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 weve been seeing in this bear market when Interest Rates spike, the 2year yield is at the highest level since 2007 and those Interest Rate sensitive tech stocks are getting slammed. Ill 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 2year yield spikes over the 10year yield, a signal of recession. Were all over this market recession. Weve got a great lineup of guests including david zerbos, anastasia ammaroso, dan niles and jason thomas well start with the market dashboard. Our senior markets commentator mike santoli it is ugly five s p 500 winners right now, thats it. This is a comprehensive washout. The market bet it all all black. The wheel spun and it came up red. Thats the way to view the last week we had a 5 rally or so in the s p 500 over five days weve given back about twothirds of that thats worth keeping in mind, that a lot of what weve 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 its going to hold on a second visit and all the rest of it clearly we still have this little shortterm downtrend along with this right here so were pinched between a lot of different factors right here very volatile but within this same range, i would say. You mentioned the 2year, versus 10year 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 thats a lot of lead time. We have not yet inverted right now. So zero is right about there but the threemonth yield shot higher went from 3 to 3. 14 the highs was 3. 2. This is a treasury bell, three months maturity and thats 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 gamechanger for the markets in other words, the view its not just black and red the view is that inflation would come down quickly. That was persuasive across the 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 months time youre going to be saying the leading indicators of inflation are still pointing lower. Youre still talking about used car prices rents, by the way, listed rents are showing weakness in the latest lets 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 youre saying its backward looking im saying its backward looking but also that its just taking longer. So the market will be impatient, try to anticipate the turn and its been wrong so far we dont know when and at what level the market will be. And how weak the economy will get. Thats the question. Stay close of course as we monitor the selloff for more on the cpi report and what it means for the fed and the market, lets bring in david zervos and Anastasia Amoroso how surprising was this number, david . I dont think anything surprises me anymore with inflation data the fed hasnt got it right, the street hasnt got it right a few people were calling for big inflation last year and really did get it right. I think were all flying a little bit blind the fed is really interested in kab kaboshing inflation. Theyre going to keep going. I think the market gets ahead of itself in thinking that this fed pivot is just around the corner. Theyre telling you its 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 wants to believe that inflation has peaked and is coming down and the economy has not weakened so substantially that maybe theres some hope of a soft landing. Does that go out the window today, david no, i think its more than that the fed is trying to tell you that even if we get some good data, theyre not going to declare victory early. Theyre very concerned about getting it down, keeping it down and very nervous that this is something that could affect the anchoring of longrun Inflation Expectations again, the market is getting too excited too early. Thats been a theme for us the upsides are very limited the downsides are risky but im not in the cataclysmic downside camp because i think nominal gdp growth will keep stocks from taking a big swing lower but were going to get these violent upswings and downswings as people shift their sentiment too quickly for a fed thats not really shifting any time soon. Appearnastasia, whats 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 its 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, theyll look at the monthovermonth figures and theyre 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 theyre ultimately going to come out and say looking at the cpi number is we probably cant have it both. We cant have it both ways we cant 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 were in this time period of uncertainty, unprecedented fight against inflation. The fed is very keen to fight it off. What do we do . We dont fight the fed so i wouldnt 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 tradeoffs between cash and equities, and cash and bonds are increasingly going to look more attractive. Right were just not there yet pie the way, down 4. 6 on the nasdaq worst day since midjune david, today i had a chance to 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 heres 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. Theres a balance between crushing inflation and not having a recession and causing problems in the labor markets. And thats 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 its not like deflation or what he said, david, the pandemic, which was theres no playbook for this this you just have to keep 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 theyre 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 well get through it and i think they know what to do if solving an inflation problem, hes 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 dont have to design anything, we know exactly what to do. Sell assets, let them run off and raise rates. It aint that hard. 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 theres 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 its 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 weve underbuilt homes and apartment units. If you look at the vacancy rate in the multi Family Residential real estate, its like 4 . So what do you think is going to happen they might slow demand somewhat but they cant fix the supply 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 thats the last thing that individuals dont 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 theres not enough demand for it anastasia, i see you nodding, david, weve 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 lets get a check on technology as the nasdaq sees the sharpest declines of the major averages heres a look at the nasdaq 100 heat map right now tells you everything you need to know theres not a single winner in that group the biggest drags, apple, microsoft, tesla, alphabet, sharp declines across the board. 