Closing Bell - Closing Bell: Stocks volatile after Fed minutes, billionaire Sam Zell outlines the risks and opportunities, and what to do with tech stocks now 4/6/22

Episode Date: April 6, 2022

Another rough day for the market as volatility reigned following the release of the Fed minutes. Former PIMCO chief economist Paul McCulley gives his take on central bank policy and inflation. Billionaire Sam Zell says the Fed is months behind the curve, and outlines where he’s looking for opportunities. And as tech stocks took the brunt of the pain again today, Wedbush’s Dan Ives says the group is a “massive buy.”

stocks are in the red but well off the lows in this roller coaster reaction to the fed minutes the most important hour of trading starts now welcome everyone to closing bell i'm sarah eisen here's where we stand right now we dropped to session lows just a few moments ago but we have come back pretty nicely here the dow's only down about 58 points s&p 500 down six tenths of one percent technology is getting hit the hardest again You're seeing weakness in all the tech names, chips, internet, software, hardware. Consumer discretionary is the worst performer in the S&P. Utilities are holding up. So is real estate, staples, health care, and energy. So a mix there of the energy and the defensive plays. The Nasdaq down one and a half percent. Here's a look at the names dragging down most on the NASDAQ 100, which is where the pain is right now.

And you can see it's a lot of the winners over the last year or so. It's Moderna. It's the high growth companies, the cloud names and the software security cybersecurity names like a Zscaler, PayPal down more than 3%. Here are my top takeaways on some of today's biggest stories. Datadog. How about that one? Getting hit hard?

Pick your cloud, darling. It's been a rough year. 90% of the WCLD ETF, that's the cloud ETF, in the red, even with a bounce back in the past few weeks. Higher interest rates hurt valuations, and cloud stocks were some of the biggest winners in the low-rate, high-liquidity environment. The fundamentals of these companies may be fine. Datadog just had a great quarter. Valuations have come down, but these names are firmly in the crosshairs of the Federal Reserve, and the Fed keeps the hits coming. Yesterday, Brainerd. Today, the Minutes. China's slowdown risk grows. Shanghai reporting 17,000 new COVID-19 cases today, setting a daily record for the fifth day in a row. The lockdown has been extended indefinitely. We're seeing it in the data already. Activity in China's service sector

contracting at the sharpest pace in two years in March. Expect a deeper slowdown in the world's second biggest economy and more supply chain issues. And a growing headwind for earnings, a stronger dollar. It is at a nearly two-year high, strengthened 8% in a year. It's rising again today. Those rising interest rates here make the dollar more attractive. And that strong dollar cuts into any overseas revenues of U.S. multinational companies. It hurts with the lag. So expect a lot of currency headwinds commentary on the earnings calls this quarter. The dollar will affect everyone from drug makers, tech companies, consumer companies, autos, you name it. Let's get to our top story, though, this hour. The Fed fires its latest salvo to fight inflation, and it's rattling markets again. Stocks getting a brief reprieve after the minutes of the Fed were released. Then they fell again, and now they've come back a bit.

Fed officials saying in those minutes from the last meeting that they plan to shrink the balance sheet by around $95 billion per month. Joining us now, former PIMCO chief economist Paul McCulley, CNBC's Steve Leisman, and Mike Santoli. Mike, I have to start with you because the market reaction is pretty interesting. If you would have told us, I don't know, a few months ago that the Fed was going to come out in a minute from the last meeting and say most people, most of them favored a 50 basis point hike, a super duper interest rate hike, and that they're looking at shrinking the balance sheet

$95 billion a month for the next few months and want to get aggressive about it, you would have expected stocks to take that very poorly. It could be a lot worse. Well, yeah, you would exactly have expected that, Sarah, if they hadn't been telling us almost exactly that for months until today. So, you know, out of nowhere, out of the blue, at a moment in time, if that was the news hitting a complacent Wall Street, yeah, you would not have seen the market handle it well. But I do think the whole question has been, to what degree has the Fed's aggressive and methodical scene setting for what they're about to do been absorbed in the market? It's been the question all along. Remember, the rally off the recent lows in the market happened the very day of the Fed tightening in the press conference,

which we had been anticipating so much in the market had been kind of declining, perhaps in advance of. So I think that's part of the issue here is just what's priced in. Have we been prepared for what fully is out there in terms of the Fed? Yeah, maybe to that point, it's perceived as a little bullish for bonds. At least the two year yield is coming coming down steve any surprises here the unanimity i think was interesting uh you know the fact that they haven't even taken a vote on it but they're pretty much all in agreement on this and like i said before i think i said the epa what i meant was the u.s fish and wildlife service needs to do a needs to put monetary policy dove on the endangered species

