tv Power Lunch CNBC February 8, 2018 1:00pm-3:00pm EST
fidelity free no commissions >> do you want to have a last thought? >> i think, look, you stay -- if you're invested, make sure you are within your allocation but right now fear factor, don't run. >> dow jones is down by nearly 600 points as we speak "power lunch" is going to pick up that story, exactly what's happening in the market, minute to minute right now. yes, we will, scott. and as you said, happening now, another wild day for your monday and another big sell-off on the street hello, everybody welcome to "power lunch. the dow off about 2,000 days from its january 26 record high. the s&p 500 and nasdaq down for the seventh time in nine days. the s&p breaking its 100-day moving average with today's drop the dow and s&p once again are negative now for the year. the tech-heavy nasdaq only slightly positive. michelle >> i'm michelle caruso-cabrera thank you, brian let's drill down into the sell-off virtually all 30 of the dow
xhoentsz are lower although exxon is trying to hold on, intel, home depot, caterpillar, ge, they're the biggest losers, all down 3%, nearly 4% for some of them. the big news around bond yields which are rising again this morning. we're waiting for the ruflts a crucial 30-year bond auction moments away yesterday's bond auction was a market mover we'll see if today's is the same as we start to worry about just how much debt there is out there and whether or not investors are willing to buy it. check out the stocks that are bucking today's big sell-off, however. twitter is soaring after reporting its first ever profit. higher by more than 16%. grub hub and the "new york times" also surging. more on all three of these stocks straight ahead. tyler. >> thank you very much, michelle i'm tyler mathisen welcome, everybody let's get right to the store of the new york stock exchange where bob pisani is standing by pl hello, bob. >> once again in the middle of the day this is becoming a regular thing. s&p 500 volume pickup in the middle of the day.
let me show you what's going on with the s&p sitting at the lows of the day not quite the lows for the week but we're slowly moving back in that direction 10-year yields, i think the important thing is we were concerned about them moving up they have reversed in the middle of the day and that's indicative of a bit of a flight to safety trade here with people buying bonds and selling stocks in the middle of the day. how about this market volatility here's the two issues that are concerning people. remember, the original trigger back on friday was that job growth and wage growth and that's what moved the ten-year yield up the x factor we've been dealing with all this week is that volatility trade, that short volatility, long stock trade that was so big last year in january has been unwinding and that's causing a lot of these big intraday swingds we just don't know how to quantify it and how big it is but it's affecting it. if you look at the last few days in terms of trading in the middle of the day for no particular reason suddenly we get heavy selling. this happened on monday. there's that first circle. then on tuesday a surprise we were waiting for heavy
selling to come in but it didn't happen it dried up and we saw the market lift yesterday. we saw the exact same thing in the middle of the day. more selling in the middle of the day. and we're seeing it again in the middle of the day with no headlines and nothing, just more selling. this is that unwinding of the volatility trade that we can't quantify and that's making everybody scratching their heads. we're just going to have to work through it meantime, very heavy volume again today. if you look at the big names i look at, the etfs, the russell 2000s, the triple qs, the spy, this is more than twice the normal volume already and we're only halfway through the trading day. we'll have to just sort through all of this high volatility. back to you. zblankz very much, bob let's get to dominick chu. he's been looking at which stocks have been holding up in this recent sell-off dom. >> as we take a look at the s&p 500 it's same to say there isn't a lot of safety at all in the markets these days, a lot of stocks wholesale selling off utilities have been a standout today on that defensive nature of the trade but we decided to take a look at if there is a
relative, and i stress that word, relative safe trade in the s&p 500, where's it at, so we scanned and screened the s&p 500 stocks for which ones have actually hit 52-week highs just so far in 2018 and which ones have actually held up the best believe it or not, 306 stocks within the s&p have had 52-week or better highs just so far this year 12 of them are holding up within 5% of those 52-week high or better levels. check these names out. it's a sampling of some of the names we're talking about. raytheon on the defense contractor side of things. only about within 5% of its 52-week high, its recent high. cme group, an exchange operator. a lot's been talk about with regard to volatility products, futures, derivatives cme group is only within 4% of its 52-week highs. estee lauder, cosmetics, 4% of its near-term highs. vf corporation, clothing, that sort of thing, 4% from its near-term highs. and then tapestry, formerly known as coach, also just within 2% of its highs as well.
so if there is a spot, tyler, that you could call relative safety over the course of the past couple of months, it has been these stocks. that's not to say that they are safe they're just the ones that have held up the best in the recent market melees. back over to you >> dominic, thank you very much. stocks obviously extending the losses that we've seen this week the dow now down for the fourth time in five days. the s&p 500 and nasdaq down for the seventh time out of nine let's bring in jim paulson, chief investment strategist with the luthold group and mike v vogelsang, president and ceo with boston advisers good to have you here. jim, you think this correction may have longer to go and that at some point we might reach 10% to 15% off the recent january 26, 29th highs but does that necessarily have to happen in a hurry >> i don't think so, tyler it could happen in a flash or this could just be a step process that takes several weeks
or months to try to find a bottom here. one of the things that bothers me since we had the initial crash is that it really didn't generate the type of fear behaviors you'd see at a bottom. it didn't cause a great rush into safe haven bonds or rush into the safe haven dollar or run into gold or a big spread in credit spreads or anything it hasn't even generated a big rise in defensive stock performance on a relative basis. i think we need to go lower to generate a level of fear and capitulation that would bring a bottom and that could happen now in a flash or maybe it will be down the road if we get a bad cpi report or something and yields go over 3% >> mike, jim, hold on just a minute we want to get some fresh news in here. >> we've got a news alert on the bond market. 30-year bonds up for auction rick santelli tracking the action of the cme. once again, rick, we're in one of those environments where bond auctions really matter yesterday's caused volatility. what's the demand like for government debt today?
>> it was soft again today i gave it a d-plus now, i was thinking c-minus but i gave it a d-plus, and i'll tell you why the auction yield was 3.121. it looked like 3.11s, 311 and a halfs were trading higher yield, lower price. didn't like the way it tailed off but it was really choppy trading obviously. the bid to cover 32.26 below the 2.36 ten auction average pf 61.2 on indirects was light from 63% ten auction average. the only bright spot was directs at 8.1 they were about a point, one full percentage point above ten auction average. but consider this. you know, i think that what we are seeing here a little bit is a taper tantrum, any one because we think the balance sheet's reducing the three-year, the fed -- federal reserve bod 3 billion of these 30-years for their soma account yesterday about 4.5 billion of ten-years.
the day before they bought 4.9 billion of three-years so i'm just pointing out we're talking balance sheet reduction but the action is in its infancy and we're still buying runoff just to put some perspective on why there's some nervousness out there in these markets back to you. >> all right, rick, thank you very much. before we go back to our guests, let's take a look at where the markets stand right now. as you'll recall, yesterday the bond auction, which was not particularly good either, tended to intensify the selling pressure right now the market's stort of staying roughly where it is at least as marked by the dow 57 for the s&p 167 for the nasdaq all of those indexes, by the way, down more than 12%. recall we didn't have a 2% down day all of last year we've had a couple of those so far. let me turn to mike vogelsang if i might. there are a lot of pressures in the debt markets right now, mike
but where have the people gone who would argue that trumping all of that is a global expansion, strong corporate profits, and a very reat growth story? where have those people gone >> yeah, i don't think they have, actually back to jim's point, which is the right one, we haven't seen any real panic behavior out of the individual stock market. we've seen it in some of the etfs make no mistake, i don't think this is about higher interest rates. i don't think this is about economic slowdown or increasing inflation. this was about a small corner of the sandbox that's dominated by a bunch of guys playing short volatility trying to squeeze what they could out of last year's market. and they all forgot to take their ritalin and at the end of the day they took a couple of trill dollars off of market capitalizations around the world. do i think we need some sort of breather here in some of the feel-good stuff in the equity markets? absolutely i think we need to see some
panic. i think it's even money that this is just going to turn right around and begin to head back up again, given -- you know, once we understand a little bit better about the volatility liquidation that's going on. >> all right so i get that the volatility liquidation may be the kindling, but do you really think the spark was not rising interest rates and when we see a bond auction that's soft like today that seems to accelerate the selling in stocks because interest rates once again appear to be rising i mean, bottom line, you're not worried what happens to stocks if interest rates rise >> of course we are. we do think that at this point in the cycle -- look, interest rates going up isn't new we've been seeing this since the last six months -- >> not this quickly, right just to put a fine point on it >> well, they're going up. it's not a surprise. right. these have been moving up for a long time. the point is i think at this part of the cycle with interest rates this low, interest rate yields should be positively correlated to equity prices.
