Closing Bell - Closing Bell: Stocks plummet to end the week, Cleveland Fed President weighs in on rate hikes 4/22/22

Episode Date: April 22, 2022

Stocks got slammed on the final day of the week, with the Dow turning lower for the month – joining the S&P 500 and the Nasdaq. Cleveland Fed President Loretta Mester outlines her views on rate policy – including whether or not she thinks a 75 basis-point hike is appropriate. Analyst Brent Thill breaks down the tech trade ahead of a massive week of earnings for the mega-caps. And retail expert Dana Telsey discusses the trade on Gap – which shed nearly a fifth of its value after cutting sales guidance.

Stocks are falling hard. We are at session lows. The Dow is down almost 850 points, adding to yesterday's losses as Wall Street extends the week and ends the week here on a sour note, down 2.5% for the week for the S&P. The most important hour of trading starts now. Welcome to Closing Bell, everyone. On a Friday, I'm Sarah Eisen coming to you live today from Washington, D.C. Take a look at where we stand in the market. It's broad and it's ugly. The S&P 500 down 2.4 percent right now. Every sector lower by at least one percent. Even the better performing sectors like defensive groups like Staples down a percent. The hardest hit areas of the market right now, materials, health care, communication services and financials. It's a mix. Technology

stocks, growth stocks, value stocks, cyclical stocks, all getting thrown out today. Small caps down 2.5%. Check out the S&P 500 sector heat map. It really does show you just how extensive this sell-off is right now. As you can see, utilities faring the best of the bunch, down 1.1%. You've got three groups in the S&P now, down more than 3%. Communication services, health care and materials. Coming up on this show, a key interview as Fed policy is driving all this market action and this big sell off today. We will speak exclusively with a voting member of the Fed, Loretta Mester. She's the president of the Cleveland Fed about her outlook on policy and whether or not she thinks inflation has peaked.

Remember, Fed goes into quiet period next week. So this is the final word from the Fed. Let's get straight to the market sell-off as all the major averages are now pacing for sizable losses on the week. Joining us is Lizanne Saunders, chief investment strategist at Charles Schwab, and our own senior markets commentator, Mike Santoli. Mike, is all of this being driven by a repricing in Fed expectations? Now the market's getting even more aggressive when it comes to what it's looking for from the Fed. Yeah, it's part of the same process. It's the same story, only more so. I think that's where we find ourselves repeatedly this year. We've obviously repriced radically in the bond market. There's a general recognition out there and I would think by Fed officials own admission it's a relatively narrow and uncertain path to a soft landing and there's a lot to happen between whether we know we get there or not. All those things are the case today and yesterday. One of the things that stands out to me is how kind of orderly and mechanistic the selling is on the same angle.

All the indexes, major indexes today are down the same percentage. It just seems like a real step back from equity exposure in general. It's been about valuation compression all year. It's not really about the real time read on the economy or corporate earnings. And that process is tough to handicap exactly when it when it ends. We still, by the way, are trading above the lows from late January. That's not necessarily a virtue. It's just saying that we've been in this process for a while and we've kind of repriced the bond market a lot as

the stock market has gone sideways to down. To your note yield, Lizanne, 2.7 percent. Is that significant, what Mike just said, that we have not broken below the January lows? We've seen a reflatting a little bit of the yield curve today. Financial concessions have tightened. And Mike talked about where the market is relative to where it was in early January. But I also point to the rally that started on March 8th, which lasted to the recent peak at the very end of March. For all the talk about, you know, has the lift in the markets, is it suggestive of a better economic outlook or a better inflation outlook? That was a very low quality biased rally. It was the non-earners

well down the earnings spectrum. It was a lot of the narrative driven type areas of the market. I think that was more about short covering and some some bottom fishing reversion to the mean, you know, by what hadn't been working, as opposed to some healthy underlying message that the market was giving. So I think the theme more broadly this year has been one of economic growth, weakening, you know, elevated recession risk. And you have 10 rate hikes priced and now inclusive of three likely 50 basis points and then the idea of a 75. And it's just kind of a witch's brew. So with that in mind, Lizanne,

it's no wonder you've seen groups like utilities and staples, real estate outperformed. Do you stick with those groups, even though we have seen valuations get a little stretched here? Well, that's the problem. You have a sector like utilities real estate outperform? Do you stick with those groups, even though we have seen valuations get a little stretched here? Well, that's the problem. You have a sector like utilities, where the multiple is higher than the S&P. Utilities generally live in the value indexes, but that doesn't mean they necessarily offer value. As I've said on this show,

we've talked about it, Sarah. I think you can look for sort of defensive characteristics using that term somewhat generically as opposed to having it automatically apply to what might be perceived as typically defensive areas. I think you can look for value, lowercase v value. You can look for quality, strong balance sheet, strong free cash flow year, positive earnings revisions, and apply that everywhere in the market, not just to sort of preconceived areas that either define defense or define value. I would have that more factor quality approach right now, as opposed to trying to pick a sector or two. Mike, there are some positive spots today. Kimberly-Clark is rallying 9 percent off good earnings.

It's really showing that it's got pricing power. Twitter's up again, of course. And some other names like Lockheed Martin, some individual stock stories. Earnings season, are you getting any signs of caution from corporate America or is this just about the Fed and looking forward? Well, there are signs of caution. I mean, I think that in terms of downward guidance that you've had of companies that have reported, it's running a little bit higher than average. The beat rate is fine. The absolute earnings growth is not that impressive. I think it's OK. I mean, I think earnings growth is good enough. And in fact, coming into this week or coming into today, stocks were trading OK in aggregate off of their reports. I mean, up less than one percent, but not down, not a sell the news type response.

So I think that the caution or the reasons for caution lay ahead. It's not really about what happened versus expectations in the first quarter. It's really about how much of a squeeze they're going to be in the economy. Is the Fed looking to really, you know, crunch the housing market, for example, as those sector stocks would suggest they're afraid of? So, you know, I don't know if you can take that much comfort in the fact that earnings forecasts have held up, because really, we've been working on the multiple, not on the denominator here. Is there anything, Lizanne, a sign, you know, that this is just washed out or something from the Fed? Or is there anything that would make you take a look at some of these beaten down technology stocks?

