Closing Bell - Stocks Slump, Oil Windfall Tax Threat & Fmr. Fed Vice Chair's Interest Rate Prediction 11/3/22

Episode Date: November 3, 2022

Stocks staging a steep sell off at the open after the Federal Reserve signaled an interest rate pivot is not on the horizon, but the market closed well off the lows of the session. Former Fed Vice Chair Richard Clarida weighs in on how high he thinks interest rates will rise and why he thinks the Fed won't pause until at least March. JPMorgan Asset Management's Meera Pandit on whether the market could sell off again tomorrow if the October jobs report comes in stronger than expected. Energy Secretary Jennifer Granholm on whether President Biden's threat to impose a windfall tax on oil companies has any chance of passing Congress. Under Armour Founder Kevin Plank & Interim CEO Colin Browne discuss the company's stronger than expected earnings and whether they see any signs of slowing consumer spending. And Zoetis CEO Kristin Peck discusses the animal health company's weak earnings and guidance and how veterinary labor challenges are impacting her company.

Major averages, mostly lower, but the Dow is in and out of positive territory as we speak, as investors try to make sense of the latest messaging from the Fed. 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 right now in the market. Dow's just gone positive again. Why? Boeing adding 68 points certainly helps.

Caterpillar, Honeywell, UNH, they're all adding to the Dow gains. But you've got weakness in Home Depot, Apple and Visa subtracting. S&P 500 down four tenths. Again, tale of various sectors. Energy is up right now more than 2 percent. Industrials, materials having a good day. But technology, communication services, consumer discretionary and the banks are under pressure today. The Nasdaq's down 1 percent. Check out Treasury yields really telling the story today. Higher across the board. This is post-fed. We saw this yesterday as well into the close.

The two-year yield touching its highest level since 2007. We've got a huge lineup of guests coming your way this hour, including former Federal Reserve Vice Chair Richard Clarida with us on takeaways from Powell and the Big Fed decision. Plus, we will talk to the interim CEO of Under Armour, along with chairman and founder Kevin Plank, about today's earnings report that is sending those shares sharply higher. We'll also talk to the Energy Secretary of the United States, Jennifer Granholm, about President Biden's battle with big oil. Let's get straight, though, to the market action with With CNBC Markets commentator Mike Santoli, what are you focused on?

Kind of a split market? It has been very split, Sarah. Some traction in some of the more cyclical areas like industrials. We got a softer ISM services number this morning. Seemed like the market got a bit after that. We're sort of hunting maybe for weaker economic news. But also, the market was not terribly overbought going into the Fed meeting. We did have that rally, but it wasn't as aggressive.

And while Treasury yields and the U.S. dollar index are higher, they're below the recent highs for the year, so maybe still in the range. That seems to be telling the story. We went back toward last week's lows in the S&P 500 around 3,700 and bounced from there. We'll see. It's tentative. Take a look, though, at this picture, somewhat longer term, of the NASDAQ 100 relative to the average stock in the S&P, the equal weighted S&P 500. That's a massive mountain of a relative strength chart. And where does this go back to? Right here, this line. That's February 3rd, 2020, the day the White House declared the pandemic. So we kind of unwound the whole thing. The digital resurgence during the pandemic, that clinging to those predictable growth companies

that were performing so well in the pandemic, and now we've unwound. It doesn't mean it's over. It doesn't mean we're back to some kind of magic equilibrium. It does suggest a lot of risk has come out of those big growth stocks relative to others. And as a matter of fact, today, it looks a little bit messy in terms of the downside in some of those big stocks.

So we'll see if that represents a little bit of a surrender in those names, Sarah. Hard to believe we're all the way back. Mike, thank you. Mike Santoli. Well, one reason is the Fed. And the message? The Fed still has a ways to go before a pause on interest rates. That comment from Fed Chair Jay Powell sent stocks into a spiral during yesterday's news conference. Tomorrow, we'll get the October jobs report, and next week, October inflation report, the CPI. Will those reports give the Fed more reason to stay hawkish? Joining us now is former Federal Reserve Vice Chair Richard Clarida. Welcome back. Good to see you.

RICHARD CLARIDA, FEDERAL RESERVE VICE CHAIR, WELCOME BACK. RICHARD CLARIDA, FEDERAL RESERVE VICE CHAIR, WELCOME BACK. Good to see you. Great to see you, Sarah. So you know this man, the Fed chair, very well. What did you make of his remarks yesterday? Well, you know, the press conference was a different situation than the opening statement from the FOMC that they vote on.

