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tv   Closing Bell  CNBC  September 13, 2022 3:00pm-4:00pm EDT

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down about 1100 points, nasdaq off 4.5% the cpi came in a little hotter than expected. >> very important final hour coming up. "closing bell" starts right now. courtney and tyler, thank you. stocks are plummeting as that hot inflation number sends a chill across wall street the dow is down almost 1100 points the most important hour of trading begins now welcome to "closing bell." i'm sara eisen let's show you where we stand on the market a more than 1,000-point sell-off on the dow 30 out of 30 dow stocks are weaker bigger drags, united health care, goldman sachs and home depot. those three together dragging about 300 points alone but you've got everybody weaker.
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verizon is holding up the best along with merck and walgreens but all still lower. s&p 500 down 3.6%. we are looking at our worst day in a while the nasdaq down 4.5%, worst day since june for the nasdaq. tech is the hardest hit right now. as we've been seeing in this bear market when interest rates spike, the 2-year yield is at the highest level since 2007 and those interest rate sensitive tech stocks are getting slammed. i'll give you a live look at the worst performing s&p 500 sectors right now. again, every sector is in the red. at the very bottom of the list as you can see communication services, technology, discretionary, financials and real estate. that yield curve inverting even further where the 2-year yield spikes over the 10-year yield, a signal of recession. we're all over this market recession. we've got a great lineup of guests including david zerbos, anastasia ammaroso, dan niles
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and jason thomas we'll start with the market dashboard. our senior markets commentator mike santoli it is ugly five s&p 500 winners right now, that's it. >> this is a comprehensive washout. the market bet it all all black. the wheel spun and it came up red. that's the way to view the last week we had a 5% rally or so in the s&p 500 over five days we've given back about two-thirds of that that's worth keeping in mind, that a lot of what we've lost was basically just added back onto the market but it does create a question that 3900, this level that people were very glad held a few days ago, whether that has to be revisited, whether it's going to hold on a second visit and all the rest of it clearly we still have this little short-term downtrend along with this right here so we're pinched between a lot of different factors right here very volatile but within this same range, i would say. you mentioned the 2-year, versus
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10-year treasury yield curve this is the one that historically is a little bit more precise in terms of talking about recession probabilities. the new york fed uses this in its recession model. now, when this one goes inverted as it happened here in 2000, 2006 and 2019, it has led the onset of recession by six and 18 months that's a lot of lead time. we have not yet inverted right now. so zero is right about there but the three-month yield shot higher went from 3% to 3.14 the highs was 3.2. this is a treasury bell, three months maturity and that's a big move putting in another 25 basis point hike on top of what we thought we were getting. >> is this the kind of report, mike, that you think is a game-changer for the markets in other words, the view -- it's not just black and red the view is that inflation would come down quickly. that was persuasive across the
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bond markets, swaps, expectations and i think that core reading that saw a much higher number, double what was expected, shows that this could be more entrenched. >> it absolutely represents a reason, and a good reason to rethink whether in fact gravity is going to really exert itself on overall inflation measures. at minimum, it defers that look, i guarantee you in a month's time you're going to be saying the leading indicators of inflation are still pointing lower. you're still talking about used car prices rents, by the way, listed rents are showing weakness in the latest let's say couple of months, whereas the data in the cpi for rents is holding up better so all these factors i think are still there. >> so you're saying it's backward looking >> i'm saying it's backward looking but also that it's just taking longer. so the market will be impatient, try to anticipate the turn and it's been wrong so far we don't know when and at what
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level the market will be. >> and how weak the economy will get. >> that's the question. >> stay close of course as we monitor the sell-off for more on the cpi report and what it means for the fed and the market, let's bring in david zervos and anastasia amoroso how surprising was this number, david? >> i don't think anything surprises me anymore with inflation data the fed hasn't got it right, the street hasn't got it right a few people were calling for big inflation last year and really did get it right. i think we're all flying a little bit blind the fed is really interested in kab kaboshing inflation. they're going to keep going. i think the market gets ahead of itself in thinking that this fed pivot is just around the corner. they're telling you it's not there, but the market wants to believe it and gets itself all excited and then a little disappointment comes in and you get a day like today. >> well, i think the market
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wants to believe that inflation has peaked and is coming down and the economy has not weakened so substantially that maybe there's some hope of a soft landing. does that go out the window today, david >> no, i think it's more than that the fed is trying to tell you that even if we get some good data, they're not going to declare victory early. they're very concerned about getting it down, keeping it down and very nervous that this is something that could affect the anchoring of long-run inflation expectations again, the market is getting too excited too early. that's been a theme for us the upsides are very limited the downsides are risky but i'm not in the cataclysmic downside camp because i think nominal gdp growth will keep stocks from taking a big swing lower but we're going to get these violent upswings and downswings as people shift their sentiment too quickly for a fed that's not really shifting any time soon.
