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tv   Squawk on the Street  CNBC  May 23, 2022 9:00am-11:00am EDT

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it may rain though, tomorrow >> will you tape some of those law & order reruns in german for me so when i get there, maybe in january, i can watch them. >> everybody thinks this is so ritzy here i'm in the worst hotel room you've seen. my bed is for babies i'm in a baby bed. i'm in a hostile here. there's no tv. there's no tv. >> pizza three times a day swiss pizza. >> make sure you join us tomorrow. >> coffee though >> yes "squawk on the street" begins right now good monday morning welcome to "squawk on the street." i'm carl quintanilla got a bounce in store coming off seven weekly declines for the s&p. more discussion about repositioning in the end big week with macro with fed
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minutes and more retail earnings we begin with recession risks and the stock rebound, futures rallying but is the selloff over >> headed to the cloud, chip maker broad com is deep into talks to acquire vm ware we'll have more on that. and tesla's no good, very bad slump. shares are down 35% this month let's start with the markets, looking to start the week on a positive note. we have only had three losing streaks since the end of world war ii that have been longer than seven. >> seven weeks those streaks did not happen in particularly great backdrops for stocks it wasn't as if when those streaks ended it was all of a sudden up and away it's a good lesson that markets don't go in that direction two months in a row. a lot of things lining up that yet again, i would say, people who have been skeptical and
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optimistic will agree you've gone almost far enough in the short term hammering sentiment to a depressed state we've had good bounces on the way down from less extreme positions. less oversold in all the rest of it let's look at last week's action and say for whatever reason whether it's a machine game or not we're not letting the market go down to the closing 20% loss level. shouldn't matter probably doesn't matter in the long term. there's an odd history of the market pausing in that level it's all about the recession call from there. when you've already gone down 20%, does it get a lot worse or a little worse or stop there the determining factor there is did we get a recession, the exception being like 1987. >> there's a fair amount of bull food out there today two month low in chinese covid cases. still looking for a lockdown to expire in shanghai
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the president talking about tariff relief down the road. and j.p. morgan's investor day, decent comments about credit worries overstated given the strength of household and corporate balance sheets. >> one of the slides, as you mentioned, carl, saying it remains positive, for what that's worth returning to normalized rates will take time expect to return to pre-pandemic levels, but current economic conditions remain supported. you can see some of the things from that. we'll monitor anything that comes out of that analyst day. if there's anything that deviates from what the company told us most recently with the last earnings. >> everything seems like there's slowing working through the system but nothing really trips that wire that says you're on the path to an imminent recession. not nothing but very little does also, you talk about dollar being well off, high as the euro
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rallying here. yields have eased back i've seen a short-term peak at least. the things that everybody is justifiably worried about are not getting worse, at least in the last week. also things like biotech, semiconductors, software, banks, they stopped underperforming last week or the last couple of weeks. they were the first in to the downturn and what you've seen there is you have rolling correction, rolling bear markets they stopped rolling downhill. see if that matters. >> lowest level for the dxy since april 26th on this recession talk the president in tokyo was asked about the inevitability of recession. here's what he said. >> in your view is a recession in the united states inoverninoverevitable >> no. >> why not >> look, you're talking about the significant progress we've
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made in making sure we don't have supply chain backups. imagine where we'd be with putin's tax and the war on ukraine had we not made that enormous progress. our gdp is going to grow faster than china's for the first time in 40 years. does that mean we don't have problems we do. we have problems that the rest of the world has but less consequential than the rest of the world has because of our internal growth and strength. >> j.p. morgan today does cut their full year china number down to 3.7 from 4.3 it's been since the '70s that the u.s. grew faster than the chinese economy. >> do you want to talk about nominal growth you put inflation on top of that for the u.s that's one of the factors causing static out there you can have the companies thinking top line looks okay because of inflation plus real growth the recession question, that's
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almost the perfect way the president would want the recession question to be asked, is it inevitable no it's never necessariily inevitable but i think getting into that late market stage, credit spreads, things that happen before a recession are not yet there. unemployment claims. usually they go up 10% or something like that before you get that moment where cycles have ended >> mike, are you surprised that we're having this conversation >> no. >> and we're having it -- it feels like so -- it feels like it came on fast. >> i agree with that there's no doubt whenever -- the scares always come -- multiple scares often before you get to a recession. one of the things, this has been such an unusual compressed completely idiosyncratic cycle the market didn't quit on the way up
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you saw credit spreads collapse to historic lows, even during a pandemic so all the stuff that happened i think there's a recoil from that, the question is are we just normalizing or basically saying we have to get ready for the next downturn? >> ceos, people talk about the wealth effect. fed wants the wealth effect to new spending and all that. i think the psychological effect on ceos, when the market goes down 20% and the average stock goes down 30% is probably so much more consequential for the economy in the short-term, in terms of hiring plans, what they're going to do, the risk they're going to undertake that's what wall street listens to and watches and tries to dis discern as opposed to brian m moyhan saying people still have money. and it doesn't seem to be
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stopping hoctan. at broad come, there's a look at mr. tan. and deal after deal after deal the latest that is on his radars for vmware the stock is up at bloomberg broke the story over the weekend. they are in advanced talk. late to the party but i can add my confirmation as well. they are deep into talks that would involve cash and stock, don't know the price from broad com to acquire vm ware a company controlled by dell until they did the tax respend michael dellvos still a significant shareholder of vm overall and the most important si si single constituency here vm going to report earnings on thursday
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it's my understanding and you might not be surprised that they were aiming for an announcement by thursday. perhaps at the same time as earnings from the company, typically when you get a leak like this things move up so it could come sooner. i am told, however, there are still material terms that need to be finalized. so that does at least put some question mark there. it does put pressure on both sides as well. they are talking about large synergies from what i'm hearing from broad com which is a company that thrived on doing deals and has the confidence in their ability to derive cost savings from those deals look at that, that doesn't look good but give me a long term on broadcome. $220 billion market value for this company. >> i was trying to tease out the 4%, you know, indicated decline in broadcom. it's known to be an inquisitive
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company and this is part of the strategy we don't know the price. we don't know how close to that all-time high in vmware, 200 bucks a share any deal might occur at but that's not necessarily the market throwing a tantrum about it, a 4% down. >> no. if you want a price check, which is helpful perhaps for vmware or michael dell you're getting it. it's cash and stock. unfortunately have not been able to determine the composition of and/or the overall price but you do get a check on broadcom stock there, not too bad. that hold 4% down, not bad they haven't been able to tell their story at this point, what the expectations are, the rational for the deal is andrew asked him about it, said he'd reserve judgment, former ceo of vmware. >> broadcom down way less than
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tech but it's made its way along with stocks like qualcomm into a lot of kind of dividend relative safety portfolios. so the word has gotten out from br broadcom we're buying cash flow businesses we have a 3% yield. so you have to wonder if everyone is going to be excited about this possibility but it seems opportunistic. and as i said, scvmware down a lot. broadcom migrating from semis into software. >> rarely, you know, gotten what people thought would be a very complex structure for a long time, maybe never got the credit for the underlying business. >> again, the potential buyer here, perhaps obviously a deal of this size always a bit of a surprise but at the same time when vmware did become free of dell, there
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was certainly plenty of bankers around who believed in the course of the next year there might be interest from somebody, including broadcom you don't want to get rid of the tax free status so you couldn't have any talks prior to that we'll be following this closely could be we get developments soon this puts pressure on both sides to reach a deal as quickly as possible perhaps before the thursday they had pencilled in as a possibility. >> let's see how corporate manages their overall balance sheets bloomberg looks at amazon looking to reduce some of the warehouse capacity as we begin to unwind the overbuilding we got during covid. >> i had been hearing it from a real estate source they're subletting a lot of warehouse space but we know they built too much that was a key component of the disappointment they reported. when we come back we'll talk tesla, shares down almost 40%
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since musk disclosed what he called at the time, the passive stake in twitter look at the slump and what may be ahead in the stock today as they get shanghai up and running. calls today, mostly on the downgrade side of a bunch of retailers and chevron. resqwkn the street" still ahead. drag coefficient, the more efficient you become. such amazingly perfect shapes run throughout the natural world. and can now be found in the automotive one. the world's most aerodynamic production vehicle. the eqs sedan.
