Power Lunch - The Market Sell-Off 5/5/22

Episode Date: May 5, 2022

The Dow falls more than 1200 points midday. The Nasdaq tanks more than 5%. As the sell-off intensifies, Kelly & Courtney speak to market experts about what’s driving the sell-off and where investment opportunities are emerging. Hosted by Simplecast, an AdsWizz company. See https://pcm.adswizz.com for information about our collection and use of personal data for advertising.

And here's what's ahead. A major market sell-off. The Dow has been down more than 1,200 points intraday. We're off that just slightly, though, right now. The NASDAQ down more than 5%. The moves dramatic, the route deep. But there are places to hide and opportunities to buy select names on the pullback. From tech to retail to commodities, our market experts will help make sense of the sell-off. What a day to be here with you, Kelly. Welcome, Courtney. It's great to have you here. And hi, everybody. Let's get a check on these markets where the Dow is down almost 1100 points this hour or 3%. 3.6% drop for the S&P. Look at this 5.1% drop for the NASDAQ. We're down almost 666.

Quick check of the worst Dow performers shows Apple down 5.6%. We're really seeing a lot of pressure here. The price back to around 156. Nike, which has been one of the worst Dow performers the last week or so, down 6% today. Salesforce.com down more than 7%. Now, over to rates, that's where you see the upward pressure here. The 10-year note, which had been quiet until this morning, what happened around 8.30 Eastern time? We got the productivity and unit labor cost data. Unit labor costs up 11.6 percent, quarter on quarter. That's a huge increase. Productivity down seven and a half percent. It's a toxic combination, a stagflationary one if you want to call it that.

It has yields, especially longer and yield spiking. Just below 3.1 percent is where we sit on the 10-year right now. market reporters are tracking all of these moves. Today we've got Bob Bassani at the NYSC, Christina Parsonevallis over at the NASDAQ, and Rick Santelli out at the CME watching those rates. Bob, let's start with you. Powell may have repealed talk of a 75 basis point cut, but he didn't repeal inflation concerns, and that's what we're dealing with today. Let's just take a look at the sectors that are moving down most. Kathy Wood Arc Fund, one of the big decliner. That's a concern, of course, higher rates impact multiples. That impacts tech stocks.

Discretionaries. Again, these are cyclical sectors, tech cyclical, energy doing a little bit better because that's an inflationary sector. Oil prices have been moving up recently. So take a look at why inflation has not gone away. And just look what Kelly has been telling you this morning. The important thing is productivity down, labor costs up. That's inflation. It's hard for the economy to move forward. Productivity actually going down. Then you heard Brian Sullivan earlier. Oil 103 now to 111. The trend is up. That's inflation too. It's simple. Sustained inflation erodes profit margins. Is it going to be sustained? The market's starting to get concerned about that issue. Ten-year treasury, you heard moving on the upside here. Look what the impact on multiples are. Remember, rates going up impact multiples. They tend to come down. These high multiple tech names getting hit again today, as you heard from Kelly. Cyclicals also tend to get hurt here because the market is starting to price in a potential of a slower economy. So industrial cyclicals like New Corps and Honeywell weaker today. But then you have consumer cyclical names dealing with higher potential mortgage rates like Lenar and Pulte also to the downside. Defensive stocks, yes, some health care, some consumer staple stocks.

You see Kellogg's, Kraft-Times, General Mills, the usual suspects hold it up a little bit better, but not terribly convincingly. So here's the issue right now. The S&P's down 13% for the year. Almost all the decline in the S&P is because the multiple has contracted. What's the multiple? It's the PE ratio. What are you willing to spend for a future stream of earnings estimates that are out there? You see it's down 16%. That's why the S&P is down. Earnings are actually up about 2%. You add this up, what you get here, Courtney, is down 13%. Now, the big worry is whether or not earnings estimates are really going to come down in the next couple of months. And obviously the market is worried that that indeed will happen. Courtney, back to you. Bob earnings definitely seem to be a side note for the market right now, which is really focused on these major macroeconomic influences. The NASDAQ getting hit the hardest down about 5%.

Christina Portsenevelas is at the NASDAQ. Christina, I'm noticing almost all these names are lower, even names we don't often talk about, like some of these international tech names, Macardo Libre and Pindu O'Doo. Yeah, and I'm going to mention that because Chinese tech definitely one of them that's getting hit hard. It's really today about the swings, the velocity of these moves on the NASDAQ, which is having its worst day since June 2020. But for the second time in basically a week, the NASDA composite went from over 3% higher

and then dropped 4%. It did so last Thursday and Friday as well as yesterday and today. So what, you may think? Well, it's actually pretty rare the index jumps and then falls 4% on consecutive days. Since 1980, maybe a few years before I was born, it has happened only 12 other times. Lucky 13, if today's drop holds.

Hats off to Robert Humph for that staff. To go up and down like this, twice in the span of a week on consecutive days, well, the last time that happened was during the peak of COVID in March 2020. And back in November 2008, the heart of the financial crisis, no other time since 1980. And so the company is responsible for this massive swing downward because of their weight on the NASDAQ 100. Usual, big tech, Apple, Microsoft, Tesla, Alphabet, meta, you can see on your screen, a sea of red, huge drops there giving up Microsoft and Apple giving up all their gains from yesterday.

The biggest laggards, Chinese e-commerce platform, like you mentioned, Courtney Pinduo Duo. You're seeing it 12% lower. eBay, lower 11% on weaker guidance. Match Group down 9% today. Today's trigger, though, you had Bob mentioned it, Kelly mentioned it. A lot of this has to do with high growth is the 10-year-above 3%. Its highest level since 2018. That makes debt, of course, more expensive for these high-growth tech stocks.

And I want to focus on semis for a second, the SMH semiconductor ETF, down about 5%. Yeah, down about almost 5%. but holding on to weekly gains. Some of the biggest chip movers, you've got Corbo on lower Q2 revenue guidance that they just gave out last night. They're concerned, China lockdowns. Then you got Nvidia, Marvell technology,

and then on semiconductor, down over 5%. And with all that talk about inflation and the pinch consumer, Courtney, I know you know this, online retail taking a major, major hit. Etsy down 16%. They talked about the consumer not having as much disposable income just yesterday. And Etsy's on pace for its worst day

since November 2020. And then you've got PayPal down over 8%. JD.com, down over 6%. I'll end on a positive note because I'm not Debbie Downer. Booking holdings up solid 3% higher on Q1 earnings beat and charter communications. The only two in the green for the NASDAQ guys. NASDAG 100, I should say. Yeah, not a lot of places to look in this market.

