Closing Bell - Stocks Sink, Fed Up & CVS CEO On Earnings 11/2/2022

Episode Date: November 2, 2022

It was a wild ride on Wall Street. Stocks initially rallying after the Federal Reserve raised interest rates by 75 basis points, but signaled it could soon slow those rate hikes, but the market sold off after Fed Chair Jay Powell was more hawkish than expected during his news conference. Atlas Merchant Capital CEO Bob Diamond weighs in on the market reaction and says he thinks the Fed will begin pausing its rate hikes when it reaches 4.5%. Bridgewater's Karen Karniol-Tambour says the market is pricing in an impossible scenario that the economy will remain strong and inflation will go away on its own. She discusses where she sees opportunities for investors. Jefferies Chief Market Strategist David Zervos doesn't think this sell off is a buying opportunity and believes any upside to the market is capped right now. And CVS Health CEO Karen Lynch breaks down her company's stronger than expected earnings and guidance and discusses the state of the consumer amid rising interest rates and inflation.

You're listening to Closing Bell in Progress. Fed Chair Jay Powell just wrapping up his news conference after the Federal Reserve lifts interest rates again 75 basis points. The fourth time in a row we have seen this jumbo-sized interest rate hike. A signal in there from the Fed Chair and from the statement that smaller hikes may be coming as soon as the next meeting in December. That was welcome news initially to the market. You saw that spike earlier when the statement referenced the lags and cumulative impact of monetary policy. However, Fetcher Powell himself did sound more hawkish in the news conference. He talked about the fact that we might ultimately see the level of interest rates be higher than

what we thought in the September meeting. He still made it very clear that we are in the mode of fighting inflation and that we are still seeing ongoing interest rate increases. He said, don't, basically it's premature to be thinking about a pause in interest rates. There's the S&P 500. It is now lower, down 1.2 percent. So we lost that initial gain on the hints and the enthusiasm about a potential smaller interest rate hike. Coming up on this special edition of Closing Bell, we've got a great lineup to break down the Fed decision. Chair Powell's comments, including former Barclays CEO Bob Diamond, Bridgewater's Karen Carneal Tambor, David Zervos from Jeffries, plus an exclusive interview with Karen Lynch, the CEO of CVS Health, which is getting a nice pop today on a beat and raise quarter.

Very busy hour. Let's get straight to our analysis of this Fed decision. Joining me here at Post 9 is Bob Diamond, Atlas Merchant Capital CEO, former Barclays CEO. I thought, Bob, one of the most interesting parts of that news conference was when Fed Chair Powell said, not tightening enough raises the risk that inflation gets entrenched. Tightening too much, we have the ability to support the economy. In other words, the risk is that we don't do enough. So really don't get too excited here that we're slowing down. What was your take? I'm not surprised. I think, Sarah, Fed rhetoric has become a key Fed policy tool.

I think that we both know that the Fed moved, took way too long to move. And I think for Chairman Powell to kind of ease off before he's totally convinced, particularly in terms of his, you know, the questions and the statements, I wouldn't expect. You mean to go with smaller hikes? Because he did open the door for December to go smaller. Listen, our view on this is consistent with what you're saying, which is we've now got to four to four and a quarter. Sorry, three and three quarters to four is kind of their range. We think at the next meeting this year, 50 basis points or 75 basis points, maybe 75 then, maybe 50 and 25. But somewhere around there in that four and a half range, we think the Fed will pause. But we don't think that can be a signal

from the chairman. So we're not surprised he's not signaling. The other thing he raised is that the question might not be what is the size of the next rate hike. It's how long they will be hiking rates, until what level, and how long they will stay at this restrictive policy level. Are those questions the market's been focused on? It feels like the only question now is are they going to pivot? And what does pivot even mean? Listen, I think, you know, I think the Fed does look at the market reaction. I think that immediate slight move up in terms of equities and a little bit lower in terms of yields reversed itself after the Q&E or Q&A. You know,

both of those things were reasonably small. So I think they'd be reasonably pleased that it's kind of landing where they want. They want to keep their options open to continue to raise rates. But our view inside, Larry Cantor and myself in Atlas Merchant Capital, is that inflation has peaked, but the economy has not bottomed. So we have a tough year ahead in terms of, you know, continued correction in the economy. But we do believe inflation has peaked. But just because of its peak does not mean it's come down. Certainly not even close to the 2 percent level. So what does that mean in terms of what the Fed will have to do? So one of the