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of twitter since then tesla stock has fallen by more than 40%. is now the time to get in? let's bring in collin rush good to have you with us this morning. thank you for the time to the degree you can separate tesla from the overall tape, is this driven by musk selling or china delivery risk or broad consumer risk on the demand side >> i think it's all the above at this point there's definitely some risk off and some size positions happening here i think there's some acute concerns around china covid policy and what happens with the supply chain and what comes out of the shanghai facility people are worried about consumers and margins. >> what is your q2 delivery estimate >> just above 300,000. probably some adjustments that will happen as we get through the balance of the quarter
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what we've seen with the company is they can drive a lot of volume quickly at the end of the quarter. we're not giving them credit for austin or berlin we'll see what comes out of the facility in the next couple of weeks. but you can't get a feel for numbers until the last couple of weeks of the quarter we'll see how the next few weeks go and make a decision on the numbers. >> they're saying they're trying to get shanghai back to pre-lockdown levels by tomorrow. a delay basically of a day from their prior guidance how much is riding on this one particular facility? >> you know, short-term it's important for the numbers. but i don't think it shakes the thesis at all. what we're focused on with this company is really the learning cycles and the accelerated learning cycles relative to peers. they can do it with technology dw development, throughput.
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as we see the anxiety in the stock we're expecting better numbers. if you go back a year, you know, this is about the time last year when we saw the lows on the stock. so i think there is also some positioning for the summer that folks are getting ready for and the potential for a soft summer market and our view is that this company continues to execute well, even if musk is distracted they have a strong second line of management here that really do drive the business and we're still bullish on the stock, especially at these prices. >> collin, if we grant that, in fact, management of the company has a handle on things and there is a fundamental story playing out as you expect, has the action in the stock. it's almost been cut in half from the highs your price target reflects it back to the highs, above $1,200. does it not reveal what else was in the valuation up to that point. whether it was just momentum, whether it was just this idea, you know, that there was a musk
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mystique that's been somehow undercut it seems as if there might have been a reality check that happened here because even if your newly raised 2024 estimates of $15 in earnings we're still above 20 times earnings, nothing wrong with that, in terms of a generous valuation. >> certainly we can see the earnings number get up to 15 -- not 15, 25, even $30, in the 2024, 2025 time frame. that's the debate on what the real margin profile looks like the company continues to raise prices without softening of demand they're the only company that's driving this level of volume of electric vehicles into the market, certainly at this cost point from a production standpoint so that earnings question is a real one i think for investors right now. we're going to get a lot of information over the next couple quarters what the margins look like i think the margins coming from shanghai, we're not a believer
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in that. as we see austin and berlin come online we think the company is in the 35% plus growth range which drives earning power which makes the multiple looks anemic at this point. >> colin, something you said about elon musk and his being distracted caught my attention does that figure in at all to your view of tesla going forward? are you concerned at all about, you know, how much time he's spending on twitter and by that i mean both buying it or not buying it and just tweeting himself? >> what we've seen historically, he's been first a culture setter for the organization and really brings attention to acute issues as necessary at this point with the company actually executing well and operations running smoothly we're not concerned about him taking his time. he's a workaholic, spends all of his time working if he's spending time on the
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side projects it's not a huge concern considering where the company is at from a maturity perspective. we think they've gone through the growing pains from a couple years ago, that seems to have settled down the last couple of years. >> appreciate that an important ticker for all of us to watch. colin rousch joining us on at ast. more squawk on the street when we come back in just a moment don't go away. facebook's products harm children, stoke division and weaken our democracy. teens blame instagram for increases in the rate of anxiety and depression. it's not great when your customers are voting with their feet and deciding to kind of walk away. facebook's parent company meta
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some breaking news out of starbucks. let's get to kate rogers morning, kate. >> good morning. starbucks updating partners this morning saying it made the decision to exit the russian business as the war on ukraine continues. as we mentioned on march 8th we've suspended business activity in russia, including shipment of products starbucks made the decision to exit we will continue to support the nearly 2,000 green apron partners in russia
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including pay for six months and assistance for partners to transition to new opportunities outside of starbucks starbucks has about 130 locations in russia so it makes up a small footprint and been there since about 2007 it's the second brand to exit in the last few days. mcdonald's said it would sell its russian business that's been there for 32 years the company said the continued ownership of its business in russia was no longer tenable nor is it consistent with mcdonald's values mcdonald's has far more locations there, about 850 it announced the say beerian lic licensee in the market would operate them under a new brand a noncash charge of 1.2 or 1.4 billion related to the investment in russia and foreign currency losses. so two big brands exiting the market in the last few days. >> i'm thinking back to the memo
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that mcdonald's chief wrote to employees about the tortured process, the difficult process of deciding once and for all to get out. it's not an easy decision, a lot of history there and a lot of difficulty in getting some of the assets sold. >> certainly as i said, they've been there far longer, more than 30 years for mcdonald's and it's a bigger portion of the revenue, about 9% of revenue for mcdonald's. starbucks less than 1 kt%. mcdonald's is company operated so there was pressure in march to take a stand. starbucks less so, but those are two huge american iconic brands pulling out. >> any decision it was driven more by schultz than under kevin johnson? >> it's unclear because he's been back for just over a month and a half now so i think a lot of the focus there under schultz as far as we know has been on the union
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battle going back and forth, perhaps following in mcdonald's footsteps. unclear what drove the decision here ensuring that the partners and workers will receive the pay, they can help transition to other positions outside of the company. mcdonald's agreement is somewhat similar in that workers at its stores will be retained under this agreement for up to two years so they're ensuring that workers will have access to pay and resources. something clearly important to both brands. >> appreciate that, kate thank you. kate rogers joining us on the breaking news. speaking of consumer, gas prices continue to spike a survey says the average price of regular grade gas jumped 33 cents over two weeks to $4.71. average price of diesel up to $5 $5.66. we have lines this morning that the white house is monitoring diesel inventory on the east coast and is prepared to take
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measures if it gets too tight. >> looks like the next area of intense concern obviously it's a regional market and whether, in fact, that's going to be a big problem for the summer in terms of the level it got here quickly looking at the year over year change in out of pocket gasoline costs it's a significant jolt, at least, psychologically as well as financially. it's worth remembering, i think, from like 2011 to 2014, price at the pump was in the high threes, like $3.70 to four, median household income is 3% higher. so in theory it can be absorbed. but still a tough one. >> an interesting story this morning in the journal compensation for chief exe executives in the companies are no longer linked to production targets like they had been in the past something that we pointed out many times is the capital,
