Power Lunch - The Dow falls below 30k, Recession odds rise and protecting your portfolio. 6/16/22

Episode Date: June 16, 2022

The Dow breaks 30k as recession fears deepen. James Grant talks to Kelly & Tyler about the end of easy money and what it means for the markets. Plus, a chartist explains the key levels to watch on the Dow and the ETF that’s signaling a bounce. And, stocks that perform well during a slowdown. Hosted by Simplecast, an AdsWizz company. See https://pcm.adswizz.com for information about our collection and use of personal data for advertising.

Welcome as usual to a very busy Thursday on Power Lunch. We've got a sell-off on Wall Street amid an aggressive inflation fight that if it's not just starting, it's really getting some power behind it now. The risk of recession, it is rising, say most people. Stocks falling, the Dow breaking below 30,000 lowest level in more than a year. So what's ahead for equities, for bonds and the market as it undergoes this great reset with new opportunities potentially. We've got a big hour ahead as we track this continuing sell off, Kelly. Yeah, Tyler, thank you. And just to your point, let's look at we're near session lows right now.

The Dow is below 29,900. Down 860 was a session low. We're down 788 right now. We're 19. These are the in blue, the percentages that each of the major averages is off their recent all-time highs. The Dow's down 19 percent. The S&P's down 24 percent. The NASDAQ is down almost 35. It's trading at 10,600 and change its lowest level since September of 2020. Now, the blue chip names are getting hit by these recession concerns. Home Depot, Intel, Walgreens, J.P. Morgan, all of these hitting 52-week lows today. Every member of the Vanguard Semiconductor ETF trading lower as well. And that includes names like on semi, down 10%, AMD down at the bottom there, down 9%.

Those are some of the biggest laggards. What's holding up Walmart, Procter, and Gamble, Colgate? Palm Olive, staple stocks, known to be somewhat more recession-proof. These are gains still only of about 1%, Tyler. Well, what seems to have investors spook today, Kelly, is that a growing number of economists say a contraction in the economy next year is going to be difficult to avoid if it's not already taking route right now. Wells Fargo now calling for a mild recession following the feds three-quarters of a point rate hike yesterday, the largest since 1994. New data this morning pointing to a slowdown. Let's take housing starts off at a two-year low by 14% down for a second straight month. The Philly Fed factory activity index at manufacturing.

It contracted for the first time in two years. And yesterday we learned that activity in the New York Fed also contracted. New York state of mind, not so hot. All right, to fight inflation, the Bank of England hiking rates for the fifth straight time by a quarter percentage point. and the Swiss Central Bank, surprising the market with its first rate hike since 207. It is all playing out, folks, in the bond market where Rick Santelli is tracking the action. Rick, yields are lower than they were at this time yesterday. Explain why.

Indeed, they are. And there's a variety of reasons, not the least which is that many investors think whatever the ultimate terminal rate is for the Fed, that ultimately when we get there, the rest of the curve is going to be lower because the economy is going to be stalling. Listen, I know the definition of two negative quarters isn't really the definition of recession, but try to tell that to a trader who sees first quarter was negative, and the second quarter isn't looking a whole lot better. Look at a two-day of twos and a two-day of tens in the U.S., and you can see what Tyler is talking about.

As a matter of fact, two-year note yields are now under yesterday's low yield. significant because it's pushing curve steepening and even though stocks aren't all off their bottoms it's definitely getting more buoyant when that occurred just like it occurred yesterday the minute we started to see steepening post-Fed announcement at two eastern we did see the equity markets have the rebound it didn't hold today but the real tug-of-war is what the Fed's going to do how long and how hard it's going to be for them to get there versus how much damage is done to the domestic and global economy

And as Tyler pointed out, to Swiss, yes, they raised rates a half a percent. And it's still minus point two five. It's still minus one quarter one percent. And as you look at their tenure, it is hovering at the highest yields in 10 years. And as you look at what's going on in the UK after their fifth quarter point increase, it was largely expected, but yields there also just above 250 are hovering at eight-year highs, very similar to the boon deals. So ultimately what investors need to do is they need to divine which is more dangerous, trying to pick bottoms in the treasuries where yields are getting juicier or, of course, to try to pick a bottom in equities where recession talk is certainly making them much more squeamish.

