there's dangers in catch-up of going too far. That's a risk they're going to have to take. Apparently, you've said a couple of times that inflation is now entrenched. I mean, you could have an argument from some saying, look, gasoline prices have completely roundtrip from before the war. You're seeing things like used car prices that are adjusting faster than what's in the CPI numbers. Rents seem like they're cresting right now, if you looked at the listing. So this is the argument that says that they're kind of fighting a little bit of a stale battle

when it comes to trying to attack top line inflation the way they are. And maybe they will end up going a little bit too far. Well, that's always a risk. But I think, you you know pointing out particular areas of inflation that are coming down is a is a risky business itself because overall inflation remains above eight percent and we've seen the the wage increases which are pretty significant are still behind inflation so they're going to be a lot of wage pressure coming forward. We know that the core CPI is elevated and has not come down.

So we're going to have to get through that. And so I think the Fed is aware of what happened in the 70s when the Fed at that point backed off of their tighter monetary policy too soon and inflation reemerged. And I think this FOMC led by Powell will want to avoid that. So they're going to think if they err, they're probably going to err on being above 5 percent, perhaps a little too long. Yeah, above 5 percent would certainly, I think, get the market's further attention from here. We'll see. And of course, Powell has indeed said, you know, they have to go in that direction, at least, if not to that number. Thomas Honig, thank you very much. Appreciate the time today. Thank you. Take care. All right. Let's check in the markets. Did get a little bit of a bounce right around the top of the hour. S&P 500 now down about 2.3 percent. The low was closer to 36.50.

The Dow is now off by 6.34, have been down more than 800. NASDAQ still down 2.4 percent. And the Russell 2000 has been underperforming all week, down 3 percent. Up next, we'll take a closer look at the action in the energy sector, by far the worst performer today, as WTI crude falls below $80 a barrel. As we head to a break, check out some of today's top search tickers on CNBC.com. And as you'd expect, it is all macro focused, the 10-year yield getting the most interest, followed by the S&P 500, the Dow, the two-year yield, and the NASDAQ. We'll be right back. Energy, the worst-performing sector on Wall Street today amid a big decline in oil prices.

Brian Sullivan joins us on the phone from Dallas where that kind of move is noticed. Hey, Brian. Yeah, I'm at the Market Rebellion Conference here in Dallas. In fact, I've got Bryn Talkington here. I've got Tom Lee here. I've got John Adjarian and a bunch of oil executives here as well. Here's the reality. I mean, Tom Lee just told me two seconds ago it's a no-bid market.

Bryn Talkington, frequent guest on Halftime, saying you're going to eventually have to start buying some of these names here. Listen, throw up the XOP, Mike. Oil stocks are trading as if oil was at $60 or $55, not $78. The disconnect, and I'm talking your market, the stock market, Mike, the disconnect between the commodity and the stocks is really widening today. Listen, here's the thing. Nobody understands the drop in price. Oil demand has only fallen nine times in 60 years, even during steep recessions,

ex-COVID lockdowns. It just does not fall off. I fully expect OPEC to try to defend the $90 mark. The Saudis sort of implied that they're going to do that. But today, to your point, Mike, I've been listening, great stuff all day. It's just a sell everything, get out of the way, flush it. Of course, next week is historically the worst week of the year for the stock market. So maybe we just hopefully hold it forward a week.

Yeah, well, that is a lot of what's going on, Brian. Of course, oil's priced in dollars, and the value of the dollar has been racing higher. And that's obviously a big part of that story, but a good reminder on kind of what seems to be priced in to that sector. And for more on that, appreciate it, Brian. We'll talk to you again soon. Let's bring in Pavel Molchanov. He is an energy analyst from Raymond James. Pavel, you heard what Brian said. I mean, try to put this move into context

in terms of what we're seeing in the crude market breaking to new lows. It really does look like a downtrend for whatever the reasons behind it. Well, oil has now erased all of its gains since the start of the war in Ukraine. So clearly the supply risks of, you know, Russia perhaps trying to weaponize oil exports or additional sanctions, that has been overshadowed by demand side concerns about a global recession. Look, in the last 50 years, global oil demand has turned negative four times, most recently in COVID, 2020. Before that, we have to go back to the global financial crisis. So it's very rare, but it's not unheard of.