that's our best guess. i think when they get higher if they get to 3 1/2 to 4, 4 1/2 and they start to provide some competition for equities then i think you see? damage but i just think at this part of the cycle this is still all about economic momentum, a synchronized global economy, great corporate profits, all the other things that are going on, and i do think that's going to eventually trump this volatility trade. >> jim, what's interesting, to stick onto that point, i made a chart this morning i'm going to bring it up you know what it looks like in your head. from june of 2012 to december 2013 the yield on the ten-year doubled. it went from 1 1/2 to 3. the dow rose 25% in that same period why is now and this rate hike different, or maybe it's not, than what we had three to four years ago? is it because of real yields and the sudden inflationary overhang >> i think, you know, until about a year, year and a half ago the economy was characterized by growing around 2%, and it had a lot of excess
slack unemployment that all growth did was soak up unemployment resources it didn't do anything to aggravate labor or capital cost whatsoever that has really changed in a couple ways. one is we now have found out we're growing more like 3% than 2 and we found out that the world is growing in a synchronized fashion with us and we're doing all this while we've returned to full employment, close to 4%. so now growth has negative consequence that it didn't used to have for the financial markets. it is pushing labor and capital cost higher. both yields are moving up and wage inflation that's going to -- >> so jim, i hear you, buddy, but here's what i'm hearing. here's what we've got to tell the american people, i guess, which is that stocks are going down because the economy's too good >> yes i think that's very true i wrote a piece recently, brian, that said when it gets good on main street it often gets tougher sledding on wall
the early part, early six years of this recovery it was just a wall street recovery and main street didn't participate. and now that main street's doing well it's a struggle more so for wall street. i think this is about a valuation readjustment you can sell at 23 times trailing earnings and have a 2.4% treasury if you're growing at 2% without creating any cost push pressures but if you are going to push those, i think you've got to lower valuations and we've got to find a lower valuation level for stocks and bonds to sustain this bull. >> i see ha. i see a valuation readjustment here but mike, i wonder if you think or either of you think that what we're seeing in the economy is anything approaching an overheating economy. 3% doesn't feel like overheated to me, and even though the wage price pressure was certainly seen in that most recent jobs report, that's one print let's see what happens here. and i don't know that underlying
inflation is all that high so are we seeing -- jim points to the consequences of a good economy pulling the market down. is the economy overheating >> i certainly don't think so. you know, we're just starting to see wage growth in the bottom 70% of the employment slices we're really not seeing i don't think sort of an overheating at all. it wasn't more than six months ago we were talking about deflation, particularly around the globe. >> and jim may not say that either, by the way i may have been putting words in his mouth. go ahead >> yeah. >> i mean, look, i think the concern here is valuation. we've had -- again, last year we didn't have, if i recall, a 3% correction in the stock market not one. we had record low volatility and record highs in the market that's not going to continue we all know it's not and again, i don't think
anything fundamentally has changed. at the margin, sure. but this story has been with us. increasing employment, higher interest rates, the fed tightening, the balance sheet shrinking. this is not new. that was almost last summer that was getting a lot of attention i think what's happened here is we had a little corner of the market that created some volatility and some downward pressure when you have high valuations like we do today i think you're going to get an outsized reaction, which is what i think we're seeing >> gentlemen, thanks very much we appreciate it jim, mike, thank you >> on deck, twitter posting its first ever profit. the stock soaring. but not everybody is a believer. we'll tell you why plus, we are continuing to watch these markets right now. the dow jones industrial average is down 601 points boeing weighing heavily on the index. onere is a lot more to do another crazy market day for your money we're back right after this.
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that's about a 150-point turnaround in just the past few minutes for the dow. but the dow still now down about 515 points that is a better than 2% slide twitter shares rallying today after the company reports its first ever, first ever net profit the stock higher, up more than 60% in the past year who'd have thunk maybe julia boorstin did
julia joins us now with more julia. >> reporter: well, tyler, twitter says changes to the timeline, more long content and longer tweets are paying off the company announce a surprise return to rev growth, growing revenue of 2% while earnings of 19 cents per share beat projections by five cents. number of users fell flat. but twitter did show its fifth consecutive quarter of double-digit daily active user growth >> we're proud of the progress we made in 2017 and we're confident in our path ahead. we've got a significant opportunity ahead of us to put twitter in as many people's hands as possible and maybe the service more relevant to more people every single day. >> dorsey also said they're working to eliminate fake accounts and to help people identify credible tweets and content. guys, back over to you >> julia, thank you. why don't we dig a little deeper into twitter's earnings results with scott kessler of cfr
oochlt he has a sell rating are you going to change your rating even higher based on these results or are you saying maybe this is a lot of short covering and we're still not a long-term believer >> so i think, brian, the latter comments you made match with how we're thinking about twitter at this point there has been a lot of short covering the fundamentals have improved but candidly, the stock has appreciated notably. we still think it's overvalued but we do acknowledge some progress that the company's made over the last couple of quarters >> and what would be the bigger point of progress twitter has made >> i think julia referenced it it's the fact that they grew revenue in q4. she didn't reference the fact that they actually wrote down a business called tell part that generated no revenue in the quarter, and if you kind of x that out they actually generated 8% revenue growth.
so that was actually notably better than expectations the question is with monthly active users stagnant how sustainable is a higher level of growth for the company we're skeptical about that going out a couple of quarters >> is it true u.s. users, daily active users actually declined and almost all the growth was in japan? >> so i don't know about japan specifically but the growth definitely was from international and not in the u.s. it's kind of interesting because we saw something similar in facebook where we saw q3 to q4 monthly active users i think actually decline there as well people are referencing the notion of seasonality negatively impacting some of the u.s. numbers. but i think that's largely a product of it being a largely mature market for some of these companies. >> scott, we've got to leave it here it's obviously a big market day here we do appreciate your views. scott kessler, thank you all right. we are all over the stock market
drop the dow plunging almost 700 points at the session lows this market is changing by the minute we're going to have a closer look at the biggest losers in the s&p 500 coming up next don't go anywhere. "power lunch" will be right back ♪ ♪ wake up early, o. ♪ slap on some cologne ♪ i'm 85 and i wanna go home ♪ ♪ just got a job ♪ as a lifeguard in savannah ♪ ♪ i'm 85 and i wanna go home ♪ ♪ dropping sick beats, they call me dj nana ♪ ♪ 85 and i wanna go don't get mad. get e*trade, kiddo.
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this largest sell skrof. you've got apparel maker haines brand down after it issued a disappointing outlook with its quarterly report michael kors giving back some of the gains from earlier this week as well following upbeat earnings nielsen holdings was also out with earnings that were better than expected, clearly, though, not enough to overcome this day's negative momentum. and goodyear tire after it cut its forecast for raw materials >> dom, off the traders' take on this big market sell-off, check out the s&p sectors in the sell-off financials leading the way lower. utilities the only group holding on to a green chiclets square irere, and those by about a thd of 1%. "power lunch" will be right back alerts -- wouldn't you like one from the market
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hello, everyone. i'm sue herera here's your cnbc news update at this hour. house minority leader nancy pelosi defending her daylong speech on wednesday. the longest continuous speech in house history. she announced her opposition to a budget plan and tried to force republican leaders to promise a vote on dreamers legislation
>> the response we had was so tremendous, and people will be calling in i can imagine. flooded with it all. and what it accomplished was to say we have our beliefs and we're willing to fight for them. 45 russian athletes are still waiting to hear if they will be allowed to compete in the winter olympics. their appeal hearing ended today without a decision the russians are seeking to overturn the ioc's decision not to invite them to the games because of doping charges. a new survey from suntrust bank shows 40% of american families are paying more than $1,000 each year on their kids' after school activities. at least 20% spend more than $2,500 the majority of parents polled say that they saved money by sacrificing on indulgences like eating out you're up to date. that's the news update this hour i'll send it back to you, michelle >> all right thank you very much, sue let's take a closer look at what's going on with the sell-off at this hour.
the dow dropping almost 700 points at its session lows now off, when you add it all up, 2,000 points from its january 26th record high the s&p breaking below its 100-day moving average right now the dow is off 563 points, the s&p lower by 53 points, a decline of 2% and the nasdaq also a decline of 2%. 153 points take a look at treasuries. on the back of that weak 30-year bond auction remember, a bond auction is when the u.s. government borrows money from investors and there's concerns that with the fed not buying as much anymore the big spending deal that we think we're going to get out of congress and a hot economy there's going to be a lot more supply of bonds and so there's concern that yields will go up because there won't be enough buyers. the 2-year yield at 2.13 the 5-year yield 2.5 the 10-year, 2.84:00 it's come down today due to safety buying, people had gotten nervous about what's happening in the stock market it had started to creep up above 2.8% the 30-year at 3.13.
