Power Lunch - A Sell-Off on Wall Street 9/13/22

Episode Date: September 13, 2022

The rout on Wall Street intensifies. The Dow falls more than 1,000 points in afternoon trading following the hotter than expected consumer inflation report. This hour, we break down what it means for the market, consumer-related stocks, tech names and the market technicals. Plus, Morgan Stanley’s Co-President in his first ever tv interview. Hosted by Simplecast, an AdsWizz company. See https://pcm.adswizz.com for information about our collection and use of personal data for advertising.

We've got a sell-off on Wall Street. You're probably aware of that already. Welcome everybody to power lunch, along with Courtney Reagan. I'm Tyler Matheson. We've got inflation proving more persistent than expected as a result. Stocks dropping. Treasury yields spiking, investors betting that the latest consumer price report will keep the Fed on an aggressive rate hiking path. This hour will break down the inflation report what it means for different sectors of the market and why inflation is no longer just about energy prices. So those certainly are important, as Brian just ran through. First, a check on where the market stand at this hour. Today's sell-off wiping away about three days' worth of gains. The Dow, the S&P 500, the NASDAQ, all lower the NASDAQ, the worst of the bunch down almost 4%. The Dow is the best, but still down nearly 3%. Communication services, information technology, consumer discretionary, are among the worst performing sectors in the S&P. The communication sector down more than 4%.

And as Tyler mentioned, as stocks fall, bond yields are rising. The yield on the two-year, which is most closely timed to the Fed rate moves, rose to 3.7 percent to its highest level since 2007. The yield on the benchmark 10-year at 3.4 percent. All right. Clearly, the bond market expects the Fed to stay aggressive on rates as the CPI comes in up a tenth of a percent compared with last year when the markets were expecting inflation to cool a little. or that word transitory was so popular. Let's get to Steve Leasman for more on this CPI report, what it means for future Fed action as well. Hi, Steve. Hey, Talia, the August inflation number making a huge disappointment, marketer huge disappointment for markets,

looking for a peak inflation and for a Fed to do fewer rate hikes. All of that go in the wrong way. I'm not going to read you all these numbers. All you've got to do is look at the chart and shows every number came in above expectations. The most important one that core CPI, double the expectation. That's the one the markets and the Fed hoped would have cooled more and would have led to lower policy. Instead, how do we get here in gasoline?

It behaved as expected down 10.6 percent. But food coming in hot at 08 housing, that's a third of the index up 07. And apparel as well. We're not seeing the bloated inventories on the pass along in lower prices in the apparel or other goods sectors. By the year end, the market now sees the Fed over 4 percent. And the peak funds rate has risen to, an expectation of 4.35 now. That just ticked up again, up from the 4% before the meeting. And the market now pricing in a 33% chance of 100 base point rate hike next week.

I think it's overstating the case, but it's a sign of how concerning this market sees the inflation report today, Tyler. Yeah. So you look at that and you see that the core was up points, what was it, 0.6%. Right. Yeah. So really, That tells you that the heart of it, the things that strategists and investors use to forecast the future is not moving the direction or at least not moving as quickly as they would like to see it. Yeah, you're right to emphasize that, Tyler. That's really the key. Food and energy, you know, there's issues out there, especially with Ukraine on both counts. That could be explained.

But the idea that's inside the core of the measurement here, it tells you that we're not getting. getting the disinflation that's needed. Now, there are some people who say there are some exaggerated aspects to this report that it didn't capture all the disinflation we've seen in other reports. We may have to wind this all up again, Tyler, and do it next month, October 13th, write it down in your calendar. That's the next big report. I will do that. Let me ask you. It's all you can do. You know, every, go ahead. Go ahead. I was going to ask you one quick question. You said that housing as a, as a constituent of the of the index was higher and higher than expected.

But we're hearing ideas that housing prices are coming down a little bit. Is this because rents are still going up or because house prices overall are still rising? Now, you know, the rents are still going up and it just takes time, Tyler, for this, for the higher rents, which are used to calculate housing costs to work their way through the system. Housing inflation was late to show up in the CPI and it's going to be late to go away. And that's the reason why some people are concerned that the Fed could make them a mistake. stake here, Tyler, because what if the housing costs are really coming down,

but it just takes time for the chip in the index, it would argue for the Fed to get to a point, I want to say, three and three quarters, four percent, and stay there for a while and watch what happens to the numbers, not go too far, but go far enough to restrain the economy. All right, my friend, thank you very much. Steve Leasman reporting for us.

I remember that one line in the beige book, of course, about the housing that we keyed in on to from the Fed. Well, energy, which just a few months ago was the driver of rising inflation, saw prices fall in August. Steve pointed out gasoline numbers led by that double-digit decline in that index. Pippa Stevens is breaking down that part of the report a little deeper for us. Hi, Pippa. Hey, Courtney, that's right. It was the second straight month of declining energy costs, which has relieved some of the pressure facing consumers.

So let's run through the numbers. Overall energy prices fell 5% in August compared to July. Gasoline prices were down 10.6% while fuel oil, which is heating oil and diesel, declined nearly 6%. But we saw a different picture emerge in the energy services sector. Electricity prices increased by 1.5% and utility piped gas servicages, which is natural gas, rose 3.5%. Now overall, it's only been two months of falling prices and energy costs are still up about 24% in the last year. And that's lifted utility and energy stocks. Those are the only two S&P sectors positive this year. Both are down today, however, they're down the least among the S&P sectors. A number of utility stocks hit multi-year highs yesterday, including American electric power, Constellation Energy, and Sempra.

