Closing Bell - Closing Bell: Stocks sink, Sara Eisen speaks with Fed Chair Powell, Former Disney executive talks Netflix pain 4/21/22

Episode Date: April 21, 2022

In a special edition of Closing Bell from Washington, Sara Eisen speaks with Fed Chair Jerome Powell and other leaders at the IMF’s Debate on the Global Economy. Mohamed El-Erian from Allianz breaks down the latest policy signals from the central bank leader, and the potential impact on the market. Meantime, the Netflix nightmare continues, with shares taking another leg lower after hedge fund manager Bill Ackman sold off his stake. Former Disney executive and TikTok CEO Kevin Mayer – who correctly predicted that Netflix would explore advertisements – joins to discuss the future of the streaming giant.

Stocks losing early morning gains as Fed Chair Jay Powell says a 50 basis point hike could come next month. The most important hour of trading starts now. Welcome everyone to Closing Bell. I'm Sarah Eisen here in Washington, D.C. More on my conversation with the Fed Chair and others at the IMF debate and what it all means for the markets coming up on the show. Here's where we stand right now in the markets near session lows. Dow failing to hold on to some early gains. We're down more than 200 points right now. S&P 500 also losing steam, down 1.3%. Only one sector is positive, and that would be consumer staples. Everybody else is in the red. Technology is getting hurt today. NASDAQ 100 down 1.75%. The NASDAQ composite down nearly 2%. And small caps down the most, 2.3 percent. Check out the energy sector. It is the worst performing sector right now in the market. Names like Baker Hughes, Devon Energy are under pressure

despite oil prices being higher. Coming up, more black eyes for streaming today with CNN Plus shutting down and Netflix shares falling again after yesterday's stock meltdown. Kevin Mayer, former head of direct-to-consumer at Disney, former TikTok CEO, will join us live. He predicted last month that Netflix would be offering ads. It was a good call. We'll get his take on the streaming landscape from here. First up, though, those comments from Fed Chair Jay Powell during the IMF debate on the global economy this afternoon. I did ask Fed Chair Powell whether their 350 basis point hikes that are expected in the markets right now are reasonable. Here's what he had to say.

So inflation is much higher now and our policy rate is still more accommodative than it was then. So it is appropriate, in my view, to be moving a little more quickly. And I also think there's something in the idea of front-end loading whatever accommodation one thinks is appropriate. So that does point, that points in the direction of 50 basis points being on the table. Certainly we make these decisions at the meeting and we'll make a meeting by meeting, but I would say that 50 basis points will be on the table for the May meeting. I think he cemented it. Joining us to discuss, Jeffrey's Chief Market Strategist David Zervos and BNY Mellon. Wealth management, Alicia Levine. Good to see you both. David, he basically endorsed the 50 basis point hike and did not take the bait when I asked if the economy slows down, would you stop hiking? It was a pretty hawkish view, I'd say, from Chair Powell. What do you think?

Absolutely, Sarah. And I think he's continued down this path pretty, pretty steadfast, really, in almost all of his commentary, whether it was in the testimonies that he's given on his renomination, whether it's been at the press conferences. Jay has presented a particularly hawkish view that has continued to stay there and if not grow even more hawkish as time has gone on through most of this year. And I think that markets have kind of tried to shrug it off here and there, but it's coming and it's probably going to hurt a little bit. It's coming and it's still moving markets, Alicia, the 10-year note yield jumping past 290 and stocks are under pressure, the Nasdaq's getting hit again. So as long as the Fed is in this mode of very strongly fighting inflation, tightening policy and talking up their moves, can the markets

find a bottom? So thanks, Sarah. I thought you did a great job this afternoon on that interview. Really interesting. A couple of things. You want to think about this cycle really with three main points. The first is that the Fed is using 1994 as sort of their roadmap to tighten quickly with a soft lending in the real economy, if not markets. The second is that I think they're protecting institutional credibility here. And the third is really to try to keep inflation expectations anchored. And all that means faster tightening on the front end. So it's entirely consistent. The interesting thing is that there's been more volatility in the bond market

than there's been in the equity market. And I think to some extent, equity investors have not really quite believed it. And they thought the Fed was going to back off. And I think today, particularly with Mary Daly's comments of a possible 75 hike, which of course did happen in 94. The curve got repriced. And in the end, those long duration stocks, the speculative names, the tech names and the small caps are going to feel it when the curve gets repriced like this. We're seeing session lows and we're ticking lower as we speak, down 314 on the Dow. David,