Kelly, back to you. Rick, thank you very much. As global central banks move away from easy money, is a recession inevitable? Our next guest says that's the reset that's underway. It will bring prices back to reality. Let's welcome Jim Grant. He is founder and editor of Grant's interest rate observer. Jim, welcome.

It's great to see you again. Thank you, Kelly. Nice to be here. I would feel in an unfortunate way like the world, at least, is probably starting to make a little more sense to you than it did the past couple years. Yes, well, Kelly, this is interest rate liberation day. The Japanese peg on its 10-year yield 25 basis points

appears to have been broken or is breaking. And the Swiss is wrecked. just observed, have moved away a little bit from deep zero to slightly more or less than deep zero. So my take on this is that this is fundamentally to the good interest rates being the most consequential prices in capitalism, they ought to be market determined. And we have a living certainly since the great recession of so long ago with market, not determination, but prices being.

administered largely by central banks, these important prices being administered by the central banks. And it has given us, you know, lovely bull markets, but also, I think, to wholesale misallocation of resources of time and brain power. It's given us, the great crypto delusion has given us the immensity of private equity, highly leveraged, public venture experiments. and on and on and on. So I think that we are leaving the all of mirrors and that interest rates, if to the extent they will be determined in the marketplace,

will be the guide for the future. That's a good thing. Jim, you know, you can, I guess, sum it up. Payback is rich, but it can make you poor in this case. How much longer does this reset need to play out and how much lower than should we expect, for example, the stock market to go? How much recession risk is really baked into this reset

as we return to a reality where the markets determine what rates are as opposed to policymakers artificially depressing them? Well, I think the way to think about the degree of difficulty now, say the Fed is undertaking is to recall the, old fraternity trick in which the pledge is tasked with pulling out the tablecloth, so that fine crystal and glassware. And that pledge is likely to be unsuccessful. And there'll be a clattering sound followed by his too timid yank at the tablecloth.

And I think that is not a bad analogy. you know, inflation is a complex phenomenon, and certainly as we have all been able to observe ever so few predicted it, and now many are rushing to predict its end. So I think it will persist. I think the central banks will probably become the recipients of events will be leading the central banks. We've been accustomed to thinking that central banks are in charge. Events now, I think, will be in charge.

And on form moves exceed reason. It'll go too deep. Stock market perhaps too high in interest rates. But I mean, this is part of what we hear at grants called the value restoration project. And yes, it's painful. But it had to happen. And, you know, there are opportunities in the wings. And I think we ought not to get too discouraged.

Let's talk specifically as possible about those, Jim, for a lot of investors who are going to be nodding in agreement with everything you've said. Some of the markets are back to pretty much pre-pandemic levels. Do you buy equities in general here and feel okay about it? Are there specific stocks, sectors, or strategies that you would recommend? Kelly, let me tell you about a very small and kind of quirky, but I think quite inspirational small cap fund. It goes by the name of the Palm Valley Capital Fund.

And its remit is to buy small cap stocks over the course of a complete cycle and generate double-ditcher returns doing so. And it is managed by some people, very doughty, value-minded people who have in their determined way refused to buy until in their judgment valuations return to levels at which they can do what they pledge to do their stockholes. So this is $160 million funders, so very small, has mostly sad in cash not trying to predict the future, which certainly we have proven collectively we are unable to do, but rather waiting for valuations to meet their criteria. And they're up a little bit this year, like 120 basis points as opposed to everything being down a ton. But I think when I say inspirational, I mean that here are people who refused to contract FOMO. who have stuck to the gospel of Graham and Dodd. And I think they're kind of a beacon for people. We ought not to be discouraged, as I say, we ought to recall that stocks are not pieces of paper,

but evidences of ownership in operating businesses. Those operating businesses operate over the course of a cycle. Human affairs are jagged and not linear or, I don't know, one's pleasant. But it's a great country, a great economy. And now, Tyler and Kelly, we are looking at the promise of the liberation of the most important prices in capitalism from the midst. Do you even think there's going to be? Jim, quick last question. Do you actually think there's going to be a recession or it sounds like you're made more bullish and just think this is a valuation reset?

I think if I had to guess, which I guess I have to now, I think there will be a recession. But, you know, I think that much of the big money in the world is made in times of adversity. Yeah. So, again, be bold America and not in the way we used to be, but in the way Palm Valley is showing us out of it. Great place to leave you. I'd love to spend another hour talking to you about crypto, but alas, we don't have that amount of time. We'll have you back to talk about that, Jim Grant. Thanks.

