Power Lunch - Playing the economic turmoil, bet on biotech into recessions and mortgage rates risk 4/29/22

Episode Date: April 29, 2022

A huge down day for the markets as investors digest a slew of economic data. How do you position your portfolio for an economy that’s on edge? Plus, strong dollar plays…why biopharma outperforms in recessions… and waiting for the Berkshire Annual Meeting. 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 Lunch for a Friday, busy Friday. I'm Tyler Matheson. Here's what we've got in store for you this hour. The market's saying goodbye, goodridden's to April. The NASDAQ on pace for its worst months since 20,08 are stocks, however, poised potentially for a turnaround. We'll look at some of this month's worst performers and see whether, say, a rebound could be coming. Plus, lots of issues facing the market. You got your inflation. You got your Fed. You've got the war in Ukraine, you've got COVID and China and shutdowns there, but we'll look at one that is really starting to hit company's bottom lines. Maybe it's come out of nowhere for some of you. Maybe not. It is the strong dollar. Which stocks can hold up best, which could be hurt the most. Kelly?

Add that to the laundry list of concerns, Tyler, just like you said, the strong dollar now one of them. Welcome to Power Lynch, everybody. I'm Kelly Evans. Dow's down 565. We are just off session lows. S&Ps down 100 points right now to 4184. That's a 2.4% drop in the NASDAQ. Again, the worst performer, much like it's been all month, down 2.8% today. And that means the NASDAQ is about to close out its worst month since October of 2008. We don't make that comparison all that often, but it tells you about the scale of the sell-off that we've seen here. Amazon having its worst day in nearly 10 years, that's not helping.

This after the company posted a loss and issued weak guidance. The shares are now down about 14%. and are 34% off their highs. It's dragging on consumer discretionary, obviously. All the sectors are lower today. But this one by far the worst down almost 5%, 14% for the month, 20% for the year. There's a lot weighing on the mind of the consumer right now. And that's weighing on the recent economic data.

Let's go to Steve Leesman for more. Steve? Hey, Kelly, yeah, a lot weighing on consumers' minds. But incredibly, they continue to spend above and beyond inflation. This morning's personal income and spending report. showing that consumers are keeping pace with rising prices and then some. It also provided more reason for the Fed to hike 50 basis points at this meeting next week, as if it even needed one. Here are the numbers.

Spending up 1.1%. That's the nominal number. It had a nice bounce back in service spending, which is what you'd expect as we move away from the Omicron wave. But take away inflation and real spending up just 0.2%. Income up 0.5%. Take away inflation and real income actually fell 0.4%. Consumers made up the balance, of course, by reducing their savings rates. The PCE inflation index, that's the Fed's preferred inflation indicator, hitting a new 40-year

high of 6.6% year-over-year. But the core, a touch better behaved, dropping the 5.2 from 53, the first declines since November 2020. But the ECI, the Employment Cost Index, telling a worrisome inflation story. You'll remember that Fed Chair Jay Powell told markets he's watching the ECI for signs of wage push inflation had dropped in the fourth quarter. You can see there on the chart came raging back in the first quarter. The index it puts together the cost of wages and benefits, now accelerating at a 5.8% annual rate.

That's the most we've seen since 1984. The Fed didn't need any more reasons to hike by 50 basis points next week and probably doesn't need much more to hike by 50 in June again. There's no hint in this data inflation that's peak, so there's nothing really to make the Fed's second guess the need for rapid and repeated rate hikes, folks. And Steve, a lot of people's wondering about how much, you know, spending power the consumer still has. How much is in savings? The saving rate has come down, obviously. How much are they, you know, going to keep benefiting from higher wages with inflation being so high?

Good, good questions, Kelly, of course. So the savings rate came down a bit. We do see them reducing savings, try to keep pace with inflation. We're running below the pre-pandemic savings rate, which was up near the in the low sevens. And now we're in the low six. so a percentage point came off. But there is a lot of talk out there, Kelly. We can't know exactly how much that there's still quite a bit that people have saved from the pandemic.

So at least for a while, people are willing, when they see some of this stuff as temporary, this is what the theory says, that they'll use that savings to maintain their standard of living as long as they see it as temporary. It's when they believe that these prices are permanent,

that they'll begin to shift and keep the savings rate the same and then reduce spending. and that's when the economy gets into problems. All right. Steve, thank you very much. All right, so how should an investor interpret all of these economic data? Is it suggesting it's time to get defensive or maybe to pick up some bargains? Let's bring in CNBC contributor Greg Branch, managing partner with Veritas Financial Group.