And despite some recent weakness within energy, Occidental, Hess, and Marathon Oil, all a big year-to-day, guys, Occidental more than doubling. Yeah, absolutely, Pippa. It does seem that so many of the strategists that we have on often look to the energy patch for some of those names as possible, buys here today. I know your focus, of course, is on commodity, but commodities, but how closely can we tie what's going on as we watch the price of gasoline and other fuels fall to what then happens with the equity stocks? Well, it's only been two months, so we really don't have any indication of a long-term trend at this point, and there are still a lot of factors up in the air. But, you know, the energy companies, they really emerge from the pandemic with a wholly different

business proposition. They're focused on restraining costs, keeping production in charge. and returning money to shareholders through buybacks and dividends. And so, you know, even if commodity prices do come down, they're still above where they were, you know, in the last year a couple years ago. And with this new formula of keeping the cost under control, a lot of investors say they look very attractive, even with oil, even with natural gas falling from those highs. All right, Pippa, thank you very much. Pippa Stevens reporting for us. So what to today's inflation number mean for your investment?

and which sectors and stocks might be best positioned to weather the volatility that we're in. Let's pick it up with Peter Anderson, Chief Investment Officer at Anderson Capital Management, and Jeff Kilberg, founder and CEO of KKM Financial and a CNBC contributor. Peter, you have a bit of a bone to pick, it seems, with the Fed. What is it and why? Well, you know, I worry that the Fed might actually still over-tighten. You know, I understand what's happened today and the market, reaction. But, you know, there is a delay with when the Fed takes actions and then when we actually

see it in the marketplace. And you know, Tyler, we have started to see receding inflation in many sectors. I mean, let's talk lumber, for instance. Lumber has almost crashed. And as we know, there's no Fed intervention on lumber prices and other commodities too. So what I am very, very much concerned about is say October comes around, say the Fed has. tighten 75, even 100 basis points, what will the Fed say then? And I think what we need to hear from the Fed is just a simple admission that, yes, we are still tightening. However, we do observe and acknowledge that there are signs that this is starting to abate. And if we see enough of that, we will change our policy actions. I think that would work wonders for giving us some kind of roadmap

as to what they're actually thinking. How does that strike you, Jeff Kilberg? Sounds sort of reasonable. It does, die. And I'm cautious, optimistic, but I think the velocity today, that's really bothersome. I don't see panic.

Look at the VIX. The VIX isn't even above 26. But what's interesting, and I think Peter's right, it's a comprehensive lens that we need to look through. And that's exactly what the Federal Reserve is looking through.

Today, we are bothered by the higher than expected CPI data. But let's just look back at mortgage applications. They're down 25% year over a year. We're seeing housing cool. We are seeing used car prices. That was the biggest input. If you remember, Ty, during the pandemic, everyone was going out buying used cars.

That number is abating. It was down 4% in the month of August. So I think there's other ways to look at inflation potentially abating. But the Federal Reserve is not going to do 100 basis points. Yes, I said it. They are not going to 100 basis points. They have been articulating in the defense of Fed Chairman Paul. He has been articulating that they have the ability to be nimble.

But they do have a problem. The problem was a year ago, they were still buying assets. They were just buying assets up until February. of 2022. So they need to get the September meeting at 75 basis points in the rearview mirror. Everyone needs to take a deep breath and find some essential, tangible names, some sectors like you talked about with PIPA earlier, about utilities, consumer staples. These are very dislocated pricing in the market like today. Going and buy what you like, buy what you know, buy what you use, Ty. And so exactly, Jeff, I want to pick up on that point here before we turn back to Peter.

What is it that you like? Give us some exact names, if you can, within some of those spaces or otherwise. Look at Nutriot, look at Archer Daniels. Look at Oracle. Not a lot of tech names on day like today, Courtney, that you want to have a better understand, but waste management. Some of these blue chip tangible names, remember Peter Lynch back in the 80s, buy what you know. This is just a step further. This is by what you use. So I think you have to really embrace this change from growth of value. And I know growth had a little bit of a runback in the last four days, but I think you have to have to have a large cap blend hat on. You have to understand where there is dispersion. And some of the sectors that typically haven't got a lot of love, like utilities, like consumer

staples, like health care, look at XLU, look at XLP. These are names that you have to be repositioned. So this is a great opportunity to rebalance, reposition portfolios, because we are going to get this Fed meeting in the rearview mirror. And now we're going to get some midterm election certainty. And there's going to be a rally coming to Q4, Ty. You heard it here first. All right, my friend.

Let's hope that that passes over to your fighting Irish this weekend. Peter, let me turn to you. You give thumbs up to Caesar's. comes down to a couple of its subjects, Carvana and Netflix. Why? Well, Netflix, let's just quickly talk about that. You know, in real estate, they talk about three things, location, location, location. With Netflix, it's three things also. It's programming, programming, programming.

