Power Lunch - A sell-off on Wall Street 12/15/22

Episode Date: December 15, 2022

The selling intensifies this afternoon as recession fears grip Wall Street. This hour, what’s driving the decline, what the disappointing retail sales number says about the strength of the consumer and places to hide if a recession is inevitable. Hosted by Simplecast, an AdsWizz company. See https://pcm.adswizz.com for information about our collection and use of personal data for advertising.

Now down 900 points. The selloff on Wall Street just intensifying. This is Power Lunch. I'm Frank Collin in for Tyler Matheson. The Dowdown, as we mentioned, the NASAC and the S&P down as well. As investors grow concerned, the Fed's relentless rate hiking campaign is tipping our economy into recession. This hour, I'll look at the health of the consumer. Recession protection plays and what a slowdown means for tech, oil and the travel trade. But first, to Kelly and a check on this selloff. Kelly? Frank, thank you. Welcome. And hi, everybody. Tech is getting hit the hardest on those recessions. fears. We have the S&P down about 2.7% today, but 3.4 nearly for that NASDAQ. And the selling picked up steam after a bad retail sales report this morning, showing the worst drop in 11 months.

We had some other poor data as well, some tightening out of the European Central Bank. Add it up, here's your landscape right now. Apple's one of the worst performing Dow stocks, matter of fact. Netflix down big on some advertising concerns down almost 9% today. We'll have more on that later. Alphabet and Microsoft, look at Google shares, down 5%. Now over in the bond market, yields are also falling on those concerns over growth. The 10-year back below 3.5%. Remember, 361 or so were the highs we saw after that CPI report, but it's been a big about-face. In fact, let's get more with Bob Bassani at the New York Stock Exchange. Bob? Well, the problem today, Kelly, is that the soft landing crowd is having a very tough time.

So remember the narrative here. The stock market's lifted off of its October low under the belief that, While we may see an economic recession or slow down next year, it's going to be a mild one. The Fed will raise rates. They'll finish in early 2023, and then maybe they'll start considering lower rates in 2020, the end or early 2024. And the market and the economy will hold up. Earnings will not have a precipitous decline. That question mark now exists, or there's a big question now, because the earnings situation may be a little bit more precarious than people think. We're still going to have rates higher for longer. We know that, but the soft landing case is much harder to make.

We had some lousy economic data today on retail sales, industrial production numbers. And so now the soft landing crowd is a bit on the defensive. Maybe we'll have a harder landing. If we get a harder landing in the economy, earnings have been coming down modestly, but not much. And it's certainly not accounting for any kind of hard landing. Maybe 4 or 5 percent decline in earnings. That's not a big number here. So we have what we call a valuation problem right now, guys.

And the important thing now is, what side of this recession debate are you on? If you're on the harder landing side, and today because of the economic news, that's got a little more currency than the numbers have got to come down. The market's got to come down. The valuations are too high, and earnings estimates have got to come down even more. You know, Bob, you said the word currency. I want to ask you about the weaker dollar. The dollar's definitely been, it's slowed down.

It's tremendous hike over the year, only up 9% for the year, but actually down about 6.5% for Q4. How does that shape what we're looking at for the rest of this year and into Q1? Well, you saw what happened today. the dollar dropped because the ECB had some comments out raising their inflation forecast. So generally, that's good news, dollar down and rates down, particularly on the Treasury rates moving to the downside, the problem is very, very simple right now. The stock market is pricing in somewhat of a very, very mild slowdown in the economy.

And the evidence is starting to mount that that may not be correct. So again, you just keep going bouncing back and forth between what side of the equation you are. Tell me where you believe the economy is going to be a year from now, and I can give you a pretty good idea where earnings are going to be. Right now, most of Wall Street has earnings down, flat to down about 5%. That's a very modest earnings recession. But in a notable recession, earnings can drop 20% very easily. The market is not anywhere near anticipating that, and the kind of economic news we got today indicates maybe we're on the harder than the softer side. Yeah, certainly something to watch, Bob.

Right now we're looking at the 10-year rates at 3.4. for Bopassani at the New York Stock Exchange. Thank you. All right, turn our attention to retail. The S&P Retail ETF down more than 3% on today's disappointing retail sales report. It is off 31% so far this year. The declines in the report were really broad across most categories, including furniture, autos, and electronics suggesting that inflation is taking a toll on the U.S. consumer. Here to discuss what this says about the consumer and the health of the retail industry is Jerry Storch, CEO of Storch Advisors and former Toys R Us U.S. Chairman and and CEO. Jerry, always great to see you. My pleasure. So I know you're really about, you know,

apparel and toys and merchandise and stores, but I really want to touch on one thing. We've been talking about the health of the U.S. consumer, but when we look at the auto report, down more than 2%, isn't that the one area that we supposedly had a lot of pent-up demand? What does it mean that we see auto sales decline by 2%? Look, cars are expensive and they're often financed, so it requires, you know, intertrades have a huge impact on big-ticket items. So absolutely no doubt that it's the consumer across the board. And when I look at this report, there are just two numbers you really need to know. One is grocery is up 8.6% or an year-year basis. And the second is department store is down 3%. So the sort of the need to eat versus look good spread is over 11 to 12% difference in consumer trends.