when it comes to the Fed, Chair Powell reiterated his goal of a soft landing, sounds confident in the idea that they can achieve a soft landing, says the jobs market is strong, the economy is quite strong, the consumer is quite strong. It seems to me that for the market, that's going to be a key question, whether they're actually going to be able to achieve it. What do you think? Well, Sarah, look, I think this idea that you were just talking about, this 1994 idea that Jim Bullard has pointed to a lot and a few others seem to be pointing to, is really a good narrative and I think is how you get into the Fed's head, which is what we all need to do to understand where they're going this year. And if you go

back to that year, actually, it wasn't a year with a lot of equity volatility. It was a year where I think equities might have been down, excuse me, about 7% for the year. It wasn't a terrible equity year. It was a terrible bond year. It was one of the worst bond years in modern history. And we had a lot of blowups. We had blowups in the mortgage market with a guy by the name of David Askin. We had significant losses at most in major investment banks. We saw international bonds, corporate bonds, emerging market bonds, all under extreme pressure and a lot of losses in fixed income. So I think this year is really actually kind of shaping up very much with that 94 narrative in mind. And if that's the case, there may be some glimmers of hope that the equity market doesn't have to go through some major, major repricing, say a down 20 or down 25.

And we can kind of cross our fingers on that. The Fed did make a mistake in 94 and went too far, by the way. And we did start easing in 95. We eased three times, 75 basis points in 1995 when the inflation never showed up. I think the big difference, Sarah, is that actually in 1994, there was no inflation. They were tightening against the expectation of inflation. Today, there is inflation, and that's important, and that's why they could be even stronger. So that's really where the equity market needs to watch out, is they have a real problem. It's in their crosshairs, and that's very different than any other cycle, I think, since the 1989-90 cycle,

which was a much more aggressive cycle. So with all that in mind, the template, Alicia, and the risks, what do you do as an investor? The Nasdaq's down another 2% right now, bringing the year-to-date decline to about 16%. Where do you hide in this kind of environment? Look, it's really a great question. And I agree with David. The path to a soft landing is very narrow here, in part because of the difference with 94. And 94 was preventing inflation from going higher. Now the Fed has to really kill it and come down hard, with also noting that the supply chain alone will not bring down inflation as we thought maybe six to nine months ago.

So improvements there really won't do it. So where do you hide? Look, it's very clear what's working. Health care is working. REITs are working. Staples are working. Today, commodities are not working. But but they you know, that's really where people are hiding. I'll say this. I think we have a few more months of extreme volatility here as we see the path of the Fed and what they're actually going to do I think at some point there will be a great opportunity in growth stocks. Because that is what works with

the economy slow down I think it's a little too early now. Yeah you think the Nasdaq where do you think the Nasdaq ends the year. Well we don't put a number on Nasdaq but I will say that I think down we will go lower it's actually stabilize the second half of the year once it's clear.

Because right now, I believe what the Fed is saying, which is they're going to go tight and fast and they're going to do it quickly. Those three things, right? Ninety four institutional credibility and keeping inflation expectations anchored. And that requires them to do that. And that's the message we got today. Alicia, David, thank you both for joining me. Thanks, Sarah. About 51 minutes left of trading and a more than 330 percent decline right now on the Dow. Tomorrow, much more discussion on the global economy. On Tech Check,

I'll be interviewing the Treasury Secretary Janet Yellen and the ECB President Christine Lagarde together. A rare opportunity for an exclusive conversation with two of the most important policy leaders in the world. That's 11 a.m. Eastern right here on CNBC. After the break here on Closing Bell, the Netflix nightmare continues. Shares taking another leg lower, down almost 2%, after Bill Ackman said he sold off his stake at a big loss.

We'll talk to the former Disney and TikTok executive, Kevin Mayer, who just last month tweeted, mark my words, Netflix will have ads within the next two years. His take on the strategy pivot and the market reaction next on Closing Bell. Dow is down more than 330 points here. We picked up steam in terms of the losses. Some post-open strength just failed to hold. The S&P 500 earlier got above 4,500 and then broke below, down 1.5%. As far as what's weighing on the Dow right now, Salesforce is the biggest weight, along with Chevron, Disney, Goldman Sachs. There are some winners, though. Dow, the chemical companies, set to close at a record high after reporting earnings. Inflation is not hurting demand for their chemicals. In fact, they're

increasing margins. IBM also with some follow-through to yesterday's big gains after earnings. Keep an eye on the Nasdaq, down more than 2% as we head into the close. Here's a stealth mover for you today. Equifax, shares of the credit scoring agency, are down sharply after it slashed its profit and revenue estimates for the year. On expectations, the U.S. mortgage market will fall by more than 37 percent over the remainder of 2022. Some major announcements in the streaming world today. CNN Plus shutting down after just one month since its launch. Warner Brothers Discovery shares sinking on that news. And it has been a brutal week for streaming overall. Netflix investors, after reporting a subscriber loss

in the first quarter earlier in the week. Shares are falling again today. Bill Ackman, billionaire investor, selling his hedge fund's entire stake in Netflix just a few months since taking the position. Netflix plans to stem its subscriber losses in part by offering an ad tier, a move former Disney executive Kevin Mayer predicted last month at the South by Southwest conference. And Kevin joins me now. It was an interesting call at the time. It conference. And Kevin joins me now. It was an interesting call at the time. It didn't get enough attention, Kevin, but explain why you were so sure that Netflix was going to move to an ad subscriber model. It's interesting. It happened so quickly.

