Closing Bell - Closing Bell: Stocks Sink, Jobs Jolt & The High Is Gone 10/7/22

Episode Date: October 7, 2022

Stocks staging a big sell off to end the week after the unemployment rate fell to 3.5%, raising fears the Federal Reserve will continue to aggressively raise interest rates to fight inflation. Fundstrat's Tom Lee explains why he remains a long term bull despite so many market headwinds. Miller Tabak's Matt Maley says Apple is a key stock to watch in order to determine whether the market will continue selling off. Loup Ventures Founder Gene Munster reveals which tech stocks he will buy if they continue falling. Bank of America Securities' Jill Carey Hall explains why she thinks small caps are too cheap to ignore after underperforming the broader market over the last year. World Bank President David Malpass on the rising fears of a global recession. And pot stocks slumping a day after a big rally on news President Biden was pardoning thousands of people convicted of marijuana possession. Tilray Brands' CEO Irwin Simon discusses what that news means for his company and industry.

Stocks are pulling back sharply here as investors weigh how that strong jobs number will impact the Fed's next move and corporate warnings are piling up. This is the make or break hour for your money. Welcome everyone to Closing Bell. I'm Sarah Eisen. Take a look at where we stand right now in the market near the lows of the day. As you can see, we've been drifting lower all afternoon, down 2.2% on the Dow. S&P 500 down almost 3%. It's looking like an ugly close with the Nasdaq down 3.6% and small caps giving back 3% as well. We're actually still higher for the week. Take a look at a weekly chart here, up 1.5% on the S&P 500, still holding on to gains after that big rally we got on Monday and Tuesday. It is actually the first positive week in the last four for the overall market, but not looking pretty right now. Coming up on the show today, Fundstrat's Tom Lee will join us with his latest read on the market after today's jobs report and ahead of CPI,

the inflation read next week. Plus, we will talk to the CEO of Tilray, which spiked yesterday 30 percent after President Biden's surprise pardon for some marijuana convictions, though it is giving up a big chunk of those gains right now. We'll kick it off right with the market on the market dashboard during the sell off. Mike Santoli is here. Every sector is lower. It's pretty broad. And that's actually been one of the hallmarks of these sell offs. The breath bad. Absolutely. It's these one way markets largely Monday and Tuesday were some of the strongest upside breadth we've seen in a very long time. And today is pretty much across the board to the downside. I would say 80 to 90 percent downside volume. Now, the S&P 500,

we knew that the market was somewhat banking or hopeful of a slightly softer labor picture from the employment report. Did not get that. We knew that the market was given a reprieve with a backup in treasury yields, the dollar easing off, oil staying tame. Well, all those things have basically worked in reverse. Right now, you do have the dollar in yields working a bit higher. That brings us down to the level Sarah mentioned.

You know, we're up for the week, up about a percent and a half. That's also how far we are off the year-to-date lows because we did close last Friday pretty much at the year-to-date lows. This area here, 3642. Well, if we can think back to mid-June, remember those lows? 3636 was the intraday low. So essentially, this round trip of sorts over the past four months, we didn't get escape velocity

on that bounce. You are still going to hear people after today say, look, market is still oversold. We're kind of hovering above this down 25 percent threshold on the S&P 500 from the peak. That was Friday's lows. Now, take a look here at FedEx. That's a big piece of the story today as well. An implicit warning, or at least reports of an internal warning about yet weaker demand for FedEx. It has been weak even among the transports. And here you see it's actually traded more in line, FedEx has, with the airlines than it has with either UPS or the S&P road and rail sub-index. Road and rail is truckers and railroads. And so that gives you a macro view of what's been happening

in terms of overall shipping volumes and the macro story. That's been weak, but not nearly as weak as FedEx, which is a bit more of an air freight and an operating story. It doesn't change the idea that we are perhaps in for some downgrades of earnings expectations, but it's a little bit of a nuance in terms of a FedEx specific story. Well, we're getting a lot of those downgrades already. I wanted to bring up Tesla, Mike. It is the worst performing stock on the S&P 500 this week, down 15.5%. So clearly dragging down the overall index. Disappointing quarterly

delivery is no question. Maybe the Twitter bid. No doubt about it. Yes. Leading to some questions about his focus. But that has hung in there relatively well against some of the other Nasdaq stocks. If this continues to crater, though, that will be a problem for the market. Well, for sure. I mean, just because of its weight, because of its weight. By the way, it's like 20% of the consumer discretionary sector, which is kind of silly. And Amazon is almost another 20 or something like that. Now, there's definitely an element here of presumption that Elon Musk will have to sell more Twitter shares, but also all of the still somewhat expensive Nasdaq bellwethers are getting hit

hard today. You are seeing four or five percent come out of the likes of Microsoft, Amazon down, too. So that's been a little bit of this nagging story with the market, whereas they got so expensive and crowded and it's been in waves. They've they've had people. Well, and also what's expensive. Tesla's still trading at more than 50. Well, yes, there's earnings. So Tesla and Amazon are kind of in a different category. They don't really trade that closely on an earnings expectation basis. But something like Microsoft in the mid-20s, you know, why can't that go down a couple more points in multiple? Mike, thank you. Mike Santoli, we'll see you in a few for the Market Zone.

We're still a week away from the official start to earnings season, but the warnings have been coming fast and furious. In a matter of weeks, we've seen a flurry of red flags from, take a look, companies like Ford, Levi's, Samsung, and many more, AMD last night. That was the most recent one, the chipmaker issuing weaker preliminary third quarter results due to slowing PC demand and also the supply chain. So what should investors make of all these warnings? Joining us now is Fundstrat's Tom Lee, who has been the lone bull. You've got some more bulls in your corner lately, but Tom, the warnings don't bode well for earnings season. That's right, Sarah. I mean, earnings are slowing because there's a lot of tightening working their way through the system.