Another day of heavy selling for the mega cap tech into earnings next week. I'm not I'm not sure we're there yet. And I think it may have something to do with the move up in rates and how that typically puts downward pressure on more highly valued segments of the market. But I also think what you're seeing is a change in approach toward how investors look at segments of the market, the acronym type stocks, you know, FANG or the big five. And what we're seeing this year that's very distinct from really the entire period up until this year post pandemic bear market is that we had these narrative-driven pockets of the market, the big five, the big seven. And now you're seeing much more divergence. And you're seeing, especially in earnings season, those that don't match expectations or have a negative pre-announcement

get hurt disproportionately. And I think we're rethinking this whole notion that narratives can drive groups of stocks, that you can look with a monolithic eye in groups of stocks. And I think that's falling by the wayside. That doesn't mean there aren't still opportunities in some of those areas that happen to live in the growth indexes. You just have to do quite a bit more homework on the fundamentals of individual companies. So at these levels, Lizanne, and just another hefty slide, down 845 points right now on the Dow, is the market starting to price in a recession? Is that in the forecast yet?

No, I think the market is pricing in a slowdown. Even when we were in rally mode, as I mentioned, there was that underperformance by the more cyclically oriented industries. But I wouldn't say that even on a down day like today that the market is pricing in a recession. I think that there's more pain to come if we start to get a more heightened sense of recession. I think a recession is a reasonable risk at this point. But frankly, it always is when you're in a tightening cycle. The last 13 tightening cycles,

we've had 10 recessions, three soft landings. You can do the math. And if you add in the unique factors of the Fed simultaneously trying to shrink a $9 trillion balance sheet, a war between Russia and Ukraine, unfortunately, a pandemic that is not the rearview mirror, a 40-year high in inflation, I'm not sure if those things collectively move the needle in one direction or another, how that moves the needle more towards soft landing. But there are still some strong parts of the economy. And the hope, of course, is that they continue to offset the weak areas. So you like quality stocks. Anywhere else to go? It's hard to go to bonds right now because they sell off so much every time the Fed speaks. Yeah. I mean, if you're taking a total return approach in the aggregate to bonds, it's been a very, very tricky start to the year. But there's also an opportunity now to move in,

even in short duration securities, to areas where you get that yield pickup after years for investors struggling to find anything with a yield. So I think with a more active approach, or if you have an active manager, there are opportunities in the bond market, too. It shouldn't be sort of thrown out as not still a benefit from a diversification standpoint and an income standpoint. Lizanne Saunders, thanks for joining us with the advice. Mike Santoli, stay close. We are seeing stocks plunging this afternoon. Dow is down more than 800 points. The Nasdaq down more than 300 points, 2.4 percent near the lows of the day as we head into the close. All of this as Fed officials weigh the size and scope of rate hikes at their next meeting in May. Joining us now for an exclusive interview, Cleveland Fed President Loretta Mester. President Mester, thank you for joining us. Thanks a lot, Sarah, for having me. So you just heard another really steep sell off, an ugly day on Wall Street. Is this part of the plan to see tighter financial conditions?

Well, yes, but not necessarily all at once. So again, you know, we're really committed at the Fed to get inflation under control, achieving our dual mandate goals of price stability and maximum employment. And as we've, you know, spoke, you know, many people have spoken to and the chair has spoken to, we are trying to let the markets know where we see the economy going and why monetary policy needs to move off of that really extraordinary levels of accommodation that was needed at the start of the pandemic. So we're in this sort of recalibration phase. You can think of it as a great recalibration of monetary policy from what was needed at the early stages of the pandemic and throughout the pandemic to support the economy to now moving off of those emergency levels, removing accommodation because inflation needs to be brought under control. And of course, our goal is to do that in a way that sustains the expansion and sustains healthy labor markets.

Right. The whole soft landing idea. So as we've heard from more Fed speakers, including the conversation that I had yesterday with Fed Chair Jay Powell, the market has increasingly priced in more rate hikes and more aggressive action by you. There are now several 50 basis point rate hikes priced in starting in May. Is that right to you? Well, they're reading the same economy data and making their judgment and then taking what we've said at the Fed about what our intentions are. I do think we have to be resolute and intentional in bringing the Fed funds rate up to a level that's neither stimulative where it is now nor restrictive, what we call a neutral rate. And I'd like my own view is I'd like to get there by the end of the

year. And my own estimate is around two and a half percent for the neutral rate. And then that puts us in a really good position to look at what the effect of our changes in monetary policy have meant for the economy, as well as a lot of other factors that are really driving these high inflation readings. For example, the supply chain disruptions, war in Ukraine, which is terrible, but also adding an economic burden in terms of higher energy prices, higher commodity prices, higher food prices, the zero COVID policy in China, which is affecting supply chains. So there's other things other than monetary policy affecting the inflation rates. But we have to do our part with our policy tools to reduce some of the excess demand in the economy and bring demand into better sync with the constrained supply side. And that's what we're in the process of doing now.

What about a 75 basis point hike, which is something that's been mentioned lately? Is that something you'd consider? Well, you know, everything is always being, as we always say at the Fed, you know, we consider everything. My own view is we don't need to go there at this point. And I'd rather be more deliberative and more intentional about what we're planning to do. And I see, you know, being on the path we're on now, you know, I would support at this point, given where the economy is, a 50 basis point rise in May and a few more to get to that two and a half percentage level by the end of the year. And I think that's a better path.

I mean, doing one outsized, a one off outside outsized move in the funds rate doesn't really appear to me to be the right way to go. I would rather be more deliberative and more consistent in bringing up the funds rate and signaling that that's what the path we're on. And then when we get to that neutral rate, where policy goes after that is going to really depend on how that policy has affected the economy as well as these other factors. We know that fiscal policy is going to be waning this year, the effects of the pandemic results, but we don't know how that's going to look. And so let's be on this methodical rather than overly aggressive path and then see how policy transmits to the economy and see how the economy evolves.

Remember, it's always good to remember that monetary policy transmits to the economy the expectations and movements in financial markets. So that's why I kind of favor this methodical approach rather than, you know, a shock of a 75 basis point. I don't think it's needed for what we're trying to do with our policy. Methodical multi 50 basis point hikes. Is that what we're talking about? Yeah. If I want to get to two and a half, which is my estimate by the end of the year, yeah, there's going to be some. And I actually would favor doing some of that earlier on in

this path rather than later, again, because we want to assess things as we go. So I'd be comfortable, you know, front loading this a bit. And I've said that before. And then, you know, we have more we're in a better position with our policy to really assess where things are. Speaking of how it's all going to impact the economy, President Mester, I did have a chance this morning to talk to Treasury Secretary Janet Yellen, former Fed chair, of course. And I asked her about investors increasingly concerned right now about the prospect of recession. Here's what she said about that. Just listen to this. I don't expect a recession.

