Closing Bell - Closing Bell: Stocks kick off Q2 in the green, Council of Economic Advisers Chair on the March jobs report, and Cowen’s CEO on the bank’s new crypto offering 4/1/22

Episode Date: April 1, 2022

The major averages closing in positive territory to start the second quarter as investors digest the March jobs report and oil prices falling below $100 a barrel. Council of Economic Advisers Chair Cecilia Rouse weighs in on the employment picture and whether releasing 1M barrels per day from the Strategic Petroleum Reserve will really help bring down gasoline prices. Meanwhile, RBC Capital Markets’ Lori Calvasina explains why she is downgrading the energy sector and reveals the sectors she favors instead. Bespoke’s Paul Hickey on where he sees value in tech. Kraneshares’ Brenand Ahern on the rebound in Chinese internet stocks. And Cowen CEO Jeff Solomon on the investment bank’s move to start offering spot trading of crypto and whether he thinks other big banks will follow that move.

Stocks have mostly turned higher here on this first day of the second quarter. The most important hour of trading starts now. Welcome to Closing Bell, everyone. Happy Friday. I'm Sarah Eisen. Here's where we stand this hour. S&P 500 looks like it wants to go positive. Most of the sectors are stronger in the S&P. Real estate leads the charge along with materials.

Industrials, tech, and financials are lower, and so is the NASDAQ. The Dow's up almost 100 points, about 85 points or so. We're still a little bit weaker on the week, higher for the Nasdaq. Here are my top takeaways on some of the biggest stories today. Transports are getting hit really hard right now, down 4%. It's the latest group to signal economic weakness. Names like J.B. Hunt, Norfolk Southern, and United. Trains, planes, trucks, very economically sensitive.

The group is coming off of a great march, beating the market. That's an optimistic tell, but the sharp sell-off today could be a problem and a signal that the mood is changing as signs mount about slowdown and even recession. Amazon workers, they vote to unionize. It marks the first successful union effort

after a series of failed attempts. We're talking about just a warehouse in Staten Island. And it is just the latest win for organized labor in this country since the pandemic. Will it continue? Well, watch the job openings data for a clue. We just learned there's nearly a record 11.3 million job openings in this country. As long as that number is historically elevated, companies need workers and workers have the upper hand. And a downgrade to negative for the once beloved ARK Innovation Fund run by Cathie Wood after a rough quarter, it fell 30 percent. Morningstar in a brutal takedown,

ripping into Wood for her, quote, perilous approach in hopes of a repeat of 2020. The analysts point out she slashed the fund's number of stocks from 60 to 35, which they say saddles it with greater stock specific and liquidity risk and no risk management personnel. Let's get straight to our top story, though. Your second quarter playbook stocks closing out their first negative quarter since 2020. And the two year, 10 year Treasury yield spread just inverted for the first time since 2019. That is historically a recession signal.

April, though, typically a bullish month for stocks. Can we expect the same after a downbeat start to the year? Let's bring in Lori Calvacina from RBC Capital Markets and Paul Hickey from Bespoke Investment Group. Lori, interesting call out of you today that you're downgrading energy, which, of course, led the market in the early part of the year. Why are you doing that? So, look, Sarah, we've been overweight this sector since January of 2021, and we reiterated that call coming into 2022. And look, we still think you've got very strong earnings momentum. You've got good valuations. But we think there's a broader issue here, which is that we think this market is ready to start

shifting back towards growth and away from value in terms of overall market leadership. And the reasons for that are pretty simple. Number one, value tends to work ahead of Fed rate hikes, but growth leadership tends to take back over after the Fed lifts off. Also, when you're trending towards a slower economy, we do typically see the market transition away from value leadership and back to growth leadership. Value really only works in a hot economy that's above trend. Growth tends to work below trend. So we did a survey of our analysts recently, and quite simply, Sarah, we found that while they're still in the constructive camp on energy, their enthusiasm has come down a clear notch since energy. Meanwhile, our financials analysts are still pretty constructive.

We wanted to take value exposure down, and energy was really the one to do it, the place to do it, based on our analysts' feedback. The only thing, Lori, is that treasury yields continue to march higher. And I know the curve is inverted and that's sort of bearish. But does tech work in that kind of environment? Haven't we learned that that makes tech struggle? So I think that tech had an issue from higher interest rates, had an interest from Fed liftoff. But we really do think a lot of that valuation fraud from the tech sector has been pulled out. We see that on a few different studies. If you look at tech relative to the broader S&P 500, we're actually a little bit below the historical average in terms of the relative multiple.

We've also looked at the most expensive stocks in the market relative to the cheapest stocks. Most of those highly expensive stocks have been tech, but we've actually found that relative multiple is back to pre-pandemic type levels. So we think a lot of that tech and that froth in tech rather is out. And also, when you look at the P.E. contraction that happened in the S&P 500 broadly around the March lows, it totaled about 20%. And that's pretty much in line with some of the worst Fed tightening cycles and the contraction that we've seen in the past.

