Closing Bell - Closing Bell: Rollercoaster Ride On Wall St., Recession Risk & More Twitter Drama 5/16/22

Episode Date: May 16, 2022

It was another volatile day of trading with the Dow swinging nearly 600 points. Tech stocks dragging down the Nasdaq. Wells Fargo Investment Institute's Darrell Cronk thinks we may not yet be at a market bottom and says investors should be cautious about any near-term rallies. Deutsche Bank's Peter Hooper and Rosenberg Research's David Rosenberg debate whether a recession is looming on the horizon. Elon Musk says his deal to buy Twitter is "not out of the question", but at a lower price. Wedbush's Dan Ives says there is a more than 50% chance Musk walks away from the deal. RBC Capital markets head of Global Commodity Strategy Helmia Croft warns food and energy prices could continue heading higher if the war in Ukraine drags on. And housing expert Ivy Zelman explains why she sees cracks in the foundation for the red hot housing market.

Stocks mostly higher in another volatile session. Dow's up more than 200 points. The most important hour of trading starts now. Welcome, everyone, to Closing Bell. I'm Sarah Eisen. Take a look at where we stand. We've swung higher for the market after a little morning sell-off this morning.

S&P 500 up about a third of 1%. Keep in mind, we had a very strong rally on Friday, but we're coming off of six down weeks for the S&P 500. The Nasdaq is underperforming today. It's down a third of 1%. Nasdaq 100, which has a lot of those mega cap tech names, down about a quarter of 1%. Most everything else is higher. Treasury yields are lower again, though. That's continuing the reversal that we saw last week. Here's a look at some of the most actively traded names here at the New

York Stock Exchange right now. NIO continues to be on the list and it's having a little surge today, up almost 4%. Roblox hammered off earnings last week and then a turnaround. Ford, which also continues to be among the most active, and so does Palantir, down 2%. Coming up on today's show, housing expert Ivy Zellman says April marked an inflection point in the real estate market. She'll join us to break down her new call. Plus, check out the move in wheat prices today, adding to huge gains already on the year as India bans exports over the weekend. We'll talk to Halima Croft about what that means for global food markets, plus her latest thinking on oil's next move, which also is higher again. Let's get to our top story, though. Is a recession coming? That's the question CNBC's Andrew Ross Sorkin asked former Fed Chair Ben Bernanke earlier this morning on Squawk Box.

Listen to what he said. The economy is pretty strong. We're not going into recession as often as the case with a troubled economy. In fact, the underlying economy as we recover from the pandemic is quite strong. And for two major Wall Street analysts, the fears of recession right now are overblown. Goldman Sachs' David Koston saying his baseline forecast assumes no recession. And JP Morgan's Marko Kalanovic says equity markets are pricing in too much recession risk. He's been a buyer on the dip. But on CBS' Face the Nation yesterday, former Goldman Sachs CEO Lloyd Blankfein said a recession is a, quote, very high risk factor.

Joining us now on two sides of this debate, Peter Hooper from Deutsche Bank and David Rosenberg, founder of Rosenberg Research. You know, Peter, you're not necessarily not in the recession camp. I think you expect it, just not for a long time. Is that right? Well, Sarah, thanks for having me. But yes, about a month and a half ago, we came out with a call there would be a recession beginning in the second half of next year. You know, it's pretty rare that you have this kind of advance warning for a recession. Anytime the Fed's going to have to step on the brakes substantially, it's a very high probability down the road. David, why do you see it happening sooner?

Well, look, I think that you can build a case that the recession has already started. You know, when you consider that 80% of the economy, otherwise known as real personal disposable income, has already contracted four quarters in a row, was minus 2% in annual rate in the first quarter, minus 6% in the fourth quarter of last last year so as sure as night follows day consumer spending is going to follow the trend in real personal disposable income uh and the only times in the past when you've had four quarters in a row of negative prints on real pdi the economy's been in recession and the only thing i'll say is you know with all deference to peter and to ben bernanke and i know ben bernanke also also told us that the problems in subprime are going to remain contained

and that home prices wouldn't go down nationwide. That's fair. The stock market peaked at the beginning of the year, and the lead time between the peak in the market cycle and the peak in the economic cycle is not 18 months or two years. It's usually three to six months. So actually the markets are handing it to you in a silver platter.

Peter, I mean, there is increasing concern if you look at the market and what's been working the defensive sectors and how the equity sell-off has been relentless now, almost 20% lower. How do you respond to that? Is the market overpricing recession risk or does it have a right?