Obviously, we are living in a time that's very challenging and developments in Russia, Ukraine and commodity markets, the Chinese situation. These are all risks. She doesn't expect a recession this year, despite the fact that we have all of these risks, including Fed tightening. To what extent do you think the economy will slow as a result of you guys doing what you have to do to fight inflation combined with the war in Ukraine and, of course, what we're seeing in China now, which is increasing shutdowns? Yeah, there's no doubt there's risks out there to the economy. My forecast now is that growth will slow from what it was last year. Remember, it was five and a half percent for the year. But I still think it's going to be above 2 percent, which is my estimate of trend. And I'm fairly optimistic that we can accomplish what we're trying to do with policy, which is

get inflation under control. And by that, I mean putting it on this downward trajectory. I don't think inflation will reach 2 percent this year or even early next year, you know, it'll be above 2% for a time. But I want to see that trajectory move down and then keep, you know, the expansion going and healthy labor markets. And the reason I'm a little, I'm fairly optimistic is first, you know,

monetary policy where it is now is very accommodative. You know, if you think the combination of our balance sheet, which is very large, $9 trillion, and then with policy rates, yes, we've moved it up from zero, but only 25 basis points. That's a very accommodating monetary policy. And it's going to take a bit of time to reach neutral. And the second reason is demand is far outstripping supply, even with all the uncertainty out there. You still see demand both in product markets and labor markets well above supply, which is constrained in both of those markets. So we can, our policy will, can work by slowing

excess demand quite a bit without actually affecting growth. And so that's why I remain optimistic that, yes, this is a challenge. There's no doubt about it. I don't want to, I don't want to underestimate the challenges. But I do think that by doing this, what we can do with our policy tools to put inflation on a downward trajectory, we're going to be helping to sustain the expansion and helping to sustain healthy labor markets. One of the problem is even with all of this, this hawkish Fed speak this week, including from the Fed chair himself, who was the most hawkish I've heard him yesterday, actually mentioning that 50 basis point hike, inflation expectations in the market have risen

since. If you look at the five year, five year forwards or some of these future looking indications in the bond market, is that problematic? Well, we don't want inflation expectations, the longer run inflation expectations to get unanchored from 2%. So, yeah, the risk of running inflation this high for this long is that it could pose a risk to those inflation expectations. And that's why it's important for the Fed to follow through on what we've communicated to the markets and to the public of what our intentions are with policy. So it would be, you know, policy malpractice, given where the economy is right now, not to change and not to reduce accommodation. And so what we need to do now is

follow through so that those inflation expectations remain well anchored and remain near our 2%. But it's certainly something that I'm focused on because that is a very good signal of are we calibrating our policy correctly? And the longer these high inflation readings go on, you know, the more chance there are that we could have inflation expectations moving up. That's not a place we want to be. And that's why I want to be very deliberate and very intentional of removing this excessive accommodation, getting to neutral expeditiously by the end of the year.

And then we'll have to determine whether conditions have changed so that we can pause there for a while. Or if inflation continues at high levels, then we're going to have to go beyond neutral. Expeditiously is the new word. You're all using that word. So you mentioned you don't expect clearly inflation to get to 2 percent target this year. That would be crazy. Next year, you said you don't even think you'll see it. When do you think the Fed can get back to its target? Yeah, I think it's going to take a couple of years. I mean, just the way the nature of this.

You remember the shock we've had is very different than any other shock. You know, a lot of it's supply side. So just in terms of our modeling of inflation, we have an Center for Inflation Research here in Cleveland. You know, it's just takes time to bring it back down to our 2% goal. That's okay. As long as we know that it's on a trajectory to get down, right? The issue is, are we going to see that trajectory? And that's going to be a consideration for my, when I formulate my policy views on whether we need to do more, go faster, you know, or not. And so that's why I'm focused on that. I'm focused on the, you know, what's really happening with both sides of our mandate as we go forward. They're all considerations. And of course, our balance sheet reduction,

you know, plans, which we articulated, you know, where the committee is centered on in the last minute, the minutes to last meeting, right, that's also going to be part of our toolkit for reducing accommodation. And we're going to have to see what the impact of the increase in interest rates and that balance sheet reduction will be on the economy. So again, this is a path we're on to, you know, control inflation. But we're going to be always assessing where the economy is, where we think it's going, what the risks are as we move through the year. President Mester, thank you so much for your time and for clearly explaining what you guys are doing. President of the Cleveland Fed, who is a voting member of the FOMC this year,

Loretta Mester joining us. Let's bring in Ben Emmons from Medley Global. He joins us by phone. A little bit of a reaction there in the market, Ben. We saw the two-year note yield actually tick lower, I think, on President Mester's comments that she's not in favor of a 75 basis point hike. She pretty much took that off the table for her, at least. And the stock market seemed to like it a little bit as well. What were your reflections? Hi, Sarah. Yeah, it was obviously the words about being deliberative and intentional about these rate hikes. So she confirms this with the market has been pricing a now series of 50 basis point hikes to get to that neutral rate, but not the necessity of having an outsized one-off hike of 75,

I guess takes a little bit of that anxiety away from what we experienced actually yesterday after you interviewed Chair Powell, because him putting the 50 base points on the table gave the market some sort of a green light to say, well, if you do 50, it could be a series of 50 plus, maybe the possibility of 75. So I think that dynamics have change here on her comments. She's the last one to speak before the blackout period starts, right? So as we go into that now, again, inflationator next week, market may consolidate a bit here on this idea. Well, an outsized hike may not be possible, but definitely a series of 50 basis points to get to neutral.

I think she also laid out somewhat of a predicament for the Fed, which is, you know, she said it'll take a few years to get back to the inflation rate that is their target, which is 2%. So if we see an economy that is slowing as a result of everything they're doing and sort of all the other shocks that we've that we're going through right now, while inflation remains high, what then does the Fed do in that environment and what does it mean for the markets? Yeah, it's definitely a predicament because, you know, you're going to have to keep interest rates higher than what you would normally have done. If, let's say, the economy really slows down, you would expect the Fed to pivot back to possible easing. In that higher inflation environment, that becomes less certain that that will be the case.