things that we look at closely is intermediate prices, prices before final goods. And if you recall, in the fall of 2021, they had a 40% year-over-year increase. And that's when people said, my goodness, inflation is rampant. And I think that to us is a very key indicator that intermediate prices, which are a leading indicator of final prices for goods, is trending down. So we think inflation has peaked. We do believe there's another 50 to 75 basis points in December. But we think the Fed very possibly could let that stay for a while and watch continued economic developments. All right. Hang on, Bob. We're going to get a lot

more thoughts from you and talk about this market reaction. But I do want to get to Kayla Tausche, who is in the room for Fed Chair Powell's news conference, asked a few questions. Kayla, your big takeaways. Well, Sarah, it was very clear that the chair of the Federal Reserve was outlining a U.S. economy that is still very strong. And in his words, the Fed still has a ways to go before they would even think about pausing any interest rate hikes. He says ultimately the resting rate for interest rates will be higher than they originally expected and that rates could be restrictive or monetary policy could be restrictive for some time. He acknowledged that the global economy is weak, that the strong dollar is challenging for many countries, and that some of those shocks

from overseas might mean that the price for energy and food could stay high for some time. But he said that the risk is in doing too little, not doing too much, and that the Fed still has many powerful tools to use down the line if they need to start easing in the economy. But here is where he clarified the statement that moved the market earlier, Sarah. It is very premature to be thinking about pausing. So people, when they hear lags, they think about a pause. It's very premature, in my view, to think about or be talking about pausing our rate hike. We have a ways to go. Our policy, we need ongoing rate hikes to get to that level of sufficiently restrictive. And we don't, of course, we don't really know exactly

where that is. We have a sense. Of course, the statement at today's meeting suggesting that there is a lag between the actions that the Fed takes and the impact overall on the economy. And he said that there would be a discussion at the December meeting about whether it might be prudent to start moderating the pace of some of those interest rate hikes, suggesting that at one of the next two meetings, we could be in line for a 50 basis point hike. But certainly, Sarah, that is not a pause by any sense of the imagination. It's just saying that, you know, perhaps we are going to be extending the length of these rate hikes. And he said the policy is going to be restrictive for some time. And he said he doesn't want to get to a situation where you get years out into the future and they realize

they haven't done enough. Sarah? Right, right. No, I know. He said it in several different ways. Premature to think of a pause. Ongoing rate increases are appropriate. Kayla Tausche. Kayla, thank you very much. You know, Bob, Bob Diamond here with me, former Barclays CEO. He gave something for the hawks and for the doves, really, when it comes to what you were looking for, because if you were looking for the Fed to acknowledge the lagging impact of monetary policy and the fact that it is going to hurt our economy later on and potentially bring down inflation, you got that. He used the word lag or lagging seven times. Thank you for counting, Karina, one of our producers. And they mentioned

it in the statement, but at the same time went to great lengths to say we have a lot more work to do. So what do you do as an equity investor? Listen, again, I'll come back to what I said. We're beginning to see inflation rollover. It's going to be a challenging year next year for the economy. We know that technically with a down quarter, first quarter and second quarter, that's a technical recession. But the real question people are asking, Sarah, in my mind is, is this deep and dark and long? Is it mild? Is it shallow? Is it short? And I don't think we should expect, given the quality of personal balance sheets, the quality of corporate balance sheets, the strong labor market, that we're going to see a deep, dark correction like we saw in the first quarter of 2009. I do think it'll be an economic correction. I think it'll be

reasonably mild, but we think it'll be longish as opposed to shortish because there's still a lot of the economy that's quite strong. The S&P 500 is now down 1.6%. Bonds are now selling off across the curve. The 10-year yield is higher. And the dollar, which was weaker for after the statement and much of the press conference, has now turned higher. So the takeaway for the market is maybe we shouldn't get too excited about smaller interest rate hikes. This Fed share seems really determined.