It's a pretty broad-based sell-off. Christina, thank you very much, Christina Parts and Evelace. Let's hear more about those yields. Rick, as the session wears on, we're pretty much at the highest level. here. What do you make of it? You know, it's the one-two punch of stagflation. How do you define stagflation?

Well, one way is low productivity and high unit labor costs. Exactly the data. I know we keep stressing it, but it really does suggest stagflation. Look at a two day of twos. Now, even though two-year no yields are up, they're up nowhere near as aggressively as the longer maturities, and yesterday's

high yield was 2.85 percent. We're over a dozen basis points below that. significant. Now let's look at the counterpart to our two year. Let's look at the European two year, known as the shots. It's closed at a fresh nine-year high yield.2.85%. This is what it looks like when central bankers are dragging their feet, whether it's in Europe, whether it's in Japan, whether it's here with only 47.5 billion of reduction. Yes, maybe everybody on the inside knew that was coming, but the markets aren't pleased with the pace of any of this. Now, if you look at what's

going on with tens, yes, we all know it's going to be the highest yield close since June of 20, excuse me, since 2018 November. But here's something interesting. If you look at a chart going a little further back, 3.21 was the high in October of 2018. 3.24 was the high close in November. Those two high closes are something technicians are going to be concentrating on. That's your next big resistance. Pound versus dollar, a fresh two-year low. Of course, Bank of England was anything but cheery about their economy. The dollar versus the Chinese onshore, a fresh low going back to November 2020 in favor of the dollar. And finally, yes, here's the dollar index two weeks. You talk about a U-turn yesterday. The reserve currency in a world of slower growth, well,

they're going to flock here. The problem is dollar-denominated debt outside the country cost a lot more to service. Kelly, back to you. All right, Rick. Thank you very, very much, Rick Santelli. Our next guest says she's taking advantage of the volatility by adding low and trimming high. With us is Lizanne Sanders, the chief investment strategist at Charles Schwab. Lizanne, first of all, great to have you here. Even what Rick just pointed out, these 1% moves in the dollar, we often only see that during times of flat out panic like March 2020. So what would your overall advice or reaction here be for investors? Well, your tease was not quite accurate.

That was in the context of what rebalancing. via volatility allows investors to do. I think, you know, stepping in on a day like today is pretty treacherous unless you're an incredibly nimble trader. And I don't make recommendations from a trading perspective. But, yeah, you know, the dollar surge today took out the highs from, I think, 2015 or 2016 yields firmly above 3 percent, as you've been touching on the horrific combo of weaker productivity and higher unit labor costs. As much as Powell tried to talk down the likelihood of

recession, I think the needle is firmly pointing more in that direction than on a soft landing. And I think yesterday was more of a short covering counter trend rally. I think today is more of the within trend weakness that we're experiencing as the market just starts to discount something a little bit worse than a soft landing. So do I just move to the sideline? I mean, this is the peculiar thing. You know, people feel more comfortable on the sidelines, even though inflation's 8%. You can't stay on the sidelines forever in that kind of environment, can you?

By sidelines, if that's suggesting, if the question is, should investors just get out, neither get out nor get in our investing strategies. All that is is gambling on moments in time. I don't know any successful investor that did it by get in, get out. It's a discipline process over time. So it also is a function of what your own risk tolerance is. If you have a very high risk tolerance, you've got a long-term time horizon, and you're not looking to start to live on the income associated with a portfolio, yeah, days like today,

weeks like this week, months like the past month, give you an opportunity. But it depends on who you are as an investor. If you're retired and you're living off your nest egg and you can't afford to lose any of the principle, then that story in terms of what to do is entirely different. So there's no, there's no one answer to what should investors do here. It depends on the investor. Lizanne, I love to sort of just get a reality check when it's possible on days like today. If investors are looking up today and haven't followed every tick and action, except for seeing perhaps the closing action yesterday and then looking at today fundamentally,

what changed? Yes, we got the productivity numbers and the unit costs. And so perhaps that helped us change a tone. But really, if the S&P 500 was at 4202, and Powell started his presser, and now we're sitting at 4141, we're really not so far off from yesterday. Is this really pointing to a recession to some of your earlier comments here?

Are we just sort of washing out a little bit of what was overdone yesterday? I think what happened in the lead into yesterday as well as yesterday may be best described as a bit of a, you know, in advance, on the rumor, meaning of a 75 basis point hike, and then buy on the news of the reality of Powell pushing back on 75. I think the setup in addition to that for yesterday was at least

attitudinal measures of sentiment had gotten really, really washed out. And that sometimes represents just that a setup. Even if it's not overtly positive news, if it's something that's less negative, you can get that kind of countertrend pop on the upside. But to your point, the fundamentals of the economy haven't really changed. I think there was a lot of short covering that seemed to be apparent yesterday. And now we're sort of reaping the other side of that with the weakness. But I do think that the sentiment environment, which has been less discussed, was also a set up for a rally day.

And quite frankly, having huge rallies within bear markets is actually quite common. So to see the kind of action like we saw yesterday is actually, very much in keeping with the history of bear markets. Lizanne, as we sort of figure out what investors should do here, pardon comment. I know it's not like you're a stock picker, but is it price level that would interest you, a change of posture from the Fed sectors that you think people can kind of hide out in here?

Asset classes? I think quality is the name of the game. You get the short-term burst in the risk on low-quality trade, but I think this is a time for equity investors to make sure that, first of all, they're not taking too much risk relative to strategic allocations, but stay focused on the characteristics of value. I'm not talking about buy the value indexes, but make sure you're not overpaying, look for positive earnings revision, strong free cash flow yields, strong balance sheets.

