Closing Bell - Stocks Sink, Getting Defensive & Outlook for Venture Capital 12/28/22

Episode Date: December 28, 2022

No signs of a Santa Claus rally as stocks sell off into the close. Investors were spooked after the U.S. announced it will require travelers from China to show a negative covid test starting January 5th. Rosenberg Research President David Rosenberg discusses this year end sell off and why he is bullish on defense stocks. And Venture Capitalist Alexis Ohanian reveals his outlook for startups, crypto and tech regulation in the new year. Plus, he weighs in on Elon Musk's acquisition of Twitter and whether he'd be interested in becoming the next CEO of the social media company.

It has been called one of the most important stocks in the market, and it just hit a 52-week low for the second straight day. We're going to have more on what Apple's move means for the broader market. This is the make or break hour for your money. Welcome, everyone, to Closing Bell. I'm Sarah Eisen. Take a look at where we stand broadly. There's Apple. It's taking the biggest hit on the Dow Jones Industrial Average right now, which is down about 200 points or so. The low of the day was down 315, got as high as up 137. Another 1% slide in the Nasdaq. Another painful week, and big tech firmly in the crosshairs. The low of the day was down 315. Got as high as up 137. Another 1% slide in the NASDAQ. Another painful week. And big tech firmly in the crosshairs. The S&P 500 down three quarters of

1%. In fact, every sector is lower right now, except for one. Financials for a change. Outperforming. Back up in yields again, especially higher on the 10-year and the 30-year. Small caps, pain again. Down more than 1%. So much for the Santa Claus rally. Coming up on the show this hour, he's usually pretty bearish on the 10-year and the 30-year. Small caps, pain again, down more than 1%, so much for the Santa Claus rally. Coming up on the show this hour, he's usually pretty bearish on the market, but in a moment, David Rosenberg will join us to discuss one group of stocks he is quite bullish on right now.

And then don't miss an exclusive interview with venture capitalist Alexis Ohanian for his take on Elon Musk's acquisition of Twitter. Remember, he's a founder and former chair of Reddit. Also, we'll get his outlook for tech valuations and much more. We're going to hit the market in just a moment, but we do have some breaking news from the CDC in Washington. Eamon Jabbers with the details.

Eamon. Sarah, federal health officials here in Washington, D.C. say that due to the surge of COVID in China, all air passengers coming to the United States from China will now be required to have a negative COVID test two days before they travel. They say the airlines are going to be responsible for administrating this and making sure that all those passengers do show those negative tests. They say they don't have quite a lot of data on exactly how rampant COVID is in China due to some of the information sharing problems

they have from the Chinese government. But they say they are concerned now about the possibility that because you have so many people getting COVID all at the same time in China, we could see the emergence of new variants from China. They say that requiring these tests is not necessarily going to stop all cases of COVID from coming into the United States from China. But they say they think that this will help prevent some of that. And they reiterated the U.S. government's offer to help the Chinese with vaccine supply and the like. They say the Chinese government so far has said they don't need that help from the United States. And they say this system will now be in place for the indefinite future. They say they're going to monitor the conditions in China and see whether or not they need to take this down.

But for now, all air passengers coming into the United States from China will be required to test negative for COVID. Sarah, back over to you. Eamon, thank you. Airlines were already having a rough day, moving a tick lower. The subsector down 2.8%. After we got that news earlier that half of the flight from China to Milan in Italy tested positive for COVID. Let's get to the market dashboard to break down these stock

moves with senior markets commentator Mike Santoli back from vacation. Welcome. Thank goodness. You know, I know you want to dive into Apple, but just on the China COVID front, a new risk here potentially globally. It was thought a few weeks ago that the reopening of China would be nothing but good news for investors. There's some hiccups here. The market's not really reading it that way, at least right now. Of course, energy prices down again. People thought that would be a big boost for energy. And it does not seem as if even if the rules are being loosened, that because of the incidence of disease in China, that it's really creating a real surge in economic activity. So that's clearly something else weighing things down,

or at least keeping the market in check is the way I would put it. It's the weakest parts of the market all year that continue to create the pressure. It's the biggest growth stocks with the downside momentum. Keeping the S&P 500 really stuck in place here. Eight trading days in a row. The low for the day has been 3,800 in the S&P, give or take a little bit. That's where we are right now. That's where we've been for a while. Clearly no late December tailwind has kicked in just yet.

But it also brings us, boy, it's right in the middle of the post-August, let's say post-Jackson Hole Fed conclave range. 300 points to the downside and the S&P 300 points to the upside. We are in the middle of it right now. Take a look at Apple over two years relative to the broader tech sector, which, of course, it is a tremendous component of right now and compared to the S&P 500. So in 2021, when everyone was excited about more speculative tech stocks and a lot of the racier stuff, Apple in white here really did underperform. So there was a lag there. It didn't do much. It's all about stability and perceived safety. So there you get to the peak of the overall market, and Apple starts to hold its value better. It's usually kind of distinguishes itself in rougher markets.

