Closing Bell - Stocks Sink, Jobs Jolt & Delta's CEO On Travel Demand 1/5/23

Episode Date: January 5, 2023

Stocks pulling back after the latest weekly jobless claims report came in stronger than expected, raising new concerns the Federal Reserve will continue to raise interest rates. Evercore ISI's Julian Emanuel lays out the case for why the S&P 500 could end 2023 higher despite recession and interest rate fears. Delta Air Lines CEO Ed Bastian discuss the outlook for leisure and business travel demand and why the carrier is now offering free in-flight WiFi. Strategas' Chris Verrone explains why he thinks investors should sell Apple and Microsoft shares during any rallies. And Bernstein's Stacy Rasgon says chip stocks are at or nearing a bottom. He reveals his top semiconductor picks.

The major averages giving back Wednesday's gains as investors focus on jobs data and the latest messaging from the Fed. So comments from Jim Buller this afternoon helped pull stocks off the lows. 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 overall. Down 258 on the Dow. Low of the day was down 457. So we're off the lows but still three quarters of a percentage point decline. The S&P 500 is down almost a full percent.

It's a broad based sell off. The Nasdaq is down a full percent as we see tech getting hit today. Yields are a little higher. That could be part of the story. 3.7 percent better ADP private sector jobs, better data on initial jobless claims and some Fed commentary all in the mix today. You've got especially strength in those Chinese Internet names again, continuing their strong run. Coming up on the show today, we've got Wi-Fi in the skies. Delta just announcing it will offer free Internet for domestic flights later this year. We'll speak with CEO Ed Bastian about that news and much more. Plus, we'll talk

to a chart expert who has a warning for anyone thinking about investing right now in two of the country's biggest tech companies, Apple and Microsoft. Both of them have been under a lot of pressure lately. Let's get straight, though, to the market dashboard. Senior markets commentator Mike Santoli joins us, Mike, with every sector now red except for energy. Yes, Sarah. And the market just continues to churn around this level. There's a very strong perception coming into this year that the S&P 500 is capped, right? Capped by the perception that the Fed really wants to be aggressive and

engineering more of a slowdown, and yet also kind of supported by defensive positioning, somewhat skeptical sentiment, as well as the fact that the consumer economy remains okay, credit markets relatively firm. And so therefore, we have a sideways action. This goes all the way back to the middle of December. And not only that, the intraday low in May, of all things, is 3810. Here we sit in the 3820. So it shows you it's been much more choppy in a range as opposed to steadily downward. But it is an overall downtrend. We did have comments today. The market bopped around on some Fed comments. And actually, it is a very macro-oriented backdrop. Take a look at this from Bank of America, which is trying to plot whether stock-by-stock correlation

is high or low. And when correlation tends to be high, it means it has tended to be more of a macro-driven market. We may not have—there it is. So above this long-term average for stock-by-stock correlation, It is somewhat more macro-driven. This obviously starts to kick up in the QE era, post-global financial crisis. Fiscal policy, really important. Policy-driven moves. Now, types of stocks, categories of stocks, lots of divergence last year, but it wasn't necessarily individual name-by-name, whereas in the 90s it was much more like that.

Now, of course, it coincides with the fact that people own indexes now and people trade the market as one big basket. But it shows you right now that we are in this mode of paying a lot of attention, Sarah, to Fed and other policy moves. So on that note, this afternoon, we heard from James Bullard, St. Louis Fed president, who seems to have changed his tune again. He was one of the more hawkish ones last year, saying we need to be more restrictive, more restrictive, more restricted. Now he's saying looks like we're getting close to being restrictive enough and 2023 could be a disinflationary year. Exactly. Just simply pointing out that if we get to 5 percent or so in the Fed funds where everyone expects, that it will likely look pretty restrictive relative to levels of inflation and obviously where where the other kind of models would tell you policy should be.

He's willing to be more anticipatory. He's willing to stray from the crowd rhetorically a little bit. We know that about him. And so this, I think, is a reminder that there is a way the Fed can proceed from here and be kind of in wait-and-see mode as opposed to essentially waiting for inflation really to crash before they change their mode. Mike, thank you. Mike Santoli. For more on the markets and the strategy, Julian Emanuel joins us from Evercore ISI. You know, it's good if inflation keeps coming down, but the jobs market remains strong. We got three different points of evidence today. I'll include the challenger layoffs, which were also low,

lower than expected, to show us that this jobs market is still tight. Look, I think for professionals, this is always a difficult point in markets to, you know, acknowledge the fact that good economic news is bad news for the stock market. And that's the paradigm we're in. And look, frankly, the Fed's been very upfront about its desire to get the unemployment rate to 4.7 percent by the end of 2023 to slow things down, to really rationalize the labor situation. But the point of that is that that kind of jump in the unemployment rate, if we get there, has always catalyzed a recession. So you have a 41.50 year end price target. That would be a rally. That's on the higher end.