That's just massive where consumers are being forced to spend their money on necessities and don't have much left over. Yeah, you mentioned the increased price of food that we saw on the CPI report. Also, shelter costs went up 7% according that CPI report. So what's going on? I remember back on Black Friday. I was out in the field. It looked like it looked like sales were going to be strong, right? It looked like it was going to be a really strong holiday season.

What's changed since then? Has the consumer lost spending power or just confidence in their ability to spend right now with what we did an uncertain 20, 23 ahead? Hey, I hate to tell you this, Frank. I was on your show on Cyber Monday, the Monday after Black Friday. I told you then that that was just a load of hooey, a hype. Black Friday was not good, not good. It wasn't good at all.

And so Adobe put out this report that said it's record sales on Black Friday, meaning online sales showed a 2% increase year over year, which is tragically bad, 2% increase in online sales. That's horribly off trend. And so as I said a couple of weeks ago, it wasn't a good Black Friday. It wasn't a good Black Friday online. It wasn't a good Friday in the store. And it's certainly not a good Black Friday or a good holiday season.

Friday who sells goods that are not necessities. Jerry, we also saw November charge-off data showing a little bit of an uptick in delinquencies last month across some of the major card companies. So it's obvious there was a break in the trend, if you want to call it that. What's peculiar to me is we've all a sudden had several months now where real wage gains have been above inflation. So I don't know if that's going to bail us out here with a little bit of a lag or not. I mean, what's your make of that? Well, I think the consumer is getting more and more leverage, so they can't keep spending at the rate they were spending at before. I mean, we can look backwards.

and we can see that we've lost some of the government stimulus that was helping the consumer along. We know that credit card spending is starting to increase again, consumer leverage is starting to grow. So there's absolutely no doubt that we're seeing signs of a stretch consumer. I love the American consumer. She will spend until she runs out of money. And what we're seeing here are so many signs that she's starting to run out of money. Basically, she's spending money on food. Gas was the other big number in this. still up big year every year. They're money people are having to spend on gas.

And then people are doing one thing. They're going out to eat. So you see nice increases in restaurant sales, which is that whole reopening phenomenon. People are also spending on services that's not in these reports. So these reports have no information about airlines or hotels or other travel or services. But keep in mind, a lot of that is price inflation for the same airline flight. Real quick, Jerry, is it possible that this was just pulled into October? It's an Amazon effect?

There's no doubt some it was pulled in October. I think the retailers were racing to be the first one out under the theory that they didn't have to be faster than each other, just faster than the bear, just faster than the slowest retailer. So they pulled a lot of sales in October, but it doesn't mean that it's coming back. In other words, they spent them in October, November is down.

I don't hear from anybody out there that sales are like great guns right now. It's only 10 days left to Christmas. There's almost not enough time to make it up, and the retailers are promoting wildly. I mean, there's incredible promotion out there, which means what we aren't even talking about now is what impact will this have on retailer margins. So sales might not just be soft, but their margin rates may get hit. Plus, we could have another, I hate to say this, but inventory hangover as we get to next spring.

Well, Jerry Storch, we got to leave it there. You're not your usual sunny self this time around. A lot of doom and gloom about the retail picture, but Jerry Storch, we always appreciate the insight. Thanks for being here. Thank you. And if he's right, let's look at some ways to protect your portfolio as recession risks grow. Mike Bailey is here. He's Director of Research with FBB Capital Partners.

First of all, Mike, do you share some of this pessimism about the consumer? A little bit. I think the key issue is it depends. So, you know, the last guest was talking about a lot of pressure in the retail space, maybe pull forward to October, November wasn't looking that good. I really think it depends what kind of retail sector you're looking at. So we generally prefer scale. We like barriers to entry.

We like companies that are gaining share. You can find that out there in the market. Companies like Lowe, for example. You're making a housing bet with something like that, but there really is a lot of scale. They've just come out. They've given guidance for next year to big analyst meetings. They're really baking in a lot of some potential pressure next year. So I think there are ways to play retail without kind of getting burned among some of the smaller cows.

And we should be clear. And Jerry himself was very clear to say, look, I'm talking about kind of stuff you buy, maybe at a mall. But we're not talking about services. Are people simply going back to spending, as we've seen on those Taylor Swift concerts, maybe even some airfare, some vacations again? Is this just a mixed shift? We're seeing a little bit of that. It's been sort of this big cycle between the stay at home period during COVID buying stuff. Now people are doing revenge travel, et cetera. So there's a little bit of a shift there. But I really think it depends, you know, what angle are you looking at? So some people would say,

well, you know, I want services. I want to have a good experience. For example, I would have a good home situation. So I'm going to go go to home improvement. Others might say, well, you know, I'm going to go and have some discretionary retail, et cetera. The other angle might be, despite some of that shift towards services, we are probably headed into a recession. And so generally, people like to find bulk, scale up, et cetera. There are ways to own that theme as well, even if goods in general are under pressure, something like a Costco, that may benefit as people look to buy bulk, even as that kind of mix