It does not move along with tech, except for recently, this last little plunge lower gets it below on a two-year basis where tech has traded or where the S&P has traded. And to me, it's because there's not a lot of growth projected. If it stops acting like a source of stability, people have less interest in owning it for that reason. The dividend yields a lot lower than it has been on average over the past several years. And it's not yet cheap. So all those things, along with year end, just kind of discarding of the losers. That's another thing going on in the general market. I was going to say, it's the Nasdaq as a whole. Terrible performance. And it's capping off with a pretty awful week, down 34 percent now year to date. Often the losers of one year become the winners of next year. But it doesn't sound like

people are getting very bullish on tech. They're not really. I would say that often what happens is the laggards tend to get a good bounce in January. Just a little bit of relief because selling eases up. But I think it's way too soon to say that the turn of the year is going to itself be a reason why this group starts to lead again, especially because it still has this big valuation premium. The earnings estimates have been coming down along for most of the big tech stocks for 2023. Mike, thank you. We'll see you later in the Market Zone. Mike Santoli, let's bring in David Rosenberg, founder and president of Rosenberg Research. David, it's good to have you on. So many places to go. I wanted to start with the China story because we're just getting news now that you have to test negative coming from China.

Clearly, there are millions of cases. We don't know exactly. It's an interesting experiment opening that country up, COVID, to an unvaccinated population. What do you think is going to be the impact on the market and the economy? There's this view that it's going to add to inflation, which goes against your thesis. Well, you know, I found it interesting that people thought that the reopening trade was going to be inflationary because of the impact that could have, say, on energy and on material prices. But I found it a little disingenuous because we were talking about all year long that in addition to the war in Ukraine,

one of the critical cost-push inflation developments was the fact that China continued with its aggressive COVID-0 policy. So you can't have it both ways. I think right now it's two sides of the same coin. You've got the reopening trade, as you said, into a country that has had a very sloppy vaccine rollout. So I think the overriding impact right now is going to be what this does to Chinese, demand Chinese consumers,

because I think that the fear factor, I mean, we saw this, you know, here at home in the opening months of the pandemic, how people reacted. I mean, people were deciding not to go out even before the shutdowns took place. So I think that the overriding impact is going to be more disinflationary because of the impact it's going to have on consumer demand in China. And what about winners into next year, David? Because you think the inflation story, you think inflation is really coming down, right? And that we're going into a recession. Does that mean that you should be buying these beaten down growth stocks? Well, no, I would say not yet. And I don't think that there's enough valuation support

just yet. I think that if my thesis plays out, that inflation comes down more sharply than what is generally expected and the Fed ends up doing a classic pause, which they will do, and then a pivot. And that's just the interest rate cycle at play. The question is timing. That should benefit the growth stocks since they are naturally the longest duration stocks in the market. But the question will be timing i i sense that by the end of the year there'll be a much better valuation support because i think there's another couple of legs down in the group but i i do think that you know everybody is value over growth i think that's really a crowded trade um but i think that in generally for the stock market as an asset class

the spare market isn't over so i'd be very cautious, you know, notwithstanding the most defensive areas of the market or the areas that have real true secular growth characteristics. But my sense is you're right. In the name of consistency, if long-term rates end up coming down, like I think they will, that's going to breathe life into the growth stocks. But it's probably going to be a second half of the year story at best. So you said stick with the secular growth winners. I wanted to talk to you about defense stocks because I know you're very bullish on that group. Why? What are some of the catalysts for you? Well, because military spending is going up

in every part of the planet. And when you start seeing stories, for example, in Japan, where, you know, they've shed their pacifism and embarking on one of the most ambitious military spending programs uh in the past several decades uh europe doing the same thing we know what the military budget the pentagon budget in the us and we know what the reasons are so i'd say that you know aerospace defense uh doesn't't have large cyclical characteristics. If you're concerned about a recession, I'm not going to say anything is immune, but they're less sensitive to the economic cycle, and they're very sensitive to the government spending cycle on defense

because that's where their contracts are. So you have tremendous earnings visibility in this group. They're up 14% this year. Very quietly, everybody looks at year, very quietly. Everybody looks at the NASDAQ. Everybody looks at the financials. They look at value over growth. But what was missing in the whole thing, and of course, focused on energy, but the defense stocks and the S&P this year very quietly have turned in a 14% gain. And I expect that that'll still be a good place to have your equity exposure for the

coming year. Yeah, it's true. And I'm looking at ITA as another way to track it. The ETF up 18% in the last three months. David, thank you. It's always good to check in with you. Appreciate it. Happy New Year, Sarah. Take care. Happy New Year. David Rosenberg of Rosenberg Research. When we come back, venture capitalists and Reddit co-founder Alexis Ohanian joins us for an exclusive interview on his outlook for tech and crypto. And of course, what he thinks about Elon Musk running Twitter. Dow's down 264. We're losing some steam here.