In fact, I was quite surprised at the opening FOMC statement in the sense that it teed up a pause based upon having done a lot, long and variable lags to monetary policy. Quite frankly, very dovish and more dovish than I expected, because I agree with the chair, they have a ways to go. The press conference set a completely different tone. I think some would say hawkish. I would say realistic, given what they need to do. So I thought it was a very good press conference for the chair to really clarify, at least

the way he sees where the economy is going and what the Fed needs to do. Do you think that was by design, that there was a contradictory message in the statement and then the news conference? What I would say is I came into the meeting, Sarah, expecting very little change to the statement. And I was not alone. You know, there are no dots at this meeting. But instead, we got a pretty substantial change in the statement. And then he spent a lot of time in the press conference, at least giving his own perspective on what it meant to him. So, yeah, a bit of a surprise. So we watch the Fed funds futures and we can see that, you know, they've been the market expects 50 in terms of basis point hikes in December, 25 after that.

But here's the outlook, you know, peaking up more than 5% in January 23. Do you think that's realistic? I don't. I do think that they eventually may get the funds rate up to 5%. I don't think it'll happen in January. I think what the chair wanted to do yesterday that he accomplished is he wants the ability to, you know, get off the train of 75 BIPA meeting to tee up the ability to do 50 in December, and they've done that. But importantly, he did not want the markets to misread that for an early pause. In fact, he really pushed back against that. So I do think eventually the funds rate's probably going to go somewhere around 5%. And then beyond that will depend on the inflation data.

So when do they pause? My best guess now, it will be data dependent to some extent, is probably at the March meeting. I think that they think they're going to pause earlier next year. That's what the SEP would indicate. When do they ease? When do they ease? Well, the other thing, Sarah, that he did is he made it very clear that they're going to have to keep policy at a restrictive level for some time. So obviously the way the economy

evolves may influence that. But I think they think they're going to keep rates at that level for some time, perhaps throughout much of next year. A lot of this jibes with where the market is pricing. Yeah. So do you think we're reaching a level of peak yields? I think so. I think that would be my baseline case right now. I think they think they've done enough, or at least by the spring they will have done enough, to put policy into a restrictive place. And with a combination of the financial tightening and financial conditions and the slowing economy, they think inflation will start to come down and that'll be enough. So I do think that would be my baseline. Unfortunately, if I'm wrong, then I'm wrong in the other direction. They're going to have to go higher. But I do think that it's a reasonable view that they could be done in the spring. What do you expect for jobs tomorrow? I think the job market is still showing amazing resilience given the slowdown in the economy. Jobs do tend to be a lagging indicator. I would expect something perhaps around 200,000 tomorrow, but I haven't really focused on it a lot recently do you think that the fed is that what the fed is targeting wages oh well no they're the fed's targeting inflation the fed

likes it when people get a big raise so long as it doesn't push up prices the problem now is that wage inflation is running about a couple percentage points faster than consistent with the with the inflation target so yes the labor market is going to have to adjust, and that may be through unemployment, participation, or vacancies. I guess what I'm wondering is how much the economy is going to suffer as a result of, we've got now four 75 basis point hikes in a row and a bunch more, even smaller hikes. It's a lot of tightening in a short period. What that's going to do to our economy in 23? Well, the aim is clearly to slow the economy, to reduce economic growth,

and I think it will succeed. The challenge will be, does it push the economy into a sustained recession? That could happen. It doesn't necessarily have to be a severe recession, but the idea that you can operate close to zero and avoid negative is probably going to be hard to accomplish. And the chair himself acknowledged that yesterday. severe recession, but the idea that you can operate close to zero and avoid negative is probably going to be hard to accomplish. And the chair himself acknowledged that yesterday. He said, you know, the window for a soft landing is closing, or at least it's not as open as it was.

Meantime, Fed Chair Powell has faced increasing political criticism from the Democrats, Sherrod Brown, Elizabeth Warren, Sanders. Following it, of course, because I know the Fed doesn't try to get influenced by politics, but clearly that's there. If the Fed becomes a scapegoat, if we do see higher levels of unemployment and a weaker economy, what does that look like? Well, and of course, in our history, we've seen that. Chairman Volcker dealt with that certainly in the early 1980s and back in the

60s the Fed chair did. It's just really part of the job, especially in an economy that's overheating where the Fed, as the saying goes, has to take away the punch bowl. I take Jay Powell's word at Jackson Hole. I think he and the committee will keep at it until the job is done. You know, political pushback is going to be part of it, I would expect, but I think they will keep at it. Why isn't there more to show for inflation coming down with all they've done? Sarah, you know, I am surprised. I thought in the spring that by now,

given the slowdown in the economy we've seen and given how much they've hiked, I thought we would see inflation start to fall. It's just turning out to be stickier and more persistent than a lot of folks thought. And's just turning out to be stickier and more persistent than a lot of folks thought. And that just means they have to do more hiking than we probably would have thought six months ago. And that was the message from the Fed chair yesterday. Richard Clarida, very good to have you here, Post-Fed. As always. Thank you, Sarah. Thank you so much, the former vice chair of the Fed.