from goods and services starts to shift. Hey, Mike, guys, it's Frank Colin here. I want to switch away from retail just for a second. We'll get to one of the other picks, Ticker MMC, Marsha McClennon. This is a conglomerate with insurance, investment business, $80 billion market cap, not a stock we talk about very often, probably best known to our audience as the parent company of Mercer, an asset manager, with about $350 billion in assets under management. In this current environment, what makes a company like this so attractive to you? So really, this is a bit of a macro call. I think as you're heading into possibly a recession, you do want to have a pretty solid company in your corner.

Marsh Mac, really the big brokers, even Aon, they're in pretty good shape. A lot of times when there's fear in the market, that's generally helpful for insurance demand. People are really concerned. They want to stock up on insurance. A good way to own that theme is through the brokers. So it's a Marsh Mac and even A have done pretty well. Looking into next year, if there is some type of slowdown, you are likely to see that again. Typically, these companies do pretty well through a recession.

There is a little bit of a bottoms up theme with reinsurance. So Marsh Mac is likely to have a big benefit there. And then among the brokers, Marsh Mac tends to service more of the mega-cap type of companies. So if there's any pressure among small companies out there, I think Marsh Mac is better position. So good company, a pretty good part of the cycle. And I think something you want to own, at least for the defensive part of the portfolio. Mike, before you go, do you want to just comment on where earnings are headed? Because like Bob Bassani said last hour, you know, the market still looks overvalued if it's 19 times

where kind of the top-down strategists are seeing things. Where do you see them and what does that mean for stock prices right now? Absolutely. So I would see some additional pressure on earnings. I mean, we can kind of start at a high level. We've got, you know, Jay Powell really squeezing the economy. I think investors today are worried they're seeing basically the ghost of Christmas future. You know, today retail sales are under pressure.

What does that mean for the next six to nine months? So as that filters down into earnings, we do see a bit more pressure. So typically in a recession, you're going to see profits come down 10, 15, maybe 20 percent. we're still in the early innings of that. So I think that's going to add to some investor volatility. As we get into the spring, I do think earnings are going to trickle down. You may get a tipping point where earnings are down, let's say, 10%. Investors say, okay, we're going to look over the hill. Earnings may go down a little bit more, but we're likely to start buying.

So that could be a bit more of a tactical buying opportunity looking into the spring. All right. Mike, thanks for joining us today. Tough market and Mike Bailey with FBB. Yeah, we're not getting a lot of optimism today. A lot of people kind of telling this is going to be rough sled in the head. Don't expect it. Yeah, with Dowdown 9-03. All right, coming up here on Power Lunch, more on this market sell off, including a trade down on travel, why a leading analyst says white-collar job uncertainty

could impact Marriott's bottom line in the new year. Plus, tech taking yet another beating. Well, stocks like Netflix, down 52% this year, and Uber down 37%. See the biggest balances in 2023. Power Lunch, right back. Now, travel and leisure stocks are getting hit on recession concerns today, so it's not just about the retail sales report. We've got Marriott, Norwegian crews and MGM, relatively minor drops, but still two to three percent.

It's the shifting labor market that just led our next guest to downgrade shares of Marriott to equal weight. What is it? White-collar job uncertainty. Barclay's analyst Brad Montour joins us now. It's great to see you, and you actually pick up on quite a dispersion between white-collar and blue-collar fortunes right now, is that right? Hey, Kelly, how are you? Thanks for having me. Yeah, look, we're not, I'm not a macroeconomics.

but this is something we've been seen anecdotally for a little bit now, right? Our own companies who hire workers in hotels or dealers at casinos, they're still not fully restaffed from the pandemic, right? And so, you know, the idea that they would go and cut people just to try and hire them back six to 12 months later, for us doesn't feel like it's how this macro will play out in 23. You know, we see the tech layoffs accelerating. we see white collar or blue collar job postings gaining share from white collar job postings.

We see blue collar wage growth outpacing white collar wage growth. So, yeah, we kind of see that there being a little bit of shift under the surface there. It certainly points to a profit squeeze because it basically implies that, you know, your earnings are going down because what you're paying out for your labor force is going up. But at the same time, your end demand is kind of falling off a bit. Who else other than Marriott do you think is going to be feeling the screlius? we's here? Yeah. So, you know, for our call today, we do focus on merit, but I think it's going to be across the board for high-end leisure travel, right? I think that there isn't going to fall off a cliff,

right? Travel and leisure is going to be a bright spot for in 23, relative to other consumer discretionary segments. But I think that price sensitivity is going to start to form at the high end because look, the world is different than it was 12 months ago. There's less pent-up demand for travel, specifically. There is just a, there's less confidence in the economy overall. And so we just think that there's going to be a little bit of trade down. So, Brian, hey, Frank Holland here. I know, you know, it's a pretty bearish call on Marriott and generally the travel sector. I want to ask you, does that factor in a reopening China? We're seeing signs that China could reopen. And while we're saying that the pent-up demand is kind of ebbed here in the United States and maybe