So that's something that we have to account with for. At the moment, we're still at the starting phase here. We have to get to neutral, and hopefully, in the Fed's mind, it will be sufficient to bring this hot inflation down. But we will be left with a residual of high inflation above the target for, as she says, a few years. So you cannot really cut rates as a result. You have to keep rates where they are or higher.

Right now, everything is getting thrown out. Every sector is lower. The Nasdaq's down about 2 percent. The S&P 500 down two and a quarter percent. All sectors lower, as I mentioned, Ben. You've been recommending some of the travel stocks, which actually have been doing well, and we've heard a lot of bullish commentary from the airlines this week. Is that a place that can withstand some of these shocks, including higher interest rates? Do you stick with that or is it just too cyclical? It's definitely cyclical, right? Because, yes, at the moment, that sector is rallying while rates are going up. So it seems not to be affected by the prospect of multiple series of rate hikes here.

But we have to recognize it's a reopening sector. It's a dynamic reaction by the economy, like everybody out there traveling and want to expand that. And therefore, these stocks go up because future revenues will be higher as a result of this reopening. We're going to get slow down there, too. We cannot ignore that energy prices are very high. A lot of these companies are not fuel hedged, right? So that could be another risk. And if the economy does slow down as a result of Fed actions, that sector, too, will cool off. At the moment, this is one of the off-bank sides

that I think you could continue to play against, you know, what's right now a difficult market. Ben Ammons, thank you for jumping on the phone. Medley Global with some reaction there to Fed President Mester of the Cleveland Fed. We're getting some breaking news right now on Disney. Julia Boorstin with the details. Julia, now what?

Sarah, Florida Governor Ron DeSantis signing the bill into law that strips Disney of its self-governing status in the state, of course, where it has Disney World. This ends the special tax districts in the state. These districts were established before 1968. The provision that has existed for so many decades exempts the company from the likes of building regulations and saves it tens of millions of dollars in certain taxes and fees. And this change could create as much as a $1 billion in bond liabilities for Florida taxpayers. But it is key to point out that this would not go into effect until June 2023. So there's still plenty of time to potentially appeal this law. So, Sarah, this story is far from over. No, Disney's down 2% with the overall market.

He said he was going to do it. I guess he went ahead and did it. I was talking to Kevin Mayer yesterday, who you know well, who used to be an executive at Disney. He said it was sort of a short-term issue for Disney. So what is the story here? Do you think they're going to appeal? How do they fight this? I think we're going to appeal. I mean, one of the things that's central to this issue here, Sarah, is the fact that because of this debate over the don't say gay law, Disney said they were going to cease their donations, their lobbying spending in the state and their donations to people on both sides of the aisle, politicians on both sides of the aisle.

So there's this question now of sort of what happens now. Does Disney start lobbying again, start making political donations? But it does seem like Disney is invested in Florida. They have so much real estate there. Walt Disney World is such a big employer for the state of Florida that both of these entities need each other. It's just a function of figuring out what relationship is going to work, particularly around these taxes. Yeah, it's hard to know who needs each other more. Julia, thank you. I know you'll stay on it. Julia Boorstin, stocks tumbling for a second day in a row, both the Dow and the Nasdaq off by about 2%. Mike Santoli is back to take a look at some specific areas of weakness. Mike, in today's dashboard, what stands out to you most?

Well, Sarah, former leadership areas, kind of bellwether groups, stocks and sectors that are on the verge of breaking down. Maybe they have actually observably broken down. Here you see semiconductors, the ETF, as well as Alphabet. Pretty similar chart, right, over the last two years. In both cases, they've kind of broken below what people were watching as potential important levels. It kind of separates that whole, you know, kind of rush to all-time highs from what's going on right now. You know, we're still going back to the early part of 2021 in terms of these levels. Alphabet had held up much better, but right now it has really just been wear and tear of the other big FANG stocks

having weakness. And a lot of the kind of accumulations of multi-trillion dollar market cap is where a lot of the selling has been taking place. Apple, the conspicuous exception so far going into next week. Now, also take a look at Tesla and Nvidia. Starting a few months ago, I was pointing out how these two stocks have seemed to move in sync with one another. This goes back to the very middle, June 30th of last year. And you see it really is in magnitude and in kind of cadence. They've been very similar. Now, what you see is NVIDIA has really broken to the downside here.

They've clearly still both companies considered having massive head starts in these huge disruptive areas. A lot of the same people know and love and own both stocks. And so it's not saying that Tesla has to necessarily follow along, although it did it back in January. And this relationship could break down. It doesn't hold up over a multi-year period. But just keep an eye on a lot of these areas that still people have had a little more hope that they were going to hold up. And, you know, often that's the final flush of a correction is when it's when the big stalwarts finally buckle. I'm just taking a look at some of the other markets.

Credit spreads widened a little bit this week, Mike. Yeah. What sort of read are you getting there and from some of the other markets as well? Credit spreads have widened a little bit. If you look at high yield spreads, though, they're not even that back to levels that they're worse from like mid-March at this point. I think it's been much worse in the kind of credit derivatives area. The areas that people use to hedge risk, that's shown a little more alarm than you actually have in people that own and trade the bonds. The volatility

index, I think you could argue, is sort of underreacting. I don't know that it has to get more dramatic, but it's very telling because we've been in this trading range. So it has been slow to react to this decline over the last couple of days, finally getting into the high 20s. But those two things, I think, kind of fit in with this picture of, you know, it's a stressed market, but one that's more just kind of fatigued and frustrated than it is really panicking right now, simply, again, because we've been in this for a while. It's been a familiar grind for a few months, even some of the same levels. Just kind of negative, downright negative. Mike, thank you. Mike Santoli, we'll see you soon. Every Dow stock, by the way, is lower right now.