So we think the Fed is probably in at the market level and we do think that tech froth has been pulled out. Do you agree, Paul, with Lori's call that the market goes higher, but the leadership basically reverses from energy to tech? Yeah, I think Lori brings up a lot of great points there. I mean, at this point, who doesn't hasn't heard that higher interest rates are bad for growth and tech? I mean, it's been well documented and well discussed that that's not a good backdrop.

But two things. First of all, when everybody's talking about it, it tends to be priced in. But secondly, if you look back historically over the last 20 years, just look at the long-term treasury ETF TLT. When you've seen a 10% decline in that ETF, the forward returns tech doesn't typically underperform when you have treasuries falling and long-term interest rates rising. So history hasn't necessarily played that out. And going forward, tech has tended to do better once you've gotten that initial shock and decline in long-term treasury.

So I think Laurie brings up a very good point there that tech has been sold off sharply here and that, you know, usually when that happens, it tends to tend to get a rebound when everybody's leaning against something in such a strong fashion. So, Lori, if tech works and financials work, which are your two best picks, is this a call that we're going to see slower growth, but not an outright recession, despite what the bond market is doing? That's the camp that we're in. Our economist, Tom Porcelli, recently revised his GDP forecast for 2022 from about three and a half percent down to two and a half percent. And that's right in line with the long term trend. And he would tell you that recession risks have risen pretty markedly, but he's still not in the recession camp at this point in time. And I think that's where we are as well. We're monitoring it very, very closely. But I think, Sarah, in uncertain times, what you want is higher quality. And what financials and tech both have in common

is that they are higher quality relative to their peers. So when we do quantitative stats on quality metrics, tech is higher than every other sector. And financials, while it's not the highest, it is the highest on the value side and kind of cyclical side of the trade. So we think this nervousness about the economy pushes people into quality. It can keep you into financials for a bit longer, but it also really pushes people back into those secular growers and tech stocks in particular. Paul, break apart the tech trade for us. Who's gotten the most hurt and where do you see the most value? Well, so first of all, with responding to the other thing with respect to the tech sector as well, it tends to be growth orientated. And so future earnings would be discounted at a higher

rate when interest rates are going up. It also tends to have one of the lowest debt loads of most of the other sectors. So they aren't necessarily impacted as far as borrowing costs from higher rates. So that's something to keep in mind. So to the point of quality, semiconductors are an area of the tech sector that we tend to focus a lot on because we think, you know, while you were just talking about the transports leading into the intro of the show, semis are a leadership sector. And we've seen that sector actually underperformed in this most recent leg higher. So that's something that we're watching here closely. And then as far as the overall yield curve discussion that we've been talking about here, the 2s, 10s did invert this week. But

historically, you need to see multiple points of the yield curve inverted. And at this point, less than half of the points of the yield, not even close to half of the points of the yield curve, are inverted at this point. So you'd want to see that happen. And the parts of the yield curve, like the three-month and 10-year, which have been the most reliable at forecasting a recession in the past, are among some of the steepest points of the yield curve still. So that's something to keep in mind here as we go forward. So as far as tech overall, though, the companies that have some earnings here that don't have these, that aren't priced at multiples of sales and that have little or no debt, those are the kind of tech stocks that I think you would want to be focused on here. Well, semis are down another 2 percent, about 11 and a

half percent lower for the year. Lori Calvacina, Paul Hickey, thank you both for joining me. Have a great weekend. After the break, we will talk to the Council of Economic Advisors Chair, Cecilia Rouse, first on CNBC interview about today's jobs report, the inflation outlook, and the administration's plan to combat high gas prices. You're watching Closing Bell. We're up 113 on the Dow. We'll be right back.

Welcome back. You're under the radar stock mover today. Liquefied natural gas company Tellurian. Have you seen this move? Credit Suisse upgrading the stock to outperform today, citing strong demand for American LNG in light of those Russian sanctions. It's up more than 19 percent. Near session highs for the hour and has more than doubled already year to date.

Another strong jobs report today. The average monthly job growth since the start of the year now stands at 562,000. The unemployment rate falling to 3.6 percent, just one percentage point higher than where we were in February 2020. Joining us now in a first on CNBC interview is Cecilia Rouse. She chairs the Council of Economic Advisors for President Biden. Welcome back, Cecilia. Nice to see you. I'm happy to be here. So obviously a strong jobs report, better wages,

higher labor force participation. How do we square a jobs market like this that is on fire with some of the signals we're getting, like a yield curve inversion, which typically signify recession? Well, look, the report that we got today on the labor market really suggests that the U.S. labor market in particular continues to make robust gains, which we know has been so important since the labor market suffered so tremendously at the beginning of the pandemic. As you mentioned, we've got about 93 percent of our employment is back. We've seen an increase in labor force participation, which has been so important because workers have been hesitant to come back due to the virus. But workers are coming back. They're seeing some increase, at least in nominal wages. And these gains have been broad based. Unemployment is down to all workers who want a job fairly can find one.