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namely the shareholders here don't want to see more drilling or not a lot more. they want to see return, whether it's in the form of higher dividends and/or share buybacks. and that's an important component here overall of what will happen in the future as well. >> absolutely. a couple of years ago we thought we had one kind of world which was that oil kind of in decline and you were going to be rewarded for being careful with your capital the fed thought we were in a world two weeks ago because they had to rewrite the policies to say we want inflation to get high enough in the next cycle. everybody has been upended by what happened in the interim. >> you have drilling rigs up nine weeks up to $7.28 remember when we were hoping to get above 7. >> one quarter in history, i believe, where u.s. oil production has been higher than it is right now. >> all true. >> we have 5 to 7% depletion overall every year in the world. so you have to keep drilling
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>> you need to refill. >> refill. good opportunity, one month from now, june 23rd, count down, put it on your calendars, exxon mobile at the cross roads. our detailed documentary into exxon mobile and also into the larger question getting carbon neutral by 2050. and so many other things we'll be dealing with. >> can't wait. hurry up and get it done so we can all watch. air owe space marking technology day it is man kind a bio pharma working on treating diabetes we have this out of chevron raising the oil and gas price scenario but arguing the outperformance of chevron is overdone and they go to hold. >> shares up 44%, exxon up some 51% this year. and the differential in market caps not that great between the
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two, our two largest companies here i don't know, mike, you know, the energy was 2% of the s&p coming into this year. that is changed but going from 2 to 4% is still not an enormous change given historically what it's been. >> it's not at all it's hard to argue that in aggregate energy has overshot in terms of the importance to the economy and the rest also, you haven't seen a lot of heavy inflows into energy specific etfs. it's not necessarily the buzzy retail trade even though there's a lot more interest. if you're a long term structural thinker i think people found it easy to own the stocks look at the futures curve for oil, even if prices are coming down, it's still profitable for them it's been easy for now what is interesting is the magnitude of outperformance by energy to everything else. just in itself maybe creates a
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little bit of a gravitational pull in the sense that is everything going to remain immune to the bear phase >> this morning, an 80 percentage point spread between consumer discretionary and energy points year to date >> i would look at equal waited discretionary, because you're looking at amazon and tesla. but the point is right yeah, i think it -- you shouldn't be surprised to see if energy stops working in the absence of everything else what's interesting to today, as i mentioned last week the beat up stuff perking up, banks strong today, bank of america saying things seem okay. they got no help from higher yields in the last few months. seems like that's a prerequisite for the overall market getting back to this rotational kind of traction that can
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stabilize the index. >> berkshire owns more chevron now than it does the banks is he out of the banks spentirey bank of america, right wells? >> he's out of wells. >> i think there's maybe u.s. bank corp. there american express still owns 20%. >> talking about berkshire here given the chevron downgrade that carl mentioned. >> and oxy. >> yes large component of the new buys at berkshire we learned about a couple weeks ago. >> haven't been a lot of downgrades of chevron. i saw rbc on april 21, went to sector perform you mentioned moynihan i think we might have the sound bite ready on squawk box earlier today. he did talk about raising the minimum wage over there to 22. as well as highlighting -- he's been bullish on overall consumer reads lately.
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>> been leaning on just their aggregate account balance numbers, the flow in and out of checking accounts. and that he's arguing that cushion that was built up from the stimulus programs and the way it enabled a lot of people to clear debt and get in better position is still in place that's almost certainly true in the aggregate. that's why they talk about the savings cushion. obviously it's not equally distributed, talking about last week with walmart and target, are you seeing wear and tear on low income consumers out there that they don't necessarily have the same backstop of savings. >> we are going to get this week costco and best buy. there were some calls on the kohl's number that the lower end consumer is i think in the words of cowen unbuckling a bit. but this is what moy yan said. >> no one is saying there's a
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recession in 2022 or 2023. >> what is is brian moynihan saying >> the fed has a tough job in this tightness it's a job they're getting after much faster and we'll have to see if they can get the balance right. >> we'll get a chance to hear what jane fraser from citi thinks when sarah talks to her later this morning >> the j.p. morgan revised upward net income, that's a concrete number people are leaning on the banks have been trading as if everyone is positioning for an erosion of credit, corporate, commercial, consumer not that it's recessionary yet if we get a recession, they haven't priced it in so anything okay on the credit front is going to be welcome. >> j.p. morgan, their operating expense guide dance not changed for the year but then said the 2023 expenses might be higher than where the street is,
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currently about 79.5. >> a consistent theme from j.p. morgan, kind of this is the landscape that they face and they're willing to make the investments, and over the course of a few quarters now trying to prepare the street for that reality. stock up almost 3% this morning at least. did want to come back to the deal we talked about earlier br broadcom in talks to acquire vmware, a company that enjoyed about six, even months of being public, it was controlled by dell still controlled by dell in a sense, michael dell and his partner, silver lake they still control roughly half of the company's shares. they're a very important constituency here in terms of how they feel about the price being offered. that part we don't have for you. it's a cash and stock offer as i reported earlier the hope was originally without there having been a deal leaked
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this thursday typically you try to move that up if you are b broadcom but people close to the talks did indicate to me there are still material terms that need to be finalized wouldn't say what those terms are. you can see shares not performing too badly given the news the company has been inquisitive over a long period of time led by the leader, hock tan who at some point may be stepping off as ceo there had been some talk of succession there tom kraus very much involved in running much of the business as well and/or steering much of their acquisitions, including i'm told this one. taking a quick look at the research out this morning. key bank says their semiconductor franchise and the data center, infrastructure software franchise as well as
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broadcom's semiconductor are complimentary with vmware. piper sandler said large customer base overlap. there are complimentary product areas as well. and web bush saying similar things in terms of a sensible deal for broadcom not many questions from the analysts out there. which is good. heard there would be a good synergy number but not sure what that is at this point. we were talking about buffett there was a down krad grade of hewlett packard, it was mostly about the pc cycle and what we've been hearing from that part of tech. production issues, stock is flattish at this point but it's really, i would argue, has been benefitting from a bit of the buffett halo effect
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very cheap stock, has been for a long time. when you talk about his stake in it, plus the fact that they've just massively aggressive buy back plans that they seem like they're going to stick to, it seems like that overrides some of the short-term fundamental stuff. just negative now by one-fifth of a percent. >> twitter shares are down another 2% $37.56 you can do the math at home what's the spread to $54.20 that's the deal to which it's supposed to be acquired by elon musk that's the contract with performance on the equity. haven't ended up in court yet, still waiting. still waiting for that board to pull the trigger saying he's in breach i didn't see any tweets over the weekend from mr. musk questioning it and going back to his key concern, which is the number of fake accounts essentially and bots on twitter, saying it's far higher or saying
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it may well be far higher than 5%, although that's been disclosed by the company in its filing. >> one of his original rationals for taking a stab at it, fixing that problem it didn't come out of nowhere. tesla, not quite to friday's intraday low but just having talked about it a couple blocks ago we'll see. >> he sold a lot of tesla stock to pay for twitter at higher prices. >> like 900. >> yeah. that's $6 billion. he owns more than that, obviously. but nonetheless, good sales. >> no doubt about it no matter what happens from here, good sales he did also, did he not, at least reported that he lined up equity investors to reduce the margin loan piece of the financing. >> that is correct. >> so it loosens up how far down that collateral can go before it