Low of the day was down 315. We'll be right back on Closing Bell. Welcome back to Closing Bell. A new report from the information says Instacart has cut its valuation by 20% to $10 billion. Again, it's cut it. Its peak valuation was $39 billion back in March 2021. So what is the signal for valuations in the private and public markets? Joining us now is 776 founder and Reddit co-founder Alexis Ohanian. It's great to see you.

Hey, Sarah. Great to see you. Hey, Sarah. Great to see you too. Are you seeing markdowns like this in your venture portfolio or is Instacart unique? Well, yes. So full disclosure, I was a seed investor in Instacart back in 2012. So yes, there are certainly some advantages to being the earliest round investor because while these markdowns are still tough to swallow, still a lot of room. I think this is a reality of a sobering up in the private markets that I think many of us have been saying was long overdue.

And the good news is these days, my focus is on early stage investing and it's never been a better time to start a company. But without a doubt, I think folks who are getting a little too excited, a little too sort of fat and complacent on the valuation front are definitely going to see some resets. Are you expecting another rough year next year for these valuations? We've been telling founders really since the start of this year to plan for a scenario where they're encountering probably some of the hardest economic times many of them as CEOs have ever built businesses through or grew businesses through. And to have at least multiple years of runways, this is with the early stage companies, and in any case, to really find paths toward profitability and to take the cues from the publicly traded tech companies that have been really seen a new sort of renewed appreciation for efficiency, for finding profit.

And I think, look, the good news is these tougher times that I do think we'll see ahead are going to help create much better companies. Is it a good time to be investing in early stage tech companies? Are you doing that now? Yeah, we're actively deploying at 776. Frankly, it's a fantastic time because really this is when the best companies are going to get built and formed. I was a partner at Y Combinator during 2008, 2009. And when we saw companies like Stripe and Airbnb just getting started in the midst of all of this economic disaster, you saw CEOs and you saw founders who were relentlessly focused on making things people love, on solving real problems, on finding revenue. And it's that kind

of sobriety that I think can really bring out the best from companies and teams. What about crypto in particular? I know you were interested. We did a panel together at Milken back in May on Web3. It was a huge focus area for you. Not many people are excited about Web3 right now. Are you still? I get it. I've never been a trend chaser. And again, look, you know, 10, 11 years ago, gosh, back in 2012, I seed invested Coinbase. You know, crypto was not even a meme back then, but I have continued to invest through every single winter and every single spring and so the good news is when you're really really focused on meeting with founders best in class builders uh really at the earliest stages of company forming it's less about what the hype cycle is it's less about where the trends are

it's more about again just fundamentally solving problems and so in many ways i relish these winters crypto winter included because again it brings a renewed focus on actually solving real problems it it chews away a lot of the charlatans uh and and i really believe brings out the very best builders so it's it's we're still investing we're excited to be investing in it uh we're still long-term bullish on the technology. And even some of the worst headlines that we've seen, for instance, FTX, those are stories of fraud. Those are stories of human failures. They're not stories of technological failures. And that's what keeps us long-term optimistic on the core tech. Sure. That one may be the case, but there have been a lot of

bankruptcies in this space. So if you do still have that same level of conviction and crypto where what part of the ecosystem are you bullish on uh so infrastructure you know taking a lot of lessons again from from being such an early investor uh in platforms like coinbase um we have another one uh that's gonna have some big news actually just just closed an up round actually in the last few weeks i can't scoop it here but it's another infrastructure type company um you know as long as folks are building on crypto as long as they're spinning up nodes as long as they're looking for ways to solve problems they're going to need the picks and shovels to do it and then when it comes to solving the problems i think we're going to see

a path forward here you know a company like yuga labs uh that we we also early investors in behind board of god club etc just grabbed a tremendous hire from activision blizzard i believe it was their president came over right he's not leaving a position at the helm of you know massive titles like world of warcraft etc unless he sees an amazing opportunity and the reason for that is i think what we're seeing in the communities and the cultures and the creativity is something that could very likely play out to be a new forefront of gaming and consumer culture. Another company we had seen at Doodles, you know, wants to build a next generation of Disney and a whole world of IP that is, you know, giving people a stake, giving people a sense of ownership. The way I describe it is if 100 years ago, you could have bought shares in Disney,