You know, we obviously are tracking the risk to the economy going forward, but our economy is in a very good place. Household balance sheets remain strong, even accounting for inflation. And this tremendous growth gives us a cushion to weather additional variants. As we saw, this economy reflects Omicron and any maneuvers that the Federal Reserve might make, and importantly, even the Russian invasion of Ukraine. So we believe the economy is in fairly good shape as we weather the shocks going forward. But obviously we will be tracking and the president is acutely concerned about it. And he's doing all that he can to address the prices and to keep our eye on what is happening in the economy writ large. One symptom of this tighter and stronger job market is we're seeing an increasing number of wins

for labor movement in this country, including just today, where Amazon warehouse workers in Staten Island voted to unionize, first time, for Amazon. Are you supportive of that move, and would you like to see it spread? Well, I think what we know about the U.S. labor market is that over the last few

decades that the median worker has had rather anemic wage growth and that we've seen an increasing separation between labor productivity and wages. And so I think it is appropriate to see a tilting back towards seeing workers see higher earnings. Obviously, we want that to be driven by productivity gains so it's sustainable growth. But I do think it's important that workers are getting their fair share of their productivity gains. But isn't that happening without organized labor, without unions? It's happening organically. We're seeing wage growth shoot up to levels we haven't seen in years.

And the market for hiring is strong. Absolutely. And that's part of workers having a voice, having some say, having more power in the labor market. One of the facts we know about our labor market is that it's become increasingly concentrated. So it's looking more like a monopsony. We know that in monopsonies, there are not enough workers hired. Their wages tend to be lower. And this is a this is a phenomenon that labor economists are starting to increasingly understand. And so we think it's labor economists are starting to increasingly understand. And so we think it's important that there be more competition in the labor market so that workers

are paid according to their productivity and are paying a fair wage and have good working conditions. Chair Rouse, I know that you and the team are also very focused on the higher gas prices. We saw the move by the administration to release the SSDR, Strategic Petroleum SPR, excuse me, reserve yesterday. How is that not just a Band-Aid solution, though? Because ultimately, it doesn't change the fundamentals of supply, which are driving oil prices higher, especially with Russia increasingly shut out for who knows how long. Well, absolutely. So the release of the Strategic Petroleum Reserve, the president has done a historic release of a million barrels a day for the next six months, and he's gotten the cooperation of about 30 countries around the world that will be also

releasing millions of barrels from their own reserves. This is the short run solution as we bridge to oil companies stepping up production from their existing wells and as we also make a transition to greater energy independence. So the release from the SPRO, the Strategic Petroleum Reserve, is meant to be the short term way to address this and to address the increased gas prices due to Russia's invasion of Ukraine. But fundamentally, we know it's important that we increase supply of oil around the world because fundamentally the price of oil is a global price and we need to ensure that there's an adequate supply around the world.

So it is a short-term solution. What about food prices? They're also spiking and it's also causing a lot of concern of global shortages, of famine, of crisis and potentially a big impact on U.S. consumers. Is there any effort by the administration to do something there? You know, food prices are another concern because the Ukraine and Russia are the breadbasket for many parts of the world. Here in the U.S., we're less reliant on their wheat and grains. We're a net exporter. So I don't we do not anticipate shortages and famine here in the United States. In contrast, what we expect is that our farmers will be responding to the price signals and will be doing what they can to plant corn and soil and

other grains. And so we in going forward, we will have adequate supply. But obviously, this is a big concern. And we're working with our international aid agencies to ensure that there's some humanitarian aid around the world, because we are concerned, in particular in the Middle East and parts of Africa and the Far East, that we are concerned about famine and shortages in those parts of the world. Chair Rouse, thank you for joining me today. It's good to have you. You're very welcome. You're welcome. It was a pleasure. From the White House. Show you what's happening here with the markets. Dow's still higher.

We're up about 58 points or so. The S&P 500 unchanged. We lost a little bit of gains that we got coming into the hour. NASDAQ underperforming today. Technology is basically doing that. The best performing groups in the market are real estate materials, staples, and utilities. Kind of defensive lean there. Small caps, though, having a strong day, up three quarters of one percent, thanks in part to the strength

in energy and materials. Chinese Internet's also getting a big pop today on some positive regulatory headlines. We'll talk to the CIO of Crane shares. That's the company behind the K-Web ETF about today's action and some of the wild moves we've seen there lately. Closing bell back in a moment. Losing a little ground here. S&P down about a tenth of 1% in this final hour. Yields continue to move higher, at least on the shorter end of the curve, but also the 10-year is up 238 right now. Let's get back to Mike Santoli.