Maybe the next crypto night in America. Crypto night in America. All right. So if the market is resetting, should you change how you invest? Let's bring in our friend and CNBC contributor Michael Farr, chief market strategist at Hightower Advisors and CEO and founder of Farr, Miller, and Washington. Michael, always good to see you. What do you think of what Jim Grant just said? I think Jim Grant's a wise man, has been, and a friend for years. Yeah, you have to start to begin to think opportunistically after a while when prices really pull back

and things go on sale. I thought the intro, too, when you talked about that new report out of Wells Fargo, Dr. Jay Bryson, was one of the best interviews I've seen on television in a long time yesterday with Kelly Evans. Kelly, absolutely one of the finest interviews I've ever seen you do. You nailed it, and he was so informative in that report. He was very plain spoken. I watch, Jay's good, but you were better. That was a great, great interview. Oh, you flatter. So I think Tyler. Watch that. You know something, Matheson, you could learn from watching that interview, and I don't say that blightly. You're still not getting on the Christmas part, West Michael Farr. She nailed it. I'm telling you. She nailed it. But look, so markets are pulling back, and we're down 24 percent.

And the average pullback for a bare market through a recession is 30 percent. So I'm not feeling Pollyannish or good about things, but we are historic. a lot closer to a bottom than we certainly are to a top. Things were high. They are no longer high. This recession that I think will likely come could take months to play out. So if we go down that 30%, the next 6% of capitulation could be painful and pain at the pump and pain at the grocery store for several months. But as Jim Grant said, this is when you start to look. and bare markets are where long-term investors make their money.

And when you see big-cap names that are really pulled back that have solid balance sheets, I think you have to begin to nibble. I never go kind of all in. I'm a very patient investor. I'll own stocks for a long time, and I love those procter and gambles and Pepsiolas and those names you were mentioning earlier. But I think there are others you can add now. So bad times are good, you can make good money in bad times,

or you can begin to do that. So let's nibble at some of those names that you do like right now and explain your reasoning for them. Let's begin with Amazon. And I'm amazed that, not amazed, I suppose, but you look at its three businesses and the one we associate most with it, which is retail, is sort of your afterthought here. Well, retail is kind of a loser. And it's the way they buy market share, basically at Amazon. They buy market share and a customer base by flat to low. losing money on their retail. The cloud and their cloud services are hugely profitable,

and so are advertising. And the more users and the more market share they soak up, the better. They've got a double A rating from S&P 500. They're down 40% off the high. 40%. So for all of the people who have been telling you for years, you have to own Amazon, you have to own Amazon. I didn't own Amazon. I thought it was too expensive. Down 40%? I think I start to nibble. look at a company, Tyler, like Disney. Disney's down about 50% from $185 to $93, $17 times earnings, 15% growing those earnings. They've got Disney Plus that's still increasing the subscriber base. The theme parks are coming back strong. We've lifted the vaccine requirement for folks coming to the U.S. So Europe is coming to the U.S. They're going to Disney. The park prices and ticket

prices are high. So you don't go all in, but I, I, I, I, I, I, I like these companies. Even Goldman Sachs at one-time's book, you get to buy Goldman Sachs at one-time's book. I don't mean it's going to go up next month or the month after that. But for the long term, I think you're very happy if you add to these positions at these levels and are patient, because five years from now, I think you'll be exceptionally happy. Yeah. My big takeaway there is that stat that you said, we're down about 23%, maybe a little more today on the S&P,

and that the average from peak to trough is about 29. 30%, which tells us that maybe we're in the sixth inning of this ugly game. Michael, if you thought Kelly's interview was good, you should have seen the interview I did with my son Mack last night over his grades. So Michael Farr, my friend. You know, I would have bought a ticket to that, too. They're good, by the way. I'm very happy.

I'm happy to be able to say that they're good. Adap boy, Mac. All right, Michael. Thank you, man. Out of boy, Mac. All right. I was going to say with some plain spoken, but sounds like he had nothing to hide. That's awesome.