>> outside of big market moves there are a bunch of companies reporting their earnings as well here are some of the big names out there. cvs beating estimates for earnings and revenue however, same-store sales a bit lower than last year the company also announcing pay raises and crediting tax reform for that allstate also beating expectations on profits and sales. it credits better margins in the home and auto insurance businesses but look at irobot who's that they're the maker of those robotic roomba vacuum cleaners that stock getting whacked, down 30%. earnings for the most recent quarter and guidance for the future very, very disappointing. one stock if the green on this down day, though, is group one automotive its earnings 21 cents a share. better than the consensus estimate sales also topping well, stocks extending yesterday's losses as we have just noted the dow down more than 500 points right now. but exactly why are we seeing this sharp drop? joining us in the new york stock exchange are peter costa president of empire executions and gordon charlos angeles,
managing directors at rosenblatt securities peter, we know it's -- we think it's primarily about rates sparking a weird panic on wall street forced selling liquidating to pay for positions. at least that's what i'm telling my kids. what are you saying? >> well, there's a couple of things i don't know how much it's been mentioned today, but in the middle of earnings season a lot of things that happen, one of them is the fact that a lot of the corporate repurchases are canceled as earnings are coming out. so sometimes that leaves that deficit of that buy side that could support a stock during a move like this not saying that's all of it, but i think that's one thing you should keep an eye on. you know, we were expecting this we weren't expecting to see this kind of sell-off over the last four or five days, the kind of speed at which it happened was a little bit unnerving but you know, the long run, the economy's still doing well and i'm going to still go with that
one forever. >> gordon, what do investors need to see to staunch this bleeding what number? what kind of statement and from whom would they respond positively to? >> that's exactly what we're looking for. when we were going up as quickly as we were, good news was good news, bad news was good news, and stocks just kept going up. now we're seeing some good earnings but it's not carrying through. it seems like good news is good news and bad news is bad news. first off you have to look at the fed chair, who now is thrown into this situation where he's essentially coming in to replace someone who had a magnificent career that's a daunting place to start. then you have to wonder if potentially there's something on -- >> does the fed chair need to do an interview with somebody we're here >> i'll contact them for you
but listen, you've got to be careful because we heard some pretty encouraging words about this is small potatoes in terms of what we're seeing in terms of the sell-off here. so you know, i don't know if that's necessarily reassuring. people are going to have to come to terms with what does this new fed chairman do, how does he present, what is his message, and i think that's a very important catalyst here. >> yeah, there's a big regime change going on. that's for sure. peter, i was intrigued about wau said about the lack of corporate buybacks that happened during earnings season. bob pisani has highlighted for us over and over again just how strong corporate buybacks have been over the last several years. are you suggesting that once earnings season is over maybe those big buyers step back in and then help stabilize this market >> well, i do think that you'll start seeing it in certain stocks because they have to step out of the market for a certain period of time once they get back this they're behind the 8 ball because they've announced they're going to be buying back let's say any corporations buying back $3 billion worth of shares.
the week that they're out, they have to catch up on that so i do think that will be some support. not saying it's going to stop this overall selling because if the market wants to go lower it's going to go lower corporate repurchases. they may take advantage of these prices but you know, by and large sending big buyers, big institutional buyers and a corporate repurchase program is a large institutional buyer, sending them back into the market will help it somewhat you know, it's very possible i still think the markets are going to go where it's going to go and we don't find its bottom and we'll all be scratching our heads in six months and saying we didn't we buy more there? >> any particular names you were thinking of when you talked about some of the companies out there that are participating >> you could look at american express. any of the ibm -- well, ge, that's a different case altogether but you look at the bigger names that have corporate repurchases out there, they all have to step out. some of them, procter & gamble's repurchase program is huge i mean, they step out of the market, that's the buyer of last
resort and then what happens then so i do think that is something we definitely need to keep an eye on look at the bigger ones. the big cap names are the ones that really are suffering during the sell-off so you know, i would think that's the ones you want to play going into the end of the earnings season. >> gentlemen, thank you. peter and gordon there was a group called peter and dworgordon, wasn't there >> peter paul and mary >> wasn't it peter paul and mary >> peter and gordon. yeah all right. kate warren, principal investment strategist at edward jones. kate, welcome. always good to see you >> thank you nice to see you. >> what do you make of this? is it as simple or complex as some volatility trades gone wrong, or is it more macro and fundamental having to do with how the bond market is looking at the levels of debt the u.s. government is picking up just at the time that some of the buyers of last resort are stepping away >> i think it is somewhat fundamental but i think the
fundamentals actually remain very positive with stronger economic growth and higher earnings and better earnings partly due to the tax cut in 2018, and those will support higher stock prices going forward. but i think certainly over the last week investors have been very focused on rising interest rates and interest rates are rising partly due to fears of higher inflation that's led to basically concerns that the federal reserve is going to have to hike rates more frequently, and that's led investors to be a little more nervous. in addition, of course, over the last few days as congress has struggled with how do we get a budget together and not shut down the government tonight, they've proposed an additional amount of spending of $300 billion, and as you mentioned earlier, with the treasury auction today not going quite as well, i think that's led to a greater focus on are we going to see higher interest rates. it's all about interest rates right now. but i think that's something where we're seeing the
volatility, it's not something thaun does the trend in stock prices going higher. >> are you convinced there are going to be higher sustained levels of interest rates and if you are, what does that mean to what you're willing to pay for when it comes to earnings yeah, the earnings get bigger. that's good. but how much are you willing to pay for them it gets smaller as interest rates rise >> i think interest rates will rise slowly over time, but i'm not convinced that we're beginning to see a move higher in interest rates short-term that's more than what we've already seen and the reason is that if you think about the catalyst for what appears to be this period of volatility and perhaps even a correction, it was higher wage growth that we saw in the employment report on friday. well, certainly we're all expecting inflation to pick up but i think nm cases investors are worried that not only will inflation going back to 2% but it will go even higher than that right now i think we're seeing a reflection of something in the
2% range but if inflation continues to stay quite contained and low, then i think many of these fears go away and we see interest rates stay at about the current levels and this is certainly a level that i think we can continue to see earnings rise even with this somewhat higher -- >> to back it up a little bit, there's only three possible explanations for a 9% drop in a week and a half to two weeks number one, there's a bunch of traders on wall street messing around with dangerous products that's costing everybody money number two, the earnings outlook for corporate america is 9% less than it was two weeks ago. or number three, the market was way too hot and should have never been that high in the first place. which one is it? >> i don't think it's actually any of those although i'd put a little bit on the first one because we've certainly seen some of the products lead to some of this higher volatility. but you're correct when you see a sell-off, what changed? i think it's really emotions that changed, not the fundamentals yes, interest rates are somewhat higher
but that's not enough to give you a 9% sell-off. and that's part of why i think this is an opportunity and it's nothing that's really changed the fundamentally positive outlook for stocks going forward. >> still, if you think there are going to be higher interest rates, do you pick and choose? i mean, do you do the obvious things that a lot of people are recommending like stay away from the bond proxies and go toward cyclicals or can you still buy the market >> i think you can still buy the market i'd certainly be looking at companies that have the ability to grow their earnings regardless but i think you still want to buy companies that are tied to better economic growth because that's the outlook and i don't think that's entirely reflected in stock prices yet but when you look at today's market, and actually over the last few days, what you also see is the stocks that are bond proxies, in other words, the sectors like utilities, doing better than the riskier sectors. i think this is just a situation where for the past few years investors have said i've got to take more risk in order to get the returns i need to meet my
long-term financial goals. now i'm a little more concerned about that i'm concerned in an environment of rising rates. so what i want is to take a little less risk in my equity portfolio. that's why i'd stay broadly diversified across the sectors and not be trying to guess which ones are going to do the best longer term. >> you'll have to explain another time why utilities which are usually thought of as an interest rate sensitive sector, are goingup here but my basic question is you talked about a change of sentiment and an awareness among investors that interest rates are going to be higher but kate, didn't we know that months ago hasn't the fed been saying that? hasn't basically everybody built into their thought process the idea that rates were going to go higher and now here they are and there's the big freakout i'm not understanding why this comes as such a shock. >> i think it's two things the first is yes, the federal reserve has been saying we're going to raise interest rates quarterly, modestly, trying hard
to prepare investors for this. but if you looked at the kp expectations for rate increase the fed was pencilling in three rate hikes and the market was penciling in one, maybe two. so there was a disconnect there where yes, all of us talked about it but somehow we didn't actually see it reflected in what people were expecting if you looked at the futures in terms of the rate hikes. and now we're seeing that closer to the 3 so i think that gap has closed and that's actually a reason that we've seen stocks react another thing, though, is i do think that there's this worry about higher inflation leading to an up side even in the 3 that the fed has pencilled in >> kate, thank you very much for your explanations. we appreciate them >> thank you >> kate warne is with edward jones. >> shares of grub hub soaring about 30% right now. sought rest of the market selling off but this is an outlier. very, very strong as a result of their earnings and some big deal news ceo's going to join us next.