Sarah, no question. The risks have increased substantially here. But, you know, I'll grant David a good sector recession, something we've been expecting as the consumer rotates from goods, way over spending on goods to getting back to spending on services. That's been that's been in the works and that's going to continue. Stock market's down because it's pretty heavily concentrated in the goods sector. Now, I think going forward, it is going to be a consumer that is going to be benefiting from real incomes, which have been falling lately with high inflation overtaking wage inflation.

But we do see some easing of inflation ahead with wages picking up further. So by later this year, we expect to see real incomes actually rising again. And it's going to be the Fed getting into action, getting rates up substantially further that finally pushes us into recession by the end of next year. But I will grant you one significant risk there. As I said earlier, rarely have we had this kind of advance warning. And it is altogether possible that the market could telescope some of this forward. So it all comes down to the consumer, David. And Walmart earnings are coming out tomorrow. And we're going to hear all this week from Home Depot and Lowe's and Target, and they'll be really interesting.

But so far, we really have yet to hear any warnings from any consumer companies, including the credit card companies, that the consumer is weakening. And I know you think that it's going to happen, but really all we keep hearing is the consumer is in great shape and consumer balance sheets are strong and they had a lot of savings and all that. So why are you more pessimistic about consumer spending? Oh, look, if you're bullish on the consumer, you want them to take that strong balance sheet and weaken it by reducing their savings and increasing their spending. And that's just an assumption that a lot of people are making. The strong balance sheet is equivalent to the fact that people are cautious and are going to be maintaining high precautionary savings balances. You're talking about the consumer and you're talking about what companies are saying. Sarah, companies report in nominal dollars. The recession is not a nominal dollar concept.

It's about real dollars. Nominal GDP never went negative in the 1970s. We had three recessions. Why? Because real economic activity, including real consumer spending, deteriorated. Real consumer spending, by the way, has completely flattened from October to March. Over the past six months, there's been no growth. When you include services and goods together, the consumer has flattened in real terms. So, you know, maybe next time you get a CEO on, ask them, so tell us what your volumes have been doing,

because we know that they've been jacking up their prices. So, of course, things look really great in nominal terms. I think the next leg of this is going to be the late- We've seen volumes rising with price hikes. I've seen that in the consumer staples. I've seen volumes rising with price hikes. Yes, they're getting a benefit from pricing, but- No, no, Sarah. Sarah, volumes, volumes, volumes. When you look at the monthly data flow, consumer spending volumes have been flat since October. So overall, you're saying that there's no movement. Peter, last word.

Is the consumer in good shape or not? Hey, this labor market is still going gangbusters. We have, you know, two job openings for every unemployed worker. Jobs look good. I think earnings are coming back. Wages are coming back later this year. I still think the consumer can hold up. No question the risks are rising, but this is an

issue for the second half of 2023 after the Fed gets rates up quite a bit more. It's a good debate. Gentlemen, thank you. It's good to have you both here. David Rosenberg, Peter Hooper. After the break, it has been a brutal year for the homebuilders in particular. Look at the XHB. That's the ETF. It's down 30 percent so far this year. Housing expert Ivy Zellman says there are a number of macro factors pointing to a worsening real estate picture. She'll join us next to explain. You're watching Closing Bell on CNBC. Dow's up about 250. Turning to housing, our next guest says demand may be finally weakening in the red hot market that has seen just incredible price appreciation over the past two years.

Joining us now is Ivy Zellman, CEO of Zellman & Associates. It's good to have you back on, Ivy. And I know you've been expecting to see a turn for a while now in the housing market. What are you seeing? Well, thank you for having me, Sarah. It's great to be back on. Our April home building survey really showed an inflection point of demand starting to moderate. We've had significant affordability pressures. The monthly payment for a new home is

up slightly over 40%. And I think the surge in rates is now finally giving people pause. Some of it is related to just hesitancy that they don't want to be buying at the top. But I think more than anything, it's about affordability. Our survey did see a pickup in cancellation rates. Admittedly, we didn't expect much, and it's well below normal. But I think there's been so much embedded equity, so we didn't expect a lot of cancellations. But it did tick higher. We did see a tick up in incentives.

And some of the cancellations, by the way, we've heard from some of the hotter markets were actually private investors. So I think you're seeing a pause. Now, admittedly, it's mixed. There's markets that remain red hot. So we're seeing an inflection point. We keep hearing that it might not be the same this time as far as the Fed raising interest rates and trying to crush the housing market just because of the supply issues and the fact that it's been so hard to match supply with demand that there might be even years of shortages in housing ahead.

