Closing Bell - Closing Bell Overtime: David Tepper on the Fed, Navigating Market Volatility 5/6/22

Episode Date: May 6, 2022

Top hedge fund investor David Tepper from Appaloosa Management tells Scott Wapner, “Central banks have a little bit of a credibility problem.” Plus, Mike Wilson from Morgan Stanley has the bearish call of the day and explains why things will only get worse in the next couple of quarters. And, is the market approaching peak inflation? Michael Santoli dives into that question in his “Last Word.”

Welcome to Overtime. I'm Scott Wagner. You just heard the bells. We, of course, here at Post 9 are just getting started on this busy Friday. In just a few minutes, I'll speak to Morgan Stanley's Mike Wilson and Quadratics' Nancy Davis on where the markets go from here and how much more volatile things could really get. We all want the answer to the same key questions. Does it get worse in the days and weeks ahead or have stocks come down enough to stage a powerful rally? It's a hot debate. We will have that right here on this program today. We do begin with breaking news, our talk of the tape. And today it's from David Tepper, the legendary hedge fund manager, telling me during a conversation a short time ago

that the turmoil in the market is not simply because of Fed tightening, but the uncertainty the Fed itself has caused. Mr. Tepper telling me, and I quote, central banks have a little bit of a credibility problem. Taking the optionality of 75 basis points off the table was an unforced error the Fed didn't have to do. The Bank of England making a similar mistake the next day caused the market to become a bit unhinged. That is a direct quote on the record from David Tepper as he takes stock in what happened this week and why and where we may go from here. Let's discuss with Solis Capital's Dan Greenhouse. He's with me right here at Post 9. Our senior economics reporter, Steve Leisman, alongside as well.

Steve, I go to you first. Your reaction to what Tepper says, do you think that the Fed really hurt itself in its effort to fight inflation, to convince the market that it was on the case by taking 75 off the table and doing it so explicitly? You know, I almost always agree with David Tepper outright. I have to think about this one. You just laid it on me. Here's the problem, and I'll just push back a little bit without a whole lot of conviction here, Scott. I think you and I talked about this yesterday. Would the world be a better place right now if the lead headline from the press conference were

Powell refuses to take 75 basis points off the table? I don't know. And I'll just tell you that what we got instead, I think, was still pretty hawkish. It's 50, 50, and 50. It's 150 basis points and then pretty aggressive balance sheet reduction. The issue right now is not necessarily, I think, what's in front of us the next couple months. I think that the question for the market is what happens next year and how far the Fed goes, Scott. And so that's really the puzzle to me is should Powell be out there saying we're going to

go to 4 percent or 5 percent? That would have a profound impact. He's not saying that yet or now. No, but it did leave the market, though, Steve, with this and particularly the bond market, that the Fed is not at the wheel enough on what's taking place now, especially the bond market. And the implication I got from speaking with Tepper was because that the bond market doesn't know where to go. That's causing a problem for the stock market. Yeah, I mean, that's for sure. Look, if Powell goes where the bond market wants Powell to go, the stock market has a problem in any event, Scott, which is that if Powell really does move to take care of this inflation problem, this is not going to be pretty for stocks. I think you're asking me, is there a really good way through this minefield?

And I don't know that there is. The Fed is behind the curve, needs to get in front of it. And Powell laid out a plan that did 150 over the next three months, not one that did, I don't know, 175 or 200. I'm not sure that difference is that profound. I think David's right to layer in the Bank of England, which had less than a forceful response. And that yesterday, in fact, if you ask me, is what caused the it was the real catalyst for the route, in my opinion. And he would agree with you wholeheartedly. In fact, we discussed that as being the culprit.

I agree with David on that. And I'm not disagreeing with David on this other one, Scott. I hear you. I hear you. Maybe your answer would be... I'm not disagreeing. I just think they puzzled it through. Maybe it's a little more nuanced, and we'll discuss this more.

I mentioned that Dan Greenhouse is sitting right next to me. Was it a mistake? Did the Fed make a mistake? Yeah, I think it was absolutely a mistake. And I just want to push back a little bit on what Steve had to say. Like, the idea that the world would not be a better place is not the issue. The issue is, what is inflation doing and what is the Fed supposed to do in response to that? And I don't understand why they found it or why Chair Powell found it in his benefit to take a tool off the table. Let's say inflation next week is hotter than expected.

Perhaps next week it's even hotter still. They might have to do 75 basis points. Why not leave that arrow in your quiver, so to speak? It made no sense to me. And to push back on Steve's point about stock prices, I've read the Federal Reserve Act. Besides being incredibly boring, nowhere in there does it say the Fed must point about stock prices, I've read the Federal Reserve Act. Besides being incredibly boring, nowhere in there does it say the Fed must maintain high stock prices. Their goal is really solely, in some respects, to maintain prices. I wasn't saying they were.