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can help you sleep better at night. with the right financial advisor, life can be brilliant. of emerging markets obsolete? at pgim, we see alpa in the trends, driving specific sectors of out performance. where a rising middle class powers a booming auto industry. a leap into the digital era draws youthful populations to mobile banking and e-commerce. trade and travel surge between emerging markets. everyday our 1,100 investment professionals around the world search out opportunities for alpha. partner with pgim, the global investment management businesses of prudential. i'm not really a, i thought wall street guy.ns. what's the hesitation? eh, it just feels too complicated, you know? well sure, at first, but jj can help you with that. jj, will you break it down for this gentleman? hey, ian. you know, at td ameritrade, we can walk you through your options trades step by step until you're comfortable. i could be up for that. that's taking options trading from wall st. to main st.
hey guys, wanna play some pool? eh, i'm not really a pool guy. what's the hesitation? it's just complicated. step-by-step options trading support from td ameritrade we are off our lows. i mean, what a crazy market this has been i mean, the dow is down, and i say this loosely, only 390 points i say only because less than an hour ago when we were on the air on this fine program the dow was down 601 point so we started barely down, lost 600. now we've regained 200-some-odd points in a matter of 30 minutes. the s&p is down but, again, way less than it was the nasdaq i believe slightly positive on the year, guys, i know it's the v word, volatility, but these are markets which are
struggling, struggling to find bid that they like >> yeah, for sure. one stock that is not struggling to find a bid, grubhub shares. take a look. investors getting their fill today. stock is up 27%. hitting an all-time high that's after the company announced an earnings beat and also a new partnership with yum brands the deal makes grub hub the exclusive online pickup and delivery partner of kfc and taco bell yum brands has also taken a 3% stake in the company, buying $200 million in grubhub stock as part of the agreement. and yum brands is also getting a seat on grubhub's board. what does all this mean for the future of the company? joining us in a "power lunch" exclusive is the ceo of grubhub, matt maloney hi, matt >> hey >> tell us how this deal came about. >> you know, what yum's been looking for a partner to help them deliver their food for a long time, frankly they've been dabbling with different platforms. they've recognized the amount of growth that's available in online delivery. and so we started working with
them, they saw clearly the advantages we brought in terms of our scale, expertise in technology, and the geographic areas we cover we made a lot of commitments to them in terms of growing our delivery capabilities. they saw us as the leader. they put their chips behind us not only do we have now a deep partnership. but as you noted, a significant investment and board integration. this is a really big deal not only for us and yum but also for the entire market. >> does this deal preclude you from doing other major franchises and brands out there? you could almost be seen earlier as agnostic and now you're in with this big publicly traded partnership. so does that mean you're never going to do a deal with mcdonald's you'll never be able to do a deal with burger king? >> absolutely not. in fact, we're talking to many players. we recently announced a partnership with white castle, with jack in the box we continue -- the whole restaurant segment is looking towards online delivery as
significant growth opportunity in fact, yum wants us to continue to grow that's part of the reason why they put such a significant investment behind our company. >> so tell me because i don't know and i apologize for not knowing this, how many employees do you have today? are they staff employees or private contractors? and how many more employees do you think you will need to bring on to handle what clearly is going to be greater business >> well, we have thousands of employees. but in terms of delivery drivers -- >> how many thousands? >> those are -- hang on. the delivery drivers are independent contractors. and we have over 20,000 monthly active delivery drivers. >> okay. >> now, we're delivering in 80 markets right now, which is about 900 cities across the u.s. we've committed as part of this deal to deliver in 100 more markets. so we're more than doubling our geographic coverage for delivery in order to help support yum brands, and that still will only cover about 2/3 to 3/4 of the kfc and taco bell locations.
>> so that's interesting you have 20,000 contract deliverers right now you're going to double your coverage you can do the math and you can say maybe it's not going to exactly double those 20,000. but this is a job creation story too, isn't it, matt? >> absolutely. and not only are we increasing our markets by more than double, we are going deeper and adding more drivers in all the 80 markets we're serving currently because of course there's taco bells and kfcs in san francisco and los angeles and boston and d.c. and manhattan and chicago and everywhere in between. >> matt, you've got an incredible multiple. 132 on trailing earnings and numbers like you're putting up today in your earnings reports not surprising that the market's going to give you a big fat multiple because you are growing so fast. however, interest rates are rising and i'm looking at you and i'm guessing you've never lived through a rising interest rate environment. and are you ready for what happens when the market starts to demand more
your growth is going to have to stay strong in order to maintain the share price that you've got going. >> absolutely. you look at our performance last year, 50% revenue growth, 100% profitability growth, and then you look forward. we processed n restaurant food sales in 2017, and it's over $200 billion marketplace domestically sew we're bearically scratching the surface. when you look at partnerships such as the yelp partnership we announced last earns which will introduce us to hundreds of thousands of diners and the yum partnership, which brings thousands of supply side restaurants all across the country in markets where we have very low awareness, and it mixes together, what i think creates an incredible growth story >> all right right now, the stock's acting for sure like it agrees with you. thanks, matt matt meloni, the ceo of grubhub.