I mean, a lot of strategists aren't feeling optimistic this year. Why do you think that we can do that? So for us, it's basically a question of an expectation of a shallow, shortish recession to arrive around mid-year. And frankly, when you think about it from a risk-reward perspective in terms of investing, that kind of activity, and again, no bear market has ever bottomed before the recession started. So from that perspective, we don't think October was the bottom. But you get that kind of activity in the markets, the catharsis, volatility spike, that clears the way for, in fact, the type of year that we expect where earnings are going to be down but the market's up.

And the thinking is that that is atypical. It's actually very typical. That's what we expect. Well, if the Fed then moves into looser policy in reaction to recession, which we might not get this time. Well, so I think part of what Bullard left unsaid was, yes, there are only two to three hikes left, and that's something that the market will likely start looking towards, the pause. But we still think that that kink in the curve, the expectation that rates are going to be cut, is likely an incorrect expectation, particularly if you get a situation where the recession

is short and shallow. But the good news here is that stocks can still do well, even if we get that growth slowdown, as long as inflation is coming in. And we think inflation comes into 3 percent. What types of stocks? So for us, we want to continue along the value line. We think basically value over growth has worked for the last year. That's a multi-year trend. We want to stay defensive. That can work in recession because a lot of those value stocks are also cyclical. Well, so interestingly, consumer staples, which is one of our overweights, health care is another

one. And frankly, energy, which you might not think works well in a recession, but the fact is the sector is already pricing in a recession at around 10 times earnings that the rest of the market is not and is 5 percent of the weighting with 9% of the earnings expected this year. So I'm trying to think of what could go wrong here in your forecast. What if we keep getting really healthy jobs data, like we got today, like we're anticipating tomorrow? Because if that happens, then do you have to revise your forecast for not so shallow

recession if the Fed just has to keep going? So that's been a very interesting—in first couple of days of the new year. The conversations are very nervous. And part of that strain is basically this idea that the worst thing for the markets could be that there isn't a recession which forces the Fed to keep going, particularly if inflation remains sticky. Look, we have sympathy with that view because it certainly would mean sort of a repeat of 2022. We just don't think that's going

to happen because we do see signs of inflation starting to come in and we think that's going to continue. Can that continue if wage growth does not moderate? No, but you actually are starting to see anecdotal signs of wage growth moderate. And look, you think about the layoff announcements, you think about the competition for labor at a place like Tech. That's starting to moderate to us again. It's like everything else. It's a matter of time. Bottom line, bumpy first half, make new lows on recession, year ends higher because it'll be mild and then we come out the other side. Exactly. Got it. Julian Emanuel, thank you.

Thank you. For clarifying. A lot of twists and turns there. Evercore ISI. By the way, don't miss billionaire investor Leon Cooperman's take on this market weakness coming up later. He's going to be on with Scott on closing bell overtime. Down 277 right now on the Dow. After the break, Dell's divorced from China. The PC giant reportedly aiming to phase out its use of chips made in China by next year. We're going to talk about implications for semiconductor stocks with analyst Stacey Raskin next.

You're watching Closing Bell on CNBC. Delta shares in the green today. This comes as the company says it will be the first U.S. airline to offer free in-flight Wi-Fi for passengers on domestic flights starting later this year. Passengers will be required to join their frequent flyer program to take advantage. Joining us now, first on CNBC interview, Delta CEO Ed Bastian and, of course, our own Bill LeBeau. Bill. Sarah, thank you very much. Ed, Sarah gave the news right off the top there.

Free Wi-Fi in your domestic route network. Basically, starting this year, by the end of the year, you expect to have most of your planes there. What's the idea behind this, aside from improving the passenger experience? Well, the main idea is to improve the passenger experience. And when you think about what we do for a living is that we connect people. We connect the world. However, it's always dawned on us is that the part of the world that's not connected is the sky. And the quality of the Wi-Fi that exists today in this world is not good. And there's a lot of reasons why. But Delta, we've been investing.

We've invested over a billion dollars in the last three years alone to create this opportunity to have free Wi-Fi. It'll be free. It'll be fast. It'll be available to all. Yes, you have to have a SkyMiles account to access it, which is free as well.

But it's going to be a game changer. And we'll have it on our domestic fleet with 80% starting the 1st of February. And every week goes by, we'll have international rolled out next year, regionals next year. So it'll be 100% by the end of 24 across every Delta flight, every seat in the sky. I mentioned this to a few people. And the first thing they said is, well, look, these guys are in the business of making money on ancillary revenue. Isn't this going to hurt them if people are not going to have to pay for Wi-Fi? You're of the belief, though, that this essentially opens up so many more opportunities, correct?