Shares of animal health giant Zoetis are getting slammed today, falling to a 52-week low after the company missed earnings expectations and lowered guidance down 12%. Up next, the CEO, Kristen Peck, joins me here at Post 9 to talk about the factors weighing on the outlook. You're watching Closing Bell. The Dow is up one point. Big mover today. Look at shares of animal health company Zoetis plunging double digits on the back of an earnings miss and the guidance cut, citing supply constraints, vet workforce challenges, and of course, foreign exchange rates. Joining me here at Post 9

of the New York Stock Exchange is Zoetis CEO, Kristen Peck. Kristen, welcome back. It's good to see you. What happened here? Thanks for having me, Sarah. It's great to be back. I think really what you saw was the reaction to the guidance, taking our guidance down a little bit. But what's important to focus on was the why. And as you mentioned, the leading reason was really supply constraints, which we had in the quarter. And we'll go a little bit into Q4. But what we've talked to investors about today that's really important to pay attention to is those supply constraints in key growth categories, such as parasiticides and monoclonal antibodies, our key growth drivers, will resolve by the end of the fourth quarter. And, you know, by as we look into 2023, we think we're in a much better position. And we've got a strong portfolio. Even in the quarter, you saw companion animal growing 10 percent.

So it's not demand related. No, there's really strong fundamental demand for our products, both for companionship on the pet care side, which is two thirds of our business, as well as for protein. So we see those as durable, sustainable trends for the industry. And importantly, for Zoetis, where we have such great innovation to be leading and growing faster than the industry. Because a lot of people look at your stock, and we've talked about this before, it was a huge pandemic winner because everyone adopted pets, the companion animals, right? It's been a growth stock,

one of the best performing in the pharmaceutical world, and they're wondering if there's a give back at some point. You know, I think what's really different about the animal health industry than some of the stocks you're talking about is the fundamentals of the industry. For starters, those pets that everyone adopted, they're still there and they're taking great care. Millennials adopted those pets. They're spending more on those

pets. So the demand for our products has remained incredibly strong and that's a durable growth driver. And I think, as I said, as you add our innovation on top of that, we're growing significantly above the market. What about the workforce problems? How does that hurt you? How severe is that? So there are some veterinary workforce challenges as you look in the vet clinics, both in the U.S. and around the globe. And that's really, by the way, right now, those workforce challenges, there's still capacity ahead of where we were pre-COVID. But when you added all those more pets and you couldn't graduate vets that quickly, vets are having to change the way they operate, better leverage vet techs, the same way you see in the human side, better leveraging nurses and nurse practitioners.

So I think there's just, you know, a difference in how they need to work to be adding more capacity there. But the good news for Zoetis is a lot of our products are chronic products. So we're less leveraged to where the veterinary workforce is than many other companies. But it still affects you. It still affects us. But as we look at the guidance change, really 75% of that guidance change, as you mentioned, is around supply and certainly foreign exchange, which I know everyone's talking about. Right. And you are exposed pretty internationally. What are you seeing in terms of the demand trends globally right now? Because other big countries, Europe, China, not as strong as the U.S. has been. Sure. And as you

look at international, it actually grew 8% for us in the quarter. It's staying strong. Demand is really strong internationally. About half our business is outside of the United States. But those same companion animal trends that I'm talking about in the U.S. exist there, too. Great growth for us in important products, our pain monoclonal antibodies doing phenomenally well, our parasiticides, even China in the quarter, growing 35 percent. So Stephanie Link always likes your stock. So she'll tell me if I don't ask you for an update on the recovery of the livestock business, which has been

a concern of Wall Street for a while. Sure. I mean, I think there's been a bunch of dynamics in livestock over the last few years, some one time events such as African swine fever that you saw and then certainly COVID as everyone stopped dining out. But as you look at our livestock business, it's been more driven by the loss of exclusivity on key growth products such as Draxen, and that's really impacted us. But if you take Draxen out of our numbers, we actually saw growth in the quarter. So this is why we firmly believe as we sort of lap some of these Draxen issues with some of our large products that lost exclusivity, you're going to see livestock return to growth, maybe in the low single digits.

But we really believe that's the long term trend. We'll continue back to that. So you think the market has us wrong, down 12 percent? Absolutely. Don't understand that it's a temporary supply issue. Absolutely. Kristen, thank you very much. Good to see you. Thanks for having me. Kristen Peck, CEO of Zoetis. Let's show you where we are overall. The Dow is positive,

but just barely. Do have some winners in there like Boeing today. The industrials are having a good day. Energy is having a great day, up 2.4%. Materials are strong as well. The Nasdaq and tech is what is hurting. Nasdaq's down another 1%. For the week, it's down more than 6% heading into jobs Friday. Take a look at Under Armour, handily outperforming the market today after topping earnings estimates, even as it cut its full year forecast. Coming up, we'll talk to the interim CEO, Colin Brown, and founder and executive chairman, Kevin Plank, about the results and their read right now on the consumer. And then check out another earnings mover as we head to break.