Is that something that you see colliding with this sort of weaker demand? Well, let's just talk about inventories right now in existing homes, inventories which are at, you know, historic record lows. We are starting to see sequentially inventories rising, and they have been rising, Sarah, but they just didn't stay in the market long enough to actually show up at the month end. But I'd say that you're probably going to see inventories declining less than they have and actually flattening out as more people are attempting to monetize, given all the appreciation. But when you look at the new construction market, backlogs, if you include all of development, including multifamily and single family, which also is inclusive of bill

for rent, we're currently at the highest levels that we've been since 1973. And those levels are going to, at some point, that backlog is going to get converted. And in the single family market, a lot of that backlog, a good third of it is speculative because builders didn't want to commit to writing contracts and getting caught with inflation. So if we see the supply chain loosen, I even had a comment from one of my private builders that for the first time in Colorado, they're actually seeing inventories, that standing inventory that they haven't seen. Again, wait lists are thinning out. There's definitely a slowing in certain cities that I think that when supply chains loosen, it becomes more problematic if they do. So how will all this, I'm hearing from my colleague,

Diana Olick, who I know you know well, how will it affect the build to rent trade, which she says you were at least bullish on that? Are you still? You know, I think that the build for rent is a great option for the consumer that can't afford the down payment. I think that it's giving consumers flexibility. I do think that many of the build for rent developers are in the same tertiary markets developing product that's not really affordable for the majority of it. It's very homogeneous and looks like the for sale home. So I think that we need affordable housing. There is a deficit for affordable housing, but the prices for rents have surged as well. And land prices have surged. There's just a magnitude of inflation, whether we're talking the actual home price, the rents,

the development costs, all the input costs, labor costs. I think it's going to be tough for some of these build-for-rent operators to pencil the returns. So it could just be that we see disappointing returns. And as the Fed is, as you guys talked about in your last session, they're so hawkish that they're really trying to slow rent inflation, slow home price inflation as they continue to push on higher rates and therefore higher cost of capital. Maybe some of these built for rent operators will not be as successful. And a lot of the for sale builders are actually selling directly to the single family rental operators or the build for rent guys. So there's overlap. So, Ivy, what what as an investor do you do in this space? We've seen the homebuilders get shellacked 30 percent plus off their recent

highs on what the Fed is doing and what you're starting to see in the demand picture. Is that priced in? Do you see interesting opportunities or more pain? Well, I think that, you know, I've been doing this for 30 years, Sarah, and the Fed is at the beginning of their tightening cycle. So I think that it's tough to say I want to jump in right now. There definitely could be some what would be perceived bear market rallies. The stocks are very cheap. But the question is, if incentives and pricing start to come under pressure, I think that investors will sell and ask questions later. So it's really about your time horizon. You know, will we see impairments? There probably will be some builders that walk away from some options that they underwrote. I think it's a little premature to say, let's just jump in.

But at some point, we'll want to buy them. And they'll be much more bullish because it gets silly and stupid. But they're not at silly and stupid valuations from the way we analyze them. And do you still like the refurbishing trade? I think you like names like Sherwin-Williams and that people were still sort of upgrading their homes and renovating. You know, I do like that part of the market because one of the stats, and I was wrong, Sarah, I always admit when I'm wrong, but we thought that a 4% mortgage rate would slow down

the housing market because people would just stay in their homes because about two-thirds to 70% of homeowners actually had a rate below four. Well, 91% of homeowners have a rate below five. And I do believe that's going to disincentivize people to move. And they've had so much appreciation. So I do think that we'll see more of the big projects that will continue. And that has a long lag, but we are seeing weakness at POS, at retail, at the home centers. I think when you pump trillions of dollars into the economy and you have people have nothing to do during COVID, you basically give them projects with other people's money.

I think we're seeing some payback from that now, but the home improvement with an aging stock and so much embedded equity could keep that tail sustainable and longer. And we do like companies like Sherwin-Williams and Fortune Brands. And our number one pick in building products is Carlyle, which is really tied more to the non-resi market. Interesting. All right. Well, thanks for throwing out a few names there. I'm just

looking at Sherwin-Williams. It's had a good run. It's sort of since December, though, come off of those highs. Ivy, thank you. Good to hear from you always. Ivy Zalman. Let's show you where we are broadly here in the markets. The Dow has remained higher. It's lost a little bit of steam just in the last few moments or so, but still up four tenths or 125 points. Look at the S&P, though. It's given back its gains. Another sort of up and down day here on Wall Street, down about a tenth of one percent. The strength today is in energy for one. Oil price is higher. And also the defensive groups, health care, staples and utilities. Those are your outperformers again.

Consumer discretionary, real estate and financials are at the bottom of the pile. Technology is not having a particularly great day, though it's kind of split. Tesla's weak. Microsoft's strong. After the break, Mike Santoli looking at how far multiples have come down already amid the selling pressure this year and the difference between large and small cap valuations. We'll be right back. Drama heating up at Twitter again. Some headlines just crossing from Bloomberg News saying that Musk says the Twitter deal is, quote, not out of the question, but at a lower price.