Coming up with the Dow breaking back below 30,000 in today's session, should investors step in to buy? A look at what the charts say could come next and a look at one tech bellwether that's telling you something about where we're going. Plus recession proof your portfolio. Two names that could do well during a slowdown and one traditional safety play to avoid. As we go to break, the home construction stocks are down sharply today. Try Point and Taylor Morrison off more than 12 percent. We're back in a moment. Welcome back to Power Linch, everybody.

the Dow dropping back below 30,000 today for the first time since January 2021. And the NASDAX low rewinds the clock all the way back to September 2020. These round numbers get a lot of attention like 30K. But obviously for technical analysis, that's not necessarily what people are watching. For the key numbers here for investors, let's bring in Rich Ross. He's the senior managing director and head of technical analysis at Evercore ISI. Rich, do these, does today's trading have any significance to you? Yeah, I think it reinforces the current themes and trends that, unfortunately, we've been working on here for weeks and months.

Look, let's be clear, this is a financial crisis chartbook in search of a crisis. And if we don't stop going down soon, it's going to find one, Kelly. So talk through what the implications are for investors. We spoke to Carter Worth last hour who was starting to sound a little bit more constructive. Yeah, well, I'll tell you, we're seeing historic moves across asset. classes vis-a-vis straight lines higher in crude oil, interest rates, mortgage rates, credit spreads, gasoline, and inflation. And when those things go up in a straight line, stocks and consumer sentiment have a propensity to go down in a straight line. As a habit, I don't buy things that go

down in a straight line, nor sell those that go up in a straight line until those trends have displayed evidence of exhaustion, which is not readily apparent in the charts as we speak. So I'm not quite as sanguine as we speak here today. Sure. And he wasn't going off the charts yet, but almost more of a hunch, if you will. All right, the Dow, the K-Web and Apple, we have three, you know, sort of the market overall, a particular segment of it and a stock that you're watching here. So for the Dow 30, what do you see? Yeah, well, look, we know that the Dow has held up better than the S&P by virtue of its constitution with less technology and growth. When we consider the two of the top stocks and the Dow, which make up 15% of that index are United Healthcare and

McDonald's. They have a more defensive hue to them, down 9 and 11% year to date, compare and contrast that with the S&P, which is still very tech-heavy, dominated by Apple, Microsoft, and Google. I think we're familiar with technology and the stocks that dominate that. So, again, we can take a little comfort from the relative outperformance of the Dow versus the S&P. But again, when I take a holistic view at the sum of the charts, As it were, this is not a world in which the Dow only goes down 18%. And that's where we are today. So again, 29 is a line in the sand, $29,000, that is.

But I do not expect us to hold here if we continue down this course across asset classes. And my work would suggest that we will continue to go down this road. How long and how far? And I think you make a really critical point that we have to remember. The Dow is a price-weighted index. a highly priced stock like United Health counts for a lot more than a lower price stock. Yeah, you know, Tyler, look, you've hit the nail on the head here. Any bottom is a function of price and time.

In the old-timey days, it used to be a function of price, time, and Fed policy, which has essentially marked the low of every major market decline in recorded history. But in the absence of Fed policy support, of course, in the presence of inflation at a 40-year high, price and time are going to take longer in terms of both magnitude and duration. And I would put forth that here we are just six months from an all-time high, Tyler. And again, we went up for 13 years and we've gone down for six months. So for my work, the punishment still doesn't fit the crime. This one's going to take a little longer to work itself out without that help from the Fed.

And you'd still be a seller of Apple here, Rich, but you are a buyer of the K-Web. Is that right? Yeah, this is really interesting because in this macro malstorm, if you will, China has been somewhat of a port in the storm. And consider if we think back to 08 and no one likes the sentence that starts with 08 emerging markets in China, bottom months before the S&P bottomed in March of 2009. And I think history, both repeats and rhymes here as it pertains to Chinese internet names back in March. You saw that crescendo low on the controversial call from a competitor. And again, we come back around and retest that low, only to put in a critical double bottom,

which provides the catalyst for a breakout above that 20-week moving average. And I can tell you that what gets you out of a trade gets you in, look at the break below that 20-week. That came early last year. Here we are 18 months later reclaiming the level which define resistance for that downtrend. I love the double-bottom base breakout. I like the idea of that, which let us lower China now leading us higher. But again, don't take comfort in that as a U.S. investor. But do you take comfort in that if you buy Chinese Internet stocks.

Well, like you said, China bottom before the U.S. that time around. So I'm going to leave it on that glimmer for us now today. Rich, thanks so much. Thank you. Rich Ross. All righty. Up next, Tech Rec, the once high flying gross stocks, taking the biggest hit in that group, specifically.