Well, nice to be here. Thank you for having me. Look, I've seen that model work. When I was at Disney, Hulu was part of my portfolio that I managed. And they had two flavors of Hulu. We could have an ad-supported flavor, and it was about $5 cheaper than the no ads flavor. And as I recall back then, something like 35% or 40% would take the ad-supported. Most people would pay extra to not have the ads. But the revenue from the ads, the monthly revenue from the ads was so great that the ARPU, or the average revenue per user for the ad-supported people paying $5 less a month, was actually higher and materially higher than the ARPU for those who were taking the no-ad version. And the reason for that is advertisers really enjoy having their brand messages in a context with high quality video. And these over-the-top services or the streaming services like Hulu and now Peacock and now it looks like Netflix offer that high quality environment, but also a degree of targeting.

And these apps are delivered on interactive platforms. And in those platforms, you can actually dynamically reinsert advertisements based on some targeting criteria. So it's the best of both worlds for advertisers. As linear channels are shrinking their audiences quite substantially, these streaming services are an outlet that is very much in demand by advertisers.

And it gives consumers more choice. It gives them a lower price point that they want to put up with ads. And I know that the Netflix team and Reed are quite focused on serving consumers and giving them the right options. So to me, the confluence of the tailwinds of that advertising business coupled with giving consumers more choice seemed like an obvious one to me. No, and everything you're saying makes sense, except for the fact, Kevin, that it's coming at a pretty vulnerable time for Netflix with that surprise subscriber loss. It does appear more of a move of desperation of some kind, just a total 180 from everything Netflix has been telling shareholders and consumers for the past

few years. Well, I don't know if it's desperation. I think that their growth is challenging, and that's an artifact of being as successful as Netflix is. Netflix is so well penetrated in key markets, you know, growth is hard to come by. It shouldn't be shocking to anyone. At some point, you reach, you know, a penetration rate that indicates that, you know, going by leaps and bounds would be almost impossible. So this is another tool in the toolkit. It's one that they are pulling out when it's needed. I don't think it's desperate.

I think it's smart. But clearly Netflix's model has to change a bit. And the billions of dollars that they've been spending on content is going to come down. I wonder how that's going to impact your world and all of Hollywood, where basically Netflix and some of these other big streamers have been dictating these very high valuations for the price of content. You've paid billions of dollars for the Cocomelon parent or the Reese Witherspoon media company. Do you think that's going to change here? Yeah, I really don't. I think that the degree of demand for high quality content for kids, you know, stories for women like Hello Sunshine creates, the high

quality content is what these streaming services deliver. And the growth rates in demand for hours of content have been astronomical. Will that flatten to some degree? Of course. And that would be natural anyway without the precipitous decline in Netflix's stock price that we just saw. But I think the model of aggregating the highest quality content that you can get your hands on and delivering that to consumers, that is what streaming services do. And that's what the entertainment industry has

done for decades. This is just the newest manifestation of that. So the demand for content is not going to decline, I don't think. And certainly if you have the goods, if you have content that really drives customer acquisition and drives retention like we have, I think we're still sitting in a great position. But with the Netflix decline in subs and then the CNN Plus news today, I wonder if there is, Kevin, a rethink about just how much growth there can be in streaming as all of these major companies have totally pivoted to focus on it. Well, look, the pivot is a natural evolution of where this industry has to go. We have to serve consumers.

We have to learn about their habits and their affinities and their and what they like and what they don't like. And to do that, you have to be in direct privity with them. You have to have an interactive platform that's a two way platform. So serving consumers, this is the evolution of doing that. And I think that when you see those when you have the multiplicity of revenue streams and you have consumer subscription fees, you have advertising with if you have the multiplicity of revenue streams, when you have consumer subscription fees, you have advertising,

if you have the right franchises, you can do licensing and merchandising. In success, there are really multiple revenue streams and Netflix is going after games and they're gonna leverage the audience they have in video and promote their game service to them, I'm sure. It is where this industry has to go. It's inexorable and inevitable.