Marriott, turning in a mixed quarter. Revenues were helped out by the boom in summer travel, but the stock is lower. Tomorrow, we will speak exclusively with Marriott's CEO right here on Closing Bell. Don't go anywhere. Check out today's stealth mover, Sunrun, a real bright spot for the market, up 20% today. The solar company reporting an unexpected profit and a revenue beat thanks to higher prices. And there are no clouds on the horizon. In an interview, the company's CEO says she still sees very strong demand despite increasing economic fears. Obviously, the market reacting quite well to that. Up next, Energy Secretary Jennifer Granholm on whether President Biden's windfall tax threat against big oil companies has any real chance of passing Congress. We'll be right back. There are the leaders. Some of the Chinese Internet stocks are up there, some of the semis like AMD and the travel names.

But that's actually where the pain is in the market right now in the Nasdaq 100 because it's lower by one and a half percent. Apple, Microsoft, Amazon, Alphabet, they are all lower right now. And that typically is what's been happening with these higher yields, which is a big story today. The two-year note yield hitting a new high. The dollar even stronger, all in reaction to the Fed ahead of jobs day tomorrow. There's the Nasdaq composite. It's down about a percent, so double the S&P 500's weakness. Under Armour is a big winner today after reporting stronger than expected second quarter profit. We'll talk to the company's interim CEO, along with its founder, Kevin Plank, to break down the results and discuss whether they see any cracks in consumer spending. And a reminder,

you can listen to Closing Bell on the go by following the Closing Bell podcast on your favorite podcast app. We'll be right back. Look at Under Armour getting a big pop today after reporting better than expected earnings for its latest quarter. The athletic apparel company also announcing it'll be lowering its outlook for the full year because of a challenging retail environment. Joining me now, Kevin Plank, founder and executive chairman of Under Armour, and Colin Brown, who is the interim CEO. Gentlemen, it's great to see both of you. Hi, Sarah. Thank you for joining me.

Great to see you. So, Colin, let me start on the quarter. So the quarter was a beat. Outlook lowered on sales and earnings. What are you seeing right now from the consumer? Well, it's a little bumpy out there, certainly from an Under Armour perspective. We're still seeing $6 billion worth of demand. So, you know, we're feeling pretty upbeat and confident about our ability to navigate through this. We've obviously been managing our inventory incredibly closely, and that seems to have put us in a pretty good place. So, you know, we're heading into a difficult, challenging time, but we're feeling pretty comfortable from the point of view of how we're showing up. What about in the U.S. in particular,

Colin, so far this quarter? Is the consumer holding up? Are you seeing increasing amount of promos? Can you give us a little flavor of the recent weeks? Well, I think across the industry, we're seeing an increase in promos. We're seeing kind of this tsunami of inventory that's kind of starting to land, and many of our competitors have called it out. And by default, that means that we expect the holiday season to be a little bit more promotional, which is actually one of the reasons why last quarter we actually called down our gross margin numbers, just because we could see it was going to be a little bit more difficult out there. But it's bumpy, but we feel as if we're in a good place to navigate this difficult environment. But importantly, didn't take down the margin numbers for guidance. And I think that's another reason the market likes the news today.

Kevin, where is Under Armour in this journey of transformation? There's been a recovery on the profit side and getting inventories and margins in line. What about growth? You know, for an organization 17 years public now, we've seen just about every chapter or machination that a company goes through. And right now we're in one where we're coming out of the engine room, really, where we've been in restructuring and retooling the organization. And now there's just no more to do. It's just about a matter of our execution and growing. And so that's why our emphasis and Colin really has been championing this last six months in this chair, this pivot to growth that we've had.

And it's something that we're super excited about. We've got an incredible pipeline of innovation right now that's playing out in the marketplace. And we've also got more to come. And so I think what we're really trying to do is set the metaphor of what should the market expect from Unarmored? What should the consumer, what should that young athlete that, you know, Colin, the team have redefined ourselves, who we're attacking, you know, at this point in our company's history. So who is that, Colin? Especially right now, because Adidas has been losing share and is struggling. Nike's dealing with all sorts of inventory issues and having to mark down back-season products. So where does Under Armour fit in, and who are you catering to right now?