And as central banks seem very much inclined to push the world into recession, oil demand is not going to remain unscathed. Right. So I guess the question is, if it's fears of a decline in demand, as rare as that would be, is there going to be a supply response? Are there things the market's overlooking on the supply side? I mean, one of the arguments for why it's tough to fight against soft demand is that, you know, an unburned gallon of gasoline today is not necessarily made up for later on when China reopens or whatever else happens. Well, several things on the supply side will help keep prices higher than they perhaps would

be otherwise. So one is the war is obviously not over, and the European embargo on Russian seaborne crude takes effect at the end of the year. Divestments by international energy companies from Russia continue. You know, 80 international energy companies in Russia, and about 65 of those are in the process of divesting. So that will have an effect on Russia's ability to produce and export. And lastly, let's remember, the Strategic Petroleum Reserve in the United States and analogous emergency stockpiles overseas have been utilized to alleviate the pressure on governments from having to use these stock markets. Where does it leave you with regard to the stocks in terms of what types of names are well positioned now or have been maybe punished a little bit too much given even where commodity prices are so across the spectrum of

of the oil value chain the producers the the service contractors the pipelines the refiners all of them fundamentally are tied to the commodity so we have to look at the futures curve right now when we say oil is 80 a barrel well you look at the futures curve, it points downward. It's backwardated, you know, down to about $70 a barrel a year from now. Well, our view at Raymond James is prices are going to be, you know, as we are today or higher over the next 12 months. So that's very different from the backwardation. So just on that alone, you know, we would be inclined to be buyers on the weakness because we do not envision oil going, you know, to 70 or even less as the futures curve is currently suggesting. All right, Pablo, we'll see if it

can find its footing here. Thanks a lot for the time today. Appreciate it. We'll have much more on the energy sector coming up on Overtime with legendary energy trader Mark Fisher. Up next, a debate on whether investors should be betting on value or growth stocks in this uncertain environment. Don't miss your chance to be in the room with some of the biggest names on Wall Street. Also, during CNBC's Delivering Alpha, which returns in person next week. Scan the QR code on the screen to register right now. Markets on pace for a losing week. Major index is down more than 2 percent, although they have bounced a little bit in the last hour. This is the second week in a row for losses in the indexes. Check out the value and growth ETFs as well, both getting whacked today on the year. Value has performed better, but should you expect that trend to continue? We have both sides of that debate with us right now. Edward Jones, senior investment strategist,

Mona Mahajan is here and Ariel Investments, Charlie Babrinskoy as well. He is vice chairman and head of the investment group there at Ariel. Hello to you both. And thanks for for weighing in. And Mona, let me let me give you kind of first crack at this. You can kind of survey the damage and decide where, in fact, the markets might be a little bit mispriced in different pockets. Why does growth start to look better to you in this environment? Well, you know, Charlie and I may not be too far off in our views here, but we think in an environment of rising yields and rising real yields, that tends to benefit value and defensive parts of the market. And by the way, we've been in that environment for most of this year. Now, at some point, investors do have to start thinking about when we get towards a peak in yields.

And historically, that peak in yields comes about two months before a peak in Fed funds rates, so the Fed funds terminal rate. So if you think Fed funds are peaking sometime in the first quarter, a couple months prior to that, you may get a peak in yields as well. And when yields peak, stabilize, tend to roll over, that's really when, you know, the longer duration parts of the market tend to work better. And that's when growth can work better. So in the near term, you know, if yields and real yields are continuing to rise, you may not get that environment yet, but you may get some volatility that gives you the opportunity to at least think about where you'd want to position for potential growth rebound perhaps in the year ahead. Got it. Now, Charlie, you are a value investor. You have been kind of sounding the alarm relatively early on inflation

that you thought yields were going to go higher. All that were true. Nominal growth has been very strong. Where does it leave you now, though, with the value trade somewhat being tied to whether the economy can keep plugging along at a good clip here? That is the right question, Mike. You're absolutely right. We could see that we thought that inflation was going to be higher. For some reason, the Fed didn't. And now we think inflation is probably peaking and going to come down. And now, unfortunately, the Fed thinks that now is the time to get tough on inflation.