I know you weren't. What I'm saying is, that's fair. What I'm saying, though, is I don't think the Fed should be concerned at all with asset prices right now. Their main concern is real incomes, which are going down, consumer sentiment. If you use the University of Michigan as your barometer, which is declining at recessionary levels, that's what they've got to get control of. And if stocks go down as a result of that, that's the inevitable byproduct of what they're supposed to do. No, but Dan, Dan, if stocks gap down like 3 like 3000 points in a day, if you have a major wealth effect hitting the economy, that's an issue for the Fed, too. So I think Powell is after a repricing here and I'm not defending what they did before. I just think right now is not an easy way out of this particular minefield.

And I think he'd like to get out of it with as little damage as possible to the broader economy. And I think that includes trying to limit the damage to stocks that might come in the gapping process, if you know what I'm saying. How about how about this issue, Steve, that maybe the chairman gave the markets what he thought what he thought they wanted, when in reality they wanted more convincing from the chair that they were on top of the situation, that they were driving the car in the right direction. And now the bond market said, actually, now we don't believe you. Get out, get into, you ride shotgun now. I'm taking the wheel and we're going to go where I think we need to go. Look, Powell has woken up in the Seinfeld episode of Opposite Day more than once here.

Right. I mean, and this may be what it was. Right. In the sense that remember that Powell all of a sudden learned in the middle of this and we all learned in the middle of this that a pandemic was a supply side inflationary problem, not a disinflationary aggregate demand problem. Opposite world. We may have learned, and Scott, I think this is the best explanation, and maybe this is also what David's getting at, is that Powell thought he went into this thinking that what the bond market

and the stock market wanted was more bounds or strictures on the process of tightening aggressively, and what they wanted. Apparently, and if Dan is if Dan is speaking for the market here and no reason why he shouldn't be, he's right in it. They want more. They want more aggressiveness from the Fed. And that's what will make them happy. I'm not so sure it'll make them so happy, but maybe he ought to try it. And I'll push back on your point just a little bit, too. I mean, yes. Is it in their mandate, their dual mandate, like stock prices must remain high? Of course not.

But to Steve's point, and I think it's an accurate one and 100 percent on the mark, the last thing they want in this sort of environment is to destroy the amount of wealth that could be destroyed. What is already a dislocated stock market to some degree and not wanting it to be any worse. What is so wrong with that? Listen, I agree. They care about stock prices to the extent that stock prices are imparting information about future expectations of growth and earnings expectations. And in that sense, they absolutely should and do care about the stock market. My point, and I would push back on Steve, I'm not speaking for the market, although I have some friends that do this for a living. There is this sense that over the last 10 or 15 years, this perpetual push

to heed the market's every word has resulted to some degree in the situation in which we currently find ourselves. And when you ultimately have either CPI or PCE levels that we haven't seen in 30 or 40 years, your paramount concern is bringing those levels back down. Granted, some part of it will fall by itself due to base effects over the next 12 months, but some of it is going to have to be reined in. And in that environment, it's hard to envision, and you and I have been talking about this for the better part of 12 months now, it's hard to envision that stocks will not, at a minimum, experience higher levels of volatility and rockiness, let's say,

and at worst, suffer some sort of a meaningful correction, perhaps what we're in the middle of now. And Steve, the fact of the matter is, it's not like 75 basis points are really off the table. Nothing is off the table. It's just maybe he erred in the way he spoke and the words he used and gave the impression that it was, in fact, off the table. And they weren't going to be as flexible or as hard as the market thinks they need to be. I think that's a good comment there. I want to add one other thought to the conversation here, which is maybe getting also what Tepper is talking about here, as well as Dan. The Fed's been behind the curve here now, and it has guided the markets higher

towards more aggressive tightening, but perhaps done so at the behest and the urging of the market. And maybe what's needed now, and the reason why David is disappointed here, is the Fed needs to perhaps get in front. And it may be a case where it's time for the Fed to surprise the market here, Scott, to say, hey, you thought we were aggressive. Well, guess what? We're more aggressive than you thought we were going to be. Again, Powell has this modus operandi that he wants to do things in a deliberate way. He wants to float the balloon, then kind of tell us it's on the table and then do it. Maybe it's time and it might be effective.