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impacts anything in terms of the deal by the way, spacex meanwhile is on pace to become the second largest unicorn after that recent valuation >> we talked about it on friday, 70 bucks a share, 125 billion is what i heard, i think reporting 127 billion yesterday but the latestround for spacex which is getting ready to launch that giant rocket and even more payloads for star link which is an important business line growing importance in terms of broad band to underserve areas around the globe. fascinating to watch that go up 25% from the last round. >> it did seem as if it was a tougher or less oversubscribed round of fund-raising but in this environment obviously a win to get it done. >> private companies we follow them obviously but the markdowns that have to have taken place in the large hedge fund portfolios, whether it's tiger or d-1 interesting to see what has
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really occurred there given the public peers have come down dramatically how those become marked is a key component for those important investors, not to mention the vision fund which we've seen the performance numbers there. >> the overall take, mike wilson, once again, 3400 is the level that more accurately reflects earning risk ahead. thinks we get there ahead of q-2 earning season. >> talking july, august. and that matches up with the cycle clock stuff on midterm years. that's why there's this sense out there, of course we can bounce, we're going to bounce along the way. we had two 7 or 10% bounces since january or three even. but little conviction behind the idea we've seen the low. the fed going to be raising rates by 100 bases points over that span. 3,400, why does that seem like the target, it's basically the
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pre-covid high it's probably 14 to 15 times earnings right now we get down to 16 -- two weeks ago when the s&p was above 4,100 we started talking about this collection of forecast for down side targets in the 3800, 3900 area that's where we settled for the moment that's because you got to 16-ish times earnings and gave back almost 40% of the post covid rally low to high. all those things are true but to hope that's the low means you're hoping we stop at neutral. that the pendulum stops here and doesn't overshoot. mike saying you have to build in a margin of safety, that would be 4,400. financials today are leading up more than 1%. and j.p. morgan is best dow component. let's get to bob good morning. >> happy monday. nice start to the day, off the highs, two to one advancing declining stocks we were three to one but look at the sectors. we have banks doing well
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energy holding up well on top of that that's the one sector holding up banks doing great as well. consumer staples bouncing a little bit but that's been the market leader to the market decliner in the last week or so. tech is occasion look at arch innovation, still can't put together a positive string of up days here banks as carl mentioned doing well j.p. morgan, their cfo making positive comments. nice to see banks as the leader. j.p. morgan, wells fargo, bank of america moving to the upside here consumer staples, at least they stopped going down friday was a decent day, today also a decent day. some of the stocks, coca-cola went from 65 to below 60 on thursday so that's a nice little bounce, at least a little stabilization. not a lot of encouraging words
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from the market technicians over the weekend. been reading lowery for many years, one of the oldest technical analysis service in the united states. they said while a relief rally is likely to develop, longer term trends reflect an unhealthy and deteriorating market conditions you hear this across the technical analysis landscape, a lot of gloom and doom. i think the watt of the week last week, this selloff based on interest rate fears and based on financial conditions, today it's all the elements of being a growth scare, which means an earnings scare this goes to what mike was talking about earlier. because the earning testimates are still rising on the street for 2022 the numbers went up last week. they did not go down you think they would bring them down, they did not
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2023 the numbers went up last week, they're not coming down. this has been a source of great debates. one big reason they're not going down, energy numbers go up dramatically the way this is set up, that tends to have an oversize impact on the estimates that's number one. consumer discretionary estimates coming down a little bit, not dramatically everything else is flat. why is everything so flat when the streets believe there's an earnings drop off. i think absence specific guidance for the second half the sell side analysts are still reluctant to move. they have the dear in the headlight look and not useful at market reflections like we're seeing i get asked how many analysts are left out there on the sell side there's about 1700 sell side analysts providing estimates for the s&p 500. they cover an average of six stocks each. so there are about 10,000 earnings estimates provided every quarter by s&p 500
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now mike wilson made an interesting point about 3,400 why that's interesting, carl the important thing here is earnings are estimated to be up 10% for 2022 if you assume no earnings growth and you have to take it down to zero, that would imply a 10% decline in the s&p 500 and that's about 3,400 so wilson has a point assuming the most pessimistic scenario around earnings emerge. carl, back to you. >> bob, thank you. tonight on cnbc tune in for a special program, inflation and your stocks hosted by our own becky quick. that's tonight at 6:00 p.m. eastern time before we go to break, look at the bond report. not the busiest week for fed although we will get minutes on wednesday, pce thursday, yields up a little bit but still ten year below 2.82.
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>> good morning, i'm sara eisen in davos, switzerland, the world top forum, top ceos and policy-makers are centring on the volatility in stocks, a global recession and the u.s. economy, i just stopped an interview with the ceo of citigroup, jane frasier, here's what she said about the state of the u.s. consumer right now. >> the consumer is in great shape. i see it on the ceo franchise and off the banks. typically, we get about $1 trademark of savings in the consumer it's 3.6 trillion still. it will come off as the savings rate has come down but there is a lot of cash and deposits sitting there and the consumer, that is a before i against the inflation that we
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are seeing >> some optimism there find out what she said, though, on inflation and just how much the fed will have to do to fight that i'll bring you the entire interview with ceo jane fraser in the next hour when i join you for "squawk on the street" we'll be right back.
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j.p. morgan chase hosting its investing day. leslie has more for us. >> reporter: we're here at j.p. morgan's new york city headquarters, where the firm is holding the first investment day, hundreds filed in here chairman and ceo jamie dimon psyched the court favor with investors. i'm happy with the stock's 25% slump this year. one concern has been that of that expenses, j.p. morgan replicated that figure would be $77 billion this year. simon describes how they're thinking about spending. >> there are good expenses and bad expenses, bad expense 's are things that lead to bureaucracy, waste, corporate state-ism
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things like that good extensions are new branches, new bankers, things that will pay off for a long period of time >> reporter: a key booster to the stock price today is the firm's net interest income excludeing markets to come in at a $56 billion this year up from prior guidance of $53 billion thanks to rising interest rates which start as a tailwind for this metrix of profitably and implies they don't see an imminent recession dimon said in his presentation that he thinks the u.s. economy is still advantage for now thanks to monetary and fiscal stimulation. >> that destroyed economy met by two counterforces, both of which you've never seen before high inflation, qt and obviously the fed is going to try to meet it. we don't know outcome. that's your guess. but we can have a good scenario,
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a best scenario and the war in ukraine, this humanitarian crisis, the impact on the global economy, ruining the oil markets, commodity markets, et cetera, wars have unpredictable outcomes >> reporter: we'll be here throughout the day to bring you all the headlines. carl. >> still reading the dow a. 4% move thank you, leslie picker someing up, sara eisen's interview with citi's jane fraser from davos. don't go away. hey businesses! you all deserve something epic! so we're giving every business, our best deals on every iphone - including the iphone 13 pro with 5g. that's the one with the amazing camera? yep! every business deserves it...