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>> appearnastasia, what's it goo mean for stocks? we were in a period where it was hard to be too bullish and hard to be too bearish. even though the fed was talking tough, now we get this new number hotter than expected. what do you do >> yeah, sara, i think we have been stuck in this broad trading range and i think it's not likely to break any time soon. my interpretation of this cpi report, it is a stunner and will be quite problematic for the fed. the reason i say that, first of all, they'll look at the month-over-month figures and they're accelerate not only the headline but also the core that is a huge problem for the fed. the second thing, if you annualize these monthly figures and look at the cpi basket, 70% of it is growing or increasing in price at 4% plus. so the fed will take a look at this and i think it is going to be a bit of a narrative shift, narrative change because today they thought they were doing enough to fight off inflation and to crack down on it and still have this possibility of a soft landing i think what they're ultimately going to come out and say
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looking at the cpi number is we probably can't have it both. we can't have it both ways we can't have a soft landing and crack down on inflation. so they might need to go further in terms of rate increases and they might need to stomach not a soft landing but something else. so that, of course, is problematic for the stocks and i guess my advice to investors is we're in this time period of uncertainty, unprecedented fight against inflation. the fed is very keen to fight it off. what do we do? we don't fight the fed so i wouldn't expect much from equities in terms of breaking out of this near term rate by the way, sara, cash by the end of the year, we could be looking at 4% yields so relatively speaking, investors are going to be making trade-offs between cash and equities, and cash and bonds are increasingly going to look more attractive. >> right we're just not there yet pie the way, down 4.6% on the nasdaq worst day since mid-june david, today i had a chance to
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interview bruce flatt, the ceo of brookfield asset management huge conglomerate, $750 billion. they have assets in solar, wind, energy, retail and real estate and here's what he said about that hotter inflation number that had just come out this was at the salt conference when i asked about that and whether the economy woman okay >> they really know how to crush inflation if they want to do it. there's a balance between crushing inflation and not having a recession and causing problems in the labor markets. and that's really what the delicate balance is. the good news is, everybody in the central banks in the world know exactly how to deal with this situation >> are you sure? >> yeah, yeah. yes. yes, for sure. >> so the positive spin is they know how to deal with this it's not like deflation or what he said, david, the pandemic, which was there's no playbook for this this you just have to keep
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going. the market should be able to see that is there comfort in that >> i think there is comfort in that i think we should be comforted that the central bankers at the fed at least and now seemingly at the ecb are really coming around and saying what they're supposed to say as central bankers. there is one twist and it is qt and how they manage the balance sheet, sara. that will be an additional confusion point for the market as we move through this more delicate period. but i think we'll get through it and i think they know what to do if solving an inflation problem, he's exactly right, this is not the rocket science that ben bernanke had to come up with in the end of 2008, beginning of 2009 and go into a laboratory and design the qe programs and every other ff under the sun it was crazy what we had to do there. we don't have to design anything, we know exactly what to do. sell assets, let them run off and raise rates. it ain't that hard.
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>> so what is the playbook then, anastasia, for investors you say cash is interesting. do you go back to defensive groups like staples and utilities and health care if a recession looks increasingly likely and a harder one at that? >> i think you can but you need to think outside of equities as well there's definitely parts of fixed income that is attractive. but multi family residential real estate is one of the opportunities. i might disagree just slightly in terms of the fed knowing exactly what to do sure, they can raise rates, but of course it's problematic for the equity markets but the point is even if they raise rates, they can fix shortages. the reason why shelter inflation continues to run so hot is because we've underbuilt homes and apartment units. if you look at the vacancy rate in the multi family residential real estate, it's like 4%. so what do you think is going to happen they might slow demand somewhat but they can't fix the supply
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issue. so against that backdrop, i expect to see market rent growth for some of the apartments even if we eventually do go into a recession scenario, apartment rents are sticky that's the last thing that individuals don't pay. so i think the multi family residential real estate could be both an offensive and a defensive play in this environment. >> well, they can keep crushing demand so there is no more supply issue if there's not enough demand for it anastasia, i see you nodding, david, we've seen that before. thank you both very much by the way, u.s. rental inflation increasing 0.7% in august that was the biggest increase since 1991 let's get a check on technology as the nasdaq sees the sharpest declines of the major averages here's a look at the nasdaq 100 heat map right now tells you everything you need to know there's not a single winner in that group the biggest drags, apple, microsoft, tesla, alphabet, sharp declines across the board.
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that is why the nasdaq is down so much. remember, the nasdaq has been the most sensitive part of the stock market due to rising interest rates and that's the story today. the 2-year yield at 2.76, highest since 2007 on the idea the fed will have to go even farther in this inflation fight as inflation proves to be longer lasting and more difficult to contain than expected. our reporters are standing pie with a closer look at some of the subgroups. steve kovach is covering mega caps, julia boorstin watching the social names >> mega cap tech is having a rough day. apple is off over 5%, erasing yesterday's gains. yesterday it was up over 3% with analysts chattering this week about early iphone 14 sales data showing more people choosing the expensive pro models over the regular 14 over to microsoft, down 4.5%. amazon 6% down alphabet around 5% down.