And I think David is kind of backing up this idea here for the Fed to surprise the market and get out front and maybe be more aggressive than the market is expecting. You said it perfectly, suggesting that the bigger issue, maybe to you and to Tepper himself, was the BOE. And this notion that they sort of implied through their statement that they can fight inflation by having hotter inflation, because that in and of itself, in their view, apparently, and I couch it always like that, that that would be a destruction of demand, which then would lead to falling

inflation. And Tepper was like, what? Are you kidding me? And maybe there's some words that I can't use on the air either. But but seriously, the point that that's what roiled the market more than anything else and reversed what was a very, very strong rally on the day of the Fed. Look at the tail of the tape. And it was, I mean, that productivity number came out yesterday at an 830. I hope the market's not reacting to that because that number is badly distorted by what's going on in the jobs market. People coming in, low wages. That number may be a problem, but not this.

We can't discern it from this quarter. But then the Bank of England came out and the market seemed to be like, well, wait a second. What you had here was a bank that wasn't addressing it very seriously, that had doubled its inflation forecast, not really responded very forcefully in terms of rate hikes, didn't suggest it was going to be responding forcefully in the future. And then that statement that you're talking about, which is, well, the cure for inflation is high inflation, which is kind of technically part of the game, but not really the whole game itself. The other thing was it was a visit from the ghost of our our economic future, which is that they did forecast negative growth next year. Yeah. So it was sort of a confluence

of central bank events that may have led to some of this uncertainty. I want you guys to stick around and add someone else to the conversation. Mike Wilson, he is Morgan Stanley's chief U.S. equity strategist. He joins us now by phone. Mike, it's good to have you here. Great. Thanks, Scott. Thanks for having me. I hope you heard our conversation and those comments that David Tepper gave me about this error that he thinks, an unforced error, in David Tepper's words, by Fed Chair Powell this week to take 75 off the table. Do you want to opine on that?

I mean, look, I'm not going to get into it. I mean, first of all, you know, David's one of the best bond traders in the world, so I'm not going to get into a battle with him about how the bond market traded. But what I would say is, like, I don't think anybody knows what the right, you know, approach is here, as Steve was saying. They're what the right, you know, approach is here. As Steve was saying, they're behind the curve and they're trying to manage this thing. So we can always second guess, you know, what they did after the fact and say that maybe this would have been better. But nobody knows that that would have been a better action. Okay, they're tightening.

And they're tightening hard, harder than we've seen since 1994. So that's pretty aggressive. And I'm going to, you know, focus on the equity markets. That's just bad. I don't care if it's 75. I don't care if it's 50. They're squeezing the vice. And as a stock operator, it's just a tougher environment. I mean, today is really interesting to me. And it's been this way for a while. Rates have been going to the moon at the back end. And one of the best performing groups consistently has been utilities. OK, so stocks are interpreting this a lot differently. Stocks are interpreting this as if the Fed is maybe not behind the curve, that the bond market's already done the tightening for them via the mortgage market,

via financial conditions, via the dollar. Like the equity market is seeing a major, major slowdown ahead internally. I mean, I'll give you what you said about, you know, Tepper's acumen in the bond market is clear. I mean, he is who he is because a large part of that. But he's focused on stocks, too, very much so. And the feeling I got from my conversation with him was that he's minimally exposed at this point because of all of the uncertainty that we find ourselves in in this environment. Your bottom line is that you think there's more pain ahead. And I know you say you don't want to second guess him in any regard, but you've been second guessing everything for the most part. Those who say earnings are

going to hold up, things are going to be fine. You've said no. Those who've said the Fed can get this under control and engineer a soft landing, you've said no. You've second-guessed that all the way, and now you think we could be in for a little more pain in the stock market, right? That's exactly right, Scott. So in other words, I don't think whatever, you know, Chair Powell did on Wednesday doesn't change my underlying view that we have inflation that's too high, we have a Fed that's reacting to it appropriately, whether that's too slow or not. I really don't care. They're moving fast. And we do have slowing growth. And that's probably the area where I've been most out of consensus. And I think we got some evidence during this earnings season that,

you know, more and more companies are feeling the effects of, you know, tightening policy, payback in demand, margin pressure from inflation, all the things we've been highlighting for the last six months. And I think it's only going to get worse for the next couple of quarters, no matter whether we do 25, 50 or 75. I mean, that's that's the cake is baked. Steve Leisman, you want to react to that? The cake is baked, regardless of what the Fed does at this point. The wheels are in motion for too long. To me, the discussion of 75, 25, 50 is a distraction from the bigger question of how far do they go? And I see the December 23, sorry, the August 2023 Fed Funds Futures Contract

says the Fed stops at 330. I think that may be low. And I think the market has to begin thinking about a world of a higher Fed funds rate, higher interest rates overall. I don't know where this 10-year bond stops right now, but I have seen it shoot up this week. It may have much further to go. And if I was going to be having a debate, Scott, about value long term in the stock market, I would begin that debate saying, OK, tell me where the 10-year is a year from now or two years from now. Tell me where Fed funds is, and then tell me what the right P.E. multiple is for the stock market. That's the profound debate that we ought to be having right now.

