Power Lunch - Extreme volatility, why the bottom may not be in for stocks and what investors are getting wrong about the Fed. 5/6/22

Episode Date: May 6, 2022

The market gripped by extreme volatility. Kelly & Tyler talk to the experts about where to hide in this market and the emerging opportunities in the rattled tech sector. Plus, a long time market watcher says the bottom might not be in for stocks. And, despite the sell-off, there are stocks in the Nasdaq 100 that still have triple digit multiples. Hosted by Simplecast, an AdsWizz company. See https://pcm.adswizz.com for information about our collection and use of personal data for advertising.

Welcome everybody to Power Launch. I'm Tyler Matheson. The market's gripped by extreme volatility. We're witnessing yet another session of massive swings this hour. We're going to talk about how to navigate the ups and downs and protect your investments to the extent you can. We'll ask our guests for sectors and stocks that can ride out the volatility. And a long-time investor is finding opportunity in tech. We'll tell you which stocks she's buying. But first, Kelly here to get us caught up on the markets. Let's do it. It changes all the time these days. Dows down to. 256, so we're still about 300 points off session lows, believe it or not, but we also were positive earlier today and can't manage to hold those levels. The NASDAQ dip below 12,000 earlier in the selloff for the first time since November of 2020, we're 138 points above that level.

Still, it's the hardest hit. It's down 1.5% of the major averages right now. Energy in the green again, Chevron, the best performing Dow stock, it's up 1.6% as oil prices rise, WTI around 109. Apple, a bell weather, reversing course midday. It's higher trying to bring the market up with it having a hard time of that. It's gains evaporating. It's up half a percent right now. Walgreens, interestingly enough, also one of the Dow leaders. Meanwhile, flip side of the picture, Nike,

Amex and Disney are dragging on the Dow doesn't help Nike today that Adidas and Under Armour have been such tough trades. Nike's down 3 and a half percent. But of course it's the tech sector that's been rattled the most. Let's get to Christina Parts Nevelas over at the NASDAQ with today's biggest movers. Christina?

Rattled uncertainty. It all remains extreme, especially after yesterday's 5% drop. We're still here. We're still on the red, and that means five straight weeks of declines. It's been a decade since we've seen that kind of losing street. But I want to take a step back. If you look at the NASDAG just over the week, it was down about 1% so far just before coming on set. Treasury yields, though, they continue to matter, putting pressure on equities. Why? Because bonds act as a barometer for inflation and investors' view of whether Fed policy error might ensue. The market has taken the yields above 3% with some confidence after wavering

around this 3% psychological level earlier in the week. Healthcare, I want to talk about healthcare technology, taking the biggest hit led by biotech names like Illumina. Sales and earnings beat for that company wasn't good enough to keep investors in. And then you've also got Moderna down over 6%. Moderna, though, is a very good example of the volatility, because was up about 3 to 6% on Monday, Tuesday, and Wednesday, and then yesterday and today, you're seeing Moderna just hover around 6 to 8% lower, so quite a lot of volatility there. The biggest swing to the upside, because it's not all bad, on the NASDAQ 100 are led by Monster Beverages, Cognizant Tech, and AMD.

So bottom line, Tyler, is elevated inflation, and the reaction to it in Fed policy is causing a rise in bond yields and a steady fall in share prices. In a nutshell, that sums it up. Christina Portsenevolous, thank you. Our next guest says that there are a group of stocks that investors can turn to to to help ride out the recent market turmoil. Savita Subramanian is head of U.S. equity and quantitative strategy for B of A security. Savita, welcome.

I want to get to that category of stocks that you think can outperform or provide some protection in this volatility. But I want to start by something that was in the note I received of your views, and that is that the underpinnings of the market over the past, let's say, 13 years since 2009 and the turn, have basically been turned inside out. And I'd like you to go through what some of those underpinnings were and what the new new is. Sure. Yeah. I think we're at a really pivotal time in terms of kind of a massive regime change. So think about, you know, from 2008 to just, you know, a couple of years ago, we had a very

accommodative Fed. We had accommodative monetary and fiscal policy, which crescendoed in, you know, 2020, 21 with this massive bolus of fiscal and Fed stimulus. The good news is that all that money went to corporates and consumers, but the bad news is that the Fed is basically about facing in terms of easy monetary policy to tight monetary policy from quantitative easing to quantitative tightening. So we're seeing a massive inflection just in liquidity. So that's one big change. The second big change that I think is worth paying really close attention to and has been a boon for U.S. companies is the idea that we've been enjoying this period of globalization. So companies have taken advantage of cheaper costs, of stuff, people, tax arbitrage, just any sort of arbitrage you

can think of outside of the rest of the U.S. has taken place, and we've seen margins for the S&P demonstrably increased. Right. So you've kind of got a de-globalization theme at work here. Exactly. A guest on Scott's show about an hour and a half ago said that you cannot count on the old guard winners of that prior regime to kiss you back now and that you've got to look elsewhere. And that elsewhere for you is health care. Christina Parts and Evellus just pointed out that health care has been one of the laggards today. But health care is such a broad field. She was pointing to a lot of the biotech stocks.