So but you're absolutely right. Value has outperformed growth. It's because of the reasons that Mona mentioned that, frankly, growth stocks were overpriced and higher interest rates are tougher on growth stocks than they are on value stocks. So the only thing I'd be just a little cautious on is I still think we're a little too low on interest rates. We've certainly gotten much closer where they should be. But historically, the 10 years averaged about 4 percent. We're still below that. So I still think we have a little higher to go on rates, which is generally better for value. But your fundamental point is right. If the Fed is hell bent on crushing this economy, that is not going to be great for any part of the stock market. It's not going to be great for value.

Yeah, I mean, clearly it's all about, I guess, relative advantages, not absolute protection from a further downturn in the economy. So, Mona, when you talk about growth maybe emerging as a possible place to consider as being, you know, valuation reset has occurred there. What specifically would you be looking for? I mean, you have the very largest Nasdaq stocks that still had the premium valuation. You have more traditional growth or even kind of staples like stocks that fall into that category. Yeah. You know, look, I think for now with an economy that's potentially softening, keep in mind in that backdrop as well, when growth, economic growth is slowing, investors may seek out some growth in their portfolios. But I think what we will see first recovering is the stable quality parts of the growth market.

We're still pretty cautious on the more speculative higher valuation parts of the market. But within stable growth, you know, there are some secular winners from a long term perspective. If you think about areas like cyber, like parts of the health care market that can be considered growth, robotics, et cetera,, enterprise spending, anything with established business models. And in fact, as we think about a market going through a downturn and then reemerging from a downturn, that's really when you'll start to see, especially on the enterprise side, some of that spending rebound. And even on the consumer side, some of that rebound as well. So think about your most loved quality growth memes

and really think about over the next three to six months when you get that opportunity. Keep in mind, growth has been beat up pretty badly this year, down 30% already. As we noted, valuations have come in quite a bit. Charlie, within value, what about commodity-related stocks that you've certainly owned for a bit? Does it still make sense there? Are we seeing that mega trade roll over, or is the decline now an opportunity? Tough day to be on to answer that question. I've loved Apache and Mosaic all year long. They are still up 21 to 30 percent on the year, but they were up 50 percent a couple months ago. I still believe that demand for oil is going to be higher next year as the emerging

markets, particularly China, comes out of the covid lockdowns. I still think we're going to have more demand next year than this year. And we haven't been spending enough on exploration. And so I think both supply side and the demand side are going to push commodity prices higher. The fertilizer situation is in a very good place, frankly, unfortunately, because of the war in Ukraine, which is a big producer of fertilizers and demand for food is going to continue to grow. So I still like Apache and Mosaic, but it's a tough day to be on making that case. Well, for sure. And let me just follow up, Charlie, with the notion of financials being caught right in the middle of all the things you're

talking about. Yields still have to go higher. It's a benefit. But the economy looks like it could have more downside. In fact, the Fed might want it to have more downside. And so people lack confidence in bank earnings in the next couple of years. Yeah. And so far, we're not seeing credit problems. But everything you just said right now should be a great environment for bank stocks, a better net interest margin environment, higher rates, better deposit premiums for people not moving their money around quite as quickly and no signs, at least that we're seeing in our due diligence, of credit problems. So this should be a good time to own bank stocks, particularly Goldman Sachs, trading very close to book. Some of these bank

stocks, it looks a little bit Goldilocks-like, that they could have good credit situation with a good interest rate environment. Could be the right time to own. All right. We'll see how it plays out. Going to be an eventful final few months of this year. Mona, Charlie, thanks very much. Let's get a quick check back on the markets. The bounce is carrying a little bit higher now. The S&P 500 is up around 1% off of its intraday lows, still down 2% for the day, down close to 5% for the week. Joining us now is Bespoke Investment Group co-founder Paul Hickey. Paul, I love your read on things here in terms of at least in the short term how the market has digested what it heard from the Fed. We've had this revisitation of the of

the June lows. And now the question is, what's different and what's the same about what we saw in June about how the market is positioned? Yeah, so I mean, I think we're, I mean, there's a lot of concern. We're heading into an earning season coming up here similar to how we, I mean, it's a very similar setup. We're heading into an earning season where expectations are low in June and we're heading into an earning season now where expectations are low. From a seasonal perspective, I mean, we don't like to put all of our weight on seasonality and, you know, we would never invest base solely on seasonality. But we're in an interesting dichotomy where it's, we're in one of the worst short-term periods of the year for the market over the next week or so. Over the next three months, it's one of the best seasonal times of the year. So the last week of September is one of the weakest.