in Europe, there's certainly going to be. be a lot there, people who have been stuck in their house, and generally those Chinese travelers are high-end consumers. Yeah, thanks, Frank. So look, China, we think we are bullish on China's reopening in 23. That is a tailwind for all of our companies that have exposure to China. The exposure for China, for a Marriott, let's say, is less than 10% of rooms. That's pretty stable across most of the companies we cover. It varies, but feet. But feet. net fees to these companies are even below that number because they make a little bit less royalty fee in China than they do in the U.S. So it's a tail end, but I think the U.S. is still the

core business and the profit driver, and so that's sort of front and center. So, Brandt, let's get a little bit more granular about the Marriott call. What do you see happening to the stock next year? Yeah, so look, we moved to the sidelines on Marriott with an equal weight rating, right? And so it was at our price target. It trades at a pretty full valuation, a valuation that's well above historical multiples. It outperformed its lower end peers this year by 20 points. And that was because, and we had a by rating. That was because the tailwinds into this year were a big, you know, a broad recovery of group travel,

a broad recovery of high-end business travel, and the high-end leisure consumer holding up. That was the thesis. It played out. Going into next year, there's less group recovery tailwind. Right? Group will be okay, but there's less tail-end. And then business travel at the high end is actually more sensitive to macro than the low end of business travel. And so that's where Marriott's position. And so we just see less tail-ins and a slowing of growth as a sort of a base case with the full valuation. No, it's a fascinating call. And for what it's worth, if people are looking for more of a pick

out there, Wyndham is your overweight, moves to overweight as you look into next year. Brad, thanks for joining us today. We appreciate it. All right, Netflix has been one of the hottest stocks. Sorry about that, Brent. Back to this. Netflix has been one of the hottest stocks in the market up 60% over the past six months. But today, the stock falling 9% on concerns its new ad-supported tier that just launched, hasn't gotten off to a great start. Mark Mahaney named Netflix is one of his top picks for 2023. He will make his case coming up. And as we had to break, I look at some of the other names, in addition to Netflix, which are dragging on the communication sectors today.

Meta, Alphabet and Disney among the big names getting hit pretty hard. Power Lunch, back after the break. All right, welcome back to Power Lunch. Netflix shares falling by 9% tracking for its worst day since September on reports of a sluggish start for its ad-supported model. The stock's been all over the place this year. It's about 77% off of his lows and about 22% higher quarter to date, but still down about 50% since the start of the year. Hope you can follow that. Our next guest says he expects the rebound to continue into next year. Here to talk about Netflix and some of his other top picks in 2023 is Mark Mahaney with Evercore ISI. Mark, great to see you. Hey, Frank. So we're just talking about it right here. Netflix up more than 20% in Q4. A lot of excitement about its ad-supported tier at first, but it seems to be getting off to a slow start.

What's setting it up for a strong start in 2023? Well, we do want to be, we did turn tactically constructive on the Internet sector for 23 because we think multiples have been de-risk, estimates have been de-risk. And we've seen enough cost actions, kind of an unprecedented level of rifts, reduction in force, rifts of being taken across the space. I think that creates this EPS slingshot opportunity. But all that said, you know, macro trends are deteriorating. You know, you heard that or decelerating.

You saw that in the Department of Commerce data. We've seen that in other checks. So you want to be tactical about it. You want to find companies that have already taken out costs that have got a new revenue stream or have got recession, somewhat recession resilient revenue streams. And you want companies that have got a new product cycle. That's Netflix. So it's our top pick for the year.

They've taken out costs earlier in the year. I think $999 or $6.99 now for Netflix's library, that's about as cheap as you can get for entertainment if we go through a recession. And then I think this advertising business is the real deal. It's off to a sluggish start. But, you know, Frank, have you seen any ads promoting this? I haven't. And I haven't seen them in the U.S., Germany or the U.K., the three largest markets. I think they're doing it some other markets. And I think we're going to start seeing more of it as they roll out their password sharing plans next year. So I still think it's a major catalyst. It addresses rising price sensitivity at the company, and they can do it in a way that's really positive for unit economics. So I'm sticking with Netflix.

Today's move doesn't face me. I want to talk with Netflix just for a minute. How crucial is content to this ad-supported tier? Obviously, they have big hit shows like Stranger Things, Bridgetton. How important is it for those shows to come back and keep people not only watching but also watching the ads? It's extremely important, Frank. The two most important reasons why people have been churning off of Netflix in the past, it used to actually be content.