And I think that the model will work out just fine. I think there's a very substantial profitability built into these streaming services when they start to stop investing in growth and start harvesting the profits. And I think that these models do work. And I think it's also just, again, an evolution that has to happen to serve consumers the right way. I wanted to ask you, Kevin, about Disney in particular, which is down more than 2%. It's gotten hit on some of these concerns around streaming growth, but also on this fight with the state of Florida and going after their special status and the tax status.

As a former executive in this company, how big of a deal, how big of a problem do you think this is for Disney and for its CEO, Bob Chapek? Look, I have a lot of faith in Bob Chapek. He and his team are very, very smart. They're in that role for a reason. I think they will figure out a way out of this, out of the morass that has been created here. It's unfortunate. Disney was my home for many, many years. I want to see Disney succeed. And I think this is probably more of a temporary setback than anything else. And I do, I think that management team has a lot of talent and there's a lot of good people there. And I do believe they're going to find their way out of this. Do you think the Netflix quarter raises questions about what Disney's doing, what you

started at Disney and the direct-to-consumer business on streaming? You know, not really. I think there's valuation issues around all this. Netflix was valued at a very substantial growth multiple. As growth hits a plateau, those multiples have to come down. I think Disney has that portion of its business, and I think, again, it's something that serving consumers in a direct-to-consumer fashion is what these media companies must do. I don't think there's not a lot of choice there.

But Disney has these brands and franchises that are, by their nature, very multi-platform. So, you know, Disney makes money in theme parks. Disney makes money in consumer products and licensing businesses. They may still make money in linear television around the world. They have Hulu. They have ESPN Plus, and they have Disney Plus. These are big businesses and they're not unique. They're not just one. There's multiple business platforms that their IP can be monetized throughout. And that puts them in a pretty good

place, I think. Well, it's good to get your perspective on all of it, Kevin. Thanks for the time. Always a pleasure. Thanks for being here. Kevin Mayer, Candle Media now, former Disney and TikTok. Let's give you a check on the markets right now where we stand. We've got a sell-off. The Dow is down about a percent right now. S&P down 1.4 percent, sort of hovering at these lows of the session. Every sector down except for consumer staples right now. Energy is getting hit the hardest. The Nasdaq, though, down another 2 percent right now.

We've got communication services as the worst performing group. More weakness in some of these media stocks as well today on some of those streaming concerns. Match Group, Meta, Warner Brothers Discovery taking that group lower. Coming up, Snap is falling hard ahead of earnings after the bell. It's been a roller coaster ride for shareholders over the last year, climbing to all time highs and then plummeting back down to earth. Mike Santoli breaks down the charts in his dashboard next. Welcome back. Dow down 315. NASDAQ falling hard again today, near session lows, and the social media stocks are getting slammed. Twitter shares are actually up slightly amid all of it. Elon Musk just tweeting, if our Twitter bid succeeds our, he says,

we will defeat the spam bots or die trying. Mike Santoli, not a spam bot, is here taking a closer look at the social stocks in today's dashboard. And Mike, will he or won't he buy Twitter? He said, well, he has at least more detail on how he might finance this bid. And he also said he would authenticate real human beings on Twitter. And I have been authenticated there. So I'm in the clear. What we do see here over the past few years, though, is the way that the fortunes of the big, or at least the sort of sub-Facebook level social media stocks have risen and fallen.

I focus on this point here about 18 months ago, where Snap, Twitter, and Pinterest each had about a $40 billion market cap. Snap had this massive run into that whole kind of disruptive tech bubble into early last year, has lost most of it. Twitter obviously being supported by the Elon Musk bid, which now at least has a little more credence. He may try a tender offer and Pinterest really getting abandoned. I think a lot of it is aftershocks, not just from Netflix, because a lot of the same people own the same digital media companies, but also from Facebook and this general idea that if you owned these kind of wide moat digital businesses, that they had some certain level of stability they were going to offer you, that they did have more predictability than they've shown. And I think that's getting kind of a sell first response today. But very interesting right

here. In aggregate, the market caps of these companies are now down from where they were 18 months ago. Wow. It's been a big drop. Mike, thanks. We'll see you in the market zone. Up next, Mohamed El-Erian reacts to Fed Chair Jay Powell today and whether the central bank can pull off a soft landing. We'll be right back. Coming off of session lows right now, Dow down about 275 or so, S&P down 1.9 percent, and the Nasdaq still getting hit the hardest, down 1.8. Taking a turn midday following an IMF panel that I hosted this afternoon, inflation was obviously a key topic in that discussion. Here's what Fed Chair Jay Powell said when I asked him whether he thought inflation has peaked in the U.S.