That quality wrapper, I think, will be the place of consistent leadership in the midst of lots of volatility at the sector level. All right. Lizanne, thank you for your time today. Liz Ann Saunders. Well, let's drill down a bit further and look for some values amid this sell-off. Joining us by phone now is Neil Hennessy. He's chief market strategist and portfolio manager at Hennessy Funds.

Neil, you know, Liz Ann said she's not necessarily recommending buying value indexes. Maybe you are. I understand you're a value investor. Can you give us some opportunity? Help us find silver linings in today's sell-off. So some of our viewers perhaps can make the most of today and make a little bit of money. Well, Courtney, first of all, Liz Ann is absolutely correct. And our whole philosophy is when buying value all the time and buy quality and hang on to it.

And I don't really care if it's bonds, if it's housing, if it's rentals, if it's a stock market, whatever. If you buy quality, you're going to be fine over time. You look at the market, and it's down a thousand points, say, and I think the whole idea here, Courtney, is to have people just sit back, take a big breath and look at the reality of the situation, because I'm looking at this market, like a shake-and-bake market. You put chicken in a Ziploc bag. You shake it up with the spices, and then you put it on. But the same thing is happening here. All the headlines over the last three to six months are being cut out, putting it a Ziploc bag, shake the shook up, and then they're picking one out every day. I don't know what changed in inflation from yesterday to today.

I don't understand what Powell's remarks yesterday changed from today. But I'd look at it that if there's plenty of quality out there, but there's plenty of excuses. It can be inflation. It can be employment. It can be the supply chain. It can be interest rates. It can be whatever. But their excuses because the banking systems in the strongest position has been since the Depression, in my opinion,

the customer is back. at concerts or back at the stadiums. The airlines are full. The gyms are full. People have tons of money on the sidelines to spend. So I'm not sure what the whole shakeup in here is, except you had growth that was way overvalued. If you're going to pay 10 times on a price of sales, then you should get hurt when the game's over. But if you're going to pay a dollar for a dollar in sales, you're not going to get hurt in the long term. interesting, Neil, to hear your thoughts on the consumer, because we've heard from a number of consumer-facing companies recently and recent days, even just in the last 12 hours.

And it seems like it all depends on the subcategory that you're serving for the consumer. If you're serving them online, things are not looking so good. Wave Fair, Etsy, eBay. But Crocs had really good demand. Even Pennsylvania Real Estate Trust, which of course owns a number of malls, they said traffic is up 10% year-to-date. The consumer is strong. So you don't believe that consumer weakness or consumer worry is part of what's percolating under the surface in the market with the worries about inflation.

You say they have enough money. Do they have enough to continue spending if inflation is at 8 percent? Well, I think the last time I was on CNBC maybe three or four weeks ago, I was talking about the consumer and how it was going to slow down the spending online. People wanted to get out. They wanted to get into a store. They wanted to touch, feel, try on something. And that's essentially what's happening. The estimate out there, Courtney, right now, is a consumer sitting on $2 trillion in cash.

That's a lot of consumer spending that can go along. You've got S&P 500 companies are sitting over $5 trillion in cash. Companies are very, very strong cash-wise. And compared to debt, when you load it up against cash flow, it's one of the lowest has been in years upon years upon years. So the economy's not in as bad shape as people think it is. I'm looking at the 10-year U.S. government yielding 3.1% in the 30-year U.S. government's spending yielding 3.2. Who would be the idiot to buy a 3.2 for 30 years?

It doesn't make any sense. So essentially what you're going to see is people go back the value. Investors are going to buy companies that actually are cash flowing, paying dividends, have the reasonableness of growing, maybe not in the disruptive way that people want the companies to grow in some sectors, but continue to grow and raise the dividends. And that's where value is going to come back. We've seen it before, Courtney, in the late 90s. The NASDAQ in 99 was up 86%.

Everybody was on growth. If it had dot com next to it, you made money. And then 2001 and 2002 came in the market lost 45%. But value did not lose 40%. 45%. In fact, value, damn there, broke even clear across the board. Hey, Neil, it's Kelly here. Let's talk about some of your holdings, which absolutely have been corners of the market that have been working. Chevron is almost 10% of your position. Amgen, Dow Inc. Coke, Merck, IBM, Verizon. Are these all names that people can feel comfortable owning here? And for how long for the duration? Well, let me put it this way. If one or two of those companies go broke in the next 12 months or 24 months, we got a lot more trouble in the country than we.

too in the stock market. But here are high dividend-paying companies. Here are companies that are cash-flowing. And so that's what we've tried to do is just by value. Look at it. Today, the market's down the thousand points. God knows where it's going to end up. It could end up 400 points in the next hour and 40 minutes. This is all over. There's no rhyme and reason. That's why I call it the shake and bake market. It's not making sense, which is really good long-term. All right, Neil, we will leave it there. Never won to mince words. It's great to have you on today.

All right. Thanks, you guys. I appreciate it. Thank you, Neil Hennessy with the Hennessy funds. Analysts say the Fed's fight against persistently high inflation is going to be a tough one. And our next guest says the odds of a soft landing, nope, slim to none. He thinks the Fed's winging it. He's Peter Bookvar, a CNBC contributor and the chief investment officer with Bleakley Advisory Group. Peter, I would imagine you would agree with a lot of what Neil was just saying.

I mean, even down to those kinds of stocks in what you read. rightfully worn could be a pretty tough market. Well, I agree with him that value will outperform growth, but he's saying that he doesn't know why we're selling off. And to me, it's pretty obvious and that we're entering the storm of the most aggressive monetary tightening in 40 years. And whether that is on the rate hike cycle, that has been, I think, priced in from a reap perspective and also shrinking the balance sheet at almost $100 billion a month.

will start soon. And you combine the two, and it should be no surprise that the market's trading the way it is because we've been spending years being addicted to a low cost of capital, both for driving economic activity and also raising multiples on stocks and tightening credit spreads. You know, Peter, what I always find really interesting whenever these discussions come up and whenever we hear comments from the Fed chairman is obviously the idea of inflation. We're living this environment that we haven't lived in in some 40 years. and at least some amount of it did come from the supply side of the equation, the supply chain congestion that just continues and in some cases is compounding.