And I think we can all agree that Netflix has taken quantity over quality. And do you know they were the ones that made the most movies last year, and yet they have the worst ratings of all their competitors. So I don't even have to go into the balance sheet and income statement with a company like this. I do think that that it is destined to really fail unless they totally revamp their programming. And with Carvana, it's the opposite. The income statement. Didn't they have Squid Game and don't they have Ozark?

And they've got the crown? I think people are watching that all over the place again. I don't disagree with your point because I don't know that maybe there's a Maybe their features have not been good, but their series, they've got some ones that hook you. Yes, and maybe you'd like to watch those over and over again or something. But, you know, it is a hit-based business. The Kilberts watch a lot of movies over and over, Peter. We hear the Kilberg family will crush Netflix whenever we get an opportunity.

I know. You know the lines by heart, right? That's right. But just moving on to Carvanna, that is a balance sheet issue. You know that they had to raise, they already had $3 billion on the balance sheet in debt. They had to raise another three under extreme stress this spring. And tell me how this math works out. They've got $6 billion in debt, and their EBITDA is negative $750 million.

There's just no way unless you can pull a rabbit out of a hat on that. And Apollo has taken about a billion of that debt. And I don't, they have, in my opinion, they have mixed. track record in terms of success. So I don't see a happy ending for that either. We got Hail Caesars and down on Carvana and Netflix. Gentlemen, thank you very much. Peter Anderson, Jeff Kilberg. Appreciate it. Well, coming up, the cost of eating at home. That's up worth of 13% year over year. The sharpest increase since 1979. We'll look at the impact on the consumer and some major retailers. Plus, Morgan Stanley's co-president, Andy Saperstein, will ask him about today's

selloff, inflation, and investing in this environment in his first TV interview ever. And later, the NASDAQ 100 falling more than 4 percent, bumping up against some key technical levels, too. A look at whether the charts are pointing to more selling ahead. Power Lunch coverage of the market sell-off continues in just two minutes time. Welcome back to Power Lunch coverage of the market sell-off. Today's CPI report showed that overall food inflation ticked higher last month. At-home food prices searched 13.5% year over year. That's the largest 12-month increase since 1979. Retailers that sell groceries, they're all down today with Costco lower by about 3%. Joining us to talk more about the impact of inflation on retail names and the consumer as Repesh

Perich. He's managing director and senior analyst at Oppenheimer. Repet, it's so interesting to me to see the action in a stock like Costco, which so often seems to hold up better in times of a sell-off or, Frankly, in times of inflation, yes, food prices may be going up, but if they're going up everywhere, is Costco still not a good bet as a consumer? And if you're picking stocks in the retail sector? Yes, I think Costco still is a good bet. I think today the stock is really down due to higher interest rates. So Costco is a high multiple stock, trading at more than 35 times of earnings. So it's all multiple related. The business actually benefits from higher levels of food inflation. So in the latest quarter, we think Costco saw about a 7% point benefit to the top line

just related to inflation in the business. And Costco does tend to have a bit of a higher income consumer in some cases. Obviously, you have to have a membership to go there. But obviously, you're probably a little price conscious at the same time. If you have a membership to Costco, if you like buying in bulk and being sort of a wholesale member. So is it a beneficiary for consumers in that regard, too? If consumers that go there are perhaps not those that are struggling the most in the face of high inflation. Yeah, so I think in this case, you know, Costco offers significant value to consumers.

So I think in this type of environment, more of those middle consumers will continue, you know, we'll go to Costco even more frequently to get the value. So, you know, at the gas pump, you save money every day. And then, you know, on typical grocery items, you could say 20% plus versus your grocery store. So I think Costco, this environment plays the cost of sprints. And I think they're going to continue seeing traffic and share gains in coming months, similar to what we've seen really the past two to three years. Give me a thought on Dollar General, which I think is a.

another one of your choices, and also where Walmart fits. Yeah, so Dollar General is a topic for us. And in this type of environment with consumers facing significant inflation, you could see trade into the Dollar General and the Dollar Store channel as consumers seek value. And that's already playing out. Dollar General called this out in their Q1 report. Even in their Q2 report, they again called out that they're seeing even more trade in. What's unique is that they're seeing a customer making as much as $100,000,

now shopping at Dollar General, which is a new takeaway versus what's, they've seen historically. So I think DG is extremely well positioned for this environment as consumers budgets are stretched and more more consumers seek value. And then Walmart, it's really mixed back. So on the food inflation side, Walmart is also going to benefit middle and higher consumers are shopping there more as they're seeking value. But the negative is that lower income consumer and even some of their middle income consumers, you know, they have less discretionary dollars. So I think you're seeing a shift from higher margin discretionary products like TVs, clothes, you know, peril into food. So, so it's really mixed back for Walmart.