This creates loyalty. It creates a better experience for customers. There'll be one more reason why customers will choose Delta as they look to fly. And in addition to that, we're going to have a new product, which we also announced this morning, called Delta Sync, where we're bringing partners in. So we announced that we've got Paramount Plus joining us. We've got T-Mobile joining us. We have American Express joining us on this launch. And that umbrella package will give customers opportunities to receive exclusive content, exclusive offers, build new relationships, and potential revenue sources as well.

So I've always believed that Wi-Fi has to be free. It was basic to a customer, but it has to work. And by the way, it also has to work on sitting on a reliable foundation of quality service and on-time delivery of product, which our people do better than anyone. Ed, Sarah's got a question for you. Sarah? Hi, Ed. Sarah Eisen here in New York. Beyond today's announcement, just curious

for a flavor of what's happening with demand. We know leisure has been super strong. Is that still the case? And have you seen any softening in business? Well, Sarah, we are in a bit of a quiet period because we have our earnings we're announcing next week. So I can't give you too much current color other than to tell you that, as you saw during the holidays, demand was very, very strong. So no signs of any letdown. What about labor shortages?

Has that been dealt with? We saw the problems with Southwest after the storms, getting people around, supply issues, computer issues. I'm curious what you're dealing with on that front. Well, Delta, we've got the staff we need. We're continuing to hire.

We're hiring flight attendants. We're hiring pilots. We're hiring mechanics still for some growth coming into 23. But the team at Delta did a really good job during the holiday period. I was very proud of them. It was a very difficult set of conditions that they were operating in, and they got customers where they needed to go. Ed, China is such a big part of your business. Obviously, things have changed over the last three or four years, but now you have the Chinese government opening up.

What do you expect, just in a broad sense, happens over the next year when it comes to demand and traffic to and from China? I think you're going to see the same thing happen in China that you've seen in every country as countries have opened up. You're going to see an enormous amount of demand for travel, you know, leaving the country and as well as a large number of people wanting to get into the country. Obviously, China is a little complicated given they've had a little different policy towards protecting COVID. We'll have to see how it rolls out over the next three to six months. But we're expecting certainly in the back half of 23, some pretty strong Chinese demand. And as you mentioned, this is, well, the Wi-Fi is free most quickly here and domestic flights.

Internationally, that's going to roll out over time, correct? So it'll be, it starts February the 1st. 80% of our U.S. domestic mainline fleet will have it on board. Every week that goes by, we'll have more. International will start next summer, summer of 24, be 100% rolled out across every fleet that we have, every product category we have by the end of next year. Ed Bastian, CEO of Delta Airlines.

How do you like Vegas for Consumer Electronics Show? It's great to be back. It's great to be live. The buzz is phenomenal. And it's crowded. It's crowded. I love it. Love-h be live. The buzz is phenomenal. And it's crowded. Again. It's crowded. I love it.

Love-hate relationship with the crowds here at Consumer Electronics Show. Guys, we'll send it back to you. Well, it speaks to the innovation going on in that sector that you guys are both there. Bill, thank you. Ed Bastian, good to see you. Thank you both. Let's show you what's happening with the markets here as we head into the final 40 minutes of trading. Down 300 or so on the Dow.

It's a broad-based sell-off. Given back yesterday's gains, the S&P 500 is lower by almost a full percent. Now, energy is the standout, up 2%. Everything else is down on the day. You've got real estate, the hard estate, utilities, materials, technology. The Nasdaq is down 1.2%. Microsoft, Amazon, Apple, Nvidia, and Tesla weighing down on the Nasdaq in particular. It's been a rough session for the chip stocks, but Bernstein's Stacey Raskin says three names are solid buys for the year.

He'll join us to name names next. Interesting move. Dell reportedly joining a list of companies attempting to reduce their reliance on China for chip production. Nikkei writing earlier today, the company aims to stop using chips from China by 2024. Dell also telling suppliers to do the same. Joining us now is Stacey Raskin from Bernstein. Stacey, first of all, is it possible to reduce chip usage from China fully by 2024 at this point?

It's probably possible. You got to remember, they're not buying like CPUs and stuff that are made in China. That stuff's not made there. That's made in the US or potentially in Taiwan if it's probably possible. You've got to remember, they're not buying CPUs and stuff that are made in China. That stuff's not made there. That's made in the U.S. or potentially in Taiwan if it's from AMD. But it could be memory and other types of peripheral chips, and there are other sources of those. It's not just chips either. It sounds like they're trying to more broadly move production and other things out of China, which is not new. Lots of folks in the electronic supply chain have been diversifying supply chains,

even ever since the tariffs and the trade stuff from the Trump administration a few years ago. But just given what's going on in terms of some of the sanctions and everything else sort of getting placed on China, there does seem to be more of a broad based decoupling that's starting to happen. And, you know, they're going down that they're going down that path. So I feel like it's kind of the new, like, zero emissions target. We're going to be out of China by X year on production. What does it mean for the U.S. chip makers? Who stands to benefit most? Well, it depends on what they're making, right?