And companies' CEOs are cautious. And I think that the earnings warnings kind of stand in contrast to market perceptions that the labor market is so strong that the Fed has to keep really accelerating its hikes. So what you're saying is that the economy is actually weaker than the Fed thinks? Yeah, I mean, I'd say right now, you know, the hard data that markets, when they think about the Fed and what they react to is reports like CPI or the employment report. But the soft surveys, whether it's the ISMs, or it's the plethora of companies warning on earnings, you know, when companies have reduced profits or top line challenges or operational expenses, you know, they're not going to be hiring. So I think it's still going to be a case where the market is data dependent watching every report in next week's cpi is not an exception

but to me the gap that's widening is the soft data whether it's like the surveys or the manheim used car price index are showing a weakening of the inflationary pressures. But the hard data we're still seeing is showing the economy's quite stronger inflation size. So I think it's just going to be a matter of time where, you know, the soft data is sort of anchoring where things are headed and the hard data just catches up. But in the meantime, you know, back to these earnings warnings and negativity, Tom, doesn't it make it harder to be bullish on the market if earnings expectations have to come down? Yeah, I mean, there's it's a it's a little bit of a race against time, Sarah, because earnings are coming down and and that's reflecting the effect of the economy slowing. But what's going to matter to markets because of positioning and really how equity allocations are playing out is really when the Fed decides that a lot

enough tightening is taking place. So I think you can still be in a situation where earnings are weakening and even expectations come down. But stocks are going to react to the change in risk premia. And that's going to be the day that investors really start to feel that the war on inflation is starting to, you know, the tide is turning. And it doesn't mean the Fed has to pivot. It just has to be the cadence of data starts to look better. And why do you know, you might ask, well, why does risk premia matter? Inflation and the risk of inflation is still one of the biggest tail risks for risk premium. And really getting ahead of that and, you know, seeing progress on inflation is going to matter for compressing risk premium. And just I would add

is, you know, if you look at high yield spreads, which is, you know, kind of an important corollary and, you know, ancillary to how you look at market risk premium, high yield spreads aren't making new wides. You know, they're actually narrower now than they were in June. So there is that divergence between equity and credit, you know, and that's why some credit investors are becoming interested in owning credit. Well, that does actually mean stocks can catch up once the tide of inflation is visibly turning on the hard data. It sounds like what you're saying is that the Fed, and this is what we see in the market action, that the Fed, whether it will pivot or not, whether the data warrants or not, is more important right now, ultimately, than earnings for the direction of the market.

But even if you're there, Tom, even if you see continuing mounting evidence in the soft data that the economy is weak and that inflation is slowing, the Fed is not there yet. And the Fed is making it clear that it has a lot more work to do. The Fed probably looks at today's number, three and a half percent unemployment, which is the lowest in decades, and says we've got more room to go. That's right. I mean, Sarah, you know, if you look at market expectations, you know, November was the market was essentially soft penciling in 75 basis points anyways. The odds just increased. So today's employment reward didn't suddenly put a new fire under the Fed's foot.

The Fed is already on a path to raise somewhere between $100 to $125 by the end of this year. That's really the base case. But that does mean post-November 2nd, you know, there's another 50. It's not as if we're resetting the clock and suddenly talking about terminal rates hitting seven. I just think what we have to keep in mind is the Fed can't even hint at changing their mind or even beginning to think about changing their mind as long as the tide of inflationary data looks unfavorable. So, you know, JOLTS was a good sort of start, but then the payrolls report today didn't really make anyone feel better about inflation.

It's almost data dependent. And, you know, CPI is next week. Well, Brent crude is back to 98. That doesn't help either. WTI at 93. You're sticking with 4,800, I think, for the S&P target, Tom? It's getting further and further away. I mean, that's a real stretch. But do I think stocks can rally into year end? Yes. And I think if I had to look at progress over the last three months, the soft data, you know, like whether it's ISMs or leading indicators, are really showing that inflation isn't necessarily accelerating. Even, you know, even today's payroll report, wages aren't necessarily accelerating. So I do think it's a growing gap.

And when that gap sort of recalibrates, that's when the markets can take a breath. And I think we still have enough time into year end for that to happen and markets to rally. Sticking to the bullish guns, Tom, thank you for joining me. It's good to talk to you. Thanks. Tom Lee of Fundstrat. We're going to have much more on the sellout for you throughout the show, including a closer look at the big pain in big cap tech, especially in light of some of those warnings today from AMD and Samsung. Concerns about demand. The Nasdaq's down 3.6 percent, as you can see. Up next, shares of Tilray are higher on the week following President Biden's move to pardon some

pot offenders. But giving up a lot of those gains today on the back of earnings. We're going to talk to CEO Erwin Simon next. You're watching Closing Bell on CNBC. Dow is down 650 points. Tech stocks are getting slammed right now in the middle of this sell-off. Look at the Nasdaq. It's down 3.7 percent, not helping higher treasury yields and a stronger dollar. Let's bring in Steve Kovach for a look at some of the movers. Steve. Yes, Sarah. I'm going to start off with Spotify. That's down nearly 5 percent after reports today it canceled 10 of its podcasts and laid off about 5% of staff. Those reductions reportedly affecting podcast studios Spotify has acquired over the last few years, specifically Gimlet and Podcast. Originally, the content used to be the crown jewel for the

company, and now they're kind of paring it back. Let's move on to mega caps, though, because those are really hurting after that warning from AMD and Samsung this morning. Microsoft is down more than 5 percent now, likely due to that AMD revised guidance from the September quarter. Warning of falling PC demand. But look, Microsoft watchers, they knew this one was coming. Microsoft said this summer PC demand began to deteriorate back in June. Apple also hurting from that AMD report last night. On top of Samsung's report, its profit will fall significantly for the September quarter.