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we've got a news alert in the sports world the san francisco 49ers have agreed to a five-year deal with jimmy garoppolo, worth, are you sitting down, $137.5 million deal it would be the biggest deal in the history of the nfl on an average per year basis tyler, i had fun with numbers. he has thrown 12 touchdowns, which means it is $11.4 million per touchdown thrown or $1.9 million per point scored can we go to the breaking news desk dominic chu is a lifelong 49ers fan. he loves numbers he's sitting over there, lights are on we should bring him up this is on a trailing basis. you're hoping for a lot more valuation down the road. have to move on. >> the forward valuation is
something i'm looking forward to i'm excited, very pumped as a lifetime 49ers fan, as a northern california bay area native, good to see that the future of the 49ers is going to be with jimmy garoppolo. that is, of course, my opinion whether or not he's worth it is going to be a question for posterity and history. but i'm happy. it means that the performance he put in was pretty good >> the second happiest guy in america right now is kirk cousins because he's waiting to see what he gets >> shares of woodward soaring on reports that boeing is eyeing the aerospace parts maker. >> phil lebeau is covering it for us in chicago. phil >> nice little pop to an all-time high earlier today for woodward easy to see why because an acquisition from boeing would be substantial. we reached out to folks at boeing and basically they said we're not going to comment on market rumors. this would make sense. boeing has been expanding its portfol portfolio, if you will, in terms
of acquisition they struck a deal to bring in aircraft seats inhouse also looking at buying embry air. if they could put this deal together, this would make sense. that's one reason you see shares of boeing under pressure people are saying, how much are you spending on this acquisition and other acquisitions and we're near a record high, or some believe a market high for boeing that's why the stock's under pressure >> elon musk may have a bigger rocket than rocket man, but tesla shares are dropping 5% worst ever quarterly loss, but sticking with its model-3 production tarkts. we keep hearing about these things when are they going to make them >> well, they say they're going to make them, but they're not giving us concrete details in terms of how many they're making one. they're sticking with their targets for the end of q1, q2, and overall sales this year, we don't know what they are let's see what they actually end up doing this year because we
still don't have official guidance from that >> thanks so much. key number we're waiting for thank you. another key number, the dow is off by more than 400 points we're all over the major market selloff. the dow tumbling 2,000 points from its recent record highs the s&p 500 breaking below key support levels the 2:00 p.m. hour has proven to be a wild one. strap in bauecse the second hour of "power" begins right after this break
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welcome back to the second hour of "power lunch." we begin with breaking news. another wild day for the markets. the dow falling nearly 700 points after opening in the green. it's now up more than 2,200 points since its most recent record high. right now, the industrial is lower by more than 400 points, a decline of 1.6%. the s&p is lower by 36 points. the nasdaq is off 1.5%, and the russell lower with a decline of 17 points. financials, consumer discretionary, industrials are all lagging. utilities are leading. this is very interesting because if you're concerned about rising interest rates, people say sell the utilities. they're higher right now could be because we have seen a
rebond in bonds. take a look at treasuries, speaking of bonds. the ten-year pulling back a bit. we had traded as high as 2.88. now it's basically at 2.85 on the ten-year right now, 28 of the 30 dow c components in the red led by intel and boeing, all off by more than 2% home depot off nearly 3% your s&p losers are hanes brand, michael kors, and mattel even bigger declines, hanes down 8.5% goodyear down more than 6%, and mattel down 5% there are some winners cody, viacom, cardinal health, and fipp philip morris. viacom higher by 9%, cody higher by 19%, and philip morris, more than 2%. over to you. >> thank you >> investors overall still trying to make sense of what is moving these volatile markets. it seems like everybody has an answer, ight is it the sudden move in interest rates is it traders playing with
dangerously leveraged products forcing selling. is it that stocks are a bubble and should never have been this high in the first place. lots of questions. let's see what pisani and santoli has to say about it. bob, you know what i mean. everyone has an answer >> yeah. so let's go back to when did this start this started on friday, remember, the jobs report. all of a sudden, wage growth, 2.9%, best since 2009, and we got yields move higher, and the market gap down. we were down almost 50 points that day i'll go back to the fundamentals that was the fundmeamental trigger. after that, a stew of various programs that started moving around in the market the big was the unwinding of the short volatility, long stock trade we talked about all year you throw in some issues around volatility exchange traded programs, exchange traded notes and you get a stew of issues going on i think that's what's happening today, the volatility is still being mixed around with that short volatility long stock unwind >> brian, i joked earlier this
week that it's like murder on the orient express you have a victim, and everybody is a plausible perpetrator not everybody, but a lot of them i think you have the precipitating conditions, that's one thing. then a catalyst or rigor, then you have the aggravating effects afterwards the precipitating factor was it got to an overstretched heat, and then maybe we're going to overheat the economy, and we have been feasting on loose financial conditions that's a slightly less loose condition, and then the factors which is the unwind of some of these trades which might have built-in assumptions about low volatility by the way, even though there is no script, there are patterns. people will say is that a good retest of the low? the stocks are up about 1.5% in
an hour. did we get oversold enough thas the kind of exercise you go through now in terms of the technical. the opinions about the fundamentals don't change that much in an hour. >> add that to the list of things we try to blame, the big spending bill out of congress, and i would add another one. peter costa was on, standing where you are right now, last hour, and he said another exacerbating factor is during earnings season, companies don't do buybacks. they have been you pointed out a big, big buyer over the last couple years, and he thought that once earnings season was over, you might see more natural buyers come back in and help support the market. >> this happens every earnings season in general, there is a blackout period, and it depends upon the company, but most companies will observe blackout periods at least two or three weeks before the earnings come out, and typically, about 48 to 72 hours after it now, it varies from company to company. no specific rule but i'm not sure that's a major
factor right now this kind of volatility in the middle of the day, all of a sudden stocks move down rather rapidly, this smells to me like some people are deleveraging, not that companies are stepping in and buying back stock >> you think the same, mike? >> yeah, i do. i also think that sometimes it's the psychological factor that you can point to and say, well, these companies can't be in there playing the hero that can just contribute to the general idea of why do i want to buy right now. honestly, i think the fact we went so long with such tiny market moves and in a short period of time, widened out what the market is doing on an hourly and daily basis, it basically spooks a lot of other would-be buyers and you have to see where the prices settle out and see if the fundamental investors get in there. >> philly guy bob pisani missing the eagles parade. >> mike santoli mentioned murder on the orient express. let's bring in steve liesman to dig deeper on this one
>> i want to give everybody a warning that brian sullivan completely disagreed with the point of this next presentation. he'll have his opportunity afterwards a very fickle relationship in this turmoil between bonds and stocks the rising yields, as you heard from mike and bob, is seen as a top reason for the selloff, but not today. today, they're running in lock step here's the decline in yields and the decline in stocks. yields have fallen off along with stocks. then something of a bounceback, both together. now look at this chart this is why bonds are being blamed for several months, yields crept higher and stocks said i don't care they surged along with them. but at the end of january of january, use your phrase, the marriage was off, they had a split. whatever you want to call it yields shot up, stocks shot down this could be random or could be that the market got spooked by treasury supply from adding spending, higher deficit from there tax cut, and the fed reducing its balance sheet >> not just reducing its balanc
sheelt, it's not buying fresh stuff. how much is the fed not going to buy, and as you were mentioning to me off camera, the fed is a nonprice sensitive buyer >> the kind of buyer you want when you're selling your home or something. especially if you have a leak in the roof i did a calculation this morning. it's been going along very, very quietly, a little here and there. now look what's going to happen this year. from $4.4 trillion, the fed is going to let it go down from $400 billion to $4 trillion, then another $600 billion next year, and then the year after that will be another $600 billion until it gets to some undefined place. that's about - >> who is going to buy these bonds? >> somebody will step up if i say tyler - >> brian >> brian >> no, no. >> if i say, will you guys watch my dog for a week, you say sure. but what's the price, right? who's going to hold on to this at what price will you buy those bonds.
that's what we don't know. >> it's a flea-bitten mongrel, also what type of dog it is. >> also a lot of supply coming on from the u.s. government. this spending bill was bigger than expected. and it looks -- it doesn't matter what party you're in, god, these guys love to spend money, and women >> and you also have a trillion and a half divided by ten for this year and next year. coming from the tax cuts >> and then the spending bill on top of it. >> and unfunded liabilities that the government is going to be on the hook for down the road >> and michelle, you are obviously very young but you -- >> thank you, darling. you had me at hello. >> you do remember the bond vigilantes >> i do. >> it's not clear they're out yet as a force or a posse, but it's out there as an idea, right? that somehow these guys will enforce that discipline. >> like they did on president clinton. do you know who is credited with inventing the term >> i don't know. >> ed. he's on "power lunch." >> i thought it was the bald
political activist >> james carville said he would like to be reinvented as a bond market >> you don't think this is a bond story at all? >> i do, but and folks, if you haven't read murder on the orient express or seen the movie a that came out recently, i'm going to spoil it for you, everybody was guilty everybody was guilty they were all in on it i think we in the media love to have a -- we need -- i wrote this a couple weeks ago, we need an antagonist, a villain, a darth vader, one clear enemy, and i think it's a lot of things happening at the same time >> i think it's a rorschach test for whatyou thought was wrong ahead of time. if you thought it was algorithms that were the problem with the market, you think it now if you think it was deficits, it's the deficits now. i think your solution, i tell you what's weird about this. a story line about why the market has declined does not appear to be holding up for 60 minutes. you cannot figure out what you
think is going on and then it seems to change within the hour. >> because of what happened with bonds today. >> look at what happened at 2:30 the other day when the market surges 500 points or yesterday when the market sold up in 20 minutes. >> i love james carville's analysis, the bald guy i'll soon be the bald tv anchor. it's fine. >> no comments about your hair >> what hair >> mike collins -- perfect guest for today. mike collins is morning star's fixed income manager of 2017 he runs the five-star prudential total bond fund, which has outperformed its peer group for 15 years running welcome to "power lunch. >> thank you very much >> you heard this conversation we were so excited to have on the fixed income manager of the year knauz i have to think you spend 24 hours a day thinking about where interest rates are going. what do you think about the ten year and where it's headed >> it doesn't feel good now, but i think the perpetrators are many right? a year ago, it was all about