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good monday morning. welcome to our "squawk in the street." i'm carl cantonia a lot more from sarah in davos, switzerland. we got 1% bounce numbers helping off friday's test >> we are 30 minutes into the session. here's a handful of stocks starting with vm ware in advance
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talks, acquired by chip maker and software company we will have a lot more later in the hour pfizer is saying three doses of their covid-19 vaccine offered strong protection for children under five years of age. they plan to submit the data to the fda this week and citi downgraded to neutral. it had been a buy. this is what they call moderating demand in the near mid-term >> david, good morning, good afternoon, from davos, switzerland. i want to give you a taste of the conversations this morning where there is a lot about the war in ukraine the headline this morning was president zelenskyy giving another one of his rousing and inspiring speeches, standing
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ovac oov oovation he called again for an oil embargo with russia, punitive measures specifically against its banks. clearly, it's less than a three-hour flight in zurich to kiev beyond that, longer-term conversations david and carl about the state of the economy it feels like we're at an inflexion point, where a lot of the stimulus has traded. the question is what comes next? are we headed for a u.s. recession or a global recession? i can tell you growth is a lot more and food costs, so there is some pessimism around the conversations, but at the same time, this doesn't have a feeling like 2008, for instance, or other really moments of crisis and in large part because
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a lot of those companies are in a lot better shape and consumers are in better shape from where they are it's not all doom and gloom, clearly the market, the volatility we have been seeing and the pain points in the global economy are a part of the conversation i will hear about all of this stuff. a chance of recession and a lot more includes, bank stocks, the performance and that of citi which overall pretty much has lagged >> it has. the banks are down this year with a broader market. having a warning of roughly 3% i have an opportunity. they mentioned not that much of a contingent in the u.s. are there people more from the u.s., more from europe i'm curious to get the conference attendees for this
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session? >> well, it's different for a lot of reasons number one, it's in may. it's always been in may. i'm team may lonnie is here to get around in the snow and ice but, yes, it's a different competition, the russians typically throw the parties and the chinese are not here they're dealing with covid especially multi-national ceos a lot of these companies, pal l palantier and meta it's in the spring and not in the winter you do have representatives from the bank, the tech companies i would say definitely a european crowd if you look at the leadership,
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the chancellor of germany is here, for instance the prime minister of spain is here and also there is a delegation from congress, senator joe manchin is here as well it's not as strong the u.s. president, but certainly a lot of the private sector are here, doing the meetings, having a conversation as always >> it looks great, sarah i look forward to a lot more in a few moments. a new survey, meantime, showing economists are expecting lower growth for the year. not a recession yet. your steve leishman has that for us today good morning, steve. >> the new forecasts upb their inflation forecasts offering if they are predict ac recession. here are the numbers from the national association for business economics shows the
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median gdp forecast for 2022 is down to 1.9% from 2.8% in february then it goes to 2.1 to 2.3 for 2023 so it's less growth, still slightly above trend now, looking at the quarterly growth rate, you see a decent rebound from the surprise first quarter consideration. growth then gradually shifts down to the 2.1 number note the median for each quarter remains positive so there is no consensus calm for ecocontractis so time for things to get right. there could be some inconsistency and also the heightened concern about recession, given rapid rate hikes coming from the fed. in fact, other parts are relatively benign. it averages 7%
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it falls sharply to 3% next year the unemployment rate barely changes staying at 3.6%. that's a level that suggested would be no recession if it stays that low, the median sees it rising 3% next year, more or less in line where the market is priced right now the good news is recession is not in the numbers, the bad news is clearly worrying about unwillingness to say when a contraction will begin and how much the economy will contract, guys >> speaking of that, steve, there is a difference between negative growth and below trend growth what about their views on that >> yeah. so i did a calculation on that, i'll call my numbers here. it looks like a third of the economists are, indeed, looking for below trend growth so in that sense you would say there is a definite growth slowdown put in the numbers that kind of dovetails with what bob pisani is waiting to hear in
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the earningss forecast which is what you might expect to go along with a growth slowdown i'll tell you this, if we get off with a growth slowdown, not a recession and we end up combating inflation, we will, sir, have gotten off cheap >> steve, thanks i'm talk to you in a bit steve leishman, sure a fascinating sit of numbers let's bring in j.p. morgan, group ceo, welcome back to the set after a prolong absence. >> it's good to be back. >> it doesn't sound like you think earnings, itself, are at broad risk >> so, the earnings story has been very interesting. one of the things we always go back to is when it comes to earnings, it's the nominal growth in environment that matters. it's not necessarily about real growth so when we look at where the pricing pressure is. this is all a story about margins, there are clearly some prices that can be passed along. and there are others that can't be passed along. wages will be an issue we seen that really starting in
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the fourth quarter what i think is most interesting is we are beginning to hear anecdotally, businesses are taking their foot off the hiring pedal and it links the economy to the inflation narrative while i struggle to see the soft forecasts, i think the earnings are more resilient than people were originally thinking >> do you agree and if you do, where does it lead you in terms of a market playbook, at least for now? >> i do agree, carl. looking at what the retailers spinoff is that consumers are still spending from shifting from a discretionary items to items they feel they need more right now. i think that's a big thing that you know those wages and companies for freeze hiring, also take away some of their plans to grow on the hiring front. they are thinking we mentioned
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banks earlier today. that's an area driving investors to have their portfolios shifted down to as well as more of those staples, carl. as far as my portfolio is looking. >> david, question for me out here, everybody is talking about how europe is in much worse shape than the u.s. as far as the economy right now. much closer to a recession, dealing with the high oil prices how does that not affect earnings estimates for u.s. companies if yeurope goes into a recession? >> so i think it does, to keep in mind of a recession this is a late 2022 early 2023 phenomenon both in the united states and europe we know energy prices are the issue here but winter as you alluded too in davos is much more pleasant. the economy is fragile we do think the risk of
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recession will build as we move closer to the iend of '22 everybody knows what the bad news is, high commodity, inflation, more hawkish fed. there is no good news. so in order of what gets this market turned around i think is going to have to come from the earnings front and businesses saying, look, we recognize it's challenging out there. we're continuing to make money we see risks building into 2023. but we're trying to find something that gets the market moving in a more positive direction. i think in aggregate, there will be certain parts of the market where the earnings does the heavy lifting. >> what parts of the market? obviously, we got some retailers sort of confirming people's fears as far as combating them. >> consumer discretionary. i think the tech names will come through. i think the fact that you are hearing they are holding back on hiring will allow them to defend their stories. that itself the story all along.