Greg, it's always good to see you. I want to start before we get to names and sectors with a little bit of backdrop here. You expect that there is the possibility of a recession by year end. You think the market may have a leg lower, but you think you'll be able to find relative performance in companies that have the ability to deliver double-digit earnings growth over the next two years despite these headwinds. What do those companies have in common with each other? Yeah, those companies all look the same no matter what sector they're in. They have three characteristics. The first is they have sustainable demand powered by secular tailwinds.

That is the demand is not fleeting. It is not dependent on discretionary spending. It is not necessarily dependent on the consumer's health or lack thereof at the end of the year. And so you'll see that in some sectors with enterprise. You'll see that with things enjoying secular tailwinds. The second thing is that they have pricing power. That secular tailwind, that consistent demand, often gives them the ability to pass on those increased costs to consumers. And lastly, as a result of those two things, we largely see, and partly think,

management argument. Margin expansion or at least margin integrity. We've seen that from some companies this quarter, but those are the type of companies that can give us some certainty with regard to earnings growth in an environment. And that's the ability to manage through these situations and pay a lot of attention to cost management along the way. One of the categories that seems to hit on all of those three metrics

is parcel delivery. Why and which one do you like the most? Well, that choice is clear right now. You cannot help but admit the superiority in terms of the management at UPS. It does enjoy a healthy premium trading at roughly 15 times to FedEx is 10 times. But the industry itself is under capacity. In a recession, might there be some reduced demand? Yes, there might.

But at the end of the day, demand is growing at 10% while capacity has been growing at 8. and the industry is already severely undercapacity. And so that's the type of environment where I look to and say, this is a long-term story, where they've already demonstrated the ability to pass on the higher cost of fuel and the higher cost of labor to their consumer and essentially have a duopoly where I expect them to continue with that ability to price.

Greg, I don't know if you caught our interview with Kathy Wood last hour, but as somebody who likes certain names in the cyberspace, or some of, you know, some of the growthy names, even while you have a cautious view on the market, do you have any response to the struggles of some of those marquee stocks, like Teledoc, you know, like UiPath, like Roku, you know, what are your thoughts on the sort of three to five-year performance prospects of that basket of names, which a lot of retail investors are looking at right now,

versus some of the other names that you have singled out? Yeah, look, I think it's a valid question, and I think the question is actually even broader than it's been positioned. Even when you look at large cap tech, there's a vast difference between something like an Amazon or an Apple that's going to grow single digits and something like a Google or a Microsoft that has consistently put up 20% plus top line. because at the end of the day, it's really hard to have a consistent double-digit bottom line

when you're only getting a single-digit top line. And so I separate the week from the chaff where I have visibility into that double-digit top line, and margins will come and go. You know, Google gave us 1,500 basis points of margin expansion over a year period before the last two quarters. But at the end of the day, we really need to see and have certainty in that double-digit top line. And we can debate whether or not the cost side is being well managed or not. It's really just hard to get that double-digit bottom line without that wind in the fact. That's a really interesting way to put.

I like your question better than my question. So thank you, Greg, for joining us today and for your thoughts on the market. Always my pleasure. Greg Branch. One of the many headwinds facing stocks right now, like Tyler said, is the continuing rise of the dollar. The dollar index just hit the highest level in nearly 20 years this week and is having its strongest months since 2011. Against the yen, it's at a 20-year high. Against the Chinese yuan, a two-year high. With the euro, we're inching closer to parity. The move's certainly going to have an impact on

earnings next quarter with big companies like Alphabet, Microsoft, Meta, Pepsi, Mondali, service now even warning about currency headwinds, giving us the best example of what may be ahead. Philip Morris lowering its EPS forecast by 15 cents because of the stronger dollar. Joining us now is Jack Ablin. He's founding partner and chief investment officer at Crescent Capital. Jack, is this an impact that you think is going to be priced in or an exogenous hit? Well, I think it's unfortunately another factor that has to be weighed in. You know, when we're looking at equities, obviously it's really a function of interest rates and earnings. And so having a strong dollar is certainly ahead when at least to some parts of the market. Absolutely. You have a list of names here that are able to withstand dollar strength. The name like Walmart, you know, seems intuitive, very domestic focus, W.W. Granger, automatic data ADP.