you'd have been happy to do that. But if you could have bought some of the original drawings of Mickey Mouse, you'd have been really happy with that too. And that's the difference. Web3 technology at the end of the day is just allowing for that stake of ownership in those assets, in those collectibles that, you know, in the past you could find them maybe on eBay or auction sites, but today it's obviously digital. I wanted to ask about one of your other investments related to crypto and investing is Early Bird. Just tell us a little bit about it, helping families plan for financial futures of kids, something that anyone who has kids can relate to but but one of those options is crypto which i found interesting yeah whether it's whether it's

you know gifting some shares of disney stock uh to a child or gifting them some ethereum obviously none of this is investment advice but you know one of the things i wish i'd gotten exposure to when i was younger uh was was even just just some basic understanding of how markets worked, some financial literacy, stuff like that. And the nice thing with Early Bird is they've built software now to make it trivial for you to gift something to your loved one, usually in this case, a kid, that is meaningful and sentimental, but also gives them something that could potentially in the long term accrue value. And it's an interesting perspective shift. I think even now amidst, again, all of the uncertainty economically, you know, when you're thinking about gifting something to your, you know, godchild or your niece, your nephew, you know, you're thinking on a 20 year time horizon.

And I think that's one of the most important principles that I think a lot of us tend to forget in investing. But it's really easy when you're not thinking about yourself and your own needs, but thinking about a child who's not going to see the fruits of that for decades to come. And I think even during these times of uncertainty, it creates this opportunity to obviously delight, but then also get your child exposed to opportunity and a sort of financial literacy that I feel far too few get access to. Okay, Alexis, you know I'm going to ask about Twitter and Elon Musk. Yes. How do you think he's doing? You're still quite active on Twitter, so you're still using it. It's been a tough run.

Look, I think there have been some wins. There have been some losses. One of the things I said very publicly, gosh, back in the spring when this was still a rumor of a takeover, was that Elon is without a doubt a generational CEO, yet he has had his success in physics-based companies, right? Tesla, SpaceX. These are companies where to be CEO, you have to have a deep understanding of lots of things that are pretty immutable, right? The laws of physics are not fickle. Humans are incredibly fickle. And one of the things that I certainly learned building Reddit is that the role of the CEO is for a social media or community type site, it's as much

a head of state role as it is a business leader role. And that is a very different set of skills that you have to master. And I think that's where we've seen, frankly, the rocky road of the last few months. And I think long term, I'm still optimistic. I think the utility that Twitter provides is tremendous. I'm not a Twitter shareholder, but I really do believe in the long term value of the platform. And I hope they can sort it out. And frankly, I think I said this as much on Twitter. I think Elon's time is best spent CEOing those companies that are physics based, that can have a tremendous impact on our species and and he should find someone amazing to do the the role the role at twitter who should he find your your name came up because of your experience obviously with with reddit you i think you ruled it out on twitter is that true have you had any conversations and and if if not who should he pick? I have no interest whatsoever.

No, 776 is what I'm doing for the rest of my life. And I think, you know what? There's probably someone in the leadership at Twitter today who's the right person for the job that we just don't know because they're not a celebrity. Like, that's the thing. This should not be a vanity ceo project right this is this is a major multi-million dollar company that is pretty key infrastructure for a lot of us to do our jobs to get news about the world etc etc and uh that look he if he if he abides by the twitter poll results as he says he will there'll be a new ceo and i don't know i think he actually put it pretty well where he said the very best people for this job are the ones who don't want it. And that's the thing to figure out.

But I still remain optimistic that they will. To your point about physics, Tesla stock is one of the worst performing S&P 500 stocks this year. It's down about 70 percent. So do you think it's having an impact, the fact that he's been so focused on Twitter and will impact Tesla's brand? Yeah, I worry less about the brand. I'm not a public markets guy, but I think undeniably having CEOed one company at a time, I know what a Herculean task that is to do well. Doing it across two companies is already a lot and pretty extreme. So I just think, yeah, ultimately, there's only 24 hours in the day, and I don't believe he's solved that one yet. And where he spends that time should be the highest leverage. And like I said, I really believe the skills

required to do this type of a job of any social media platform, they're just very different. And thankfully, they're not rocket science, because that means folks like me can actually do them fairly well. But where his strengths lie and where I think he should be spending his time, not see you on Twitter. Alexis, thank you. Good to talk to you. Iron Man, Santa Iron Man and all.

Santa or Iron Santa. I got to work on that name. Iron Santa. Got some air time. Thank you. Alexis Ohanian there. It's been bugging me out. Of course, Reddit co-founder 667. Don't miss tonight's CNBC special, more VC talk. Taking Stock. It's at 6 p.m. Eastern time and it features venture capitalist Bill Tai's outlook for tech and startups next year. That's 6 p.m. right here on CNBC. Let's show you what's happening in this final hour of trade. We have moved south ever since the start of the final hour, down 300 points now on the Dow. The S&P is down a full percent and the technology continues to bear the brunt of the selling.

