Closing Bell - Closing Bell: Stocks sink as oil spikes, CME Group’s CEO on wild swings in commodity prices, and Petco’s CEO on whether the pet industry is inflation-proof. 3/23/22

Episode Date: March 23, 2022

Stocks closing near session lows as oil prices jump to nearly $115. Cannacord Chief Market Strategist Tony Dwyer explains why he thinks investors should be buying stocks on bouts of weakness. CME Group Chairman & CEO Terry Duffy on the recent volatility in commodity prices and his exchange launching new crypto products. And Petco’s CEO discusses whether customers are still spending big bucks on their pets despite the spike in inflation.

Stocks are down, yields are slumping, and oil is jumping. The most important hour of trading starts now. Welcome to Closing Bell, everyone. I'm Sarah Eisen. Here's where things stand in the market right now. Down 350 on the Dow. S&P 500 pulling back a full percent. Only sectors higher right now are energy and utilities.

The Nasdaq down a full percent as well, and small caps getting beaten up hard. Down 1.5 percent. A reversal from yesterday. Dow now down for the week. Here are my top takeaways on today's big stories. General Mills finally seeing some pricing power. Great for investors, not so much for consumers. The company behind Cheerios and Betty Crocker says profit was a beat. The outlook is strong after struggling last quarter. Why? More people are eating at home, and more importantly, they're paying more for groceries. Expect more price hikes on your pantry items.

On inflation, with gas prices spiking, there's a lot of worry about whether U.S. consumers can handle it. Will it sink us into recession? Wells Fargo's economic team took a look today and says no. Importantly, wages have outpaced gas prices over time, especially with this latest wage bump. So even with record high gas, the outlays, which is how much we spend based on what we earn, aren't as high as in other cycles. And meme trades are back. GameStop up another 15 percent on top of yesterday's 30 percent spike. Some say, great, it's healthy that retail traders are still engaged. Or is it really? Does it actually show that as painful as the past few months have been in the market,

it's not been painful enough to strike fear in investors that keep them away for a while? Matt Maley of Miller Tabac, a technical analyst, says it shows there's still a high level of complacency out there. Let's get to our top story. The market stocks pulling back after a rapid rally that we saw over the past week. Canaccord Genuity's Tony Dwyer out with a new note saying bouts of weakness are opportunities to add exposure. Tony joins us now along with Richard Bernstein from Richard Bernstein Advisors. And Tony, let's start there. You have a new note. Are you buying today's pullback? Well, Sarah, back in January, I remember you saying, wow, I'm surprised that you're more cautious. I'm not used to you being that way. And really, since last summertime, we've been talking about a tumultuous market outside of a year-end rally last year.

And if you look at what has happened over the course of the last year at the low, when the S&P was down 14 percent, the Nasdaq and Russell were down 20 percent. You have to almost go back to the end of 2020 to see those levels. So you gave back all those gains in the markets had gone nowhere. But when you put all that into the background, we're still in a tumultuous market. I do think we're still going to pull back. But that thrust last week had a historic precedent that I just can't ignore. It's a hard call when you're in the middle of a war. You've got the Fed raising rates, maybe 50 basis points at a time. Inflation is crushing the cost of everybody and companies. But a lot of times when you get the thrust like you got,

so just to make it very specific, the S&P 500, we found that when it was up more than 6.95% like it was in the four days that ended last week. So you had a four-day rate of change of 6.95%. It was up 23% median gain a year later. 14 of the 16 occurrences were actually up double digits. So that argues for more strength ahead, Richard. I remember you've been warning for months now about a bubble, even when things were looking good. And now that we have seen this sharp deterioration in the markets, do you think there's more

room to go? Or do you agree with Tony? It looks like the damage is done. Well, Sarah, I think what you said, sharp deterioration in the market, I think I still view the market as being more of a seesaw right now, where the market itself really hasn't done as much as people think. But because people have been on one side of the seesaw, their pain has been extreme. If they've been on the other side of the seesaw, I think they're actually pretty happy right now. If you're in things like

energy utilities, you know, things like that, I think you're probably pretty happy. And so I think the dispersion among sectors and sector performance is actually the bigger story than the market, so to speak. And I think that's going to continue. But would you add to exposure in those sectors that are doing well? Energy, materials today, utilities as well? I think that there's a longer term story here. I mean, I think that one of the big surprises could be that energy is actually a growth sector. You know, the energy sector right now has the highest dividend yield of any sector. So that would classify it as a value investment. But what most people don't understand is that on a bottom up projected five year growth basis,