Taking a look, Mike, at the updated gender gap in the labor force on the back of today's jobs number. Wall Street was paying a lot of attention to the labor force participation. What do we see? Well, the real story, Sarah, as of today's number is that the gap has closed. It had been pretty stark in prior months, as we've highlighted. And in the latest March numbers, it seems as if the female prime age labor force participation, that's people between 25 and 54 years old, has now basically met parity with male participation. This has been a lagging indicator.

We know about why child care issues, Omicron, all these things that seem to keep women out of the workforce a little more than they did men. And it's probably good news, obviously, all around for more participation, for women's access back into the workforce, but also for the Fed. Anything that brings people back to work, maybe moderates wage gains, maybe kind of frees up some of this labor tightness is probably good just for the length of this expansion out there. Now, this number that we're showing you is kind of indexed to the immediate pre-pandemic level, February of 2020. So pretty much all the way back at this point. It was also the first good month for black women

entering the labor force and seeing their unemployment rate fall. We did not see that last month. Mike, thank you. Up next, investment bank Cowen, the latest Wall Street firm to jump into the crypto game. We're going to talk to CEO Jeff Sullivan about the move this week to trade spot crypto

for institutional investors and the reaction he's getting so far from customers. We know crypto is gaining ground among institutional investors and banks are following suit. Investment bank Cowen just announcing it has started a digital asset unit offering trading in 16 cryptocurrencies. Future plans could include NFTs and DeFi. And joining us now is Cowan Chair and CEO Jeffrey Solomon. So you are the first investment bank to offer spot crypto trading for institutional investors. That's correct. Why is nobody else done? Is it because you're less regulated than they are? No, I think there's a couple of things. First of all, there's some huge barriers to entry. The lack of federal oversight here means that each

different state has its own rules. So we spent the better part of the last year going state by state and building up the ability from a regulatory standpoint to actually execute trades. But institutions themselves have been reluctant to participate in a meaningful way in crypto trading because, honestly, the custody issue has actually been a big problem for them. And we did a partnership and invested in a company called PoliSign. They've got a custodian called Standard Bank. And so from our standpoint, we partnered with them so we can offer full end-to-end solutions

from custody all the way through to... So you've been planning for this for a while. Do you expect all of the Wall Street banks to follow suit eventually? I think eventually, as the federal regulatory landscape lays out over time, I think there will be more participants. But, you know, right now we're doing things in a very, it's all compliant, it's all fully regulated, but it's mostly regulated by state regulators. Does this mean that you do not see Bitcoin as a speculative bubble? Yeah, I think Bitcoin trades as a store of value in its own right. So this isn't just about Bitcoin. It's not about that.

And what it's really about is the proliferation of different ways for people to finance their businesses or actually to participate in the creation of new businesses and new business models. And, you know, there are literally thousands and thousands of coins and tokens already. The vast majority of the trading occurs in a relatively small percentage of them. It's really a lot like equities in that regard. And so we want to be in a position where we can offer our clients institutionally the ability to trade without worrying about how do I cost it, how do I account for it. Is there a lot of demand? Yeah, yeah, we've seen a significant amount.

So we've been hosting events and talking to our clients for well over a year. We see that demand, and the answer is how can we develop a solution for those institutional clients, and that's really what we've done together with Standard Custody and PoliSign. I wanted to ask about other parts of your business as well. The stock has underperformed this year. Capital markets concerns of M&A activity post the pandemic. I think these markets are always overstretching and overreacting. Our business is built to be a business that lasts regardless of market environments. We're continuing to see tremendous demand for M&A activity.

I think a lot of our clients are waiting for the market to settle out here. Tremendous demand for M&A activity? Yeah, yeah. I still think that there's a lot that has to get done. So one of the things that's happening in the market, in my opinion, is that we're undergoing a lot of uncertainty around different fundamentals that have underpinned our market for maybe decades, right? Peace in Europe is a good example, right? We don't have that. Low interest rates. Inflation. So the market is digesting that. And when the market is not aware that those things are happening,

then it becomes aware there's a huge amount of volatility, which is what we saw in the first quarter. Now you're seeing the VIX come in, right? People are beginning to process these unknown unknowns to becoming known unknowns. Like we know there's inflation. We're just not exactly sure how it plays out. It just becomes the market processes that. That's what the market does. And as we end up in a situation where it's a little bit less volatile, companies need to get financings done and they need to get M&A done. What about in biotech in particular? Because you have sort of distinguished yourself. Now you're crypto, but as a health care and biotech place for capital markets,