More vulnerable, you put some of the best places in the market that investors like to go, like Apple, Microsoft, Alphabet, even Tesla. You know, is there a difference between vulnerable and, you know, going to suffer because of it? Yeah, I mean, I think if you're just looking at, you know, how these stocks perform relative to the vagaries of the dollar, you know, that large tech semiconductors, you know, we have to keep in mind that, you know, these large tech players generate nearly half of the revenue overseas, and semiconductors generate nearly three quarters of the revenue overseas. So, you know, you're producing potentially in this country, selling overseas, and then translating those

overseas, that revenue back to domestic profits, you know, that's going to be a near term hit. But we have to keep in mind, if you look at the dollar fundamentally against most currencies, it's pretty well overvalued. You know, you take, for example, purchasing power parity, which, you know, is essentially the Big Mac index, if you buy a Big Mac in this country, translate it to yen right now and go to Japan and buy a Big Mac, you'll actually be able to buy two Big Macs. That's how different the, you know, are undervalued, I should say, the yen is right now relative to the dollar. So I do think that there are going to obviously a lot of technicals, the fact that we've got a, you know, a bombastic Fed that's flapping its arms, that's

calling for 50 basis points this month next month. But I also think that the ECB, now that we saw inflation, German inflation, at 7.5 percent, I think the ECB is going to respond also. So we are going to see some euro strength. I think eventually the Bank of Japan is going to capitulate and support the currency. And then ultimately, fundamental values have to play out. You can't simply, you know, I mean, maybe we should just all rush to Japan and buy Big Macs right now. Just because I'm thick on this, Jack, I need you to explain some things here. Basically, when rates go up, whether it's German rates, they're in euros or American rates, they're in dollars, that means that money is translated into that currency, which would raise the value of that

currency, dollars in the case of U.S., euros in the case of if Germany raises rates. Is it as simple? Have I got that right? Not if I'm right. Not obligingly. Okay, beautiful. Question number two, is it as simple if I'm a domestic investor as looking at U.S. companies and saying, if you get a lot of your revenue from overseas, you're vulnerable.

And if you get not as much revenue from overseas, you are less vulnerable. vulnerable. Yeah, I mean, you can also flip the script and say, who's going to be advantaged, right? Walmart is buying most of their stuff overseas and selling it in this country. They're going to actually be advantaged. W.W. Granger, same sort of thing. They have a domestic client base. So, you know, if you look at utilities, a lot of energy companies, they're able to actually,

you know, take advantage of a strong dollar. So it's not necessarily defense either. Just because I have to think about this hard. My brain goes on tilt when I have to think about this. If I'm a company that is buying overseas with a strong dollar, that strong dollar means I can buy more stuff for less, right? And the problem for those companies that are hurt is that when the strong dollar is in place, when I want to repatriate my revenues from euros, say, into dollars, I get fewer of those dollars back, right? That's it. God, I can take the rest of the day off. That's a near-term problem. But, yeah, absolutely right. And ultimately, I mean, you really should, you know, at the end of the day, you should only be able to buy one Big Mac, no matter where you go.

And so I think that yen is an extreme example. But if you look at the Euro, I think it's, you know, 7 to 10% undervalued. Canadian dollars, probably 10 to 12% undervalue. So there are a lot of places that still near term, yes, absolutely. Dollar's huge tailwind, but I think it'll eventually work its way out of the water. Really, really good advice, Jack, only buy one Big Mac wherever you go, right? Jack Ablin, thank you, sir. Coming up with the market extremely volatile investors concerned about a possible recession, are there safe places to hide? Our next guest says biopharma may be one of those places, and he's got some names,

plus another bad sign for the market. It's not a single stock, not one, hitting a new 52-week high today. But several big names are hitting new lows, including Amazon, Verizon, and Comcast, parent company of this network, much more market coverage coming up. High inflation, rising rates, supply chain woes, just a few of the warning signs about the U.S. economy. So how should you be protecting your portfolio? Our next guest says biopharma could be your best move. Let's bring in Mohit Bonsal.

He's a senior equity analyst at Wells Fargo. Mohit, good to see you. And this is a contentious sector to talk about because it has been a tough go for investors lately. Why do you think its fortunes are about to reverse? Thanks, Kelly. And yes, so the number one question we are getting right now is that if or when, whenever we get into recession or if that happens, what are the prospect of biopharma sector? And we looked into the past recessions, and that's why we are favoring the sector right now, because in past four recessions spanning over the last 30 years, biofarmac sectors has performed every time in those past four recessions.