growth the trump bump then people worried about the fed, and more recently, inflation. i actually think the yield curve today is fully pricing in all of those risks right now. but it's the fourth one that people are looking at now, which is the fiscal profligacy, the supply, the markets trying to find a clearing level for all this incremental supply. it's the one-two punch the fed relinquishing the assets on the balance sheet at the same time the treasury is issuing a ton of debt. >> what's your prediction? what is the correct level for the ten-year yield based on all of the things you just talked about that we talked about in our discussion >> just watching the market action, it's becoming increasingly clear, i think, that we're getting to the tipping point here in treasury yields that they're actually starting to have an impact on certainly asset prices like stocks, but also potentially on the real economy. you look at home builder stocks. they're really tajing here as we have seen mortgage rates jump precipitously. i think we're getting really close. we're stepping back right now,
kind of waiting for the dust to settle, but i think we're getting very close to a buying opportunity. we may be the ones who step in and buy bonds at this levels >> where is the fed right now? have they really stopped buying or are they still buying a little >> they are buying some of the principles that are maturing, reinvesting some of it but less and less that number is going to get less and less every quarter for the rest of this year, then they're eventually going to get to a steady state in two and a half, three years, they're going to let mortgages roll off and buy more treasuries again to replace the mortgages i think that's lost on a lot of folks. >> what do i do if i own bond funds? >> i think bond funds are okay the nice thing is you have already taken the hit. bond funds are down. i don't know, a percent, 2%, already year to date after having a pretty good result last year but now, going forward, there's all that matters and the yields today are the highest they have been in a long time. the bloomberg barclays ag, which is a benchmark a lot of people
use, and our total strategy looks at that, is yielding over 3% that's the highest in a long time if an active manager can beat that a little bit, now you're talking about mid-single digit returns on fixed income funds. i think that's pretty competitive with equities for the next five or ten years >> has anything sold off enough already that you're stepping in? is there anything in high yield, anything along the corporate structure. what are you looking at right now that you would be willing to buy? >> the credit markets have been well contained they have barely budged. they're moving off in lock step with treasuries. high-yield spreads are a little wider, but it certainly hasn't been a big selling frenzy in the high yield market. it's not clear that there are any big buying opportunities at this point we're really looking at the rate structure and the big backup in the curve and the steepening of the curve as potentially an opportunity to add duration to portfolios >> all right, mike mike collins, thank you so much
for joining us fixed income manager of the year good to have you on. they liked you a lot >> liked what you said they're applauding you have to love that. thanks very much to you as well. for more on what's driving this selloff, let's bring in scott wren, senior global equity strategist with wells fargo. good to see you. >> hey, taylor >> a lot of people think we did touch at 10% down a point briefly earlier in the week, and that we're on our way to a 10% or 15% correction, but that doesn't necessarily have to happen period, number one, and it doesn't have to happen soon. what do you think, where are we in whatever it is we're in >> well, i think traders are in control here, tyler. and you know, as you well know, throughout a cycle, you're going to have times where the fundamentals detach themselves from the price so i think we're seeing a little bit of that right now. i think the trigger, you know, bob pisani brought up the unemployment report.
i think the straw that broke the camel's back was that 2.9% year over year wage increase, because let's face it, the highest expense these companies have are wages. margins are very high. and that's a negative for margins. i think there's concern that we have seen a little better economic growth. of course, you have to do a lot of guesswork with this tax code, and people are worried that the fed is going to hike rates more than three times to me, those are the two simple reasons. negative implications of wages on margins, and uncertainty as the fed going to hike rates more than three times, which i think is a head wind what we want our clients doing, and today, these last few hours, you know, has been i wouldn't call it an epic battle, but it's absolutely a battle between traders trying to push this thing down to that 2600 to 2630, that's the 100-day, 125-day moving average i mean, we have been battling that for the lax three hours today. we have done it before once.
the 200-day moving average comes in at 25, let's say 35, 40 i'm in a fundamental shop, but when the market is trading like this and you think it's positive, you have to look for spots to buy retail investors are underinvested. we want them stepping in here. we're trying to pick some spots for them, and we have been trading around 1 today, it wouldn't surprise me if we see it hit the 200-day on the s&p. you need to step in here if your outlook is positive. >> scott, listen, not to belabor the point, but two days ago barclays said they thought another 225 billion in stocks would have to be sold in the next couple days to meet the obligations from the unwinding of these short volatility products i know it's a wonky story. i know it's a complex story, a small, dark corner of the wall street, but yet these volatility products are still very active again today. have you guys done any work to suggest that this may truly be
one of these weird moments where just a handful of traders is screwing with the whole system >> yeah, you know, brian, i'm telling you, the products, these volatility products, there's no doubt that's pressuring the market here. but there's somebody in here buying these stocks. just watch the way the markets trading the last three hours something is holding it in here at this 2600 to 2630 level you know, those kind of products, and it is a little wonky to think about that. you keep that in the back of your head, but for me, you know, you need to look ahead to these fundamentals, which are going to be good, not great does that tell me i want to buy stocks i think it does. valuations have come off 17, low 17s for pes. we think it will be higher by the end of the year. given that even with the unwinding of some of these products, i think you have to look at these levels we're going to run a few stops if we trade below 2600 certainly, we'll run a few stops if we trade below the 200-day
moving average, but i think the market is going to hold in here and we'll look at this six months down the road and say, that was a pretty decent buying opportunity. >> on that note, we will leave it scott wren, wells fargo. appreciate it. >> take care, guys >> brian >> all right, ahead, much more on the stock, including one portfolio manager who says we haven't seen the end of the pain yet. that's right, somebody who's actually negative. bucking the downturn, though, twitter. cardinal health, cody, viacom, philip morris, and kellogg were , oking, we're eating cereal and putting on perfume >> all at the same time. >> a good french movie hi i'm joan lunden. today's senior living communities have never been better, with amazing amenities like movie theaters, exercise rooms and swimming pools, public cafes, bars and bistros
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dow that's down 400 points and say, wow, the markets are really off. we're off something else, session lows we were down 600 points when this spectacular program began now, in all, we're down more than 2200 points since the most recent record high on january 26th art hogan is the chief market strategist with b riley fbr, and barry james is portfolio manager with james investment research barry, you're an odd guy i mean that in a good way because you're a fund manager. most fund managers say things are cheaper. we should buy. you don't think the pain is over yet. how come >> well, we have been saying this not just today. we have been saying this for a few months the market was in a topping
phase. you had price earnings ratios are pretty high, back to where they were when i remember in 1987 you had the fed moving against the market in terms of raising rates and quantitative tightening, both of those, and then sentiment, which is probably the most important thing in the short run the number of bulls to bears was at a record level, even before where it was in 1987 in '87, we saw about a 40% correction in 40 days. not saying that it will match this time. so we don't have that change and i'm hearing the vast majority of the people i'm talking to are saying i'm going to borrow money. can you invest it for me rather than saying get out of stocks so as we heard from the previous guests, they're saying this is the time to buy. i would say take caution remember, your first sale in a bear market is your best sale. i would say lower your equity levels put some money into cash, floating rates, maybe even have some gold. those types of things. and look for bargains.
bargain type stocks. >> listen, i love to hear it because we don't necessarily hear that from your industry, barry, but art, let's talk about gold for a second. i know you're not a gold guy, but here's what's interesting. gold, yeah, it's up a tiny bit, but gold hasn't rallied into this slide does that tell you, i height to use a term, controlled panic, but this is not an all-out fear trade, because gold should be spiking. >> absolutely. >> art, but barry, you can respond. go ahead, art. >> as we look at gold -- >> go ahead, art >> you know what that's a great question. we actually haven't seen much disruption in anything but the equity market. we have seen a tiny move in commodities in general the currency is probably the only complex that's doo much away from the equity complex this is contained, not contag n contagion. what's going on right now is a stock market phenomenon, until
it's not what's happening and what's going to benefit or what we're going to learn from this, it doesn't matter who did it on the orient express we'll talk about this for a while, and it doesn't matter what the causes are. the end result is going to show that correlations that are so tight on the way down are going to point to active management and stock picking on the way back up. what do i mean if we're afraid of rising interest rates, why would you be selling financials they're one of the worst performing groups. we're selling everything because we're so concentrated in our stock and etfs that we're creating dislocations that are going to be a massive opportunity for active managers and stock pickers. >> so where are those massive opportunities? if i had two smart moves to make here this week, in the context of what's going on, what would it be? >> financials, for sure. so think about in the last reports by the big banks, just think about goldman sachs, jpmorgan, morgan stanley, for example, the only bad thing is
there's no volatility and no activity in the equity trading departments. that's here now. we have 5x what they saw in the first quarter. on top of that, rising interest rates, and lighter regulatory touch. the banks will be one play the other play is midcycle industrials. they're sold like there is no economy or economic growth going on so whether it's a select energy or a carlisle or any of the midcycle industrials thrown out with the bath water, you have great opportunities. >> barry, art brings up an interesting point about the financials interest rates going up. the curve is steepening. that should be great for financials that's why people have been telling us to buy them, yet they're getting hit hard i know you told people to go to some cash at this point, but is that one area of the market you might look at, barry >> yes we like financials, actually we see a lot of opportunities, not necessarily in the big names, although some of those from the jpmorgans and the like, look fairly attractive to us, but on down the line as well in terms of size in the
financial area you know, as obviously when rates go up a bit, they tend to run theirs up faster than the overall market, and they increase their spreads, if you will and the deregulation that we're seeing, and of course, the tax cuts are having a positive impact on them as well so we do like the financial area today. >> despite your overall concern with the broader market. okay, thanks guys. >> all right how is the market's recent volatility affecting investor sentiment? could a spike in pessimism mean more losses. that discussion is straight ahead. >> plus, the bull case for the big box retailers. "power lunch" returns in just a moment today, a focus on innovation in the southern tier is helping build the new new york. starting with advanced manufacturing that brings big ideas to life. and cutting-edge transportation development to connect those ideas to the world.