Nasdaq's now down one and a.25%. It's a tough week. Apple's right in the eye of the selling today, but pressure on Amazon, Alphabet, NVIDIA, Adobe, a lot of these tech stocks within the S&P 500. You've got every sector now lower. Financials have just joined the other 10 sectors in the red. Southwest shares getting no love from investors again amid the fallout of canceling thousands of flights over this week. Up next, we'll discuss when the carrier could return to a normal schedule when Closing Bell returns. We've taken a leg lower here. The Dow is now down more than 300 points and every sector in the S&P 500 is red. Financials were positive when we started the hour,

not anymore. But it is technology in the eye of the storm again. You've got energy, information tech, and communication services at the very bottom of the market. You've got stocks like Apple weighing the most on the Dow and on the Nasdaq. Amazon, Alphabet, Netflix, they're all lower. At the top of the hour, we got news that the CDC is announcing air passengers traveling to the U.S. from China will now require a negative COVID test. Coming up in the next hour, Dr. Scott Gottlieb will give us his first take on this news. He's going to talk to Scott Wapner on overtime. Tune in for that.

Big risk here, potentially, of China now exporting another major wave of COVID. Have to wonder about new variants there as well. And other travel news. We're watching Southwest Airlines. It continues to get hit, canceling 2,500 additional flights today after the carrier CEO apologized for a week of disruptions, leaving thousands of passengers stranded. Our Leslie Joseph covers the sector for us. Leslie, are there any indications that the situation will improve at some point soon? Hopefully it will. It doesn't look like anything is in the immediate term.

Tomorrow, Southwest has another 60% of its flights canceled. And remember, earlier this week, the CEO, Bob Jordan, said, we're going to be flying about a third of our schedule throughout this week, most of this week at least, to try to get the operation back on track, get planes where they need to go, get flight attendants where they need to go, get pilots where they need to go, because everything was really in disarray. So it's going to be a few more days. And Southwest's schedule for Friday, getting close to New Year's Eve,

which is very important, big travel period, and people are also trying to get home from Christmas, very minimal cancellations there. But we don't know what's going to happen after tomorrow and the next day. And there is a chance that it does get worse. They have a lot of people to get home. You know, there are people that are still stranded in airports pretty much all over the country. There are people in Mexico and the Caribbean that have reached out to us to kind of explain what their story is. So this isn't something that Southwest can clean up fairly quickly, but they're hoping to.

It's such a disaster. Leslie, thank you. Keep us posted. Leslie Joseph. Up next on the show, influential behavioral economist Dan Ariely discusses his new corporate culture ETF and how investors can actually make money from what's called the human capital factor on Wall Street. We'll explain when we come back. Down about 300 now on the Dow. Is the market underestimating the potential impact of companies that keep their employees motivated and engaged? That's what our next guest believes. His firm recently started an ETF designed to capture what he says is that market disconnect. Joining us now, Dan Ariely of Irrational Capital. He has delivered numerous TED Talks that have over 10 million total downloads. We know you have a very big following, Dan. It's good to see you again. Look, this is a really tough market, another tough day

on top of what's been a bear market all year long. Is there evidence that this strategy that you come up with around valuing human capital at an organization delivers high returns yes there's actually very good evidence and the evidence comes from multiple sources first of all we've done lots of lots of experiments over a long time to try and understand what is it about about motivation you know and every ceo says the quality of my people is the best thing I have is the main asset but they don't really understand what it means and I'm not blaming anybody I don't think it's out of bad intentions I think that's the understanding human capital is not a simple task so we got a lot of

data going back to 2006 about lots of companies and we spent quite a few years trying to quantify the relationship between how companies treat the employees how the employees feel about the company it what does it mean for access return in the market and we found things that are very much in line with what we know from social science um you know something that the social scientists would tell you i knew that along, but now we have evidence that this is actually impacting the way that alpha, human capital translates into alpha. For example, we found that absolute level of salary

doesn't make a big difference. Perception of fairness of salary makes a big difference we found that retirement benefits don't make a big difference the level to which people feel appreciated makes a big difference in general and we have lots of evidence like this but we found that extrinsic motivation bonuses salary retirement benefits don't matter so much. And the internal flame within people and how much they care about the company and how aligned they feel, how much they care about the direct managers, those things care a lot. And we're very happy that we now can invest this way, not just sales.

How do you measure those types of things? I know you spend your life's work on studying human behavior and what motivates us. How can you quantify that in a way that investors can see? So we have, we basically, our data set was a thousand companies for many years. And for each company, we have lots of data about sentiment of the employees. And we got it from some private sources. We got it from some public sources like Glassdoor. And we tried to figure out what matters for the way that human motivation and capital translates into alpha and what doesn't matter so much. And then we took all the things that matter,

and we said, let's take this box of things. They include feeling appreciated, and they include fairness in salary, and fairness in promotion. They include psychological safety. They include low bureaucracy. They include all kinds of things that let people kind of flourish in terms of their motivation. We score every company on how they are on this human capital.