And Powell, by admissions, is that the Fed doesn't have tools to really address the supply side of what's going on with inflation. So is the actions that they're taking or are the actions that they're taking really going to be enough to help temper inflation? Well, I think it's both supply and demand. I mean, when you think about what the Fed is going to do, where it has done, And like you say, they focus on the demand side. But the focus on the demand side on interest rate sensitive parts in the economy, like housing and autos.

Well, home prices are up 20% year-over-year. So the Fed is obviously complicit in that. And with respect to autos, no question there's been a supply problem, but the Fed has been pushing, no pun intended pedal to the metal on the demand side. When you think about the price of a car being in a record high at 40, $45,000 and the median income in this country is 50-ish thousand. Well, the only way to afford that is through cheap money. So the Fed is very responsible for pushing down the pedal on the demand side.

And then also other goods that people finance, whether it's buy now, pay later, or, you know, you go to Best Buy and you can finance something. And that's all done through easy money. And unfortunately, they're going to have to slow that demand side and have their fingers crossed that the supply supply. side sort of resolves itself over the next couple of years to get to the eventual inflation level that they're hoping for. Where do you think the 10-year stops, Peter? So my eye right now is on the November 2018 high when the Fed, the last time the Fed was raising rates and shrinking their balance sheet, we got to 324. So that's the level I have in mind.

The two-year then was 3%. Inflation was 2.2% then versus 8%. now. So to me, three and a quarter-ish is where we're headed. But also predicting where the U.S. 10 year is going to go, you also have to try to figure out where European bonds going. I mean, the German 10-year went right through 1 percent today. We saw what happened with the Bank of England taking a very soft approach to inflation. And if Europe is going to behave like that towards inflation, well, the long end of the curve is going to tighten for them and U.S. rates will follow. So, Peter, if you're right, and if we're going to three and a quarter for the yield on the 10 year, does that mean that tech stocks, the NASDAQ generally, are just going to continue to fall from here

because they seem to be so tightly correlated. We're seeing these moves here in the yield on the 10 year, and then the NASDAQ is down 5 plus percent here today. Invaluations are still rich. I mean, the S&P 500 is still trading at 19 times earnings. And that is without any change downwards in earnings earnings expectations. for this year. So if I'm right there, we're not going to have a soft landing, well, then I'm also going to assume that earnings estimates are going to fall as the year progresses, making the market even more expensive on a P.E. multiple basis.

All right, Peter, give us some actionable advice before we let you go here. If investors are believing in your theory and your thesis, what would you suggest they do to either protect themselves or, hey, even better, make a little money? So I'm still bullish on commodities because of the very strained supply side, acknowledging that we could see some sort of. softness on the demand side. So I like energy stocks in particular. I like uranium, chemical reported earnings. I'd be buying that on the pullback. I've been bullish on gold and silver and remain that way. And I also like Asian markets because I think they're cheap. And that's where the growth is going to be looking at five to 10 years. All right. Peter Bukvar. Thank you so much.

We appreciate it. Thanks. Let's turn now to crypto prices. They're breaking down along with the rest of the market. Bitcoin's down 9% today to 36,000. 172. Throwing in some questions about its roles in inflation hedge, but also confirming that it does tend to trade like a risk asset. Kate Rooney, she's tracking the move lower. What are you hearing about this, Kate? Hey, Kelly, that's right. Yeah, very much trading like a risk asset. Cryptocurrencies are not immune from today's market sell off. Bitcoin is now below 37,000, just a day ago. It had pushed back to almost 40K after the FOMC meeting. Prices, though, cooling off, still tightly correlated to tech stocks and the QQQ in particular. Fund Stratt actually points out that yesterday's Bitcoin

rally was also accompanied by a boost in speculation. So they saw a jump in open interest. That rose by about 6% yesterday, reversing a week of straight decline, declines in futures volumes. So they did see a spike there in the futures market. Also look at Ether, XRP as well. Salinas, some of the smaller cryptocurrencies are down, but they are faring a little bit better here than Bitcoin. And then the crypto-related stocks hit by the double whammy. They've got weaker crypto prices and then investors really moving out of unprofitable growth names as well amid higher rates. Coinbase is the biggest lagger today. That one down more than 12% at this point. Block also reports earnings at a couple hours here. It's really seen as a Bitcoin proxy despite only getting about 4% of gross profits from Bitcoin

trading. That stock's been down, double digits, down 11% at this point. Micro Strategy as well, down, wow, more than 13% at this point. And then the mining stocks. So you've got Marathon Digital Hut 8 Riot blockchain, all of those stocks down double digits at this point as well. Back to you guys. Kate, can I ask you quickly? I know it's not a cryptocurrency, but you also cover Shopify, and that's another name getting hit really hard here today. Did report earnings also announced an acquisition of deliver for more than $2 billion. I mean, just sort of more weakness in the e-commerce space there. Yeah, it's consumer spending and the e-commerce slowdown. You've seen it. hit PayPal as well today, names like a firm. And then interesting, you've got Block or formerly

Square reporting earnings today. That's a big thing people are watching. That stock is a little bit less exposed to e-commerce, but they bought Afterpay, which is a big buy now, pay later name. So names like a firm and then after pay in the umbrella of Square, investors are pretty worried about that. Consumers spend down, spending slowdown and some of the online shopping slowdown, as we see inflation and a lot of questions here about the consumer. But Shopify, a big one highlighting that this morning. Absolutely, Kate. You're just one of many of us that are having a very busy day today with your coverage space. Thank you very much for joining us. And our coverage of the market sell-off does continue ahead. The consumer collapse, discretionary stocks, leading

declines in the S&P, travel stocks, tanking. Biggest declines include Expedia, Carnival, and Norwegian. Homebuilders down big as well. Linar and D.R. Horton down about five first. And online retail getting crushed. We just talked about it, but also names like Etsy, Wayfair, and eBay. Lots more power lunch straight ahead. We have just 90 minutes left in the trading day, and we want to get you caught up with the market sell off. What's going on? Let's check in again with Bob Bassani.

He is at the New York Stock Exchange, Bob. We have been steady since about noon, but steady on the downside. We're essentially hitting the lows for the day. We're, again, been going around on the bottom there, down about 165 points. for the S&P 500, consumer discretionary and technology. Cyclical sectors are among the weakest groups. Consumer staples and health care defensive sectors holding up a little bit better. If you want to see what inflation is doing, just take a look at the new high list on the S&P 500.