A lot of the names on your list are not biotech stocks, but are in health care. Explain why health care and which names? Yeah, so I really think that there are macro as well as micro reasons to like health care. I mean, if you look at the sector, it's less economically sensitive than, you know, most sectors in the S&P 500. It's a sector that generally does really well during a period of economic uncertainty. It's more defensive, no matter what, we all still take our, you know, our medicine and we keep so staples in health care, the sort of the recession place. I think what's also interesting about health care today, is that investors who are looking for companies that have their own stories. So idiosyncratic risk rather than, you know, just a macro play on the cycle, healthcare is a very story-oriented sector. So that's where our analysts came in and, you know, gave us lots of stock ideas in terms of which stories they saw as the strongest and the most geared for, you know,

kind of a better environment to head. And, you know, some of the stocks that they mentioned were Humana, ticker, H-U-M, Thermo Fisher, Boston Scientific, Striper, CVS. So there's a whole array of different types of companies, to your point. It's a very heterogeneous sector, not all just biotech and pharma. But I think that the positive theme within the overall sector is that it's less economically sensitive. It's got a strong dividend yield, strong dividend growth, and it basically offers yield, growth, and defense at a very reasonable price. I mean, if you look at the valuations of the sector, we are almost at rock bottoms in terms of where the sector is trading relative to the last cycle. Despite the fact that health care

companies literally saved the world in 2020, they haven't really caught a bid until this year we're actually seeing the sector outperform. And I think that's really what you want to pay attention to is this slow momentum change, you know, moving out of growthier, longer duration sectors like tech into some of these more defensive, but still growthy sectors like health care. Savita, I wish you nothing but good health. Sovita, supermanian. Likewise. Likewise.

Thank you very much. That wouldn't be as profitable, though. Let's get to the economy now. The 10-year, three-month spread is flashing some pretty bullish signs. It's at a seven-and-a-half-year high, as Rick Santelli keeps pointing out. This says the economy continues to add jobs at a rapid pace. More than 400,000 payrolls have been added for at least the last eight months. But our next guest doesn't think it's as rosy as the headlines would suggest.

Dave Rosenberg is president, chief economist and strategist at Rosenberg Research. Great to have you, Dave. Give us the bear case here that I don't know if the bear case would actually be bullish for the markets at this point or vice versa. But tell us what you think is going on. Well, look, I think that the labor market, for one thing, is a lagging indicator. And everybody focuses on the non-farm payroll headline, which of course came in above expectations. But the household survey was a big negative. It was the worst month for the rival household survey, which amazingly nobody talked about today since April of 2020.

And so what I would say is that a couple of things on the employment side is that when you get this divergence between household, and payrolls, it usually takes place at the tail end of the cycle. Usually the household survey, when it starts to go down at a time when payrolls are going up, that's happened before each of the last four recessions. So that's actually a divergence that you want to pay attention to. But look, I'll just go back to the most important thing that came out this week from that perspective, which was the ADP number, because the household survey, the payroll survey, they don't tell you what companies are doing according to size.

And small companies are in the weeds when it comes to having a front window on the economy. And in the past three months, the small business sector has actually, on net, let go 105,000 people, Kelly. And that always happens at the peak of the economic expansion. The large companies, and there's a large company bias in the non-farm payroll survey, the small companies are actually starting to let people go. And that is actually a phenomenal, albeit I'd say troublesome right now, a leading indicator for the economy coming out of the jobs market that everybody seems to think is so red-hot. And that's because they're not looking at the forest past the trees.

One of the things I think is going to be super annoying about the next 12 months is that we look like we could be headed for a recession, either because of the factors that you're seeing already a loss of momentum, or in kind of the way that I've been looking at it, is more because the Fed isn't tightening enough. and they're going to have to slam on the brakes in the future. But my point is, if we get to a recession either way, it's almost like everyone's going to say, see, I was right. See, we were slowing. They shouldn't have tightened.