But like a lot of, like, for example, on the memory side, you've got folks like Samsung and Hynix that have, you know, memory fabs in China that they're not going to be able to support anymore. They've got a waiver right now that they can they can buy equipment. But who knows how long that's going to last? They're probably going to be moving production out of there anyways. You know, the U.S. guys that are making processors, that'll be Intel and AMD. That's not going to change.

You'll just you'll just move elsewhere. I don't know. Long story short, I don't know how much of a shift this is in terms of winners and losers. It's probably more on memory and other things, and they're probably already buying most of that stuff from non-Chinese suppliers anyways who happen to be making the stuff in China. So it'll just move.

So semiconductors, as you know, have been volatile. They're cyclical. There's concerns about the tech spending and the whole cycle. What stands out as a buy to you amid some of the rubble from last year? Yeah, yeah, you bet. So, you know, you go a year ago this time, sentiment was pretty positive on the space. And, you know, I think 22 from a growth standpoint overall,

it's going to be a decent year for semis, but certainly for the stocks, it hasn't been that good because the stocks are anticipatory and everybody was anticipating a downturn. I think one positive in some sense, if you want to call it that, is that investors are now widely expecting 2023 to be a downturn year. This is more now on magnitude and timing and degree and duration. What I would be favoring at this point are companies that have already cut, ideally substantially, where there is a good secular story that can play off

of that base once investors get confident that numbers have been appropriately reset. In my coverage, it used to be names like NVIDIA, Qualcomm, AMD, maybe even some of the Semicat players might fit into those categories as well. But those are all names where numbers have come down substantially, where I do think that there is still a good story that exists once investors can get comfortable that numbers have bottomed. What about Intel? Numbers have come down substantially there. Sentiments pretty poor. Are you interested?

It's a little different. So for most of the other players, it's been mostly market driven. Intel, you have some of the market issues, but you also just have their own structural problems. And we're just getting started on that journey. They're already they've already been out in public over the last couple of weeks, sort of like talking down Q1. There's a massive inventory correction that's happening in PCs that I don't think they're helping. I think they've been stuck in the channel. I think a massive inventory correction that's happening in PCs that I don't think they're helping. I think they've been stuck in the channel. I think they're still doing that. Their economics, like their margins and everything in all of their key businesses have collapsed.

There's no free cash flow. Capital intensity is going through the roof. And I think AMD's, at least in data center, I'm a little nervous broadly on the client side on PCs, but on data center, I think AMD's going to steamroll them this year. I think Intel's issues are just getting started. I don't see any reason to own it. No. Wow. Okay. So that's a no thank you on that one. What about the China story and the decoupling? As you say, U.S. semiconductor companies are still pretty exposed. So who has the most to lose as this relationship breaks, if it does further? You have to be a little careful. All semi-companies will report high levels of revenue in China because, like we were talking about,

the electronics mostly are assembled there. Those supply chains are already starting to move, but it's going to be very difficult for the rest of the supply chain to completely move out of China. It's going to take time. From an exposure standpoint around the sanctions that have just been put in place,

the sanctions, at least the recent ones, are very targeted. They actually leave all of the consumer stuff and everything open still. They're very targeted at high-end artificial intelligence, supercomputers, and advanced logic and advanced memory semi-cap tools. That's it. So the ones that have mostly been impacted by the sanctions, it's NVIDIA, although they've found alternatives to Batfiel and the semi-cap players. That's about it that have mostly been impacted by the sanctions, it's NVIDIA, although they found alternatives to Batfield and the Semicat players. That's about it that have seen direct impacts on the sanctions. Stacey, thank you. Good to talk to you as always.

Stacey Raskin from Bernstein on the chips. We have a news alert on OpenAI. It's the artificial intelligence startup that is behind the buzzy chat bot called ChatGPT. The Wall Street Journal is now reporting the company is in talks to sell shares in a tender offer that would value the company at $29 billion. The company was valued at 14 billion previously, has certainly blown up recently. We'll continue to follow that one for you.