Yeah, and it's interesting. The market reaction after the statement was published was just the opposite. And after the Q&A, it's more bearish. And listen, I would say again, Sarah, what I said earlier, if the Fed is even thinking about pausing after another raise or two, that's the last thing they're going to say right now. They're going to wait until they're ready to pause. They're not going to talk about it ahead of time. Bob Diamond, don't go anywhere. Stay with us if you could. We've got much more reaction to the Fed. We are going to be joined by Bridgewater's Karen Carneal Tambor on this continued reaction. There's a 10-year yield.

It's above 4.1 percent. Every sector is lower right now in the S&P 500. Utilities hold up best, down half a percent. Consumer discretionary, down three. It's the biggest sector loser. There's the Dow down 300. We'll be right back. Stocks are deteriorating here on the back of that Fed news conference from Fed Chair Jay Powell. The Nasdaq's now down almost 3 percent. S&P 500 down 2 percent. And the Dow down 380 points or so. The Russell's down 3%. Pretty dramatic reaction and complete reversal from what we saw when the Fed statement was released at 2 p.m. Some celebration there initially from stocks that there was an acknowledgment or hints of lagged impact of higher interest rates on the economy.

That got the market excited about a pause or smaller interest rate hikes. But Fed Chair Powell made that clear. Premature to think of a pause, still very much in tightening mode. And he said, in fact, he'd rather overdo it on higher interest rates than underdo it on inflation. By the way, this is all playing out, excuse me, in the dollar index. If you look at the U.S. dollar intraday, big sell off on the news. And then we got a spike up, and it is at the highs of the session, up almost half a percent right now. The 10-year and the 2-year yield are higher, 4.6 percent on the 2-year. Karen Carniel-Tambor from Bridgewater Associates joins us. Bob Diamond is still with us as well. Karen, welcome to you. What was your impression of the FedShares

news conference? I think that Jay Powell is doing the right thing. He's making clear that at this point, he's still seeing a pretty strong economy. And the Fed tradeoffs are not nearly as tough as they're going to get once the economy actually slows. And so at this point, the Fed is in a much easier position and is going to be in once the economy turns over. And the economy will turn over and needs to turn over because that is the only way to get inflation to start coming down. And at the point where you see the economy as strong as it is today, you should keep tightening into that. The tough choices are going to come once the economy actually slows. And the choices between allowing unemployment rates to go higher or accepting stickier inflation that isn't where you want it to be are going to get much more

difficult. Bob, do you agree that the Fed is doing the right thing, even though they're acknowledging that some of that pain will come with a lag plowing on with higher interest rates? Listen, the Fed was way behind the curve when this started. Karen, you'll recall this, but I remember as recently as January, December, January, talking with you about the 10-year for 15 years had been one and a half to three percent. It was still at the low end of that. Here we are less than a year later, and it's, what would you say, 4.1 percent%. So some of the impact is being seen. And while I think the Fed was behind the curve, I think their behavior today was highly appropriate. I think they're catching up with the curve, if I can make up a phrase like that. And I think the last thing he can do

is publicly acknowledge that they see time for a pause ahead. So, Karen, I mean, is it as simple as the old adage, don't fight the Fed? That has worked in 2022. It's why Bridgewater, I think, is up, I don't know, more than 40 percent or so, I've heard, shorting a lot of things because that's what's happening here with policy. And that's the continued signal out of today's meeting. Well, I think if you look at markets, they're just pricing an impossible scenario. And that's why you're getting the kind of repricings you're seeing today. At the end of the day, they're pricing that somehow the economy can stay strong. We won't have a major earnings recession. And at the same time, inflation will sort of magically come back down to where it needs to be because the Fed said so. And that's just not going to work.