list because the only people that are worried about going too fast the only reason they're needs to put monetary policy dove on the endangered species list, because the only people that are worried about going too fast, the only reason they're worried is because of market functioning reasons. And there's a legitimate question here, Sarah, as to whether or not even the Fed thinks that what they've laid out here is enough. If you notice, both the staff and the Federal Reserve officials say, we're going to continue with above-trend growth here, which is, even though they've marked down growth,

they still think it's going to be above-trend. So is all this enough to continue with above trend growth here, which is even though they've marked down growth, they still think it's going to be above trend. So is all this enough to deal with inflation? Is it, Paul? We will find out. What we do know, and I agree very much with Mike and Steve, the Fed's done a marvelous job of laying out the scene, is the Fed is committed, unambiguously committed to dealing with this inflation problem. And the counterpart to that is they're unambiguously committed to tightening financial conditions. They are laser beam focused on this. And I think that's what all of the rhetoric in recent months has been saying, the actions as well as the meeting. So I think that's what

we can take away. And whether or not what they've got plotted out is enough, we will find out in time. But what they're telling us is this is not enough. We will do more, which is implicitly recognizing that they will increase downside risks for the economy. But they are having their Volcker moment. What about this idea, Paul, that I've heard that they're going to do a lot? They've made it clear. They keep telling us. Brainerd told us yesterday, we got it from the minutes, that they're going to do so much that it's going to tilt the economy into recession and then they're going to have to stop. And then they're maybe even going to have to do easing because the economy is

going to be a recession and inflation is going to come down. Is that too far of a leap? Because that is out there and it could be what's limiting the damage here in the stock market. When I was a young man, I had a gray beard tell me not to forecast around two corners. And that's effectively what you're asking me to do is to forecast around two corners. But seriously, I do think that if you're going to get a soft landing, there will be a easing cycle on the other side of the tightening cycle. So that's not an irrational proposition, whether it's a soft landing or a hard landing. And I think the yield curve will sort of try to figure out, you know, many, many

curves along the way. But I think where we are right now is the Fed wants the entire yield curve to move up, not just the rates it controls, but it wants the yield curve to actually steepen out the curve, effectively restore a private market determined risk premium, remove the suppression of volatility that QE had imposed. Steve, it is this question of the financial conditions and what the Fed would like to see. The Dudley op-ed today that they need to knock stocks down harder. What do you think is appropriate there or how the Fed views the market in terms of how it affects the economy and what they would like to see right now? And what are they willing to do about it? If I could be diplomatic about this, I think the Fed would not be upset if

the market was lower. I don't know that it would specifically aim for a level of the market that were lower, but picking up on what Paul says, it wants to see financial conditions tighten. And Paul used a great phrase in his notes that I want to make sure he doesn't leave here without saying, which is he described what's going on is after the Fed created all this money, now it's going to uncreate money, which is pretty much what it's going to be doing here. Look, what's interesting here to me, Sarah, among other things, is the market went through this in 94. I'm having a discussion with my friend Barry Knapp about whether this tightening cycle, QE plus 200, QT plus 200 rate hikes, sort of base points of rate hikes, is tougher or more aggressive than 94. We lived through that then. We got through it. We got inflation out of the system. But it was ugly in the bond market. And we had a long expansion after that. It was ugly in the bond market. You are correct. They

hated the Fed for a lot of years after that. But, you know, the Fed's not around to be liked so much. We'll leave it there on that lovely note. Steve, Mike, Paul, thank you both. Thank you, all three of you, I should say. Up next, a rare interview with billionaire investor and real estate mogul Sam Zell on this pickup in volatility, rising rates, the risks he's seeing in the market and the sectors of the economy that he's in. You're watching Closing Bell on CNBC. Dow is down only 100 points. Dow's down about 97 points. Let's check out today's stealth mover. It's Rocket Companies. The home lending company is sinking today, and it's one of the biggest decliners in the past three hours. No company-specific news on the tape,

but we did get the mortgage data out today. Applications down 40% from this time last year, as rates sit near 5%. Keep climbing. Stocks are in the red, but well off their worst levels of the session. Billionaire real estate mogul Sam Zell joins me here at Post 9. He's the founder and chairman of Equity Group Investments, a firm working with numerous industries, real estate,