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julia will tell you about another mega cap pretty soon that's faring even worse, sara. >> we'll get right to that, steve. thank you. julia boorstin on the social stocks not faring much better. >> yeah. in fact social media names, most of them are falling even more than the nasdaq has suffered today. meta shares, they are off the most, down nearly 9% snap shares are down nearly 7% pinterest faring a bit better. those shares down about 4% but there is one outlier in the social space here. it is twitter. that stockes up about 1% this after the whistleblower didn't say anything about bots, which are the crux of elon musk's argument that he shouldn't have to follow through on his deal to buy twitter of the and twitter shareholders just two hours ago voted to approve that deal, very much as expected back over to you. >> julia, thank you. wisdom tree cloud etf on pace for its worst day here in three months frank holland with a closer look
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at some of the movers in that space. frank. >> it might be the poster child of what we're seeing in cloud stocks shares down 10% on rate worries. strong earnings earlier this month the catalyst the hotter than expected inflation, what it can mean for rates putting pressure on many high growth names. data dog down 7% it was getting lower than it was earlier. you see stocks like cloud flare do down 10% many investors were believing we were seeing the bottom when it came to cloud stocks wedbush says this could be a buy the dip moment. >> frank holland, thank you. well, the overall inflation number may have eased a bit but grocery inflation is getting worse. just wanted to zero in on food prices in august, u.s. food prices at home, which is grocery, were up
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13.5% and that is an acceleration from null which is 13.1 it's the 15th consecutive monthly increase fruits and vegetables up 9.4%. poultry up almost 6% dairy products really strong on the pricing. ice cream and milk up 16%. cereal prices brutal rose 17.4% fats and oils up 21.5% it shouldn't be too shocking for investors because we've heard from all the major food manufacturers during earnings and interviews here that they are still raising prices but they haven't been as aggressive about the price hikes as they were talking about a few months ago and perhaps that's why some of these price increases are moderating a bit don't get me wrong, they're still expensive but we are seeing some of the jumps in prices coming down in spots like soup, baby formula, fruit and meat and the overall monthly increase in food at home from july to
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august was 0.7%, which was actually not as big of a jump as we saw in july so perhaps some glimmers of hope that we may be at or near the peak on grocery stwhags. wholesale food inflation is out tomorrow that will be a clue because that's earlier in the whole production process but so far it's still painful. i don't have to tell you that if you've been to the grocery store lately for more on the impact of food inflation, let's bring in wingstop ceo, michael skipworth. we thought of you because last quarter you were talking about deflation in chicken wings is it just bone-in chicken wings where this is happening? >> sara, it is we are seeing meaningful deflation in our business. bone-in chicken wings represents 65% of our cost of goods sold. and we're seeing a benefit in our p & l year over year of over 1,000 basis points so truly a unique position for wingstop. >> what about some of your other costs, what are you seeing
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obviously it's more than 60%, chicken wings are the greatest, but there are other ingredients. >> we are seeing inflation across parts of our other commodity basket in addition to that we're in a really unique spot because we have a really strong outlook from the back half of the year from a sales perspective we're pulling a lot of growth levers one of those is the recent launch of a chicken sandwich which sold out in less than one week in six days we sold over a million chicken sandwiches. >> because of the inflationary environment and the strain that the consumer is under, michael, we've been hearing increasing evidence that the consumer is staying at home and cooking at home more. i heard that from rodney mcmullen, the kroger ceo, just a few days ago have you seen that in your restaurants? >> we haven't seen it show up in our business wingstop is an skindulge in occasion it's a once a month frequency
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with our guests. if they're pull back from restaurant visits, they save up and want to treat themselves on that wingstop occasion so we've been able to retain those visits and our top line momentum but adding things like expanding our delivery channel to add uber eats as a provider as well as that chicken sandwich are allowing us to continue to bring new guests into our business and ten to strengthen the unit economics. >> well, the restaurant s&p stocks are down 2% today, michael, on concerns about the economy and that spending with these inflationary numbers we appreciate the color from your business at wingstop. michael skipworth. let's get a check on where we are right now as we're in the final hour 40 minutes left of trading the dow is still down more than 1100 points. the s&p 500 is down almost 4%. this is one of the worst days we've seen of the year every sector lower right now
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look at the nasdaq, down 4.almost 7%. joining us is richard bernstein who's been bearish this year, richard. i don't know if you had changed your tune at all on signs that inflation was easing, but today was a real wake-up call for that moment how do you think the market and the fed is going to process this number >> so, sara, you know, for more than a year now we've been arguing that there were going to be three phases of inflation the first was going to be that people would think it was temporary, and we heard that from the fed they used the word transitory. the second phase is people would say it's worse than we ever thought. and the third phase would be it's never going away. and i think today is the first time we're starting to hear people talk about phase three. not using those words, but that's kind of what's in the backdrop here is, gee, this is lasting longer than we ever thought. it's not going away. the fed is going to be
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tightening for longer than we ever thought that's kind of been our story is that the cycle was not going to be short-lived, that you don't fight inflation in a matter of months. >> that economics team tries to go with consensus first. they're talking about a 100 basis point hike next week but odds in the market have moved up to 20% or so that that happens do you think that the fed should do that? would do that? >> sara, we've argued for a long time the fed should be more aggressive than they have been i think that's still the story here's the way to think about it if you look at the real fed funds rate, fed funds minus the inflation rate, it is still for all practical purposes historically negative. the fed has never been this far behind inflation that argues that we're more at the beginning of the tightening cycle than the end of the tightening cycle so whether they go 50, 75, 100 or 125, i think that's a little