And I think to your point about that $100,000 household income, a dollar general, Walmart was seeing that in the last quarter. If I'm remembering off the top of my head, I think it was three quarters of the growth in food was from households that have incomes of more than $100,000 there. But I want to look a little bit big picture and a little longer down the road as we're talking about inflation. We know that it's higher for a number of reasons. Not all most people believe can be controlled by the Fed. We know we had supply chain issues. If we are going to see a widespread strike in the nation's railroads in the way that freight is delivered, which I believe about half of what's delivered on the railways is consumer-facing retail goods,

what does that mean for the holiday season for either the supply of goods and or the prices that consumers will be paying? Yeah. So it again makes the supply chain even more complicated. Retailers have dealt with so many roadblocks over the past few quarters. It's hard to say exactly how this, you know, ends up playing out. To the extent that you can have shortages, you know, it can lead to more inflation. But I think it's still too early to reach a conclusion on how that, how those strikes will end up hitting grocers and all the retars out there. Represch Perich of Oppenheimer, thanks for joining us. We'd like to have you back as we see these things play forward.

Thank you. All righty. Up next in today's sell-off here in the U.S. It is spreading overseas. I shares emerging market ETF down more than 2%. We've got details on that next. Plus, as we head to break, check out some of the. Chinese internet names deep in the red.

Not that much deeper than a lot of American stocks, but still in the red. Power lunch will be right back. Got a news alert on oil and the White House, and Brian Sullivan has the details. Brian. Yeah, thank you very much, Tyler. Got some headlines here from a senior White House official about refilling the Strategic Petroleum Reserve. I'm going to read it.

I apologize because I was going back and forth with the official. Here's what they're telling me, below 80, meaning $80 for oil, we will buy but not sure how much below and in what market conditions we will be opportunistic. The White House official continues. We will also not make a policy change to a buy on an occasional dip,

but rather when prices are down on a sustainable basis. That is according to a senior White House official. So what they're saying, guys, is remember this. We have been selling from the strategic petroleum reserves since the spring, about a million barrels a day, some days a little less, some days a little bit more. Eventually, that will have to be refilled,

Not right away, but eventually what the White House is saying, because what they're going to do is they're going to bid this out to oil companies. How much will you sell it to us for? Obviously, looking for a discount from American oil producers that they may be strategic and opportunistic, but are looking to buy only when the price of oil is below 80 on a sustainable base. Not one-day dip, guys, but sustainable. When that will happen, we'll find out. But some breaking news about refilling the SPR. Back to you.

Brian, does that tell you anything about what the administration thinks about the direction of oil prices? It kind of tells you what they think is going to. I'm sorry, I'm fiddling with my wire here, Tyler. It kind of tells you what they are thinking about the direction of oil prices. And obviously they want those oil prices to go lower as well because they want to refill this up. But oil companies can sell the oil for what they want. I mean, they can basically come and make a bid at $60. bucks. Whatever the oil companies are willing to sell it to in this process, maybe an auction-type process, they certainly can do. But direction, yes, Tyler, it gives you the impression that the

White House not only wants oil lower, but sees it going lower, or at least the oil companies being willing to sell it for lower. All right. Brian Sullivan, thank you very much for that news alert. Big sell-off on Wall Street, of course, as inflation remains hot and really hotter than anticipated. The assumption now is that the Fed is going to have to stay aggressive on raising interest rates and keep them there for longer. That is hurting stocks, not just in the U.S., but around the world, and Simomodi has been tracking global markets for us. Hi, Sima. Tyler, Courtney, let's go around the world, not just the Fed that is expected to respond with higher rates, but Goldman Sachs in the last hour forecasting that the European Central Bank

will have to opt for another 75 basis point rate hike at its October meeting as inflation pressures continue to build there. Now, European stocks reverse their initial gains, breaking a three-day winning streak today and now down about 15% from its 52-week high. If you look at the price to earnings ratio for European stocks, now trading at its lowest level since March of 2020, a forward times PE ratio at around 12.4. I spoke to Signal that's a special situations fund based in Europe, CIO Alad Shraga, telling me they're seeing default expectations rising quickly across the continent as implied by credit loan obligations, CLO, as known as Wall Street. Let's also take a look at the currency market. As a dollar resumes its upward climb, that's having a notable effect on

emerging markets, the MSCI-E-M-E-M-E-T-F on pace for its worst day since July 11th, tracking for its eighth monthly decline in nine, really led by those Chinese tech names, Alibaba, Baidu, JD.com, down nearly 6.5% for a name like JD.com. So significant weakness there, Cort and Tai. Yeah, Seam, I was just going to ask you for these Chinese internet names that we've pointed out as well before the break. Anything other than just a bleed over from what we're talking about here that's pulling them lower. JD.com down by 6.5% feels significant. Yeah, I was looking for company specific news. There doesn't seem to be that at this point, but just that risk off tone affecting certain parts of this market that investors perhaps scaling back that exposure. Of course,

that U.S. audit is pending as well for a number of these names. Right. All right. Thank you, Seema. Let's get to Frank Holland meantime for a CNBC news update. Frank? Hey there, Talley. Here's what's happening at this hour. Russia has spent at least $300 million on influencing politics and more than two dozen nations since 2014. That's according to a U.S. intelligence review, which has been declassified. A White House official says details of Russia's covert political financing are being shared with other nations. In Connecticut, a jury has started hearing evidence to decide how much Alex Jones should pay for spreading the lie that the Sandy Hook School massacre was a hoax.

Jones did not appear in court today. He says he now believes the shooting was real, but he insists his comments were protected by free speech. And east of Los Angeles, which started as a disturbance call turned into a water rescue. Police body cam shows a flash flood, nearly sweeping away a mother and her children in knee-deep water. Three officers work together to get them out of harm's way. That's the very latest. Courtney, back over to you. Thank you very much, Frank.