75, 50, 100, 25, that's a sort of sideshow to the bigger question right now. And I'm afraid that that number is a high number that we don't really want to talk about. But let's talk multiple and correct multiple, Mike Wilson. It's a good question that Steve poses. Excuse me. What is the right multiple for where we are and where we're going to be? First of all, Steve's spot on. And this is spot on because I agree with him.

But the reality is that he's right. We've got to figure out the right multiples. First of all, Steve's spot on. And this is spot on because I agree with him. But the reality is that he's right. We've got to figure out the right multiples. We've been saying this for a while, Scott, as you know. The price is wrong. And the price is more wrong today because rates are at 310, 315, probably further than I thought they would be at this stage. And the equity risk premium now is as low as we've seen in the post-financial crisis era. That makes no sense to us in the world that we're facing, whether it's a slowdown in economic and earnings growth, a war that's raging in Ukraine,

zero COVID policy in China, all the things that we know, right? I mean, that's not a 265 equity risk premium world. I'm sorry. So the price is wrong. We think the right multiples, 16 times would be at least reasonable. And it could go as low as 15 times. That's why we've been saying 3,800 minimum downside. That's where the price becomes at least acceptable to us, 16 times. You know, look, Dan Greenhouse, I mean, some are calling for a rally and a rather powerful one. Well, we've come down a lot. We had more than 90% down day. I would make the argument that if you were looking at today's action in the market, I think you walk away for the weekend maybe with a bit of a sigh of relief. Dow was down 500 plus, rallied back, didn't close positive, but nonetheless closed down less than 100 points.

Sure. And listen, I would consider myself in that camp that think we're going to have a rally, or at least I've been saying that for a week and I've been wrong. But I think something that Mike and I would agree on and Mike just mentioned is for investors, the day, the week, the month is largely irrelevant. We're trying to skate to where the puck is. And I totally agree with Mike's point. And I think Steve would agree as well that at the end of the day, the Fed is going to do X. And what effect is that likely to have? And so if the S&P is able to bounce 10 or 15 percent, that's great. But the question becomes, again, they're going to do X and that's going to cause Y. And I would

repeat a point that I've made a couple of times in my last couple of appearances. The Fed has never brought down inflation from the levels at which it currently is when the unemployment rate is as low as it is without causing a recession. And Mike brought up 1994. That's a good analogy. But inflation in 1994, and I know Mike knows this, but inflation in 94 was nowhere near where it is now. And so you're talking more like 89 or perhaps even the 1970s as you're only sort of perfect, for lack of a better word, analogous situations. And they're just again, there isn't an episode where the Fed has successfully landed the plane. And I the smart money has to be on them not doing it again.

Well, and I don't think Mike expects them to do that. And Mike, I know you have to run. So my last question will be to you. This stock market has surprised you in the past. And there are times where it has been surprisingly resilient. Is this perhaps a moment where we could get a rally, regardless of whether you think it's a bear market rally or not? As I said, a lot of damage has been done. We did get some of the classic signs a day ago of capitulation. We did have a decent comeback today.

Give our viewers something to think about as they head into the weekend. They're nervous about their money at this moment, and they're thinking about what might be in store in the week or two ahead. What do you expect? Well, look, I absolutely think there could be another rally at any moment. We're very oversold. The people are bearish. I mean, I meet with clients all the time.

No one's running around with a bullish narrative. So they're positioned for bad news. And that bad news, I think, will play out. So ultimately, I think we're heading lower. The good news for people to think about is we've already done a lot of damage, as you said, Scott. The price has come down a lot. We started talking about the multiple when it was 21, 22 times. We're down to 17 and a half. So we've done a lot of good work. And so we're closer to the end than the beginning. And we're going to get there. I don't think it's

a secular bear market. It's a cyclical bear market. It'll be done this year at some point. It's going to remain very volatile. What I would recommend to your viewers is do not chase rallies and don't sell into these days like yesterday. OK, you've got to be disciplined about how you're running your money and we will get through this. OK, we're getting closer to the end. It's been a rough ride. It's going to be rougher for a little while longer and we'll come out the other side. I love that you left us with that thought. Mike Wilson, I appreciate your time so very much. And Steve Leisman, upcoming CPI, maybe that's going to be the moment of truth for the week ahead,