You're going to have to actually slow the economy. And so it makes sense that you're starting to get a slowing of the economy getting priced into stocks or that you'll see higher inflation than is currently discounted. And when you look at past turns in the equity markets in situations like this, they just don't look at where we are today. The equity market keeps declining until it's actually clear that the economy is slowing. And then the Fed is willing to actually make a real turn because the economy is slowing. And when the pricing of equities gets attractive, they've actually fallen enough to discount enough weakness that you'd rather be there than in cash. Right now, cash looks a lot more attractive. So cash over stocks, cash over bonds, would you still bet on the U.S.

dollar, Karen? I think that the U.S. dollar could still have some fight in it, if you will, because the challenges facing other countries are just so much more severe. They're in that spot I talked about the Fed getting too soon, where it is stagflation. The economy is weakening at the same time that inflation is stubbornly high. And so that's a much tougher set of circumstances to be in. And the Fed's not there yet. The economy is actually more resilient. And then I'd say, yes, cash looks better than stocks, better than long dated bonds. Doesn't really look better than a lot of the real yields, a lot of the inflation linked bonds, where if I can pick up a couple percent of an actual real yield, which they've

been negative for so long, plus get paid CPI whenever it comes out, that's not so bad. Do you agree, Bob, cash over stocks? I agree. Cash or some fixed income instruments are starting to show real value. But I think, you know, as Karen said, I think until we all believe there's a peak in interest rates, typically around the two year, you're not going to see a more positive trend in equities. But so coin toss between cash and fixed income instruments. Karen, you know, you both are sort of saying, echoing what Powell has said about the very strong labor market. And there's evidence of that. But the economy has slowed down. We've seen it in the U.S. We've certainly seen it globally.

And he did acknowledge the pain of the strong dollar. So for those that were rooting for smaller hikes, a pause in hikes, thinking about the lagged impacts, I mean, that's still a valid place to be, isn't it? We don't know exactly how hard these, it's what, almost 400 basis points of tightening in a short period of time. It is one of the fastest paces of tightening that we've seen. And I have no doubt it's going to hit the economy, particularly when I look at households. It is remarkable that households are still in the mode from the most recent data of kind of low savings rates, spend down all that excess, excess cash that they accumulated over COVID, still some borrowing. And clearly those things have to get hit as the rate hikes kind of

flow through. So you know that slowing is happening and is in the economy. But the economy is just not that weak relative to the sticky inflation that the Fed is experiencing. And so it doesn't feel like really a tough trade-off. And all you need to do to imagine what an actually tough trade-off is like is to look at what it's like for Europe and the UK, where you have real stagflation problems, where you know that hiking rates may not even be enough to affect the inflation much if part of your problem is that you just literally can't get enough energy to power your economy. Those are actually tough circumstances. The Fed will get there once the economy slows more materially. Karen Carniel-Tambor, thank you very much. Great to get your first thoughts and trades off the Fed meeting and the Fed Chair Powell's comments.

Bob, final thought from you. I want to spend, you know, we go into midterm elections next Tuesday. There's already been noise, especially from some prominent Democratic senators like Warren, Sanders and Brown, criticizing Fed Chair Powell for joining us. There were a few points where he explained why fighting inflation was so important for the strength of the labor market, for the global economy, why he's putting inflation over everything. But do you expect this political problem to intensify?

I think right now the Fed chairman has to put inflation above everything and I think he's doing the right thing. As we said it was a little bit late but it's catching up. I mean I hate to use historical periods but recall when Maggie Thatcher came into power in the UK in 1979 everyone thinks about Maggie Thatcher as pro-growth, low taxes, low regulation. In 1979 she said there's only one thing that matters, and that's inflation and the fiscal situation. And for four years, she brought rates up to 20%. And only after four years was it really about lowering taxes, reducing regulation, and really going pro-growth. So I think right now the Fed chair is doing the right thing.

And I think if he was taking his... Why? If I had to play devil's advocate, why should the Fed be rooting for a softer labor market and lower wages and job losses over inflation? Just exactly that. Because if inflation gets out of control, it's the most dangerous thing and it's going to impact labor. Absolutely. I think if anyone tries to make the case that let inflation run and we're going to have full employment, I just don't agree with that. Yeah, no, I think he's going to he's going to be explaining that for a little while in this political environment. Bob Diamond, such a pleasure having you. Thank you very much. Thank you, Sarah. Former CEO of Barclays. Let's bring in CNBC senior economics

correspondent Steve Leisman. For more analysis, Steve, the market is telling you what they thought of this news conference. Dow down 350, yields higher across the board, and the dollar is shot right back up. Yeah. Yeah, Sarah, and I am just looking right now at the May peak funds rate contract, which moments ago hit a new high in yield on that contract. Guys in the back, I'm hoping you have that chart we just made, which shows that yield at 509. And Powell definitely opened the door for higher rates, higher rates than even forecast in the September summary of economic projections, which, as you know, is what Fed officials put down their numbers for where they think they're going. There it is right there, 4.09 right there. It's backed off just a little bit in the few minutes since we gave that.