And then Price actually became the bigger driver. That's why I thought this ad support initiative could be so useful in terms of helping grow subs. But content is still king here with all of the streaming companies. Netflix's advantages. Now we've gone through a period of accelerating competition and streaming over the last three years. That all changed. I'm going to overstate it. But that all changed when Disney fired.

at CEO because he was generating excessive losses in their Disney Plus streaming business. We're now entering a period of streaming industry rationalization. I think that helps the incumbent. The leading incumbent, that's Netflix. They spend 17 billion a year on content hits. And you need 220 million paying subscribers to support a spend like that. Well, Netflix has that. And I think their subscriber base will continue to grow. So content is king. But I think Netflix has the P&L and the subscriber base to afford paying whatever king-like levels of content spend. Markets, Kelly, your two other top picks also jumped out at me. One of them's Uber, which has had a tough year.

And the other one is Wix, which we don't talk a lot about, but it actually is also down about 50%. So Uber and Wix, if people are looking across this market today and wondering, you know, if there's a couple of cheap stocks to pick up, why are they your top picks? So I'll stick with those, Kelly, those three screens I use. You know, you want to have fine names that have got some recession resilience. I don't cover a defensive sector. Tech is discretion.

It's much more of a discretionary sector, especially on the consumer side, but even on the enterprise side, we're seeing a slowdown and cloud's bent. So you want to find something that's somewhat recession resilient. I think mobility is that. I mean, you still need to commute. You'll still want the social rides to and from restaurants

or homes or movies, whatever it is on the weekends. You still have your airport trips. I just don't think mobility. I think it's more of a utility than a consumer discretion item. And then Uber's also taken out costs. all of the air, the travel and the mobility names, they had to take those 20 to 30 percent. It was that bad riffs way back in 2020, but because of COVID. That means going into next year, I think their cost bases are already matching what could be

a softness in revenue. And then there's a couple of interesting product initiatives that I really have liked out of Uber, including what's called upfront pricing, which has been, I think, a huge boost for their drivers. And there's a countercyclical edge, finally, sorry to Uber. you're getting more drivers coming on to the network because they need that side hustle. And Uber is a great way for you to make an extra quick $35, $40 an hour. So I like Uber.

I think it's reasonably defensive. You just turn a corner on free cash flow. And if you're going to continue to generate positive free cash flow at Uber, more value investors will come in. So, Mark, I want to push back on you a little bit. I actually had a question about Wix and Uber as being your place because I feel like the economic slowdown, possible recession is a double-edged sword. You mentioned for Uber, more people need a side hustle.

And for Wix, maybe more people start up a website or something else because there's not feeling as satisfied in their job or perhaps lose their job. But at the same time, doesn't that reduce demand because less people are going to fly and less people are going to do things on the websites that Wix already has as customers? Yeah, I mean, Frank, this is a cyclical sector. So I'm really trying to find who's less cyclical, you know, who's got a business that's got, you know, reasonably sticky demand. And demand will soften in a severe recession. It'll soften for all of these businesses, including search, including cloud computing, No question about it.

But people will need a web presence during a recession, and you may even get a greater startup community with all the dislocations we're seeing in tech jobs. So I think the demand may actually hold up reasonably well versus something that's purely discretionary, like apparel, fashion apparel. And then again, with mobility, the question is, will we still commute?

You know, two airports, will there still be some travel? You know, will there still be those social outings? And what's the alternative? You know, you're going to pay for an expensive taxi in New York. Prices have gone up there 25%. There's still the safety concerns you have with other modes of transportation. So I think the demand for mobility, at least for Uber is going to be sticky,

at least through the recession more so than other areas. All right, Evercore is Mark Mahaney. We appreciate the insight. Thanks for being here. Thank you, Frank. All right, let's get over to Steve Kovac now, making his debut on the CNBC News Update set. What's up, Steve? Hey there, Frank. Yeah, here's what's happening at this hour. Georgia has become the latest state to ban the use of TikTok on government phones and computers. Governor Brian Kemp calls TikTok a national security threat which could share user information with the Chinese government.

More than a dozen states have recently announced similar bans. And chemical and pharma giant Bayer has agreed to pay nearly $700 million to end a PCB pollution lawsuit in Oregon. The case was originally brought against Monsanto, which Bayer now owns. The payment is the largest environment damage recovery in Oregon history. And tennis star Boris Becker has been released from jail in England. He served eight months of a two and a half year sentence. Becker was convicted of hiding millions of dollars in assets after declaring bankruptcy. The six-time Grand Slam champion has already returned to Germany. Frank, back to you. I'll take it, Steve. Thank you very much. Our Steve Kovac.

Coming up on Power Lunch, we're digging into all angles of this market sell-off. Stocks are down big. Bond yields are also trending lower. It's a sea of red today, including in oil. Right now, it's around $75 a barrel. Up next, we're going to. We'll talk to the man who may have made the call of the year, predicting in February when prices were soaring that oil was on its way all the way back down into the 60s. What is he saying about crude now? You'll want to stay tuned on Power Lunch right after this. Welcome back, everybody. It's been pretty relentless all day today.