And then we have a way to invest in that. And there's ETF, but there's lots of other ways to invest in this. Imagine that whenever the stock market started, they asked every company to quantify human capital. It's so clear that they should be on the balance sheet of companies. Companies should think very carefully

about the human capital. So companies are not doing it yet. So this is why we can come and measure it and then have a good investment strategy based on that. Yeah, I mean, there is an ETF for it, HAPI, H-A-P-I, what you did with Carber Corporate. Is it mostly technology companies? What sort of companies,

and I know you don't want to necessarily name names, people can look in the ETF, but what types of companies, are they ones that have the best ESG policies, are generally the best at taking care of and motivating their employees? Yeah, so there is a link, there is a correlation between companies that care about lots of things and also care about their employees. By the way, if you think about how ESG becomes a strategy, it's mostly through employee motivation.

And yes, we're a little tech heavy, but we're not too much tech heavy. And when we started this, I had the intuition that human capital would matter a lot for tech and not so much for manufacturing, for example. But the data proved me wrong. The data showed that the equation we have to how to quantify human capital and its relationship to alpha is basically the same across all

sectors. It's also the same for all ages. You would say, oh, you know, maybe generation, whatever, X, Z are different than the boomers. No, in terms of the deep psychological motives, things like wanting the feeling of belonging or connection or psychological safety, we're all very similar and also we don't find a secular you see how in this sector it doesn't it doesn't matter it play plays a role in all in all sectors and we really hope that a few things will happen first we hope that people would invest in the etf and also reward companies who are treating the employees well but we also hope that companies will start thinking more

carefully about human capital, that companies will become interested in measuring their own human capital and nourishing it. And when we talked last time, we mentioned the amazement of human motivation. People run marathons, and people write poetry, and fall in love, and people have this capacity to find. People have kids.

People have the opportunity to find motivation in all kinds of places. And workplaces that are going to be successful are the ones that are going to allow that to happen. And one other thing that is very important is that we found out that during covet everything that we found from before covet became even more important why because the role of intrinsic motivation became more important

imagine a kid in seventh grade if they're in the classroom, the teacher can say, sit straight, focus. The same thing is true for us. If we work from home with no adult supervision, the importance of intrinsic motivation is higher. So I think not only is it very important to quantify and use human capital, it would also become more and more important as we are having a mixed model of office and from home. Yeah, no, re-evaluating so much post-COVID. Dan, it's fascinating, your insights. We appreciate you coming on. Always trying to help investors find new strategies. Dan Ariely, still ahead on the show, how the new U.S. COVID restrictions on air passengers from China could impact the travel industry. Plus, we're all over the cellist for you. Dow's down about 350 points when we come back.

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, we've got Steve Kovach on Apple and Seema Modi here on the travel stock. We'll kick it off broadly because, Mike, it's been a rough hour and a rough day and a rough week and a rough year. Dow's down a percent. We're down 362. It seems the sell-off seems to have picked up steam. Path of least resistance for these tech stocks is lower. Is there any specific catalyst?

I wouldn't say specific catalyst. Clearly, trending markets continue to trend. We're only 4% in the Nasdaq composite above the pre-COVID crash high. So that's our 9,800 on the Nasdaq composite. Not to say it has to get there, but it does seem like we're just sort of unspooling a lot of what we've been doing all year, which is getting rid of that valuation premium. There is some year end, perhaps mechanical tax loss selling. And there is a school of thought, too, that says when, you know, the bear really comes for the apples of the world. The other stuff that had held up a little bit better that, you know, we're getting far along in the process of where you couldn't

have, you know, someplace safe to hide. Hard to say that we therefore are finished with anything. But I think that's really all that's going on. Plus, the news out of the CDC and China, there's a sense out there the risks to economic growth over and above the recession fears that we already had are certainly not to be dismissed either. No, the China factor is a real one. Everyone was all excited about China's reopening and what it would mean for their economy. And maybe that's coming and they're stimulating. But right now, what it means is millions of cases that could be exported all over the world. And now that we're going to see travel restrictions pop up again in the U.S., potentially in other places around the world, that's a hit. And I would point out, it's not as if treasuries are rallying on that.