energy also ranks number one for earnings growth. So it's the number one for dividend yield. It's the number one for secular earnings growth. That to me sounds like a long term investment story. What about you Tony when you look at the sector divergence and performance what looks best to you would you go to the most beaten down parts of the market

namely technology. So sir the only way that the market really rallies over the course of the next year like all the data supports is if you actually have the short end of the yield curve come down in other words it's already discounted what the fed's going to do already the rate move has significantly impacted the lower end of the

housing market from all accounts that i can hear when i talk to various analysts in the space and it'll eventually move up the the food chain and one of the problems that that the fed has when they talk about the neutral rate when they're rates, is that they don't take into account the price increases. Remember, after every recession, they throw an infinite amount of money at the market, which goes into investment that lifts the prices of assets. So when you raise rates, you're not raising rates against the same price. In other words, I can afford a house and make up a number a hundred thousand dollars at three percent. I may even be able to afford it at four percent but can I afford a hundred and fifty thousand dollar house at four percent.

So that affordability index deteriorates much more quickly because when they threw all the money at us and made it so cheap, it lifted the asset prices to the only way to turn it over is to have a lower interest rates to be able to afford that monthly number. Two thirty two is the year, by the way, on the 10 year. Everything's reversed from yesterday, the sell off in bonds and the rally in stocks. Tony Richard, thank you both for joining us with some of your takes. While stocks are falling, take a look at commodities jumping again. Oil's up more than 5% today, 50% now for the year. Nickel prices are popping.

The first gain since March 7th when nickel hit an all-time high, leading the London Metal Exchange to halt trading. Joining us now on all of it is CME Group CEO Terry Duffy. In the center of all of the action, Terry, what have the volumes been like for all these products that you have there, commodities, rates, oil prices in particular? What does it look like from your vantage point? Well, Sarah, I think you have been talking about this as many of your guests have over the last several weeks. I mean, the prices are all over the place. The volumes are associated with it. You get ebbs and flows in the spike of volumes going up and down, depending on which way the

market's going at any given moment in time. We're all interdependent on all these geopolitical factors that are playing into it. You talked a moment ago just about, you know, the commodity markets. Let's talk about a second about wheat. I mean, you look at a third of the wheat production, the world's production is coming out of two countries that are at war with each other right now. So if that comes off the market for this year, next year, and maybe even the year after, I'm not suggesting it will, but if it does, where is the market going to go? I mean, we're not just talking about people shooting each other, which is catastrophic in itself. We're not talking about a financial collapse. We're talking about hunger here. And this is a big issue for us.

So risk management associated with these products is critically important. What about liquidity? Has that been an issue? You know, people have talked a lot about the liquidity. The liquidity can be an issue in times of stress no matter what market you're trading. If you're trading an IBM stock or if you're trading a wheat contract, it all depends on what's going on. Liquidity comes and goes, as you know. People don't stand in front of freight trains because it's fun.

So there's a lot of stress in the market system. There's so much uncertainty. There's things that we've never seen before. There's so many people that are trading the markets that have never seen inflation. We're at inflation for the first time in 40-plus years. People have never seen a downtick in the equity markets that are participating.

So people have not seen an on-the-ground, boots-on-the-ground European war. So how do they participate in that? And in return, the reflection of liquidity is associated with it, Sarah. So it's not a surprise to me. I've been doing this for a long time. And people pull back during the unknown times that we've seen. I don't know if you can hear. There's a birthday going on here on the floor for one of the traders.

I can hear the birthday. Is it yours? Is that yours? It's not for me, no. Mine's in August. Terry, what about margin? Are you requiring traders put up more for trading futures in these commodities, given all the action we're seeing?

We don't put it up just because of, you know, at will. I think that's really an important factor here. There are calculations that go into our risk protocols that we've been doing for years to protect the system. So yes, margins go up and down depending on the risk associated with it. And we have not deviated from that strategy. CME is a neutral party, a neutral facilitator of risk. We don't have a stake in the game as far as the market goes up or down. So margins are associated with the risk of the product, Sarah. Because we've heard about this happening and some potential pain out there, Trafalgar having to raise more funding.