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 thats the story today. The 2year 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 yesterdays 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. Julia will tell you about another mega cap pretty soon thats faring even worse, sara. Well 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 didnt say anything about bots, which are the crux of elon musks argument that he shouldnt 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 at some of the movers in that space. Frank. It might be the poster child of what were 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 13. 5 and that is an acceleration from null which is 13. 1 its 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 shouldnt be too shocking for investors because weve heard from all the major food manufacturers during earnings and interviews here that they are still raising prices but they havent been as aggressive about the price hikes as they were talking about a few months ago and perhaps thats why some of these price increases are moderating a bit dont get me wrong, theyre 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 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 thats earlier in the whole production process but so far its still painful. I dont have to tell you that if youve been to the Grocery Store lately for more on the impact of food inflation, lets bring in wingstop ceo, michael skipworth. We thought of you because last quarter you were talking about deflation in chicken wings is it just bonein chicken wings where this is happening . Sara, it is we are seeing meaningful deflation in our business. Bonein chicken wings represents 65 of our cost of goods sold. And were 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 obviously its 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 were in a really unique spot because we have a really strong outlook from the back half of the year from a sales perspective were 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, weve 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 havent seen it show up in our business wingstop is an skindulge in occasion its a once a month frequency with our guests. If theyre pull back from restaurant visits, they save up and want to treat themselves on that wingstop occasion so weve 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. Lets get a check on where we are right now as were 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 weve seen of the year every sector lower right now look at the nasdaq, down 4. Almost 7 . Joining us is Richard Bernstein whos been bearish this year, richard. I dont know if you had changed your tune at all on signs that inflation was easing, but today was a real wakeup 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 weve 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 its worse than we ever thought. And the third phase would be its never going away. And i think today is the first time were starting to hear people talk about phase three. Not using those words, but thats kind of whats in the backdrop here is, gee, this is lasting longer than we ever thought. Its not going away. The fed is going to be tightening for longer than we ever thought thats kind of been our story is that the cycle was not going to be shortlived, that you dont fight inflation in a matter of months. That Economics Team tries to go with consensus first. Theyre 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, weve argued for a long time the fed should be more aggressive than they have been i think thats still the story heres 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 were 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 thats a little bit of forest and trees here the story is going to be the fed is going to be tightening for the foreseeable future lets accept that inflation doesnt end very quickly. So thats 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 weve 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, liketohave type things dont work in this environment thats what people are coming to grips with boring becomes very, very attractive in these types of environment. So were overweight staples, health care, utilities very, very boring stuff. And valuation doesnt matter . Utilities are up 6 already this year, theyre near the highs a lot of people think theyre 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 thats when the valuation starts to bite everyone. When the cycle turns, when Earnings Growth starts to pick up and a boring 8 Earnings Growth doesnt work anymore because cyclical earnings are starting to grow at 50, 60 , things like that but i think the notion here is that its what you have to have. Its not what youd like to have, its 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 economy, actually youre seeing some moderation in those price increases. I dont disagree with the notion that inflation will slow to some xtent. Of course it will. Were not going to stay at 8 or 9 inflation forever but will it get low enough so that the fed will stop tightening i dont think thats 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 weeks 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 thats not happening yet. So i think youve 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, 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 were forgetting about the feedon effects on the overall economy and thats what were 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 selloff is picking up steam throughout this hour of trade. Joining us now is dan niles. And your advice, dan, this year has been dont fight the fed on a day like that rings true. But you would have missed a pretty nice midsummers rally and some nice rally opportunities on the idea that inflation is coming down how do you read whats happening today . Well, i mean as you brought up, sara, dont fight the fed and dont fight the fundamentals which is the second part of that youre right, youve 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 youre nimble enough to trade around those rallies, then yes, you can make great returns. This year alone weve had five rallies in the s p 500 that have averaged, i believe, about 9 each so if you caught all of those perfectly, youd be up 45 but youre unfortunately down 16 . So i think for the Retail Investor that cant daily trade their portfolio, youre better off losing, as weve 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 thats how i think about it if you look at my twitter feed, 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 youve got unemployment spiking, all youre trying to do is catch bear market rallies and youre going to lose even more money on the way down. So what should you do, youre 25 in cash right now, dan whats the rest . Yeah. We have a lot of shorts as weve said all year. For us its 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 youve gotten to an oversold condition, then take those shorts off and put them back on again thats kind of what were doing. So our longs are in defensive areas such as walmart. 