Caterpillar is the biggest drag on the Dow, taking 90 points off. Actually, just one positive stock right now, and that would be P&G. It had good earnings this week. Kimberly-Clark, its rival, also had really good earnings today. We'll hit that a little bit later. But zeroing in on tech, as Mike just mentioned, the Nasdaq down nearly 2 percent, on pace for its third straight losing week, down more than 3 percent. After disappointing earnings results from Netflix, what can we expect to see next week when we get more big tech earnings? They're all out. Joining us now is about Kalina from Wedbush Securities on the phone. Joel, thank you for joining us. Sorry, I mispronounced your name. Joel Kalina. Joel, thank you for joining us. So what is the setup for tech earnings next week? Yeah, I mean, obviously, the price action of the last kind of

four or five days has been an eye-opener, to say the least. I think there was a lot of, you know, I want to say hope coming into the Q1 tech reporting season that would be a little bit better than kind of what we saw three months ago. And I think clearly Netflix has dashed all those hopes with a horrendous report from them. We've had multiple kind of negative preannouncements from the consumer tech space and Netgear and Corsair. And then Snap, maybe Snapchat wasn't as bad. But, again, it's really not eliciting any confidence in kind of the social media, you know, digital advertising space either. So there's a lot of caution. And I think Mike just

touched on it as well. That's kind of the concern. A lot of the market leaders have been holding up, you know, and up until today, I can't remember a time I looked at the screen and saw Alphabet down nearly 4%. Microsoft is kind of testing the low end of the range. Really, the only behemoth that is within striking distance of its height is Apple. So that, to me, is clearly the most important print on deck next week. What do you expect? You think that's a market bellwether, Joel? Yeah, I mean, that's 100 percent. I mean, still probably one of the, you know, it's still viewed as a safe haven. And checks across the street over the past several weeks have been very constructive as well. I think, you know, you look at, we actually got a lot of inbounds on Apple yesterday. The relative strength was very

impressive. And people are making the positive read-acrosses from what Tesla said in terms of Shanghai production. So the thinking is maybe that the COVID lockdown situation in China hasn't been as bad as Apple. And whereas other handset vendors are struggling with software demand, still Apple's a premium brand and their cycle still kind of moving ahead relatively steady. And then obviously they're expected to raise their dividend, probably the buyback as well. So again, the bar is somewhat elevated for Apple. But again, they continue to deliver one quarter after another. So that, again, is probably the most critical print we're going to see. Yeah, only down one and a half percent, again, sort of outperforming the broader market today

and outperforming an Alphabet and a Meta, for instance, which are down more. Microsoft's also doing better, down only one percent. Brent Phil also joins the conversation. He covers a lot of these tech stocks. Brent, any read-throughs from Netflix to the earnings we're going to get next week, or is it just sort of a sentiment thing with the FANG names? I don't think there's a direct read-through. I do think there's concern, Sarah, about the weakening consumer, and is this a sign that's going to filter in? I think our view is there's opening names, right? Are we watching more video and ordering more hoodies and Zoom equipment versus are we going to travel? Are we going out to restaurants? And so I think many of our investors are trying to shift their allocation of where money is going. So I don't think Netflix is a

read-through. I think the biggest read-through for tech right now is that it's a buyer strike. It's chilly out there. I was in Boston and New York seeing clients all week and no one wants to touch tech. Our desk is very quiet on the tech side. Everyone's concerned about the fundamentals. And are we going to see a drop off as it relates to the fundamental demand? Valuation has reset. That is the number one debate. That debate is gone now. The number one debate is our fundamentals going to hold. And I think investors right now do not want to be in front of this next week. I think most CFOs are going to talk more cautiously about the macro economy.

And if they don't, our clients aren't going to buy these stocks because it's inevitable that everything is starting to slow and we've got a pandemic hangover. Does that make you like any of them more than others? The fact that just sentiment has gotten so negative and valuations have come down? Yeah, I think we still, you know, favor again for our clients have to be long. So if you think about the Microsoft situation, Amy Hood is a phenomenal CFO. And I think she's going to come with the statement of the core enterprise business is strong. PCs are a little weak,

but our job is to over-execute relative to where the environment is. And that's been her tone. So that's a very good story that has obviously still double-digit growth, margins that are improving and an incredible position in the enterprise. Companies like Intuit, right?

On the tax side, you got to pay your taxes. And there's always a fear of them losing a share in the tax or not making the tax number. They've had consistency. That's a great story. 95% of the revenues in the US, you don't have to worry about Europe with the Intuit story. There's companies like Snap, right? Good growth, they de-risk. And they said, hey, look, we're not expecting growth to stay high. It's going to decline. And so the companies that actually give in and take the hall pass, you have to take the hall pass right now.

You have to guide more conservatively. If you don't, those stocks are going to get hit harder because no investor is going to buy it. Our clients are going to buy the names that hit the reset button on the expectation. And I think there's a handful of names that we're getting closer. But right now, no one wants to be in tech. Joel, this was one of the most widely owned groups of the market. It was. And some of the most widely owned stocks in the market. When you have a Netflix down 64 percent year to date, what does that do to investors that hold it in

ETFs, that hold it in some of the other funds, clearly there's a big spillover effect. Yeah, I mean, I think people who are still kind of holding on to these pandemic stocks and these not just pandemic winners, but the 2020 story stocks, the Cathie Woods of the world, I think they have to look in the mirror and realize that, you know, all these tailwinds that were a result of the COVID bo boom and the turbocharged growth and the very favorable, you know, central bank policy across the globe. Well, all those tailwinds have been reversing now for several quarters. And I think the Netflix print, yes, it is somewhat, you know, kind of company industry specific, but I think it is a warning sign to the other,

you know, the other of those high-flying stocks that valuations are most likely never going to be seen. What we saw kind of just 12ations are most likely never going to be seen. What we saw kind of just 12-plus months ago are never going to be seen again for, like, the DocuSign, Zoom, Pelotons of the world. And I think the key is just to avoid them. I think, you know, there's pockets of this market to own. And I think keep it simple is probably the best investment strategy at the moment. And I still love the reopening travel trade. Just go back to what Delta and all the airlines have been playing over the past week what cyber security have the tailwind of m&a and then just kind of wrote elevated

threat no for both government enterprises uh... so that there's been pockets of some kind of like so exactly the stuff the way but i don't in terms of being cute trying to catch falling chainsaw it's it's it's a people that could kind of you know we can't long the way as well it it's it's pretty ugly out there for progress in this market. So just kind of stick with what's been working and keep it simple. It's kind of the way most of my conversations have been going of late, at least. Brent, Jill, thank you both for joining me. As we watch the Nasdaq recover