Apple's off more than 3% right now. Meta down 4% following a Verge report last night saying the company's Metaverse product is full of bugs and its own employees don't even use it. Meta is expected to launch its first new headset since its Metaverse pivot next week. So the pressure's on for that one. And just a few more to mention, Sarah, with the rest of big tech. Amazon's down over 4 percent and Alphabet, the strongest of the group today, down just two and a half percent following its Pixel phone and smart watch launch event yesterday, Sarah. No shortage of catalysts there hammering tech today. Thank you, Steve Kovac. Take a look at the pot stocks. They lit up after President

Biden announced pardons to thousands convicted of marijuana possession. But now that high is gone. They're falling along with the rest of the market. Tilray is one of the pot stocks that rallied hard on the back of that news. Another reason the stock is down. The company out today missing earnings and revenue estimates after reporting first quarter results this morning. Let's talk about all of it. Joining us now first on CNBC is Tilray CEO Erwin Simon. Erwin, it's great to have you back. Welcome. Thank you, Sarah. Thank you. I think we have to start with the news out of President Biden, which I don't know about you, but sort of came as a surprise, certainly to the market, the pardons for possession and also the direction of the DOJ and Department of Health to look at how they classify marijuana. How big of a deal is it,

do you think? So it's a really big deal. Listen, getting any news out of the president, getting any news out of the White House is important. I think we've all been waiting for this. And, you know, we've had lots of conversations out there with the senators, lots of conversations with certain congressmen and women. But to hear the president come out and pardon those that were charged with crimes on a federal basis and pardon them is a great step in the right direction for many reasons. And, you know, what he's seeing, Sarah, is his constituents and their constituents out there want legalization to happen in cannabis. And I think the thing is figuring what's the right way to go about it. And that's what's important out there. And, you know, that was something that was on the Democrat platform two years ago. And I think with the

election coming up, he knew he had to get something out there with the direction of which way they were going to go. So it's a real important. I think there's still a lot of wood to chop before we get to full legalization. But it's important to know it's on the agenda of the president where it has not been before. Yeah. And along with it, with these pardons, he complained on Twitter that the United States classifies marijuana at the same level as heroin and more serious than fentanyl, which he says it makes no sense. So he's asking them to review the process of how it is scheduled under federal law. What would a change mean there, rescheduling marijuana for your business or for use? So I think rescheduling would be important to show

it's not classified the same as a heroin or other harmful drugs. I think, again, to step back and say, is this here, over 60% of Americans want cannabis legalized. Over 90% want it legalized from a medical standpoint. There's a tremendous amount of research out there that says the effects of medical cannabis in regards to sleep, pain, anxiety, etc. And just coming back and looking,

you know, over the last two days, we've traded over 100 million shares today. We traded close to that yesterday. There's a lot of investors that want to see something happen here. And that's what's important is, you know, institutions want to be investing in this without the Safe Bank Act. I think it keeps some away. But I got to tell you, the demand out there for cannabis is tremendous. There's 35 states that have legalization out there today, whether it's medical or recreational. So I think it's really important that the government comes out and take some stand to get the confusion that's out of there. In the meantime, I wanted to ask you, Erwin, about Canada, because you did put out results today. And while they were headline missed, there was some improvement there on the loss. It was a

little, you're narrowing the loss. Talk to us about what's happening in the Canadian market and with your results. So, you know, I think we put out there pretty good results today. You know, from a standpoint, $153 million, but $166 in constant currency. Our margin was up in regards to our share was up 8.5%. Sarah, we're sitting with over $500 million of cash that has a strong balance sheet. And the Canadian market is the only country in the world

where adult cannabis is legalized. We got the largest share today. We got the largest grow. We got 12 brands out there. We got, you know, our pre-rolls, we got our flowers, we got our drinks, we got our edibles. So with that, we're well positioned, you know, once cannabis legalizes in the U.S. to come in here and make a major play because of our balance sheet and our know-how. In regards to Europe, we have a major, you know, growth facility in Germany and Portugal. We sell cannabis today in 20 different countries from a medical standpoint and again, continuously do a lot of research. So Tilray is well positioned in the cannabis world. And the name of our company is Tilray Brands. We have a great spirits business and a great beer business and a great wellness food business with adjacency to the cannabis business in the meantime, as we wait for cannabis to legalize, you know, in the U.S.

I'm just we're just showing the Dow chart because we are making new session lows right now down 712 points. It's just been an ugly downward slope for the market ever since the jobs number was released this morning. What a great day to do earnings, right? Yeah, no kidding. So finally, Erwin, you know, you said when cannabis gets legalized in the U.S. and you've been positioning and making acquisitions and clearly this is what the stock is trading on as well to a large extent. I think you told me last time you expect it to happen within two years. Are you revising that at all? Listen, I think, again, it's great to see that the president come out and has taken some type of stand. But I think what's important is what Tilray is doing

is being a consumer branded company that's focused on, you know, cannabis in a big way, that's focused on consumer products that consumers want. You know, a question asked of me, what happens in a recession? What happens with cannabis? What happens with spirits? And I think what's important out there is consumers stay home. They'll enjoy their cannabis as more and more research comes out from a medical standpoint. And with what we're doing in building out our infrastructure on a global basis and the potential of Germany going legalized, you know, we're in a good place. And with our balance sheet today, we got fixed debt out there. We got a strong balance sheet. So, you know, Tilray is in a good place.

You know, we narrowed our losses. Our losses basically are just working capital within. And, you know, I'm excited to see what's going on with Tilray. Arwin Simon, keep us posted. Thank you very much for joining me today. Thank you very much, Sarah. CEO of Tilray. Let's get straight to our stealth mover today. It's a layup. Madison Square Garden Sports. Look at that. A big winner on this big down day, up 8 percent. The owner of the New York Knicks and Rangers announcing a special one-time cash dividend of $7 per share and a $75 million stock buyback plan.