Do you expect any commodity shops to blow up as a result of some of these crazy one-way price moves? Well, I mean, Sarah, that's speculation at best on my part, and I wouldn't go there. to blow up as a result of some of these crazy one-way price moves? Well, I mean, Sarah, that's speculation at best on my part, and I wouldn't go there. So I have no idea. All I know is that the system that I'm running here is highly capitalized. I'm sitting on $150 billion of client cash, sitting on a massive default fund that we've had for years here at CME Group. We managed to risk appropriately, and that's our job, and that's what we're trying to do. Now, people come and go. As you've seen throughout the years. We saw it in 08. We never thought we'd see banks fail, but they did. So I'm not suggesting they will, and I'm not suggesting

they won't. I don't know. What's going on at the LME? I know it's a competitor of yours, but the nickel, it's crazy. They had to cancel trades, suspend. They can't seem to do anything right. And since they've started trading again, there's been all sorts of suspensions. Is this something that could happen at the CME? So, Sarah, I'm always cautious about criticizing anybody else when you're in the same business, but I will say a couple of things about it. I think that LME has had some issues and they have not had procedures and protocols in place that we have had here in the United States for many, many years. I'll give you a perfect example. April 20th, 2020, we all saw

the price of West Texas Intermediate go to minus $37.50. I had worked with our regulator to make sure that we had strike options put in place for those potentially if the market went negative. It did, so we could manage the risk and have a true reflection of it. We did not bust trades because we didn't understand the risk. Breaking trades lends to taking away from the credibility of any central market, whether it's on OTC or whether it's on a listed platform. I think that's a big concern for the participants. And they didn't have any hard position limits like we do on our agricultural products and some of our other products. And they didn't have any of the technology like we have with stop logic

and other velocity logic functionality. It associates with slowing down these markets so you don't have to go through what they did at LME and the customers suffer for it. So are you gonna make a play? Could you launch a nickel contract? I know you've had, what, copper futures? I can list a nickel contract if I wanted to, Sarah,

but the question is, do I want to? I already have copper. I have aluminum. I have other products that I compete with LME today. I'm in a very comfortable position from there. Listen, I'm in this business. We're in 180 years in this business. We do things in a methodical way to make sure that we create opportunities for our clients to manage risk. But we're not in here to take advantage of a nickel trade because they screwed up.

So I'm going to be brutally honest with you. Will I list a nickel trade? I'm not sure. The question will be I'm managing risk and a whole host of products right now, Sarah, that are critically important to the health and well-being of the world, such as food, such as energy prices, mortgages, everything that you talk about every single day. We're talking about nickel because of a mistake made by an exchange. Sounds like it's at least something you're considering, Terry. Another product that you are going deeper into is crypto and Bitcoin. You're launching, I think, next week, the mini options for Bitcoin and Ether. Talk about what you're seeing as far as demand for

all of these products and participation and volumes, given some of the sharp swings? Here, I have probably a different version on this than most. And the question is, with crypto products, is it the use of the product or is it the value of the product? And I think there's a lot of people that are being disingenuous with themselves about this.

So a lot of people made money on the value of the products. I actually believe if this thing is to be successful it's around the use of it that's why I listed it I want to list contracts that I believe are going to be for the use of the product which people need to manage the risk associated with it the speculative nature of you know going from $8 to 61,000 is exciting and fun but that's not the use case of the product so we are going to continue to offer some of these crypto products to our retail participants into smaller contracts, some of

the larger ones to our institutional contracts. And if they want to use those to have a diversified portfolio mix, that's what I'm going to offer them. Well, you clearly see growing usefulness of it. Terry Duffy, thank you very much. Good to talk to you. Thanks, Sarah. Not enough time. Everything is moving in your world. After the break, stocks and bond yields moving in tandem once again today. And this time they're going lower. But which part of the market is the better value? Mike Santoli breaking down the charts in today's dashboard.

You're watching Closing Bell. Dow's down about 360 off of the session lows. S&P down a full percent. We'll be right back. S&P down a full percent. We'll be right back. S&P down a percent. Treasure yields are pulling back today after the 10-year hit its highest level yesterday since May 2019. I think 241 was the high. Mike Santoli taking a look at the relationship between stocks and bonds at the dashboard and whether the whole valuation argument for stocks has changed. It's probably eroded a little bit, at least if you believe this whole stock bond valuation method. This compares the earnings yield of the S&P 500. So that's basically just forward earnings divided

by the price today against the 10-year Treasury yield. So what you see here is the post-global financial crisis level. When this is lower, it means stocks are more expensive and less cheap. So here you have it, basically as expensive as they've been since the global financial crisis. Up here, it's the 0.9 low. There's the 2020 low. That's when you had real opportunities to get back into equities at lower prices. What you will see, though, is here's the 90s, and it was chronically expensive relative to bonds. So there's no one rule that says here's the right

number for this regime. This is expensive. This is cheap. And what's interesting here is inflation was the enemy in the 90s. Deflation was the enemy here. Are we back in an inflation is the enemy regime where this isn't going to matter as much? I feel like for so long, the mantra on Wall Street was, Tina, there is no alternative to just put your money in stocks because bond yields were so low and it made everything else look better. And that's totally gone right now. Now we have higher yields. We have junk bond yields higher, credit bond yields higher. And so there is an alternative. It's funny. And it makes them look less, less appealing and more expensive. Absolutely true. And what's funny is when there is an easy or obvious alternative,