See, they should have tightened more, and then we wouldn't have to slow this much. You know what I'm saying? I mean, this is going to be, it's going to be, I think the markets are trying to even figure out what's up and what's down. Well, it's because, I mean, this is the most complicated situation that we've ever seen in our, in our, lifetime. I mean, we have a shooting war in Europe coupled with an ongoing pandemic. And maybe in the

U.S. and Canada, we're starting to live life again. But that's not the case in China where they shut down, you know, port cities with millions of people. It seems like every couple of weeks, which has a huge impact on global supply chains. So it's a very complicated situation right now. And so I'd say that, You know, we've got these exogenous price shocks. We can go back and talk about how strong demand is. It actually is not about how strong demand is. You know, real GDP, which is demand in the economy, people don't realize that when you look at the monthly GDP numbers,

Kelly, they're running negative 2.4% from October to March. Like the recession is probably already starting. Now, I know that you show the chart of the three-month, but the question is the three-month at some point will catch up to the Fed funds rate. I don't think that's a meaningful indicator. Actually, the meaningful indicators, if you're taking a look at what the cyclicals, the relative strength of the cyclical stocks in the SMP 500, I mean, they're telling you a very significant story that is not consistent with a bullish theme from a steep yield curve benchmark from the three-month treasury bill.

But the bottom line here is that we have this massive exogenous price shock. It is no longer a demand story. That was the inflation last year. That was the demand story and the supply story. It's just that the supply curve globally continues to shift to the left. And now you've got central bank saying, enough is enough. We are now going to start to have to offset that by shifting the demand curve to the left. And that's how you get the recession.

And actually, I would say that most people calling for a session, well, they'll tell you, Kelly, it's a 35% chance. So that way, if we get it, well, I did say 35%, or they're saying it's next to your story. No, no, no, no, no. it's actually already in the data, especially if you look at real incomes that ultimately drive real spending, real incomes in the United States. Negative seven of the past eight months. I'm just saying if they tighten sooner than real incomes wouldn't be as bad. Well, that's what I mean. Well, no, I agree with that.

Kelly, look, you're caught between a rock and a hard place. Yeah. This is inflation. We got to go. Yeah. Okay. It was inflation caused by demand. That'd be one thing.

So you get the inflation shock and now we're going to get the interest rate shock. Either way, we get a recession out of it. Exactly. Exactly. On that note, Dave, thank you very much. It's good to see you today. David Rosenberg. All right. Coming up, looking to get back into tech with the NASDAQ down 13% over the past month. Well, our next guest has a stock. She is eyeing for the long term. Plus three stocks, three trades. These aren't necessarily beaten down names, but ones quite the opposite that are holding up, trading at least 3% higher over the past week. There you see them. Do these bright spots?

belong in your portfolio. As we head to the break, a look at shares of Peloton, which are trading at an all-time low. The Wall Street Journal reports that the company is targeting potential investors. It reports its quarterly results Tuesday. Welcome back to Power Lunch. I'm Dominic Shoes. Talks are well off their lows of the session right now, but still plenty of red out there on the screen with the S&P and the NASDAQ on pace for their fifth straight week of losses. So we wanted to take a look at some of the areas that worked at. actually this week. Take a look at the semiconductor ETFs like Vanek Vector semiconductor, ticker SMH. That's lower today, but still up around 1.5% this week. Then you check out monolithic

power, advanced micro devices on semiconductor posting strong gains this week as well. Overall, so those names showing some signs of life, at least on a week-to-date basis, tie, I'll send things back over. Yeah, despite today's downturn in those names for the week, they're up. Thank you, Don. As the volatility on the street continues, our next guest, says it's time to focus on real cold, hard cash earnings. Cash that is there now, not some promise of profits. Joining us with some interesting looks at stocks she's been watching. Ann Barry, Chief Investment Officer with Wheelhouse Capital.

Ann, welcome, good to have you with us. You say cold, hard cash, real sustainable cash flow. Why are those metrics so important right now as we go into what may be a highly turbulent economic period? Tyler, I grew up in the private equity industry in the buyout space, and the training has always been cash is king, or in this case, cash is queen. At the end of the day in your moments of turbulence in the macroeconomy, turbulence in the markets, having good free cash flow generation, having a strong balance sheet, having the ability to weather the storm. That has what has proven to be successful over the long term in both the private and in the public capital markets. That's where I'm focusing right now, the names of those attributes. Yeah, we will get to some of those names in just a minute.