Adding that he's questioning the truth and accuracy of Twitter's public filings. We know that he has questioned the amount and accuracy of Twitter's public filings. We know that he has questioned the amount of bots on the program, for instance. Let's bring in Wedbush managing director Dan Ives on the news line. Dan, who follows Tesla, actually, but has been following this whole saga. And of course, this comes, Dan, after he, Musk has tweeted, he's gone back and forth with the CEO of Twitter who defended their practices against bots. He tweeted back a poop emoji at one time. Where's all this going, as Twitter shares are down another 7.5 percent?

You know, the streets reading this is Musk is trying to get out of the deal. And he's either trying to get out of the deal, and of course it's a billion-dollar breakup fee, which is still pretty small for Musk, or negotiating a lower price. And, look, I continue to think this is really him getting cold feet. Viewing the bot issue is really an excuse. We'll call it a scapegoat. And I think playing out the way it is is obviously very frustrating for Twitter holders, Twitter employees, as this continues to be really a carnival or almost circuit there. Have you guys done any work on what price he could get it at,

who could get the board to agree if they do renegotiate? Look, the board is between rock and hard place because ultimately now, I mean, there was an agreed to price. There's diligence, which every deal is ultimately subject to, and that's what they're doing. But, you know, for the board then to go about and say, okay, it's mid-40s or 2040s, you know, that becomes, you know, I think a tightrope because ultimately, if they decide not to ultimately do the deal and walk away without a deal. I mean, this is a stock that could obviously go below 30.

And that continues to be, I think right now what the street's trying to figure out, is it a lower price or does he walk? And right now I'd say it's more than a 50% chance in terms of the street's assigning that he walks. That he walks. Is that good for Tesla quickly? Because you cover that stock. For Tesla, it's a positive. It's been an overhang.

But let's be clear. This is all black eye from Musk. The way he's handled it, I think many of you, is an embarrassment. Yeah. Well, that's why I mentioned the poop emoji. It's pretty untraditional stuff. Dan, thank you. Dan Ives of Wedbush.

Stocks right now mixed after the S&P 500 posted its sixth straight weekly loss last week. Mike Santoli taking a look at how the recent sell-off, Mike, has affected valuations of stocks based on their market caps, small versus big, for the dashboard. Yeah, I mean, Sarah, there's been this undertow of valuation drag that's been going on in the markets for about six months right now, mostly affecting the smaller stocks. So here you have it broken down. Here's the S&P 500, got under 17 times forward earnings. You go to the equal weighted S&P, and that's a couple of points below that. It's in the 1615 range. But boy, look at small and mid cap stocks. Those indexes are now basically where they traded, you know, back toward the 2020 low. I mean, obviously, that was just a snapshot moment.

But it shows you that the smaller stocks seen as less able to withstand inflationary pressures, less pricing power, also sectors skew that, too. Financials are heavy in those indexes. But it does show you that the overall market might not look very cheap, but below the surface is a lot that actually starting to. Is it but is it recessionary that you're seeing so much? Well, you're seeing the market get in front of that recessionary possibility for sure. And I'm not suggesting that if there was a garden variety recession that it's priced in yet, even to small and mid caps.

But it just shows you the divergence of bets here based on market caps. All right, Mike, thanks. We'll see in the market zone. Wheat prices hitting the highest level in more than two months amid a new export ban by India and the ongoing war, of course, in Ukraine. Up next, RBC Capital Markets had a global commodity strategy. Halima Croft on whether there is any sight and insight to the boom that we're seeing in ag and energy prices. We'll be right back.

Time for today's big picture. The global food crisis is about to get worse. Look at wheat prices today. They're soaring again, hitting near the highs that we saw in the days following Russia's invasion of Ukraine. This weekend, India surprised the world, banning exports of wheat. It's trying to manage its own food security after a heat wave cut harvest expectations there. India was expected to be the eighth biggest exporter of wheat this year. It's not too major, but with war crippling Ukraine and Russian exports, it's only exacerbating the strained supply that has been leading to record highs for global food prices. In the U.S.,

we grow a lot of wheat. We're one of the top producers, so there's less concern about shortages here. But we are seeing prices skyrocketing on the global shortage. In April, for instance, prices for cereal and other baked goods shot up 10.3 percent from the year before. Joining us for more on this and the energy story is Halima Croft, head of global commodity strategy at RBC Capital Markets. And the question, Halima, there's clearly no quick resolution to this war in Ukraine, is how much longer we are going to see these sky-high prices. I mean, Sarah, I mean, the clear concern is we have India banning exports. Are other major

exporters going to follow India's lead because they're concerned about their own domestic economic situation? And the situation with Ukraine is obviously a grave concern to anyone who's concerned about global food security. You had the German foreign minister out this weekend saying 50 million people in the Middle East and Africa are facing hunger if we cannot unlock the grain supplies out of Ukraine. Russia is not allowing Ukraine to export through southern ports. There are reports that they've actually mined the harbors as well. So there's real concern that if we cannot move Ukraine's cargoes, this food situation is going to get much worse. And prices are just going to stay elevated, keep going higher?