But let me give you the tail of the tape. What happened here is this statement came out, and as Sarah correctly said, it did have some dovish comments, this idea that the Fed was now taking account for lags in the from monetary policy and effects on the economy. The market rallied that Fed funds contract. I just show you it fell down to 493 from 502. Then Powell took to the podium. And in a way that is really remarkable that I have really rarely seen in the past, he walked back any possible dovish interpretation from that statement by saying that we're not done yet, we're not thinking about a pause, we have a ways to go to get to where we want

to go and we'll probably stay there for a while. So anybody who was hoping for or thinking about a possible cut in interest rates or even a pause in interest rates, they weren't getting any help there from the Fed chairman, Sarah. It was a remarkable walk back, I would say, by the Federal Reserve chairman from a dovish statement. Right. Very premature. Don't get any ideas of the Fed pause. So I feel like, Steve, that the next day's story is going to be not so much what does December look like, because so the market's pricing in 50 and he left the door open to that. It's how long and how high, right? How high and for how long are we going to

be in a restrictive territory? Because he really seemed to indicate that it's going to have to stay higher for longer than what they were even expecting in September. I think that's right, Sarah, and I think you nailed the two questions that are out there. I will say, however, just a little bit of interesting commentary here, which is that I'm still seeing the market with a bid on that 75 in September. I'm looking right now at the CME FedWatch tool. There is still a bid out there, Sarah, with a 39% probability of a 75 in December. So they have not completely walked back.

In fact, there's very little change going in. It was 55-45. It's now 55-40 or 39 with some percent betting on a 25 in there. But they haven't walked it back much. You are right. They're going up. And I think, as I've said before, they have a date or an appointment with four and a half or five percent sometime in the spring. And that's, I think, the best time you could think about a pause unless the inflation data turns sharply lower and gives the Fed confidence it's coming down. Right. Those 75 basis point odds dropped a lot after the statement when we were all thinking

he was going to just talk the whole time about lagging cumulative impacts and then went straight back up after he didn't really go there. Steve, thank you very much. Great to have your analysis, Steve Leisman, as always. We're going to go straight into the closing bell market zone here with the Dow down significantly. The S&P 500, every sector lower, down 354 or so. The Nasdaq's down 2.7 percent. Again, tech stocks, consumer discretionary, right in the eye of the storm. That's what happens when interest rates are in focus. And they are rising today. Let's get straight to Senior Markets Correspondent Mike Santoli. Fed reaction. I know you say it can always change, but it does feel like it already had that change after the statement where we saw

the rally and then gave it back and then some. Your take. Right. We get the backlash. Sometimes the next day it's a little more of a rethink. But obviously, the market, to the extent anybody was leaning toward the idea that the Fed was looking for excuses to ease back, Powell basically said, no, you have a statement which, keep in mind, has to reflect kind of the weight of opinion of the committee that was written in a certain way to emphasize that there are lagged effects. And then you have Jay Powell, who really has to speak hawkishly until the moment he thinks that the path is clear to genuinely step down the pace of rate hikes. All that being said, I don't think the overall picture changed all that

much. There's seven weeks till the next meeting, a lot of data in there. He also said that you don't necessarily have to meet any particular test for how far inflation might have to moderate between here and the December meeting to have it be a 50 versus a 75 basis point hike that meeting. So those are small distinctions I think we're drawing here. But the big picture is, yes, the front-loading period of tightening might be just about over, or in fact over, but that doesn't mean that anything is in the clear. He's willing to keep the markets on their heels as they try to digest what higher for longer means in rates. Right, and the market was already there anyway,

expecting the front-loading to be getting to wrap up. Just want to hit some individual movers. Consumer discretionary, Mike, is the worst-performing sector right now in the S&P. Tesla's down 5%. Some of the travel names are down. Booking's holding. Expedia, more than 5%. Retail, it's a pretty broad sell-off right now.