Well, investors fearing the worst following that CPI data, the relief rally and any bullish optimism seems to be fading. Look at this. Is there still opportunity out there? We will speak to the co-president of Morgan Stanley in an executive. exclusive interview next. Stocks, though, at session lows, the Dow down close to 1,000 points. That's good for a fall of 3%. The S&P 500 down by 3 and a 3rd percent. And the NASDAQ off by more than 4%. That is Session Lows. Power lunch will be right back. Just about 90 minutes to the close on this brutal day for stocks. Lows across the board right now, the Dow down nearly 1,000 points. That's 3%.

The S&P 500 off by 3 and a third. And the NASDAQ down more than 4%. Some of the biggest names getting hit the hardest. Meta down nearly 8%. Netflix off 6%. Amazon and Alphabet. Also, big names, getting slammed big. And a very group of stocks leading the way lower for consumer discretionary.

Names like Whirlpool, Caesars, Lanar, Bath and Body Works, those are the ones among the biggest decliners on the session. And oil prices down about 2% today. The energy sector of the S&P 500, that's only down about 1%. We know we saw some interesting data in that from the CPI report as it has fallen. We will see how that moves as we get ever closer here towards the end of the session for equities. But let's get right to Rick Santelli, who's tracking the reaction in the bond market to today's CPI report. Hi, Rick, what's going on?

You know, what isn't going on? Pretty much, if you look at an intraday of two-year, that pretty much sums it up. All maturities looked fairly similar, just changed the scale. Now, we're on pace to close at the highest yield close since 2007 in a two-year, but understand this. Twos, threes, fives, twenties, thirties are all at new contract high yields. The only two maturities that aren't at this point are 10-year and 7-year. And we need to pay very close attention to both those maturities at the moment, especially 10-year, When you consider that anything under about 3.48% isn't going to get us there.

We need to get over the top. And why is that so important? Because that will release a lot of pent-up selling, according to the technicians. Now, look at intraday 30 on pace for its highest yield close since 2014. And we had an auction today. 30 years went quite well, but that's because investors had the luxury to see the CPI data. Three's and ten yesterday didn't have that luxury. Fed Fund Futures, this is a January contract. It started on January 31st, 2020. You're not going to find a lower price. Matter of fact, get this.

From January, from September to January of 24, every month those Fed Fund Futures contract, all 14 of them, are making new contract lows. And a contract low means the highest amount of Fed tightening built into the system. And finally, one would think the dollar index would do well, when interest rates are doing well? There's the chart to prove it, even though the ECB and the euro have been doing pretty well, you can't keep up with the types of inflation that the Fed has to control three quarters of one percent, maybe one full percent, certainly seems to be a possibility for our September meeting. Tyler, Courtney, back to you.

Rick, thank you very much. So what's next for this market and this economy as inflation continues to stay hot and rates continue to move up? Who better to ask than one of the most respected names? names on Wall Street, Morgan Stanley's co-president, Andy Saperstein. He's with Leslie Picker in New York City for his first ever TV interview ever. Leslie, take it away and tell Andy not to be nervous, okay? Hey, Tyler, thank you so much.

And I don't think he can hear you. So I'll tell him to his face. Tyler says, don't be nervous for your first TV interview. Yeah, that's good. Don't think of an elephant. But you're, you know, it's a really great day to have you because in addition to being co-president. You're also in charge of Morgan Stanley's wealth management division, which really spans the gamut of investor types. You've got the self-directed market like E-Trade, Eaton Vance now,

the old Smith Barney, now Morgan Stanley wealth management. So given today's sell-off and the overall volatility in the market, what is investor sentiment like right now? Yeah, so, you know, invested sentiment, what I would say is we're seeing the investor be very, very rational. What you don't want is people to buy when they feel good and sell when they feel nervous. You want people to think right on through the cycle, because cycles are part of what markets are. If you think of what wealth management does, if you think about what an advisor does, an advisor gets investors to think about their life goals. They get them to think about their lives, and they set them up such that they can achieve their life goals, and they don't have to worry when you have turbulence and when you have markets like these.

So, you know, in a day like today where we're all watching the TV this morning for the CPI index to come out with bated breath in the morning, we don't want our clients doing that. We want our clients out enjoying their lives. And that's kind of what we're seeing. We're seeing that nobody likes to see red. There's a lot of engagement. There's a lot of phone calls to advisors. But we're seeing basically reason. We're seeing rational.

So you are getting a lot of inbound. Yeah. While your main focus is, you know, this morning at the Barclays conference, you talked about Netnew, assets at the firm. And you set a target that may be responsible for helping provide somewhat of a floor to Morgan Stanley's stock relative to your peers today, although, of course, everybody's kind of in the red today. You said that you intend to grow net new assets by a trillion dollars every three years or so. Just to clarify that, does that come from organic growth? Does that come from acquisitions? Which is I mentioned in the previous question, you've had a lot of very successful

acquisitions within wealth management. Yeah, so through acquisitions, we've set ourselves up. but we like to call ourselves a category of one. We look like nobody else. We grow like nobody else. We have a business like nobody else. And through the acquisitions, we made ourselves a powerful player in all three channels, in the self-directed channel, and the workplace channel, and of course our bread and butter, which is the world-class advisors that we have,

and that drives a lot of organic growth. So over the last six quarters, we've grown by $650 billion organically. And, yeah, what I said is that you can, You should expect us to grow by about a trillion dollars every three years through net new assets. That's not counting the market. And, you know, the way we think about ourselves, we're a scaled player, and we're a growth company. So any acquisitions that you would like to see within that target? Yeah, we got here through acquisitions.