Let me take you back to your prior life in private equity and ask you if given the market conditions today, you would be sort of salivating over potentially buying some companies. And do you think your former colleagues in private equity may jump in and do some deals? Well, I'm very much still in an of that world, Tyler. And I will say that when I talk to everyone in the private equity, equity industry, whether it's those who are running the buyout funds, whether it's the bankers and the advisors, pitching the ideas for the next big deal. Everyone is definitely looking. They are running the screens. They're looking for those high quality businesses where the market

caps and the enterprise values now make doing a deal at some premium attainable size-wise because the capital structure can be supported. And where there may be some responsiveness by management teams and by boards to have those conversations. But I would say, Tyler, the issue right now in this volatility. It is very difficult for public company boards to actually bite the bullet and to entertain seriously those tape private conversations. So we need a little bit less of a roller coaster before those decisions really can be made in a way that can be executed. With that in mind, let me get a quick thought on the buyout of Twitter by a very private investor, an individual. Is this one of those companies that would be, have been on your buy list, or truly my

question is, is, he has the right to do whatever the hell he wants with his money. But shouldn't he have put that $40 billion into finding ways to find more nickel or more cadmium or more base minerals that he's going to need for his batteries? Tyler, it is interesting. Elon Musk is indeed a private individual. But when it comes to engaging in the public forum, he's far from private. And I think what he's doing with Twitter is very interesting. What I would say about the consortium that he's pulling together about Twitter is it's not traditional private equity in the sense that you and I have just talked about.

This isn't buyout money. We know that likes of Tom O'Bravo and others have perhaps been looking at providing credit for this investment, but not the actual equity. And one thing that's interesting from the release that came out earlier this week in which Elon Musk listed the sources of equity he's been circling, whether it's Larry Ellison, whether it's Sequoia, whether it's Bessemer, private individuals, high net worth individuals, but also eventually. capital. When I think about how that business could be run as a private company, the governance situation is going to be incredibly complicated. That's going to be a business that will be highly levered. It's not clear there's enough cash from Twitter to support that kind of debt. And how you have all those folks in a room trying to make the decisions around operating growth and operating excellence when you've got such a distributed shareholder base is very

challenging, I've got to imagine. All right. Let's go to your choices here. These ones with cash earnings, real cash flows. I'm going to ask you, just a lot of you. I'm going to ask you, just to sort of say what they have in common here, Delta, booking holdings, and alphabet, which is your way of getting back into battered tech. Well, I would put booking and Delta into one bucket, Tyler, which is what I call the human nature stocks. There are still huge pent-up demand to get back out there and enjoy vacations, even in a recession. You know, when I went into Delta, that was early in 2020. And at the time, I was in Las Vegas.

I'd just been evicted from my hotel as it was being shut down. And I was on the phone with a well-known music executive who said, Anne, as long as this last when it's done, there's going to be enormous pent-up demand for Vice, by which he meant Vegas will be back and travel will be back. I went into Delta Dan then. We're seeing price targets now hitting 55 to 65 because that is fundamentally a strong fee cash flow business, and we're seeing record demand levels coming back. Booking similarly, that is a $4 billion cash flow business.

And that is one that's seeing, you know, record search interest in traveling, both domestically and internationally, so I'm enthusiastic about those. All right, we have to leave it there, but you've left me with the phrase of the day, pent up demand for vice. I love that. Anne Barry, thank you. Thank you. Our coverage of this volatile market continues. Materials, consumer discretionary, and industrials are some of the worst performing sectors today. And as oil prices climb back towards $110 a barrel, money is flowing into energy ETFs. We'll look at this week's top performing names when power lines.

returns. It has been a wild, volatile week on Wall Street, to say the least. Let's look at where the money was moving in ETFs. Energy ETFs brought in $64 million this week and more than a billion dollars so far this year. That's where a lot of the action has been. The biggest reason for this week's action, Europe taking steps towards a complete ban of Russian energy imports eventually. Also, OPEC keeping production levels unchanged and as stocks get risky, you know, some of the Some of these high dividend-paying energy companies look more and more attractive. Now, looking to the big ETF movers this week, the United States Natural Gas Fund, which tracks the gas price up about 10%. There you see it. One week change up 10% down a good bit today. The XLE Spider Energy up about 8%, 8% and 2 thirds and higher today as well.

The Vanguard energy ETF, it is up about 8% as well. The data come from our partner, partners at track insight, more information available on the FT Wilshire ETF hub. Meantime, let's go to Courtney Reagan for a CNBC news update. Courtney. Hi, Tyler, I am Courtney Reagan. Here is your CNBC news update at this hour. Ukrainian officials are accusing Russia of violating a ceasefire aimed at evacuating civilians from the port city of Maripal. Russian officials did not comment on the accusation, but as state media reports that a dozen civilians, including some children, had successfully gotten out of the city.