We have 90 minutes to go. Dow's still down 841 points, but let's get caught up across the markets with bonds and commodities as well, including looking back at perhaps what was the, what was the, what was the, greatest call of 2022. Before all of that, though, let's start with stocks. Down 950 was the lows today. We've backed off of that a little bit by about 100 points. The S&P is still down 105, though, to 3889, and the NASDAQ, the worst performer, down 3.3%. E-commerce names getting hit particularly hard. Today we talked about a little bit earlier, but Wayfair overstock, Etsy Shopify, Wayfair is down 10%. FinTech getting knocked around as well. PayPal, toast, Affirm Visa MasterCard, not a lot of places to hide here with the firm down 7%. Verizon is the only Dow component higher on an upgrade over at Morgan Stanley to

overweight. They call it an attractive value, and it's up 1% today. Let's get to the bond market now where yields are falling, but again, it's not doing a lot to help the stock market. Turns out it's a lot of recession fears everywhere. Rick Santelli. Hi, Kelly. Hey, if yields weren't down, maybe the stock market would be down an extra one or two We don't know the counterfactual. What we do know is, is that post-fed? Two-year and three-year note yields are higher. Fives and sevens are virtually unchanged. And tens, 20s and 30s, their yields are lower. I don't know that Jay Powell would have suspected that type of arrangement. Look at a week to date of two-year note yields. You can see that, yes, they're higher on the session barely, but they're lower on the week. If you look at a week to date of 10-year yields, consider this. If they trade below 3.41 percent and they're close, that'll be a new low for the week and actually it'd be a three-month low yield close should they do that. And if you look at boond yields, a completely different picture. Here's a week-to-date of boons.

Up, up, up, and away, they close a whisker under 210 at a one-month high yield, which means if you look at the relationship between the two, it's gotten closer together. As a matter of fact, there's only 136 basis points that separate our yields in tens from yields and boons, which means it's the closest together they've been in 26 months. And if you look at Fed Fund futures, everybody's going to say, hey, they are lower on the session. And look at the June. June is the fulcrum today. And they're right.

Lower means more fed. But they're still higher on the week, which means that the pushback in treasuries by investors trading them is still probably bugging this federal reserve. Kelly, back to you. I'm sure it is. Rick. Thank you very much, Rick Santelli. Oil closing for the day, dropping about a percent and now barely higher for the year on those global downturn fears. Let's get more on what was one of the biggest market surprises this year, in fact, as WTI crude is around $76 a barrel today.

Yes, earlier there, back in February before that big price spike, most in the market believed that the price of oil was headed relentlessly higher, perhaps to over 100, even to $150 a barrel. Not to the downside, which is exactly what. we've seen play out. But this is not a surprise to at least one analyst. Here's what cities Ed Morse had to say when I asked him in early February why he thought prices would end the year lower. Listen. We've heard 120 and 150. We've heard a lot. My next guest has the opposite view. He sees prices falling amid a coming oil surplus with us as city's global head of commodities research, Edmorse. Ed, how low could prices go? It's always hard to either say what the bottom is, what the top is, but we're figuring out about a mid-60 price range for Brent, low $60 price

range for WTI by the end of the year, just based on the numbers that we look at. And yes, there are wild cards in them that could change that one way or another, but mostly probably to the downside. Well, let's call him mostly probably right. Ed Morris joins us now. He's City's Global Head of Commodities Research. And it's good to have you. It looks like a lot of the reasons you cited excess inventories. That's the dynamic taking place in the market today. So what happened? What happened was we had a price spike that was really a result of the initial reaction to Russia's invasion of Ukraine and Europe and others deciding to get off of Russian prude and a scramble to find alternatives. So there was a bidding up of rent and other related prudes.

And yeah, the market was tighter at that time than it's turned out to be. We're now in a very different situation. We were not expecting last March that the world was going to be facing a recession. So when we look at 2023 versus now, we're looking at demand growth that's going to be really on the very low side. We're looking at demand much lower than most other people. We're thinking demand is going to be about a growth of 1.3 million barrels a day, 1%. Basically, we're looking at China right now, which could have growth, but demand at this moment is about a million barrels a day lower than a year ago. Europe is entering recession.

and demand is lowering lower than a year ago and with nowhere up to go. And the U.S. is seeing no year-on-year growth in demand whatsoever with the recession lying ahead. So we have three big economies that are not seeing significantly robust growth with the only hope for it being in China of the big three, as it may or may not come out of this slowdown. So, Ed, would it be fair to say you're even more bearish now? We are barished, but there's a new factor in the market. And that's the U.S. acting as a more price agent. We've heard that the White House is very public about saying there's a price at which we're going to start buying SPR oil.

That price seems to be WTI hitting at $70 a barrel. You've got to take it as a message to believe, particularly as China also starts buying when the price is low. And we know that OPEC plus countries want to keep a floor under prices. So we have a lot of dynamics in the market now for buying excess fruit, moving it back to the strategic stocks, which were released in abundance this past year in order to bring the price down. And it succeeded in doing that. Hey, Frank Holland here. You just mentioned China a second ago. So when you made this call, it's hard to believe that you knew that the zero COVID policy in China would extend this long.