October and the rest of the year, fourth quarter is historically the strongest. And when you look at years where we've been down 10% or more heading into the fourth quarter, the average returns in those years are about double the historical average. So from that respect, that's something positive honor on a really bad day here- you know the one difference is as. The prior guests have been talking about is. This period sort of unique in the fact that

the Fed is pretty much openly rooting for- if not a weaker stock market the weaker economy. That's for sure yeah- and you know looking like the market is at least assuming that the soft landing is far less likely than it was a few months ago. Now, the extreme moves that we're seeing in bond yields and to a degree currencies has everybody on alert for when

they're going to just pause and and reset a little bit lower. Right. I mean, they've just kind of become very stretched. What does it look like to you in terms of you know the short term yield picture and other factors that really on a macro basis have been keeping the pressure on stocks. Yes I mean we're starting to reach some extreme levels in the market here. But in this environment you know these kind of periods in short term they go on until they go on. So I mean it's really you know to say that we're going to reach this level, that's when things turn better. You know, you're playing with fire doing that. From a longer term perspective, investors should just, you know, stick to their plans and not get too out of bounds with the

what's going on in day-to-day movements. But a lot of what's happened this week is a reflection of Fed and Fed policy and seemingly a lack of credibility on the part of Fed members. But I mean, this week, it hasn't just been the Fed. It's not every week that you see a nuclear superpower threaten nuclear war. I mean, maybe it's not. It's probably very unlikely. But that's going to cause concern on the part of people. So if we do maybe it's not, it's probably very unlikely, but that's going to cause concern on the part of people. So if we do see going ahead in the weeks ahead, that some of those tensions start to ease, that's going to certainly cause some relief on the market. And, you know, for everyone talking about how off sides the Fed is, at the same time, they're saying that rates

do need to be higher. I think it's a reflection of what the Fed is saying and trying to talk a real tough game. They should have just been, you know, moving rates to where they think they should be rather than just keep, you know, the slow bleed to higher rates here. Just get it over with. Just like in March, they were too late to, you know, to stop buying treasuries. Now they're too late to hike rates. They're just, you know, trying to ease us into the pain. But just get it over with. Yeah. Well, 375 basis point moves in a row.

Maybe they don't consider that to be so piecemeal and slow. But I get your point because they do clearly have a destination in mind. And we might as well just hurry to get there, I suppose, Paul. Yeah. Listen, appreciate it. Thanks a lot on a big market day. Good to have you. Thanks. You too, Mike.

All right, chip stocks underperforming the broader market. Christina Partsenevelis is here. She's at the NASDAQ with the details on that group. Hey, Christina. Yeah, I'm at the NASDAQ and underperforming. I could actually say moving closer and closer to that yearly bottom. Not just one, but you've got several names. Broadcom, AMD, LAM, NVIDIA, Applied Materials, Western Digital, the list goes on.

All of those companies you're seeing on your screen right now are about 1.5% or less off of their 52-week lows. So those constituents that I just named dragging down the SOX as well as the SMH ETFs. The SMH is actually on pace for its fifth negative week in six. So what is happening despite the broader market sell-off and higher interest rates? Well, you've got consumer demand for electronic slowing, similar trends that we're starting to see in the cloud now, so that doesn't bode well for chips. And then, yeah, of course, the higher rates that, of course, hamper growth

names. We know that. And lastly, an inventory correction that is underway, forcing companies to reduce their orders. And that's why we're seeing more and more analysts right now trimming their estimates. For example, Morgan Stanley trimmed AMD, lowering the price target to $95 today. They say the PC market is going to be even worse than AMD predicted. Then you've got Goldman Sachs reducing estimates for both Micron and Western Digital to reflect demand weakness for memory chips in particular, they cut in August, just in August, and said today, we clearly did not cut enough.