Kathy Woods, Ark, down, ARC, Noah. Anybody out there? Down 6%. We'll break down the, uh, the biggest declines next. Welcome back to Power Lunch, everybody. Broad sell-off on Wall Street today. Tech getting hit the hardest,

NASDAG down 4% and then some. And Kathy Woods' ARC innovation ETF down more than 6%. Christina Parts of Nevelas joins us now with a look at some of the biggest holdings in that ARC ETF. Christina. This ARC ETF is on pace for its eighth monthly loss. In a row, inching closer to that March pandemic low

of about $34 bucks, a share. And yet, Kathy Wood doesn't appear to be too worried. Kathy Wood, in an interview with Goldman Sachs, said that inflationary pressures are beginning to ease. She thinks the current inflation situation is a one-time shock. And that's because of a drop in shipping rates and discounts at retailers due to higher inventory, aka a drop in prices. Risky, though, earlier stage tech companies, and these are the ones that are in the arc innovation, rose to fame in 2021 rates were at record lows. But it is these same companies that are struggling today.

Constituents Unity Software leading to the downside, followed by Roblox, and then you also have the ticker DNA that we're going to show you on your screen. And then some of the biggest holdings like Zoom, Tesla, Roku have dropped more than 30% year-to-date. Look at that, way more than 30% year-to-day. And about a week ago, Kathy Wood's team predicted Zoom video would actually hit $1,500. That's over 1,200% upside from today's price. And another catalyst for the ETF, crypto. The fund's ninth largest holding is Coinbase, which has seen a significant decline in cryptocurrency. The stock itself is down 80% year-to-date and Wood bought 300,000 shares of coin in just the past month.

Christina, a question here. During last year, as the fund was losing going down after its time in the sun, it turns out that Wood was actually adding risk. What was she doing and why? Well, just within the last year or so, she slashed the number of holdings in the ETF. It went from 60 to 35. So what does that do? That means that you have more stock-specific risk. You have less liquidity.

You're more vulnerable to severe losses. But maybe things are going to change. There's been talk of succession right now in May, ARC, the fund itself, named two current analysts as associate portfolio managers. And Kathy Wood, 66, not old at all. She has been in charge of these nine ETFs under the ARC fund. Maybe, maybe that could signal change. We'll see. Christina, thank you.

Thanks. Let's get to Contessa Brewer now for the CNBC News Update. Contessa. Hi there, Kelly. Good afternoon, everybody. Here's your CNBC News Update. The January 6 hearings are continuing right now. Retired federal judge, Michael Ludig, accused President Trump and his allies of launching a war on democracy.

That declaration of Donald Trump, Trump as the next president would have plunged America into what I believe would have been tantamount to a revolution. He said in a constitutional crisis there, two U.S. veterans who volunteered to join the effort against Russia and Ukraine have been reported missing by their families. Alabama residents Alex Druka and Huin have not been heard from since last week after going on a mission. U.S. officials are in contact with Ukrainian authorities, but right now, those are all the details we know. WNBA star Sue Bird has tweeted that she will retire at the end of the 2022 season. Bird is a four-time NBA champion. She currently leads the league in all-time assists.

She's played her entire 21-year career with the Seattle Storm. No doubt, a big loss for that team. Kelly L sent it back to you. All right. Some WNBA news in honor of our producer, Paul Aiman, who's probably the biggest fan of that league. Contessa Banks. Ahead on Power Lunch, there's more on this market,

sell off with momentum stocks bearing the brunt of the volatility. But is there anywhere in the sector that could be safe? The Dow's down 804. And are there recession-resistant names hiding out there? We will lay them all out. There's a hint when Power Lunge returns. We've got a little less than 90 minutes left in the trading. day, and we want to get you caught up on the sell-off stocks, bonds, commodities. That's what we're

going to look at. And the two tech stocks, our next guest, says, we're bought just today. Let's begin with Dom Chu on the market action, Dom. All right, so it's a down day, bad one of that, no way to sugarcoat it. Last half hour or so, what you're seeing on the screen right now is a retest of the session lows, with the new lows being set on this basis. That percentage-wise move is a 2.8% decline for the Dow, three and a half plus for the S&P at this point, and almost 4.5% for the NASDAQ composite. It now puts, by the way, the total drawdown from record highs at 19% for the Dow from records, 24% below the SMPs record, and 35% below for the NASDAQ composite. Now, the losses today being led by the energy sector, followed up by discretionary tech

and communication services, while the outperformer is consumer staples. Now, investors are seeking some of that relative perceived safety of less economically sensitive sectors like those staples. to that end, only about a dozen stocks in the entire S&P 500 that are positive on the day. You've got those consumer staples like Procter & Gamble, Church and Dwight, Colgate Palm Olive, General Mills, Hormel. You can see they're all green. Also keep an eye on Newmont mining. The gold miner is on the rise alongside precious metals prices like gold and silver, as inflation concerns continue to factor into that broader market story.