even though it's somewhat backward looking, right? It's still, we need glimmers of hope that the Fed has its eye on the ball the right way and that they are right that inflation has peaked. And we'll get a good look at that. I appreciate you reacting on the fly, too, to those Tepper comments. Steve Leisman, I appreciate you being here. Dan Greenhouse, I'll see you again soon. All right. That's Solace Capital's Dan Greenhouse. Let's get to our Twitter question of this busy day. We're asking if you agree with Mr. Tepper. Do you think the Fed has a credibility problem? You can head to at CNBC Overtime to vote. This one's easy. Yes or no? Just tell us and we'll give you the results at the end of the show today. Coming up next, Quadratic Capital's Nancy Davis has her volatility playbook. She's one of

the best. So you'll find out how she is navigating the recent wild swings in this market. We're back in two minutes on the OT. We're back in overtime. Our next guest runs a fund tied to volatility and in-interest rates and is designed to hedge against inflation. In other words, the two issues leading to this turmoil in the first place. Nancy Davis is Quadratic Capital Management's chief investment officer is with us live. It's good to have you and so timely, in fact, to do so. Your reaction to this week, what you witnessed and what you think it means for where we go from here? Well, the Fed rate hike was expected. There are another 200 basis points already priced into the market, Scott, as you know. I think that will definitely have an impact on the demand side of

the equation. But what about the supply side? It doesn't, you know, Fed's hiking policy rates isn't going to put more truck drivers on the road or make Russia not invade Ukraine or create no COVID policies, zero COVID around the world. It's not going to fix the supply side. So I don't really think the Fed rate hikes are doing enough. I think the balance sheet, it's going to start in June. That maybe could help calm down inflation. But we still have all these supply side issues still ongoing. Do you think the Fed can pull this off? And by pull it off,

I mean engineer a soft or even, as the chair himself said, a soft-ish landing? You know, it's hard to say. I'm not sure. We've never had this type of health crisis, which has caused so many secondary inflationary impacts. And at the same time, we've had so much fiscal spending and the debt bubble has just grown around the whole world. It's not just the U.S. And I think the problem for the Fed is that you have some central banks very dovish and not reacting. And the U.S. dollar has been pretty strong. And I think the question is, the Fed is not alone in the global economy. And I don't think the rate hikes are still going to solve the inflationary pressures that we have on the supply side.

But what about this idea of what David Tepper was talking to me about, this credibility issue, not only with the U.S. Federal Reserve, but now the BOE does nothing to help its cause. As you said, the dislocation between where central banks in the world are, and I think of you at times like this because you see what happens in the bond market and the level of volatility that occurs as a result of all of this it plays right into your your wheelhouse do you expect interest rate volatility to continue as a result of that i do um so the fed uh reducing the balance sheet the quantitative tightening i think is very bullish for bond volatility, for rate volatility. And that is what we specialized. It has been ticking up this year. There's actually a pretty big gap between equity volatility and rate volatility. But I think that makes a lot of sense on the fundamental side because we've never had, you just think today is May 6th. It was May 9th when the Fed stopped

buying bonds, right? They were still doing QE less than two months ago. Now letting the balance sheet roll off in June, I think, is just going to, I think it's a good time to own some fixed income volatility as a diversifier in the portfolio because we've never seen this. The quantitative tightening coupled with tighter policy growth rates at the same time. You say it's now's a good time to own non-correlated assets. Explain exactly which and what you mean by that for viewers who don't follow your work all that closely. Yeah, thanks, Scott.

So what I mean by that is not corporates, right? If you own a company's stock and a company's bond, even though it's a stock and a bond and it looks different on paper, it's still the same company, right? You're still subject to earnings, profitability costs. If that company has, say, higher labor costs or higher supply side issues or maybe higher chip prices or even a chip crisis, all those things can impact the company's bottom line. And whether you own the company's debt or the company's stock, you're just in different parts of the capital structure of the same corporate risk. So that's why we're so excited about providing access to a different market,

which is the interest rate markets. And most people have exposure to interest rates, even though they might not necessarily realize that. And that's from their property prices, because so much of the property market is hinged on borrowing costs with mortgages. Interesting point. Which are going up as we've seen what's happening. Yeah, what's happening with mortgage rates. Nancy Davis, I appreciate the time so much. We'll see you soon.

Thank you. It's time now for a CNBC News update with Shepard Smith. Hi, Shep. Scott, from the news on CNBC, here's what's happening this Friday. A glimmer of hope for civilians trapped inside a steel plant in the Ukrainian city of Mariupol. According to the United Nations, 50 more people were evacuated today, including 11 children. But the Russian blockade of that plant is still in place. Ukrainian President Zelensky calling it torture through starvation.