Well, we're focusing on the 16- to 20-year-old teen sport athlete, that varsity athlete that was kind of front and center of what made under armour great and what will continue to drive under armour to its next kind of iteration of growth you know we started off as a team sports business a team sport business here in north america and it's something that really resonates and now certainly as we as we talk to consumers as we kind of reach out across the landscape it's clearly a place where we can kind of lean into and when you look at that when you look at that kind of demographic, they have a far greater halo effect across the industry and will allow us to really kind of impact

the broader kind of part of the market. So we're incredibly excited about the opportunity to really start to, again, to re-engage with that athlete. So Kevin, I know you're focused on the innovation piece and the new sneakers, which you've been demoing on Instagram, the slip speeds. Talk to us about why why this is different and how you play in a in a sneaker market that I don't have to tell you has been dominated by Nike. But we are seeing, you know, other others make inroads like on and some of the other running running sneakers yeah sure i mean we're not shy look we've we've been innovators our entire career and as you can see you know we've

done that once again we launched a new product uh this past monday on halloween called under armor slip speed and slip speed is basically this is something built off of an athlete insight that we saw young kids crushing the back of their heels when they would wear shoes and they weren't they didn't want to tie them uh and so the ability for them to get uh into this product which again it hits the innovation button it hits the authenticity the way that we have the entire go-to-market setup uh using some of our nil athletes from some of our schools uh and then also we also use the uh the artist logic actually made the music so the sound of slip speed was done by logic which kyle and I actually got to spend time in a recording studio in New York with Logic to get him to take a new hit single off of his album that has yet to drop. And so getting that kind of buy-in for something is hopefully what you'll see.

But we're already sold out on our.com, still available in our stores and at dix.com right now as well. So does Adidas' pain, Colin, help you right now when you're trying to launch this? Listen, we're concentrated on doing what we do best. We're concentrated on bringing Under Armour to athletes and working through how we can continue to help them kind of build out their journey to compete. Now, I think it's important to kind of realize that we,

but the past few years, we've been focused on what we call the consumer journey, which has been train, compete, recover, which has been kind of the three parts of the consumer journey we've been leaning into. When you think about that, that really only constitutes probably 30% of an athlete's day. But one of the things as part of this pivot we've been going through is adding live. And live is kind of how do we meet that athlete in the balance of that day, that other 70%. And kind of understanding how we lean into that in the balance of that day, that other 70%. And kind of understanding how we lean into that to us is where we're spending our time

and where we're focusing. Because it's clearly a huge opportunity and clearly a big demand for Under Armour to play in that space. So we're not really looking at what our competitors are doing. That's not what's going to define Under Armour. Under Armour will be defined by its own

personal relationship with the consumer. And what about your relationship, Kevin, with the company right now? Obviously, executive chairman. For those wondering, I know that you've got a CEO search going on. You said end of year. I know Colin is there as the interim CEO and a candidate. But what is your involvement like right now in running this company? Yeah, I mean, we've been running this

process for the last six months. We said we'd have an announcement of our permanent leadership by the end of the year. And I'll tell you, it's been a pleasure working with Colin. And I really, you know, seeing the results this morning was something just a real credit to the team. And I think the openness of the leadership that we have here at Under Armour. So, number one, Colin is the CEO. He's the interim right now, a serious candidate to, of course, be a part of that process of getting the job. But more importantly, we are moving forward. And that's one thing that we have done by identifying our consumers, 16 to 20-year-old young athletes, opening up and adding to train, compete, recover, this aspect of live. So we're certainly not standing still. And my job as executive chairman, brand chief, means that I get to have a little lean in as well

and just make sure it's executive chairman with an asterisk, not CEO with an asterisk, to be clear. And I would just say, we're having a blast. We're enjoying ourselves. And the passion, the energy, the excitement that Kevin brings to the industry, to the company is incredibly important. But it's clear there's only one hand on the driving wheel,

and that's the CEO. But using and tapping into Kevin's kind of passion is part of what this product is about. Now we're talking about product. Yes, we know you have it. We know you have it. We showed it already on the screen. Kevin, thank you very much.

Colin Brown, appreciate it very much. Thank you very much, Sarah. Thank you. Let's switch gears and talk energy. Oil prices are falling today, but check out shares of ConocoPhillips hitting an all-time high in the session after strong quarterly numbers. And the energy sector on the whole, top performer today, this month, as President Biden earlier this week raised the prospect of a windfall tax on the oil industry, saying in a speech that oil companies are, quote, war profiteering and urging them to increase production and refining capacity. Joining us now is Energy Secretary Jennifer Granholm. Secretary Granholm, welcome back. It's good to have you. Thank you. Thanks for having me on.

So how serious is this proposal of a windfall tax on energy profits? Well, the president has seriously asked for the oil and gas industry to either return profits to consumers or put those profits to work in increasing production. They are, as you have noted, I mean, story after story about companies making huge historic profits. And so we're in a war, and this is an extraordinary time. And the industry has said to the president, we want to be able to do this ourselves. We want market solutions. And so the president is simply saying that before we go to Congress, we're asking you as citizens of this country, as companies doing business here, who have customers here, whose names are all over gas stations here, to consider your consumer at a moment when you have seen an historic gap between wholesale and retail, between the gasoline and refinery.