Also worth noting, some of the biggest losers in trading so far, economically sensitive ones, consumer focus names, Norwegian cruise lines, Royal Caribbean, Caesars Entertainment, American Airlines, and Ralph Lauren, as those recession fears stoke worries about the health of that consumer spending picture. So those ones are deeper in the red than others. Tie it back over the year. My, Dom, thank you very much. Let's go to the bond market now. Rick Santelli, tracking the action. Talk to us, Rick. Well, I'll tell you, if you look at the Tuesday 10 spread over the last couple of days, you can see it's had bouts of steepening. Why is this important? Because, as two-year note yields sink faster than the rest of the curve. It's being used as a proxy for not only the terminal rate of the Fed, but trying to pick bottoms and equities. Now, as you look at a two-day-of-the-dollar,

it's really getting hit hard here, and it's coming off a 20-year high, and it is dropping because other central banks, from a pure pressure standpoint, are playing catch-up. Their currency is doing better. Week today, the euro currency, case in point. As other central banks tighten,

it's putting more and more pressure on the guard to get more. more aggressive. Pound versus dollar after the fifth tightening, it had a nice bounce. But its bounce is from a two-year low. Tyler, back to you. All right, Rick, thank you very, very much. Oil is bouncing back after getting as low as $113 a barrel in early trading today. Pippa Stevens joins us now with all the details. What's going on in oil, Pippa? Yeah, hey, Tyler, green on the screen for oil, which is hard to find these days in the market. We did actually get as low as 112 earlier on WTI before prices reversed course. That reversal came after new comments from U.S. officials around Iranian sanctions,

as well as Russia's deputy prime minister Alexander Novak, saying he is not ruling out $150 oil. A weaker dollar is also helping out. Let's check on prices. WTI right around 118 with Brent around 120, both up about 2%. Now turning to natural gas on the move here in the U.S. but spiking over in Europe off the highs of the day, but still up more than 40% this week. Russia has further reduced the amount of gas flowing through the Nord Stream 1 pipeline. They say it's because of equipment issues, but Germany says the move is political.

The country's deputy chancellor saying the situation is serious and that companies and citizens should save energy. Tyler, a lot of stuff to watch. All right, Pippa, thank you very much. As technology basically tanks, our next guest says she's finding. opportunity. Buying a couple of names today amid the pullback. Let's bring in Victoria Fernandez, Chief Market Strategist at Crossmark Global Investments. Victoria, before we declare you a wild child buying all this technology, let's point out as well that you've also been adding to some more value names, including energy, including companies like CVS, including companies like Lockheed

Martin. No, you're absolutely right, Tyler, because look, we think this market is going to continue to be quite volatile for the rest of the year. So you want to have a well-positioned portfolio, a balanced portfolio. So are we buying some tech names? We are. We're not saying go into the tech sector and buy everything there. What we're saying is look for those quality tech names, strong balance sheets, strong business models. You look at a name like Nvidia. It is down 48% year-to-date. They had strong earnings. their data center business is continuing to grow as is their gaming section. And so they're going to continue to do well.

This is a name where you can go in, buy a little bit into your portfolio with prices down where they are. Because, look, Tyler, when you look at the tech space, especially some of these names, like an Nvidia, companies are really using their CAPEX right now for tech. They need to have the cloud space. So you want names that have that, like Amazon, with A-ViVixt. as well. They need to increase their productivity. They have more remote workers, so they need security around their IT. All of this tells us that the tech space, there's certain names that

will continue to do well, even in this volatility. There was probably not a name that I can recall more lauded than Nvidia two years ago in terms of its business and the demand for its products and how solid it really was. And it's obviously been tarred. It's gone down the same way as many tech stocks are. So it's really when you're looking at the core business, and that's really what you're doing with Amazon, just as Michael Farr did earlier today.