But in an interview with Barron's executive chairman, James Dolan, blocking hopes that the company will explore a sale of those teams, which could be worth a combined $8 billion, has been speculation on the street for a while. We just mentioned we are sitting at session lows. The Dow is down about 712 points right now as we head into the close. It's broad. The Nasdaq is down even worse. You're getting another day with rising Treasury yields and the stronger dollar, which is not

helping. Reaction to jobs, perhaps. Expectations about the Fed. There's now more than a 90 percent chance in the market that the Fed does another jumbo rate hike next time. 75 basis points. the Fed. There's now more than a 90 percent chance in the market that the Fed does another jumbo rate hike next time. Seventy five basis points. Let's bring in Miller Tabak, chief market strategist, Matt Naley on the news line. And Matt, I always turn to you on the technical. So tell us which which levels we should be watching here as we sink into the close. The S&P now down three percent.

Well, of course, the you know, those lows from last Friday are going to be a key level because one of the elementary things of technical analysis, of course, is when you make lower highs and lower lows. So if we make another new lower low, that's going to be a big concern. And you get below 3,600, that 3,500 level could be reached very quickly, the one that everybody's been talking about recently. NASDAQ's now down almost 4%. What is causing this big drop? Is it just continued nervousness about Fed hikes? Well, I think it's a combination here. A lot of attention is, of course, going to the employment number this morning, the entire employment report. But you also have this situation where,

you know, Advance Micro and Samsung reported, you know, those poor earnings and poor guidance. So it just raises that level of concern over earnings. And the thing is, we're not going to get any answer. That uncertainty around earnings is going to last through next week because we're not going to get any answers on that until next Friday and thereafter. So, again, when uncertainty grows, it's not good for the markets. What is expected now on earnings? Because expectations have come down as the market and the economy have weakened a bit. Well, when we talk about it, yes, everybody talks about that, but the actual numbers haven't come down all that much, the official numbers from analysts. Still? Well, no. I mean, it's still looking for $223,

I believe is the consensus for this year anyway. And we know that if we go into recession, every single recession since World War II has seen earnings go down. So if we only do $223 this year and then we're lower next year, that means the market isn't anywhere near the fair value that some people think it is. So sometimes when we email back and forth, you always tell me which stock is the key right now to the market, which stock you'd be watching. Clearly AMD, you spotlighted, Samsung, FedEx, all with the warnings. Any other ones you'd be watching as far as key levels? I mentioned Tesla earlier. It's been beaten up this week.

Yeah, that's always an important one to look at. But right now, you know what, I'm looking at Apple. I mean, it seems like all too obvious to look at that stock. But one of the things is that people have been using that as kind of a safe haven right now. People are talking about, are we going to get capitulation? Well, if people start dumping Apple computer, that'll be a sign that they've just thrown in the towel. So I know it's going to sound weird,

but maybe the best thing that could happen at some point in the next week or two is that Apple really gets hit hard. That'll show capitulation's taken place, and then maybe we have a realistic view of at least some sort of a near-term bottom. You don't think it's done that? I mean, Apple's down 21% so far this year. Yeah. Yeah, but it's still well above its June highs, unlike the rest of the market. And I hate to say it, but even though at 20, whatever, 21, 22 times earnings, this stock is bottom in the mid-teens

in most bear markets before it's bottomed on a valuation basis. So it's not as cheap as you usually see. So the capitulation just hasn't been there in this name. Really good point. Thank you, Matt Maley, for jumping on the news line. Appreciate it. From Miller Tabak. As we monitor this market, the Dow now making new lows as we speak,

down 740 of the day, I should say. Check out the S&P 500 sector heat map. Nowhere to hide in a day like today. Everything is lower. The best performing sector is energy, down 1.2 percent. That's because oil prices continue to rise. They've marched higher to three-week highs this week. And then you've got consumer discretionary at the bottom of the group, along with communication services, materials, real estate, financials are having a tough day. A lot of these sectors down three, even four percent almost for consumer discretionary. Joining us now to talk about the state of the economy in the world is World Bank President David Malpass. It's good to see you,

President Malpass. Welcome. Hello, Sarah. Good to see you. And joining us on a down day where the concern yet again is about the Fed and just how aggressive it's going to be. We got another pretty decent jobs report today, three and a half percent unemployment, not too shabby. Do you think there's a big risk here of the Fed overdoing it on raising interest rates? I think there are a number of problems. One is the oil prices keep going up. You know, there are the problems in the bond market as the as the short term rates go up, then the bond market feels that and then there are margin calls. So that that all circles around. And we have

overhanging this, the worry about growth, including in 2023. I think one of the concerns for us, for the World Bank and for development, is this sense that the trends that are happening right now may continue into 2023. That means concerns about inflation, but also about the rate hikes that you mentioned. You know, the central banks are maybe behind the curve, clearly with inflation going up and being persistent. And I think they have to use all of their tools. Same thing on the oil prices. The world has to be using all of its tools in order to change the direction. Well, it's what the Fed has been doing, right? I think now the question is whether they're doing too much or whether they're about to do too much. I know you've been watching the spillover effects in places like emerging markets for the rest of the world.

It's got to be a concern. Well, they have to deal with the inflation problem. And you're right, they're using all of their interest rate hike tool. But I think they have other tools as well. There's the financial regulatory policy, and this applies to the ECB and the Bank of Japan. You know, the global central banks are all in somewhat similar circumstances of inflation that's stubbornly high. And, you know, very importantly, I think there has to be a focus on how the monetary policy and fiscal policies

can help on the production side. The world needs more goods being produced and more services being produced. And especially in the U.S., there needs to be more productivity, more workers, but also more output in order to meet the gap in world supply. You know, the other the other byproduct of all of this Fed hiking is that the U.S. dollar continues to make new highs. It's strong again today, up another half a percent, which is wreaking havoc on earnings from technology to pharmaceuticals to health care, any business here that that does business abroad. Basically, you've watched the global impact of this.