Wall Street is also buzzing about a make or break moment for a number of struggling retailers. We're gonna discuss the challenges facing Bed Bath & Beyond, Stitch Fix, and some other household names. When we come back, Dow continuing to deteriorate down 333 right now, 1%. What is Wall Street buzzing about? A reckoning for some of these embattled retailers. Look at Bed Bath & Beyond. Shares plummeting today after the company warned it's running out of cash and considering bankruptcy. The retailer announced a turnaround plan back in August. Liquidity issues had many suppliers not willing to ship inventory,

though, leaving some stores with empty shelves. Remember, Bed Bath & Beyond was caught up in the meme trading saga back in 2021. It is down 95 percent from its peak in January of that year. Separately, Stitch Fix announcing it is cutting 20% of its workforce. And CEO Elizabeth Spalding is departing. She took the role back in 2021. But just like fashion trends, what's old is new again. Founder Katrina Lake is coming back, like Disney as well. The stock is up 10% on that news, but it has also had a rough go over the last year and a half, down 95%, with a market cap now of less than $400 million.

Meantime, analysts at UBS downgrading Victoria's Secret and Gap today, citing macro forces and share losses. This comes after we learned this week that Victoria's Secret brand CEO Amy Hawk will be leaving in March. And at Gap, there's still no leader, Six months after CEO Sonia Singhal stepped down. Bottom line, this is a bear market. We're in a downturn. Interest rates are rising. The meme trade has evaporated. And many of these companies that have been struggling in retail are now having to face the music. When we come back, take a look at the market. We're down a percent across the board, at least that, with less than half an hour left of trading right now.

Every sector in the S&P 500 is lower still, except for energy, which is a standout. The Dow continuing to lose ground here. We're down more than 350. The low of the day was down over 450. Up next, Chris Ferron from Strategas on why investors should be selling any rallies, in particular of Apple and Microsoft right now. And tomorrow, don't miss an exclusive interview with legendary value investor Bill Miller and his son, Bill Miller IV, for their stock market outlook, picks, and newly announced succession plan. That is tomorrow, right here on Closing Bell. We're watching the Nasdaq. It is down over 1% today, more of the same for tech investors. The downturn has been severe for the past few months. And one example of just how severe,

last summer, the big five, Apple, Microsoft, Alphabet, Amazon, and Meta, they accounted for 25% of the S&P 500. Today, just over 18%. But our next guest says those tech stocks are still too big. Chris Ferron, head of technical analysis and a partner at Strategas, a Baird company, joins me here at Post9. Why are they still too big? What percent should they make up of the market? Well, I mean, when you look at those two in particular combined, Apple, Microsoft, are 12% of the S&P. That's still larger than two stocks have been a share of the S&P ever in all of history. We've never had two names still after these declines that big. I think people forget on 12-31-19, so pre-COVID,

Apple was a $70 stock. That's 40% from here. Microsoft was $170 stock. That's 30% from here. Their business grew a lot during COVID. Yeah, but look at what we've seen. So did Amazon, so did Beta, so did Alphabet. They've all reset to their pre-COVID levels. I think getting through this bear market means even the best names, the names that were viewed untouchable, ultimately go back to where they were pre-COVID. But you're just looking at pure levels. At price. Well, let's think about it this way.

It's an important question because I think the last eight weeks in particular were so revealing because these growth stocks got everything they craved all last year. Right. Rates peaked three months ago. Dollar peaked three months ago. We've had softer inflation prints. It should have been the perfect environment for growth to reassert. Hasn't happened. I mean, what's the worst performing index since rates peaked?

Triple Q's. What's on the lows right now? Why? Triple Q's. I think it's reflective of this idea that what these names, what this part of the market is going through is structural. Think back to that 2000, 2001, 2002 period. That was the first part of the bear market. Those stocks went down more than the index in the bear market. On the way up in the next bull market, those stocks went up less. The big tech stocks

went up less. So I think this is a two-phased event. Even once this market bottoms, even once the growth stocks bottom, I don't think we go back to them as the leadership moving forward. But doesn't that depend on fundamentals to a large extent? These are humongous businesses that are still in growth mode and have been able to weather some of these issues. I think the market's the best procurer of what the best fundamental stories are. And surely the market's the best procurer of what the best fundamental stories are. And surely the market must know this.

And the fact that these act in spite of that so poorly, when the macro regime, I think, frankly, has shifted meaningfully over the last 8 or 12 weeks, is an important piece of information. Think of it this way. Since the S&P bond in October, you know gold's actually up more? So you actually haven't made any real money in equities. But remember, gold last year was flat in a year where dollar was up big and real rates were up big. Gold is serving its purpose here, I think, as a hedge to what is a very, very fluid macro environment. Some people look at the sharper declines lately for Microsoft and Apple and they think, oh, that's a bullish thing. It's capitulation from the biggest, most resilient stocks in the market.