And we want to be able to relieve people's pain at the pump. I guess what I'm wondering, though, is the windfall tax the way to do that? Haven't we seen evidence in Europe and in this country back in the 80s that actually discourages companies from investing in production and just makes the shortages worse and the prices higher well number one again the president's preference is that the companies take this on without having have Congress intervene but number two it is true that our European colleagues many of whom have at least part of the g7 have adopted windfall profits tax. In the earlier in this country's history, in the past couple of decades, it was tried here was an excise tax.

A windfall profits tax obviously would be crafted to encourage production. And if it were to happen. But obviously, the president would work with Congress on what the shape of that is. But the point is, we need at this moment, when there is historic profits being made, to be able to provide some relief to those who are at the pump and or increase more in production, which we have not seen to the extent that certainly those profits would belie. Well, a lot of them would say that the Biden administration hasn't exactly been helpful when it comes to permits and leases. I don't know if you saw a

secretary. It's baloney. I mean, in the first 20 months, you hear it from them, but look at the facts. There was an analysis that was just out yesterday. In the first 20 months of this administration, between the day he was sworn in and the end of September, this administration has issued 74% more well permits than the previous administration. This administration has been issuing permits. They just announced 307 permits in the Gulf of Mexico. The president signed in the Inflation Reduction Act

more permits. That is not the issue. 90% of production, as you know, happens on private land anyway. But this president has not been restricting access to production. It has been the industry that has decided to listen to Wall Street rather than to Main Street. And what this president is saying is at this time of war, at this time when you are making enormous profits, please, can you increase production

and or reduce the price at the pump for people so that you are listening to your customers? Have you brought the energy companies to the White House to engage them? And I'm wondering because there's this increasingly hostile tone between the president and the companies. I don't know if you heard the, there was an energy transfer. One of the pipeline companies had their earnings call earlier this week. And the CEO at the end of the call just went off, frankly, on the administration's policy.

Here's a snippet from that call. He said, the last few days we've come out and they've attacked our oil and gas producers and say they're going to be penalized for not producing more. I mean, my goodness, doesn't it seem like a sitcom or a Saturday Night Live skit? It'd be funny if it wasn't so tragically sad. The tone is really bad. Yeah, the tone is bad. So come on, listen to the people who are paying these prices at the pump. That's what the president's whole administration has been trying to be about lowering prices for people. We know that energy prices have fueled inflation. You've seen it across the world, of course. The issue here is that the president is asking the oil and gas companies to bring down these prices. You're still making huge amounts of profit.

We're okay with profit. We're capitalists. But do you have to do it at such an excess where you're not reinvesting in production? I mean, some of them are. Let me just say, some are reinvesting in production to a certain extent. Some are reinvesting in refineries to a certain extent. But it is not even close to what they could be doing. And certainly, it is not close to what demand would require. And so please, can we have supply and demand even out instead of having the president having to go to these extreme measures like releasing

a million barrels per day from the Strategic Petroleum Reserve just to try to level out supply and demand. So that was my next question, Secretary Granholm, whether we should be concerned or alarmed by the fact that it's supposed to be an emergency reserve, God forbid, for any geopolitical crises, that the emergency reserve has shrunk to levels that we haven't seen since the mid-'80s? Well, there's 400 million barrels per day in the Strategic Petroleum Reserve. It is the largest reserve in the world. It was when we started.

It still is. We have just announced a plan to replenish that reserve. The oil and gas industry has been asking for certainty and we listened. We said we will buy back at a price fixed around $70 per barrel so that you would have certainty on increasing production. $70 per barrel still allows for plenty of profit. So that is something the Biden administration wants to do is to replenish the reserve, replenish it in a way that sends a signal to the industry that they will be investing in capital and have that investment repaid. And so that is another step that the

president is making. So we're going to replenish the reserve. We have lots left. But the point I'm making is that if there had been production that met demand, then we wouldn't have to be releasing from this because of this war. Yeah, I think they just feel like it's a hostile relationship now. We talk to them all the time. They're not getting the message to increase production. We've been talking with them all the time. We've been asking for them to increase their stock holdings because they are in some areas of the country at almost 60% below the

five-year average. That hasn't happened yet. We're just asking that they put themselves in the shoes of people who are worried that we're not going to have enough home heating oil in the Northeast, for example, during the winter, the distillates, and we have enough supply of that, that people can afford the product that they are producing. And we're just asking for common sense, really, at a time when they are making historic profits. Well, that we see, no doubt. Energy, again, up 2.4 percent today, leading this market. Jennifer Granholm, thank you very much for the time. U.S. Energy Secretary. Look at Qualcomm. It is getting crushed on a warning that it is having a big impact right now on Apple.