that's been a weak part of the market really since February of last year. Yeah, it's totally collapsed. So we tend to spend time in places that are ahead of the curve, right? That is the moniker for Cowen. It's really about looking over the horizon to see where the trends and how can we help those companies finance themselves. If it's disruptive growth, we're going to pay attention to it because that's what we do best. So crypto and biotech fall into that category. Not well known. It requires a firm like Callen to explain it to a lot of folks. So for biotech, yeah, it's been a bear market for a year. And a lot of people that I've been talking to in biotech, a lot of the

investors are simply, again, waiting for that moment where we can see a floor under the macro environment and where we can begin to understand that there's a lot of companies, probably like 40% of the publicly traded companies are going to run out of cash in 18 months. That means they're all going to need to do financings at some point in the next 18 months. Just it's facts. That's good for your business. It's going to be great. And what we're seeing is a lot of regulatory concerns still, isn't there? Mans's talking about prescription drugs again and a new Build Back Better. There's questions about the FDA since the Biogen. Yeah, I think that stuff always hangs around. But the investors that are in the know, right, the folks that I talk to in the biotech space,

and we spend a lot of time with them, have all raised significant amounts of money. New fund launches have actually happened. They're sitting on a lot of dry powder and simply they have the shopping lists. And so these stocks have become incredibly cheap on a relative basis and in some cases on an absolute basis. Many of them are trading at discounts to cash. So we're going to see some deals. So I think we'll see deals. I think we'll see financings. I think we'll see investors again over the course of the next year reemerge because there's value there for the first time in a really long time. And that's what we've heard from a lot of investors. Happy birthday. Thanks so much. Joe Solomon. And happy birthday to

Jeff Sonnenfeld as well. Two guys who share a birthday. We celebrated together yesterday. There you go. Here's where we stand in the markets. We've lost a little bit of steam. Down's actually gone negative right now. We started the hour up 100 points. We're down three right now. S&P 500 bound about two-tenths of one percent. Technology is leading us a little bit lower today again. NASDAQ down four-tenths. Small caps hanging in there. The final four tips off tomorrow. But Wall Street is buzzing about the companies that are racing to cash in right now on college athletes.

That story next when Closing Bell comes right back. What is Wall Street buzzing about? The Final Four and the new money and big brands rushing in this year to college sports. For example, Chegg, the higher education homework help company, announcing its first athlete sponsorship this week with UConn basketball star Paige Beckers. Their deal will work to raise awareness for student hunger by opening a pop-up grocery market in Minneapolis this weekend during the Final Four tournament. CEO Dan Rosenzweig of Chegg telling me she's an incredible athlete who shares the company's core values. But it is also about brand promotion on the big stage, and Chegg is certainly not alone. Let's bring in Contessa Brewer.

And Contessa, this is the first March Madness where we can see big companies sponsor student athletes because of that Supreme Court decision. What kind of companies are you seeing and what are they getting out of it? Well, you know, it's interesting because the games themselves are a game changer for the companies. For instance, after the Cinderella run that St. Peter's had, Buffalo Wild Wings went in, swooped up a deal with star player Doug Eddard. You mentioned Paige Becker. She also has deals with Gatorade, Cash App, StockX, the sneaker reseller. We know that Adidas has gone forward and said any student athlete at the schools that it sponsors are eligible for what they call NIL deals, N-I-L, meaning name, image, and likeness. And then you have a company that I follow, Penn National Gaming. It's Barstool Sports has launched Barstool Athletes.

At the beginning, at least, there was no money changing hands. Just any student athlete nationwide who wanted to be a Barstool athlete, they could raise their hand and they get all kinds of swag in exchange for promoting it on social media. So the companies get a lot of exposure to a very young audience base, Sarah. And by the way, Open Doors estimates this first year $600 million worth of deals. Wow. It is a growing industry. Contessa Brewer, thank you. Up next, new reports of Netflix tightening its belt, moving the stock, and auto stocks hitting the brakes. Those stories and more when we take you inside the market zone.

Dow is positive again by one point. We'll be back. Seven minutes in the trading day. We are now in the closing bell market zone. CNBC Senior Markets Commentator Mike Santoli here, as always, to break down these crucial moments of the trading day. Plus, Crane shares Brendan Ahern on the rally in Chinese tech stocks from KWeb and cross marks Victoria Fernandez on her second quarter stock picks. We will kick it off with a broader market because stocks have lost a little steam here into the close. The major averages dipping back and forth into the red in the last few moments or so. Looks like the Dow is pretty much unchanged. So is the S&P. Mike, has to be one eye on the bond market. We are seeing yields rise in reaction to what was a much better than expected jobs report with some good internals

like wages and labor force participation, which just continues to signal green light for the Fed to raise interest rates, right? Is that a problem for stocks? Yeah. Well, it's exactly what's going on. The bond market's not allowing the stock market to fully relax into this new month. And I do think it's for all those reasons, right? The new high in the two-year Treasury yield, it just tells you that the data is giving more force to these expectations of a front-loaded Fed tightening cycle. That doesn't mean game over for stocks. It doesn't mean that the market usually immediately falters. But what it does say is that there's a sort of a narrower window for performance. The other piece of it is the stock market's operating without its usual weapons to some degree.