We're very good at acquisitions. You know, we have, when we do acquisitions, we look for good strategy. We look for great culture that would fit within our culture. and we're really disciplined about process and integration of our partners into the organization so that to the client, it looks like one integrated, one client experience, and that's basically what we've done. If there's other acquisitions that fit that mold, of course we would do them. One of the things that I talked a lot about this morning, which I think is really exciting, is what we want to do is we want to be really innovative on our platform. What we're doing is we're going out and we're talking to FinTech organizations or tech

organizations that are very innovative. And what we want to do is become really good at integrating those technologies into our platform. And in that way, even if we don't do a whole company acquisition, we can really further our innovation. Through partnerships. And, you know, speaking of acquisitions and this morning, your peer at JPMorgan talked about a 50% drop in investment banking fees during Q3. Are you seeing the same?

Are you expecting the same kind of guidance? You know, with investment banking, we're definitely seeing a moderation of activity, but we're seeing a lot of really good conversations between bankers and their clients. And, you know, at times like these, what sometimes I think, and it's true with all client businesses, is when there are difficult times, even if there's no, even, even if there's a lower level of activity, you can really cement those good client relationships. And you can really, you know, clients are much more engaged and we see it with our advisors as well. And you also, you see prospecting activity go really, really strong as well.

Because, you know, it's true in investment banking. It's true with financial advisors. when clients who haven't been prepared for difficult markets like these realize that they should have been, and they see others that have been, that's when they reach out, and that's when you can really grow your business. Let's talk a little bit about workplace culture, because banker culture has gotten a lot of attention in recent weeks with regard to return to the office,

with regard to taking away freebies like coffee, with regard to even layoffs potentially. Do you think that your workforce right now is the appropriate size, or do you, like your peer Goldman Sachs, expect to potentially see some cuts? We're feeling pretty good. We're a really disciplined management team. We think about expenses all the time. We think about our expense ratios. Same holds true for our capital deployment.

And, you know, right now in this environment, we have no immediate plans for layoffs. We'll always tweak along the way, but right now we feel pretty good. And I can't let you go without asking about succession plans, your own future at the company, because you are one of two candidates rumored to be in the running for that top job here. Have any plans been laid out on that front? Anything you can share with us? I don't know, Leslie. What I can say is that I'm a really fortunate person.

I love what I do. I love Morgan Stanley. James is an amazing leader. And, you know, as for the management team, they are some of my closest friends. I have great respect for them personally, professionally. We do push each other hard to be better. And the truth is, we've been together a long time. We've had a lot of success together.

And, you know, the culture here is we just, we know we have a job to do. We put our heads down and we get it done. So first interview, but hopefully we will see you again soon. Please come back and join us, Andy Sopperstein, co-president of Morgan. Stanley and Head of Wealth Management. Thank you very much. All right. Thank you. Look forward to it. All right. I'll send it back to you guys.

Thank you, Leslie, and thank you, Mr. Saperstein. We are near session, Lowe's folks. The Dow off 1,000 points. 10-10 right now, 10-11. The S&P 500 down about 3.5% or 142. The big loser is NASDAQ off 500 points or 4.3% at this hour. Some of the high-growth names are getting hit the hardest,

like Cloudflare, Docuice, data dog, Z-scaler, crowd strike. Semis also getting hit. AMD and Vidia, now more than 7% recently. There you see them off a good bit. And NXP, semiconductor, about 7% the same for Micron. Mega Cap Tech, not immune here. Apple and Microsoft and Alphabet, 4% or so lower.

Meta, 8% down. Netflix, 6.5. Let's bring in Brent Thill, senior technology analyst at Jeffrey. Brent, welcome. Why are high growth names and high tech names, whether they are megatech or smaller? Why are they so prone to major selloffs when interest rates go up? Thanks for having me. I think ultimately they're still concerned that there's risk that these businesses are slowing. Many of it acknowledge the weakness that they're starting to see. But as they say, when there's one rat in the kitchen, there could be another. And we think there's room for more number cuts across tech.

We've had a more cautious view on valuation, and ultimately, I think you have to let the storm pass through. I think many in the tech industry are just late. They're late to call out what they're seeing. We've had multiple companies through tech earnings seasons say, we're not seeing anything. Everything's fine. And you just look outside. You can see the clouds on the horizon. You can see what's happening in Europe and the U.S. and interstreet horizons.