In addition, these diversified pharmaceutical companies, especially, they perform well heading into recession as well. So that's why we are pitching for this sector because the numbers don't know, numbers are favoriting. second. Although this is a weird period because we're all kind of talking about inflation recessions. You know, in other words, if biopharma has done well in the past real actual recessions, you know, times of weak and poor demand, will it fare differently this time around when high inflation is the big sticking point? Right. So for that reason, we looked at the 1990 and 91 time period. biotech was really in infancy at that point, so biotech is not the right comp there,

but pharmaceutical companies actually did perform well during that recessionary period as well, which was driven by high inflation. So I think for that reason, we think the sector could perform really well at this time as well, and I think some of it is already happening over there, where investors are taking their position in the sector to avoid any, as a safety case. Your stocks, I'm told, are already wildly outperforming the market. Are you seeing

what you would expect to see from them, given the circumstances? Yes, exactly right, because, I mean, overall, I mean, I hear you were talking about effects impact on certain companies. So there is effects impact on our biopharmaceutical companies as well, but it is much less significant compared because U.S. is the bigger.

market for these companies. So overall, all these macro issues are not as big a factor for these biofarmar companies, Ukraine exposure, supply chain issues. So we are already seeing a little bit of safety pay there where people are asking us more questions around these biofarmament. Yeah. And there is the insulation that people continue to get sick, doggone it, and they need medicines, right? And that's a recession-proof. That's a recession-proof factor there. That's absolutely right. And I mean, if you are sick, you have to visit the doctor. You are not going to see whether or not this is a recession or not.

So, I mean, these doctors visit and demand for medical services does not go down during this. Mohit, thank you very much for being with us. Mohit Ponsal, Wells Fargo Security Senior Equity Analyst. We appreciate your time. Thank you. All right. Further ahead on the program, Buffett's bets are crushing at Berkshire up for the year. What's on the menu for the company's annual shareholder meeting that's this weekend,

plus just over an hour left in the last trading day for a little lamented month. Let's put it that way. One of the worst Aprils we've ever had. Yes, we'll take a look at some of the biggest laggards when Power Lunch returns. Welcome back, everybody. Time now for our weekly ETF tracker. And we're focusing on gold and silver with nearly a billion dollars of outflows this week. The rising dollar, the likelihood of,

Fed rate hikes. It's all at play here, but so is an increase, or I should say, really a decrease in demand from China as those shutdowns continue. So take a look at some of the key individual ETFs here. The Vanek gold miners down 4% this week, Spider gold down a little bit more than 1%. And I share silver off nearly 5%. All of this data comes from our partners at Track Insight in the Financial Times. But as you can see here, where you're exposed, there's definitely some differentiation as investors reconsider this whole space. Let's get to contest. Brewer now for the CNBC News Update. Contessa. Hi there, Kelly, here's your CNBC news update right now. The EPA has issued an emergency waiver to allow gasoline blends with more ethanol this summer.

That move is expected to help slow price increases over the next few months. It's considered a temporary win for the biofuels industry and corn farmers and sort of a setback for oil refiners. A Colorado prison inmate is the first person to test positive for bird flu in the latest U.S. outbreak. That man was working at poultry farm, calling birds infected with the H5N1 virus. He has since recovered. Federal health officials say they still see a low risk to the general public. And in New York, an endangered kangaroo Joey has been born. True to their name, the Matches Tree Kangaroos live in these trees of Papua New Guinea's cloud forest, up high. This little one just now started peeking out of its mother's pouch.

It is the first of its kind born at the Bronx Zoo in New York City since 2008. Fewer than 2,500 of these animals are believed to be left in the wild sweet. Kelly, Tyler. That is really amazing. Look at that thing. Just peeking out there. Here it is. Kind of weird looking when they're that small.

Yeah, yeah, yeah. Okay. It's going to get better, I promise you. All right. Thanks, Contessa. A head on Power Lunch. Mortgage rates were skyrocketing to their... highest level since 2009. Could this spell disaster for the already struggling home building?

Plus a mysterious market. How do you navigate what some are calling unprecedented volatility? Ron and Sana weighs in next. Power lunch is back in two. Welcome back everybody. We've got about 90 minutes left in the trading session. Nasdaq and S&P at session lows. The Dow closing in on it will get you caught up on everything, stocks, bonds, commodities, the whole kit and caboodle and how to deal with the volatility we've been seeing down sharply one day, up the next, down the next. Tom Chu, on this selloff we're seeing right now. Tom. Overall, it's going to be down, right?