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bit of forest and trees here the story is going to be the fed is going to be tightening for the foreseeable future let's accept that inflation doesn't end very quickly. >> so that's going to be painful for the economy and the stock market what are you doing, are you in cash >> we do have the highest cash allocation we've had in quite some time. but i think the place to look here is what works during economic slowdowns and profit slowdowns. the answer is boring stuff things we have to have consumer staples, health care, utilities. sexy, like-to-have type things don't work in this environment that's what people are coming to grips with boring becomes very, very attractive in these types of environment. so we're overweight staples, health care, utilities very, very boring stuff. >> and valuation doesn't matter? utilities are up 6% already this year, they're near the highs a lot of people think they're
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expensive. >> sara, defensives also look expensive at this point in the cycle. then they get really expensive, and people really love them. they become the core of a portfolio right as the cycle begins to turn and that's when the valuation starts to bite everyone. when the cycle turns, when earnings growth starts to pick up and a boring 8% earnings growth doesn't work anymore because cyclical earnings are starting to grow at 50, 60%, things like that but i think the notion here is that it's what you have to have. it's not what you'd like to have, it's what you have to have. >> why are you so convinced that inflation is more persistent i know the number today proves your point, but why are you -- some people would look at it and say actually the monthly change was better than expected if the fed can get ahold of rental prices, a few core categories by slowing the
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economy, actually you're seeing some moderation in those price increases. >> i don't disagree with the notion that inflation will slow to some xtent. of course it will. we're not going to stay at 8 or 9% inflation forever but will it get low enough so that the fed will stop tightening i don't think that's going to happen until we see a recession. why is that so important because the labor market is still historically tight nobody pointed out that in last week's employment report, the data actually showed the labor market got marginally tighter on top of everything. so what the fed is going to have to do is kill the demand for labor. clearly that's not happening yet. so i think you've got a number of issues in the back drop here that are just feeding on each other. another way to think about this, sara, the supply chain disruptions, which we all know and love and everybody is saying is easing. what nobody is pointing out,
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they lasted longer than '74, '79 oil embargoes combined this was a major event in u.s. check history that everybody wanted to brush off so we could solve supply chains and nothing would happen we're forgetting about the feed-on effects on the overall economy and that's what we're dealing with now. >> reichard bernstein, thaunk yu for joining us on this important day. the nasdaq is leading the slide down, down more than 4% right now. just brutal. actually the sell-off is picking up steam throughout this hour of trade. joining us now is dan niles. and your advice, dan, this year has been don't fight the fed on a day like that rings true. but you would have missed a pretty nice mid-summer's rally and some nice rally opportunities on the idea that inflation is coming down how do you read what's happening today? >> well, i mean as you brought up, sara, don't fight the fed and don't fight the fundamentals
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which is the second part of that you're right, you've had some great rallies. if you had invested during the great depression you would have made eight different rallies that averaged 24% on the way to losing 80% of your money so if you're nimble enough to trade around those rallies, then yes, you can make great returns. this year alone we've had five rallies in the s&p 500 that have averaged, i believe, about 9% each so if you caught all of those perfectly, you'd be up 45% but you're unfortunately down 16%. so i think for the retail investor that can't daily trade their portfolio, you're better off losing, as we've said consistently this entire year, 5 to 7% to inflation than potentially 30 to 50% to a market decline, which i think will continue into next year so that's how i think about it if you look at my twitter feed,
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obviously we talked before about when we think rallies will begin, which is easier to predict based on technical analysis tops are a lot harder to pick out. but until the fed is done raising rates, until we are at inside an honest to god recession where you've got unemployment spiking, all you're trying to do is catch bear market rallies and you're going to lose even more money on the way down. >> so what should you do, you're 25% in cash right now, dan what's the rest? >> yeah. we have a lot of shorts as we've said all year. for us it's ramp up the shorts when you have a nice little rally if you think the fundamentals are still getting worse. and then as you think the market is hitting bottom and you've gotten to an oversold condition, then take those shorts off and put them back on again that's kind of what we're doing. so our longs are in defensive areas such as walmart.
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if you look at walmart in '08, it was up 18% or so. we think amazon might be able to be a defensive long in the sense that we think as people get more price sensitive, they're likely to look for bargains on places like amazon. so that's another place -- >> amazon has never really acted defensively as a stock, has it >> exactly, because the multiple has been psso astronomically hih but no long in our portfolio is by itself. we've got tons of shorts in retail matched up against amazon for amazon in particular, we've got ad names in the internet where we think advertising, if you look at '08, '09, advertising revenues went down 20%. the internet was only about 12% of total advertising dollars in '08, '09 now it's 66% or two-thirds of
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the market so big ad-supported internet companies are not going to avoid a recession. they're going to see their businesses get hit pretty hard so we've got that matched up against an amazon where we think shoppers will look for bargains just like walmart. we like walmart because in '08 the stock was up a fair bit. so that's a good area. we have some stocks in health care where things have come down, another defensive area, and we own a lot of commodities. so oil, copper, coal, solar, those are areas that we're in. but just to be clear, those are matched up against shorts. we think all of those names, though, should be able to outperform as the market goes down another 20, 25% to get to its ultimate lows sometime m mid next year. >> the dow jones industrial average is down a stunning 1180 as we speak.