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, theyre likely to look for bargains on places like amazon. So thats 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. Weve got tons of shorts in retail matched up against amazon for amazon in particular, weve 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 its 66 or twothirds of the market so big adsupported Internet Companies are not going to avoid a recession. Theyre going to see their businesses get hit pretty hard so weve 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 thats 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 were 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. Its very broad and hard to spot any winners. Youve 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, theres two parts to a stock price theres earnings and the multiple to those earnings so if you look at the s p 500, what are we talking about today . Were talking about inflation, which i have said all year is going to remain higher than what people think, even though its likely to have peaked and come down which is what youve seen. Headline inflation has come down, but its 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 its 19times if you want to be super optimistic and say were going to get it down to 3 , then the trailing pe multiple is 15 times. And again, were 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 youve seen the first reduction in those numbers in two years. And i think youre going to see that get worse youve already seen Companies Like intel soft preannounce after giving guidance six weeks ago. Youve seen corning soft preannounce. So youve 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, youve 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. Thats where a lot of high multiple stocks sit in the Software Space so thats one area where weve got a lot of the shorts and cloud Oriented Software names in particular thats where were focused on. But a lot of these names have already been beaten up so hard and theres a lot of bad news in these stocks roku is still down 80 from the highs. Robinhood down 80 from the highs. So theres a lot of this priced in there, is it not . Or do you think thats 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 . Its 100 . Its not 20. And remember in 0809, you had 5,000 Internet Companies, public and private, go to zero. So youre not even in a recession yet. Thats 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 theyre going to crank it by at least another 75 basis points over the course of the next three or four months yobeyond that so thats going to take some time to work through the economy, work through earnings and housing prices ultimately the thing people arent focused on is work through wages. Youve 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 youre at 50 year lows in unemployment its 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 . Thats 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. Thats like 3 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 peoples moods but agreed, when youre seeing this widespread rise in costs, its difficult to figure out where the bottom is. Is that the point . Yeah. The other thing is remember theres 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 youve got a lag here that people i mean everybodys has gotten used to the last 13 years. Every time the market goes down, because inflation is low, the fed is able to say, oh, were just kidding about raising rates. Well put more money into the markets. The governments can stimulate across the globe because theres no inflation thats not the case today. Today theres an environment where theres high inflation so growth slows youve got to go ahead and crank up rates to slow the economy even further youve got 15 months from the peak in home prices to the peak in rents thats 30 to 40 of different inflation measures all of that combined with wanlz, thats what you need to be focused on, not gasoline prices. Thats 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, its a puke, mike were down 5. 25 bitcoin down 10 the dollar is surging, 1. 4 . Yes the last couple of hours as weve made some Downside Momentum, its i would say uncomfortably orderly in the sense that its 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 10year treasury yield threatens the previous highs from the prior part of the year. Yes, theres an inverse relationship when you have the nasdaq going down and yields going up at the beginning of the year and so on however, its just not as simple as every tick in yields makes an equivalent difference for Growth Stocks here we go heres 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 relative to when yields were last right here. What does it mean . It means its not as simple. Is that a selling opportunity for the nasdaq considering that its now higher that when yields were its not clear to me evening the bigger question is once the nasdaq 100 is down 30 high to low, its still down 25 from the high. Each tick in yields is not the story. Its 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. Its 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 down for sure. Theyre 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 whats 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 theyre about to roll if you look at some of the nearterm apartment listing rentals and things like that, you have seen some Downside Momentum with Mortgage Rates, 6 plus percent for 30year fixed, its 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 were down 1266 right now. For more on the selloff, lets bring in the carlisle groups head of global research, jason thomas jason, you say inflation is not all that bad explain. It feels pretty bad right now. Thanks for having me, sara. What were saying is theres a flip side to inflation and thats 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 theres a flip side to that disinflation coin and thats 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. Were down 1249 on the dow more than 5 on the nasdaq were looking at our worst day for stocks since june 11th, 2020 that was the height of the pandemic when markets were still very volatile and we didnt quite know what was coming next. Theres the nasdaq composite tech stocks getting hit the hardest. Not only are we worried about higher Interest Rates from the fed but the effect thats going to have on the economy and a potentially deeper recession so thats not good news for corporate earnings. No, it isnt. 