Soon it's time to buy. Yeah, I'm skeptical. I think there's probably no more compelling chart we showed in our work this morning. Just looking at Microsoft relative to S&P, we're early in this process of changing leadership. I think you live with it, right? The five largest, at one point were 25% of the S&P. They're currently 18. That's still really, really large. Now, think about what are the geographic implications of this. U.S. market cap as a percent of total market cap, global market cap, is also

still historically really elevated. So I think what we're seeing between ECB being more aggressive, the shift in Japan, you're getting capital called home to other parts of the world. I suspect that's another reason, fundamental reason, why the big tech waits, the big growth stocks remain under pressure here. Foreign investors are selling and bringing money home. What about into other parts of the U.S. market? Energy has expanded its role slowly within the overall market. Is that a place you would look? You know what's remarkable is energy is one of the few sectors ever that's doubled its sector weighting in two years.

We went from about a 2.5% sector weighting two years ago in energy to about a 5% weight right now. It's still a remarkably small segment of the market. Where I think the sector that has really benefited from this move away from tech is probably healthcare. Intellectually, it's easier for the large cap growth manager to sell Amazon and buy Merck or Bristol-Myers. So I think that's one area. And health care's weight right now in the S&P actually is its highest ever. So we're seeing, I think, leadership there. I would suspect that would continue. But be a little careful. Within health care, there are some pockets that I think are weakening. The HMOs in particular, we've been very vocal about a bearish call on UNH and Cigna and Melina. Those have been very defensive stocks, so defensive over the last decade. I think that much like Apple and Microsoft, they've gotten too

big. They're deteriorating. Be careful. So which one, what part of health care do you like? I like pharma and I like biotech. Look at something like Merck. It's a 20-year base. Hasn't worked in two decades. Just starting to break out. That's where I think money can be made. AbbVie is another one. Gilead. Amgen's timely here. So the one's coming from behind. Oh, yeah. Chris, thank you. Very interesting. Chris Ferron on the charts from Strategas. Look at Walgreens' worst performer in the Dow today because soaring costs are making investors feel sick. That story, plus big layoffs at Amazon and FTX fallout spreads when we take you inside the Market Zone next. We are now in the closing bell Market Zone. CNBC Senior Markets Commentator Mike Santelli here to

break down the crucial moments of the trading day as always, plus Deirdre Bosa here on Amazon and Bertha Coombs on Walgreens. We'll kick it off broadly, though, because we're down 317 on the Dow, not too far from the lows, down 1% on the S&P 500. Again, it's a broad sell-off. Everybody is weaker today. What stands out is energy, up 2%, Mike. Everything else, not having a great day, including technology.

Chris Verone just not doing much to help sentiment around Microsoft and Apple, which he says is just a sign in the process that they're starting to correct from their size and dominance. And he sees a very different market on the other side. Yeah. I mean, usually one of these episodes when we have a bear market that does proceed into a phase where you don't want to have havens that people are comfortable hiding out. And usually it doesn't work that way. If you look at the NASDAQ 100's valuation, even it's down a lot, right? Even if the earnings come through, it's down from 30 or so a year ago to 20 times earnings. However, it's still at about an average premium to the S&P 500. In other words,

it hasn't gotten much cheaper versus the typical stock out there. And that's something that I think continues to have a little bit of wear and tear on those stocks, on those valuations for a while. I think the big news today, Mike, is on jobs, right? ADP, the private sector report, while it's not necessarily correlated to the jobs report, surprising strength. Initial jobless claims, lower than expected. I think a multi-week low on Americans filing for unemployment. The challenger layoffs also came in a little better. We'll get more evidence tomorrow with the jobs report. But this tight labor market, despite all the announcements of layoffs, Salesforce, Amazon this week, despite the fact that the Fed is trying to crush inflation and with that put some pain into the labor market. It's amazing to see. And it also gives them quite a predicament. It does. You know, the softening

in labor market conditions is not happening in a timely way for investors' preference, at least. The Fed needs wage growth to come down. That can happen perhaps without a big jump in unemployment. It can happen perhaps while you still have jobs being created because of structural shortage of labor. But the bluntest instrument is probably to stay tight enough that you start to see availability of jobs go down. That's what the market recognizes. We might look back and say, well, it was a holiday week where unemployment claims really that low. We might say the ADP could be fluky. We'll see what the numbers give us tomorrow, both on the headline and the wage number.

But to me, it mostly tells you how the market's indecisive, but it's very, very wary of any signs of continued economic strength from the labor market because it realizes that, you know, the Fed can't feels like it can't afford to allow that to persist. Two year yield, March and higher, along with the dollar. Those two things certainly weighing on the market, potentially, especially tech. Let's talk tech, because I mentioned Amazon planning to cut more than 18000 jobs, far more than initially expected. Just one of the tech companies undergoing layoffs, a list that also includes Salesforce and Meta. Yesterday, we asked Moody's chief economist, Mark Zandi, how much these job cuts ultimately will impact the economy. Despite the surge in tech layoffs, it's not translating into layoffs economy-wide. The rest of the economy is still absorbing those people that are losing jobs and creating enough jobs to keep layoffs down. So, so far,

so good. It's not translating into any significant impact on the broader economy. A caveat, though, is that Zandi does expect it to spill over eventually this year into more weakness in the broader labor market and the economy. Deirdre Bosa with us. Tech is a small part of the overall workforce in this economy. What do you hear about where these workers are going? Well, what I'm hearing anecdotally, but also a few surveys are showing is that tech workers that are laid off at Meta, at Amazon, at other of the many, many companies that have announced layoffs over the last few months are finding new jobs very, very quickly. And yes, it does feel very much at odds with what you were talking about with Mike Santoli just now, the private payrolls data, the labor market, other indications remain extremely strong, even though it feels like every day we're getting news of more layoffs out of Silicon Valley.