energy, transports. It's great to see you, Sam. Thank you. Always. So the market is reacting today to the Fed minutes. We learned that they're going to be trimming their balance sheet, $95 billion a month. We know that they're going to be raising interest rates. How do you think the market and the economy are going to be taking all of this? I don't think I can speak to the market. That operates in its own realm. But I think that shrinking the liquidity factor is a very important thing. I mean, I think the Fed is probably five or six months behind what they should have been doing. And I think the inflation that we're dealing with, which is, I think, very significant and much higher, frankly, than what the statistics suggest,

is all about too much money chasing too few opportunities. Fiscal, monetary. Yeah, I mean, when you think about, you know, all of the fiscal stimulus, and I think somebody pointed out to me that, you know, the Fed debt level, you know, four years ago versus what it is today, the U.S. debt level is just enormously bigger. And that means that the economy was just overrun with money. And that basically destroys price discovery. I think the Fed is realizing that this needs to be done.

The question is, how painful is it going to be taking the punch bowl away? Yeah, well, you know, history says it's not uneventful. And my guess is that we're going to have—you know, depending on the situation, I mean, I think there's a lot of—you know, I'm obviously involved in the REIT area, but in the REIT arena, we've never had as low debt levels as we have today. So I think that, for example, is unlikely to be, you know, significantly impacted. On the other hand, there's a lot of, you know, leveraged businesses that have changed in interest rates, particularly over 150 basis points.

It's going to make a difference. Are you in the recession camp? No, I think the economy is, frankly, stronger than conventional wisdom suggests. But I think that, you know, it's going to be difficult. You know, you're going to have some difficult times and particularly difficult companies that are, you know, selling at multiples of sales, not multiples of profits. So how are you preparing some of the companies? You mentioned the REITs are in pretty good shape and they have been acting as a safe haven in the market. But how do you prepare the companies that you're dealing with for this big reversal of what we're about to see at the same time that we are seeing these sky-high inflation rates?

There's no substitute for liquidity. And liquidity equals value. And I think more than ever before, that's going to be relevant going forward. When do you think inflation comes down to normal levels? When do I think or when do I hope? Both. I mean, I think that they're different. You know, I think that we've got to we've got to get inflation under control. We can't afford to have a repeat of the 70s. But I'm worried that, you know, between a president who seems to want

to sign anything that, you know, creates more money to a Congress that doesn't seem to remember, you know, cost-benefit relationships. It might take a lot longer than it should. Do you think the inflation is on Biden's shoulders from the stimulus bill? It's hard. You can also blame the Fed, the supply chain. It's very hard not to give him a lot of the credit. I think he came in in a period where the inflation bug was already in place. But that first trillion nine, remember we used to you know, taxes or raising money in billions. And when, from Biden's first day in office, he started talking about trillions.

And the economy just can't afford that kind of liquidity. Sam Zell, please stay with me because I want to dive a little deeper into your portfolio. Talk real estate, talk energy. We're going to take a quick break here on Closing Bell. Dow still down about 94 points, S&P down three quarters of 1%. We're back with Sam Zell after a quick break. Welcome back to Closing Bell. Just took a little leg lower, down 139 or so on the Dow. Let's get back to our guest of the hour, billionaire businessman Sam Zell from Equity Group Investments. And Sam, you're here for the annual REIT Symposium at NYU. I did want to talk to you about the real estate market. Now that we're seeing mortgage

rates surpass 5 percent, how do you expect it to impact demand? Well, I think that the overall real estate market has been in a kind of a period of relatively little activity. And I think that obviously the biggest impact of raising interest rates is going to be on single-family mortgages. Whether or not the difference between 3% and 5 percent turns out to be the slowing or not, I'm not sure. I mean, overall, my feeling about interest rates is that we could probably have interest rates 200 basis points higher than they are without any dramatic impact on the economy.

What about pricing? Are we just going to continue to face higher prices for residential and real estate and rents? Well, you know, that's comparing single-family housing, you know, to the rest of the commercial real estate market. The single-family market, you know, for 25 years we built a million single-family houses a year. And then all of a sudden, we built 250,000. So the pricing, more than anything else, is supply and demand. And we're still not doing enough to catch up with, you know, our population has grown, but we're building less houses than we did before. And therefore, it's not a big shock that the price of housing has gone up.