It may be that the actual peak was in March, but we don't know that. And so we're not going to count on it. And we're also no longer going to count on help from supply side healing. We're going to we're going to if we get that, that'll be great. And I think that would be enormously helpful in having a soft landing. But but we're really going to be raising rates and getting expeditiously to levels that are more neutral. Fed Chair Powell also cementing the idea of a 50 basis point hike at the May meeting says it is on the table. Joining us is Mohamed Al-Erian, Allianz Chief

Economic Advisor. Expeditiously, I think, is the new Fed buzzword because they're all talking about expeditiously getting to neutral. And that means we're going to be seeing a lot of Fed rate hikes. Should the market be surprised about this, Mohamed? No, the market has been leading the Fed. And it is the Fed that has been slow to recognize the inflation problem and to signal strong action. You know, think about it. When inflation was 4 to 5 percent, Chair Powell was repeating, it is transitory, it is transitory, it is transitory.

At 8.5%, he's not sure where this is the peak. Now we're talking about 50 basis points hike when we were talking about perhaps not getting even one hike in the whole of this year. So this is a massive move in the Fed, but it's one that is late relative to developments on the ground and relative to where the market has been. So what does that mean? Now, do you think they've got it? And so what the market's pricing in, I think, 12, 25 basis point hikes in the next year. You think that's about right? So I think they've got it, or at least I understand much better and they've been humbled. It's interesting and concerning that break-evens went up today.

Ten-year break-evens are above 3% at record levels. So that's not a good thing to see on a day when Fed Chair Powell says what he says. Look, they're going to need three things, skill, time, and luck to get to a soft landing. I'm particularly worried about the time because a lot of time has been lost in not recognizing the true nature of inflation and not taking action. It's only a month since we stopped injecting liquidity into this economy. So we've got a long way to go to tighten financial conditions. So what if the market is right when we get three 50 basis point hikes, three double hikes, basically, May, June, July? What does that do to the economy? And what does it do to inflation?

I think I am among those who are worried that by now having to hit the brakes hard, as opposed to easing off the accelerator last year, that we may have a high risk of a not just slowing economy, but we can be tipped into recession. I mean, you've heard many people tell you history is not comforting. History suggests that when the Fed is this late, the probability of a recession is uncomfortably high. Let's hope they can avoid it. And let's hope they have the skill, the time and the luck to do so. But if you think the odds are increasing of a recession or a mistake or increasing slowdown, then would you be buying bonds here? Because they keep selling off

and the 10-year yield is almost at 3%. No, because of where we started from. We started from very repressed levels and we are adjusting to a new paradigm. Look, Sarah, it's going to take the market time to realize that this is a completely different liquidity paradigm. I think the bond market has understood it more than the equity market. Having said that, the bond market hasn't fully finished its adjustments. The good news for long-term investors with cash is that value is being restored in many segments of the market. That's the good news. The bad news is the journey to this point and in the next few weeks and months is still going to be pretty bumpy. So what would you tell investors to do? Sell the rallies, continue taking money off the table and going to cash? I'll be telling them what I've been

telling them for the last four or five weeks on your network is that be careful. If you're heavily invested, this is a time to take some chips off the table. We are adjusting liquidity paradigms and be careful of volatility. Look at the last three days in the 10-year nominal bond. From bottom to top to bottom to top, 40 basis points journey on very little news. All that was before Chair Powell spoke.

We also have a liquidity issue. So it's not just interest rate risk we have to be worried about. Keep an eye also on credit risk and on liquidity risk, because we are changing paradigms. 2.9 percent there on the 10-year. Mohamed, always good to get your take. Thank you very much for helping us make sense of it all. Mohamed Al-Erian. Tomorrow on Tech Check, don't miss the interview with Treasury Secretary Janet Yellen and ECB President Christine Lagarde in conversation together. Rare and exclusive conversation there with two of the most important policy leaders in the world. Also, don't miss an exclusive interview on this show tomorrow with Cleveland Fed President Loretta Mester. That's

3 p.m. on Closing Bell. We've got all these key topics covered for you. Here's where we stand right now in the markets. The Dow is down 400 points, so we've just taken another leg lower. Mohamed El-Erian not sounding particularly bullish there. We've got S&P down 1.6 percent, so losing some steam. The Nasdaq down 2.2 percent. Sales of recreational cannabis begin today in New Jersey. Wall Street is buzzing about it. We'll take a look at whether that will lead to smoking sales for the pot stocks when we come right back on Closing Bell. Another up and down day, I should say, for stocks that has given way to lower prices right now. We're falling to session lows, and every sector has gone red, including consumer staples, which was holding up the best energies down there at the bottom of the list. But technology is getting slammed right now. Started off earlier pretty strong on the S&P above that 4,500 level. We're now below 4,400.