a bit here, we're down only 1.7 percent. Appreciate the discussion. The Dow has also recovered. We're only down 679 points. We were down more than 800 just a few moments ago. S&P down 1.9 percent. So still a pretty broad and ugly sell off. But coming off of those lows as we go into the close, want to zero in on health care stocks. Bertha Coombs with some details on the movers there. Bertha. Sarah, we're really seeing a drawdown on health care stocks and really the ground zero is hca health care the hospital operator reporting a mixed report patient volumes are back they are seeing strong demand however on the bottom line they came up short and the reason is that they are seeing higher than expected

health care labor costs they're still using contract labor workers. They're trying to ramp up retention benefits, trying to keep people on staff. In some cases on the call, they say it even led to them having to cut back on some services because they didn't have enough staff to cover. So it's one of the things that people are looking at, particularly with hospitals today. They're getting hit hard. HCA, it looks like it might be its worst day ever, certainly as bad as we saw back in March 2020, when the hospitals got hit hard at the beginning of the pandemic. It's something that is also going to ripple through the rest of the health care sector, Sarah, because in order to deal with these higher labor costs, these hospitals are going to

look to raise rates for 2023. And that is certainly going to impact the insurers and the premiums that we're all going to be paying for 2023. So even as health care inflation has been a little bit lower than overall inflation this year, that could be about to change. Bertha Coombs, Bertha, thank you. We've got a news alert on Bed Bath & Beyond. Courtney Reagan with the details. Courtney. Hi, Sarah. Yes, so Bed Bath & Beyond owns Bye Bye Baby. Remember, it's part of the company. And there is a report in The Wall Street Journal citing sources that there are several parties that have expressed interest in acquiring Bye Bye Baby and the

article names Cerberus Capital Management and a SPAC that is run by former Casper CEO Philip Krim. Now, when I spoke to Mark Tritton, who is the CEO of Bed Bath & Beyond, just 10 days ago, he did indeed confirm, yes, we are exploring strategic alternatives for Bye Bye Baby. There is no guarantee that a deal will be done. And this is being done at the request of Ryan Cohen. Remember, he is the chairman of GameStop, and he now owns about 10 percent of Bed Bath & Beyond. Shares of Bed Bath & Beyond are higher by about 8 percent after being halted briefly when these headlines came out. Sarah?

It is a very useful store. I'll say that about Bye Bye Baby. Thank you, Courtney. Courtney Reagan, watching Bed Bath & Beyond spike on that news. Cryptocurrencies and crypto-related stocks are big underperformers today. Kate Rooney here with what's driving the weakness in crypto in particular. Kate? Hey, Sarah.

Bitcoin and other cryptocurrencies really struggling to keep any upward momentum in recent weeks. Bitcoin is down more than 4% in the last day or so. It's still really tightly correlated to tech stocks. So part of this broader sell-off and that move away from risk and investor sentiment overall really souring. Other major cryptocurrencies down as well today, although some look to be outperforming Bitcoin at this point. Then take a look at some of the mining stocks as well today, although some look to be outperforming Bitcoin at this point. Then take a look at some of the mining stocks as well. So these are the firms that are running those high powered computers to create new Bitcoin. So you've got Marathon Digital, names like Riot Blockchain, Hut8, that sector down an average of 40 percent this year. And it's been outperforming, underperforming, excuse me, Bitcoin today as well. Coinbase also faring slightly better than

Bitcoin itself. It's been down about 3% today. It's the largest U.S. exchange, still off by 45% so far this year, really getting hit by a slowdown in trading and investors worrying about margin compression as well. MicroStrategy and Jack Dorsey's Block, both companies still seen as crypto plays. They hold Bitcoin on their balance sheets, but down today as well as software and tech valuations compress. Sarah, back to you. Kate Rooney, that is the story. Thank you very much. Let's bring in Jim Bianco, president of Bianco Research. He joins us now by phone. Help us make sense of what we're seeing, Jim, in the bond market and the carnage in the stock market this week.

What did we learn broadly about the Fed that we did not know? I think Jay Powell's comments yesterday that the labor market is hot is suggestive that the Fed thinks that they can get really aggressive in raising rates and not cause people to lose their jobs. So we've got now the market all of a sudden pricing in not only a 50 basis point rate hike for May 4th, but a 75 basis point rate hike for June and another 50 basis points in July. 175 basis points of rate hikes in three months would be the most we've seen since 1980, 42 years ago. I will say, though, that Cleveland Fed President Loretta Mester, who is a voter, was just on with us a few moments ago.

She said that she's not there on 75, does not want to see a shock like that. And I do feel like she's more closely aligned with the center of the Fed and the chair than, say, Jim Bullard. Is that wrong? No, it's not wrong. You know, the Fed may not be there yet. But also this is part of who's leading the Fed. Is it the market that's leading the Fed or know, the Fed may not be there yet. But also, this is part of who's leading the Fed. Is it the market that's leading the Fed or is it the Fed leading the market? If the market's going to price in 75 basis points and leave it there, we might see the Fed,

you know, average move. That's the pattern that we've seen over the last several months. Either way, it looks like there's a realization that this Fed is very serious about inflation. It is going to raise rates and raise rates aggressively. As a matter of fact, I've been saying there might not be another 25 basis point rate hike. It's going to be 50s all the way through until they're done. And the metric that's going to make them stop is going to be falling inflation, not the employment market, not the general state of real growth. Two-year note yield just below 2.7. It turned a little bit lower on that interview. Where do we go from here, Jim? Is that going to hit 3%? And what does that do for stocks?

Well, unfortunately, the history has been that when you see epic moves in the bond market, and this from a total return basis using interest rates and prices is the worst market we've seen in the history of statistics, which goes back to the mid-'70s, usually doesn't stop until something breaks. Now, that doesn't mean the stock market. It can mean something in the economy or can mean something in the financial markets. I'm unfortunate that they have to say that, but I think rates are going to keep going. Yeah, they could probably continue to move higher from here until we finally get to that point that something is put offside, and then we'll probably see some kind of a rally in the bond market. So it's too early to start looking for some kind of a peak in interest rates. And the stock market, I think, is finally

coming to that realization. Jim Bianco. Jim, thanks for jumping on the news line. Heading south again here now, down more than 700 points. Remember, we were down almost 900 at the lows of the day, just at the top of the hour. We're going to go straight into the closing bell market zone. Commercial free this hour on this big sell-off. CNBC Senior Markets Commentator Mike Santoli is here to break down these crucial moments of the trading day. Plus, Telsey Advisory Group's Dana Telsey on GAAP's big plunge and revenue warning. And CFRA's Sam Stovall on the big sell-off across the market. Another very ugly day on Wall Street, though. We are off the worst levels. The Dow going negative for the week and for the month of April, joining the S&P 500 and the Nasdaq.