Those shares down almost 4 percent. We'll tell you the details when we zone. CNBC Senior Markets Commentator Mike Santoli here to break down these crucial moments of the trading day. Plus, Christina Partinello is on Qualcomm and J.P. Morgan Asset Management's Mira Pandit joining me on the market. We'll kick it off broad, Mike. The Dow is down 77. So we've lost the air. It looked like we were going to go positive for most on the market. We'll kick it off broad Mike the Dow's down seventy seven so we've lost the air I look like we were gonna go positive for most of the hour. As it is down eight ten so we are actually trending south as we

speak Nasdaq's getting hit the hardest it's down. One point four percent energy still hanging in there I don't know if you heard the. Energy secretary's. Comments it seems like they're seriously considering this profit wind

fall taxes that something to factor in. These these stocks just go higher and higher. It's probably a little bit too early to factor it in many steps along the way including you know through Congress. So at this point it feels as if any investor that's looking for where you have. Visible earnings growth. Where you're playing some of the bigger themes you're going to find your way into energy. At some point, we can make the argument that it looks like a little consensus-y. It looks a little crowded. The XLE is at the highs.

The commodity is not really cooperated by going much higher. But for now, both technically and fundamentally, I think the support is there. Let's look at the chips. Qualcomm, one of the biggest losers in the S&P 500 right now. The chipmaker beating, actually matching Wall Street's earnings estimates, but shares are falling on a weak first quarter revenue forecast, citing economic uncertainty that could lead to a double digit percentage decline in smartphone sales. That is weighing heavily on shares of Apple as well. Christina Partsenevelos joins us. Christina,

why the stock reaction so negative? Yeah, it's because management just underestimated how bad and how weak the smartphone market was going to be. You have three major reasons. You have weak demand, especially coming from China. You have elevated inventories that increase because we've had these supply chain problems that have eased. And then lastly, the covid restrictions still happening in China. And the connection specifically with Apple is that Qualcomm provides the chips in Apple iPhones. And if Qualcomm's warning that handset sales are going to continue to be weak, if they're warning that the next quarter is going to be even worse, that has a trickle effect on Apple.

And then there was another company just last night, too, Corvo. They make radio frequency chips for smartphones. They, too, suggested that the December quarter was going to be a bottom for handset. So you have these warnings coming out from various companies, and that is contributing to the negative sell-off in a period, Sarah, that is normally supposed to be great for smartphone sales as companies stock up on inventory ahead of the holidays. But that's not what we're seeing. Absolutely. Christina, thank you. Mike, the Apple weakness is notable, obviously, because it's such a big stock. But they had that great quarter and it's kind of been a bumpy ride since. Yeah. And obviously it doesn't help to have everybody sort of pointing lower with their handset estimates.

I do think, though, it's really about Apple giving back so much of the outperformance relative to every other stock that looks vaguely like it over the last several months. So it's much more to me about, you know, all these mega cap growth stocks have been pretty heavily for sale. Apple's bucked the trend for a while, and they're coming back to the pack to some degree. Mike, thank you. We'll let you get ready for overtime now, which you're hosting again at the top of the hour. We will see you then, our Mike Santoli. Let's hit Boeing in the meantime. Best performer in the Dow a day after announcing plans to increase production and deliveries, along with a strong free cash flow forecast. Our Phil LeBeau joins us.

Phil, the guidance paints a pretty optimistic picture. What are the challenges here that Boeing will face hitting these targets? Because it's still also, let's talk about a bumpy ride, has been one for Boeing stock. Yeah, and it's not going to get smooth immediately. It's going to take some time, Sarah. But the biggest challenge facing Boeing as it looks to ramp up production, particularly with the 737 MAX, it's the supply chain. They simply are not getting enough engines at this point. And the engine deliveries are held up by things like casting supplies. So it's going to take some time to get the supply chain strong enough so that they can go from building 31 a month when it comes to

the 737 MAX, which is where they're at right now, maybe just a little bit below that, all the way up to 50 per month, which is the goal in 2025. Most believe they're going to get there, but we've talked about this for some time, Sarah. You just can't turn off the supply chain the way it was in the last couple of years and then turn it back on, especially with very specific parts that are needed for aircraft. What about the demand picture here, Phil? A lot's been the focus on supply. What about demand? What are we getting from Boeing and some of the others?

Oh, the demand is there. There's no doubt the demand is there. There's no doubt the demand is there. You see the airlines placing large orders. If you take a look at the orders that Boeing has booked this year versus last year and the year before, and the same thing with Airbus, there is no doubt that the airlines are ramping up, especially with international travel. So the demand is there. Now it's a question of increasing production so that you can meet that demand. Got it. Phil LeBeau. Phil, thank you. Boeing's up six and a half percent, adding the most to the Dow right now, which has turned lower this just in the last few moments. Let's get more market reaction as we look ahead to a key jobs report out tomorrow.