Is it getting too strong for comfort where you'd like to see maybe some type of action to fight it? Well, I'd phrase it a little differently. The weakness of the other currencies puts pressure on U.S. earnings, but it also puts pressure on the fiscal policies for other countries as you

know if they have debt that's dollar debt which many of the developing countries do it is really ratcheting up the pressure on them not only are the global markets bond markets closed to them but the interest rates on their past debt are going up. You know we saw this a little bit in the late 1990s as the dollar got stronger and stronger, the pressure built up in bond markets, in global currencies, and there was currency depreciation and devaluations in countries. I think, of course, this time is different, but we also see the pressure on debt service. I put out where, you know, we're observing for 2022, it looks like the poorest countries in the world, 75 poorest

countries, the IDA countries, will have to pay $44 billion in debt service, or that's what they're being expected to pay by world markets. That's just a very difficult situation because the dollar is so strong. Right, right. I know there are calls from you and the IMF to forgive that and make it a little bit easier. So how close are we to a global recession, do you think? Well, I think the risks are going up. We're looking at our forecast. You know, in June, we did one set of forecasts. But now if we redo them today, we'd be 1.1 percent lower than we were in June. And that would put world growth at just 1.9 percent. When you figure there's population growth inside of that, you need that just to stay even.

And so I think we're at the point of having to worry about there being world recession in 2023 on the current trajectory. Our base cases were a little bit above a, quote, recession, but still way too weak for the weaker, for the developing countries. David Malpass, president of the World Bank, thank you for joining us today. Nice to see you. Appreciate it. With so many of the concerns of the market right now, global. Let's get back to Mike Santoli for more on the sell-off. What are you watching right now? Yeah, Sarah, it's deepening, and it's doing so in this kind of relentless way. It's not really in any hurry to go down.

It's just been sagging all afternoon. We're also going back in time a fair bit as we do hit these new lows. We're about 1% in the S&P above that low from last Friday, which is the low for this year. But here's a two year chart of the Nasdaq 100. And you're kind of back right around this level. That was the very end of October 2020. So right before the presidential election, there actually had been a big rush to a new high in September of 2020, if you remember that. That was the kind of pandemic recovery rush. Then we had a big sell-off.

So this is the bottom of that correction that preceded the election rally for the overall market. One of the things that's been hitting all year, of course, is that the biggest stocks, the growthiest stocks that dominated the market to the upside last year have been the source of the greatest downside pressure this year. The average stock in the S&P 500 continues to outperform the market cap weighted one. It's sort of a not exactly so much comfort because many people do own the biggest stocks and own the indexes. But it is still a factor here in weighing down something like the Nasdaq 100. That's where the valuation excess was and all the rest of it, the yield effect on long duration assets, certainly a piece of it, if not the entire story. For the S&P 500, you're still up on a two year basis. This is one of those very kind of loose rules that I always keep in mind when the market has kind of done a two year round trip when it's

gone nowhere over that span of time in recent years that has been a decent spot where stocks had tried to at least find some traction, although those were not at the end of prolonged bear markets. It was much more in those flash declines like we saw in late 2018, early 2016, Sarah. Mike, whenever we have these really rough days, you know, one way that bulls can look for a silver lining is figure out whether there's this is capitulation, right? Whether it's just a puke, as you've said before. Matt Maley of Miller-Tabak joined us and said, look at Apple as a key, for instance, if we get below some of the, I think it hasn't basically gone below its high. So if it goes below a June high or something, then that could be a sign that, you know,

the market's throwing in the towel there. What other signs should we be looking for if we're looking for some sort of indication that enough is enough? Well, that's part of the process. And people have been pointing out that some of those stocks that had held up better, that a lot of retail money is in, and that are perceived safe havens have been giving way. Utilities, they were at a new high just a few weeks ago. They've been crushed. Real estate, things like that.

So I would say it's part of the process. I think it's wrong for us to look at it as a moment that we're waiting for. The whole bottoming process, once you've been going down for nine months in a row and you've had these waves of selling, I think we've gone in the process of slowly getting more sold out. You have big investors at very defensive positioning right now. If I look at the systematic, you know, momentum driven hedge funds, the ones that really do just chase the movement, they have extremely low exposures to stocks right now, similar to the bottom of the covid crash. That alone doesn't mean that the overall market is capitulated. But you're looking for things like massive lopsided downside volume relative to upside.

But we saw that in June. So it's sort of in the eye of the beholder and it has to be confirmed by the nature of any rally that follows it. Hard to believe we are actually still higher for the week, but we are giving a lot of that back right now. The S&P 500 down 3.3 percent for the week. We are still, as I mentioned, higher by about 1 percent or so on the S&P, thanks to that strong rally we had on Monday and Tuesday. Often the strongest rallies, though, do come in the middle of the bear market. Today, the concern, the stronger jobs report giving the Fed leeway to raise interest rates more, plus corporate warnings from AMD, Samsung, FedEx, and others. Look at the fintech stocks. They are

getting crushed today. Kate Rooney with a look at some of those hard hit names. Kate, what are you watching? Hey, Sarah, that's right. These names have been really rate sensitive among the hardest hit names and group overall. Take a look at shares of Coinbase. That's one of the worst performers today. Also getting hit by lower Bitcoin and crypto prices down more than 10 percent. You've also got Affirm, again, a very high growth. One of the big winners during the pandemic off more than 10% today. Block, Jack Dorsey's company, formerly Square, down more than 7%, also getting hit by some of those Bitcoin headwinds. You've also got SoFi down about 5%, PayPal down more than 4%. Robinhood actually outperforming when you look at some of the fintech names down roughly 3%. And then

Cathie Wood's ARK fintech innovation ETF really a bellwether for all of the fintech names down roughly 3%. And then Cathie Wood's ARK fintech innovation ETF, really a bellwether for all of these fintech names down more than 5%, as well as some of the Bitcoin mining names down double digits. Marathon Digital off 15%. You've also got Core Scientific off about 14%. They get hit by higher rates when borrowing costs go up. And then, of course, the price of crypto. We also have Bitcoin below 20,000 today. So rates have been the big story, Sarah. And then Wall Street's also been worried about the low end consumer. What higher rates and a potential recession would mean for the low end consumer there? And then you've also got the credit risk. Some of the buy now, pay later firms like Affirm, which is really a leader there, have been hit. They haven't lived through this type of

consumer slowdown, although we haven't seen any sort of uptick in delinquencies. This earning season is going to be big for the fintech names. Back to you. I had forgotten that Cathie Wood also had a fintech specific ETF. I'm just looking at the ARK Innovation ETF, which is the main one. It's down 6.6 percent right now, which brings it down to about 70 percent off its highs. I imagine, Kate, that the fintech one has done even worse. Yeah, absolutely. Let's see. It's underperforming today. The innovation ETF down 6 percent. Actually, fintech is doing slightly better than the innovation ETF. But she's been really bullish on some of those names, Square and just Bitcoin in general and that long term innovation disruptive trade.