You can see what's happening in the backdrop and demand falling in some of our CIO and CFO work that we do as a tech team. So I think the industry is notoriously slow for acknowledging it. And I think many investors understand that. They're ahead of that and they're concerned that there's another round of cuts that are going to come. So we think into early 2023, that can still be what we call the black ice, if you will, for tech industry, where they all kind of clear the deck. And so we've highlighted, hey, many of the valuations have been recognized that are down, but ultimately could take into early Q1 to 23 for the debt. to be really clear and everything to be a de-risk. So let me make sure that I'm taking what you just said,

which was very, very interesting and putting it to work in practice in a hypothetical portfolio. It sounds like you say there are more rats in the kitchen and they are going to start nibbling at the rice and it's probably not going to clear until the first of the year. So what do I do if I have technology holdings? and are there areas of technology that you feel are at lows now that make them safe enough to invest in? Most of tech is off between 20 and 80%. So a lot of this is embedded. Ultimately, where's the bottom and the fundamentals? And I think we still have that yet to come. Ultimately, I think for longer term investors, this is the time you want to start to nibbling away.

back to the red analogy, start to nibble it at this block. Again, I don't think we're quite the way through it. So I think the strategy is we're down so much, and a lot of this is already reflected. But the next six to nine months, in our opinion, are going to be very turbulent. And it's on the other side of this, I think we've seen this movie before, whether it was the dot-com era, the financial crisis. These names tend to rise pretty quickly. And no one can call the bottom, let's be honest.

Like, it's impossible to call and be a bottom ticker. But we have had a major valuation reset, which gives us more comfort that you can start to pick away on moves like this. But again, I don't think the turbulence is over. And ultimately, as they say in flying, there's a lot of big cumulus nimbus clouds still on the horizon. And you want to stay away from those if you're a pilot. Brent, I know you have a pretty big coverage list here, but of course you cover the biggies,

you know, some of these big mega-cap names. If you are looking to sort of get in some opportunity, if you have a higher risk profile and you want to buy now, is there a subsector or even specific names that you would put on your buy list if you can sort of stomach the turbulence until the first of the year? Yeah, the Jeffries Tech team still really likes Microsoft. You go upscale in terms of the quality, right? So you go to the larger caps. These are the household names. Microsoft, Amazon, or semi-analyst, Nvidia, Motorola Solutions, which is a defensive name. networking analyst covers that won't feel the pain of what's going on. So there's a handful of

names that we think are good, good stories. And then I think you basically scale into, as the market comes off, you come back into the growth year names, the more exciting names like the snowflakes, the data dogs. Those names still may from a valuation perspective have some room to settle in, but those are no doubt the best fundamental stories. So I think we're kind of in wave one. wave one stay in the defensive stories with good growth and profitability. And then wave two, wait for the sellout and then step into some of these riskier assets that I mentioned. And I don't think we're quite ready to take on wave two yet. Okay, fair enough.

Well, Brent, Bill, thank you for joining us, obviously, as the NASDAQ sales off majorly here, down about 4% or more on the session, the biggest loser and many names within actually down even more. Brent, thank you. Let's stick with tech, as I mentioned, getting really hit hardest in the sell off. the NASDAQ 100 is now negative for the month as it bumps up against some key technical levels, too. So we sort of talk through fundamentals. But let's bring in Todd Gordon. He's a CNBC contributor and co-founder of New Age wealth advisors for some technical analysis.

Todd, what are you seeing here when it comes to the levels? When it comes to certain support numbers that we all should be watching for as we watch tech tumble. Yeah, absolutely. Cort, I think we have S&P up first and then I'll move into NASDAQ if that's okay. you know, just looking at the long-term trend, I speak this way to our investors and say, let's just take a step back and look at what's actually happened. And you think about everything that is happening right now, four-decade high, inflation, geopolitical, political environment, you know, so much going on. We're only 17% off the highs in the S&P, right? So if we are going to roll over, the hot CPI number does look like it's going to punch us through. You have to look at the breakout level pre-COVID, right about 3,400 in the S&P,

But I think we're focusing on tech. And again, if we look at this longer term NASDAQ 100 chart, right, there's two main areas of support longer term. There should be a moving average on there. It's a 192 period moving average. And that's just 48 business weeks times four. It's basically a presidential cycle moving average. That comes in at about 12,200.

Then you have uptrend support, just a simple trend line at about 10,0005 in the NASDAQ. So those are longer term. supports. But if we break down to the daily chart of the NASDAQ, sort of a ski jump pattern, I call it. We've sold off sharply. We move through channel resistance. We're coming back to hold support. And that could be an area where we do find support, again, with horrible, horrible sentiment out there, right around 119 to 115 in the NASDAQ. I'm not giving up all hope. I'm still constructive here. We're right in the middle of that range right now on the NASDAQ. right? No, I'm sorry, we're above it.

That's the NASDAQ 100. The overall NASDAQ was about 117, right? Right, yeah. This is the NDX 100 ties. Right now we're trading 12-148 in the NDX. So again, 119, 115, 117. This is the area of support. We've come a long ways off the lows. And again, everything that's happening right now,

a lot of talk about interest rates and the dollar and all these macro impacts on the NASDAQ, we can go in any direction you want. But again, I'm staying below. And I'm not a long-only manager. In my RRA, we have been short. We can put hedges on. So I'm not just talking my long-only book.