It's kind of a stagflationary outlook for housing. Well, to some extent. Although, you know, if you owned a house, you've done pretty well recently. Yeah, if you're buying one, tough market. Yes. What about offices and commercial real estate? You've got to be disappointed with how slow it's been of a return. Well, I mean, you know, the whole work from home thesis, you know, is impacting the office space market. My company and my people have been back to work for over a year. I believe that

the culture you create is very much a function of all your people working together. I'm not a big fan of work from home. I don't know how you motivate by modem. I don't know how you assess the quality of the talent you have from afar. And Zoom calls, you know, clearly have their place, but it's very hard. But it's a workers' market, and workers like the flexibility. Well, but, you know, that's all well and good, you know, assuming that, you know, the workers' flexibility doesn't, you know, attack the whole question of effectively working together. I mean, you know, we have been successful

by generating opportunities for people to work together. We have been successful because of what, you know, you call the water cooler effect of interfacing with the people you're working with. I think the biggest, you know, mitigator of risk is accessibility. And so the more you have a siloed environment of people working at home, the greater the risk is that you're not sharing that which you need to do. And finally, I did want to ask you about energy because you have been an energy investor for a long time and there are some tectonic shifts going on.

Do you see what's happening right now, the war in Ukraine, the cutoff of Russia, do you see these as permanent shifts in the energy market and the dynamic there? Well, I mean, you know, just like we talked about, you know, building a million single family houses and then building 250,000, the energy market is the same, where effectively we were spending an enormous amount on fracking and expanding the energy business, and then we've done a reversal. And that kind of a reversal is going to be very expensive to correct. And take time. And take, for sure, take time. And in the meantime, it's going to

be a challenge. I mean, the Ukrainian war is an unfortunate disaster, and it's going to have an impact on the energy markets. You know, the question is, is Russia ever going to become a responsible party in the world? So given all of these dynamics right now globally and some of the volatility, what's most exciting to you right now? What sort of opportunities in the investment world? We think the real estate market is pretty benign and not very interesting right now. We've spent a lot of time in the last four or five years doing what I call generational investing, where in effect we've come in and put up the capital to take, you know, a big chunk of a private company, leaving the people in it who were working in it and giving a check to the heirs.

And that's turned out to be a very interesting niche and one that I think is growing as a lot of these companies have reached a level of maturity but don't necessarily want to be part of the public markets. And when you say real estate, you mean REITs, the businesses that you're in? Well, I mean, they're in the real estate, you know, commercial real estate business. If you look at the commercial real estate business today, the warehousing space is extraordinarily high.

Office space is pretty, you know, benign, nothing going on. Multi-family is doing well. Retail is a falling knife. So you start looking at all these different elements, and because there's been so much supply of capital, there's been relatively little discipline. And I think at some point in the near future, we're going to see that discipline get reimposed,

and it'll kind of separate out the men from the boys. Sam Zell, always good to catch up with you. A pleasure. Thank you for coming by here post-9 to the New York Stock Exchange. That's Sam Zell. After the break, we'll take a closer look at the technical damage that's been done in the NASDAQ 100 this week. It's getting hit harder than the rest. Again today, down 2.25%. And then later, we'll talk to an analyst about the big drop for the airlines on the back of JetBlue's unsolicited offer for Spirit.

JetBlue, by the way, down almost 8%. We'll be right back. We are heading south again. The Dow is down 200 points right now. And yet again, it is the tech-heavy Nasdaq that is bearing the brunt of the losses. Down 2.3%. Mike Santoli taking a closer look at tech stocks in the dashboard today. Mike. Yes, Sarah. I mean, the NASDAQ has been an exaggerated version of the broader market, both on the way up into last year's highs, as well as on the way down. It's in a little more of a vulnerable spot in terms of just technically and sentiment around it. It was where the valuation excesses were the highest, and they've been drawn out the most.

Take a couple of observations. So we trade right here, still below the October lows. The S&P 500 is like 4% above its own October lows. So it seems like there's just been a little bit less lift here. It broke this downtrend pretty aggressively in the rebound rally, but now it could be working on another one over here. So you have to kind of watch whether it can possibly get any relief. One final thing, probably needs to stay above that level there to keep people from thinking we're going to revisit those lows. So here we are with the NASDAQ 100. Take a look at the semis. It's on the worry list

of the bulls, along with the homebuilders and the transports and the banks and consumer cyclicals, because it really has started to underperform. It's usually a risk appetite and economic optimism bellwether. And you see here, over the last year, over two years, semis have performed great and they're sitting on outperformance. But I'll just point out that big gap in performance with the S&P kind of rhymes with previous ones. So it isn't always the case that when semis are pointed south

and they're underperforming, that it means it's just going to snowball from there. But clearly it's kind of, you know, you can't trust without verifying how the group actually acts. We will watch it. Mike, thank you. We'll see you soon in the Market Zone.