Session lows right now in the market. What you're seeing is pretty much that level that you are kind of witnessing the Dow, the S&P, the NASDAQ, each decidedly lower. The Dow is actually outperforming, if you want to call that, that only down roughly 1.5 to 1 and 3 quarters percent. Meanwhile, you've got losses of 2.5 percent plus for the S&P, around 3 percent for the NASDAQ composite. It certainly doesn't help matters when the biggest sectors in the market, like tech, like comm services, like consumer discretionary, are among the worst performers so far on the day.

And that's due, of course, in large part to that sharp move lower in Amazon shares. Now, by the way, extending losses to the worst levels of the day, it's getting worse. It's down 15% now on sharply higher than average trading volume after that disappointing earnings report and forecast out last night. Apple's over 2.5% drop after its forecast, disappointed some analysts and investors, is making things worse as well. Now, make it, remember, combined those two stocks alone make up roughly 10% of the entire S&P and a whopping 20% of the large-cap NASDAQ 100. So if you are a bear, those are helping you out. But if you're looking for bright spots today, check out what's happening with Mohawk Industries. It makes flooring products.

it's the best performer in the S&P after a bullish quarterly report. And then there's Honeywell as well up after the industrial conglomerate B-profit and revenue estimates. It also raised its full-year forecast. So it's not all gloom and doom, Tyler. A couple big specs of green out there. I will send things back over. All right, Dom, thank you very much.

Let's go to the bond market now, and Rick Santelli, who's tracking the action force. Rick, you had a piece of paper there that had all kinds of notes on it. Would you show us that piece of paper? It's just, it's the inside of your mind. Where is it? Look at that. Look at that, man. You know, I like to do a lot of my charts still by hand.

It's inside the mind of Santelli. Right there, baby. Look at that. I love it. Take it away, man. Today, we are finding so many things to pay attention to with regard to pricing and inflation. We obviously saw March personal consumption expenditure year-over-year deflator cross over a new threshold in this cycle at 6.6%.

40-year decade high since we've seen numbers larger than that. You could look at an intro of two-year and see that it moved yields at 830 Eastern when it was released. As a matter of fact, right now, that short maturity is the only maturity whose yields are higher than last week. It looks to make a new high cycle close, going back to December of 2018, as you see on the chart. All the other maturities are up on the session year-wise, but not on the week. Look at tens. This is a two-week of tens, and you can see on the 19th is when we had our heart. high close at 294, 294%. And here we hover at 288. They closed it 290 last week, Tyler, so

we're down a couple of basis points. But by far, as we come to the end of the month, the biggest thing to talk about is the dollar. Look at a month today to the dollar index up 5.3%. Look at a year today to the dollar index, up 7.3%. And why is this important? Because if you're outside the U.S. and you have any debt denominated in dollars, it's painful. And it's going to hurt. the global economy, and there's really not much that can be done about it. And the parking lot of liquidity known as reverse repos hit another record today as we get close to a Fed meeting, which is the clue. 1.9 trillion, Tyler, with 92 counterparties. Simple way to think about it. Chewy ads, RPs drained. They're like a sponge. And that's the way to look at it. Back to you.

So really good point. Great observation. Thank you, Rick Santelli. While stocks have had a rough week, oil has continued to rise 107 right now as it settles for the week. Let's go to Pippa Stevens at the commodity desk for the details. Hi, Pippa. Hey, Tyler, down week for stocks, but an up week for oil, the second positive week in the last three. WTI also registering its fifth straight positive month for the first time in more than four years. Supply concerns are driving the price action as an EU oil embargo against Russia draws near, and this is outweighing concerns around any lost demand from China. Let's check on prices.

WTI down half a percent at 104, 77, still higher for the week and month, though. Brent crude at 109.44, a gain of 1.7%. Nat gas, also having a big month here, up another 4.6%, bringing its April gain to 30%. Also wanted to note that diesel prices hit a record high today of $5.18, according to AAA. barges, trains, planes, trucks all run on diesel. And this is going to add to inflationary pressures across the economy. Tyler, back to you. Thank you very much.

Have a great weekend from rising oil prices to the Fed's monetary tightening. Rising rates, inflation. Investors have had to deal with a slew of headwinds in this market. Our next guest has some thoughts on how to play the unprecedented hand. Investors have been dealt. Ron Insana is a CNBC senior analyst and commentator. He's also a senior advisor to Schroeder's North America run. I want everyone to look behind you because behind you on your bookshelf are a tremendous number of what appear to be biblical related books, Jesus.