I can go to cash, but I'm still constructive. One of your longs is Tesla. Tesla, I like it. Everything that's going on with Elon and Twitter, and you talk about the valuation, but again, you look at the charts, and that's why a good combination of fundamentals and technicals, I think serves you so well, especially in a volatile emotional market like this. The lower part of that chart, this is Tesla divided into the ESSELA.

divided into the S&P, it's uptrending. Tesla is stronger than the broader market. It's unbelievable. If we could break up through right about the 400 level, it's about, no, excuse me, 350 is the level. That's the breakout that should take us back to all-time highs. You know, you look at everything that's going on with Tesla. I mean, just unbelievable numbers reported compared to GM and Ford. You know, their margins are three times the amount.

They're making more money with like a half to a third of the cars delivered. And you look at consumer discretionary, guys. Some of the consumer discretionary and tech sectors, believe it or not, with everyone gushing about energy, are still on a quant model stronger than energy in here. And I've just listened. Everyone talking about energy. We've seen a rotation into growth. And there's a lot of industries within consumer discretionary travel and auto parts and autos and Tesla's right there. There's a lot of relative strength.

So I don't want to be a cheerleader. But I'd say let's temper our emotion on the downside right now. Todd Gordon, thank you very much for joining us here today. on this very busy and down day for stocks nearly across the board. All right, down 1,057 points on the Dow at 31-323. Coming up, two important companies' investors are watching amid all the volatility. Starbucks and Twitter, Twitter and outperformer today. We'll be right back.

Welcome back to Power Lunch, everybody. Today's big inflation-fueled sell-off. We want to get you up to date on a couple of stocks that are making news at this hour. Let's start with Starbucks holding its annual meeting today. Rogers has the details on it for us. Kate. Hey, Tyler, the coffee giant very much looking to the future under interim CEO Howard Schultz. Cold drinks are about 80% of the company's summer portfolio and now about two-thirds of them are asked to be customized so they're reimagining stores for this issue, investing about $450 million in North American stores over the next year to modernize them

with new equipment, more efficient setups, and reduced complexity for workers with automated ordering. Also going to be diversifying the portfolio with more. pickup, drive-through, and delivery, and mobile order and pay that we all know and love, that's coming to licensed stores in airports and supermarkets as well. The company is also focusing on Gen Z and millennials who are making up the bulk of its customer base right now. The Metaverse play that we told you about yesterday, Starbucks Odyssey is more evidence of that. There's more to come this afternoon.

Starbucks did suspend its guidance earlier this year as COVID continued to weigh on its China business in particular, so any updates on what that looks like will be of note. and tonight on Mad Money, Jim Kramer will sit down with Starbucks interim CEO, Howard Schultz, so tune in for much more on all of this. Back over to you guys. So, Kay, quick question here. Are there any signs of Starbucks customers trading down for a cheaper cup of coffee? You know, it's fascinating.

We heard Howard Schultz say this morning referencing economic data. He was talking about CPI, obviously, and he said that they are immune. He mentioned being immune several times to any type of downturn or trade down right now from consumers. And in fact, they had their best sales week in 51 years, two weeks ago when they rolled out their fall menu, which of course has the pumpkin spice latte. So business is quite strong for Starbucks right now. Yeah, I love my PSL, Kate. I'm wondering about labor and what's going on there with the Starbucks employees. I have just noticed that to your point earlier about the customization of the cold drinks, wait times are just getting so long.

And so many of the Starbucks, at least in my neighborhood in New York City, keep getting remodeled. So then the wait times get even longer. it seems the employees are getting overwhelmed. Are they having the workers that they need right now? Yeah, so they're definitely not seeing as much turnover, comparatively with their own business and also industry-wide, they mentioned today. But they are doing a lot to really improve the employee experience, because that has been a source of tension, particularly at some of the stores that are unionizing. The union held a rally outside today of the annual meeting, kind of pushing back on some of the things that were being announced. But they do want to make it more efficient for these workers. Starbucks has something called the Trier Center where they test out new beverage innovations and store reconfigurations.

And they're rolling out something similar that will focus on the partner experience and making that better for workers, more efficient for them, you know, less complex. Because as you mentioned, more customization, more mobile orders, all of these crazy drink trends you see on TikTok. That makes it harder for people to do their jobs. And they very much seem to be listening to that and wanting to improve it. That's good news. Often when I get a drink and it tastes a little off, I just feel too bad asking them. They're so busy. They've got all these crazy things we're doing.

Thank you very much, Kate. Well, shares of Twitter with the big bounce in Tray and one of the few stocks in the green. Lots of news here. Julie Borson, joining us now with the story. Julie, what's going on to Twitter now? Well, there are two big headlines. The first one is that Twitter shareholders voted to approve that Elon Musk deal. That is not surprising. But what is surprising and it also has to do with Elon Musk is the fact that whistleblower Peter Zatko in all of his testimony about his allegations that Twitter misled the company's board and did not take adequate steps to protect the data on the platform. He did not mention the word bots. He did not talk about bots, which are central to Elon Musk's argument that he shouldn't have to go forward and. by the company. And that is why Twitter shares are up today bucking that downward trend, because it means that he doesn't have more ammunition in trying to get out of that deal. All right, Julia, thank you very much. We're going to hand it off here to closing bell with the Dow down about 1,100 points, a little shy of that. NASDAQ off about 4.5% Courtney on a day that saw inflation come in a little hotter than expected. That's what did it. Absolutely. And it just seems that things are continuing to fall into this close.

Thank you.