You know, that would be the classic playbook where you'd actually see people fly into bonds. You actually have yields modestly higher than the 30-year Treasury, once again threatening to hit 4%. So clearly there's other things going on besides just that reflex to bet on a weaker economy. Well, there's also this narrative that's going to drive up inflation again. For sure, yeah. Because as the Chinese economy recovers, as people go out, they're going to consume more energy. And that puts oil prices and just makes it all harder for the Fed. I want to hit Apple, Mike, because that is hitting a 52-week low again today, tracking now for its worst year since the financial crisis. The stock also weighing

on the broader market. Steve Kovach joins us. Steve, are Apple's troubles a result of concerns about iPhone production and demand, or is there something else happening here? That's the bulk of it. At least for the next couple of months, that's what folks are concerned about, Sarah. It's because, like we've been talking about about these shutdowns of production in China, those closed loop systems had made it just so hard for them to get iPhones out. Many people did not get an iPhone in time for Christmas. And now the big question is, does that demand carry over into January and February? If you didn't get an iPhone for Christmas, are you OK buying it again in the new year instead? That's going to be a huge question. This is going to be a really important earnings report, Sarah, when we get it

at the end of next month or early in February about how robust was the demand amid these supply issues and how able are they to keep that demand up? Or if we headed to an even tougher recessionary environment and we hear all these, just Micron last week, talking about how smartphones overall are going to be flat to down and analysts signing warnings of that, that it's going to get worse throughout the end of the year if consumer spending goes down for Apple. So lots to be worried about. It's largely on China. It's largely in the iPhone business. And like I've been saying throughout the day today, Sarah, there are some things to look, some bright spots, you know, new products coming out next year, not just new iPhones, but that new AR VR headset that they're rumored to have is finally likely going to come out in the

second half of the year. And then more additions to their services like fintech stuff. They're going to have a high yield checking account pretty soon, Sarah. Hmm. What about the China factor? You mentioned it clearly. The whole market is following news out of China. What about the China factor? You mentioned it. Clearly, the whole market is following news out of China. What has Apple said or what have you heard about how this from COVID zero to COVID reopening, everything going on is impacting the supply and demand for Apple over there? Yeah, unfortunately, we haven't heard much from Apple. We got that statement from them in early November saying, you know, because of everything we've been seeing in China, they're not going to be able to ship as many iPhones as they had originally expected. They did caveat the saying we're seeing really high demand. So that's that's

one thing. But at the same time, like you were just talking about with Mike, these cases rising and at what point does that start affecting production? If workers are too sick to make the iPhones, then we're in the same trouble that we were in because of these closed loop systems and because of the lockdowns and because of the protests. So what we hear from Apple is we have people on the ground. That's what they told us Thanksgiving week when these protests first came out. And they're monitoring the situation. But we have not gotten an update about what the situation really is like there in Apple, especially that facility in Shanghai or Hsien-Chu where most of the iPhones are made, Sarah.

So it's really just unclear. Dow, excuse me, Apple is the biggest weight right now on the Dow Jones Industrial Average, shaving about 26 points off the Dow. One Dow stock is higher, and that's JP Morgan. Steve Kovacs, Steve, thank you. Thanks, Sarah. Well, Apple may be lower again,

but Tesla's actually rebounding today, still on track for its worst month, quarter, and year ever. Baird becomes the latest firm to cut its price target on the stock to $252 from $316, citing a more challenging outlook and weaker demand. Tesla now trading near its lowest level since August 2020. A lot of damage being done here, Mike. Are the analysts finally caving? They're just essentially trying to chase the actual share price down, marking their targets

to market. You know, you'll note they're not necessarily changing their actual stance for the most part. It's more or less just kind of trying to accommodate what the stock's already done to make their targets look a little bit too high. Now, it's down a lot, a lot of damage done, but because there was a lot to feed on for the sellers, just because it got to a $1.2 trillion market value. If you think of what the phenomenon of Tesla stock was built on, it was built of the basic, you know, electric vehicles are going to be gaining market share. Tesla's going to produce at scale.

They're going to have a million cars sold some year. They're going to get cash flow positive. They're going to go in the S&P 500. All of that happened. They used up the catalyst. And then there was on top of it this sort of cult that Elon Musk could sort of see the next few things coming. And therefore, he had the vision and they were just going to trust that he's going to somehow make it work. Well, we've seen a lot of those things come into question. The Twitter deal, clearly it was a negative catalyst for Tesla for whatever reason, for the distraction, for showing Elon Musk maybe to be tarnishing the brand. So all that stuff working in reverse, I don't know where it settles out. It's now a more reasonably valued stock based on what the business is producing. But right at the same time, when we're starting to question what the demand

ultimately for overall vehicles is going to be next year, especially when it comes to the China sales. Yeah, for the first time, really questioning the demand side of the Tesla story. I like what Alexis Ohanian, Reddit founder, says go back to, tells Elon on the show earlier, go back to the physics jobs, go back to the rocket science and running those companies. Let's hit the travel stocks because the U.S. is now requiring travelers from China to show a negative covid test starting January 5th. Just got that news at the top of the hour. Seema Modi joins us. Seema, what does it mean for the travel industry? Well, Sarah, it certainly adds more friction to travel. But I think what Wall Street is now trying to figure out is whether this this covid test that will now be required to enter the United States