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>> i wonder your 53 whether or not it's 5d justs their operating expense or paying more attention to mna does that lead you to names in software as some have suggested? >> yeah, we are looking into the names for stocks, holding those names. i do agree that tech will come through in the long term, for investors right now, obviously, i think that linchpin is the consumer retails are mentioning they are spending but they're looking at a place where if consumers are saving because the economy is strong right now i think looking at tech, that's our biggest play there as far as our long-term holdings, i think the near term will be choppy with fed interest rates rising, that is a headwind for tech right now, in the long term, a lot of those names will pull through in the end, carl >> we are looking for some of that good news to see whether or not we can put some bottoms in here david delano, thanks appreciate it. thanks for having us >> thank you president biden saying the
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u.s. would be willing to use force to defend taiwan and not surprisingly, that prompted backlash from china. our eun ieunice yoon is live. >> reporter: in tokia when asked if the u.s. would defend taiwan militarily if china were to attack, he said yes because the u.s. made a commitment to do so. now that conflicts with official american policy, which is based on a concept of strategic ambiguity. that means the u.s. purposely left it vague and did not make a definitive statement as to whether or not it will enter a war on taiwan's behalf the white house quickly walked back those statements reiterating the u.s. long-held position to uphold the one china policy and support taiwan with its efforts to defend itself
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but as you could imagine, china was very upset, reacting angrily by wording president biden not to underestimate beijing's resolve to defend what it sees as its sovereignty and territorial integrity. now, the chinese government viewed unifying taiwan as a key national goal. guys >> eunice, it's david. you know, given you're perspective on the covid lockdowns and what's going on there, i'd love to come back to that, because that is still very important for many u.s. investors, some news that apple may be moving some manufacturing or at least thinking about it, for example. judging from what's going on behind you, it doesn't seem to be much change but can you give us the latest, please >> reporter: yeah, well, there hasn't been a whole lot of change n. shanghai, there have been some efforts to reopen the economy. it's been kind of coming in bits and starts
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where on the one hand we're hearing the subway lines are opening or more businesses are added to a list the city thinks is okay to operate close operations, but se same time in the same breath the prime business district had to shut down there was no explanation for that because it has been going in bits and starts, there are many in the business community who are concerned the latest effort is going to weigh on sentiment, especially among consumers and businesses as they look to try to really get out of this under a covid repression. >> eunice yoon in beijing, obviously a story that has ramifications all around the world. thank you so much. as we move ahead, starbucks the latest to pull openingss out of russia. we got details >> plus a lot more on deep in these talks of vm ware this morning
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and don't miss an interview with citigroup ceo jane fraser talking about the chances of recession and a lot more a. big show still ahead on "squawk on the street" from the new york stock exchange in davos, switzerland. don't go anywhere. don't go anywhere. >> a bank of america company. at fidelity, your dedicated advisor will work with you on a comprehensive wealth plan across your full financial picture. a plan with tax-smart investing strategies designed to help you keep more of what you earn. this is the planning effect. - [narrator] at southern new hampshire university, designed to help you keep more of what you earn. you can finish your degree faster and for less money. transfer up to 90 college credits toward your bachelor's degree. - i was able to transfer a lot of my credits and it made it easier for me, knowing that i don't have to start all over again.
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broadcom deal, don't know the price. that has not been reported by the other news outlets reporting on the story as well at this point. we can all take guesses at premiums so is the market at this point but importantly here as well, broadcom shares given up, not that much. this has been built through acquisition, largely through acquisition. in fact, broadcom, itself was run and bought, hock tan convinced his investor base he is quite good at acquiring companies, delivering on the synergies of those companies as well there are always skeptics of these roll-up strategies over time, wondering if, in fact, no deal comes, does the stock suffer it's not been the case so far for this company where the deal talks i am told there are still a few material terms that need to be
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finalized. they had been hoping if there was not a leak, it is my understanding perhaps the same time vm ware had earnings, this thursday, sometimes in these kind of deals, you try i to get to the finish line even more quickly. programs we can see something if it is coming in the next day or two. but we will see on that note as for the analysts noling the company, reviewed an number of notes this morning, certainly doesn't seem to take many by surprise, incentives acting why would they do this here is one saying it could be over 10% accretive fiscal year '23. they say big energy, not yet done still some work to do. vix energies if they get there the current ceo of vmware, andrew ross sorkin was in davos and caught up with gelsinger and asked him what he felt about
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this deal? >> i'm excited about being an innovative partner any potential transactions for vmware, i want innovation as well hybrid, cloud. we do low levels of our hardware stack, meaning their software stack. so that would be my priorities going to enable that future innovation >> future innovation there, is what he is focused on. we'll see if we actually get the deal it would be one of the largest of the year. we have not seen big ticket tech deals, obviously, microsoft activision being an outlier. but it would be an important deal, if, in fact, it does get done >> you point out the street response, cynics may view it as a business slowdown in the wake of cisco's miss last week. we talked to chuck robbins of what he sees coming. in the broader consumer demand, client demand. >> yes, i do believe when vmware came free from dem
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remember dell controlled 81/82% of the company spun, tax-free completed last fall. there are any number of people who believed at some point and probably wouldn't be too long before vmware would be a co consolidation place. >> that's something we will watch closely with the potential mna news of the morning. as we go to break, eu trading higher sources tell our julia baoorsti that they didn't advance beyond preliminary stages a lot more still ahead, stay with us.
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once again,consumer discretionary is under pressure in today's trade the group is down more than 30% for the year of course, because a lot of the top holdings, including tesla, amazon and mcdonald's.
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starbucks is exiting in russia closing 15 licensed cafes. starbucks will pay the nearly 2,000 workers for six months and help them to transition to new opportunities outside the coffee chain. sarah. >> reporter: carl, after the break, don't miss my interview with citigroup ceo jane fraser her first comments on how she learned that warren buffet structure hathaway was buying zbruchlt it was revealed in a new filing of course, the state of the global economy much more as "squawk on the street" comes right back itwn o minutes. minutes. >> wow, we're crunching tons of polygons here! what's going on? where's regina? hi, i'm ladonna. i invest in invesco qqq, a fund that gives me access to the nasdaq-100 innovations,
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♪ i'm frank holland. here's your cnbc news update at this hour. a russian diplomat is condemg what he calls an aggressive war by putin saying in his 20-year career he has never felt so ashamed from his country he sent that after resigning in geneva in a key courtroom today, a russian soldier is sentenced to life for killing an unarmed 62-year-old man shortly after the invasion began it is the first war crimes trial in ukraine, that is expected to serve as a model for future prosecutions the promises to combat corruption, volodymyr zelenskyy has a pitch to businesses, come to ukraine when the war is over. in davos, he warned companies against allowing the brands to be associated with war crimes saying, quote, we offer every company that leaves the russian
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market to continue operating in ukraine. that's the very latest now over to sarah icen in davos. sarah. >> reporter: frank holland, thank you very much. earlier i sat down with citi cea jane fraser. listen >> recession 2023, with '24? >> i find it hard to see the u.s. not entering a recession in '23 just because of labor market, the strength of the balance sheets. >> you don't >> i don't see it happening until '23 at the earliest and then we'll have to see how the next few months unfold anyone who says certainty on the economy right now is a good fortune teller. >> one more on inflation it sounds like you think the fed will have to do more on the inflation site than the market is currently expecting versus less >> yes, we expect to see more.