And again, this is new high on an intraday basis, not right now. But it's all oil, everything. Phillips 66, the refiners have been hitting new highs recently. Exxon, Devin Energy, Marathon, Occidental Petroleum, all hit new highs. earlier in the day today. Tech is the real story to watch. The NASDAQ composite 12,315. That was the low on Friday, as I recall, the closing low.

So we may violate that and hit a new low on the NASDAQ today. And if you're wondering what people are trading, you want to watch the ETF space, and it's all leveraged and inverse plays on the NASDAQ 100. There's the Pro Shares Ultra Pro QQ. What's that? It's three times. what you've got for the S&P for the triple Qs here.

Ultra Pro QQQQ, TQQQQ. I know this is hard to figure out here, but the bottom line is it's three times the NASDAQ. Pro shares, Ultra Pro Short is three times the inverse of that. And then, of course, you get two times the inverse. That's the ultra one down there on the bottom QID. So it's very confusing, but people are making tremendous leverage bets one way or another on the NASDAQ 100. and that's really where the actions. We're seeing incredible volume in these particular stocks right now.

So a lot of speculation one way or another. Courtney, back to you. Yeah, the moves there are pretty incredible as well, Bob, on those ETFs. Thank you. Now let's move to the bond market where yields are at multi-year highs. We've got 3.1% on the 10-year. Rick, you got all the action for us. What else is going on?

Yes, we do. It's wild. You know, we're up seven basis points on a two-year, but it's over a dozen base points below its high yield. Whereas the tenure, it's had several sessions trading above 3%. I think it's a safe bet to potentially close above 3% for the first time since around Thanksgiving to 2018. And let us not forget, not only are there a lot of market logistics going on. Anybody who bought that big pop yesterday, probably selling and very nervous.

And we have non-farm payroll, the big April jobs report tomorrow. And jobs, jobs, jobs are important. There's a lot of nervousness in the market. market. Let's look at a six-week chart of the Tuesday 10 spread. It's the steepest in three weeks. Okay. But let's look at the true spread that's supposed to give you a warning sign when it goes inverted, meaning less than zero for recession. Three months to 10 year. Where is it at? A seven and a half year steep. Yeah, seven and a half years. It hasn't been this steep. 226 basis points. And if we recall, the December meeting for the Fed is right in basically in the middle of the month, December 13th and

So Steve Leasman's been using January Fed funds. That's a good idea because that's the 31st of January, February 1st. It's cleaner. So to that effect, let's do a three-day of January-fed funds. Okay? And what's interesting here is on Tuesday they made their low yield, their low price close, 97.115. It only has moved up a bit. As you see it now, it's 9716 plus.

So as you look at the year-to-day chart of January, it's still implying 283.5. basis points of tightening, and no matter what the Fed does, the markets, the referee behind the scenes for days like today. Courtney, back to you. Nervousness in the markets, to put it lightly, Rick. Thank you. A volatile session for oil, which is closing for today. Pippa Stevens is at the CNBC Commodity Desk. Pippa, what's the action?

Hey, Courtney, crude moving between gains and losses before ending the day here, modestly higher OPEC and its allies met today, deciding to boost output by 432,000 barrels. per day next month, which was expected, although I should note that the group has been consistently missing its output goals. The EU's proposed ban on Russian oil also remains in focus. Let's check on prices. WTI up a third of 1% at 10822, Brent rising two-thirds of 1% to 110-91. Nat gas, though, continues to be the story here, surging 4.4% to $8.78 per MNBT, hitting the highest today since August 2008. contract now up 21% this week. UBS noting that usually demand destruction would come from utilities swapping gas for coal, but there's no coal available and coal prices are also spiking.

Also wanted to note that since we've been watching diesel today, retail prices hit a record for the seventh straight day. Courtney, back to you. Very active in that complex. Thank you very much, Pippa. For more on how to play the rise in energy, let's bring in Paul Sankey's lead analyst with Sanky research. You know, Paul, you've obviously been covering this space for a long time. You say this is potentially the most interesting market you've seen in 30 years. What do you mean by that? What we're saying is it's the most profitable that we've ever seen for oil and gas and refining companies. So, you know, there's just a multifaceted

element. And you mentioned coal. That's also raging. And what we're getting here is companies that are maintaining capital discipline and just making enormous free cash flow. So it's the most profitable environment I've seen in 30 years covering all. Is it sustainable, Paul? It was really fascinating to hear Brent Phil. He's a technology analyst at Jeffreys. Last hour, he was talking about how clients don't want to hear about tech. They want to go to energy. They want to go to consumer staples. And that's quite a comeuppance for the best sector, best performing sector over the past decade. Yeah, it is. I mean, it's obviously a huge change. Is it sustainable? Well, obviously, you know, it becomes an economic question. At the moment, we're not seeing the demand destruction. Again, you referenced that. Essentially, the price is trying to encourage more supply or less demand. And today, OPEC announced an increased production target, but in reality over the past month, against a 400,000 barrel increment target, they added 30,000 barrels to give you an idea of just how under-supplied these markets are.

So it's extremely powerful. You know, we like Chesapeake on the gas side, Ontario, and then almost any of the oil companies, they've all had very good results this week, especially when he combined, for example, refining an Exxon and some of the refiners. It's a remarkable environment. When we're looking at the global oil picture, we're obviously discussing Europe cutting off the import of Russian oil. What does that mean, big picture? It's a huge deal. And in fact, OPEC has said they think there's two million barrels a day, too much oil in the second half, but they're still including Russia in their numbers, which is absolutely staggering. Now, Russia, as you know, is a major natural gas and oil

exporter and the loss of Russia, which is going to get more and more fed through into markets, it takes weeks and months. But ultimately, as you said, yesterday the EU announcing that they're going to block oil and gas from Russia over the next year is a very, very big deal. And it's enormously important for American exporters of both oil and natural gas. Paul, when people come into this space now, should they be putting money? I mean, you've mentioned some of the plays you like in the past, But broadly speaking, are there any stocks you think here look overvalued, richly valued? You know what I mean? Like any places that kind of the tourist investor might get burned?