Have you simply given up and have taken to prayer for this market? Well, actually, no, that process behind me after about 13 to 15 years of study actually led me to agnosticism. So I would just throw up my hands in despair instead. But we can get into my last. All right. That's okay. Let's talk a little bit about you and I both knew and grew up, and I think were largely sort of disciples to go back to the biblical reference of the great and late John Bogle.

And Mr. Bogle was fond of saying, when in doubt, don't just do something, sit there. Is this one of those times where maybe your best move is to do very little? Yeah, I think so, Tyler, look, I mean, we're in a global bare market for risk assets at the moment, with the exception of commodities, which are either in a super cycle or are certainly benefiting from all the supply chain disruptions and other issues like war, for instance, that are taking place that are pushing up the price of both raw materials and finished goods. So, yeah, I think in a bare market, you know, it's not horrible to have cash to find a better entry point. It's not horrible to look at municipal bonds, which have been absolutely battered. And some in high tax states, pardon me, are yielding about 3% on a tax-free basis. That's a 5% tax-equivalent yield. I think that, you know, people have become so accustomed to buying the dip that they don't understand how to sell the rally.

So I do think that, you know, this is our first kind of extended or protracted bear market that we've seen in a while. And I think it's going to take some time to heal. And one of the areas that you think is a place where you can park some funds for now are high yielding utilities. Obviously, it's the yield is the attraction there. And we're going to continue to consume electricity and other things they produce. Yeah, and it's a trade, Tyler, more than anything else. I mean, it's a parking spot for money, just like, you know, a cash account or, again, even Munis, whether they're shorter or longer term. And I think right now, when you look across the broad spectrum of things, and you alluded to this at the very top of the show, all the things that are affecting the markets right now, whether it's inflation, whether it's the war in Ukraine, whether it's China's lockdown, which is distorting once again supply chains, whether, even more importantly, it's the Federal Reserve going on an extended rate hiking cycle. All of those things are not net positive for equities.

And so I think you have to be careful here that the buying the dip mentality that's predominated, really, for much of our careers, quite frankly, with few exceptions, could be a little bit treacherous as we found out yesterday and today and in several sessions before this. Yeah. And a lot of those former leaders, we're going to talk about three of them in just a few minutes have actually been sort of kneecapped here, Netflix, Disney, PayPal, and others. Yeah. You know, you've got kind of a perfect storm of bad, well, I was going to say something else, stuff going on here. As you point out, you've got inflation. You've got this little thing called a war. You've got China on shutdown. You've got the possibility, maybe the probability of a recession either globally or in the U.S. or certainly the slowing of an economy.

At the same time that the Fed is doing the opposite of what it would normally do in a slowing economy, it is raising interest rates and presumably aggressively. Yeah. And, you know, I don't do this in an academic fashion. I don't sit and obviously do equations and things like that. But from my perspective, it's a 50-50 chance that we go into recession by the end of the year because of what you just said. The Fed is presumably going on half-point rate hikes now and going forward maybe as many as four times what people are speculating.

They may be draining a billion, $100 billion of liquidity per month from their balance sheet to do $1.1 trillion a year or thereabouts. So you've got a less friendly Fed. You have a very unfriendly tape. You have all the other issues that we talked about. And so, you know, the late Marty's Wig, if we're going to quote those greats who have passed, said you don't fight the Fed and you don't fight the tape. And neither is particularly encouraging at the moment. So I think when you look at that, and again, the Fed will do this, I think, until something breaks. And where the pockets of leverage are that might be the first to break, Rick alluded to it earlier.

You know, you have emerging markets, emerging market debt denominated in dollars that if the dollar continues to rise and rates continue. go up. And there was a very interesting piece from a Georgetown professor in the Washington Post earlier this week, alluding to 1981 and 82 and 94 and 95, where stronger dollar and higher rates created serious problems overseas. Serious debt issues. Ron and Son, I have a great weekend, sir. Thank you. Welcome, sir. You bet. Meanwhile, Warren Buffett is back to beating the market. He's up nearly 10% this year. How is the legendary investor managing through this? We'll have many more details on that.

And this volatility has been continuing this afternoon. The Dow down more than 600 points. We are at fresh session lows down 624. The NASDAQ down another 400 points or 3% undoing much of the rally we saw the last couple of sessions. We're back in a moment. Welcome back, big event coming up tomorrow. The Berkshire Hathaway annual shareholder meeting, it's back in person this year.