Mike, it looks like we're looking for a decline of about 2 percent on the week for the S&P 500. Is it about rates? Is it about earnings and the outlook? Just sum it up for us as far as what we're set up for next week, which is another huge week of earnings, including big cap tech. Yeah, I mean, it's obviously about rates. It's about yield. It's about the idea that it creates a very rocky path toward the desired outcome, which is a tightening cycle that doesn't put the economy into recession. If I looked at the economic numbers, they're not giving you fresh reason to worry, right? The economic surprise index is on an upturn. The leading economic indicators printed a new record this week. Usually it peaks well before a recession. It's all about

can we absorb what the market now prices in in terms of rates? Now, that being said, it's also this massive unwind in the former growth leaders. And I don't think it's just about yields. The implosions of Facebook and Netflix has everybody looking to cut risk in every other type of digital business that you thought had a massive addressable market and network effects. And so that's happening alongside the rest of it. And by the way, we've been talking about this being a trading range for months. What's the bottom level, bottom of the trading range? Forty one hundred to forty three hundred on the S&P.

So we're now kind of at the edge of the of the low band there. Yeah, Mike, thank you. Well, let's hit gapap because retail is getting hit overall, but nothing like Gap today. It's getting absolutely hammered, losing around a fifth of its value. The company announcing a double whammy, slashing its first quarter sales guidance and saying Old Navy chief Nancy Green will be leaving her post later this week. Let's bring in Telsey Advisory CEO Dana Telsey. Old Navy was the was the bright spot, Dana, and also thought to be well positioned in this kind of environment of a consumer slowdown. What is going on here? Basically, you have an issue at Old Navy, given its 55 percent of sales, 1,200 stores. They've been having the wrong balance of merchandise for a while now that

was supposed to be corrected by the second quarter they didn't switch to occasion and reopening where as quick as they should have they stayed with casual and they're missing the mark everyone's talking about dresses tops footwear all doing well because people are going back to weddings they're going out to parties and they're going out to restaurants old navy's not positioned and with a consumer with a household income of $75,000 and the headwinds of inflation, the headwinds of what you had going on with the cold weather spring, their hit and their merchandise is not balanced properly. This takes all of this year. It's a lost year. And losing a CEO, bringing in a new one, we may not be back to where you need to

be until 2024 to get this right. Wow. So, I mean, it's interesting that you said that about the income levels, because I did a report earlier this week about who gets hit in consumer stocks by rising interest rates. And what I learned from some of the analysts is it's the lower income consumer stocks, you know, five below that do OK, the dollar stores, and then those that cater to the higher income who are less or I guess more immune to the higher interest rates. But those in the middle, like a gap, get squeezed. Who else is at risk here? I mean, when you think about the other players, it's anyone who caters to families. I mean, and these family apparel retailers have a

real issue. We've heard about it and we've seen it from some of the teen apparel retailers have a real issue. We've heard about it and we've seen it from some of the teen apparel retailers where it's been slow. We've heard about it and seen about it from some of the women's apparel retailers. If you're stuck in the middle with that midpoint, you got to watch. And that trade down you mentioned, that'll help the off prices over time too. But it's that middle department stores that really gets hurt. We're going to watch Kohl's numbers when they come out because obviously there's other things happening there, but you want to see if there's an impact. And we're watching that closely while the reopening high end works on the reopening. Gap has really been hit hard. It's now down 64 percent over the last 12 months. Is there a level

that that looks attractive to you? Where's the earnings going to be? You're going to have a loss in the first quarter. You're going to have a year, basically, that you'll probably be lower than what you've had in the past four or five years. Do they look at an Athleta to break it off and potentially get some more value there? We know they tried a couple of years ago to split off Old Navy and Athleta. That didn't work. I think overall, the stock is dead money to move lower until we see some stability. Watch other valuations of other retailers because this could be the opportunity. To me, this is more gap specific. And whether it's other things that are interesting, like a Ralph Lauren, like an Ulta, like the Estee Lauder's, that's what I'm watching.

That's what you like better, Ralph Lauren, Estee Lauder and Ulta. Yes. Got it. Dana, thank you. Dana Telsey on the retail stocks. Want to hit another consumer name that is actually a big winner today, which is Kimberly Clark bucking the broader sell off the company, which makes Kleenex tissues and Huggies diapers beating on the top and bottom lines, raising its full year sales forecast for growth. The stock is jumping about eight and a half percent, but the company did warn costs would rise higher than

anticipated. Mike, it was a big surprise for Wall Street because even though we got the same kind of numbers from Procter & Gamble, Procter & Gamble was always seen as sort of the leader in the group when it came to sales growth and taking market share. What we got from Kimberly-Clark was really strong, and I want to highlight two points of strength, North America and also the business segment for Kimberly-Clark. And it was a mix of higher pricing, so they are able to pass it through, and also higher volumes. It's an interesting move, given that this appears to be one of the favored parts of the market right now. Yeah, I mean, Kimberly-Clark, you know, somewhat of a, not necessarily a serial dispointer, but one where there's a lot less confidence that

they are going to get pricing, stick the numbers. And they did it this time. I also think they're benefiting, at least in a backdoor way, from just people wanting to own the very traditional defensive stocks. Staples have been a great performer. People are willing to pay 24, 26 times earnings for a Kimberly-Clark. Because, by the way, in a high nominal growth economy, they do capture some of that consumer price inflation. So it makes sense, given what's going on right now. Hard to necessarily extrapolate this onto multiple quarters of good results. We're showing you the intraday Dow chart because we just took a leg lower,