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>> well, we saw pessimism rise back above its historical average the first time in nine weeks. we have actually seen it trend upwards over the last really three weeks, after hitting near the low end of what we normally would consider to be its typical range. so we saw it actually rise it's important to realize our survey runs from thursday through wednesday. and we sent out a reminder on monday, so a lot of people got a reminder to take the survey during monday's volatility we have seen pessimism really rise from what was still typical but typically low levels >> so this survey ran from last thursday through last night. so it got both of the big down days friday and monday. and a couple of the other days as well in there what is the specific question you are asking to get to these measures what do you ask? >> we ask members over the next
six months, i feel the direction of the markets will be up, bullish, flat neutral, or down bearish. and we have asked that same question since 1987. >> and what has the correlation been between the answers you get and the market's performance >> what we see is really when optimism, when fuller sentiment reaches a higher level, we tend to see the markets underperform, and if we go back to january and late december, we saw optimism being at an unusually high level for five or six weeks. so when we see that being unusually high, the markets tend to underperform. when we see optimism unusually low, we tend to see the markets do better. a lot of people really focus on optimism, but our survey really suggests look at optimism. when everybody is too greedy and too optimistic, that's usually a sign that maybe the markets are overvalued maybe the market is overdue for a pullback >> if we can bring back the numbers that charles provided us in the control room, tell me how
this number sits in the scheme of things. bullishness at 37% right now yes, showing a decline and bearishness at 35% when the market is extremely euphoric, what is the bullish number and historically where have you seen it peak, and when the sentiment is extremely bearish, where have you seen it bottom >> so, for bullish sentiment, when we see it above about 49%, that's when we start saying it's too high it's extraordinarily high. at the lower end, it's really below 27%. so about ten-point range in each direction. so right now, all our readings are actually right about average. they're within their typical reading, so we're not seeing anything but good you go back three weeks ago, we saw bullish sentiment at 54%. >> 54% >> 54% >> way above the average >> way above the average on january 3rd, at 59% that was really high that was actually within the top 50 of all our weekly readings.
>> and you point out that when it gets that high, you can then expect that the market might underperform, and that is exactly what has happened. >> yeah, absolutely. it's not that sentiment is causal, but it's usually a sign there's something else going on, maybe valuations are too high, maybe investors are too optimistic overall with their investments, maybe they're taking on too much risk. there's not a question there's high sentiment so markets will fall it's usually it's a symptom of something else going on. we could look at how the markets performed last year when we had this big run and valuations pish pushed up. >> what's the worst you saw, thinking back, is it 2009, 2000 -- late 2008? how far did the number fall? >> it was right about march 2009 i don't have the number exactly, but somewhere around, i want to say about 18% or 19% it really dropped extremely low. at the high end, during march 2000, we saw it reach about 70%. so we have really seen it make
big swings >> of bullishness. bullish sentiment. >> absolutely, yes, bullish sentiment. >> what was the bearish sentiment in 2009? you just subtract from 100, right? >> it was 70%, because you have neutral sentiment there as well, but about 70%, right about when the bear market hit its bottom >> when prices fall, do people get more bullish or more bearish, charles >> you know, it demands. we have several members over the past several months saying i'm either moving the cash or holding on to more cash because i'm looking for a market pullback i'm looking for the opportunity to buy so some people hopefully are using this as a buying opportunity. but human emotion still plays a role when you see your portfolio falling in value, it's easy to be worried and easy to start feeling like you should be more cautious, even though financial theory says you should do the exact opposite >> all right, charles. thank you for that very interesting thank you so much. we appreciate it >> thank you for having me >> you bet of course.
let's bring in lance, shall we executive director of global multiassets at usaa asset management lance, good to have you with us. >> thank you >> let's talk less about the whys of the market and the whats and more about the what to do nows that you see out there. if this is an opportunity to do something, what would it be? and be as specific as you can. what should i buy or sell? >> well, i think the most important part right now is i think this is a great time for investors to review their risk tolerance. we have gone really a couple years with extremely low market volatility, as yourprieveiate guest mentioned. sentiment became very high i think many investors may have had too much equity within their portfolios, so number one, it's important to review that and make sure you're positioned to withstand what we may be seeing in the market. more specifically, where we're still seeing opportunities in markets as we have seen over the last six months is overseas. we really like international developed markets.
we like emerging markets we think the recent selloff is providing a nice opportunity to add some of the emerging market positions. then within our fixed income portfolios, what we want to do is shore up the quality. so we have been avoiding on the margin some of the lower credit quality, some of the high yield bonds and instead increasing the credit quality in things such as government guaranteed mortgages and treasuries >> are there specific markets globally you would point our viewers today? >> one of my favorite places to invest today is in stocks that are cheap within emerging markets. really, the whole segment of emerging markets, more so focused on the stocks with low valuations if we look at the u.s. market, trading at over 30 times trailing show of earnings which, again, is over the 95th percentile if we look at the same metric in emerging markets, it's closer to 15 times and in the value, even lower. so we think there's great opportunities for long-term patient investors within the
emerging market area >> historically, emerging markets have sold off when interest rates have risen because higher interest rates in the united states draws money from overseas, provides competition. they tend to have higher debt levels in emerging markets, and they tend to sell off. you're not worried about that or not worried about rising interest rates >> i think that, first of all, the valuations in emerging markets are a lot lower, so you start off with a little bit of a cushion relative to u.s. markets. i would also point out if we look back to periods coming off 1999, which feels the most similar to me today, emerging markets had a tremendous run following that period which included the period of 2004 to 2007 where the federal reserve was raising interest rates at almost every meeting up to over 5% i think if we look back to that period, emerging markets can do quite well in a rising interest rate environment although that relationship hasn't necessarily been the case in the last few years. bottom line, we think valuations support that and provide a cushion within that market
>> lance, thank you very much. we appreciate your time. >> thanks a lot. >> all right, so do you need to change your etf strategy as the markets turn around? we'll speak with invesco power shares head of etfs about dealing with the volatility. the dow losing steam again we were down 600 when the show began, now we're down 550 again. the volatility, the roller coaster ride of this market, tyler. we're back right after this. most etfs only track a benchmark. flexshares etfs are built around the way investors think. with objectives like building capital for the future, managing portfolio risk and liquidity and generating income. that's real etf innovation. flexshares. built by investors, for investors.