What's your forecast? I mean, the thing to watch, Sherry, is, again, I say this on energy as well, is, you know, what happens in this war? I mean, if we were to get some type of resolution, if the Russians were to agree to allow exports to flow through the ports, I mean, that would certainly bring prices down. But there's no indication that we're looking at a situation of an off ramp. I mean, it looks like we're in a protracted stalemate right now. So that's going to continue to put pressure on food prices, on energy prices. And the grave concern really would be, I mean, Russia is the world's largest wheat exporter. What if Russia started selectively cutting off supplies? Yeah. I mean, is that priced in at all at this point?

I mean, I don't think a Russian export cutoff is necessarily priced in, but that would be, again, the really big concern. I mean, Russia benefits financially now because Ukraine is essentially shut in. You have India moving to restrict their exports. The economic beneficiary of that is Russia at this point. Yeah. No, the protectionism is interesting. I think Indonesia banned palm oil exports as we continue to see these shortages. So what about crude oil, Halima, which is up another 3 percent? We're almost at 114 again for WTI crude. Yeah, the thing to watch there is, you know, what happens with a potential European embargo? That's 2.2 million barrels of Russian exports that could be potentially locked out of that market. Would

other countries like India be able to absorb that much additional supply? I mean, India has really ramped up their imports of Russian oil. It's selling at a significant discount. And that raises a question of, are we actually going to see also at some point secondary sanctions, Iran-style sanctions, which would make it difficult for India, for Turkey to continue to absorb that many additional Russian barrels? But certainly, I think the market is very much looking at what the Europeans do this week. What about demand, though, Halima? We just had a debate at the top of this program about whether we're going into recession.

Clearly, things are going to slow down. That's what the Fed wants. They're trying to slow things down. And so are other central banks around the world. How does that factor in? Could that put pressure on these prices here of energy and agriculture if there's just less demand? China's still in shutdown mode. I mean, I think, Sarah, the story in China with lockdowns, I mean, that has been what has basically

put a cap on oil prices. I mean, certainly if these lockdowns persist, you know, over the summer, I think that will be, you know, one of the factors that means that we don't necessarily retrace the highs that we saw earlier this year. But if we were to see lifting in lockdown restrictions in China, I mean, Chinese demand was already very muted. If we were to actually see any lockdown restrictions removed, I think that would actually be a catalyst to move actually higher. I mean, we're in single decision maker dynamics in terms of this Chinese lockdown. So I'd pay attention very closely to the trajectory of those measures. Energy stocks amazing at the top of the market today, up 50 percent this year. Halima Kropp, thank you. Thank you for having me. Take a look

at where we stand right now in the markets. We've got the Dow higher, but it is losing a lot of its gains. Doesn't feel quite as volatile as we've seen in the last few sessions, though we have been swinging between gains and losses and we're losing steam now. The S&P down about four tenths of one percent. You've got consumer discretionary at the bottom of the pack today, along with financials and technology. NASDAQ's down now more than one percent. Tesla shares are having a rough ride today. That's a big part of the story. Find out why the stock is a big drag on the NASDAQ coming up. Check out today's stealth mover. It is Nucor, the steel producer, one of the weakest performers right now in the S&P 500.

After it acquired garage door maker CHI Overhead Doors from private equity firm KKR, it was a $3 billion deal. The deal helps Nucor continue to expand into more lucrative finished steel products and infrastructure plays. Market not loving it, down 3.5%. Cloud stocks getting hammered today. Again, data dog at the bottom of the NASDAQ 100. Find out why those stocks are under so much pressure. That story plus a bullish call on SoFi and Spirit CEO speaking out on JetBlue's hostile offer for the carrier

when we take you inside the market zone next. With the Dow up about 57 points. Welcome back. We are now in the closing bell market zone. CNBC Senior Markets Commentator Mike Santoli here to break down these crucial moments of the trading day. Plus, our Phil LeBeau is here with the latest details of JetBlue's hostile offer for Spirit and Wells Fargo's Daryl Kronk on whether the market is set for a near-term bounce. First up on the major averages, losing steam into the close again. The NASDAQ and the S&P 500 under pressure right now, while the Dow is still in the green. We're all watching the NASDAQ, Mike, after a pretty strong bounce, I would say, and very broad rally

that we saw on Friday. You might have come in today thinking that you'd see follow-through, right, especially from these oversold levels. Not so much. And it's names like Tesla and Apple in particular, which I noticed was down again, even though Microsoft and and Facebook are a little bit higher. Ben Ammons of Medley this morning was showing me a correlation between Apple and Bitcoin, not that Apple's in the Bitcoin business at all, doesn't do anything services there, but they've sort of been the new barometers on tech and the overall markets and risk appetite. Yeah. I mean, Bitcoin has got a very lockstep relationship with the Nasdaq 100. Apple's the biggest stock in the Nasdaq 100. So it does fit together.