But interestingly, the banks are holding up a little bit better along with utilities. What stands out in terms of what's working and what's not? That's kind of consistent with what we've been seeing, actually. Consumer discretionary has really not shown any life, you know, whether it's the big caps or the average stock in consumer discretionary. And what is Powell saying he needs to do? Well, continue to sap demand. And how does inflation come down in the estimation of some people at the Fed? Retail margins, broadly speaking, need to be compressed because that's where the inflation seems to be living right now.

So that makes sense. Something more defensive. And the banks, again, they can benefit not just from the higher yields on an absolute basis through net interest, but the idea that we have a savings cushion among consumers, the idea that we're not really seeing solvency issues, at least not yet, in consumers and companies mean that they can kind of rally off of these relatively cheap levels that they reached a month or two ago. Just looking at the euro-dollar, euro weaker, dollar stronger,

but not as strong as it was a moment ago, up 0.3% of 1%. AMD is losing earlier gains along with the rest of the market. Mixed quarter for the chipmaker, strengthened its data center and gaming segments somewhat offset a steep decline in PC demand. And then forecast for the fourth quarter did come in below estimates as the company works to unload excess inventory. Jim Cramer has an interview with AMD CEO Lisa Su on Mad Money tonight. Here's a taste. What we have is that we have a very diversified business. So we do have, you know, sort of a challenging backdrop in the PC market,

and that affected us in the third quarter and will affect us here in the fourth quarter as well. But we also have our data center business, which is actually proving to be relatively resilient. And we have our embedded business that has actually some significant positives amongst a broad base of industries. So when you look at all of that together, we believe that we'll be flattish as we go into the fourth quarter.

We knew PC demand was weak, right, Mike? What are you getting from AMD? Now we've had Intel, some of the others on end markets and just how much the economy or their clients are slowing. Right. So the PC market is now acknowledged and it's now in the numbers in terms of forecasts that it's just not going to be any help at all in terms of growth. It seems like maybe the forecasts have settled out a little bit on that front. For AMD, at the valuation it's reached, call it 17, 16 times forward earnings, it's definitely now a call as to whether the longer term secular trends are still in place and whether AMD can capitalize. Back six, eight months ago, you really had to believe that the cycle was going

to remain strong and AMD was going to remain at the edge of it. And now the risk has come out to some degree of the story, even if it's not going to be quick gratification, because we're not going to have clarity about, you know, whether we'd have more shoes to drop in data center. The overall kind of cloud infrastructure looks like it's got some challenging headwinds. But I think it's a much more, you know, kind of even bet on the stock than it was six, eight months ago. All right. And semiconductors are selling off today. AMD only down a little more than 1%. Be sure to tune in to the full interview with AMD CEO Lisa Su. That's on Mad Money tonight, 6 p.m. Eastern. Mike, we'll let you go. Thank you very much. I know you have

to get ready for overtime at the top of the hour. We will see you soon. In the meantime, another big mover today, CVS Health shares rallying, the company beating on both lines for Q3 and boosting its full year outlook for the second straight quarter. Revenue rose almost 10 percent from last year. The numbers don't include, though, a five5.2 billion charge for a settlement related to the opioid crisis. The company's saying it resolves all existing claims relating to opioid distribution. That news out this morning as well. The stock is up nearly 3 percent. And CBS president and CEO Karen Lynch joins us now exclusively. Welcome back, Karen. Nice to see you.

Hi, Sarah. Nice to see you as well. So we're just coming off of the Fed Chair Powell's news conference and debating what the shape of the economy is going to look like. You have a significant retail business. What's your sense of how consumers are holding up right now and whether that lasts? Yeah, you know, Sarah, in the quarter we have had very strong retail results. You know, as you think about our company, we're in the everyday essentials business, and people come into our retail locations to fill prescriptions, to go to the Minute

Clinic and to have, you know, to pick up their health and wellness products. So we've had a very resilient front, you know, stores and our retail businesses performing quite well. As we think about the future and inflation, what we've been doing is we've been really, you know, pushing towards the CVS Health branded products. We've been adjusting pricing. So we're really looking at our extra care card to really help consumers, you know, adjust to the impact of inflation. What about the health care benefit segment? I have to go sort of business by business with you. How close are we to being back to pre-COVID levels?