If you look at the leadership profile, you mentioned it was pretty defensive. You had transports down today. Technology's not helping out. Commodity-related stuff is quite strong. Healthcare's been good, but it's taken a day off. And you actually look over the last two years, commodity indexes now basically slightly outperformed the S&P tech sector. And the commodity index is not fully really reflective in the S&P 500 itself. In other words, it's just a blunt instrument for allowing the broad stock market to perform. So I think all those things are coming together. Commodities and technology, Mike, are equal returns in the last two years at this point? Two years, absolutely. Now, that sort of gets you just past the low of the market in March of 2020.

Now, the other thing is, if we go to any other time period longer than that, technology is just absolutely obliterating commodities. Actually, B of A showed today the 10-year trailing return on commodities has been negative for years. It just barely went positive now. So it does show you that there's a lot of ground to be made up. Absolutely. Materials and energy both higher in the market today. Take a look at the Chinese Internet stocks. They've been all over the place lately. The ETF K-Web up sharply, more than 5%. This coming on the news that Chinese authorities are considering giving U.S. auditors

full access to the audit reports of some Chinese companies. With us now is Craneshare CIO Brendan Ahern of the KWeb ETF. Brendan, which we've been glued to for the last few months. Has anything really changed with the regulatory story today? It has certainly that we saw from the China side that there appear to be willing to allow full access to the PCOB on audit reviews. We don't know if they're going to differentiate between the private companies that have clearly have nothing to hide versus a smaller number of access to the PCOB on audit reviews. We don't know if they're going to differentiate between the private companies that clearly have nothing to hide versus a smaller number of state-owned enterprises, as well as CNBC.com had a great scoop stating that the Chinese regulators are also reaching out to the Chinese accounting arms of the big four U.S. accounting firms to let them

know that they should prepare for this audit review. So two very strong signs there. What happens, though, if it doesn't work and some of these stocks get delisted? Because that's been hanging over the market and the names. What would happen to your ETF? Well, certainly it's been a significant overhang. And certainly a lot of investors are going to wait for a definitive agreement or at least a sign from the U.S. that there is such an agreement coming. But certainly for ourselves at Crane Shares within K-Web, we've already started migrating our exposure out of the U.S. ADRs into their Hong Kong equivalents. And we certainly have taken the HFCA very, very seriously. And as stewards of our investors' capital,

we've tried to protect that capital by migrating to Hong Kong. So amid all the extreme volatility, what have you seen, Brendan, in terms of flows? So flows continue to be quite strong. I think this is partly, Sarah, just due to many U.S. investors might not be allowed to do ADR conversions such as we can do for K-Web. They might work for broker dealers or custodians that don't allow it, or maybe they just don't want to hold a Hong Kong name. So our inflows are more reflective of investors hiring us to make this conversion for them. Right. Exposure there straight to Hong Kong now. Brendan Ahern, thank you for joining us from K-Web. I want to point out GameStop having a volatile day after the company said it plans to issue a stock split. It rose initially on the

news and gave up all its gains. The video game retailer seeking approval from shareholders to increase the number of authorized shares to one billion from 300 million. Let's bring in Frank Holland and Frank with GameStop shares now in the red. Did the plan backfire? What were they after here? Well, I mean, if the plan was to boost the stock price with this stock split, it was a fail. You know, shares down 2% since that announcement was made. Certainly a rollercoaster ride. You're looking at the chart right here.

A lot of money made, a lot of money lost. But in the end, stocks still down. If the plan was to juice investor interest, especially on Wall Street bets, well, that would look like a charm. If you go on Wall Street bets today, a lot of chatter about it. A lot of talk about attendees, people posting their moves, at least from yesterday. Not a lot of moves. A lot of people posting their result from today. Today, the volume was three times the 30-day average. Short interest, however, is also up year to date. Something to watch. And really, a lot of questions about whether the plan here has even been revealed. I talked to a couple analysts. They really kind of flagged this. In the 8K filing, future corporate needs and future compensatory equity issuances

as listed as the reasons for this stock split. So we may have to wait and see, even though Ryan Cohen, GameStop's chair, isn't necessarily known for having a plan. A lot of talk about converting the company into an online retailer and an NFT marketplace, but very slim on the details so far. It's good perspective, Mike. I can only imagine your reaction to this news. So they don't have short-term financial targets. They don't have long-term financial targets. They don't take investor questions or analyst questions on the conference call. Don't talk to us or anything like that,

but continue to make these moves to cater to retail investors and traders. How much longer can they keep doing that? Well, I mean, this can go on for quite a long time. This company's now got financing to live for a very long time. It's not as if it's in the dark days when, you know, we were kind of wondering if a chain retailer like this could make it. But it is very instructive that, you know, first of all, the idea of trying to get an authorization for this huge increase in shares possibility, you already had way less than the authorized number of shares being utilized right now. The stock was only at 166.