people don't want that alternative because they will find reasons why bonds are dangerous right now because yields are going to keep going higher. So even though it feels like, well, it's intuitive, maybe bonds have some value to cushion your portfolio right now because you've rebuilt some yield, people generally don't want to see it. Dividend yields also. Yeah. They're well below treasury yields. Mike, thank you. Still ahead, Petco's CEO saying at today's Investor Day that the pet category is, quote, resilient to inflation. He'll join us live at Post 9 to explain why. And then later, homebuilders selling off as mortgage rates rise and housing data weakens.

We will ask an analyst whether he's buying the dips in this group. We'll be right back. Welcome back to Closing Bell. Check out some of today's top search tickers on CNBC.com. The 10-year yield drawing the most interest today, ticking lower after a huge rally yesterday, at least a sell-off in bonds, and saw yields jump up to 241. That was the high yesterday, coming back down to the low 230s today. Tesla comes in number second, number two, holding gains after yesterday's big jump on the new Gigafactory in Europe opening. GameStop also popping today on news of a new share purchase from Chairman Ryan Cohen, who helps fuel a lot of the retail excitement. Crude oil and

Apple rounding out the list. Everything on the top search tickers is higher. Are consumers still spending big bucks on their pets? Up next, the CEO of Petco, fresh off his investor day on whether inflation is forcing shoppers to cut back on their purchases. Closing bell back in a moment. Dow down 343. Should investors looking for inflation-proof stocks be turning to the pet sector? That's what Petco CEO Ron Coughlin said at the company's investor day today, held just over a year after returning to the public market. Petco chairman and CEO Ron Coughlin joins me now. Resilient to inflation and the economy,

really? It's that basic for people spending on pets? That's what history tells us. If you look at the Great Recession years ago, the pet industry was resilient through it. And once again, we're seeing that. There is a relatively timeless trend towards more premium products, especially with millennials and Gen Zers adopting the majority of pets. They are even more on the humanization trend and upgrading even more. But as they have to spend more on their gas bills and their food bills, which we're all experiencing, if they're just spending on the basics, food and medicine for their pets, isn't

that lower margin than some of the extras, the bells and whistles that they were spending on? Yeah, you had some discretionary spend on things like tennis balls and toys and things like that. But the premiumization of the product going to things like fresh frozen, that's going to be a $4 billion category by 2025, is a countervailing trend. Is that really better for pets to buy them fresh or frozen? I will tell you that my guy, Yummy, who's on the NIC with me today, he lost 10 pounds on just food for dogs, fish and sweet potatoes. What about inflation within the pet category itself? Because I'm sure a lot of the inputs are rising

like other food prices. Yeah. So we have taken price and we have been able to pass that through. We haven't seen a decline in unit volumes. But at the same time, we want to make sure that for those customers that are looking for value,

we can provide values. We have an own brand, Wholehearted, that's great for that. And we also announced a product called VitalCare, which is basically complete health. And consumers can save $200 to $300 a year from VitalCare. What about the stock, Ron? So you went public after being private for a while, private equity backed, with a lot of debt back in early 2021. All the way up and then all the way back down.

The offering price was what, around $18? $18. then all the way back down, right? Right around the offering price was what, around $18? $18. So what are you, what are investors missing about the story? Yeah, well, we're focused on executing. So we've had seven consecutive quarters of double-digit growth. Out of the top 50 retailers, there's only three who've had seven consecutive quarters. I like what Warren Buffett says. Eventually the the market will see intrinsic value. But at the same time, 80% of the IPO stocks of 21 are down. We're actually up 5% from our IPO price. And we're up in our year-to-day fiscal 2%. And the market is down.

So in a down market, I think we're performing pretty well. How much of the business is e-commerce? Because some of the competitors, like the Chewy, for instance, gets grouped in with a lot of the e-commerce names, which did so well during COVID, and now giving so much of it back on that whole idea that it was pulled forward. Yeah, we doubled our e-commerce business, more than doubled, 143% to a year in Q4. But what I talked about at our analyst meeting was we are a leader in retail 3.0. And you see a bunch of the retailers like the Targets, like the Altas,

really leveraging their footprint for in-store fulfillment. And then when you bring services to bear, like our grooming, like our training, like our vet, we really have the next generation offer in our view. If you look at us versus a pure play e-com player, we fulfill 80% of our orders via our pet care centers, faster to the customer and lower cost versus pure e-commerce. It's more hybrid. Ron, thank you for coming by. It's good to see you in person off Investor Day. Ron Coughlin, the CEO of Petco, the deputy governor of the National Bank of Ukraine, urging the West to slap more sanctions on Russia. The tough punishments he wants to see when Closing Bell comes right back. Ukraine is calling for the world to be even tougher on Russia. I just spoke to the deputy governor of the National Bank of Ukraine, the central bank, and he told me sanctions from the