And she's got that fintech ETF and also a long term believer in Bitcoin, although she did ditch PayPal last year, about six months ago. And PayPal has been an outperformer. So that was, yeah, in hindsight, or at least in the short term trade, not the best move. OK, yeah, down 90 percent almost in 12 months, that FinTech Innovation Fund. Thank you, Kate. Let's talk more about tech with Gene Munster of Loop Ventures. He joins us now on the news line. Gene, tech is in the crosshairs. It has been before when we have these rate worries, but the new wrinkle today is we got warnings from AMD and from Samsung leading to some real concerns about PC demand, memory chip demand. What did you make of some of those warnings?

I was actually glad to hear it in the sense that, you know, we've been bracing for this pullback and we're starting to actually see in the fundamentals. So there is a piece to waiting for the impact of what's been going on in the global economy, wanting to see that the fear of the unknown, we're starting, the unknown is starting to become known. So there's a side of that that was a little bit of a relief for me. Then my attention immediately swings over to which companies are going to be impacted, which are the next ones to have those headlines that are going to come out. I think a lot about Apple. We do a lot of work on Apple. And I immediately went and checked what the lead times were. It's kind of a blunt instrument to try to get a sense of what demand is like. And we've been tracking this basis. And as of today,

eight countries, it's still four weeks out for the pro models. And this is uncharacteristically high lead times, which is if you're going to lean to one side or the other, this is a sign that demand is a four-week lead time this far after, three weeks after a launch, is usually typically we're down to a week at that point. And so uncharacteristically high lead times, you can, of course, blame the supply chain and say that that's the reason Apple seems to have done it. That's what I was going to ask, if it was the shortages of the product. There probably is some of that lead time that is within that, but I would guess that that's maybe a week of that, even if you factor that in. The reason why I don't think it's the majority of it is that Apple's done a good job over the past year and a

half in terms of navigating some of these supply issues. I suspect that they are continuing to do that. And so when we put all this together, all the negative news and tech, my first reaction is to do something which no one is doing right now, which is to try to focus on the fundamentals. The reason why no one is doing that, it's understandable, is that the market just keeps saying we don't want to hear about the fundamentals. Or we're being blindsided because AMD put out preliminary results saying they're going to miss their forecast by a billion dollars. That's fundamental. Yeah, there are...

My point is that there are companies that... This is going to impact a lot of companies. Every company will have some form of an impact, not just a lot of companies. Every company is going to have an impact by what's going on here. The question is, what is the magnitude of the impact and which companies have investors not factored that in? And if I can just jump to that topic of we're going to see some of this in the fundamentals and how do you play this through? The market is obsessed with finding the bottom. What's the bottom? How close are we are to that? What's the curve of that look like. And I just soak in,

just the last 20 minutes of your program, it's pretty negative out there. And not to say that today's the bottom. I mentioned we're still a third in cash. We're not deploying today. But I suspect that in the weeks ahead, we are going to be buying, especially some of these ones that are highly shorted and been down 75% year-to-date. Like what? Give us one name. A name like, I'm not saying we are going to be buying this company, but just to give you a sense about some names, names like Zillow or Coinbase or Unity, Peloton. These are the types of companies, at least for a trade, want to draw a line between trading and investing. A trade perspective, 12% average short interest on those, that's pushing

down on the spring pretty hard. And you get any sort of not as bad news as we thought, and these could be up 30% over a couple of months. So I still think that there is more optimism in all the negativity today if you have a view to look into 2023. The ones everyone hates right now. Gene, thank you. Gene Munster, appreciate you jumping on the phone with some strategy from Luke Ventures. We are going straight into the closing bell market zone. We're commercial free for you here with this big sell-off on our hands. CNBC Senior Markets Commentator Mike Santoli is here to break down these crucial moments of the trading day. Plus, Steve Kovach is back on AMD. What we heard from that chipmaker

and Bank of America's Jill Carey Hall on the small caps. We'll kick it off broad, Mike, because it has been a deterioration for this final hour. It's really been dramatic in terms of the magnitude of the selling. There's the Dow. It's down 637 points. Doesn't tell quite the full picture of what's happening right now, because if you look at the S&P with every sector lower and some sectors down by more than 3 percent, 3.6 percent for consumer discretionary, for instance. And then there's the Nasdaq, which is down about 4 percent right now. What what message are you getting, Mike, from this continued sell off after a few up days that that were looking pretty optimistic earlier this week when the market thought, hey, maybe the Fed is going to pare it back. Right. Well, there's just no daylight in any direction in terms of the major things investors are looking at as a signal for

when they can get in there and be the contrarian and take on more risk and bet that most of the pain is already through. And that has come in the form of, obviously, a very strong labor market. It may or may not be the right thing for the Fed to be focusing on right now. But they've told you that's at least part of it. That doesn't help. Therefore, you have to bake in three quarters of a percentage point. Another hike in November, probably more after that. So no relief there. Oil going up also feeds into that sort of inflation story, the top line inflation expectations. And that doesn't help as well. So you're still caught in the same squeeze I think we've been for a while. Earnings, everyone

acknowledges that there's probably some vulnerability there. Now, estimates have absolutely been coming down for this quarter and next quarter outside of energy. But the question is, is it enough? Is it priced in? Markets seem like they're at fair value, not at super cheap. And so the only bet that people are making is we've had these ugly Fridays before. We had one a week ago. Monday ripped higher. I'm not saying it's going to happen, but the point is that you have these twitchy moves in both directions. And it's really still in that situation, whereas we find ourselves much of this year that positioning and sentiment are the only real tailwinds that you have if you

want to be bullish, as opposed to feeling as if the fundamentals or the macro story are cooperating just yet. Yeah, which is not great to hang your hat just off of positioning and sentiment, but can clearly lead to some short-term rallies. No pivot for you was the headline of the Bank of America research note today after the September jobs report. And we have been trading a lot around this whole idea of whether the Fed pivots. And then these corporate warnings. Look at FedEx shares right now. FedEx is down, under pressure, although coming back from the worst levels.