Joining me now is Mira Pandit, global market strategist at JPMorgan Asset Management. Mira, is this one of those weird things where the market only rallies if it's a weak number and lower wages? What we're hearing from the Fed and what we heard from the Fed yesterday is that they have a long way to go. They are not ready to pause yet. And that's going to be very contingent, this path forward on rates based on the data that we continue to get. You know, we have two jobs reports, two inflation reports before we get to that December meeting. So when we're trying to think about where does the Fed go next? Does the Fed get to 5 percent on the terminal rate? Do they go beyond that? All of that is going to be very contingent upon the incoming data. And we get that first big data point tomorrow. So what do you do with stocks

in the meantime? In the meantime, we're a little bit cautious on stocks. We're still relatively underweight, particularly as opportunities in the fixed income market look more and more attractive. We have been here before when we think about some of these short bear market rallies that we've seen throughout the year as the market gets excited about maybe softer inflation, maybe a softer Fed. And then we see the Fed throw cold water on that time and time again. We don't know where that ceiling on the federal funds rate is until we get there. We're probably going to continue to see some market volatility here. So we have to be a little bit more patient.

But with rates at 4 percent, you know, even if we get to 5 percent, a little bit beyond that, we're 80 percent of the way there. So I don't think we're far from potential positive catalysts from the markets, but we're certainly percent of the way there. So I don't think we're far from potential positive catalysts from the markets, but we're certainly not there yet. So you said you see opportunities in fixed income. You think yields are near their highs? We might not be at the top of yields. And consistently this year, the entire market has been wrong about where the top in yields are. But I do think there's significant scope over the course of the next year for yields to come down. I mean, if we do end up seeing an economic recession at some point in 2023, which is fairly likely, the Fed acknowledged that narrow

path for a soft landing, then that could mean that yields fall. So I'd say in the immediate term, we think more about shorter duration because yields might rise in the next couple of weeks and months and we can still get really good income there. But if we think a little bit longer term, the next couple of months out and into deeper in 2023, we're thinking a little bit more about core bonds because those will be the areas of the portfolio that could protect if we do see an economic recession. Right. And the yield, you get paid higher yields. So the market has had an interesting split this week in the value versus growth, cyclical versus tech.

If you look at what's worked so far this week, and today in particular, energy, industrials, healthcare materials doing better, even financials haven't been as bad as, say, the tech stocks, communication services, consumer discretionary. Is that the right strategy, as long as we continue to focus on the Fed moving higher with rates and Powell talking tough on inflation? We'd still be relatively balanced between value and growth. I mean, I think that

one of the very important points of the environment that we're in is it's moving and changing so fast. I mean, it has moved and changed so fast over the course of the year. Right now, we're finding more opportunities in value over growth simply because of that rising rate environment. But eventually, we will get to a point where the Fed does pause. And in that environment, that could lift one of the big headwinds that we're seeing for growth. We're also seeing that not only are valuations resetting in growth, but we're also seeing that in big tech in particular, going through a really challenging earnings season where a lot of that is resetting. So if we think about opportunities in growth going forward, once we get to a slightly more favorable economic environment, slightly more favorable rate environment going forward, there could be opportunities there.

So we don't want to write it off. We don't want to abandon growth entirely, particularly if we head towards an economic recession when growth can do well. So we want to be a little bit balanced right now that value is probably going to continue to outperform growth. But that could change in the coming months. So we want to be prepared and we don't want to be caught off sides. Mira Pandit, thank you for joining me to talk strategy. Really appreciate it. Good to see you. As we head into the close here, energy is the top performing sector in the market. And as I mentioned, ConocoPhillips is the new high today off earnings, hitting an all-time high.

The other all-time high is Humana, actually, in the health care space. McKesson, WW Granger, Everest also trading at all-time highs. If you look at the overall market right now, the Dow is down 154 points. So we started the hour flat. We've lost a lot of steam. Boeing's helping out the market. But in terms of the weight on the Dow, it's Home Depot, Visa, Apple, and Microsoft. If you look at the S&P 500, industrials stay strong. Utilities are up as well. So are materials and real estate. Everything else is lower. The hardest hit part of the market, and this is going to sound familiar, communication services, consumer discretionary, and technology.

That's where you're seeing the pain today. And technology in particular, that's why the NASDAQ is down 1.6%, a little below average volumes. And the decliners, gainers split is a little more evenly mixed. It's why the small caps are outperforming today, only down half a percent, because they tend to have a lot of the energy and banks and materials in them, which is doing better today. There goes the bell. S&P down a full percent. We are going into a jobs Friday, down almost 5% on the week. For the Nasdaq, down almost 7%. That's it for me. I'm closing bell.

Now I'll send it in to Mike Santoli's overtime. We'll be right back.