I don't think anybody knew that. Are you also factoring in the fact that, again, I asked an earlier, I guess, that China is going to reopen. We're already seeing the signs we've seen a number of reports. and that Chinese people will not only get out their house, they're going to travel around their country into other countries as well. Absolutely. And in our low case for oil demand growth,

half of that comes from China, believe it or not. It's a complicated story in China. The big growth of new oil demand is going to be clearly on the aviation side. We're seeing international flights already starting to grow in an incredibly rapid rate. But there's another hidden thing that we don't much think about.

And that is what China did last year. And last September, when they started having blackouts, they stopped exporting petroleum product. They started slamming that down. They were exporting last summer a year ago in summer 21, around a million, 200,000 barrels a day of petroleum product. They stopped doing that altogether last September. And now they're opening up again.

So yes, we expect Chinese demand to actually grow. but we expect Chinese exports to grow as well. And we think they'll be back up to that $1.2 million a day level by the time we hit Q1. So final question, Ed, for investors looking into 2023 and wondering if energy stocks are the place to be, would you caution them away from that? Or do you think that they can still perform well in the price environment that you anticipate? Yeah, I'm sorry to disappoint you, but by regulation, I'm not allowed to talk about equities. We think that oil prices will be volatile and they'll be moving to the downside.

It may have a strong Q1 because it's wintertime, but other than that and the Russian issues that are uncertain, we think there's going to be inventory buildup again through the year. And the only thing that's going to stop the slide into the 60s is U.S. purchasing of SBR oil, along with healthy Chinese and Indian purchasing because the price is low. Fascinating. I'm sure investors know what? to do with that information, if you're right, once again. Ed, thanks so much for your time today. It's good to have you.

All right, coming up next here on Power Lunch, we're digging into the tech sell-off. The NASDAQ down more than 3% chip stocks getting hit even harder. We're going to have the details next on Power Lunch. All right, welcome back to Power Lunch. Tech is leading the way lower today. Let's bring in Christina Parts in Evelace with more and what's dragging Tech lower. Christina? Well, we have a number of economic reports that are out today. And that's raising recession concerns and pressuring stocks, especially those sensitive to further Fedrake.

hikes like technology. The NASDAQ is almost below the 50-day moving average, which is a key technical threshold. The NASDAQ 100 has already lost over $5.5 trillion just this year alone in market value. And today, it continues to fall well over 30% down, 3% today, 30% year-to-date. Big gap, big gap tech having the biggest point impact with names like Apple, Microsoft, Amazon, and Nvidia, all over 3% lower. Today, there's only one NASDAQ, 100 name in the green. That would be Align technology. It's up over 3% today. There was one report that I saw that Alain is popping on positive comments regarding its Chinese business, so things may be doing well over there. And since we got those weaker than expected November retail sales,

e-commerce names are getting hit pretty hard. Look at Wayfair down almost 10% lower. You've got overstock, over 7% lower, Etsy, over 3% lower. And then you've got chip names that are considered highly cyclical and equipment names specifically like, Kempare. KLA, ASML, down over 4%. Not only because of demand weakness, but there's uncertainty about relations with China and what that means for exposure going forward. And a lot of investors have been concerned about this as of late.

And you're right, because normally we have the cyclical or we have just some more particular political issue. Now we have both. What is the latest on the China front here? So it's a cold war, a chip war, whatever you want to call it. You have the fact that the United States imposed these curb restrictions in early October. Now they've added 30 names to the entity list, which means that companies will have to

get more licenses in order to do business with certain Chinese tech firms, specifically related to more advanced technology so that China won't advance any of their artificial intelligence, their military applications. China retaliated by filing a complaint with the WTO, but honestly that doesn't really do much. And then the second thing they did is this is just Reuters reporting it, $143 billion in incentives for the Chinese semiconductor space that could be implemented. in Q1 of next year, which would possibly change things. It would help China maybe come forward in the mature node section, which is not blocked right now.

And then if that's the case, if they keep developing that, they could lower prices and then hurt competition here in the United States. So there's all these factors to consider. Absolutely. It comes to maybe the worst possible time for investors who are already nervous about it. Christina, thanks. Thank you. Christina Parts in Avelace.

Big drop in retail sales triggering recession fears and leading to today's big selloff on Wall Street. Up next, we're looking for opportunity and which stocks can. Can you be best positioned for a recession? Maybe we'll get our traders take on these names. As we head to break, take a look at some of the consumer names selling off on those macro fears. Etsy, eBay, Target, even Chipotle, off 3.5% today. Stay with us. All right, welcome back to Power Launch for the market selling off.

We're focusing three stock lunch on recession-resistant names, according to Wall Street analysts. Bank of America calling meta-platforms a best-position large-cap name if a recession happens. Wolf Research initiating Warby Parker at Outperform, saying the optical retail market is recession-proof, and Cowan, naming Delta, top pick for 2023, saying that the airlines should return to profitability, even in an economic downturn. Here to trade them is Courtney Garcia, senior wealth advisor, a paying capital management and a CNBC contributor. Courtney, great to have you here. Let's start off with Meta.