West are enormous, but not enough. He's now urging Western countries to freeze assets of all Russian banks and is asking SWIF Swift to cut off the Russian Central Bank well it may be too soon to see the full damage on Ukraine's own economy he said the war has been wreaking havoc listen this new reality so far I don't know we were here we were just uh suggests that the economic activity shrank by approximately one-third compared with the pre-war levels. A third of Ukraine's economy gone. And there's lots of concerns about commodities. Ukraine is often called the breadbasket of Europe. And according to S&P Global intelligence ukrainian corn makes up

almost 13 percent of total world exports wheat accounts for 10 and a half percent i asked him if there's any chance that the farmers in ukraine could have a normal and safe planting season listen to what he said in the past so the major channel of delivering the Ukrainian agricultural products, we are Black Sea ports, which nowadays are blocked. And we have only one channel to deliver our agricultural products to the globe, and that is the railway to Europe, but the capacity of this channel is much narrower compared with the ports. Nowadays, we export something like 10-15% of the stuff which we used to export before the war.

So the big news is he actually said planting season could happen in Ukraine, but it's the transmission, the shipping methods that are blocked that make it hard to get the exports out of the country. He was speaking to me from an undisclosed location in Ukraine, says the central bank is up and running, even if it means they've been having to work out of bomb shelters or basements to keep the financial system open and importantly, to keep money coming in to support their army and their people. When we come back, Apple making a move to disrupt the fintech space and homebuilder stocks, taking a dive today on some new data, those stories and more when we take you inside the market zone. Down about 400 points now on the Dow, 20 left of trading we are now in the closing bell

market zone CNBC senior markets commentator Mike Santoli here to break down these crucial moments of the trading day plus CNBC.com Steve Kovac on Apple's big splash in the fintech industry and evercore Stephen Kim on homebuilder stocks which are significantly underperforming the market today first up those stocks are pulling back We've just taken a leg lower here after a big rally yesterday. Now near session lows again. The Dow and the S&P on track for their worst days in more than two weeks. Inflation remains a key concern. Just this hour, St. Louis Fed President Jim Bullard said, all indications are that inflation will go up in the spring. He also said the Fed must ensure it remains credible on inflation and repeats that he wants to see interest rates move up faster.

I don't know, is that the fourth time that he's spoken since the Fed meeting? Mike, I think we know his position. He wants bigger rate hikes and he wants them faster. Does it do anything to the market to have these calls repeated? Well, he's pounding the message home and significantly is also joined by some of his colleagues and not just Jay Powell. I think there's a general view out there that they are trying to get the market prepared for front-loading a lot of the hikes,

not counting on inflation to ease back on its own. And I think we've mostly absorbed that. The bigger question is, you know, the S&P is up almost 10 percent coming into today in six trading days. So, you know, pulling back a percent, you know, kind of taking a breather, having bond yields also ease lower. It makes sense in this context. Just the question is, was it really just a big offsides positioning move where hedge funds had completely blown out of all their risk exposures and now they rebuilt them? Or is it more the

market saying on a fundamental basis it can it believes it can handle what the Fed has for it? Well, the Nasdaq is underperforming today, Mike, down more than one percent. Most of tech is not working today. And it does make you wonder what is it inflationary fears? Is it economic softness? Is it rate hikes? It's all gotten a little confused as we've seen stocks rise with bond yields lately. Right. There's no tidy relationship there. There kind of never was. And now it's loosened up even more, especially when you consider how much the overall Nasdaq had pulled back and how much the average Nasdaq stock fell from its highs. It wasn't all about, you know, little moves in interest rates that was making that call. To me, it's much more about it was a massive short covering rally. Now, short covering is

exactly how all sustainable rallies also start. So I'm not saying it's going to be fleeting, but I think it makes sense that the areas with the greatest volatility on the way down are going to be sort of twitchy as we get into this mode of figuring out if this is a lasting recovery. Let's talk about the chips. Intel CEO Pat Gelsinger joined CNBC this morning ahead of his appearance on Capitol Hill, urging Congress to boost semiconductor chip manufacturing in the U.S. Listen. We're either going to invest in this industry now to see it rebuild, or we're going to decline. And today, 12 percent in the U.S., half of that's Intel.