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it's very broad and hard to spot any winners. you've got five gainers on the s&p. one is twitter and the rest of fertilizer stocks. dan, when you talk about some of these tech names, how do you know when they have gotten too cheap and when there are real signs that perhaps inflation is turning? >> well, remember, there's two parts to a stock price there's earnings and the multiple to those earnings so if you look at the s&p 500, what are we talking about today? we're talking about inflation, which i have said all year is going to remain higher than what people think, even though it's likely to have peaked and come down which is what you've seen. headline inflation has come down, but it's still higher than what people think, if you look at over 70 years of history, when the cpi is above 5%, the trailing s&p multiple is 12 times. today it's 19times if you want to be super optimistic and say we're going to get it down to 3%, then the trailing pe multiple is 15
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times. and again, we're at 19 times today. the second piece of this is earnings and the s&p 500 earnings for 2023 is around 250 is where it peaked out you've seen the first reduction in those numbers in two years. and i think you're going to see that get worse you've already seen companies like intel soft preannounce after giving guidance six weeks ago. you've seen corning soft preannounce. so you've already got numbers getting revised lower. and now those revisions are moving to the higher multiple sectors of the market where a lot of the enterprise software names, such as a service now or a salesforce, you've starting to see that weakness in funding mentals spread from consumer earlier in the year to now enterprise is starting to feel that slowdown as well. that's where a lot of high multiple stocks sit in the software space so that's one area where we've got a lot of the shorts and cloud oriented software names in
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particular that's where we're focused on. >> but a lot of these names have already been beaten up so hard and there's a lot of bad news in these stocks roku is still down 80% from the highs. robinhood down 80% from the highs. so there's a lot of this priced in there, is it not? or do you think that's just a multiple correction and now we have to factor in a recession? >> well, think about it this way, right a stock is down 80% from its highs, how much more downside is there? it's 100%. it's not 20. and remember in '08-'09, you had 5,000 internet companies, public and private, go to zero. so you're not even in a recession yet. that's going to happen next year because the thing that people keep forgetting is monetary policy works with a lag. so the fed is going to crank rates by at least 75 basis points in a week they're going to crank it by at least another 75 basis points over the course of the next
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three or four months yobeyond that so that's going to take some time to work through the economy, work through earnings and housing prices ultimately the thing people aren't focused on is work through wages. you've got 1.9 times as many job openings as you have people unemployed the prior record is 1.25 over the last 20 years of data and you're at 50 year lows in unemployment it's going to take some time to drive up unemployment enough to get wages under control. services is 70% of the economy so i find it pretty funny when you have people talking about gasoline prices, et cetera, or supply chains. those each are about 10% of corporate costs. wages are 66%. that's what people need to be focused on and rents are 40% of cp -- 30 to 40% of cpi or core cpi, depending on how you look at it. who cares about used car prices. that's like 3%
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most people spend a ton of money on their rents. >> well, people saw it as a leading indicator because -- >> sorry >> people saw it as a leading indicator and a symbol of what happened during covid because that was one of the first areas we saw big inflation in used car prices i get it look, shelter is a third of the cpi component. >> exactly. >> so gas prices help and might help politically and might help people's moods but agreed, when you're seeing this widespread rise in costs, it's difficult to figure out where the bottom is. is that the point? >> yeah. the other thing is remember there's a lag. so home prices typically lead rents by 15 months home prices peaked i want to say in march, up 21% year over year. if you go back to '08, for example, home prices peaked and rents peaked about two years after the fact so you've got a lag here that people -- i mean everybody's has gotten used to the last 13 years. every time the market goes down, because inflation is low, the
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fed is able to say, oh, we're just kidding about raising rates. we'll put more money into the markets. the governments can stimulate across the globe because there's no inflation that's not the case today. today there's an environment where there's high inflation so growth slows you've got to go ahead and crank up rates to slow the economy even further you've got 15 months from the peak in home prices to the peak in rents that's 30 to 40% of different inflation measures all of that combined with wanlz, that's what you need to be focused on, not gasoline prices. >> that's what the fed is focused on by the way, the worst part of the market, household appliances and home furnishings, so the fed is targeting the housing market. dan niles, thank you for joining us by the way, we are at new session lows the dow is down more than 1200 points the nasdaq composite is down almost 1300 points it just keeps getting worse. nasdaq comp, it's a puke, mike
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we're down 5.25% bitcoin down 10% the dollar is surging, 1.4%. >> yes the last couple of hours as we've made some downside momentum, it's i would say uncomfortably orderly in the sense that it's going on this consistent angle down to the right. but this push/pull between yields and stocks, particularly big growth stocks, again in focus. big growth downside leadership as 10-year treasury yield threatens the previous highs from the prior part of the year. yes, there's an inverse relationship when you have the nasdaq going down and yields going up at the beginning of the year and so on however, it's just not as simple as every tick in yields makes an equivalent difference for growth stocks here we go here's where yields are. this is the last time we were there. where was the nasdaq 100 at that point? well, it was a lot lower we got some upside in stocks
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relative to when yields were last right here. what does it mean? it means it's not as simple. is that a selling opportunity for the nasdaq considering that it's now higher that when yields were it's not clear to me evening the bigger question is once the nasdaq 100 is down 30% high to low, it's still down 25% from the high. each tick in yields is not the story. it's much more about is nominal growth going to be high. these growth companies are not going to be keeping pace in terms of nominal gdp growth. it's just a different kind of economy. so the valuation pressure hits them the hardest now, dan was just talking about the interplay between the single family home market and rents, house prices and rents take a look at two sectors of the market that track these. so xhb, home builders and related stocks like that downside leaders down 30% year to date. now, this is mostly residential real estate investment trusts. a good play on apartment rents