Up next, Wall Street buzzing about crypto today as thousands of enthusiasts descend on Miami for a major conference. We'll head there live for a report on what is driving the whole crypto conference lower today. Bitcoin down about 5%. What's Wall Street buzzing about today? Crypto having a rough session across the board. Bitcoin down about 5 percent. Ether and Litecoin falling even harder. And it comes as thousands of crypto faithful descend on Miami for the Bitcoin 2022 conference. Let's bring in Kate Rooney, who is live in Miami, who's always live in Miami for these Bitcoin conferences. Kate, what are you hearing about today's pullback?

What are the folks saying there? It's interesting. I'm going to steal a line from Mike Santoli in the last block. He talked about the Nasdaq being an exaggerated version of what's going on with equities. Bitcoin and cryptocurrencies really are an exaggerated version of what's going on with the Nasdaq. It's selling off for some of the same reasons that we're seeing hit those higher growth assets.

Lael Brainard's comments about reducing Fed balance sheet, higher interest rates, that's not great for those riskier higher growth assets, or the non-yielding assets like gold and Bitcoin. Believe it or not, though, Bitcoin's actually outperforming some of the other large cap cryptocurrencies, so it's looking within the realm of the crypto world like a little bit of

a safe haven. Noel Atchison from Genesis was describing this and said, Bitcoin, at least, you know, it has a floor. There's people that come in and you see, you know, El Salvador in some cases coming in to buy the dip. Luna, which is another big crypto project, is buying a Bitcoin as backing for its stable coins. So it seems that investors are looking at this saying, at least there's a floor in Bitcoin. It might be a relative safe haven. But it doesn't seem to be spilling over into the crypto conference here.

There's still a lot of excitement. There's actually a big price sort of ticker tape inside that people are walking by. Not a lot of people looking at the price. It's more about the long-term investment and the hype around Bitcoin. Right. Sure. Not looking at it at all. Kate Rooney. Kate, thank you from Miami. Up next, a top analyst on why he says it is time to aggressively own tech names and Wall Street's

reaction to the surprise JetBlue bid for Spirit. Those stories and more when we take you inside the market zone. Dow down 177. We'll be right back. Just under 18 minutes left in the trading day. We are now in the closing bell market zone. CNBC senior markets commentator Mike Santoli here to break down these crucial moments of the trading day. Dan Ives from Wedbush on the big sell off in technology names. Bank of America's Jill Carey Hall on the small caps. First up, broader markets. Stocks are selling off today. NASDAQ leading the declines again. Goldman Sachs chief equity strategist David Koston joining CNBC earlier today.

He had a pretty downbeat take on the market. Listen. You should be worried. We are worried. We're paranoid. Overall, the U.S. equity market maybe has 5% upside from these lines between now and the end of the year. Should we be going into recession? It would be a meaningful downside, but that is not the base case. Only 5 percent upside, Mike.

And now you have other sell-siders talking about recession. Deutsche Bank out with that call yesterday. The Fed making it very clear, full steam ahead, shrinking the balance sheets, raising interest rates. What do investors do about all of this? Well, I think David Koston's comments perfectly well captures the mindset right now. And it's the mindset you kind of have to have. The Fed is intent on tightening financial conditions. That often means stock prices remain under pressure or at least volatility is higher or credit spreads go up or yields continue higher or mortgage rates go to 5%, which has already happened. Biggest question to me is how much of the work has already been done,

even allowing for the fact that you have to assume a somewhat higher probability of recession than we thought a few months ago. And I think that's what the market is trying to really struggle with in price every day, obviously. Today, I will say the S&P 500 sort of defended this area. It had to. It did not get disorderly on the downside. The equal weighted S&P is outperforming by a lot because it's the mega cap growth stuff that is, again, a drag. That's not, you know, some victory in itself, but it shows you it is now a two-way market since we made those lows several weeks ago. Cloud stocks are falling hard again today. Names like Datadog, Snowflake seeing significant losses. Frank Holland has been watching this