Reuters reporting that the company expects to lower its volume forecast for its ground division due to fewer holiday packages. And they cited an internal memo. The company telling CNBC in a statement, as described in FedEx Corporation's recent first quarter earnings release, weakening macroeconomic conditions are causing volume softness. FedEx,

of course, gave a bleak preliminary earnings warning back in September and then withdrew its full year guidance. We are also watching shares of UPS. Those are down even worse than FedEx right now. Joining us for more is Helene Becker, Cowan & Company senior research analyst. Just when you thought, Helene, it couldn't get worse for FedEx, you got this news of lower holiday volumes, which the company did not deny in a statement to us. Where does that line up at this point with market expectations? Exactly. So I think that what we're seeing is the consumer keeping their wallets in their pockets.

As you guys have been reporting, a shift from goods to services. And remember, these guys talked about doing 2025 volumes back in 2021. So we had been thinking growth would slow anyway. And it's just slowing maybe more than they expected. But also they built a lot of capacity out and now they're in an overcapacity situation. So I think you've got those two things coming together right at the holiday season when a lot of people are continuing to be concerned about supply chain issues. And so they've decided to buy early. And I think that's part of the issue, too. I'm sorry.

No, no. That exact point was why I was going to ask you about UPS and whether it's a better bet related to how they managed capacity and supply chain and whether they're going to give as much back as FedEx is having to. Yeah. So I think for both of them and for UPS as well, what you've seen there is different in the way they've managed the macro this year. They've spent most of the year telling us that things were slowing and they prepared for that. And they haven't invested quite as heavily as FedEx. I've always thought of FedEx investing to stay ahead of growth while UPS has always invested to catch up to growth. And I don't think that's changed. I just think they've managed it a little bit differently. And also, remember, UPS has, I guess, frozen is the right word, the amount of volume they're willing to take from Amazon.

It's 11 percent of their revenue. And over time, that's going to drop as they focus on higher margin businesses, which FedEx is is not really doing right now. FedEx is more on the e-commerce side. So it sounds like you like it better. Bottom line of the two. Yes, yes, I guess that's right. All right. Helene Becker, got it. Thank you very much for joining us on that FedEx News. That stock down only 1%, but it has been beaten down pretty hard lately. And then there's AMD, which is plunging after slashing its third quarter sales outlook by more than a billion dollars.

Steve Kovach joins us. Steve, how much of this guidance cut has to do with PC demand, which is, of course, the concern rippling across the industry right now? Yeah, that's right, Sarah. A lot of it is PC demand, some of it the enterprise and things like that. But look, if you were paying attention, you would have known about this back in the summer. Microsoft warned back in June, like I told you earlier this hour, that, look, deteriorating PC demand began in June, but we had these chip makers telling us, look, people are going to keep buying PCs forever. But we had so much pull forward demand in the first two years of the pandemic, Sarah. You saw Apple posting record Mac revenues for almost eight straight quarters,

just practically the entire beginning of the pandemic. That's starting to pull back now as people realize, look, they don't need to upgrade their devices every couple years, even in this hybrid work environment. I want to point out something that BOA put out this morning after all these, after we saw this downfall. Look, they say, quote, the PC market has been weak, but continues to surprise the companies themselves by blowing their guides to the downside. And they're calling out specifically NVIDIA, Intel, AMD, Micron as the culprits here. These are all names that we're seeing fall today. So look, the pull forward demand, we knew that was there. We knew demand was deteriorating in the PC market, you know, four or five months ago.

And now we're seeing the symptoms of all of those factors coming together right now. So that's the trouble we're in now. At the same time, we've still got the end of the year to get through. There's a lot of new hardware came out. Google just had their big smartphone event yesterday. Apple just put out the iPhone 14, started selling it about three or four weeks ago, and we're going to get maybe even more from Apple later. So, look, we've got to see what demand looks like

through the rest of the year. But they are flashing the warning signs now, finally, that the consumer is deciding, look, we don't need to buy new PCs every couple of years. Steve Kovach, Steve, thank you. Which Mike Santoli makes it kind of hard to figure out what the message is from a lot of these earnings losers and these earnings warners, because semiconductors, they were at the heart of the supply chain crisis, right? So they ordered everything. It's all coming in and demand isn't that strong. Same thing happened with Nike. It wasn't a read on consumer demand, why they missed the quarter so much. It was that they were stuck with too

much inventory and they have to unload it at cheaper prices. So it really makes it hard to tell if the consumer is really weakening here, like a recession, or if just these companies are in crazy positions from hoarding everything. Yeah, it's almost like a decent shortcut to figuring out who's going to be most affected is how well did you do during the pandemic or how much of a demand rush did you have to contend with and therefore try to try to satisfy with extra ordering in the aftermath. And that's, that, that, semis, Nike qualifies in that direction. Obviously, a lot of the more pure pandemic stocks. And, you know, the shift to services is a big deal. And FedEx is a great example. Exactly. As well, by the way, we could be seeing something similar in travel related

because there was that huge rush for people to get out there and it was pent up demand for travel. And those stocks are telling you that's not going to carry forward. Demand and supply are totally out of whack. And it's really hard to figure out where this equilibrium is and what it says about demand. Let's look at CVS. It's another big loser today. Following a report that the company is an exclusive talks to acquire Kano Health, CVS also getting hit by ratings hit to its extremely profitable Medicare Advantage business. Bertha Coombs joins us. Bertha, big move for CVS, down more than 10%.