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down for sure. they're obviously financials like everything else, but a big performance gap right there. so it shows you that the market has internalized this idea that home builders are the most sensitive to what's going on in rates and a resk isk of the dowr on the consumer side represents are stickier. the question is just how sticky and if they're about to roll if you look at some of the near-term apartment listing rentals and things like that, you have seen some downside momentum with mortgage rates, 6 plus percent for 30-year fixed, it's hard to say that home builders will get off the map of the it does show you that the market is not clueless in the fact that you have this bifurcation in the market. >> the biggest drag on the dow, home depot mike santoli, thank you very much of the we're down 1266 right now. for more on the sell-off, let's bring in the carlisle group's head of global research, jason
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thomas jason, you say inflation is not all that bad explain. it feels pretty bad right now. >> thanks for having me, sara. what we're saying is there's a flip side to inflation and that's business revenue growth you mentioned earlier the rebound in stocks that we saw in the middle of the year that was q2 earnings season. why was there a pop in stocks? because earnings rose 13.5% from year ago levels. why was there such strong growth because of pricing power so really when we want to see disinflation today was a big disappointment this morning but there's a flip side to that disinflation coin and that's a diminution in pricing power for businesses and slowdown in revenue growth i think people need to understand what it means for financials going forward >> this is now our worst day, i just want to bring our viewers up to speed. we're down 1249 on the dow more than 5% on the nasdaq we're looking at our worst day for stocks since june 11th,
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2020 that was the height of the pandemic when markets were still very volatile and we didn't quite know what was coming next. there's the nasdaq composite tech stocks getting hit the hardest. not only are we worried about higher interest rates from the fed but the effect that's going to have on the economy and a potentially deeper recession so that's not good news for corporate earnings. >> no, it isn't. but i would say that when you look at valuations today and you group them into quintiles, you see virtually all the risk of downward pressure is concentrated in the top third of the distribution so the top 20% of stocks today carry a pe ratio and average of about 53 times that's 40% higher than the long-term average. if you look at the median stock right at the 50th percentile, it's only about 18 times only about 8% above its long-term average. the bottom 40% of stocks are actually cheaper than they have been historically.
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so this valuation problem from higher interest rates that the fed is forcing to raise because of higher inflation is something that is very much concentrated at the top of the distribution and that's where investors should have their portfolios prepared for the adjustment there instead of assuming this is something that flows through across the market. >> let's talk about what's attractive to you right now. what sectors, what types of companies, what stinvestors shod be looking at and how you're navigating this at carlisle. >> obviously there's an enormous near-term risk there's an energy crisis in europe china is not coming to the rescue this time of course because it has its own problems with zero covid policy, having to deal with the housing market excesses. but the good news on a three to five-year basis is that we do seem to be at the end of the post gfc era
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what i mean by that, we seem to be entering a period of deferred maintenance where people realize that supply chains were stretched too thin companies that try to go factoriless become more veirtual businesses took on risks there's enormous investment coming in right now to have more resilient, more robust production networks of the you have investment in the manufacturing plant in the united states up 22% secondly with the energy crisis in europe, it's an enormous opportunity for lng. there's going to be a huge investment in energy transition that will accelerate as a result of this. but there is going to be potentially trillions of dollars of investment in infrastructure to create an integrated single market for natural gas just as it exists today for crude oil. finally, you mentioned the stocks that are getting hit, the home builders. well, this is an area where the fed is counterproductive higher rates are leading to a
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sudden stop in housing construction it's precisely the housing construction that we need to deal with the housing shortage there's between 1.7, 3.5 million shortfall in terms of housing units. this is an area where tighter policy is proving counterproductive. i think that will lead actually for the fed to be a bit more cautious than you might expect given the new report this morning. >> an interesting idea, trying to balance the supply/demand situation. jason, thank you for joining us. jason thomas we're going to take you straight commercial-free into the "closing bell" market zone right now because we have a pretty deep sell-off on our hands risk reversal advisers dan nathan is here, plus kristina partsinevelos on the chip stocks among the hardest hit and diana olick which are at the very bottom of the list i'll start off with you, dan it was a down day all day. we came in down 1,000, now down
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1300 points. we're now looking at our worst day for stocks in more than two years. june 2020. remember what was happening then if the nasdaq loses more than 5.25%, we're going back to march 2020, that day where the nasdaq lost 12.3% this is a liquidation, dan how much of a rethink for you given what we got on the inflation read >> i think a really important way to phrase it is a rethink. over the last month or so a lot of investors maybe came to this conclusion that because a lot of the inflationary inputs that people track, whether it be gasoline, whether it be lumber, freight rates, all that sort of stuff, that the fed was going to get maybe some cooler data into the fall and be able to slow their pace of hikes. obviously today's data throws a lot of cold water on it. you just said today feels like a liquidation. i would tell you it's probably the start of something a start of the retest of the lows that we saw in stocks back in june.