space pretty closely. Frank, what's driving the sharp pullback other than the higher rates that we're all talking about? Yeah, you know, it's higher rates and really questions about the valuations of a lot of these big names. So let's hit the rates first. The yield on the 10-year now, about a percent higher than it was

during its intraday low back on March 7th. And then we often talk about the WCLD ETF, the cloud computing ETF. If you look at the names bringing it lower today, well, they're really high valuation names. For example, Snowflake, down more than 30% year to date. Well, it has a valuation of 1,000 times forward earnings. Just to put that in context,

the NASDAQ has a forward PE of about 28 times. You look at Datadog, also down more than 20 percent, 260 times. Atlassian, another great example there, 179 percent. But you do have to keep in mind that the stock performance is actually moving against macro trends of cloud adoption, especially with a lot of the concerns about cybersecurity with the Russia-Ukraine war. Frank Holland, Frank, thank you very much. Mike, how do these valuations look, given the pullback in some of the cloud names in particular? Well, they're a lot lower than they were.

I mean, usually there are sales valuation for a lot of the faster-moving names there. I think one thing to keep in mind is we look at things like the WCLD Cloud ETF or the CLOU. They're not really dominated by the big cloud infrastructure players, where they're riding the secular trends, the Amazons, Microsofts, et cetera. It's really software as a service companies, cloud-based application type companies. And there were a couple of hundred of them came public. There was a supply versus demand imbalance. All the valuations got cut. People thought these were magical business models and, you know, no longer being valued right now on just the total addressable market. So I think it's very tough to say valuation-wise that they've reached some kind of a floor.

But you can say that the stocks have acted as if maybe they've had some climactic selling and have to do some work just basing over time. Probably going to be some M&A in this area. So it's a tough call to say that somehow we're at some inflection point just because they're down this much. And I feel like we have to distinguish, Mike, between some of the software and cloud names that have strong cash flows and that are considered more quality names. Microsoft, for instance, which is getting hit pretty hard today, versus some of the faster growing ones like Datadog or Snowflake. Have we seen a gap in the performance here? Oh, absolutely. I mean, those, you know, the sort

of pre-profit or low-profit names are, some of them down 70 percent from their highs. I mean, Microsoft, it's pulled back hard, but it's still very much, you know, in a multi-year uptrend, and it's really not that big a deal. It's just kind of tweaking the valuation around the edges of the big players. Sticking with the tech story, the Nasdaq sharply underperforming, as we've been saying over the past couple of days, it's been the story. It's down nearly 3 percent today at the lows. Let's bring in Dan Ives, WebBush Securities Managing Director of Equity Research. And you, Dan, say that it's overdone, that the valuation cuts are just too much?

You know, I think it's oversold, as I've seen tech stocks, you know, call it in the last five years. And I think if you look going into earnings, the setup for tech, I view it as a massive buy. You know, we've been table pounding on cybersecurity names, names like Zscaler, CrowdStrike, Tenable, names like Microsoft on the cloud side, as well as even the cloud valuations of a Google, as well as an Amazon. And Tara, I just think at this point. The New York City cab driver knows the fed path over the next eighteen

months. I believe right now lot of nerve wracking investors were talking to. I think risk rewards based on fundamentals and a trillion dollars a cloud spent. We be buying these names heavy into the. The next few weeks. Here's the problem since

you've recommended Zscaler last time you it, it's down 9 percent. And some of these other names even worse, Dan. Matterport, since you picked it, down 50 percent. Not to pick on you, but it's a problem because you're looking at the fundamentals and the valuations, and this market is focused on the macro. No doubt. And look, I view it as this is not a call on these names for the next week or the next month. It's where do we see this over the next 12 to 18 months playing out? And just go and even go back to the last few years.

I believe this digital transformation in terms of growth tech is 2 to 3x what we've seen in the last decade. And that's why some of the names to froth will come off. And we've seen that. Some of those could be like falling you know almost catching falling night but when we look at names in cyber security when we look at names like microsoft we look at names really across the ecosystem on the infrastructure side i think right now massively oversold relative to how we see the fundamentals but look the haters will hate though you'll fire into a crowd theater going into earnings i think we see here four five weeks now you this is a golden

buying opportunity. Just like we talked about when the feds started to raise rates that's where we viewed the bottom for tech was in. Is there any hint out of these companies are do you expect and to hear anything about. The fundamentals

deteriorating a potential recession or pullback for instance an enterprise spending and anything like that going on? Look, I think on the niche players, some of the pure players, like, you know, maybe tangentially the data dogs and stuff like you've seen, you know, some of that growth sort of wane a bit. But I think the theme coming out of earnings is going to be cloud, cybersecurity, enterprise spending on next gen is robust and accelerating, not decelerating. There's price pressures, and we'll see that come through.