Mariopal's mayor had said earlier that 200 civilians were trapped in a bombed out steel plant. A SpaceX rocket successfully brought four astronauts home from the International Space Station overnight. They splashed down off the coast of Florida near Tampa following their departure from the space station after a six-month mission. It's been a busy day for SpaceX,

the company founded by Elon Musk. Shortly after that splash down, SpaceX launched 53 new star length internet satellites. And in a story appropriate for the upcoming Mother's Day holiday, a new Census Bureau reports is the median age for women giving birth has hit 30 for the first time. The report says there's a significant financial component to that trend with women investing in their education and careers so they can be better off financially

when they do decide to have children. And with that, I will send it back to you. Tyler and Kelly wishing you a happy Mother's Day as well. And the same to you, Court. Thank you. Ahead on Power Lunch, shall we as we continue to watch the sell-off. One market veteran says fundamentals matter more now that at any time in the last 20 years, he will join us to explain and give us three names showing strong fundamental.

Plus, from fundamentals to technicals, a number of stocks in the S&P 500 still holding above their 50-day moving averages, and they're up more than 3% this week. We have those names and the trade ahead. Stay with us here on Power Lunch with the Dowdown 355. We're back in a moment. Welcome back, everybody. Let's get the snapshot with 90 minutes left in the trading week. And everything going up across the markets and stocks and bonds and commodities. We'll also even talk about some big moves and some solid reasons to own the fundamentals right now. Let's start with Bob Bassani down at the New York Stock Exchange.

Well, sort of. Bob. Yeah, Kelly, we're closing essentially near the lows for the week. Got another hour and a half, but we'll keep an eye on that. Remember, 463 would be a 50.63 would be a 50. 52-week low on the S&P 500. You see, we're not there yet, but 30 points you can move very, very quickly in this market. Tech is the story today, and the story is mega-cap tech holding up better than speculative tech. What's going on is we're continuing to get compression in the multiple here.

Still talking about a slower real estate market, and so all this more speculative technology stuff continuing to get hurt rather badly. Heavily traded ETS. Boy, there has been Titanic moves and efforts to trade around the triple Q's today. Investco, Triple Q, trust, big active trade. And there's a short version of it that is the exact inverse. And there's even a triple inverse version of it. And that's the third one there, SQQQ, Titanic volume.

A lot of speculation on either side for the Triple Q this week. S&P leaders, pretty simple. You've got energy stocks. You've got some defensive names like utilities. And you've got a bunch of consumer staples names. Like Kellogg had a good earnings report, Campbells, all of that. That's basically the leadership board on the plus side. And you want to know, Kelly, how.

difficult it is to trade this market. We had a big IPO today. Bausch and Loam is a very well-known name, big eye care company. They were very excited about going public at the NYSC. 21 to 24 was the price talk. So the mid-level was 22 and a half. They priced at $18. Now, that was almost 25% below the midpoint, Kelly. Is that good or bad? No, that's not good. That's a sign of a very, very difficult market. Remember, IPOs, it's not just about the demand for the company. It's about how much demand there is for stock in general, and this was a difficult day for them to go public. They are above the initial price, Kelly, but tough for them. Back to you. I was going to say, at least they're above water. Bob, thank you very much, our Bob Bassani.

So again, as Bob was pointing out, the Dow's almost back near session lows are down just about 400 points. And in the bond market, that 10 year, back up to about 311 this afternoon. Rick Santelli with more, Rick. Yes, the long-dated treasuries after the Fed meeting on Wednesday. You know, we did have an important jobs report today, but the Fed meeting was important. Look at a three-day chart of two years since the Fed meeting. It's drifting lowers. As a matter of fact, it's a strategic change from leading to following. Here's what's leading to long end. There's a three-day chart of 30-year bonds. You could see the difference. But it really has been a big week for the dollar. I'm going to go quickly here.

Here's a 20-year chart of the dollar index. We're near 20-year highs. And whether you look at a commodity currency like Canadian, the dollar versus the looney, well, basically it's hovering at the highest level in a year and a half, November 2020. The dollar versus the yen, hovering near 20-year highs versus the yen. And versus the Chinese currency, onshore, offshore, take your pick. You see that the dollar index is basically on pace to close at a one and a half year high there as well, going back to November of 2020. So when interest rates move up and other central banks are behind the curve, dollars get precious. And the dollar index reflects that. Kelly, back to you. All right, Rick, thank you very much. Let's move to commodities.

Now strong dollar. You might think they're weak, but no, energy's been performing well as it approached $9 on Nat gas and then, of course, on WTI crude. We're looking at almost $110 a barrel. Pippa Stevens with the latest. Pippa. Hey, Kelly, a wild week for Nat gas hitting $8 and 99 cents per MMTU this morning before giving back those gains and then some. The contract now down more than 8%. But we do need to put this move in perspective. Still up about 11% here on the week and holding above $8. Back in March, we were at $4.50, so that is a big move. Today's action is a combo of blocking in profits, as well as weakening weather-driven demand going into next week. Moving over to oil, which is higher and on track for a second week of gains.