Well, we're talking about oil trying to get to 10 percent of the S&P and we're at 4%. So there really isn't. I don't personally love the service companies. We're seeing such great capital discipline from the EMP companies and the big oils. Normally, historically, you could look for the service companies to get their revenue as a multiplier. of revenues for the EMPs. If they got a dollar through the door, they would spend a dollar 20 drilling wells.

And they're just not doing that. They're now at a point where they're under 50%, in many cases, even less of their cash flow is actually going on incremental wells. And they're saying they really don't have the people, the steel, you know, there's very difficult for them to add any real capacity in terms of additional production. So as a result, the service companies

are the one area that were less favorable towards. Lombages, the Halliburton's, the Baker Hughes. Paul, what about the moves that we've seen in natural gas? Pippa Stevens pointed out the big moves that we've seen in the last week that perhaps in some cases you might see companies swapping out for coal, but that's also moving higher in the price action. Can you make some money off of that play as well? Yeah, as I mentioned, I mean, we love Chesapeake, Cantero,

tourmaline in Canada are all, you know, great plays. There's issues with some of the Marcellus plays because they are infrastructure, So what we try and do is buy the names that don't have that problem. And a name like Chesapeake, which is in the growth area of natural gas, because natural gas production is not growing. That's one of the worrying things. We're at $8.50 per MNBTU and we're not seeing significant growth here from the producers outside the Hainesville. Chesapeake's a great play. And there's several companies here where they've come through bankruptcy.

Obviously there's a trailing concern about the company because it's previously been bankrupt. But the fact of the matter is they have very clean. balance sheets now. And so this is all free cash flow back to shareholders, buybacks, dividends, everything that the NASDAQ doesn't offer you. Yeah, Paul, we'll leave it there. Thank you so much. Paul Sanky. He mentioned he thinks energy can be 10% of the S&P, and that could be because of the shriveling of technology. On that note, let's turn back to the steep sell-off in equities where we are at session lows. The Dow is down 1,200 points right now. That's 3.5%. The NASDAQ down 5.3% or 6802 points and the S&P 500 down about 3.8%. It's at 4136. Let's turn to Art Hogan.

He's the chief market strategist at national securities. Art, you know, the market just bottoming here in front of you. 10 years, 30 years, the long end really on the move in rates here today, the dollar flying. What do you make of it? Yeah, it's hard to have any real good context around what's been happening in markets. Clearly, the multiple compression that we've seen started, you know, arguably last November. So that's been an ongoing battle, especially with the growth names. But when you look at the month of April, take last week, the average move in the Aztec 100 was 20 in either direction. We're seeing now that's, you know, now it's 3% yesterday and 5% today. So this isn't normal activity, but what I will tell you is I think you, in the lead that you

didn't bury is that's what the market's trying to do. It's trying to find the appropriate level to say we've done enough damage to equity valuations with the information that we have right now. So what do we have right now? We know that the Fed is going to have to be aggressive, likely raise rates by 50 base points two more times this year than take a look, right? We know China has a lockdown going on that's affecting global demand and certainly supply chains. We don't think that's going to last forever. And we know that on its own accords, there are inflationary pressures that will start coming down, right? The year-over-year numbers in April, May and June are going to be easier. So headlines get easier. But the normalization of consumption

patterns that started to pull down goods pricing. So if you look at any of the folks that reported this week that talk about the consumer, they're consuming fewer goods and more services. That's healthy for inflation too. I think we're in that period right now. We're going to have this volatility. But I think we're a lot closer to the bottom than we are to some top. That's interesting, Art. So do you think that this is the market's way of voting that they heard Powell, they understood yesterday's rally for a moment in time, but generally don't believe that the Fed can engineer a soft landing with all. that's going on and all of the things that are outside the feds control.

Right. It's the it's the things that are outside the feds control that are the hardest to try to calculate, right? And triangulate, right? So, you know, we've got through 10 great hike cycles. And seven of those times we ended up in a recession. So, you know, the seven out of 10 is not a great adding average for the Fed to be facing coming into this. And even a soft-ish landing would be fine, you know, from the places that we're coming from. But I think what the Fed has actually done a very good job of is being transparent. Let us know what they're doing. They're not trying to shock this market. And I think what we have to start doing is finding out how the financial conditions react

when we start shrinking that balance sheet starting in June. But actually, when we get up to that $95 billion a month and see what the reaction and the financial conditions look like, that may temper how much the Fed has to do on rates. Talk to us about opportunities. Art, where do you see them? I can tell you this. I would tell you that the most oversold sector, right now is technology. I mean the technology that actually has earnings, right? And when you look at a

multiple for the top five names in the S&P 500, they haven't been this low and you're going at the great financial crisis. So I think if you look at technology, very oversold, great opportunities here. I think the most overbought right now to a certain extent is energy, right? So the energy equity complex has followed the commodity. It's never really had any drawdown. So if you look at the multiples of the multinationals like Chevron on Exxon, I think energy is going to be the best performing sector in the SP 500 this year, full stop. I don't think it gets to 10% of the SP 500. And I think if you're putting new money to work, that's not where I would go.

I'd wait for some drawdowns there. But, you know, I think if you look at the most over-bought, the most over-sold tech and energy fall to that category. All right. So people, they listen to Paul. Now they listen to you. Now they don't know what to think. That's the market.

Art, thanks for joining us today. Art Hogan with the NASDAQ down almost 700 points. Check out the consumer discretionary sector of the S&P. It's the worst performer today, down 6% right now. This includes a lot of tech names. of course, it's down 22% this year. Let's zoom in on a couple areas in particular of concern. Homebuilder stocks, for one, with Diana Oleg and travel.

That's another one. Seam Modi on that for us. Diana, let's start with you. Yeah, Kelly, housing stocks are getting hit by a double whammy. First, of course, the broader market sell-off, and then the yield on the 10-year Treasury shooting higher. Mortgage rates, of course, loosely follow that yield. So the average rate on the 30-year fixed hit 5.62% today.