Because I know the fact that it's been under that has helped earnings. Well, our business in general is generally back in our commercial business we're back to pre-covered levels in our medicare segment we're slightly below we are you know we have been seeing people using their health care benefits in an appropriate fashion but we're you know we're really looking at appropriate utilization. And we've been actually encouraging our consumers to make sure that they're getting their follow-up exams, getting their checkups. And we've been doing that throughout the entire COVID experience. So one thing that was discussed on the call, and I know that analysts were curious about,

were the insurance plan, the Medicare insurance plan, lowered ratings for Aetna National PPO to three and a half stars to four and a half stars. Why did this happen and how are you fixing this, which I know you said you were doing on the call? Yeah, this is an industry-related stars methodology change. And we were very disappointed that we moved back to three and a half stars. We have been historically for over decade, a leader in stars. Essentially, what we saw was a change in customer surveys. It was a very small sample size.

We do have specific actions in place to mitigate that risk, and we feel like we'll be in a position to improve our star rating performance in 2024. It won't have any impact on 2022 for the rest of the year, and we're in the open enrollment pillar and we don't expect it to have any impact on 2023. What about COVID, Karen, which I know has been, by the way, session lows, that's the sound you're hearing, down 450 on the Dow, 2.3% on the S&P. Karen, what do you expect for COVID this winter? It feels like it's going to be a bad flu, cold state. My kids have basically been sick since they've been back in school in September. What is that going to look like and how do you

anticipate how much business you'll get from it? Yeah, so what we anticipate is that, you know, that we'll have, you know, a flu season. We're starting to see children, you know, experience higher levels of flu. We actually haven't seen that come through our numbers. And we think part of that is people have been getting vaccinated. People have been coming into our stores to get their vaccinations. We're also seeing, you know, across the board an increase in cough and cold and flu sales in our front store so we're balancing it but what I would suggest to people is make sure

that you get your flu shot make sure that you get your COVID booster all of that will mitigate the severeness of the overall flu and COVID season this fall. Karen Lynch, we so appreciate it. Good to see you. Thank you. Good to see you too. That's Karen Lynch. Stocks are hitting fresh lows here near the close. Let's get more market reaction following the Fed decision. Jeffrey's chief market strategist, David Zervos, joins us, not liking the tone from Fed Chair Jay Powell, who said it's very premature to think about a pause and he'd rather overdo it on rate hikes. What's your take? You know, Sarah, his message all year has been pretty hawkish. I don't think we've seen Jay give

us any dovish tidbits until today, in fact. And I think today he kind of did a little bit of a baby step talking about the cumulative impact of these rate hikes, which is going to be large. And I think he acknowledged that. But he still has the same message, which is that there's a lot of work to do. There's no no quitting early. There's no premature celebrations that just because inflation expectations look well contained that they're going to take solace from that i think everything sounded uh like the j we heard all year but there was a kind of baby step move toward uh this idea that that they're getting more toward the end game uh and he's i think he's acknowledging that and i think the market obviously wants more the market's excited about when this is going to end and they can kind of take their foot off the brake a little bit. But it is early. We all

knew there was another rate hike to come in December and likely one in January, the sizing of which is really, I think, splitting hairs, 50, 75, 25. We just did 400 basis points in the last eight months. And we're talking about, is it going to be 50 or 75? I mean, who really cares at the end of the day? I mean, you can make money off it. But from the impact on the economy, this is the fine tuning part of the exercise. And I do think we have to look at least, you know, to the idea that he's prepping us for, you know, some sort of end game here as we go into Q1 of 2023. So what's the move? The gut reaction here on all of that is get out of stocks. We're seeing every sector down. Now utilities are doing best. They're down 1%. No, go ahead.