And then I wanted to add some positive notes. So Wedbush, they had a note out and they said they see long-term potential in artificial intelligence within NVIDIA, one of the biggest beneficiaries in data centers. And you can see with NVIDIA's stock right now, despite this massive sell-off that we're seeing on the NASDAQ and across the board, NVIDIA is only down six-tenths of a percent right now. And that's where we are, Mike, here at this theme, relevant to all of tech, how estimates, how much estimates need to come down enough to reflect the current and near-term weakness. Absolutely. And whether the stocks have already beaten the estimates to it we'll have to wait and see Christina thank you very much. And as that composite down more than five percent this week up next we'll look at whether there are any buying opportunities amid the tech wreckage with Evercore ISI head of internet research Mark Mahaney.

That story plus much more on this market sell off when we take you inside the market zone. We are now in the closing bell market zone. Laffer Tengler Investment CEO Nancy Tengler is here to break down these crucial moments of the trading day. Plus Renaissance Macro's Jeff DeGraff with one key chart to watch. And Evercore ISI's Mark Mahaney on tech. Welcome to all of you. Nancy, got a little bit of a comeback, a bounce attempt here in the markets. We got to that three-month low below the June lows in the S&P 500, up about 1% since. Obviously, you don't want to make too much of one hour's action, but what are you seeing today?

How does it essentially illuminate what's been going on in this market? And are you seeing anything that makes you want to change what you hold and your approach right now? Hi, Mike. Thanks so much for having me. Listen, I have a slightly different view, I think, than many of those who have been on air today. I think the market is telling us that it's very confident that the Fed's going to make a policy error. And if you think about it, they've made so many policy errors since 2018 when Fed Chair Powell was talking very hawkish, and that gave us the 2018 bear market, and then all of the recent misstatements or mischaracterizations. I think it's important to be focused on that because it shows a judgment problem at the Fed, and I think that's what's scaring the

market. But to answer your question, we began moving our clients back into bonds. We came out of bonds in June of 2020. We said then bonds were riskier than stocks. The 10-year yield was at 50 basis points. And now we can go back in building short-term ladders, high-quality corporates. That's one way that we've changed our thinking. And then the second is we, of course, have options available on our clients' portfolios. But we then went within our strategies and became defensive last year, moved clients out of the global markets into our dynamic inflation strategy, and then put in place some very reliable dividend growers.

And the trailing one-year dividend growth on our portfolio is over 20 percent. That's a good hedge against inflation. And so those are some of the things we've been doing, always conscious to be ready and willing to add risk back in because we're not going to be in this bear market forever. And my 40 years in this business, every bear market is followed by a bull market. Well, that's for sure. And I was just going to quickly follow up on that and say, when it comes to the overall trajectory for stocks from here, the real call at this point is, is it a garden variety, cyclical bear market, pricing in an economic downturn, or is it one of these kind of multi-year meltdowns, massive generational reset like we got in 2000, 2008. Do you have to make that bet right now?

And which way would you make it? Yeah, I'm concerned that it's all going to come back to the Fed. I'm concerned about a 2000 to 2003 market. I was managing very large portfolios then. It was not fun for anybody. But I do think we are at peak inflation. We've seen it, in my view. The question is, how quickly does it come down?

And because the Fed's looking backward, it makes it very difficult for them to make good decisions. I'll just say this in closing. I mean, Fed Chair Powell said he was going to be very focused on inflation expectations. Well, they have remained pretty grounded. And so I'm hopeful that they'll turn their attention to that instead of just responding to last month's core CPI number. Yes, I think the market hopes for the same. Let's get a technical take on the market. Our next guest says there is one key chart you should be watching. Joining us is Renaissance Macro Research Chairman Jeff DeGraff. Jeff, we got the retest in the big indexes today. What chart do you think kind of shed some light on where we might be going from here?

Well, look, I think real yields are going to remain an important catalyst for this environment. And I agree with your guest on bonds. I mean, getting 125 basis points of real yield doesn't sound like a lot but historically that's the point where you're choking off recoveries and I think you know you are sort of pushing your way through this we're seeing it in oil we've seen it in copper we've seen a lot of these input costs at the forefront of you know what the inflation data is going to look like and we've got a Fed that's focused on employment and focused on wages and the like.