That's a new cyclical high, according to Mortgage News Daily. It actually fell slightly yesterday after Fed Chairman Powell made no surprising moves in his plan and backed off more aggressive rate heights. Still, take a look at the home builders, big names, which were already down over 20% year to date. Linar, Pulte, D.R. Horton, and others down between 5% and 6% on the day and the renovation retailers, which also have taken a beating way off today. interesting that the Home Depot and Lowe's not as bad as the decorator names, likely because they get more commercial business from the builders. Now, consumers are likely pulling back more due to inflation. And I want to throw in one more in there, mortgage lenders, rocket companies, which reports next week, and Lone Depot, which have been getting crushed on these higher mortgage rates. They're also down big time, Kelly.

You know, Diane, I have a question, forgive me if this sounds very elementary. But look, didn't we all know that higher rates were coming? we all also expected it was going to be a 50 basis point move. Powell just potentially took 75 basis points off the table, at least as far as the Fed is immediately thinking, why such an extreme move in the home builders today that are so closely tied to the mortgage market? That's because we expected rates to move higher, but not this fast. Remember, we saw a jump. We started at a record low rate and we didn't expect them to move this high. Mortgage rates don't follow the Fed exactly. They follow the 10%.

year yield. And I don't think anyone expected it to be this high at this point. Also, there's that pull out from the Fed of mortgage-back bonds, unloading their balance sheet, which is having an outsize effect on mortgage rate. So they're much higher. We expected them to be higher, not this high. And, of course, another whammy for the lending names. Any relief there? They all say, well, we have servicing businesses. Yeah, no, I don't see that coming. In fact, I talked to an analyst this morning who said it's looking kind of ugly ahead for these lenders. I mean, you've got a lot of public names out there who are trying to pivot off of refinancing because that was their game last year. They were making record profit on refinancing. Refinance applications are now down over 70% from a year

ago. So they're trying to shift to the purchase market, but then you see the housing market starting to slow down. So it is going to be rough. Thank you, Diana. Thanks for moving into that a little bit deeper for me and just really laying it out there very clearly. Now let's move to travel stocks, which are pulling back today despite the outlook for a strong summer. Simo Modi has more here. A lot of moving parts in this sector, too, Seymouth. Yeah, Courtney, what do you do when companies who report solid earnings convey a bullish outlook? Yet still, their stocks getting punished. That is what we're seeing across most of travel today.

Let's take a look at Airbnb, an upbeat outlook. But today, Susquehanna, cutting its price target from 235 to 190, citing valuation concerns. D.A. Davidson bringing down its target to 201 from 235. The stock is currently trading at 142, a share down about 9% on pace for its. its worst day since February 23rd. Marriott also reversing some of its gains from yesterday when CEO Tony Capuano joined us on CNBC to discuss the strength in luxury in brands like the Ritz Carlton, J.D.W. Marriott. Stock is down about 2.6%. This morning we heard from Royal Caribbean saying it's turning cash flow

positive in April, but did hint at a potential slowdown in Europe this summer that comes ahead of Norwegian cruise lines results next Tuesday. Booking holding. and TripAdvisor, both out with solid results overnight. TripAdvisor is seeing a meaningful uptick and experiences in dining in the first quarter. So far, these two names are holding on to gains. We're booking holdings up 3.6%. You can see TripAdvisor up over 4% at this hour. Kelly. Yeah, Seema, it's so interesting here, all of the action that we're seeing in the travel industry. And I know that Bank of America's card spending noted that spending at airlines and travel agencies was up 60% year over year last month, spending at event ticket agencies.

up 140 percent, but obviously some of these names still getting punished just because of the action in the broader market or potentially some expectation of a slight slowdown, at least in some segments. Yeah, it's really easy to fixate on the consumer spending data. Also, the outlook we're getting from a number of these travel companies. But I would also point out to the hotels, obviously when rates rise, that elevates the financing costs for the future pipeline. And right now what we are seeing is a slowdown in the construction of new hotels. So that's giving investors a little bit pause even though of course right now that demand bookings right now remain strong all right sima thank you we appreciate it sima modi let's shift gears back to tech the worst performing sector

today with the nasdaq down 5 percent names like apple microsoft alphabet even though we hear so many people saying look at microsoft as a pick here it's down four and a half percent amazon down more than seven percent let's get out to steve covac with more on these moves for us steve yeah kelly to your point these were the kind of stocks that people really like to park their money in as things were just a few months ago, and now we're seeing them just erase the gains they made yesterday. Let's start with Apple down more than 5% right now. You might remember last week they reported this big warning for the current quarter of these COVID shutdowns in China, up to an $8 billion cost for them, and we'll see what happens there.

And then there's Microsoft down about 4%. Again, erasing their gains from yesterday and then some. And they warned in their earnings report last week. It was all about Azure and the stagnation. and cloud growth, which is something we're seeing across a lot of cloud companies and digital services companies from gaming to cloud, you name it. That's really tough as they come out of these tough pandemic comps. Over on meta, even worse of this group that I'm talking about here, down near, it was down about 7% last I looked. And we know they had a lot of headwinds ahead.

We just got that report yesterday that they're doing a hiring freeze or slowdown as they deal with inflation and worry about the consumer and ad spending. And then finally, alphabet. Same story is that I just told you about meta. There was missed expectations last week on the YouTube revenue front and just again concerns about consumer spending and inflation. The same story we keep hearing. So big tech wants the place to park your money and now it's just there. Look what's happening. Bloodbath. And it's not like small tech, Steve, you know, offers a lot more respite. No. Again, to mention Brett Phil, I thought his comments were illuminating last hour when he talked about how a name like Snowflake, which he likes fundamentally, but is still

trading an evaluation so high that if multiples keep compressing, you got to be careful. Yeah, that's right. It's these growthy stocks, tech stocks, the cloud companies that we saw IPO throughout the pandemic. They're just not growing at the same rate they used to be. And again, there's comps from early in the pandemic just look horrible. I'm going to be curious about the mood in San Francisco because this is starting to feel like dot com. And we may be closer to the end than to the beginning. But as everyone remembers, it took many years for that ecosystem. to fully recover. Yeah, that's right.

And we've heard people who live through it. We had Bill Gurley on Tech Check yesterday, if you remember, and he was talking about just this. These people live through the hard times, they know what it's like, and there's this kind of, I don't know, theme going on throughout Silicon Valley that the newer people, the people, maybe my age and your age, who I don't exactly remember living through that or at least being investors at that time, they're going to get a real reality check pretty soon here. Thanks for putting me in that basket. We're the same age, I think.