The looming EU ban on Russian oil remains in focus here. WTI up about 1.5% at 109.78. Brand crude up 1.3% at $112.36. turning to energy stocks, the big outperformer this week, higher again today and up here about almost 9% for the week. EOG is leading the way following earnings. That stock trading at a three and a half year high today. Other notable movers include Devin at a seven-year high, while Pioneer Kelly at an all-time high. Wow, it took some of these stocks a long time to break above previous levels.

Pippa, thank you very much. Now, despite the huge drops we've seen in the market this year, all the major averages are down at least 10%. 20% for the NASDAQ, but my next guest says the bottom is not in and the fundamentals matter more than ever. David Traynor is with us now. He's the CEO of new constructs and investment research firm. David, when are you going to feel like maybe we've put in the lows? You know, I'm not good at timing the bottom here, Kelly, but I just think, look, the saying that counted on the way up, don't fight the Fed is going to count on the way down. We've got years and years of excess liquidity that we have to unwind. There's

still a lot of really overpriced stocks out there. So we've not seen the end of the pain. I think we've not seen the sort of end of the speculative bubble popping. And in the meantime, what investors need to take away from this is that it's time to sharpen your pencils and get back to making sure you invest in real companies with real earnings. You say we have years and years of hyper liquidity to drain out of the system. Does that suggest that it's going to be years and years of the kind of markets that we've seen over the. the past six to eight to 12 weeks? You know, Tyler, I think that's the million dollar question here. I think the Fed has been looking to sort of walk a very fine line. And the question is, do we rip off

the band-aid and see the market sink and plunge the economy into recession, or do we try to make this a gentle and gradual unwinding? Never in the history of the world have we been able to make it a gentle and gradual unwinding. So it would be a feat never before accomplished. And, it doesn't appear that after the last couple of days, they're going to be successful in accomplishing that feat this time around either, Tyler. But I think that's what they're going to try to do. And I think that's part of why the Fed took such a gradual dragging their feet approach to addressing inflation.

I think the result is that now they're a little behind the curve and the markets are catching up now as the Fed is catching up to being behind the curve on inflation. Cisco, CarMax and Ford. Why those three? Mainly because they're cheap and they don't. generate a ton of cash flow. All of those stocks trade at discounts to their no growth value. In other words, the stock prices assume that their profits are going to permanently decline while those companies are generating huge amounts of cash flow and have great growth prospects.

Not top line growth prospects like we saw with fancy tech or popular tech stocks where they were growing 20, 30, 40 percent at the top line and zero at the bottom line. But all of these firms have great prospects, all those forms of great prospects for cash flow growth going forward, while market expectations are for cash flows to permanently decline. Well, that's the theme of this hour, isn't it, looking for those cash flows? David, thanks so much. We appreciate it. All right. And ahead on Power Lunch, while the Federal Reserve has the tools to try to curb some inflation, it doesn't have the tools to influence, let's say a war, global shutdowns of economies, a lack of workers, reduced food output. Ron Insana dives into what the investment.

have wrong about the Fed right now. We'll be back in two minutes. Welcome back to Power Lunch, the S&P financial sector, trading lower today and for the week, but some of the bank stocks are holding up relatively decently this week overall. Check out the S&P Bank ETF, the ticker KBE, off by around 2% or so today, but despite that still in green, just a little bit there for the week. Similar story with the regional banks, trading in the green for the week as well. Take a look at shares of Citigroup, up about 6, percent so far this week. Bank United shares up around 5 percent and then B of A, Bank of America, up around 3 and a half percent.

So keep an eye on some of those bank stocks. Tye back over to you. Got you, Dom. Thank you very much. Inflation, a key issue, of course, facing the market in the Fed, the Fed policy, being blamed for much of that inflation. But in an op-ed written by our next guess when it comes to Fed policy, investors may have it all wrong.

There's only so much the Fed can control. Stopping shutdowns, ending wars, controlling the supply chain. Not on that list, according to Ron. in Sanna, CNBC, senior analyst and commentator, also a senior advisor to Schroeder's America. Obviously, that's true, Ron. I mean, there's not much the Fed can do about shortages or the supply chain or food imbalances or even energy prices, right? Yeah, and everybody's suggesting that Jay Powell emulate Paul Volker. And I said, instead of being a Volker, be a Vulcan. It's illogical to be going after inflation

in this way. I mean, obviously the Fed needs to normalize interest rate policy. But Jay Powell himself, on Wednesday, Tyler, as we all heard, said that we have nearly two open jobs for every unemployed worker. I just don't see where raising interest rates more aggressively, as some have suggested and demanded that the Fed do, solves any of these problems. We are literally short people in the United States. Not just workers. We're short people. Population grew at its slowest pace ever last year. There's a bit of a baby bust that's starting to reverse a little bit. But we have constrictive immigration policy still. Even as Joe Biden tries to reverse some of that, there's a political outcry about it.