and we are now making new session lows with minutes to go into the close. Down 956 points on the Dow. S&P 500 also making new session lows with minutes to go into the close. Down 956 points on the Dow. S&P 500 also down in session lows. Every Dow stock is lower right now. United Healthcare is the biggest drag, along with Caterpillar, Goldman Sachs and Home Depot. Every sector in the S&P 500 is lower right now. The S&P down two and three quarters percent. The Nasdaq composite down two and a half percent. So we are sinking as we go into the close. Worst performing sector right now, materials, health care, communication services and financials. We spoke earlier to Cleveland Fed President Loretta Mester. She gave a little bit

of a piece of positive news for the markets when she said a 75 basis point rate hike, a triple, in other words, is not really what she's thinking about. Have a listen. My own view is we don't need to go there at this point. And I'd rather be more deliberative and more intentional about what we're planning to do. And I see, you know, being on the path we're on now, you know, I would support at this point, given where the economy is, a 50 basis point rise in May and a few more to get to that two and a half percentage level by the end of the year. Joining us now, Sam Stovall, chief investment strategist at CFRA with the Dow down 918 points. Just just getting uglier, Sam. It's a brutal week on top of several brutal weeks that we've had

in this market. What do you do in this environment? Well, absolutely, Sarah. We've been seeing volatility three times as high year to date through April as we have on average going back to World War II. So the market is nervous. And I think that based on the fact that we've been seeing large, mid, small caps, as well as the Nasdaq, fall by similar amounts, the implication to me is that investors are expecting a slowing economy and that prices are leading fundamentals. And even though we've been seeing an improvement in Q1 earnings estimates in full year 2022 estimates, that those numbers are likely to be coming down.

If it does feel more about the Fed than about earnings, the S&P, just if you're keeping track, is now down 10 percent for the year. So a correction this year, officially. NASDAQ composite down 18 percent, Mike, for the year. What sort of levels should we be watching? What sort of action should we be watching when we get heavy sell offs like this? Yeah, I mean, keep in mind that the lows that we've traded intraday this year, back in March, are below 4,200 in the S&P. So, you know, 4,170 was a close in mid-March. That was the low. By the way, the low on the day before the first rate hike.

So the way the market has gone is it's worked itself up into an anxious state, anticipating Fed hawkishness, anticipating how aggressive the rate hikes are going to be. And then we got the first hike and there was a bit of a relief by the news type reaction. Who knows if we're in for something like that? It's more than a week till we get the next Fed meeting. But the market has been unable to make much use of the typical late April seasonal tailwinds, that's for sure. So I think, you know, we're at these we're at the zone in the forty two hundreds where, you know, the market has a few times more or less kind of gathered itself here over the course of three months. Four week losing streak here for the Dow S&P 500 on a three week losing streak. And so is the Nasdaq. Sam, would you buy in a sell-off like this? Would you look for opportunities? Not yet. I believe that, as Mike was implying, that we still have more to go in terms of what the Fed is likely to do to slow the pace of inflation. Going back to World War II,

whenever the Fed started a rate-tightening cycle, you had the Fed funds rate above the year-on-year CPI level and that the average was a difference of 40 basis points. This time around, the CPI is higher than Fed funds by 825 basis points. So we have a long way to go to get to neutral. Well, I guess the question is, is how much the economy can handle in the meantime when it comes to these rising rates, these inflation shocks. Sam, some of the better performing sectors, utilities, consumer staples and real estate, they're down today, but they're working a lot better than materials, health care, communication services, financial.

So basically anything tech or cyclical related. Do you stick with those kind of stocks, especially after a quarter like Kimberly-Clark just put up? Well, I think you stick with those groups that are showing strength despite the downward movement in the market. Looking at those groups that are above their 10-week and their 10-week moving averages above their 40-week, you're seeing names like fertilizers, food retail, agricultural products, and farm machinery, as well as many of the oil areas. So I think you basically let your winners ride at this point. Mike, I just want to point out some new 52-week lows, which are actually lows that are longer than that. Meta and Netflix both going to new lows on some real fundamental concerns

ahead of earnings. Is that it for FANG? Well, I mean, obviously FANG is kind of splintered up. You've got very specific corporate drivers here. What's interesting, too, is I mentioned earlier Alphabet starting to feel the pull of that same type of gravity. At some point, they all of a sudden start to look more reasonably valued. I'm not saying all of them. I'm not saying Amazon is close. But Alphabet, I just looked earlier, it's got above a 5% free cash flow yield based on this year's numbers. It's probably going to hit those numbers. That's not too bad in an environment where we're talking about other

companies having their earnings growth rate challenge. That's not going to be the thing that turns the market, but it's going to be the thing people notice once we maybe get a flush and start to stabilize a little bit. And when, you know, when valuations come down, risk goes out of the market and forward returns improve. You just never know when that moment is, when the math is going to start working really in your favor in the short term. Twitter's up 4% of bucking the trend. Sam Stovall, thank you for joining us on this sell-off day. Down 2.75% on the S&P. We've got two minutes to go in the trading day.

Mike, what are you seeing in the internals right now? Well, this is a pretty comprehensive flush. At times today, the NYSE was looking at a 90% downside versus upside volume. Not quite there, as I do the math in my head, but it's still still very very lopsided in terms of the breadth of this sell-off what's been going on all year and this is really you know the Fed effect the risk aversion effect is high beta stocks aggressive volatile stocks have massively underperformed take a look at those versus more defensive low volatility stocks real divergence there starting especially in April so that's a very big spread of performance there,

about 11 percentage points. The volatility index I mentioned earlier, we're still below 28. Keep in mind, we got well up into the mid-30s at the early-year correction levels. That's because it's a Friday, and it's because we've seen these levels before. The S&P is in this very choppy,

kind of nerve-shredding trading range. It's not gone straight down. We'll see if it continues lower from here. But for now, the VIX is saying, we've done this already. We've been at 42 and changed before in the S&P. We are now down 1,000 points on the Dow with moments to go until the close. 1,009 points. It's been a sell-off pretty much all hour long. Got a little bit of a reprieve and then heading south again, Down 1,019 points on the Dow. Every Dow stock is lower.

Every S&P 500 sector is lower. We're adding to our losses for the week. It's the fourth week in a row where the Dow is down third for the S&P 500. S&P down 2.8%. Lower for the week and for the month. The Nasdaq down 2.6. And there goes the Dow at the close. Down just less than 1,000 points. Have a great weekend, everyone. That's going to do it for me from closing bell.