Becky Quick is already live in Omaha for us today. And Becky, it's going to be extra special tomorrow. here at CNBC. It is. Kelly, there's a lot that's happening. This is the first time in three years that this event's been held live. You see about 40,000 people that came. And there were questions about how many people would come this year because of COVID, because of the restrictions here at the meeting where you have to have a COVID vaccine.

You have to prove it before you can get in the door. But if you take a look around, you're going to see that there are already thousands of people here on the floor. They're coming for a lot of reasons. A large part of that is because they haven't heard from Warren Buffett or Charlie Munger about what's happening since last May. They haven't talked publicly about this. Haven't really talked about what's been happening with the markets, what's been happening with the Fed, what's happening with inflation.

And you're watching today what's been happening with the markets. And this is what these people want to hear from tomorrow. Now, Charlie Munger and Warren Buffett are already here. They did the floor earlier. We're checking things out before all the shareholders got let in on this. But again, a lot of people here, there is a little bit of a party atmosphere despite the fact of what's been happening with the markets today. I will tell you that this is not without controversy. There are some issues that have come up.

Calpers, which is a Berkshire Hathaway shareholder, has said that it's going to be withholding its votes for two of the directors, Sue Decker and Merrill Whitmer, because they want to see more disclosures on a corporate level about what's happening with climate change. Now, Mario Gubelli is also a shareholder. He was with us earlier today. He said he thinks it's stupid because if you look at the annual report, Greg Abel, one of the vice chairman, did his own letter that just talked about climate change, specifically what's happening with BNSF and with Berkshire Hathaway Energy.

We did get the chance to talk to Sue Decker earlier today, the director, and we asked her why they were targeting Sue Decker and Merrill Whitmer. Here's what she had to say. They're targeting Merrill and I because we're both on the audit committee, and the audit committee recently changed its charter to be responsible for ESG-related disclosures and operational activities. So in the end, that's why I think we were targeted. I think the core issue here is not one of substance. It's one of more the process of how we disclose it and how we communicate it. Berkshire has been both a leader in this and also has disclosed quite a lot of material at the two largest subsidiaries that consume the lion's share of the carbon footprint.

So Burlington, Northern and Berkshire Energy are really the two subsidiaries that matter. And Kelly, you alluded to this earlier. This is a big day tomorrow here on CNBC because we are going to be streaming the entire show tomorrow all day. CnBC.com slash Buffett if you want to watch the events and see what's happening. The whole show kicks off at 9.45 a.m. Eastern time. That's when we'll be doing the pregame show, and you're going to be hearing from a lot of people, including Jimmy Buffett, who will be joining us. Ron Olson is another director at Berkshire Hathaway, who'll be talking to us. Venture Capitalist and Tech Investor, Ann Wimbled will be here.

We'll also be talking to Bill Murray. He's going to be joining us because he's been a Berkshire Hathaway shareholder for a while, too. So we'll talk to him about a lot of things that have been out there, including how the film he'd been working on, The production has been shut down. We'll talk to him about that, too. Look, this is a huge issue with everything that's happening here today. Again, there's thousands of people here walking around. You can see the Geico Gecko behind us.

You can see what's been happening. Oriental trading has some of their guys that are around. And if you just kind of turn this way and show some of the crowd, Penny, come with me this way for just a little bit. Just so you see the crowd of people that are here. There's a lot of people on the floor. Again, the questions and answers tomorrow from Warren Buffett and Charlie Munger, that's probably center stage for all of this.

They'll be tackling all these issues about what's happening with the market. We can hear what they think about the Fed's moves, higher inflation. Warren Buffett has always said that interest rates, high interest rates act as gravity on the markets. And we're finally getting back into this position where we're not walking on the moon anymore. And there is some gravity coming back. So we hear from all of this coming up tomorrow. You can see it right here on CNBC. CNBC.com slash Buffett Live all day long through about 5 p.m. Eastern time.

You got a busy day ahead of you. Becky. Thank you very much. That was fantastic report there. And I just duly note that once we took the camera off, the gecko wandered off. He's a camera hog. So that's all. He's gone now, man. Aren't we all?

Yeah, right? All right. Well, I loved your outfit. It matched his. Thanks a lot, Beck. Appreciate it. Yeah. Netflix's rough month down 48%, but is the selling done we will discuss in today's three-stock lunch.

All right, folks, it is, as you look there at the industrials, they are down 670. 73 points. I'm pretty sure. That's almost 2%. I'm pretty sure that is the low of the day. Ditto for the S&P 500. As we round out one of the worst months, I think, what is it since for the NASDAQ since October of 2008? And we know what happened in that month. Yes, we do. That was the, yeah, we remember. All right, we're going to look at some of the, yeah, NASDAQ worth months since 2008. We're going to look at a couple of the stocks in our three stock lunch. Netflix cut in half this month. These are three of the real weaklings. of the past month. Week earnings, Disney down more than 15%.