And the problem with that is it tends to lag. And I think what you're seeing right now from the markets and from credit is that it's already telling you that employment will start to react to this three, six months from now. And by the time they're seeing it, it might be too late. And we're pushing this, you know, a little further than they might be comfortable with. Yeah, real yields, obviously, the markets are kind of inflation adjusted yield on, let's say, the 10 year you're talking about. It is up in that zone where it's, I guess, restrictive. And the Fed chair has said he wants policy to be restrictive for some period of time. How does it now filter into where we are in the equity indexes and in the broader market?

I mean, so we're down at the similar levels to where we were in June. What should we be looking for in terms of the internal action? Do we want to see it to be not quite as bad, not as many stocks making new lows? Or do we want to see a more aggressive liquidation that might be a little more decisive? Well, the aggressive liquidation would then be a real bullish setup for the overall market. And I don't know that we're going to get that. It's that's a trickier one to where we are within this Fed cycle. Look, I think I think we're 70 percent through this Fed cycle, probably even more than that.

That's a conservative estimate. So I think that's good news. But clearly, when we do the work on what the sectors are that react poorly and react well to these higher real yields, it's almost exactly what you would expect. You would expect materials to underperform. And actually, it's actually very, very good news for bond yields. Again, I think, you know, 375, I think we got to 380 on the 10-year today. I think that's going to look like an absolute steal as we look out a year from now.

So, you know, you look at these very, very inflation-sensitive type of names, and they absolutely underperform in a pretty severe way when you get these real yields to where they are. And I think that's exactly how you want to think about it. Utilities tend to do well in this type of environment. And actually, we do see that tech does well. I'm a little reluctant to be in that camp. When we look at the data, that's a reflection of some idiosyncrasies.

I don't think it's going to be as dynamic as it has been in the past. Health care tends to do well, and that's another area that I think is going to perform pretty well with these restrictive real yields. All right. So the market seeming to say that the peak inflation is kind of in the bag. We'll see if the Fed responds to those signals at some point soon. Jeff, great to talk to you. Appreciate that. And turning now further to tech, the Nasdaq tracking for back-to-back weekly losses of more than 5 percent. Microsoft, Intel and Alphabet all hitting fresh 52-week lows today. Mark Mahaney, head of Internet Strategy at Evercore ISI, joins us now to break down some

of these moves. And Mark, obviously, you know, environmental factors are swamping almost everything else. But given that's the case, what is starting to, on a relative basis, seem like it's worth a look? Well, this is a very challenging environment for growth equities, for tech equities. I refer to this as a pincer movement, you know, with rising rates and slowing economies. There have been a few interesting outperformers that remind me and to remind us all that fundamentals still do matter. So Netflix and Uber, Etsy and Trade Desk, those four stocks are up 20 percent since the middle of the summer, since July 1st, you know, dramatically outperforming the market. Why is Netflix up? Because it's got a real catalyst ahead of it in terms of a new ad-supported business. Why is

Uber up? Because they've just turned a corner on free cash flow profitability. So, you know, I do think even in this market, fundamentals matter. And especially if you're willing to look out 12 months, we're going to look back on these and say, I should have stuck in and bought, you know, I should have stayed in or started to accumulate some of the best fundamental stories in land. And, you know, Megacat has those. It has the Amazons, the Googles and maybe even a Facebook. Just the risk reward on that, I think, is very attractive. So some of these names I still like and I'd still consider and I would still be buyers of. When it comes to to Google, to Alphabet, it did kind of break below its June low. It's certainly looking cheap

relative to its own history and even to the market if you adjust for its cash and all the rest of it. Is it mostly just macro concerns when it comes to the why of its underperformance recently? And this is Meta. We're talking about Facebook. I'm sorry, for Google. For Google. Well, I think Google's got a little bit of a tougher angle. So if we're going to get into the fundamentals on Google, the two things you want to think about are they were a major beneficiary of those Apple privacy changes that gutted online advertising, ad tracking tools. And actually, that really helped Google. And Google's also really benefited from all this travel advertising spend. We just went through the summer of travel love.