It reached a deal to acquire Signify just a month ago. What can you tell us about the deal strategy here? You know, it's one of those things Karen Lynch has said that they feel an urgency to do deals here to build up their value-based care proposition. That is, they want to make sure that they have more primary care. They missed out on that when Amazon got one medical. They got the home care with Signify.

And now it appears, although both companies are not commenting on the reports, that they may be close to a deal for Kano Health, which would give them primary care that is really focused on Medicare Advantage members. Got it. Bertha, thank you very much. Kano shares up about eight and a half percent on that report. Bertha Coombs, Mike, just want to get back to you on the broader market, because looks like we're going to go out near the lows of the day, if not the lows of the day. S&P 500 down almost three% right now. Again, still higher for the week.

NASDAQ comp is almost at the flat line for the week. It's down 3.8%. Continue to make highs on Treasury yields. What is the thing you are watching? When you look at the future Sunday night, for instance, or Monday morning, because whenever we have ugly spills like this, it's always lots of doom and gloom reports over the weekend. What will you be watching? Yeah, well, without a doubt, doom and gloom reports. And first of all, are we going to

have to react to anything news-wise over the weekend? It seems as if we're, in a very subtle way, bracing for something, oil up the way it is. Keep in mind, too, bond market is closed on Monday. It is a bank holiday in some areas, a New York bank holiday. And therefore, it's going to be a little bit different without the guidance necessarily of the bond market in a direct way. Look, it's a washout conditions for the moment. Again, in the short term, the S&P 500 obviously down significantly here, pretty much just at those June lows, those June intraday lows. And the New York Stock Exchange volume split is about 90 percent to

the downside. Interesting the ten year Treasury yield. Is not back up to 4 percent it's pretty much. You know at the precipice of it so you still a little bit below the highs just as the stock market a little bit above the lows. Course the two

year. Is the one where more of the action is taking place 4.3 pretty much at the highs baking in. What's happening there. With the with the Fed expectations. And the action is taking place. 4.3 pretty much at the highs, baking in what's happening there with the Fed expectations. And the volatility index, I have to say, you would argue it's underreacting. It's up less than a point. Why is that?

Because it was already clenched up going into the jobs number. And we're still, for better or worse, who knows for how long, still in this trading range. We haven't made a new low and we have a weekend coming up and that often does deplete the VIX on the way in. Yeah, about one and a half percent off the lows for the S&P 500 at this point, the June lows that we all talk about. Mike, thank you. We'll let you get set up for overtime at the top of the hour. Look forward to that discussion. We've got just a couple of

minutes left here in the trading week. Let's bring in Jill Carey-Hall. She's the head of U.S. small cap and mid cap strategy at Bank of America Securities. And Jill, I was really interested to talk to you because this week, small caps showed some signs of life. And even with the big fall today, 3 percent, they're up two and a quarter percent for the week, the biggest winner of the four major averages. Why do you think that is? Well, I think, you know, we've obviously seen, as Mike and Helene were mentioning earlier, you know, supportive trends for small caps. The fact that services holding up better than goods is something we've been highlighting for a while that should be supportive for small caps. You know, near term, we've expected this could be a volatile market. Our S&P 500 year end target

has been 3,600. We're obviously a lot closer to that, but we think things could continue to stay choppy. But for small caps, as we've been pointing out, you know, we've been highlighting how cheap they've looked for a while. Now they look even cheaper. And, you know, as we think about recession, small caps are trading at eleven times forward earnings. The ISM manufacturing index has been a very correlated indicator with small caps, a very important one for performance. But when you look at what small caps are pricing in, they're now discounting an ISM level of about 30. So that's pretty much the lowest the ISM has ever troughed.

If you look back to the 1970s, early 80s recessions, the average for the last four recessions, ISM trough, was more like 39. So we really think the index is pricing in kind of a worst case scenario at this point in terms of recessionary multiples. And you have seen the index start to outperform even amid the weak market. So really small caps have been doing well relative to large caps, you know, choppy, but roughly since May. So so we think the outperformance could continue. Yeah. Maybe on that valuation gap that you cited within small caps. Jill, what what was what's your strategy? Which sectors do you like best? So I think, you know, you still want to stick with quality.

You know, quality tends to do well in volatile markets. If we go into a downturn, sticking with stocks within small caps that have earnings rather than no earnings, the S&P 600 small cap index, which is much higher quality than the Russell 2000, fewer stocks with no earnings. That index has been outperforming this year. Stick with stocks that have healthy free cash flow. That's a value strategy that tends to work well in these types of market environments. Energy still looks good across our work. Very cheap, under-owned, commodity prices staying higher for longer. So those are

areas that we think look well within small caps. Healthcare has still been a riskier area. It's deteriorated in quality. So healthcare looks a lot better in our large cap work than our small cap work. Got it. Jill Carey-Hall, small caps are better, says Jill Carey-Hall, who covers the small caps for Bank of America. We appreciate it. Thanks very much. As we go into the close here, I just want to show you what's happening. We're going to go out near the lows of the session, down 600 points or so on the Dow.

The S&P 500 has got every sector lower at the moment. Energy is faring the best because oil prices have actually been rising lately. Consumer discretionary, the worst performing sector, along with you've got a lot of sectors down there. Communication services, for instance. Actually, technology is now the worst. Information technology down more than 4%. And that's thanks in part to the big drop that we're seeing in AMD, which is down 14% on the close, dragging all the chip makers. Look at NVIDIA, down 8% or so.

We're still going to get a gain for the week, which is crazy after a day like today. It doesn't feel that way, but we are still higher for the week and faring for our best week since June 24th. NASDAQ going out with a decline of almost 4% on the week. It is still higher. First positive one in four. And the small caps down almost 3%. That's it for me on Closing Bell. Have a good weekend, everyone. I'll see you next week in overtime with Mike Santoli.