And PayPal down more than 20%. We talked about these yesterday, several of them, during our stock draft with Jim Kramer and others. Let's now bring in Scott Nation, CIO and President of Nation shares. Let's start Scott with Netflix, which you still are staying away from. I am, Tyler. They've hit the subscriber growth wall. They found the upper bound on pricing.

they're calling last call on password sharing. And so some shareholders are going to say make mine a double. Others are going to say just leave the bottle because the risk now is management. This is a very different management problem for the senior leadership. They have $17 billion in content costs. They're going to have to cut that without alienating subscribers. That is a really different management problem. So a pass on Netflix, kind of in the same vein.

What about Disney, Scott? I think this is very different. All the news for Disney has been bad lately, and much of it, much of it is not their doing, but the news going forward should be pretty good. News from the theme park should be pretty good. Universal just said wonderful things about their own theme park business. And while Disney spends about twice as much on content creation as Netflix, it has several platforms. It's got more than one streaming platform, sports, regular TV, movies, And that diversification makes things very different for Disney. Disney would be my top pick of the three we're going to talk about.

And if you like the technicals, Disney's a little bit oversold. None of these charts are beautiful, but Disney's a little oversold. It would be my top pick among these three. All right. Let's go to the final name here, and that is PayPal, a stock that is attended by a fair amount of controversy, not having to do with anything they've done, but basically with what are they going to do next? That's right. They actually hit their most recent earnings expectations, but the forward guidance was just absolutely horrible, Tyler. Everybody's going to have to do a rethink on PayPal. Let's look at what some of the analysts have to say. The high analyst price target is $200 a share. The average is $1.26. The low is 85, and the stock is almost there. There's one. There's one, grand toll of one, seller under rate rating.

on PayPal and the EPS estimate for the current quarter has come down 20% in the last 30 days. And so until they figure out what they're going to be going forward, unless they figure out what that business is going to be like, I'd stay away from PayPal as well. All right, Scott, we appreciate you. Thank you very much. Have a great weekend, sir. Thanks, Tyler. With the Dow down almost 700 points, mortgage rates have been soaring.

That's hurt the housing market. It's driven demand for adjustable rate mortgages. This will have the latest on the macro right after this. Welcome back, everybody. Dow down 700 points a moment ago. We're just off that level. Look at the NASDAQ down 3.3%. It is closing out the month of April on a really sour note. And in fact, it's had multiple 3% moves just this week.

All the sectors are lower now, led by discretionary with that Amazon decline, real estate and tech. Speaking of real estate, how's it faring with mortgage rates sitting near a 14-year high? Let's check in with Diana Oleg. Diana? Well, Kelly, it was a bit of a head fake this week with the stock market selling off midweek. The average rate on the 30-year fixed actually came off last Friday's high of 5.45% as investors briefly jumped back into the bond market, but it did not last long. The rate was back up yesterday and nudged even higher today. You can expect to see it move higher on this sell-off as well.

Mortgage News Daily COO Matt Graham says rates are hunkering down near long-term highs as they wait to see what the Fed has to say next Wednesday. We know that each individual. incremental spike brings us that much closer to a ceiling, but it's hard to know how close we are at the moment. And of course, that's what spring buyers are going to want to know, Kelly, this weekend. Yeah, there have been a lot of people out looking. There's hopefully a lot of cash on the sidelines ready to go to work because rates are up. I was surprised at 14-year highs. A bad month comes to an end.

April showers brings, who knows what. May flowers. I mean, and what's interesting is to watch the progression of this year where January was a bad month, then February was a bad month, then March was a bad month. We had a bad first quarter to the year, and everyone said maybe April seasonally the strongest month for markets will come to the rescue. But no. We've got higher rates.

We've got higher costs and we've got declining wealth. That's the first time we've had that recipe in the United States in a long, long, long time. I mean, obviously we had declining wealth during the pandemic and we had it in 2008 as well. But this confluence of factors, including inflation, is really a different ball game. It's actually the perfect note for which to kick off the Berkshire Hathaway meeting tomorrow. This is a stock that is now outperformed. It's up 10% this year.

So it's not that everything's broken right now, but there is a violent rotation taking place. Let's see what happens in the next hour. Thanks everybody for watching Power Lunch.