So what's the big deal about a high share price to try and split it to make it more accessible? It just seems like a much more overt kind of gesture toward the retail investor base to get them excited, keep them excited in the absence of anything else that has materially changed with the business itself. Right. Ryan Cohen buys more shares. That gets people excited. But fundamentally, you know, the stock sells off on earnings. Frank Holland, Frank, thank you. Take a look at shares of Netflix. Just taking a leg lower in the last few minutes or so on a report from the information saying the streaming giant is asking employees to be more mindful about spending and hiring.

The comments were reportedly made at an employee town hall. Netflix has been grappling with a slowdown in subscription growth. Let's bring in Julia Borsten for more perspective. What are you hearing, Julia, in light of the stock's terrible performance in the first quarter this year, down more than 30 percent. The stock's terrible performance and also the fact that the company is guided to the addition of about two and a half million subscribers in the first quarter. That's down from four million subscribers in the year ago quarter. And that two and a half million does not even take into account the loss of the subscribers that they're going to have in Russia since they stopped operating the service there.

Two things here. Netflix giving me a no comment, but this is in keeping with the way CEO Reed Hastings and co-CEO Ted Sarandos run the company. They are known to communicate a lot with their employees. I do understand that those meetings where these things were reportedly said were regularly scheduled meetings. So they were having an off-site. They do have these regular town halls, and they had one on Monday. But this is a company that does tend to fill their employees in on subscriber trends even ahead of those quarterly results.

So it would make sense for two co-CEOs like Hastings and Sarandos to give their employees this kind of heads-up ahead of the earnings, which are coming up on, I believe, the 19th, a week from Tuesday. But is there any other signal, Julia, that the company is shifting strategy or shifting discipline when it comes to spending, which we know it spends a lot of money on its content? They do spend a lot of money on their content. There have been a lot of reports recently that they aren't extending shows, TV series, if they don't have full confidence that they're actually helping the service hold on to or add subscribers. There are two things that they have been doing that do indicate that they are concerned about this slowing growth. One is the price hikes, and that is something that they've been rolling

out. And second is cracking down on password sharing. This is a key thing for them. There's this awareness that the password sharing is not only rampant, but could really be impacting their ability to hold on to subscribers. Those two things indicate that they are concerned about the slowing growth and the fact that they've been investing in these new categories, such as gaming, which could potentially help them hold on to their subscribers or even add more subscribers, considering so much competition out there. Well, one thing they've got going for them, the second season of Bridgerton is amazing. I won't say anything else. Julia Borsten, Julia, thank you. Auto stocks underperforming the market today. Take a look at GM reporting a 20 percent

plunge in the first quarter sales in the U.S. because of supply chain issues. The stock is down more than 2% right now. Both GM and Ford announcing new production halts at plants in Michigan due to those part shortages. Separately, Ford issuing a pair of recalls involving more than 700,000 vehicles because of oil leaks and braking problems. Phil LeBeau joining us now on all of it. Phil, any sign that the chip shortage is improving at all when it comes to auto production and sales? Well, it's gradually improving, Sarah.

But that gradual increase is not enough to offset the fact that there's still a shortage. So you will see things like production brought down at particular plants. Next week, Ford is bringing down production at one plant, GM at two other plants. But as it gradually increases, they've got to replenish the supply, the inventory of vehicles. That's going to take some time. What's the end result? Higher prices. They remain high.

And here's one indication of just how high, Sarah. According to Edmunds, the average, average monthly payment for a new vehicle in the first quarter hit a record high of $648. You know where it was a year ago? $575. Don't be surprised, by the way, if that continues to edge higher over the next couple of quarters. So is this the sort of thing, Phil, where normally auto stocks would get hit when there are worries about consumer discretionary spending and a weaker economy, which we've seen in the market, but that they're just immune this time because there's such strong shortages

and they're just getting such good pricing and people are still buying cars and they want them and they're on wait lists? Yeah, the pricing, absolutely. The pricing is certainly the key to helping the automakers right now. One reason that you're seeing a number of the automakers, not Tesla, but a number of them under pressure, they got a bounce last year out of their EV plans that they've announced. Well, now we're in that gap between the announcement of the EV plans and when we actually start to see the EVs rolling out.