Nasdaq was up three point seven percent on Friday. You're giving back a third of that. I see it as a largely Tesla story today, down six percent. It's about a third of the net decline in the S&P 500, more or less, is Tesla. But beyond that, I do think that the market's quite indecisive. We had a good bounce. A lot of people are allowing for a little more upside. At today's highs, we were almost 5% above last Thursday's low. So that shows you how quick you sort of pop higher.

I think the biggest story is the narrow range that we're in today in the S&P 500. You would want to see the drama drain out of this market to maybe get some more of that systematic funds back into equities. Right. Even the Nasdaq only down one and a quarter percent. We've been seeing defines of like three, four percent lately. Zero in on tech because cloud stocks are among the biggest losers on Wall Street today. Frank Holland joins us. Frank, the yield on the 10-year Treasury is now below 3% and continues to move south, which had been a big headwind for these names. So what are you hearing about why so much pressure? Yeah, you know, it's confusing to a lot of analysts today. I just got off the phone with Dan Ives from Wedbush. He says

one of the big things is a lot of concerns about an IT spending slowdown. Those are basically macro concerns. Just a short time ago, you showed some cloud names like a Twilio, a Datadog. Those are those so-called top of the stack names, the most sensitive, not only the interest rate pressure, but investor concerns. Coming up in the next two weeks or so, we have three really big reports. Coming up is Cisco, which represents hardware and networking names. Then you have Palo Alto Networks, which represents cybersecurity. And then coming up after that, Workday, a major high growth top of the stack name. Their commentary, their guidance especially, is going to give investors a lot of insight about the strength of IT spending coming up in the second half of the year. Are you hearing anything yet, Frank, from some of these companies about slowdowns and spending?

You know, I haven't heard anything from these companies about slowdowns and spending, but I have spoken to people from Bessemer Venture Capital, one of the big PE firms. They believe that spending is strong right now and will remain strong because a lot of companies believe, outside of the cloud sector, of course, that going to cloud, transitioning to cloud is deflationary, and they're expecting to see increased costs in other areas. But actually, moving more of their workloads to the cloud can actually reduce cost. Mike, first it was fears over higher valuations and higher interest rates. And now as we've decided to focus from inflation on slowdown, it is on the spending cycle

and what we could see for those IT budgets and tech weighing on these names. Yeah, just a sense of general retrenchment in the startup economy. You know, essentially you're hearing about the layoff story, but that basically reflects a general kind of budget consciousness. And, you know, the cloud providers clearly are beneficiaries of that kind of, you know, VC money being thrown all over the place. It's going into their exact services. So I see it, you know, as being logical on that front.

On the other hand, these things traded like, you know, lottery tickets people were grabbing for last week at the low. So they're still caught up in that sort of, you know, they're beaten down tremendously. There's still not a lot of sponsorship there. People wondering if, in fact, they're really just trading stocks at the moment. Data dog in particular, that's kind of become the poster child, down 11 percent off no news and almost 50 percent for the year. Frank Holland, Frank, thanks. Shares of SoFi are jumping today after getting an upgrade at Piper Sandler to overweight from neutral. The firm saying the combination of rapid growth in deposits and the expiration of that student loan moratorium

should lead to earnings momentum for SoFi in 2023 and 2024. Stock, though, it's down about 70 percent in the past six months. Piper Sandler's Kevin Barker joined CNBC earlier to defend his decision to upgrade right now. We got a ton of pushback on the call, especially around financials investors who look at rising funding costs and a price to book value multiple that is fairly expensive relative to other banks. But at the same time, I mean, there's a reason why people were buying the stock a year ago and the growth that the company's been able to produce. Combined with what I think has changed quite a bit is that there's a deposit base now, which improves the funding base better than most other neobanks that we see out there

today. This is the bullish call that we hear on SoFi and what makes it different, right, Mike, that it has the banking license. Yeah, which is slightly ironic because the reason that you were kind of paying up for it before is the is the neo part, not the bank part. It was that they do have income from really technology services. They earn off the platform beyond the net interest. But yeah, I mean, I guess if you want to be kind of valued like a bank, then the book value does matter. Then what you're actually earning matters. And, you know, people continue to use this sort of adjusted EBITDA multiple on SoFi. Well, that's fine if

you're a software company. It's not the way banks are valued. So I think there's a big gulf between the way financial investors look at a stock like this and the way technology folks do, it is only a $6.3 billion market cap, I should say. If you think that the brand, that they're going to be a net winner in this world, maybe that still seems like a low number, but it's going to be subject to what anybody thinks about the credit environment for sure. Right, and a lot of people see that turning. Look at the airlines.