will stop the Chinese traveler from coming here. We did get new data this morning from Trip.com. That is the Expedia of China, which found that they saw a 254 percent jump in outbound flight bookings to other countries around the world following the removal of that quarantine requirement, that part of that China reopening. So what that tells us is that the demand, the appetite to travel, Sarah, outside the country is very strong following stringent lockdown measures over the last three years. And remember, the U.S. economy very dependent on the Chinese traveler. Prior to the pandemic, the Chinese traveler on average spent about $6,700, Sarah, here in the U.S. on average. That's 50 percent more than any other international group. That's why any travel restriction, any reopening around the Chinese traveler is certainly very key to this to this trade, specifically companies like Marriott, which have over 450

hotels just in the country. Yeah, between the delays and the weather and now China, it's been a rough, rough stretch here for the airlines. Tima, thank you. Mike, I also just wanted to point out, before we go to AMC shares, because they're lower, again, even though Adam Aaron, the CEO's latest, is that he's going to take a pay freeze and ask his management to freeze pay because shareholders have not had a good year in the stock. So I thought we should talk about it. The stock is down 4%. The preferreds, the apes, also down pretty hard. What do you think of this move? Is it a gimmick?

I mean, it's a gesture. I don't think the board would need too much persuasion not to lift his pay, given the fact that the businesses are struggling. And it's not in great shape. They got a downgrade, a credit downgrade today. Because, look, revenues are 25 percent or so this year below 2019 levels, which were basically flat with 2018. We're going back four years to get to this level. It's not AMC's fault. It's what the business is doing. There's not enough releases. But AMC has

raised a lot of capital, both debt and equity, to try and just keep this thing going. It still has too big a market cap relative to what the business is, because if you go back to pre-COVID, before it became a meme stock, it was well under a billion dollars in market cap. In fact, it was more like half a billion dollars at that period of time. And so now it's multiples of that. So I think it's more about, you know, kind of communicating directly with retail investors. Aaron has done that well.

He's got this sort of following out there and he needs to, you know, seem as if he's a team player, even as he has, you know, sold a fair number of shares himself over the last couple of years. The other thing people are pointing out just in terms of other stocks to mention here into the close 52 week low for Disney, which is now trading at the lowest level since March 2020, early in the pandemic. So much for all the enthusiasm around Bob Iger's return. Yeah, it's even below that, actually, Sarah. In fact, what's more stark to me is that Disney's trading at levels that it first got to on the way up at like eight years ago. So clearly just it got, again, a lot of business and a lot of kind of enthusiasm pulled forward in the pandemic.

What is interesting, though, is I'm very keen to see how stocks like this start trading in the new year, because there is just a lot of let me just discard the losers. Yesterday, the worst performers of the year were also the worst performers on the day. Clearly, people want to just purge things from their portfolio. So we'll see if, in fact, you get a little bit of relief once you have that turn of the calendar. And by the way, you know, today is really the last day functionally you'd want to sell something for tax purposes to have it settled by the end of the year. Yeah. Match Group was another one that, well, it's flipped higher now, but down tough year and a new low, all time low. What else are you seeing in the market internals here as we go

into the close? Yeah, I mean, light volume, but certainly skewed to the downside for sure. You're looking at something like 4 to 1 declining to advancing volume on the NASDAQ and the NASDAQ 100. Take a look at the QQQ. That's a NASDAQ 100 ETF compared to the equal weighted version of the same thing. Really is some separation here. It means the biggest stocks are the weakest. Seven percentage point out performance year to date. And the equal weighted version is above the June and October lows, whereas the market cap weighted version making new lows.

It's a similar story for most of the year. The volatility index perking up just a little bit on this leg lower, but not too much. People still expect, you know, some relatively holiday thin trading still in the low 20s, Sarah. As we head into the close, just another ugly session here for Wall Street. It looks like we're down about 350 into the close. That is the low point of the day. The S&P 500 falling more than 1% here, second down day. We're so far down 1.6% or so for the week.

There's the S&P. Every sector is going to close lower on the day. What's being hit the hardest? Information technology, communication services, materials are having a bad day. Energy is down 2%. It's the worst performing sector. The Nasdaq hit hard again, down 1.3%, adding to losses so far on the week. Apple, Microsoft, Amazon, Alphabet are all the biggest culprits. Their small caps also get hit hard, down 1.5%, a backup of yields and worries about China's reopening. That's it for me on Closing Bell. See you tomorrow, everyone. Have a good evening.