You know, this is precarious. And that's part of the reason for my urgency and passion on this topic right now, because I fear if it starts dropping below 10% very far, we might never recover, and we will have a permanent dependence on Asia and other parts of the world that are just geopolitically unstable for the long term. Oil reserves have defined geopolitics for the last five decades. Where the fabs are for a digital future is more important. Separately, Intel stock is still higher, but it lost some steam here into the close after initially spiking when NVIDIA's CEO said he would explore using Intel as a possible manufacturer of its products. Christina Parts and Evelis joining us from the Nasdaq with that angle, which I guess, Christina, could be a big change for NVIDIA, right?

It could be a big change, but we've got to take it with a grain of salt, right? A foundry like this would take years to come online. It's not something that's going to happen overnight. So you have NVIDIA's CEO saying that they're considering it. Yes, they're considering it. It could be good for competition later on, but they're not making any promises whatsoever. You even had the NVIDIA CEO compare Intel to Taiwan Semiconductor, saying that the caliber needs to be up there in order for this business partnership to go through. Let's not burn any bridges. This is a good compliment towards Intel and further adds to this CHIPS Act argument and the testimonies that are going on. But I think

we need to think big picture that this is just, you know, I don't want to say fluff, but just a conversation that we all seem to be talking about right now, a headline. Well, and yes, no, and it, I guess, takes time to your point, Christina. So what is the underlying factor driving the stocks now? Is it on the shortages as well, or is it on sort of cyclical concerns about the economy? Well, that's a great question because there's two angles. You could say a lot of people or a lot of analysts and even an executive I just spoke to right now will say, oh,

it has to do with all of these legacy nodes, these 28 nanometer nodes that are in a lot of EV products and data centers. That's where the shortage is. But come past 2023, we're going to have an oversupply. And the way the United States is going, we're failing on the leading edge. These are the much, much smaller chips that unfortunately have an over-reliance on Taiwan at the moment. And so that's something that we need to think about in the future. And Pat, the CEO of Intel, just spoke about right before talking to me. Christina, thank you. Christina Partsenevelos. Mike, a lot of people want Intel to be, you know, a good value play within semiconductors, has not made the move that we've seen in AMD or NVIDIA. Is it there yet? It's there in terms of the statistical value, but it also has been there

for quite a long time. It really seems as if the market treats it as mostly not a market share gainer. There's going to be heavy investment no matter what happens. Intel is always a massive R&D spender. So I do think you can say that the kind of recovery effort, the restructuring of Intel is definitely going according to plan. But it's very difficult to see exactly when those fruits are going to be realized. And overall, the group is really just digesting a huge, huge move. It's trading very technically, if you ask me. Semiconductor index raced right up to its 200-day average, stopped exactly there and pulled back.

And it's still up, even after being down from the peak 16 percent. It's up 150 percent off the March low exactly two years ago today. So it doesn't necessarily seem as if it's a neglected group even yet. No, but it has had a rough start to the year, for sure. Apple making an acquisition in the payment space, buying British fintech startup Credit Kudos. The company developed software that uses consumers' banking data to make more informed credit checks on loan applications. It competes with companies like Experian and Equifax. Apple's made significant moves now in the payment space over the past few years with Apple Pay. The Apple Card plans to launch a tap-to-pay feature on the iPhone.

For more on how this deal could disrupt the fintech space, let's bring in Steve Kovach. Steve, who is going to be most worried about this move by Apple? Oh, it's got to be Square, right? Because that's where they're directly going after, especially with that tap-to-pay feature that you were just mentioning. This is going to let businesses kind of just load up the software on their iPhone. They don't have to buy any special hardware. And then you can just boop your little phones together and make your payments.

That's a square killer right there. With this fintech acquisition there, Sarah, it's really interesting. So what this can do is you link it to your bank account and Kudos can kind of get a better picture of your credit score. And this can be used by Apple on the back end to do things like, you know, figure out how much Apple credit to give you on the Apple card. Or it can do stuff like if you're going to buy an expensive Apple, one of those new Macs that cost upwards of $3,000 and you want to get on a

payment plan, they can kind of figure out what your monthly payments could be for something like that. So I can see this more as a backend type thing for all these Apple Pay features. And then who knows what kind of financial products they want to use it for in the future. Where and when should we look to this business, the fintech part of Apple, as a revenue driver for the company? Is it in services?

Yeah, it's part of the services. Yeah, it's all lumped together. That's like the same light ironing them as, you know, app store sales and so on and so forth. So it's all lumped together in that. And right now today, Apple Pay, you know, they're only making

fractions of a cent off of every Apple Pay transaction. And then with the Apple Card, which is probably more lucrative, you know, they're getting a slice of every transaction you make on the Apple card and plus interest payments. Steve Kovach, very interesting. Thank you very much.