Thing is, they're finding jobs more quickly because there's still a pretty strong startup ecosystem here. Yes, for the names that we know, like Instacart, Stripe, some of the biggest unicorns that have raised a lot of money at higher valuations in recent years. Yes, those are the ones that are looking to layoffs and looking to cut costs. But we just got a headline from the Journal in the last few minutes saying that Open AI, that's the parent company of ChatGPT, is in talks for a tender offer that would value it at a much higher valuation. So there is an opportunity for some startups, especially those in artificial intelligence, to continue hiring. And they have it pretty good right now. Typically, they've had to compete with the Googles and Metas to get these engineers, but now they're having an easier time. So I guess it raises the question to do some of the companies like Amazon, like Alphabet, like Meta, do they have to do more layoffs in the months ahead because they built too

much and hired too much over the pandemic? Yeah, I think that that seems to be a big part of it. Mike, when you think about it, like so much overcapacity and overhiring and just expansion during COVID when everything else went online, everything's a little distorted now coming out of it as we try to figure out how how strong this labor market and economy really is. For sure. And so in addition to the fact that tech in aggregate is not that huge a part of total employment, you do have the sense that it was the very largest tech companies that were most aggressive in increasing headcount. They find themselves having staffed up too much. That's not really the case for the typical company out there. Even before this little slowdown in the economy

that we've had so far, the average business was saying finding enough people was still the biggest problem. So that's why I think it can also stay, for now, localized, or if you want to be pessimistic, say that's why it's going to take a deeper slowdown in the economy to get the response from the labor market that policymakers want to see. Guys, we've got, thank you very much, Jared Rabosa. We've got some breaking news here on the House Speaker vote. Ilan Moy on Capitol Hill. Vote number nine, Ilan.

Yeah, that's right, Sarah. We are in the ninth inning, but the score is likely to be the same. Kevin McCarthy is on track to lose his ninth consecutive bid to become Speaker of the House. Now, this would match the number of rounds it took back in 1923 to elect a Speaker. That was the last time this vote went to multiple ballots. The record is 133 times over two months, all the way back in the 1850s. We'll see how long this round goes, because McCarthy still does not have a path forward to winning. So as of now, McCarthy slated to lose his ninth consecutive bid for Speaker of the House. Sarah.

Really quickly, Ilan, the reporting is that he's giving concessions, that they're trying to negotiate. Any idea of what these concessions are, which I think matter to investors as we figure out what the implications of all this are going to be? Sure. Many of them are procedural, including a move that would allow any single member to force a vote to oust him as Speaker down the road. Also, concessions related to what committees some of these hardliners would be able to sit on. So that could really be important, especially when we look at government funding bills. They are very adamant that another $1.7 trillion spending bill will not pass under

their watch. So those are some of the negotiations happening both on the floor and in the back rooms. But some members simply say it's not going to be Kevin McCarthy no matter what. Keep us posted, as I know you'll do. Elon, thank you. Elon Mui on Capitol Hill. Well, the FTX fallout just keeps growing. Shares of Silvergate Capital tanking today after the crypto bank said it saw $8.1 billion worth of withdrawals during the FTX crash. The company also says it's laying off around 40% of its staff. Look at the stock down almost 43%. Other crypto-related stocks like Coinbase, Robinhood and Block all

selling off to Coinbase was also downgraded today to market perform at Cowen on uncertainty over a rebound in retail trading volumes this year. And then just this afternoon, we got news that crypto lender Genesis is also laying off staff, 30 percent of its staff as it faces possible bankruptcy. Kate Rudy joins us. Kate, what does this all say about the broader crypto market? More turmoil. Absolutely, Sarah. So it's more collateral damage from FTX and just overall pain in this sector.