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so when you think about all of the different reasons why people have to readjust the idea that maybe we're going to have this year-end rally because the fed did their job, they got really aggressive last november and said they were going to battle inflation and maybe some of the data would reflect that. it's not doing that. the last point i'd make about this, we can talk about all these inflationary inputs. the one thing that hasn't budged is wages, is unemployment. we've just started to see the unemployment tick up from 40-year lows we're seeing banks start to consider some cuts we're going to see major big tech companies start to do cuts or accelerate the cuts, that sort of thing. i think that's a q4 story. >> let's hit the chip stocks because they were getting absolutely crushed kristina partsinevelos with the details. >> yeah, it's chip stocks bike micron, nvidia, amd, they're among the worst performers on the nasdaq 100 all of them right now hovering just below 8% lower.
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the smh is a good barometer for the chip sector. that is trending lower, down over 5% today with every skpit yengt off bconstituent off. the stocks faring a little bit better because of wolfspeed. and if we're going to stick with this time frame, look at intel on your screen, down 22% over the last three months. sadly on a roll to hit a fresh new low today. micron is down, we talked about it, one of the biggest laggards on the nasdaq 100, down 7% lower, down on the quarter if it finishes q3, it would be the longest quarterly losing streak since 2016. not only does this entire sector, chips and all, have to deal with slowing demand, ballooning inventory levels but also the threat of potential export restrictions to chinese customers, which still remains
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an overhang, especially for companies like amd, nvidia as well as equipment makers and tools. >> kristina partsinevelos, thank you. it's a group that's already 41% off its highs, dan so how much more bad news is there to come? kristina laid out a few of the reasons why investors have been down lately on the chip stocks >> well, i mean, if the producers can pull up a chart of nvidia over the last three years, the question can be answered how far can it go down. how far did it go up in 2021 it massively overshot all expectations about orders and about all the enthusiasm around emerging technologies that they were selling their graphic chips into this is a great company, great management they have great products but just as it overshot late last year, it's probably going to do that to the downside also this stock has a $330 billion market cap, down about 65% from its all-time highs. so the question is how exposedse
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to go for a name like nvidiae bs this stock has traded at a massive discounting to the market and its peers because it is a massive ly commoditized product here we don't have any idea what the next one year looks like so a commoditized product like this is having some reshoring issues about all the costs it's going to take to make fabs here or other places other than china, it's just a lack of visibility so i think early cycle plays like chips will get hurt harder, which they have, which is outpacing the nasdaq and s&p so to me there's no reason to buy any of these stocks on a day like today i think we'll retest these lows, i'll say this again and again, that we had in june over the next couple of months.
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>> so we're still 8% away. 8% higher than the lows in june. the big debate is whether we retest them. clearly there's more in favor of the bears camp with that sticky inflation number showing that it's just going to be harder for the fed to ballttle the home builder stocks no surprise, significantly underperforming the broader market today diana olick here with the details and that rental inflation number everybody is talking about. >> much of that is because of the reaction by more tgage rate. 6.28% on the 30-year fixed when rates go high, home builder stocks go low. pretty clear in this chart of the home builder etf versus the itb. the itb versus the 30-year fixed. now down 5 to 7% toll brothers in there which is a luxury builder and not usually quite as dependent on mortgage rates. both housing starts and new home
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sales have fallen sharply over the last few months on those higher rates sara. >> diana, have you been surprised to see how demand has held up, given the spike in mortgage rates that's the thing the fed has to figure out how much is too much when it comes to trying to crush demand to get these home prices and rental prices down. it feels like they have done a bunch, but it's not really working. >> well, i think demand has fallen off significantly you're talking about home builders seeing very few people in their showrooms the latest sentiment number we got had lower buyer traffic, and future sales predictions were off as well. so i do think demand is coming out of the market and we are starting to see prices for homes start to -- but again you go back to that fundamental supply and demand issue if you can't build more homes
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and there's still a shortage, you're going to have this floor under prices. >> diana, thank you very much. diana olick. i just want to bring you some new 52-week lows as you can imagine there's no shortage of them in today's session but it shows you the scope of the damage being done right now in the markets you've got meta trading at lows that we haven't seen since april 2020 there are the home builder stocks getting crushed whirlpool trading at the lows of july 2020. a lot of these stocks, comcast, our parent company, lows of april 2020 the travel and leisure stocks are getting hit especially hard. seema mody with the details. is that the end of the reopening surge on travel demand >> sara, as we learned in this inflation report, one area of relief for americans is airfares they fell 4.6% in august after falling a8% in july once the holidays hit, average airfare expected to be 43% more expensive than a year ago
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according to hopper. so it's the forecast for future prices that you could say is part of the story with travel names trading down really across the board. airbnb, united, marriott, booking, down 3 to 5%. cruise lines down sharply with higher rates expected. that's going to pressure companies that are going to refinance the debt that they're sitting on that they took out during the pandemic. for perspective, carnival is sitting on $35 billion in debt with the market cap of $13 billion. we crunched some of the other numbers. royal caribbean as $25 billion so these are the type of numbers investors start to look at when you have to forecast higher rates. >> seema mody. thank you very much. we've got airlines 31% off their highs. dan, it's weird because you go to airports and planes and they're packed hotels are packed. you talk to some of these executives and they have never seen demand like this before and now the market is concerned and is trying to see past that, which might be a signal that the