Thanks, Sarah. Group them together there. The Nasdaq's down, Mike, 11% for the year. Apple's only down 3%, 3.5%. It's been a pretty solid outperformer. Yeah, it's closer to its high than almost any of the other big Nasdaq stocks. And I think it's mostly about quality predictability, the balance sheet, port in a storm type of effects. Plus, there's not been a lot of real fundamental erosion in the story.

Not that there has been for Microsoft either, but the valuation adjustment has just been very modest so far for Apple thus far. I'm also noticing Tesla with some follow through to the big gains. It looks like Apple and Tesla really what's holding things up. Adobe, not great today, Mike. Nvidia, Microsoft, Cisco, Google, Facebook. I mean, some of these stocks have more to prove after they had a nice run up over the last, what, six trading days or so? It's been a massive one, one of the strongest actually on record if you look at the momentum of the NASDAQ 100 move. So again, today's little spillback is pretty much not that surprising or severe or, you know, worrisome if you actually were thinking that we had a recovery, but it doesn't want to build. But, you know, the S&P is actually now

sitting just a little bit below last week's high. So, you know, you don't necessarily want to re-experience last week's trading range, put it that way. Yeah. Adobe, negative reaction to earnings there. They're going to raise prices for the first time since 2017. Also watching the e-commerce names, Wells Fargo out with a new note on e-com trends, estimating that the pandemic pulled forward four to five years of online shopping penetration. The firm says that despite the slowdown in e-commerce after an initial surge in 2020, the shift to online shopping overall is likely to stick, Mike, and says it's still a pretty small fraction of overall retail sales

at 13 percent. I noted this one because Etsy, some of these names have been either the top performers in the market lately or more regularly this year, the bottom performers in the market. And it's hard to figure out after, you know, you have this big pull forward now, Wells Fargo says four to five years where these stocks settle out, given it is still a secular growth area of the economy. Yeah. And I think it makes sense that during the pandemic period, it was the players that didn't already have the massive scale that had the most dramatic, it was the players that didn't already have the massive scale that had the most dramatic effect. If you were a Shopify enabling everybody to immediately go, you know, e-commerce or omnichannel, that was a huge ramp, whereas Amazon was kind of

already there, therefore didn't get its full share of the incremental growth. Now, somewhat more normal times, Amazon kind of consolidating its advantage to some degree, having had this capital investment cycle in logistics through last year. It does make sense. I do question what it ultimately means for the stock and the foreseeable, because Amazon shares have still been kind of a laggard over the last year and a half. They've traded right between where the cloud software sector has traded and where the retail sector has traded. So it's not as if it's necessarily out of whack with its components. And the market seems to prefer to pay up on a higher valuation basis for the cloud and then eventually the advertising line items for

Amazon, as opposed to just the kind of raw scale in retail. As we march into the close, I also want to note the move in financials. They're the worst part of the market today. They were the strongest part of the market yesterday. And interestingly, Mike, with this catch-up move, they're pretty much flat for the year. Energy is the best performing sector. And then utilities and financials are sort of tied for second place, flat performance. Does that make sense, given how far yields have risen just over the last few weeks for financials to not be doing even better? You know, they have some catch up to do with yields, basically, because there was a pretty tight relationship and has been for a long time.

And yields did race ahead a little bit. But it does make sense that they're actually performing right now exactly in tune with with what Treasury yields are doing. Remember the big pile on into bank stocks at the start of this year. Remember, this whole correction started with a violent rotation. It wasn't really all-out declines, and banks were the beneficiaries of that. So I think they have to kind of rebuild a little bit of their constituency at this point because people got whipsawed in that move in January. Down 52 points or so on the S&P. That is a session low.

Take a look at the homebuilder stocks. They're falling today hard after data showed sales of new homes fell in February, second straight month of declines. This comes, of course, as mortgage rates and house prices both continue to rise. But our next guest says there are other bullish trends investors should be focused on. Joining us now, Evercore ISI homebuilder analyst Stephen Kim. Stephen, what is bullish? Because affordability is very difficult, both on the rate side and the pricing side, and we're starting to see the impact on sales. You know, it's interesting.