Spirit shares taking off, you could say, after JetBlue launched a hostile bid for the company, our Phil LeBeau just spoke with Spirit CEO joins us with the highlights. Phil, you said this morning you were waiting to hear from him and you did. What was your takeaway? My takeaway is that they are not happy with JetBlue, not only because there is a hostile takeover, that's separate from the fact that as part of that takeover bid, JetBlue alleges or alleged that Spirit's board did not do its due diligence, did not do its work in considering the two previous offers from JetBlue. Those allegations vehemently denied by Spirit's CEO within the last hour. Here's what he had to say. We're a little surprised and frustrated that they're spreading that misinformation. Our board invested considerable time and effort

in reviewing their proposal and determined it was not superior. All of this sets up an interesting two and a half weeks to come. On June 10th, that is when Spirit shareholders will be voting on the merger proposal between Spirit and Frontier. There's also a campaign that JetBlue has launched as part of its tender offer, urging Spirit shareholders to reject that deal. We'll see how this all shakes out over the next couple of weeks, Sarah. Yeah, stocks have been weak, as we're showing just in the last month or two. Also, Phil, wanted to hit with you while we have you Tesla shares, because they are under a lot of pressure today. And there is a report out there saying that they're delaying the plan to bring Shanghai back to full production. What do we know about this and how big of a deal

is that? Well, what we're getting is from media reports out of China. So you don't have the complete picture here. Tesla is not commenting on what production is or is not doing over at the Chinese plant, the Shanghai plant. Look, the ultimate concern here, if you're a Tesla investor, is if it's an extended lockdown, lack of production. And by extended, I'm talking about four, five, six weeks. Then you may have to adjust the full year production numbers. So far at this point, most believe that they can make up that production through the remainder of this year. But at some point it will have an impact. And I feel like also on the last earnings, was it last earnings, Phil, that Tesla

sort of played down the risk. There were some nervousness going in about the Shanghai lockdown and just how much they'd be impacted. And they played that down. I wonder how much it's just buffeted around also by Twitter and will he or won't he end up buying it. Yeah, I think there's some of that. There's some of that. And look, there is a lack. It's a bit of a dark hole, black hole. You don't really know exactly what's happening with production in China. You have a pretty good sense based on local media reports of what's happening there. But nobody's entirely sure. And so, you know, we could have a couple of weeks here where people are going to say one day they're firing it back up the next day. Maybe not. And that's why you're going to see some impact on the stock moving around a little bit in regards to that. Right. Mike, how does it look to you? Down 5.6 percent, Tesla, that is. So it's about 40 percent off the highs, 41. Yeah, I mean, it's not too far above where it has bottomed a couple of times in recent months. Once kind of stabbed down to 680 and then one other time exactly at 700 a share. So it keeps testing out these levels.

The irony today is that when we get a day when the Twitter acquisition by Elon Musk looks less likely or in fact that he might look to renegotiate or back out, normally that helps Twitter shares, as it should. Less of a selling overhang. You might have to leverage that stake less. But today it's going the other direction. It just seems as if maybe either the production reports or just the general sense that there's a situation in disarray here is kind of weighing on Tesla. Yeah, I mean, a lot of news coming out of this so-called tech conference that he's speaking at that Bloomberg's putting on the wires, including comments on Biden and recession that he thinks we're in. We'll leave it there, though. Phil, thank you. Phil LeBeau, let's get back into

the market. Stocks are pretty mixed here as we go into the close. NASDAQ's down now a little over 1%. The Dow is holding on to its gains, about 49 points. Daryl Kronk from Wells Fargo Investment Institute joins us. Daryl, what are you telling your clients? Are we due for a real bounce here, something that can last more than a day? How is the thought on Friday? I don't know. Today looks a little shaky. Yeah, we are, Well, six weeks in a row. It's hard to call this a bull market. We've had six down weeks in a row. We haven't officially touched bear market territory yet. But, you know, it is very normal to get kind of a bear market rally. Bear market rallies are often vicious, right? As they happen, they come up very quickly, very strongly. If you go back in history and look at