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fed just has even more work to do because you are seeing such strong demand in parts of travel what's your take on some of these stocks >> yeah, and i suspect business travel hasn't come back anywhere near pre-pandemic levels you might see consumers, individuals flying for leisure at much lower rates, so that could be a big part of it. i think it's interesting what seema just mentioned about the debt all of these travel companies had taken on what have we been talking about, the rate at which rates have b been rising. when you extrapolate this to the home builders, the fed has been very clear they thought the housing market was overheating and they wanted to cool that down that's starting to happen. i think as my friend, guy adami, likes to say, careful what you wish for when you think about the negative effect that occurred when the stock market, after the huge run-up that we had in 2020 into 2021, and now you have a housing market that's far more
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liquid, that has had huge gains in the lead up to this year and you say to yourself that's not good for the u.s. consumer at a time when rates have gone up you've seen what the 30-year mortgage rate has gone, from under 3 to about 6 just do the math on that for household incomes at a time savings rates are going down and consumer credit has skyrocketed here it doesn't paint a great picture for a u.s. consumer right here >> no, and they're going to have to do more yields are marching higher now should see that reflected in interest rates as well let's hit some of the consumer stocks not being spared. courtney reagan looking at the retail movers. every consumer discretionary name is lower right now and some of these retailers are getting pummeled what are you watching? >> absolutely, sara. fear reverberating through the retail stocks. the xrt is down precipitously but also look at the amplify online etf, the i buy. that's off even more by almost 7%
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so within that space, the e-commerce names, wayfair off 11%, whicchewy down 6%. even the more staple names in the discountiers are significantly lower. big lots is down 11% walmart and target are lower too, but not at least much worse than the broader market. the specialty apparel players, those are off huge we saw actually an increase in inflation numbers for apparel. children's place is down 13% urban outfitters down 8% abercrombie down more than 6 and haines brands down 7%. shares of nordstrom down 7%. ralph lauren and capri holdings down 5%. canada goose, rh, all of those names falling even more so than the broader market as we worry about consumers' ability and willingness to spend
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when everything that we have to buy continues to go higher back over to you. >> i was surprised, courtney, i don't know about that, that inflation and apparel this morning actually went up after a decline last month in some of these categories, we heard from retailers as you've been reporting for weeks now, target and walmart, the poster children, they're going to have to start marking down these products because they got the inventories wrong and are sitting on all this excess product. it hasn't really shown up in the inflation data that should be disinflationary. >> it is really interesting to see those numbers reverse course in the past month. i think that we had heard so much about the inventories and about sort of the dislocation of product and so we assumed, oh, they have to have big discounts. yes, to your point walmart and target and even names like the gap had talked about, yes, we do have to discount to sell some of those goods. but the inventory numbers are so
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inflated because you're looking at when they were so short last year with the product that they had wanted because it was tied up in the supply chain i think it's a really complicated picture particularly the timing of when goods will come in. you've also got high-end retailers say, look, we're not struggling and are able to pass on those price increases. lulu lululemon, they too have been increasing prices an successful in doing so. so it's very hard to paint retail and even categories with the sort of a wide-ranging brush, which is why we need people like dan nathan to help us be discerning in individual stock names. >> absolutely. thank you very much, courtney reagan just as we head into the close, i want to show everybody what's happening. basically a bad day for stocks it went from bad to worse in this final hour of trade, down 1226 points on the dow we were down a few moments ago
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1300 points. looking at our worst day for the dow, s&p and the nasdaq since june 2020. pandemic times worst day of the year, worst day in almost two years. s&p 500 is down more than 4% every sector is down sharply today. even energy, which is hold up the best of all is down 2.3% utilities second place, down 2 spoken 5%. nothing compared to the losses we're seeing in communication services, down 5.5 technology down 5. so dan, people at home see these numbers. this is a lot scarier than what we have seen in other sell-offs. it hasn't been this way in a while. what should you do you've seen these inflation numbers. people were worried about the fed having to do more, deeper chance of deeper recession what do you do >> yeah. i think you take a step back on a day like today, especially when you have the magnitude of a one-day decline after we've had this run-up the last few days that's taking it allout in one fell swoop i think it's really important
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for a retail investor who's at home there are major macro moves going on if you think about it in currencies, commodities, in fixed income right now, and they're all playing in with equities here. equities is the one way that our viewers have a way to reflect their views about the economy and the things that they want to invest in. so on a day like today, you have to go back and think how was your mindset back in june when the s&p 500 was down close to 20% from its highs on the year and if you were calm then, you should be calm now, understanding the things that you own and the prospects and the time horizons you have for them that being said, if you bought back in june and bought things that are up a lot more than the market was, then you might want to think about taking some profits and leaving some cash around for a time if we were to break those lows that we made in june again >> dan nathan, thank you very much for being here for this final hour as we head into the close, we are not too far from the lows of the day in just what has been an ugly session all around. the dow is down almost 1300
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points or 4% the s&p 500 is down 4.2% again, we haven't seen these big drops in more than two years the nasdaq comp the hardest hit, down more than 5%. small caps obviously down sharply as well. no sector spared every dow stock lower. that's it for me i'll see you tomorrow, everyone. now we'll send it into "overtime" to continue this sell-off coverage with mike santoli. welcome to "overtime." i'm mike santoli in for scott wapner you just heard the bells but we're just getting started in just moments you'll hear from jeffrey gundlach, what he thinks the fed should now do at next week's meeting it is a big call and you'll wanting to hear it. we begin with the talk of the tape the brutal sell-off after a red-hot read on inflation sent stocks tumbling. the dow down almost 1300 points, s&p 500 down


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