You know, the market came in wanting a little bit more, thinking, you know, there was some more pivoting, not a baby step, a bigger step. Jay may have been a little bit more, thinking there was some more pivoting, not a baby step, a bigger step. Jay may have been a little bit more aggressive just because the political rhetoric heated up. You have the Sherrod Brown letter. You have the letter from the other senators. Obviously, we saw him in 2018 get very unhappy about political rhetoric and meddling in the Fed's moves. And actually, by the end of 18, he went a little overboard and had to reconfigure things in 2019. So we may be seeing that side of Jay a little bit, sort of drawing some lines in the sand with the politicians, which wouldn't surprise me. But again, I don't think the

bigger message should be missed, which is that this 400 basis points is a lot. They're acknowledging that it's a lot. There's some more to do. There's a ways to go. He didn't say a long way from neutral. He said a ways to go, which is similar, but a little less disconcerting than what he said in 2018. But nevertheless, I think, again, we're approaching this end bit, this fine-tuning bit, and the market's going to

want more of it, and they're not going to get it as fast as they probably like. So if that's where we are, David, when is the time to buy bonds? Because it's been sell them on higher rates, but it could shift to buy them on recession, right? Yeah, and I think another thing he did acknowledge is that the probability of a deeper recession is more severe because inflation isn't coming down that fast, which I think the market's not going to take a lot of solace in either. But and he does seem to be comfortable making a mistake of overtightening again, things that we wouldn't be surprised at hearing all year, but we're hoping to hear a little less of them. The bond market didn't react very much today, Sarah. I think last I looked, 10-year notes had moved three or four basis points. On a Fed day, that's pretty small,

especially with where implied volatility usually has it. So I don't think the rate market is that out of sync here. We're going up to something in the yield curve across four and a half to four now. We might have to go up toward pricing in 475 $5 at the end. Again, we're fine-tuning this fixed income move. And really, the question for the fixed income market is how long do we have to stay here? And I think Jay told you, you probably have to stay here a little longer. And so the fixed income bull story is just a little bit less exciting after this meeting. So Karen Carniel-Tambor was on with us at Bridgewater. She said cash over bonds, cash over stocks, still think the dollar has a fight left.

Does that make sense to you, cash over stocks and bonds? You know, I'm not that excited about that trade, although, you know, you do get paid 4 percent and probably 4.5 percent on cash pretty soon. So it's going to look attractive. I think you're getting toward the point where you can play the ranges in the equity market a little bit more comfortably. Down 3,500 to 3,600, the lows that we hit in June and we just recently hit, I think are more buying targets, Sarah. And I think Jay's going to make it hard on the market to go up a lot. I think like he did at Jackson Hole at 4,200, 4,300, he's going to say, you know what, guys, if you really want to take it up there, I'm going to try to get inflation down faster because you're giving me that

opportunity. So some opportunistic disinflation, if you will. So I think you've got ranges settling in here. And I would be more likely to want to play range trades, especially with high volatility like this, than I would be to just go park myself in cash and not partake in some of these moves. These moves could be quite big. We can bounce from the mid-3,000s to 4,000. That's a big move. So I want to be ready to pounce, really, because I think the downside story based on the earnings crash

that people have been forecasting all year is really a poor story. And we've talked about that. We could talk about that another time. But I think there's some reason for a cushion on the downside. But I do think the upside has a lot of caps. So I'm really much more in this range bound play the edges trade as we go into 2023. David Zervos, always good to get your first take on Fed Chair Powell, or Jay, as you call him. Thank you very much from Jeffries. Take a look at where we stand heading into the close.

We've deteriorated, and we're at the lows, near the lows of the session here. The Dow down 472 points. Every Dow stock lower except for Verizon. It looks like Goldman Sachs, Boeing, and Dow Chemical. Those are the standouts. The biggest drag on the Dow today is Salesforce, Home Depot, and Microsoft, which tells you where the brunt of the pain is. It's again in consumer discretionary. Tesla's off 5 percent, hitting that group. Technology is weak as well today. Communication services. But every sector is lower here in the close. If you look at the Nasdaq, it's getting hit the hardest. Apple is a big drag there on the triple Q's. Apple's down three and a half percent right now. Microsoft is also down three percent. So some weakness in these big cap

tech names. Amazon, which has just had a terrible stretch here, down another five percent. We're at the lowest levels for Amazon since 2020. So pretty big sell off in that name. The small caps, which had been outperforming pretty much this week, are also getting pulled off hard and more than 3% lower. The S&P is going to go out down 2.5%, which brings the week down to 3.6%, heading into a Thursday and then a jobs Friday. That's it for me on Closing Bell.