And in the middle, people are looking around saying, what have I got from the main automakers? I'm waiting for this supply of EVs to finally kick in. So that's why you see these stocks under pressure right now. Bill LeBeau. Phil, thank you. Do you want to point out the broader market? We just got a little lift here in the last few moments. Dow's now up more than 110 points. Joining us is Victoria Fernandez, Crossmark Global Investments Chief Market Strategist. Victoria, how are you thinking of the second quarter? We've just come

off of a very rocky period with some extreme moves. Best quarter for commodities in decades. Worst for bonds in decades. What do you do next? Yeah, well, I think a lot of this is going to ride on what happens in the next couple weeks when we actually have earnings kick in. Everyone is going to be listening to what's happening with profit margins on companies. They're really going to be listening to the inflation components for these companies. I think that's going to really drive sentiment. For us, though, we think even though there will probably be a little bit of a slowdown, we really don't see a recession being imminent. I know a lot of people are concerned about it because of the inversion in 2 to 10s.

But again, you look at that short-term part of the curve, that 3-month to 2-year, and it's actually steepening. We're 200 basis points there. So we're not concerned with the recession. With that in mind, we still like financials and we like adding a little bit of some of those value or some cyclical names because we do think there's still some runway for this market to do well before we start to see things turn around. I want to get into specific stock picks with you. I think you have Walgreens on your list, Victoria, which I'm noting because it's had a pretty rough week and down 16 percent year to date. And there are concerns now after the quarter yesterday about the bump they got from COVID and what's going to

happen next with testing and vaccines down. Yes, that's actually one of the reasons we like the name right here. I mean, we try to be opportunistic. We try to look at names that have been revalued. Their earnings were strong, actually, right? They had decent numbers come out. They're talking about the revamping that they're going to do with their stores. So they'll actually probably be a stronger competitor to CVS than what they have been in the past. And we think that with the stock down where it is, it gives you a little bit of opportunity to go ahead, go in at some of these levels. Yes, it gives you a little bit of opportunity to go ahead, go in at some of these levels. Yes, it might be a little strained going forward with some of the issues you mentioned, but we think longer term, this is a name that's going to continue to do well and you have a good buying opportunity right here. And give us a name within the financials.

And I note it because there was a note today from Wolf Research about how the brokers actually do better on rising rates than the financials, especially if we're worried about the inversion of the yield curve and that the banks have already really seen the move on higher rates. Yeah, you know, it's interesting, Sarah. Bank America is actually the name that we probably like the best right here. And I think people have to shift their thinking a little bit. They've always thought about the net interest margins for these banks between the short term and the longer term of the curve. But look, in 2010, about 60% of the loan balances for these banks were real estate related. Now that's

down to like the mid 30%. Most of their loans are either CNI loans or their credit card loans, which are tied to a much shorter part of the curve. So as the Fed hikes, net interest margins should actually go higher. So I think with that, with their balance sheets being in good shape, with dividends probably doing well and the revaluation we've seen, so they're cheap versus historical levels, this is a good place to be. And Bank of America is our favorite. Got it.

Victoria Fernandez, thank you from Crossmark with a few picks for us. Financials underperforming, but I will say with two minutes to go, we've seen a little bit of a recovery, a pretty nice one. In fact, it has up 150 points. Mike, I know you're monitoring the internals. Any catalysts for the spike just in the last minute or so? The calendar. It's first of the month, strongest month of the year.

We were down a percent and a half yesterday, I remember, in the S&P. So I do think it's probably all those things working together. Internally, though, the market has actually had a little bit of traction all day. There's been a lot more volume in the New York Stock Exchange to the upside than the downside stocks. So that's been a little bit of a positive point. I also do want to take a look at semis and transports. Typically, some bellwether groups, they're struggling a little bit right here. Semis down a couple percent. Transports, mostly it's the trucking and the rail stocks. Pretty weak ISM indicators.

Some other downgrades of the freight industry right now weighing on them. And then the volatility index is actually still in this kind of mostly okay, benign state. We have that big spike in the chart down below 20 going into the weekend. Probably sets that up as being fine for next week in the chart down below 20 going into the weekend. Probably sets that up as being fine for next week in the overall market. NASDAQ's up now a third of 1%. So we've really recovered nicely here as we go into the close. Take a look at the Dow Jones Industrial Average. We are higher by about 146 points right now. So things are looking a lot better than when we started the hour. We've got strength in names like Facebook, Microsoft, Google, Tesla,

helping the Nasdaq recover, energy and materials, real estate and utilities at the top of the S&P, industrials, technology, and financials still weak. But it looks like we are getting a close at the highs of the session. In just the last few minutes, a little spurt of buying. That's going to do it for me on Closing Bell. Have a good evening and a good weekend. Scott Wapner, Into Overtime.