Of course, the strong dollar, you'll see that play out. But overall, that's why I believe going into tech, I view it as a bright green light. It's going to be ultimately a buckle to seatbelt time, but I view it for the year. This is the time that we'd be on in tech. What's your favorite? I know you like the group, but one pick if you had to. One pick, Palo Alto. That's the one that I continue to view on cybersecurity.

Risk-reward, I view that as a golden name. And that one, actually, Mike, has been up about 23 percent since the call. But, you know, it's hard to it's hard to argue with the whole secular growth theme, Mike, right, when it comes to some of these companies and even a date of a dog. I went back and look at the last quarter. It was like the best quarter they've ever put up in their in their life as a public company. But that has not mattered for the stock price lately, which is frustrating, I can imagine, for investors. No, it's absolutely frustrating, but it's also the flip side of these stocks that were

quadrupling in the first quarter of 2021 when their underlying fundamentals weren't quadrupling. I do think there's an interesting point, though, at some time down the road as to whether the very large Nasdaq stocks, the real dominant tech players, again, regain that sort of defensive quality attribute. If, in fact, overall earnings are going to be a little spottier, we're not talking about rapid growth overall in the S&P earnings. You know, it used to be that's when you went to those names as a premium, the quality premium. It hasn't really shown through recently. We're caught up in some of the macro stuff.

They got expensive coming into this year. But at some point down the road, maybe that does reassert itself. Dan Ives, thank you for your commentary today and for your picks. Let's hit the airlines. JetBlue elbowing its way into that proposed merger between Spirit and Frontier Airlines, sending a $3.6 billion unsolicited offer for Spirit, 37 percent higher than the Frontier offer. Here's what JetBlue CEO Robin Hayes had to say this morning on Squawk on the Street. When you scratch behind the service and you look at what the regulators are trying to do, which is to make sure as a result of these combinations, fares go down rather than up,

we actually believe a JetBlue-Spirit combination will have a more profound and a more permanent effect nationwide on lower fares and a merger of the ultra low cost carriers. Shares of JetBlue sharply underperforming the market right now, down more than 8 percent. Joining us on the news line is Helene Becker, Cowan Senior Research Analyst. Wall Street does not seem to like this move by JetBlue. Helene, do you? Well, we sort of think that the merger creates a large airline, but the business models are pretty different. One is a low-cost airline with a high-touch product, and the other is a low-cost airline with a low-touch product.

So I'm not sure how that's going to work together, and I think that's one of the criticisms. And the other is they're both very big in South Florida, much bigger together than Frontier and Spirit would be. So that's another concern, because I think regulators will look at that and wonder about the competitive situation in that market, which admittedly is quite competitive. Already there have been Democrats that have raised some red flags on the Spirit Frontier deal. So are you suggesting that a JetBlue Spirit deal would be an even tougher pill to swallow for the regulators? I suspect it would, yes. You know, both companies, if you go back to the February date when that first merger was announced, there were issues with regulators, to your point. And then you go to today and there are issues as

well. So not 100 percent certain that either deal will go through. We think certainly Frontier Spirit makes a lot of sense. JetBlue and Spirit, I'm not 100 percent convinced. Does it say something about the threat to JetBlue if Spirit and Frontier do move forward here? I think it talks to the industry in general to that point. So you have four airlines that are, with the pandemic and the cut in capacity, are probably closer to 70, 75 percent of capacity in the U.S. And then you have a whole group of other airlines that represent the other 25 percent. And if you take out the regional airlines that feed the larger airlines, Delta Connection, United Express, and so on, it probably leaves 20 percent for about, what, six or seven airlines to kind of, I don't know what's the right word,

eat between them, divide between them. And I don't know how they can all compete, especially with Jeff Beal where it is. New York Harbor was $7 this morning. Elsewhere in the country, it's over $3.50, almost $4 a gallon. It's really a tough competitive situation out there from a cost perspective. And we talked before, Sarah, you and I, about labor costs going up. And so you're seeing labor costs rising, fuel costs are rising, and fares are not keeping