And Google was a great derivative off that. And so now you're going to have tough comps for Google going into the beginning of next year. I don't like Google the trade. I like Google the investment. And I'll flip it. Meta to me is sort of more interesting as a trade, maybe not as much of an investment. It's hard for me to know 12 months out. But near term, I think you're going to have an acceleration in revenue growth because they're going to move beyond some of these really tough comps, just like we saw with Snapchat recently talking about an acceleration in revenue growth. You put an acceleration behind Facebook or Meta's revenue growth, you start showing margin expansion. And both Meta and Google are talking about cutting costs. The market responds very well to cost cutting at this stage,

and it should. Nancy, have any of these kind of moved into your target zone? Yes. And I agree with Mark. I think the large cap names that we've been focused on and have added to over the summer and in the second quarter are our names like Google and Amazon. Microsoft is such an obvious stock to talk about, but they just raised the dividend 10 percent. And Nadella came out and was very encouraging about guidance and where they're going. So I do think that you can make money in those stocks. You may have to extend your time horizon somewhat. But Palo Alto Networks is another example. Cyber has a secular tailwind to it. And that stock has done very well. And we still own it and still like it. It's one of our 12 best ideas. Mark, just a quick word on Amazon. You know, it actually has held up better, but

didn't really participate in the upside in 2021. What's going on there? Is it really just kind of going to the incumbents and the size and heft of Amazon as defense? Yeah, maybe that's it. The stock hasn't really done anything, Mike, as you know, I don't know, almost two years now. And by the way, that's come back to bite them a little bit in terms of they had to now spend more on stock based comp to reenergize those engineers who could, you know, did very nicely being underpaid with stock, but stock did dramatically outperform for a decade. That's changed. So it's a different dynamic for Amazon.

But anyway, going forwards, I think you're in a pace now where Amazon's going to see this revenue growth acceleration. Online retail was the first hit earlier this year because of inflation shocks and demand shocks. That means they'll probably be the first out. And I think you're going to see that with Amazon. I think revenue growth can accelerate. I think they've had so many hard-hitting costs come at them earlier this year, whether it was fuel, shipping, labor costs. And I think they'll start scaling through all of those. I mean, just had unusual shocks at the beginning of the year. So I like the setup in Amazon. I don't think anything changes with cloud computing. And they still have the best mixed-shift story in tech. The fastest growing parts of the business advertising in AWS

are the highest margins. Best mixed-shift story in tech. You want to be long Amazon as a trade and as an investment. All right, Mark, appreciate your thoughts today. Thanks very much on a rough day. Another one for the Nasdaq. And two minutes to go in the trading day. Nancy, just a final thought here in terms of we're going to not not too far from now being the earnings zone again. Have you been stress testing sectors and stocks for what's priced in, what's not? What do you expect out of earnings? Yeah, I mean, a lot of the companies that we own, surprisingly, raised guidance. So even though you just did a piece on semis and how difficult that space is going to be, a company like Broadcom, where they've got a really strong capital

allocation strategy, they've grown the dividend about 35% annualized over the last five years, and they see acceleration in their cloud and enterprise business. So we're looking at names like that in technology. And then we're focused on some of our healthcare overweight. Some of the names we like a lot are like CVS and AbbVie with very strong dividend growth prospects. So usually you're getting in the dividend, you're getting management's view of long-term sustainable earnings power. So that's where we're focused. We, of course, are going to have some companies that are going to get crunched. But generally, I thought the second quarter earnings were pretty darn good. And some of the guidance as well. X the FedExes of the world.

Yeah. And certainly dividend growth is a little bit of an inflation buffer, as you said. Nancy, thanks very much. Appreciate the time today, Nancy Tengler. As we head into the close, the S&P 500 is down about 1.8 percent, had been down closer to 2.5 percent earlier. It's on track to close a little bit above the June lows. It had breached those levels. 36.66 was the closing low. Here we are about 25 points above that. 36.36 was the intraday low. The U.S. dollar index up a percent and a half on the day. An absolutely mega move for a currency index.

Two-year no yield, 4.2%. In terms of stocks, NASDAQ also down 1.8%. The Russell 2000 has been the underperformer, down 2.5% as we ride into another losing week, but a little bit of an attempt to bounce off what had been some pretty decisive lows back in mid-June. That does it for Closing Bell.