So Genesis, you mentioned the latest headlines, some of those layoffs, and that really stems from some of the risky lending that's gone on in crypto that has pretty much dried up for the most part. We also had some subpoenas served to crypto hedge fund founders earlier this morning, former crypto CEO sued by the New York attorney general. So a lot of negative headlines and head wins for this industry. And then for Silvergate specifically, Sarah, so this bank is highly, highly leveraged to other crypto companies and exchanges. So it really transformed from a local

community bank in San Diego to being the only option at one point for crypto exchanges. So 90 percent of that company's deposits are coming from crypto. The eight billion dollars it reported earlier when it came to withdrawals really speaks to the money and flood of money that's been leaving exchanges and some of the negative sentiment around this sector. So Silvergate can really be seen as a proxy for that. If people are moving their money off of exchanges, that's been leaving exchanges and some of the negative sentiment around this sector. So Silvergate can really be seen as a proxy for that. If people are moving their money off of exchanges, that's really where it's stemming from. The CEO did say they've got more cash than crypto deposits on their balance sheet, but certainly crushing the stock today, although they did say they're bullish long term. It's also a quite highly shorted name. So about 50 percent of the float is actually short interest. So the

average stock in the S&P is about 5 percent. You can see this chart here. The short interest is skyrocketing recently in the past month or so. So this data is from S3 partners telling us today that it was the second most shorted name out there. Right. So big payday today for those short sellers, I guess, anticipating something like this. Stocks down 90 percent over the last 12 months. Kate Rooney, Kate, thank you. Walgreens is the biggest loser right now in the Dow after reporting better than expected profit and sales. But while the company did beat on an adjusted level,

it did post a nearly $4 billion net loss because of higher costs, including minimum wage hikes. Bertha Coombs joins us. Bertha, what is Walgreens doing to get these costs under control? Well, they are trying. Part of that net loss was due to a six and a half billion dollar charge for opioid settlements, but more structural was the hundred million dollars in higher labor costs. Executives say it's paying off. They've been able to boost pharmacy staffing to return more stores to regular hours, and that resulted in a boost in prescription volumes and they think will help them gain back share.

Another investment they say is paying off using off-duty police officers for security now, which they say has helped to reduce shrinkage or theft to the point where they might actually start pulling back on some of those locked shelves that we see in places like New York and San Francisco, which will entice hopefully more shoppers. And in the health unit,

that's where the revenues were light. And they continue to spend a lot on acquisitions, including three and a half billion for last November's VillageMD Summit health deal. Management is optimistic about tailwinds there. But Sarah, this is really still a show me story in that health unit. And there's a lot of investment that they've got to do. I was just going to ask how Walgreens has been performing broadly since Roz Brewer came and took the reins, especially against a big competitor like CVS. They had been performing pretty well, but they've undergone this transformation where now they are really trying to go much more heavily into health, and that's where they've spent a lot in terms of big investment in VillageMD and then doubling down as VillageMD bought Summit Partners.

They think that's going to pay off with their primary care strategy and having that in stores. But it's really something that they've got to build right now with that merger. They've got to take out a lot in synergies and try to cut costs. Bertha, thank you. Bertha Coombs with Walgreens weighing on the Dow. UnitedHealthcare is actually the biggest drag right now on the Dow, along with Microsoft. We've got just about two minutes to go in the trading day. Mike, what are you seeing in the market internals? We've moved south all hour long. Yeah, they're kind of soft. I wouldn't say heavily skewed to the downside. It is a little bit of a noisy sloshing around the same range. I keep pointing out thirty eight

hundred on the S&P has been the floor thereabouts for four weeks, three to four weeks. You see slightly more declining versus advancing volume. The credit markets I mentioned earlier have continued to hold together and perform OK. If you look at the investment grade bond ETF LQD relative to comparable treasury ETF over six months, it's performing better, which means that the credit spreads have come in a little bit and massive issuance in investment grade corporate debt in the first three days of this year. That sort of refreshes the market. So it's maybe hitting spreads, but it shows you the capital markets are open. Companies willing to lock in these rates. The volatility index is perking up.

Obviously, we've got the jobs number tomorrow, so therefore it's going to put a little bit of a lift on that, but still knocking around this low 20s area that matches right up with the range-bound trade we've seen in the S&P 500 itself. It's really like the China enthusiasm and optimism is restricted to more limited sectors lately. You're seeing it in places like energy, with oil prices higher, energy stocks higher. Some of the Chinese internet names are higher as well. Las Vegas Sands is actually making a 52-week high, highest level since July 2021. As we go into the close here, take a look at the Dow, down 340. Again, low of the day was down 457 points, but the high of the day was down 78. So we're more toward the low end than the high end. Chevron,

Amgen, and Merck are outperforming. Merck is another 52-week high name right now into the close. If you look at the S&P 500, it is down more than 1%, and so is the Nasdaq. It's down almost 1.5%. Big, heavy losses again from Microsoft, Amazon, Apple, Nvidia, Alphabet, Tesla in the sell-off today as well, offending some of the strength in those Chinese internet names and the media names, which continue to have a good start to 2023. That's it for me here on Closing Bell.