And again, even when it comes to food shortages, bird flu is in something like 37 states here in the U.S. Fed can't do anything about that either. So I wish that people will be looking at a more measured response from the Fed and be looking at other solutions and other policy prescriptions that would change the outlook in the longer term, if not in the short run. So then I guess my question is, if I stipulate that the Fed can't do things about bird flu or China or so on, would you, are you critical of what they're doing? Or are you saying at the same time that we need some breaks? We need some good luck on some of those things like COVID, like bird flu, like the war. Like China. Yeah.

I mean, you know, China's literally nailing people into their apartments and deliver. And there are a thousand boats, as we discussed, I believe last week, off the coast of China, that aren't going anywhere. And I'm not critical of the Fed so much as those who want Jay Powell to be Volcker-like. I'd rather he be Mr. Spock. Think this through. You know, when Volker finally turned the corner on raising interest rates... Do you think he's not thinking it through?

What tells you that he's not? I would say, well, certainly the people around him aren't. They're thinking that they're going to defeat inflation by raising interest rates when it's simply not the problem. It's not a policy issue. Fiscal policy is actually restrictive this year. When you look at first quarter GDP, the decline in government spending took three percentage points off growth in a minus 1.4 percent quarter. So we would have grown otherwise.

And so we're not certainly not counting on fiscal stimulus, probably nor should we at this juncture. But if you've got fiscal tightening and monetary tightening, it seems to me that the feds almost hell bent on doing what Volker did, which was to create a recession to drive down inflation when the two periods are not analogous in any way, shape, or form. All right, Ron. Thank you very much. Have a great weekend. Wish your wife a happy Mother's Day.

Same to you, sir. Thank you, my friend. The whole time, I'm like, no, no, I want to get in. Ron, we're going to bring you back. We're going to have debate about inflation in the Fed. Anyway, team full point hike. Three stocks, three trades. We have three names that are holding up amid the volatility.

Not only are stocks higher this week, but they're crossing some key technical levels to the up. side, our trader is taking his position on these bright spots. Don't go anywhere. Welcome back to Power Lunch. Believe it or not, amid this mega two-day sell-off, there are some stocks holding up, not just in performance, but maybe even on the technicals. Illinois Toolworks, for instance, Borg Warner, Zilem, the water name, three stocks that have surpassed and stayed above their 50-day moving average in the past week and are up about 4%. Let's bring in our trader to see which of these names are worth owning, if any of them are not.

Jeff Kilberg is CIO at Sanctuary wealth and a CNBC contributor. Jeff, great to have you here today. Would you pick up Illinois Tool Works? It's up 5% this week. Well, Kelly, here's an industrial name. We beat the drum a lot on industrials. Illinois Toolworks located about 15 minutes away from the office here in Chicago. This is a name for the first time, to your point, is back above its 50-day moving average.

All the names we're going to talk about today are back above the 50-day moving average. But here's a name that beat Q1 earnings by about 2% estimates. We also saw the sales beat by about. about 5%. But I think if you look at this name, maybe a comparable is John Deere. With the 4P of 22, it's a little more expensive than John Deere, but yes, only being now 15% a year today, I think this industrial name has the ability to move. It has come really close to its 52-week low, but I'm adding to a position here. I like ITW. Your picks here go with the idea that we heard on Scott's program. You've got to change your playbook now. You can't go with the old

the old winners. So your second one here is Borg Warner. I've not heard anybody out here over the past decade. Get me some Borg Warner now. That's what I want. And get me some Illinois tool. That's what I want. No doubt about it.

And we've talked about this new playbook, Ty, for quite some time. We had to have this grappling and this wrestling match between growth and value. But all of a sudden, boring names came back in vogue. So we've actually owned Honeywell, so I don't owe this name yet. I'm looking at it. It's being considered on our list. But if you look at, you know, this is the leading auto supplier.

So certainly we've seen a lot of car market inflation. We're looking for that to abate. But I think if you really dive into Borg Warner, which is not a name you talk about a lot, right? This is a $9 billion market cap name, very small market cap. But at the end of the day, they're going in the EV. They're doing a couple things. So, yes, it gets interesting. I'm not buying yet.