Yeah, Meta, I would not agree that this is a recession-proof stock. I mean, ultimately, about 98% of its revenue is generated from advertising revenue, and that's one of the first things to go if a recession does in fact happen. That being said, though, is a longer-term investor. What I do like about meta is it's finally got to a reasonable valuation. Now trades at less than 16-time earnings after about a 65% drop this year. So I'd actually have this as a hold. I do think it has some near-term issues when it comes to advertising spending.

But long-term, I do think this holds a place in your portfolio. Yeah, we don't want to dwell on this too long. We've got to keep it moving, but also a lot of small business exposure. Do you think that's one of the first areas we're going to see that ad spending slowdown? Very possibly. Yeah. And I do think that's the question is, is a recession going to happen? But if you are of the mindset that we're going to see that, yes, that's absolutely going to be one of the issues. All right. And if you think recession is going to happen, there's some who say Warby Parker is going to be recession proof. You buy it? Yeah, this one I actually have a hard time with. I have Warby Parker as a sell here. A couple of reasons, but we are in this higher interest rate environment. And this is where profitability is going to become really important as well as valuation. Unfortunately, Warby Parker is unprofitable currently. And they're actually the slowing growth. They were trading about 30 times year-over-year revenue at their IPO at their recent quarter reporting. They were only about 8% year-over-year. So they have slowing growth. They're unprofitable. I do think they also could be at risk of people I mean, trading down from where we park to a lens crafters is something that they may have an

issue with in a recession. All right. Final name, Delta Airlines. Are people going to trade down from Delta to something else? Delta I don't see. Actually, Delta, I have a buy. I'm very optimistic on Delta. Airlines in general, I don't think that the demand pull forward that you've had from COVID is ending

anytime soon, especially with business and international travel, of which Delta has a lot of revenue sources there. I do think one of the big things that has been a drag on their earnings is the fact that the fuel prices have been so high, which is really out of their control. But A, we're starting to see that come down and B, there over the next several years going to be upgrading their fleets to more fuel-efficient aircrafts, which is only going to benefit them. So I do think that longer-term, this still has a lot of trajectory to go. And it trades very cheaply at less than eight times forward earnings. Yeah, almost seven, which is astonishing.

Courtney, you think it's okay to be invested in the market in this environment? Absolutely. I am a long-term investor, and we definitely want to stay invested here. But I do think you want to be strategic about where you're invested. Some of your longer-duration assets, I do think are going to continue to be at risk here. So make sure that you're well diversified. Make sure that you are only adding those things that are likely going to continue to do well in a recession or in a higher interest rate environment. All right. Courtney Garcia, thanks for your time today. We appreciate it.

Thanks for having. Up next, a bright spot in one of the most hard hit sectors of the year. What is it? Can you guess? More power lunge right after this. Welcome back. Okay, there are some bright spots in the market despite this heavy sell off today. Look, a lot of them are actually in real estate. One of the hardest hit sectors of the year. Lenars of 3% today. Same with D.R. Horton and Toll. Let's get out to Diana Ollick,

more. Diana? Well, Kelly, you can thank fast-falling mortgage rates for all of this. The builders are reacting to the deep dive in the yield on the 10-year Treasury, which mortgage rates loosely follow. Freddie Mac also released its weekly report showing a small drop in rates last week, but rates have since dropped even more. Take a look at Mortgage News Daily, which posted a 14-bases point drop just this morning to 6.13% on the 30-year fix. Remember, the rate last peaked October 20th at 7.37 percent. So that's a pretty big move in a short period of time. Check out, of course, the home building, ETF, ITB. The builders were down in the pre-market due to Lenar's earnings released late yesterday. It showed a wider than expected drop in guidance on new orders and it

missed on earnings. But in the conference call late this morning, executive chairman Stuart Miller harped on the lack of supply in the market and said the shortfall leaves the industry in what we believe will be a short duration correction. He also said that Lenar is not fire, its homes despite reports that it was selling some backlog to investors. Kelly. Yeah. And so what do we make, Diana, of this, do we call it a countertread move? Do we call it a green shoot for housing? You know, the stocks have kind of been leading the market. Yeah, I'd go with either one of those. We heard the CEO of Toll Brothers just last week calling it a potential green shoot when he didn't want to say that it was a market turn the way he had said in

August when mortgage rates first went down and then shot back up again. But he said He did expect that there were some green shoots there. But of course, remember, we're in December, which is traditionally just the worst time for home sales. Nobody buys or sells a home for Christmas. So we'll probably have to wait and see what happens in January. But this trajectory is clearly going lower. And if it stays lower or moves even below 6%, that could be really strong for housing. As long as we continue to see prices weaken the way they have been for the last couple of months.

Yeah, bizarre to think, hey, if mortgage rates go below 6%, wow. Would have seemed crazy a couple years ago. Diana, thank you very much, Diana Oleg. Frank, thank you as well. Always great to be here with you, Kelly. I hope the market can turn around a little bit. Thanks for watching, Power Lunge, everybody.