it, Sarah, bear market rallies typically last about one to two months, and they average about a 10% rebound before ultimately a lot of times they fail. We've still got big resistance. We're 160 S&P points away from even a 20-day moving average and almost 300 points away from the 50-day moving average. So we've done an inordinate amount of damage here that has to get repaired. At best, we may be able to get a little bit of a bear market rally and then consolidate. But we still think defense is the order of the day right now, play defense. That's what I was going to ask you. So if we do get a bear market rally, Daryl, how do you best take advantage of that? What is the strategy? I think, you know, you have to be probably

underweight equities to your longer term strategic proposal here or allocations. But the reality is, I think on the sector side, you want to be barbell right now between defensives on one side, energy on the other. Energy is the only thing that continues to work that has any cyclicality to it. And I think you can still stay long energy, but it's no different than what we're seeing today in leadership from healthcare, staples, utilities, and energy, right? And that probably continues. We haven't seen anything to really put in a durable bottom yet, Sarah. There's been no capitulation moment. We haven't seen the spike over 40. We haven't seen a put-call ratio that exceeds 125, 130. We haven't seen volumes, the level that we need to see for breath

to kind of hit that capitulation moment. And I would just say there's really strong resistance at about 3,800, 3,850 on the S&P. If that can hold, we can kind of baseline and consolidate here. If it doesn't and we breach that, you're probably down to around 3,600. Fundamentally, Daryl, what do we have to see to look for signs that that this pressure may be over, that we've seen some sort of bottom? Because a lot of people make the point that we're still early in the hiking cycle and the Fed wants to go very aggressively right now to deal with inflation and then that's going to hurt the economy. So what what what what do you think would correspond news wise with capitulation or is it just technical at this point?

Yeah, I think it's largely different by technical. I mean, we've lowered the price earnings multiple by four terms from around 21.5 down to 17, 17.5. But we think the E is still wrong in the P-E ratio, right? We still think consensus street estimates are too high. From a capitulation moment, it's hard to say. You never know where those come from out of the blue. I would watch kind of a credit event. So in other words, you know, human close eyes on credit spreads, credit default swaps, CDSs, liquidity metrics.

Those have been really well behaved. And the VIX, you still have implied volatility above realized, which is not usually a sign that you're stressing the engine at that point. It could come from a Russia sovereign debt scare later this month as OFAC deals with the May 25th date on resetting whether those payments can be made in non-ruble or dollar metrics. It could come from a NATO scare with Sweden and Finland. Something like that could create kind of a capitulation moment to put in a more durable bottom. Or, Mike, you know, a lot of times we hear it could come from the Fed, I don't know, getting scared, getting worried potentially about recessionary impact of some of its policies. What are you eyeing?

Well, it could. In theory, I just think that that's unlikely to come very soon. Now, we are going to hear from Jay Powell tomorrow. He's got a speaking appearance. Maybe the market is kind of idling today ahead of that. But I think what's weighing on the market psychologically is, you know, the next two 50 basis point hikes seem pretty well baked in. But it is interesting that the market is not saying that the short rates are going to go much beyond 3 percent at this point. Daryl Cronk, we'll leave it there. Thank you very much. And Mike, we'll turn back to you now on the

internals. What do you see into the close? Yeah, very mixed, Sarah. As you might expect, the index is kind of toggling above and below the flat line all day. If you look at the New York Stock Exchange breadth, you see it basically 50-50, a little bit of an advantage to the upside volume. Crude oil, interestingly, it never really gave back a lot during the China slowdowns. Even if you didn't know what was going on in the news, if you looked at this chart, you'd say, eh, it looks kind of bullish. It's pretty well set up. There's higher lows all the way out. And then if you take a look at the volatility index, Daryl was just mentioning, you are seeing an easing of pressure. There is some tension release. That's a net positive for stocks. And if that can kind of bleed lower into the low 20s,

it would mean that the market is on somewhat more stable footing. And we're also seeing a weaker dollar and we're seeing lower treasury yields. So those are easing the tensions that we have seen in the markets lately, but still pressure on equities remains. Mike, thank you. As we head into the close, energy, health care, staples and utilities. Those are your green sectors today. It's defensive and it's all about higher oil prices again. As for what's weaker, a 2% decline in consumer discretionary, and that is largely Tesla, which is seeing a pretty sharp slide today. Concerns about the Shanghai plant. But you've also got weakness in some of the retail names as well. We've got a big earnings week

with Walmart out tomorrow. Technology, financials, and communication services all at the bottom of the list. The Nasdaq is down 1.25%, another day of selling. It is led lower by Tesla, Apple, Amazon, Nvidia, and Google. There is some lower by Tesla, Apple, Amazon, NVIDIA and Google. There is some strength in other names like Facebook, for instance. And there is the close. Small caps lower. The S&P closing down about four tenths. That does it for me on closing.