Started falling pretty intensely in the afternoon and in this final hour of trade. Chair Powell, the Fed chair earlier today, saying the 50 basis point hike is on the table for May, pretty much cementing that idea and sounding very hawkish about fighting inflation and doing what was necessary. Pot stocks are underperforming the broader market today, even though New Jersey actually began sales of recreational cannabis today. Frank Holland, is that a dispensary in Elizabeth, New Jersey, with a look at just how this market, how big this market could be, Frank. Yeah, absolutely. You know, it's going to be $31 billion here in the U.S. this year,

but today the ETFs that represent U.S. and Canadian cannabis operators, they're both down more than 2%, even with all this excitement that you see here behind me and at other stores over New Jersey legalizing recreational cannabis sales. Hundreds of people lined up at the first stores. Many expect the U.S. operators, the only ones with licenses to sell here in the U.S., to get a boost from the retail investors excited about the New Jersey market that will have 7 million people over the age of 21 by 2025. The state also embracing cannabis tourism,

welcoming buyers from Philadelphia and New York City to cross the border. Cannabis stocks, they often trade as a basket, with Canadian stocks moving along with U.S. stocks on good news. But today, that certainly did not happen. All these stocks down today. Also important to note that the trading volume of the U.S. and Canadian stocks, the top four of each, both significantly below their 30-day average, with the exception of Aurora today and also yesterday on 420 Day. A lot of people wondering, what's it going to take to get these pot stocks to rally? of each, both significantly below their 30-day average with the exception of Aurora today and

also yesterday on 420 day. A lot of people wondering what's it going to take to get these pot stocks to rally. Sarah? What is it going to take? Frank Holland. Frank, thank you. Tesla's holding on to its gains, but well off the highs of the day. Our next guest says he thinks the stocks rally is just getting started. That story, plus airline stocks, which are also bucking the downtrend today, soaring. And Snap's results after the bell will count you down. All that coming in the Market Zone next. Stocks are falling hard in this final hour.

We are now in the closing bell Market Zone. CNBC Senior Markets Commentator Mike Santoli here as always to break down these crucial moments of the trading day. Plus, Canaccord's Jed Dorsheimer on Tesla's strong earnings. And Wolf Research's Chris Senyek on a rough day for tech stocks in particular. Check out the overall market. Stocks have been losing steam throughout the session, taking a big leg lower just in this last hour and a half or so. The Dow had been up as much as 331 points at session highs. The Nasdaq and small caps are now getting hit the hardest.

We've given up all of those gains and then some. And Mike, we've also taken most of the week to date gains for the major averages as well. Is this just how it's going to be, a bumpy period as long as rates are moving higher and the Fed is speaking hawkishly? Because Fed Chair Powell pretty much gave that message today. It's a decent assumption, Sarah, that the market is a bit trapped in here, not just because of what the Fed's doing, but the somewhat independent breakdown of the huge cap stocks one by one kind of losing sponsorship. And and I obviously, you know, rates have a little bit to do with that. And the Fed outlook does as well. But you're obviously also seeing just

this bleeding out of valuation excesses and premiums that got pushed in there. So I think all that's true. That being said, this is an ugly reversal to the downside today. But we're just bumping along last week's lows. We kind of rallied up right to the 200-day average. It's very regimented, range-bound action, at least at this point, as opposed to some new reason people are fleeing. Yeah, energy, internet, semi-software, China tech all weighing on the Nasdaq right now. Check out Tesla, though. It is bucking the trend. That stock holding some gains, but it's well off the highs of the session. The company reporting pretty strong earnings last night, including record auto margins. This was key of 32.9 percent. Joining us now is Canaccord Genuity analyst

Jed Dorsheimer. I guess there were a number of surprises in here, Jed, including what they said about China. There were some worries going in about the shutdown of the Shanghai facility. What else surprised you? I mean, flat is good when you have a facility shut down for three weeks. So I think that came as a surprise. And I think the margins also X credits much better than than expected. And so, you know, when you just kind of look at this in comparison, and I think this is where a lot of people get this stock wrong, is when you look at it through the eyes of a traditional legacy OEM, BMW, I think, is the most profitable OEM out there. And they're at half the margins of that of operating margins, too, of Tesla.

And so I think that's what keeps surprising people. And I think they're getting surprised because they're looking at it, quite frankly, the wrong way. So what does this do for valuation, especially with the margins like this and the profitability surprising in a good way? There's no question that the macro is going to be under pressure. And so relatively speaking, we're going to see what Mike was just talking about in terms of these fits and starts with the market. But I think when you look at it from a category killer perspective, in this, we've got to bring in a little bit of history. If we go back to 19 think when you look at it from a category killer perspective, and this, we got to bring in a little bit of history. If we go back to 1908, and we look at Ford, they had 9.8% market