He's looking at the three parts of the stool there, the cloud, the advertising business that they have, which is underrated, and then third, of course, is retail. Yeah, that's right. And I mean, a good example of that. Look at Oracle when Oracle reported this week. They said cloud revenue was up around 20%. Infrastructure cloud business was up 36%.

So you have names like the two we just mentioned, Ambidia and Amazon, with that exposure to that cloud space, knowing that companies need to continue to build that out, I think those are areas where you can focus on within the larger sector. I don't think you go all in, as I mentioned, but find some of those areas. Look at those different legs of the stool. and that gives you some opportunity in this volatility.

And you're also a buyer of energy still here, Victoria? You know, we've actually, Kelly, been underweight energy for a while. So we've been using some of the pullbacks that we've seen to go in and add to some names. So we had energy down, what, 4% this week. I know Pippa just said it had oiled turned back positive a little bit. But we want to go in and add to some of these because, look, it's a supply and demand story right now. And I don't think demand is going to go down, especially as we enter the summer months. You have Beijing and Shanghai opening back up.

And I don't think we're going to see supply in a significant way come to market. So for us, energy still has an opportunity. That crack spread is like the 95th percentile right now. So they can take advantage of that spread and continue to have some upside potential. The only thing that would seem would really chill energy would be a recession. and you're not in that camp, are you? No, you're right, Tyler. We aren't.

I mean, maybe the percentages or the probability has gone up a little bit over the last 48 hours. But we still think the economy, the underlying fundamentals are strong enough with the labor market where it is, with corporate balance sheets where they are. We, you know, we haven't seen really earnings expectations come back in enough to concern us too much right there. And household balance sheets, especially for the higher end wealth. is still pretty strong. So we think the recession may come second half of next year, but we should be pretty good for the rest of 2022. Victoria, thank you so much. We appreciate your time today. My pleasure.

Victoria Fernandez, crossmark global investments. And up next, we'll take a look at one of the worst performing sectors, consumer discretionary. It's down more than 5% again today, and the travel and leisure names are getting hit. It was supposed to be their summer. Before the break, though, check out two other major decliner, materials, and energy. The biggest laggards are names like Albemarle, APA, and Diamondback. Power lunch is back after this. Welcome back, everybody. As we mentioned, the consumer discretionary sector is one of the hardest hit today, and it's the travel names dragging the group lower. Norwegian cruise lines

is down 11.5%. It's down 35% in a month. Royal Caribbean, very similar story. Carnival cruise, as you can see, indiscriminate selling pressure against the sector that was supposed to be one of the big beneficiaries of the summer of reopening. The airlines are under pressure as well. Why, it's all about higher ticket prices, consumers talking about trading down. Delta down, Tyler, 8% today. All righty. And after the break, the names that typically perform well, even during a recession,

our trader will tell you which to buy now when power lunch comes right back. Welcome back, everybody. We've just hit fresh session lows for the markets, down more than 900 points a moment ago on the Dow. That puts us below 29,800, as we've given up 30,000 today already for the first time since last January. The S&P's down 3.8% right now, which is worse than the Dow's 2.9%. And look at the NASDAQ down almost 5%. It's down 4.7% or 500 points. It's back to 10,574.

Worst performers of the blue chips today include Nike, American Express, and Chevron. Now, that brings us to our three-stock lunch today. The theme is how to recession-proof your portfolio. Dollar General and AutoZone got upgraded to overwork. wait at Morgan Stanley saying their demand tends to hold up better during a downturn. We're also trading Pepsi, a traditional safety play for Staples. Let's bring in Jeff Mills. He's Bryn-Mar Trust chief investment officer and a CNBC contributor. Jeff, let's start with Dollar General. What do you do with the stock here? Yeah, hi, Kelly. I mean, whether it's an economic

slowdown, whether it's a recession, we're looking for stocks that are going to do well in those environments. And I think Dollar General is one of those names. We've owned it for quite some time. And it's just a consistent outperformer when the economy is slowing. If you go back to 2011, 2015, 2016, 2018, 2020, every single time when you saw growth slow, Dollar General outperformed. And I also think in this particular environment, as customers start to trade down because of expensive prices, the customer base starts to expand for Dollar General. 80% of their products sell for less than $5.