The CDC this afternoon is investigating the deaths of five children linked to a mysterious form of pediatric hepatitis. The agency says there are more than 100 cases reported in 24 states and Puerto Rico, up from just 11 cases reported two weeks ago. And rescuers in Cuba are digging through the wreckage of a Havana luxury hotel that exploded today. At least eight people now confirmed dead, 40 others injured, and Cuban authorities say more people could be trapped inside the rubble. The Cuban government says the massive explosion at the Hotel Saratoga was likely caused by a liquefied gas leak. Tonight, we'll take you to Churchill Downs, where Steve Kornacki will break down the favorites and the latest odds on the Kentucky Derby on the news.

Right after Jim Cramer, 7 Eastern, CNBC. Scott, you going? Oh, I wish I was. I'll be watching, though. I can guarantee you that. I'll be watching Kornacki, too, because no one does that stuff better either, the way they break all that down. All right, Shep, I appreciate it. That's Shepard Smith.

We'll see you in a few hours, 7 o'clock Eastern time, of course. Up next, five-star fund manager Kevin Simpson is tracking what he calls a significant shift in the investment landscape and how he is navigating the turmoil in the markets. But first, Christina Partsanovelis is sweeping up some staggering stats from a very wild week. Christina. Yeah, it's time for us to reflect on the week that was.

We cried, we laughed, and many of us are happy it's the weekend. After this short break, I'll recap the week's biggest movers and shakers and dive into why e-commerce took such a hit. Stay with us on the OT. It's another volatile day for stocks, capping off one wild week for your money. Just take a look at all of the big swings along the way. You see it right there. For the week, though, we closed basically near the flat line. Doesn't feel like it after yesterday, but that, in fact, is the case. Christina Partsenevelis has our rapid recap. Christina. Yeah, volatility is definitely the name of the game right now. But like you said, if you take a step back, the net swings are a little bit easier to digest. Take, for example, the S&P 500,

almost 1% lower on the week, but that's six straight, or not even less than 1% right now, because I came in here before it closed, six straight weeks ending in the red. Nine of the 11 S&P sectors lower today, but on the week, the real winner is energy, up over 10% on the week, followed by utilities. Real estate was the worst sector. And I want to talk about Apple's turnaround specifically today, having the most positive point impact on the S&P 500 with Under Armour, the worst. You can see, look at that, down 25% on the week. And then the Dow facing an almost 1% drop this week, six straight weeks down. But it's the Nasdaq, where I am right now, facing the most carnage. Down this week, just about 0.3%. But take a look at this two-day chart of the 10-year treasury yield scene

as what? The barometer for inflation and fears of a Fed misstep versus the Nasdaq 100. The two are not doing the tango together. When yields climbed, especially when they hit that 3.1% level, the Nasdaq fell. And you can just see on this chart over the past two days how they're separating. And then last but not least, e-commerce stocks taking the brunt of the sell-off in tech. Names like Etsy falling 7% on the week, eBay 6%, Shopify over 11%. Why? Companies are revising their future estimates, worried that the consumer, like you and I, is pinched. All right. Christina, I appreciate it. Thank you, Christina Partsenevelis at the NASDAQ for us. Let's welcome in our next guest now, a five-star fund manager with over $5 billion under management. Kevin Simpson, Capital Wealth Planning founder and CIO

joins us now. I thought of you today. Really good to have you here. You say, as we teased already, a significant shift in the market has taken place. In what sense? Well, I think Christina just did a great job talking about the volatility and the divergence between what we're seeing between valuations, good fundamental stocks, Scott, and those companies that don't make money. I mean, 30 years and looking at markets and observing them, we've been through the financial crisis. Before that, we had the dot-com bubble. More recently, we had a COVID crisis. But when companies, whether they're private or public, can just go straight up based on revenues without any care or concern for profits, it's a recipe for disaster eventually.

So we just looked at Etsy and eBay and Shopify in that previous chart. Those were companies that don't necessarily have the same type of forward-looking earnings. But more importantly, the compression on valuations and multiples is going to continue to beat away at them. So I'm all about harvesting volatility, but more importantly, looking at fundamentals and valuations and multiples. But when you do it, you look at the difference between what you call two decision stocks versus one decision stocks, which I found quite interesting as I was reading through it. And I want you to explain to our viewers what exactly that means and the way you

look at companies when you decide to deploy capital. Yes, Scott, one's easy and one's hard. Two decision stocks are, as you might expect, you've got to know when to buy it and when to sell it. It becomes a trading market. You look at volatility and it gets exciting to seek opportunities for trades. But it's so much easier to look at a one decision stock. A one decision stock is a stock that has long term potential, incredible staying capacity within a portfolio. We want companies with low multiples. We want companies with good, strong earnings, fortress balance sheets, great supply chain, to whatever extent that means in this market, but also some pricing power. And then