There's a lot of misunderstandings about the release that came out today. The new home sales statistic is actually something that I would tell your investors or your viewers to completely ignore. First of all, the data when it first comes out has a revision factor, which is huge. And so effectively, the government will tell you that sales may have been down 6%, like they say year over year, but it could also have been up 8%. So you just have to know that that number when it first comes out is not reliable at all. But let's say it's roughly accurate. Just let's say. Interestingly, there's two things you really

need to know. One, that builders are deliberately not selling homes to customers yet because they want to get their homes further along in the construction process before they sell them. And two, it's taking longer for home builders to build homes. And so you put those two things together and what do you get? You get a sales number, which is lower than it would ordinarily be because the builders are deliberately holding back sales. And because it's taking longer, you have rising inventories. And so people put one and one together and they say, my goodness, you know, sales are down, it seems, and inventories are up. That's bad. It's actually not bad at all. It's what it's telling you is that you have a shortage in the market, that demand is far

in excess of supply. And that's the reason why the thing that matters the most is driving people crazy. Home prices keep going up. And if you talk to the home builders, everyone's worried about rates, which is very reasonable. But you got to look at what the fundamentals are actually doing. The facts on the ground are that demand is far in excess of supply. It's been that way for the entirety of the last two years. And that's why people have consistently underestimated the fundamental growth in home building.

But the question, Stephen, is whether there's going to be some sort of stagflation coming to this part of the economy. The fact that prices keep rising higher and demand will slow down because of the general economy, because of inflation everywhere else in the economy, and because of higher mortgage rates. You don't see that happening? Well, definitely, I would say it's axiomatic. If you have pricing or the cost of housing rising, demand weakens, of course. But you can't actually see demand. What you see is the intersection of demand with supply. And the best way to see that is to see the level of transactions and the price. Price is the most important thing to look at. What I would tell you is that what people are missing is that we have underbuilt this country for the last 15

years. It's the supply side, which is dramatically different. If you look in the market today, everything that you see is actually consistent with an idea that we have a supply-constrained driven market. Look at what's happening with home prices. I just went through it. Inventories are very, very scarce. Builders cannot build the homes fast enough. And we have been running at record low levels of housing production for most of the last 10 to 15 years. And so we don't have enough homes for sale. And then look at the rents. Rents have been rising very rapidly over the last couple of years. So you have not enough houses for sale and you have not enough apartments for rent. What that's telling you is you have underbuilt the market

chronically. And that is the situation which is the most important thing. When people are going to form a household, they got to live somewhere. They're either going to run an apartment or they're going to buy a home. Quickly, top pick in the sector, then, if you think it's gotten beaten up too much. You know, these homebuilders, the large cap homebuilders, are so leveraged and actually they're trading right now below liquidation value. Simply the value of the land that they owned pre-pandemic or they controlled pre-pandemic is worth more than the stocks themselves. So the names that I would highlight for you, I mean, I would look at Pulte, a large cap builder, very under leveraged. I would also say D.R. Horton and Toll Brothers would also be names that are very attractive here.

But honestly, I think you're not going to go too wrong with really any of the larger cap homebuilders. Stephen Kim, thank you for joining us. Evercore ISI with an alternate view there on the weaker housing sales today. Two minutes to go. Session lows, Mike, that we're seeing right now. The Dow is down now more than 400 points. Home Depot is the biggest drag. What are you seeing in the internals? Actually, internally, Sarah, it's a little bit less negative than the headline

indexes are telling you right now. Yes, there's more declining volume than advancing volume, but it's very close. It's more like 45 percent up and 55 down. So not really a washout, kind of mixed internally. But the big index stocks definitely taking their toll. A lot of talk as we head into quarter end that there should be a big flow of pension reallocation money into bonds, out of stocks because stocks have outperformed by a bit. You've had one of the worst returns over a few months in bonds history. This shows you the Vanguard long-term bond ETF compared to the S&P. That shows you there's probably some money to be flowing into bonds.

Maybe it's happening today, as a matter of fact, because it does sometimes happen a week ahead of time. So keep an eye on that. But I don't know if that's going to be a lasting feature of what drives these markets. And the volatility index, you know, for a down 1.2 percent S&P 500 day, down 1.8 on the Russell 2000, the VIX is barely up, only up about a half a point. That's probably a net positive. Shows you it's kind of high enough after this run to accommodate a little bit of day-to-day bouncing this era. Not as much of a fear-based kind of sell-off as we've seen in recent sessions. Take a look at the S&P. Session lows right now down 54 points, about 1.2 percent lower, and now weaker for the week, joining the Dow in that territory. Financials are the biggest losers

on the S&P right now, down 1.8% for the group as yields go lower today. Energy and utilities are the only sectors that are higher on the day. The Dow is down about 1.3%, almost 450 points. The Nasdaq also is down a little bit weaker than the rest of the market. So is the Russell 2000 index of small caps. Nasdaq down 1.3% there into the close, about 7% off the record highs for the S&P. That's going to do it for me. I'm closing now. Have a great evening, everyone. I'll send it to Scott Wapner into overtime.