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to be at least 200 basis points higher this year over where we are already. i think the good news is that the market's reaction to it, while it's feeling volatile, it's not disorderly, so, have a look at the equity markets at the moment when we look at our bloox, the investors are reducing down the asset class. it's not a sprint of chaos to the door >> it feels painful, though. >> it's painful but orderly and a very, very important distinction. >> no liquidity issues that you are seeing >> we see a few in commodities and a little in the high yield market as you would expect, fixing income, for example, it's been strong at the same levels as last year and again orderly i think the company and government is looking to take advantage of lower than future rates and they're acting sensibly they're operating from some points of stress. >> you mentioned the banks
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clearly, a huge difference than where we were in the financial crisis, thinking of previous bear markets but the stocks have been weak. this is supposed to be a 2k3w50 time with rising rates >> stocks have been weak at the moment i think a number are under va valued there is a lot at the moment we are seeing equities coming down anyway with the asset allocation of investors, but i personally as you'd expect think there is quite a lot of size there. >> why do you think your stock, in particular, has been cheaper than the others? >> we've laid out a strategy that is a long-term strategy, as our investors early on in the year as you'd expect, i am excited about this i think we have taken bold moves in terms of our corporate portfolio, which businesses we're going to be in, which not. 'ones we are play to our natural strengths. they're very well connected with good synergy we have a multi-year journey to get to the returns that we would all like to deliver. but we really care on the path
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we are confident in it we got a great team. >> you did get a boost of confidence from berkshire hathaway have you had interactions with the team there >> i was delighted to have a conversation with mr. buffet who wouldn't enjoy that phone call >> he called to say i am buying o--. >> he called to connect. as you imagine, he's a wonderful investor we're delighted to have him in and we hope there will be more investors that will be following his footsteps as after he delivers the top -- and he always said the proof will be in the pudding and we're delivering the pudding. >> anyupdate on the sales from the overseas businesses that wall street has been watch something. >> we will be letting the market know whenever we have news on it through the individual closures and any other new signings coming up. i'm delighted with the fwrog. >> progress. >> russia is making progress
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>> a tricky one. i am pleased the the way conversations are going. >> what about china? what is happening to the business there with major cities like shanghai having been shut down for weeks now >> look, the lockdown in china was obviously longer and wider than expected. i believe from everything that we are seeing that the worst is over and we are beginning to see it in terms of some easing of some of the lockdowns. we are seeing it particularly with a strong supply chain player we're starting to see only areas easing up there. it will take a bit of time i do think the worst is over what can we expect next in china is a gradual unwinding of those lockdowns in those parts as we know can be bumpy. it will be a necessary and timely to have stimulus as people start getting out of their homes and mobility returns and i think we can expect to see some more stimulus coming out of the chinese government, particularly as they head up to
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november and they tend to go and play a bit of old school on the playbook so i think it can be some fairly traditional stimulus there >> yes >> if they don't shutdown beijing, which we are now watching, 95 cases >> it's one. we've seen it everywhere it can be bumpy, but there are areas around the country which are slowly starting to see the green shoots of certain things opening up in the supply chains and i think that will be very help for all of us around the world we need china growing and we like it when they invest >> well, as we are making our trip around the world, what about europe >> europe, i am a bit more pessimistic. i have to say, unlike the u.s., there isn't the same momentum behind the economy we've benefitted from back home. when we look at europe, i am most worried about the european consumer they are hit by energy costs we do believe that the supply and demand side of commodities
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is really getting back in the balance now. we are starting to see some inventory beginning to build, which is very necessary for resilience but the consumer and the household -- >> they have to raise rates on top of it. >> food price being hit and the government are going to hit as well important investments in energy for important investments in defense and the like so it's going to be a tough couple of years. we have a high likelihood of recession in europe than we do in the states or in asia >> is that this year >> yes >> this year >> yes we have a much higher likelihood there. it will be harder. they literally are taking the rubber hitting the road first on supply chains. energy supply is more difficult. the food is going to be a challenge there. the biggest food challenge i am all worried about, which i heard a lot in the middle east and in
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asia, is really africa what worries me the most is we'll have about 1.5 billion people who will have real problems getting food at a reasonable price or access to the state -- that is from our political point of view, from a stability. >> unrest? >> sure. you get hungry you are not sitting at home. so i think that scenario, we had a lot particularly from the middle east, where the focus has been certainly on energy, but a lot of it also is what can they do to try and help the food supply and get alternatives. >> there is no quick fix with ukraine and russia virtually offline. >> yes, it's hard. this is simply one from some of the geopolitics playing out in ways you don't want it to. that's the one that has the most concern. it will have impacts everywhere. we will see it back home, in the grocery shopping this weekend. it wasn't pretty, i feel badly
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for folks at their income end. we got to keep an eye on what we do on this >> you think it will get worse, food in particular >> yes >> for how long? >> we are looking at 10-to-15% through inflation alone and that will have an impact. >> not on top of what we are already having >> it will be prolonged. more prolonged because of the supply. the supply challenges. so, on that one, that one's tougher. the energy one is more on the demand side. we are seeing more people taking more action on demand as the economy slowed down a bit that will help. >> we talk about so many challenges, geopolitically and supply chain why one of the big themes here at the world economic forum is this notion of deglobalization or onshoring supply chains and security as you'd like to say as an added for esg, how do you see this taking shape over the coming months and years? >> it's globalization has changed.
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we certainly see it. we have the benefit of operating in 160 countries we opened a local bank in '97. i am extremely grateful for the local presence and capability. there was a lot more nuances as we help companies manage supply chain dynamics where do they move how do they recon figure flows is a huge assets i am very grateful we have it. so becoming more local resilience is becoming important. global transferability becomes very important, for things like data, on parts of the value chain. it's sticky, sarah let's take china. going through a u.s. retailer the other day, a shoe retailer a large one. it's going to take them five-to-ten years to move their supply chain from china to another market, say in india, huge scale that i have big efficiencies from what they've produced in china and it's a high quality product. it's difficult to manufacture.