more than anything, as active managers, we want companies that are returning cash flow to shareholders. When we go through volatile times or down times, we want to be paid while we wait. So it's not just dividends, but also dividend growth. So if I only have to make one decision, I've got less of a chance of being wrong. Now, let me ask you something about this, because when you say that, that you want dividends in a normal environment of uncertainty, you see a flight to safety, for example. People buy bonds, yields go down, and you say, OK, I want some yield proxy, if you will. You go to utilities, other defensive things that have yield because you are getting paid to wait through the pain. Now when you have

yields rising, do you still want dividend-paying stocks when yields are already providing you a competitive advantage on the other side? 100 percent, Scott. I mean, without question, there's a distinct difference between deep value, high dividend bond proxies, which have worked incredibly well. I mean, 32 years of decreasing interest rates, deflation. I mean, what a great, amazing trade and incredible income. Here, I'm breaking it down into a subset of the dividend space and saying, I want companies that are increasing dividends. I'm not interested in how high their yield is per se. I want to look back at their CAGR, their compounding annual dividend growth. I want to see companies that are giving me a raise each and every year so that I'm getting paid more next year than I did last year in return of capital. And that's a true hedge against inflation because we're heading into a recession. I mean, that's a certainty. And with that, you want companies that can have some

inflation proof capabilities within the portfolio. And just as importantly, it can be a little bit recession proof. So if you've got companies that are giving you a raise and increasing your dividend, that checks off a couple of boxes. Before I let you go, and I do got to run, leave our viewers with a name that fits the bill, checks all the boxes in the way that you look at a company. Well, you know, I have a whole bunch of them, but I'm just going to give you Cisco Systems because Cisco is down 25 percent from its peak. It pays a three percent plus dividend, which isn't as exciting now as it was at the beginning of the year. But more importantly, Scott, the dividend has grown 10 percent on average over the past five years. You give me a 10 percent raise every year. That's a stock I want to own.

All right. Good stuff. I love the constructive nature of it, too. All right, Kevin, I appreciate it. That's Kevin Simpson, Capital Wealth Planning there joining us up next. Much more on David Tepper's comments to me moments ago about the Fed. He says central banks now have a credibility problem. Halftime's Pete Najarian standing by with his instant reaction to that. We'll ask Mike Santoli about it, too, in his last word. We're back in a few minutes. Major averages finishing this volatile week in the red the nasdaq posting its longest weekly losing streak since 2012 appaloosa's david tepper telling me moments ago exclusively

the fed taking 75 basis points off the table was in his words an unforced error let's bring in market rebellion.com co-founder pete nigerarian joins us now on the phone. Pete, the point here was that they have a credibility problem now. And not only the Fed, but the Bank of England. So you have a confluence of central bank issues to have to deal with. The bond market doesn't know what to do with all of that. And as a result, the stock market certainly doesn't know what to make of it. Well, there's no doubt about that. And I think Tepper is exactly right.

I'm not sure why Chair Powell, who's been very transparent, we all know that, and he talked about 50 basis points and all that, but why take off that 75? I don't understand why that wouldn't at least continue to be in the conversation. It might not be something that he wants to do, but I think you keep that in the conversation. So that was a little bit odd. I thought that was part of the reason why that maybe we had a little bit of that sell-off, at least to follow up. We didn't, obviously, at the time of the Fed talking,

but it certainly was something that we had a volatile week. When people have the uncertainty that they do right now, Scott, you see that volatility. You see the velocity. We started the week off at a 36 VIX, got all the way down to a 25 on Wednesday, finished the week off at a 30 after hitting 35 earlier today. So it gives you a little bit of an idea. And I saw you talking just now with Kevin Simpson. The volatility is there. And he is so right. It's always about quality to me. When I look at these stocks and the markets and what we are seeing,

all those triple digit, quadruple digit, zero PE type names, that's really what's really pulling on the market, Scott. If you look at the XLK, for instance, and you look at Apple and Microsoft, which make up 40%, you look at the XLK, it's unchanged for the year. But there are other funds out there that are, all you've got to do is find ETFs that are very, very heavy with those names that do have those triple digits, the CrowdStrikes, the cloud flares, and the snowflakes. There are so many names out there that were $200 that are now $60, $400 that are now $150. And they still don't make money, but people were just looking at things and pricing things. They stopped using PEs, and everybody said, well, you know, what about price for sales?