share. By 1914, they had 50% market share. And so the question then becomes, when you look at an Apple, you look at an Amazon, what do you pay for a category killer in this. And that becomes, you know, less of a science and more of an art. Right now we have a 35 times EBITDA. By any means, that's going to be argued that that's expensive. But when you look at what they're posting and how they're really changing this category, it's hard to argue that traditional valuation metrics

on that comp group are how you should value Tesla. Well, the auto stocks are going the other way today. Jed, we'll leave it there. Got to be quick today. We've got a lot. Jed Dorsheimer, thank you on Tesla. Want to hit the airline stocks because they are outperforming after a pair of earnings. American reporting a smaller than expected loss. Sales beat. United actually missed Wall Street's profit and revenue estimates, but both carriers announcing they do expect a return to profitability this quarter. Here's American CEO Robert Isom speaking with Art Filaboe about what's driving this bullish forecast.

Demand is going to continue. We've had three years where airlines have been, you know, with no growth whatsoever, while the economy has actually, you know, increased considerably. We've got to make that up and actually more. So I view demand as being robust far into the future. They're all so bullish, Philip. Oh, why are they so convinced this rebound will last beyond just a couple of quarters as we as we catch up here on the pent up demand theme? Yes, there are a couple of things that they believe are going in their favor. One, obviously people want to get out and they want to start traveling more beyond the leisure side of things. Corporate travel is coming back and coming back stronger than many expected

as you move into the summer months. The other aspect to remember is that there is a limited supply of seats. We don't have all of the aircraft that we had just a couple of years ago. Many have been retired. We don't have Boeing and Airbus cranking up their production of new aircraft as they were a few years ago. That is a tighter market. So as a result, the airlines are looking at their profit per seat. And that's really what matters. Profit per seat mile. And they're seeing just sensational numbers and people willing to pay up to fly. And Phil, what about business travel in particular? I feel like some of the comments we've been hearing are maybe a little better than expected on that front. Business and international, those were the missing links, right? Right. And on international, remember,

you just got to wipe out China and Asia Pacific, because who knows when that's really going to come back. Transatlantic, strong demand there. We heard that from United and from American Today. And in terms of corporate travel, it is coming back faster than many expected just a couple of months ago. Got it. Phil LeBeau. Phil, thank you very much. Airlines, one of the best S&P subsectors right now. And year to date, they're up 14 percent. Snap is set to report its latest quarterly earnings right after the bell. The stock is sinking. It's down about 5 percent. Julia Borsten has a look at the key numbers to watch in Snap's results, which we always get a big move from Snap one way or the other.

Julia, we have gotten some big moves in the past. Now, the key thing to watch here is growth, both of users and of revenue. The company is expected to add 11 million daily active users in the quarter for a total of 330 million. That would be at the top end of the company's own guidance range. Revenue is projected to grow 39 percent to 1.07 billion. Now, Snap's results could be seen as a bellwether of the state of the ad industry and ad spending in light of inflation and also supply chain issues. And also from a user perspective, we could learn from them whether the growing popularity of TikTok and the waning pandemic is hurting user engagement. Sarah? Julia Borson, we'll look for all of it.

Thank you. Stocks are sliding into the close. The tech-heavy Nasdaq is seeing the biggest losses. Just want to show you what's going on. Down about 2%, so we're just off session lows. Let's bring in Chris Saniak of Wolf Research. Alicia Levine said something interesting, Chris. At the top of the hour. She said that there will be a point at which you want to be buying growth stocks if the economy slows down.

How do we know when we're at that point? We think the economy is going to slow down during the course of the year because when the Fed's historically hiked rates more than 200 basis points, which is what the forecast is, and then some for this year. The economy's really slowed down. You're already starting to see that with ISM decelerating. You saw the Philly Fed report this morning, which was also weaker, and you throw on higher interest rates

and the effect of that, which take time to digest itself through the economy, and we see the economy really slowing. So we would take the opposite side of that trade. We would be long value stocks here over growth. I don't think you want to grow stocks. Those are generally the higher multiple stocks. And if interest rates continue to rise, those long duration assets are going to continue to underperform the market.

What type of value stocks? What sectors? We would do value in health care. We like pharma in particular. We like tobacco stocks within staples, more defensive areas. If you have to own tech stocks, wait till they report earnings. Let them de-risk. We lean in towards value within tech. So that's the payment processors. That's IT services. Mike, what is the message we're getting from earnings overall? You know, some of these companies have pretty strong pricing power. I'm looking at Dow, which is set to close at a record high right now.