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stocks extending yesterday's losses at this hour. the dow, s&p 500, again lower for 2018 although the nasdaq does remain positive year to date. however, here's what's going on right now. dow industrial lower by 568 points a decline of 2.2%. s&p lower by 51 points, a decline of nearly 2%, and nasdaq lower by 144 points, almost a decline of more than 2%. all s&p sectors are in the red financials and discretionaries are the laggards at this point if you're worried about rising interest rates, utilities are
doing the best or the least worst that doesn't make a lot of sense, and financials are doing the worst. a little bit of a conundrum that people are so worried about rising interest rates. >> certainly good points now let's talk about etfs, something we talked about the last couple days what role are they playing in this market? how can investors better deal with the volatility? joining us is dan draper, global head of etfs at invesco's power shares we did a segment where we highlighted mini etfs and how top heavy some of them were. right? just the same five or six stocks controlling the market do you think that's contributing to the market downslide at all >> no, no. i think if you look, obviously, the qs is a special product on 1, 3, 5-year historical track records, the best performing big cap fund out there it had good performance. it is concentrating. technology, biotech, you're getting those exposures with great companies. the question is, looking at the
rest of your portfolio, what else do you own in fixed income, maybe commodities, are you well diversified. if you're hitting on one etfs or one in all of your net worth, the could be risky regardless, but a great fund has been a great performer over a long period of time you should know, thee exposure you're getting predominantly in the product. >> do you think that people fully understand the product, that you have a couple hundred stocks some of these etfs and five or six are 30% or 40% of the etf? >> a lot of education and focus of investors that the traditional long only products i think investors are fairly well educated. more to do working with a financial adviser. their folkish has to be on the overall portfolio. we're looking at volatility in the markets. if you think back historically, usually volatility or the vix in particular, usually lags rate increase siegales by about two years. you know what. we had our two-year anniversary
of the rate hike cycle back in december this is not something that should be unexpected if you're a long-term investor, you're well diversified, you need to use volatility in your favor to spread out and diversify that risk. i understand if you're buying things you're not aware of, you need good financial advise to be able to understand prospectuses, what's in the index, but taking a holistic portfolio approach, certainly in times now with high v volatili volatility, that's the way you need to think. >> should etns, exchange traded notes, should they be more reveille regulated because they're very different than etfs >> i think there's a good case to be made for that. if you think etns, etfs, they're both exchange traded, but once you stop there, the similarities really start diverging a lot of the more nuanced, sophisticated strategies quite openly just aren't allowed from a regulatory perspective in an exchange rated fund.
the 40-act version, why a lot of those strategies move their way into a note structure. which is very similar to structured products, other dirivative option options that are traded over the counter. as you look there, understanding how these products work, particularly these leveraged etns with daily resetting, very complicated products that small groups of investors, sophisticated traders, hedge funds and others who know those products and use them on a daily basis, but for long-term investors, there's a huge amount of complication, explanation required in those products >> let me ask you more directly, do you think this xiv, which about eight people had heard of, is doing the damage we're seeing do you think there's a lot of leverage tied into this? i saw an estimate, a trillion dollars tied to that >> what's really interesting is looking at the participants in this product, you know, i think if you look, we had record daily trading volumes in etfs on monday and tuesday okay
but within those record trading volumes on monday, for example, we only had about $9 billion of outflows from the funds themselves you're seeing really strong two-way pricing. there's demand on the buy side >> but you're avoiding brian's question take a stand here. what do you think of this thing? >> well, obviously, look, it's not something at invesco, we don't often products that are etns or short in leverage. it's not our baileywick, if you will our typical clients don't demand it i think those are very speculative products and i think there's some professional investors who know how to use them, but for the general public, i would steer them more to traditional etfs, certainly >> that's a good thing because it's down 95% in a week. good thing you don't have them >> absolutely. you're welcome great to be with you >> stocks selling off with the dow dropping more than 500 points retail, including walmart and target, also taking a hit today. oliver chen is senior retail analyst at cohen, he says now is
the time to buy walmart ahead of next week's earnings good to have you >> good groan. we do like walmart it's a roller coaster environment now, and we think walmart is a safe harbor pick. also we see upside, earnings coming up later this month on the basis of better than expected comp store sales. >> the reason you think that walmart is going to make more than everybody else thinks on the street is because you think their sales are running better than expected at this point. do i understand that correctly >> yeah, in addition, we also like what we're seeing with the cowen consumer tracker there's digital intensity at walmart in terms of the innovation they're conducted on the battle versus amazon a lot of customer overlap here 85% with amazon, however, walmart is holding their own with the jet.com deal, free shipping, as well as thinking about the integration of bricks and clicks so our call here is walmart, and we like it in this volatile environment. it's a $500 billion retailer we think it's a safe harbor kind
of stock which offers you a dividend yield, a free cash flow yield, steady growth >> has somebody stopped shopping at walmart because the market is down 9%? >> that's the thing. the consumer is actually pretty strong we have low unemployment, we have wage growth walmart offers you very strong values we think values, indeed values are great long-term thematic way to think about the market, and people don't stop shopping our call here is that physical traffic will be positive that will lead to earnings upside >> you're also positive on target, right? >> yeah, we have a market perform on target, but more constructive on target target is a little different about 20% food walmart is 50% food. walmart has a higher grocery penetration. so we're seeing nice broad based strength they also have private label brands as well and digital m&a, which is great, too. they're better positions, we're positive here. market perform on target, our pick is walmart with our outperform there >> let me broaden out my earlier
sort of flip question about walmart, to retail in general. if consumers don't feel as wealthy or they feel a little less confident about economic prospects because the market is wobbling and they look at their 401(k) and it's not what it was at the beginning of the year, could there be a knock-on effect to some of the retailers you follow or is it too early to worry about that >> well, i think that is a worry because we're in a very interesting challenge environment with the u.s. consumer so what we like are names like costco, tjx, ross, walmart retailers that offer ua strong value that are gaining share in the mixed environment, and we think they're well positioned to win in the event that there's less optimism or more optimism that's our thesis here with the value consumer we think those that offer really clear everyday low prices, values, really focused on that as a theme, it's a good theme to think about in this volatile environment. >> all right, we'll see how the call compares when earnings come
time for trading nation. craig and gina sanchez greg, you nailed it. you said it would be a hop and a drop and a pop basically you thought it would be a slide are you still sticking with that or is this slide changing your view technically >> what we were talking about a few weeks ago is a hop, which we got. the drop, which we're now in and ultimately a pop into year-end looking for 2850 no change with our view. we're still in that kind of drop phase. we got down to 2600, found support there. had a bit of a brief rally ran right into the 50-day moving 20 failed to go through that. now it feels like we'll be
coming back down, testing that 2600 and that's the next level to watch one thing i'll add is in terms of overall market sentiment, when we get selloffs, i like to reach around the trading is it desk and see what they're seeing, feeling, those things. the most colorful analogy is this is the early days of the flu and has not run the course more time is required. >> gina, what do you think, big drop here, but craig more optimistic down the road are you? >> so, actually, i am, brian i know that's unusual. but the global economic picture and u.s. economic picture is very supportive. the other thing i'll say is let's remember what's driving this what's driving this downturn in the stock market is emanating from the bond markets. at first it was a fear of inflation. today i would say it's a fear of adding to the deficit. those are all bond problems.
ultimately those will cause a selloff in the market and that money will ultimately find its way back into the stock market because the fundamentals, while our expectations may very very high and those could be in for a disappointment, the reality is, they're still pretty good. >> still pretty good a little optimism from gina. we like that for more trading nation, to go to tradingnation.cnbc.com. check please is next as the dow fou falls 600. >> your trading nation stats and word from our sponsor. >> daily fluctuations can offer opportunities but if you're unhappy with your returns while trading actively, consider taking small positions over a short time period. evaluating trends over multiple weeks instead hrsofou can hem a trader find more tradeable trends
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head into the fim honal hour of trading. we'll answer your questions tomorrow you can e-mail, tweet us, send us a question on facebook on a stock or an investment strategy or a product you're interested in knowing more about. we'll pose questions to your panel of sperpts and you will get the answers to your most urgent concerns. >> i sent out a twitter poll, what's the blame for the drop? random traders, earnings, stocks at a bubble. right now 40% said stocks at a bubble too high >> maybe i just got a bunch of negative followers. >> the dow jones industrial average is only 8% from its most recent highs we always talk about our stocks and a correction loose definition is 10%. we continue to watch that level.
>> let's bring in bill and kelly at the nyse as we count down to their program, the "closing bell" in just about a few seconds. >> here we go again be. >> i'm surprised we still use decos. i haven't heard that -- >> they're out of date by the time we put them up this week. >> they are. interest rates have been getting the blame for some of this today. sully's survey not withstanding. if you take a look at the dow or vix, today is a mini version of monday because as equities have gone lower, the vix has moved inversely. it peaked as we hit the lows for the day around 1:00 this afternoon. i think we're seeing something of a modest version of monday's trade here >> the whole volatility trade brian's been talking about. >> i wonder, is the vix the dog or the tail? vix is supposed to b