And 76% of their products are consumer staples or everyday essentials. So even from an inventory perspective, you know, a lot of these companies like Target, consumer spending preferences are shifting. Their inventory is not matching. Dollar General isn't necessarily going to have that same problem. I think it's a reasonable valuation here. Our analyst who covers the name thinks high single digit EPS growth for the next number of years, an interesting growth opportunity in Mexico for the company. So once again, I think you get outperformance from a name like Dollar General. And a lot of people like the auto parts players and your choice.

choice here is AutoZone. Yeah, AutoZone's a name we're looking at, Tyler. I think it's an interesting one here. And again, you're looking for companies that are going to be able to maintain some semblance of earnings growth in a slowdown. And when you're talking about a recession and people's cars, they're going to patch, glue, tape, whatever they can do. So it's that fix versus buy sort of argument. And I think on top of that, again, specific to this environment, you've had a shortage of new cars for over two years now. And I think that plays into. You're also seeing the average age of a car on the road over 12 years. That's actually a record. So people are holding onto their cars. They're avoiding higher prices. They're avoiding that shortage of inventory.

And again, I think the valuation is reasonable for a name like AutoZone. All right. That brings us to Pepsi, Jeff. What do you do with this stock? Yeah, so like you said, Kelly, Pepsi is sort of a typical name that you would look for in this sort of environment. The chart worries me a little bit. To me, it looks like a double top. I think you break below 153. You could have meaningful downside from there. And the valuation here is what bothers me. At 23 times forward versus the sector at 18 times, you're just paying a premium. And I think all of these companies have the potential to have margin pressure. But margin pressure impacts the stock price more when you're trading at a premium valuation. So that's my issue here with Pepsi. All right. So that rounds it out for those three stocks. And do you want to leave us with a comment with markets? I was going to say puking. Maybe that's not polite. But in,

response, I guess, to what the Fed did yesterday. What do you think is going on here? Yeah, I mean, the market's doing what it told us it was going to do. And it's scared about interest rates. And I think the Fed was sort of maximum hawkish yesterday. We got a little bit of a head fake again. This is exactly what happened last meeting. But, you know, I would anticipate more downside until you see inflation move to a point where the Fed is going to be able to put the brakes on. And, you know, I don't anticipate that happening anytime soon. So we're looking for maybe 3,500, then maybe 3,300, those are levels I'd be paying attention to at this point. Well, we are rapidly approaching 3,600. Jeff, we'll leave it there. Thanks for your time.

We appreciate it. And up next, the debate over market valuations as the Dow hits session lows, 921 points off right now. A little bit off the session lows, but who's counting here? The Dow down more than 900 points. Losses have been accelerating this hour, bringing valuations. back to levels not seen since the early days of the pandemic. And Dom Chu has the charts and the proof and the numbers, Dom. All right. So what we're looking at is the forward price to earnings ratio, right? So every, what you're going to pay in stock price today for every dollar of next year's expected earnings. It's a more forward-looking way to look at valuation. So this is what it is over the last 10 years for the S&P 500, according to data from facts set. And right now at these levels that you're seeing on the right-hand side, call it roughly 16 times. forward earnings. That's something to keep an eye on here because if you go back, we're going back to April of 2020, the lowest level since, again, the emergence from the pandemic, bringing some to question whether or not the valuations have fallen enough, given the rise in interest

rates for this to become a more compelling trade, at least from a risk-reward perspective. Now, if you want to look at something more interesting about this, the reason why this kind of 16 level is, if I could go back to the other one, if you could show me back again, the reason why it's more compelling for that particular one there is because the average price to earnings ratio on a forward basis is around 17 times. So we're sitting right below where it on average is traded over the course of the last 10 years. So yes, the market is selling off. There's a good reason why inflation is a big part of that story. There are a lot of concerns about growth going forward and recession. But these levels here, we don't want to induce panic because,

Some folks are actually saying, you know what, this is a more compelling evaluation for the S&P, even over the last 10 years. When you went back to that prior chart, if we do show it, at the peak, what was the forward multiple? So if you actually go back and look at the peaks over here, you're talking about 20 some times, about 24 to 26 times forward earnings going, again, the emergence from the pandemic. Right. And that was because as we started to get stock prices up there, you were paying more and more. And people were trying to catch up with those earnings expectations going forward. So you're paying more for next year's anticipated earnings. Those valuations got stretched arguably because of things like zero interest rates. But as interest rates have fallen or risen rather, you can kind of see the stock valuations have come down as a result.

Got to leave it there, Dom. Massive reset, Dom. Thanks for watching, Power Lodge, everybody.