Again, I've owned Honeywell instead, which is about $132 billion market cap. But yes, there's reason to kind of dig into a consumer cyclical name like Borg Warner. Yeah, it's the stuff you haven't heard them. It's that rotation from what you know to what you don't know. Zylam, Water Tech name. You like it? I do. This is actually a central 40 name. We've owned this for a couple of years. This is one of the leaders. But when you talk about breaking technicals, go back to December, Kelly, when it broke its 50-day moving average. And I think when you talk about water, when you talk about being the global leader in water technology, this is a name that you want to know. This is a critical name. You know, they're in 150 countries with about 16,000 employees worldwide.

So this makes a ton of sense to add here. But I think you really have to understand in a week like this, Kelly, you can't flinch. I go back to my Lou Holtz days. You can't flinch. You have to realize where there's opportunity. In a week like this, all these names, yes, they are up, but they're still down on the year.

So this is where you can be selective. This is really going to decipher what is going to make sense. And these are the type of names, two industrials and one consumer cyclical that makes sense moving forward as volatility is by no means going to abate anytime soon. No, so you're basically saying no matter which way the overall markets are going.

You can be comfortable with these picks. That's right. You have to understand that these are market capitalization much smaller than some of the names we talk a lot about, it's the Amazon and Apple's. But at the end of the day, this is 2022. This is a different year. You have to understand sector exposure, stock exposure. And when you look at the 52 week lows on some of these names that we don't really talk a lot about here on CNBC. These are some of the names that offer opportunity if we do see a little bit of a snack back.

Because if you remember, the last couple of years, certainly has been volatility, Kelly, but the biggest risk to the, marketplace is not being invested. All right, sir. Thank you very much. Have a great weekend, Jeff. Jeff Kilberg. You too. Happy Mother's Day, Kelly. Thank you. All right. Up next, believe it or not, despite the sell-off and the extreme moves, there are stocks in the NASDAQ 100 that still have triple-digit multiples. Wow. Get me some of them. The names are next. Welcome back, everybody. There's been a lot of damage done to high valuation stocks, but there are still a number of names in the Nounstack 100 with triple digit. And are we talking price to earnings multiple? We are talking forward price to earnings multiples. So I mean, there's a debate here, right?

Because, you know, folks say that looking at forward PE ratios is a better indicator of what it could look like in the future. But then there's always that whole, well, it's estimates we're talking about, right? These are not actual numbers. And we all know analysts don't always get it right with their predictions. But if you want to take that forward tilt towards looking at valuations, let's start with that forward PE ratio and do it for the NASDAQ 100 overall. According to data from FACSET, it currently sits right around 22 times forward anticipated earnings. At the highs in the post-pandemic recovery, it was closer to around 31, so there's definitely been a valuation compression. But to Kelly and Tyler's point, there are still a handful of stocks out there that trade,

with some of these triple-digit valuation when it comes to how much you will pay today for every dollar in anticipated earnings in the next year. Take a look at these names. Z-scaler trades, according to Data from FACSET, with a roughly 318 times forward price to earnings ratio at this level. Data Dog, around 157 times forward earnings. Crowdstrike 149, Mercado Libre 134, and Amazon, roughly about 100%. So again, if you take a look at the valuation picture, there's an argument to be made by some folks out there that we talk often about the opportunities in trying to buy dips, has it fallen enough? There are also people out there, Kelly and Tyler, who are looking at this saying, you know, valuations could come down even further if some of the stocks within the large cap NASDAQ 100 index are still trading at very, very lofty valuations. Those are really outliers, right?

Those are outlines. Those are truly outlines. Well, because that's why I showed you. Is there something in those individual companies about the way they report products, excuse me, profits, or the way they do their accounting that causes those numbers to be that high? There could. You notice a lot of these are cloud-based type firms, software-type firms. So there could be nuanced with regard to how they report their numbers and what the valuations assigned are.

It could also be that many of these names had massive run-ups, right? in the pandemic recovery. And then all of a sudden, now as earnings expectations start to contract, maybe they are contracting further in certain ways than the prices are. So remember, price to earnings has two different multiples. It could either be an extension of the price, which is not exactly happening right now because many of these stocks have already pulled back quite a bit or a ratcheting upward down of certain earnings expectations

for the coming year. Now, you could say that for many of these names, maybe those earnings expectations are coming down a little bit faster. So it could be an interesting point to look at. All right. Have a great weekend. You too, Ty. Happy Mother's Day.

You know, I keep trying to say YouTube. You guys, too. All right, don't forget. We've got Power Lunch on Podcasts. You listen to the whole show and past episodes. Subscribe to your favorite podcast platform.