peace with that right now. And I don't know how you get on the other side of the margin in an effort to keep the trend going. So do you stay away from the airlines right now, or do you stick with some of the bigger, more scaled airlines that can deal with some of these cost pressures? Yeah, I would do that. I would stay with the airlines that have deep pockets, good balance sheets, can focus on paying down debt. Obviously, no one can return capital to shareholders until after the third quarter just because of the CARES Act. But yeah, I would definitely focus

on those airlines that are strong from a balance sheet perspective. Got it. Helene Becker. Helene, thank you very much. Want to hit the small caps because Barclay is out with a new note saying small caps are underperforming large caps year over year by the worst margin since the dot-com boom. The Russell 2000 continuing its underperformance versus the Dow and the S&P today. Bank of America saying the yield curve inversion poses a new risk for small caps. Joining us now, Jill Carey-Hall, Bank of America head of small and mid cap strategy. Jill, you never have something not nice to say about your beloved small caps. So this really caught our attention. But the yield curve, you think, is a big threat. Explain.

I do think it's an it's an incremental risk. And, you know, we we saw the yield curve, you think, is a big threat? Explain. I do think it's an incremental risk. And, you know, we saw the yield curve invert, then turn back positive. Obviously, there have been instances historically where we've had false signals from the yield curve. So, you know, a lot of debate right now around what this signal is telling us. Usually, more often than not, it's a, it's a long lead signal that can indicate a recession is coming. So we have usually seen, even though small caps tend to be up in the several months following the yield curve inversion, they tend to underperform large caps during the full period of

yield curve inversion, usually if that does lead to recession. So I think that what we're watching is, you know, what are the other data and indicators telling us right now? And so based on the amalgamation of inputs that we're looking at, we would still stay near-term positive on small caps over large caps. We've had a more tepid outlook on the equity market this year.

4,600 is our call on the S&P for year end. But we still do think domestic small caps you know right now we're seeing momentum in the services recovery based on consumer activity data that that should be a big tailwind for small um you know valuations mentioned earlier you know how much of these risks are already in in the prices you're seeing small caps really really discount a lot of the risks um but we are watching a number of indicators. They're 18 percent off the highs where I'm looking at the Nasdaq down 14 percent off the highs. S&P is only down 7 percent. So clearly they've gotten beaten up a little bit harder.

I would think they're also pretty immune from the strong dollar, which is a big threat to the multinationals. Talk to us about where valuations are, given the fact that they have underperformed. Yes, I mean, relative small caps are the only size segment that are trading cheap versus their own history on forward PE. And then relative to large caps, we're trading, you know, below COVID and prior crisis lows. We're trading at the lowest relative multiples ever that we've seen outside of during the tech bubble. So, you know, a lot of the risks have been reflected in valuations. You've seen those multiples compress a lot. Usually when relative valuations are at these levels, it's been a good historical long-term signal for small versus large. So if you do have a multi-year time

horizon, we think this could be a good period to invest in small over large. But in terms of the macro indicators that we're watching, we're looking at ISM and PMIs. So certainly the tick down in the ISM is one risk to monitor. Meanwhile, the market PMI actually increased in March, and that one's been a little bit more correlated with small caps recently. You know, services recovery, pricing power, we have seen more evidence of pricing power from small caps as of the latest earnings season, and we've seen that historically. Small caps tend to fare well in inflationary backdrops, so that's something to keep an eye on this earnings season as well. Jill, thank you very much. Jill Carey-Hall, got to go. We have about a minute left in the trading day. Mike, quickly, what do you see in the internals? Yeah, it's been negative. NASDAQ and small cap underperformance means breadth is definitely going to be negative, almost three to one to the downside. A look at insurance versus banks,

all financials not alike. Insurance, much more direct beneficiaries of yields going up without the credit risk. And then the volatility index, we've got a little bounce here, 22. You don't want to see that turn in to a longer term uptrend. Would not be great for the market. Down 1% on the Dow as we head into the close. The Dow is down 135 points. So we were lower earlier in the session, but still a pretty negative reaction, I'd say, to the Fed minutes and the plan to shrink the balance sheet. As far as what's working in the market, there are pockets of strength. Utilities, health care, staples, real estate, energy, tech and consumer discretionary continue to be the hardest hit. We saw that yesterday. It's been a theme all week with the Nasdaq underperforming the S&P down

about 1 percent, 2.2 percent on the Nasdaq 100. That's going to do it for me. I'm closing bell. Have a good evening.