I am. Steve, thank you. Thanks. Steve Kovac. Well, online retail taking big brunt of the sell-off in tech, the O&L and ETF down 8% on pace for its worst day since March 2020. Some of the biggest laggards getting whacked post-earnings, Wayfair, sinking after active users dropping more than 20% year-over-year. And eBay and Etsy both dropping on weaker than expected guidance. For more, let's bring in Scott Nations, President of Nations indexes.

Scott, you know, welcome. Let's just start with your take on Wayfair. This was sort of a darling for some time during the pandemic. The CEO is suggesting that yes, consumers are still spending, but they're starting to make more discerning purchases as they've just got a lot of things tugging at their purse strings, including inflation. Is this temporary or is this a permanent downturn for a name like Wayfair?

Well, for Wayfair, they're really getting discerning and they're deciding not to buy from Wayfair. This is going to be a tough time for Wayfair, going forward. You pointed that they had a decrease in active users. The problem is that the expectation was that active users on Wayfair would increase, and now we've had four quarters in a row of decreases. They're also talking about the fact that energy costs are hurting. They're having a tough time with waiver. And so Wayfair, which is down by about two-thirds from its recent high, it's just really going to have a tough time. They're just, they're really in the crosshairs because

nobody wants to go and buy a sofa right now. We've done all that. We want to get out of the house. We don't want to buy furniture right now. Wayfar is going to feel a pain. Yeah, it's interesting. The CEO said consumer spending is still climbing for retail overall. Shoppers nonetheless devoting a larger share of their wallets to non-discretionary categories and reprioritizing experiences like travels. We just discussed with Simomodi. But let's move on to eBay because we've got a lot of names to go through. What do you make from their results? A lot of things to not love so much about this one. Well, if you just look at the headline numbers and there's plenty to love. I mean, eBay just beat on revenue. They just beat on EPS. But the guidance was absolutely horrible. They just killed the stock by guidance. And also, I think that the strategy for eBay is more than a little bit of a mess. They're talking about auto parts. They're talking about vault storage. You know, volume there, users there has also declined. So I think eBay, all of the trouble eBay faces is of its own. own making. And again, the guidance going forward was just terrible. You know, we want to move on to

Etsy here. And really the CFO had some interesting comments in the release and talked about the macro headwinds going forward and sort of all of the different pressures again that consumers are facing. But you actually are liking Etsy here, even though this is the worst day that it's had since 2020, I believe. Well, and Etsy right now is the worst performer in the S&P. That's partly because Wayfair is not in the S&P.S. Wayfares down even more. But I think, Etsy has the best franchise. People like it. And it doesn't have the problem with big ticket purchases that Wayfair does. It certainly was a darling of the pandemic. It went from 32 to 300, back down to about 90 now. But the strategy makes a lot of sense. They did have a seller strike because they tried to raise commissions.

That caused some trouble. But, you know, they beat EPS. guidance was similarly horrible. They talked about the guidance that they gave for revenue was 10% below what the street had expected. But the strategy makes sense. The franchise makes sense. And I think Etsy, of all these names, has the most upside because they really have a plan for growth. Can we pivot, Scott, from these names to the market more broadly? As you watch the price action this afternoon, what are you thinking?

I'm thinking that the Fed waited way too long. There were a lot of really smart people saying that they had kept rates too low for too long, and they were all no, no, no, no, no. I guess my question is this. If so many people realize that they can't time the stock market, why do we believe that the Federal Reserve can time interest rates? So on that note, where does that leave the market? Oh, it's going to have a tough time.

It's going to be very choppy. It's going to be very volatile, and it's going to be pretty sickening. But you know what? The worst thing that people can do, and I actually just put it, published a book about this called The Anxious Investor. The worst thing people can do is throw in the towel because they think that there's going to be a much, a bunch more downside. We saw that happened famously in February and March of 2009. So invest, continue to invest, keep investing. Don't throw in the towel and stop investing. Or the worst thing you can do is just dump your

portfolio. As an old trader, we would call it puking. Don't puke your portfolio just because you think it's going to continue to go down because when you heard like that, then the only thing you're doing is paying attention to what everybody else is doing and they're probably not any smarter than you are right now. Yeah, well, that's somewhat reassuring. Scott, thank you so much. Thanks. Scott Nations.

The gaming stocks have also been pulling back with Caesars Penn National, both down about 6%. Let's get out to Contessa Brewer for a check on these movers for us. Contessa? Yeah, can I pull up another stock that's really the lagger today? Draft Kings just announced it has completed its acquisition of Golden Nugget Online Gaming. And look at its stock. It's down more than 10% today. Remember, they were bringing in Golden Nugget online gaming because they need the eye gaming customers.

They weren't getting them from the sports betting crossovers. And there you're seeing it just punished earnings tomorrow. There's going to be a lot of pressure on CEO Jason Robbins to explain and lay out the path to profitability. Melko were announced earnings today. It had not a lot to say. I mean, what can you say about Macau? But at least there, it's key earnings metric. EBITDA is positive, unlike Las Vegas, Sands and MGM.

And yet, look at what's happening with Melco. It's down more than 6%. Today, Las Vegas stands down almost 5%. Wind resorts off 5%. MGM resorts off 5%. Cesar's down 6%. It had a pretty good earnings report with a lot to like that analysts had to say. They look at the Las Vegas strip,

And there, once again, you're seeing incredible room rates and occupancy levels, but just getting crushed with the markets right now. Penn announced earnings today. It shares off 6% today. There was a lot to like there. And again, their customer acquisition costs for these online and sports spending customers far lower than many of its competitors. But right now, just the real questions about how inflation will affect those gaming customers coming into play. Kelly? Absolutely.

Contessa, thank you very much. Let's get a check on the markets now as we go. It is the worst day for stocks of the year. Rates continue to rise. Court, the 10-year back above 3%. I was hoping we'd get in on a positive note, Kelly, but I don't think it's happening today as we toss it over to our friends on the closing bell.

Thanks for watching Power Lunch.