That was, I think, a key for everybody to understand. At some point, this is a balloon that's going to pop, and that's what I think we're seeing right now. Brief and to the point. We appreciate that. Pete and Jerry, have a good weekend. We'll see you on the other side of that. Thanks, Scott. Take care. Coming up next. All right, man. Navigating the wild swings in this market,

we'll speak to one money manager about how she is managing risk and how you can best position your money right now. Overtime's back after this. Oh, don't forget to weigh in on our Twitter question of the day. We're asking you, do you think the Fed has a credibility problem? You can head over to at CNBC overtime to weigh in. Simple yes or no. We'll have the results coming up.

First, though, Mike Santoli's last word. He breaks down what he calls the only real macro market catalyst right now. It is that time, time for Santoli's last word. And after this kind of week that we've had before a weekend, I need a last word from you. Yeah, I mean, I wish I could button it up more easily. But it seems like as we look ahead into next week, the key swing factor in the markets is are we at or have we seen peak inflation? It's the one macro variable that people want to seize on, because if in fact you get some evidence that that's the case, CPI number next week and it's not going to be one month's worth. But if it goes in that direction of seeming like March or April was the peak, I think what you can say is bond yields at the long end can probably calm down.

We can maybe be a little bit less exercised about whether the Fed's actually going in the wrong direction right here. And essentially, so to say, let's reassess equity valuations on those premises as opposed to, you know, worrying about exactly whether we're going to have to have sudden moves in policy from here on. That's the potential fuel for this rally that some are now looking for? I think it's a prerequisite for something that's lasting. I mean, look, you could bounce at any moment. The tinder's dry and it's piling up just for some kind of a bounce. But I think it's much more about are we actually seeing some more fundamental longer term buyers come in there with any kind of conviction? Because I do think you need to do that.

You need to basically have, you know, people feel like the long end of the yield curve is not completely going to fly up from here. I want your perspective on the Tepper comments to me about, you know, central bank cred is really the issue here. It's roiled the bond market more than anything else, which has in turn roiled the stock market because the stock market doesn't know what to make of what's happening with central banks and the bond market. I mean, I'm very sympathetic to the idea that it was maybe in retrospect not prudent for Powell to essentially tie one of his hands behind his back and say no 75 basis point move. I do

think, though, it more says something about exactly how delicate the balance is for the Fed, right? Because on Wednesday, we thought he nailed it and the market went up 3 percent and yields were fine. And on Thursday, there was a rethink and all of a sudden globally yields started to surge and it became a, oh, no, now we have to worry about inflation much more than we thought we were going to. Well, maybe because the football got pulled out from the BOE, which we don't talk about other central banks all that often. We really don't. But maybe it was that perceived misstep and a sleep at the wheel perspective that really caused the bulk of the pain. We can talk about 10-year treasuries getting to 3 percent, but the German 10-year getting to 1

percent for the first time in forever, that seemed to be maybe as decisive as anything. All right, good stuff. Good weekend to you. All right, that's Mike Santoli joining us there. Up next, we set you up for the week ahead with our two-minute drill. We got the results of our Twitter question. We asked you, do you think the Fed has a credibility problem?

63%. Two-thirds say yeah, they do. 37% said no. question. We asked you, do you think the Fed has a credibility problem? Sixty three percent. Two thirds say, yeah, they do. Thirty seven percent said no. Very interesting to get your take on that. It's time now for the two minute drill as we wrap up a very volatile week for your money. Joining us now is Katie Nixon, the CIO for Northern Trust Wealth Management. It's good to see you. Do you think the Fed has a credit problem? Is that in part what we witnessed this week? Well, it certainly was a flip flop from Wednesday when the Fed seemed to nail the nail the landing there. And then the market had a different view Thursday and then again today. I think it's just a lot of uncertainty right now.

I hesitate to say the Fed has a credibility problem based on just a couple of days of trading. Well, I will. But I will say, though, is that it was very unusual for Powell to take that weapon, that 75 basis points off the table. I think keeping all options open was probably what the market expected. And so perhaps in retrospect, that was a bit of a blunder. We're tight for time today. And my apologies for that. But leave us with a couple of good thoughts here. I've got less than a minute to go on what to expect in the week ahead, in your mind. You know what? Next week's all about inflation. Obviously, that is going to be the number one issue for everyone to watch.

In our view, we think inflation is actually at or close to peaking here. Some of it is math. Some of it is the data that we see where we've had sort of a plateauing of average hourly earnings, a plateauing of poor PCE. Some of the surveys that we hear from our CEOs are saying that perhaps some of the wage gains are the big wage gains are behind us. So we do see inflation coming off of oil. And ultimately, our view is that that's going to keep the Fed pretty much on track with their dots. OK. All right. Katie, I so much appreciate your time. You have a great weekend. We'll see you on the other side and we'll see what this market has in store for us next week.

I'll see you then.