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is there is quite a lot of structural stickiness. it will take more years. >> but it's happening. >> it's happening, but it's multiple years the world has to shift from a focus on efficient ski and supply chains to now 21 of resiliency, security and a focus on just in case in quality not just cheap >> so what does that mean ultimately for america's most globally diversified bank? >> it is one where we become really important to the our clients, because we understand what's happening on the ground in local geographies and can help them to understand to built the resiliency in asia, we were celebrating 120 years in six countries and all of the conversations was about helping them understand what, how to play the dynamics between the u.s. and the dynamics with china, equally, the innovations we are seeing in the u.s., that
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will start being the solutions to the problems, in a list of problems i am delighted to say the american entrepreneur is coming up with a lot of different solutions, healthcare, technology, inclusion, energy. how do we get these deployed at scale? and how do we get these operating in as many countries as possible? i think the u.s., multi-national will play a very important roam, helping drive more of the capability into the countries that really need it. >> jane fraser ceo of citigroup joining me in davos. i tried to give you a taste of the conversations we are having here with corporate leaders about short and long-term issues and concerns the last one is a point on globalization, she said flat out it's changed and that companies are focused on friend shorings their supply chain it's sort of a word here, their consideration of geopolitics and security with energy diplomacy you heard her cite a retailer
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taking five years to bring manufacturing to another country out of china ultimately, the big question is what will that mean for long-term inflation? it's pretty inflationary right? we can't pay the same wages in the u.s. and europe as they do in china and growth implications of that because globalization has been a part of growth and short-term issues like are we facing a u.s. recession? she thinks not, certainly not this year, maybe next year, more imminently, a european recession, all her concerns on geopolitics, food inflation and potential unrest that can follow there. she highlighted and said this will be a prolonged issue because there is no quick fix on shortages like wheat and palm oil. >> it sounded like yellen there for a moment we talked about covering the economists last week, looking at global famine later in the year. i wonder given the comments about the low-end consumer, if
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we're in a period where we will see banks and specifically citi getting aggressive for prepared charge-offs, building credit >> reporter: agree i think that's the question, economists will have to start setting aside here for losses and whether that will impact lending, david, right? you need banks to lend to keep the economy going. you don't want to cut that off when in her words and i'll play a little bit more for you later, the consumer is in really good shape. even if they've shifted from discretionary spending to staple spending, she hasn't seen a big dropoff and included in home lending as well, credit card spending and deposits, not much of a slowdown, though, she does see inflation persistent and she says and hopefully later that there is a great ev risk the fed has to do more rather than less when it comes to raising rates to get on top of that issue. >> yeah. well, her belief in the strength of the consumer edchoed early
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this morning as well from davos. with andrew, the ceo of bank of america. her concerns about europe, though, that's not an insignificant economy, sarah >> reporter: no, it's -- the largest if you take on all the countries together i think the challenges and there was news this morning from the president christine lagarde, she'll be here tomorrow, that i are increasingly turning towards raising interest rates this is a single mandate central bank unlike the fed, which deals with jobs as well as inflation so their inflation is much higher than their target they have to raise rates at a time where the economy is slowing. they're much more expose to russia she has dealt in a difficult pan. the euro, which is actually strengthening today. we are on parody watch, euro to dollar it was getting to sac weak
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fr franco is cheaper on the plus side. >> we have this rise in business confidence that makes none of this forecasting easier. what an interview. we learned a lot i look forward to more by the way, as we go to break, speaking of citi, it's among the top gyneers with bofa and deere a the notion of food scarcity were back in a moment.
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. welcome back to "squawk on the street". i'm bertha coombs. stocks are mostly higher this morning with nearly every sector in positive territory. energy continues to be among the top performers, at least so far today. we are seeing notable games in names like slumberger and baker
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hughes, exxon and marathon petroleum are up moves in energy comes as oil trades slightly lower. now i'll send it over to carl. >> we are watching that oil turn red there this morning it's actually leading to a rally, the dow is at 515, the s&p back to 3954 don't go away.
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our robert frank joins us now to explain what's going on here robert >> reporter: well, good morning, david. investors have lost more than $5 trillion in stock market wealth so far this year the fed hoping those losses force consumers to spend less and actually reduce inflation. the theory is called the reverse or the negative wealth effect. studies show that for every dollar of lost wealth consumers spend about five cents less. the problem for the fed this time is that americans have a much larger cushion against any losses americans added $40 trillion to their wealth during the pandemic, even with this year's losses and still have an extra $35 trillion to fuel that spending minneapolis fed president neil-crisaid last woke are these stronger balance sheets leading people to spend more or be more confident in which case maybe the fed has to be even more aggress sniff consumer spending is even more sensitive to home prices than stocks the problem there, at least for the fed is, that home prices are still rising
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mark zandi of moody's saying it will take a market decline of at least 20% which we're kind of already close to right now that lasts for the rest of the year to have the meaningful impact on inflation, so, carl, bottom line here is the fed will have to raise a lot more to get any benefits from a reverse wealth effect >> we're going so see how that plays now the their long-term views. good stuff robert frank big show coming up on "tech check" including more on the potential become vmware deal amid this slump in validations of course, that begins in five minutes. more from davos as well. ayitusst wh
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welcome back to "squawk on the street" live from davos, switzerland. a quick check on the markets this hour. the rally is picking up steam. we're coming off of seven down weeks for the s&p 500, and we're seeing a 1% gain for the s&p this morning dow is up 479. earlier i did speak with citigroup's jane fraser and we discussed her views as well on the market, and i asked her about whether she thinks she ear in for a long and deep bear market here's what she said >> let's talk about what's going
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on which is obviously a tremendous amount of volatility, but that said there is some good news which i think having been late to the game, the central bankers are now getting their arms around inflation, particularly in the states, and i think people have taken some of the tail risks that the market was worried around. is it going to be 75 bips? chairman powell took that off the table, so what we're seeing now is not only the impact being felt in terms of inflation, but it's also being felt and impacted in terms of risk assets, so we're seeing this beginning to buy into equities we're seeing it beginning to bite into credit, and that says that the market is taking the monetary policy steps seriously, and it's beginning to have the impact it needs to the fed now needs to stay the course it's not going to be pretty. we haven't peaked out yet and yes, you're right. we do think inflation is going to be here to stay, but what we're seeing is somewhat inevitable. >> when you say inflation is
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going to be here to say, what do you mean what is it going to look like as it unfolds in the next year or so >> as we think about the cause of the inflation, and a lot of that is being the supply chain dislocations that are occurring. anywhere i travel around the world i'm hearing food security, energy security and a range of different issues on supply chains they don't go away with monetary policy so that's where some of the stickiness lies, and you have a very tight labor market in the u.s., and that could well add into a wage price inflation, so we're expecting there to be quite a -- there's going to be need some strong actions taken on inflation we're pretty clear on the course of the next few months we'll see how effective that is. probably by the next three quarters as to whether chairman powell has to go even harder or whether it's having the effect we need. >> it sounds like you're sort of envisioning a stagflationary situation in the u.s. where we have high levels of inflation with slower growth.
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>> i think in the u.s. the best case we have is not a recession or stagflation, but it's not off the table, and it will be hard to avoid it, and in the u.s. it's got quite alarming tool kit to play with unlike many other parts of the world you've got a very strong labor market still, and that's likely to have some teeth in it for a while. you have the consumer in good health you have corporate balance sheets in good health, and you have the banks with strong capital and well-positioned, so you've got some tools there to help if there is more of a recessionary environment, it will help mitigate the impacts of it or certainly blunt it. >> jane fraser of citigroup. that will do it for us here on "squawk on the street. "tech check" begins right now. ♪ >> good monday morning welcome to "tech check." i'm john quint nillia. may day for madness as the tech tries to calm


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