What are you hearing as it relates to the overall market? And is the market paying attention? Market is paying attention in the sense that there's been a bit of, on a net basis, relief on the results. If you looked at the average stock reaction to earnings, it's actually slightly positive. Obviously, the massive blowups like Netflix are going to obscure some of that. But company by company, things were down enough. Stocks were down enough. I think that the bar was somewhat lowered. Overall, estimates are holding up for the year. I think it's fair to argue that the back half of the year, you might have some

vulnerability to those forecasts. And it is lumpy. Energy is doing a lot of the work in terms of keeping the overall forecasts supported. But I don't think that what the market is mostly going through right now is a panic about corporate results. The corporate sector seems pretty sturdy. It's all about what you pay for the earnings, what the trajectory is, if we are going to see further margin squeezes and, you know, the interest rate that you're going to have to kind of compete against as a hurdle rate. So what do you think that we're going through, Mike, then? Just a valuation reset as the Fed increasingly expeditiously, as the word looks to raise interest rates and front load these rate hikes? I mean, that's most of it. I will not deny that the market is also telling you we've rushed into some version of a late cycle environment. That's what the sector leadership tells you. That's what it tells you when the Fed is in a hurry to try and restrain inflation.

It doesn't mean late is on an actual clock. It can stay late for a long time. You could also mean revert. You know, the leading economic indicators today at a new high on average, it's been like almost a year after those peak before you get a recession. So it's not as if there's only a few grains of sand left in the in the hourglass here. I also want to point out, Chris, the dollar, which is strengthening. It's another byproduct of all this Fed hiking. It's up another quarter percent, hitting some multi-year highs against currencies like the Chinese currency, the Japanese yen, more than 20 year high, the euro even. Have investors factored that in, do you think,

to the earnings outlook? No, that's not in earnings estimates yet. Obviously, that hits some of the multinational companies. Certainly, I think some of the relative strength in the U.S. market has been attributable to foreign inflows, you know, trying to get benefits from the currency. But estimates don't yet reflect that weaker currency. So some of the multinationals may have some more conservative guidance this earnings season as a result of that. When you say you like value, I know you said health care was one of your picks and staples, sort of the defensive groups, but to wait on earnings for technology, do you see any value at this point in technology,

maybe in some of the mega cap names, which are getting beat up again today? Well, the short answer is not yet, because we think investors after the Netflix news are starting to question sustainability of tech spending. So they extrapolate, OK, it's just streaming, it's just stay at home. And now is cloud spending going to come under pressure, right? Is this like the late 90s where we were assuming that spending was going to continue to grow at an unachievable rate in perpetuity? And so we need a little more

clarity on software names, I think, before we want to dabble in there. We'd be leaning towards software post-EPS if we see some good and solid results and get confidence that cloud spending isn't going to fall off a cliff either. We're just not hearing it yet, Mike. IBM yesterday, Arvind Krishna, doesn't see a slowdown in IT spending. Not seeing it yet, doesn't see it coming. Even in a shallow kind of recessionary environment, there does appear to be somewhat of a disconnect between what we're getting from companies overall and what the markets are telling us just in terms of the cyclical groups breaking down and the defensive groups working so well. Yeah, I mean, look, I don't think that the vendors are going to be the ones to see it coming from a long distance off.

But you could also say companies have enough to go around. There's enough cash flow and debt capacity and everything else to do some R&D, to buy back stock and to keep buying software. So I don't know that that's really the kind of slowdown or downturn that we're on alert for. It seems a little more about, you know, can the consumer really weather this or wage is going to keep up and how aggressive the Fed's going to have to get. Well, Chris Senyok, thank you very much for joining us. Just looking at some of these sector performances, Mike, as we go into the close, gold is lower. Some of the fertilizers are giving up recent gains, oil companies as well. The semiconductors are much lower. So a lot of the cyclical areas of the markets are weaker, except for airlines, which continue to do well. What do you see in the internals?

Yeah, it's been pretty weak and it's eroded throughout the day. We've been going kind of straight down since 10 o'clock until recently in the indexes. So you see about five to one declining to advancing volume. That's pretty severe. Talked about defensive leadership late cycle. Take a look at the S&P dividend ETF this month relative to the S&P. Massive outperformance on a year-to-date basis. It's outperforming at 15 percentage points. Tons of utilities and staples, but also financials are overweighted in there. And then the volatility index, it has perked up, but we're still under 23. It takes a lot at this point because we've been in this range at these levels so many times recently to get the VIX

really in a stressed level. We're not there yet. We're down one and a half percent here on the S&P 500 into the close, which is just off of session lows. You've got every sector now lower in the market in the S&P. Energy is the biggest decliner, down more than three percent. Communication services, though, right down at the bottom of the pack as well, with some of the weakness that we've seen in some of these media names. AT&T, Verizon, Twitter bucking the trend all with their own separate stories there. The NASDAQ down 2% again. Heavy selling in the big cap tech names like Amazon and Meta. The Russell 2000 down the most,

more than 2%. That does it for me on Closing Bell. Have a good evening.