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 thats 40 higher than the longterm average. If you look at the median stock right at the 50th percentile, its only about 18 times only about 8 above its longterm average. The bottom 40 of stocks are actually cheaper than they have been historically. 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 thats where investors should have their portfolios prepared for the adjustment there instead of assuming this is something that flows through across the market. Lets talk about whats attractive to you right now. What sectors, what types of companies, what stinvestors shod be looking at and how youre navigating this at carlisle. Obviously theres an enormous nearterm risk theres 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 fiveyear basis is that we do seem to be at the end of the post gfc era 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 theres 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, its an enormous opportunity for lng. Theres 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 sudden stop in Housing Construction its precisely the Housing Construction that we need to deal with the housing shortage theres 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 were going to take you straight commercialfree into the closing bell market zone right now because we have a pretty deep selloff 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 ill start off with you, dan it was a down day all day. We came in down 1,000, now down 1300 points. Were 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 , were 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 todays data throws a lot of cold water on it. You just said today feels like a liquidation. I would tell you its probably the start of something a start of the retest of the lows that we saw in stocks back in june. So when you think about all of the Different Reasons why people have to readjust the idea that maybe were going to have this yearend 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. Its not doing that. The last point id make about this, we can talk about all these inflationary inputs. The one thing that hasnt budged is wages, is unemployment. Weve just started to see the unemployment tick up from 40year lows were seeing banks start to consider some cuts were going to see major Big Tech Companies start to do cuts or accelerate the cuts, that sort of thing. I think thats a q4 story. Lets hit the chip stocks because they were getting absolutely crushed Kristina Partsinevelos with the details. Yeah, its chip stocks bike micron, nvidia, amd, theyre among the worst performers on the nasdaq 100 all of them right now hovering just below 8 lower. 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 were 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 an overhang, especially for Companies Like amd, nvidia as well as equipment makers and tools. Kristina partsinevelos, thank you. Its a group thats 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, its probably going to do that to the downside also this stock has a 330 billion market cap, down about 65 from its alltime highs. So the question is how exposedse 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 dont 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 its going to take to make fabs here or other places other than china, its 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 theres no reason to buy any of these stocks on a day like today i think well retest these lows, ill say this again and again, that we had in june over the next couple of months. So were still 8 away. 8 higher than the lows in june. The big debate is whether we retest them. Clearly theres more in favor of the bears camp with that sticky inflation number showing that its 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 30year 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 30year 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 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 thats 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 its not really working. Well, i think demand has fallen off significantly youre 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 cant build more homes and theres still a shortage, youre going to have this floor under prices. Diana, thank you very much. Diana olick. I just want to bring you some new 52week lows as you can imagine theres no shortage of them in todays session but it shows you the scope of the damage being done right now in the markets youve got meta trading at lows that we havent 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 according to hopper. So its 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. Thats going to Pressure Companies that are going to refinance the debt that theyre 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. Weve got airlines 31 off their highs. Dan, its weird because you go to airports and planes and theyre 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 fed just has even more work to do because you are seeing such Strong Demand in parts of travel whats your take on some of these stocks yeah, and i suspect Business Travel hasnt come back anywhere near prepandemic levels you might see consumers, individuals flying for leisure at much lower rates, so that could be a big part of it. I think its 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 thats 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 runup that we had in 2020 into 2021, and now you have a Housing Market thats far more liquid, that has had huge gains in the lead up to this year and you say to yourself thats not good for the u. S. Consumer at a time when rates have gone up youve seen what the 30year 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 doesnt paint a great picture for a u. S. Consumer right here no, and theyre going to have to do more yields are marching higher now should see that reflected in Interest Rates as well lets 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. Thats off even more by almost 7 so within that space, the ecommerce 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. Childrens 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 when everything that we have to buy continues to go higher back over to you. I was surprised, courtney, i dont 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 youve been reporting for weeks now, target and walmart, the poster children, theyre going to have to start marking down these products because they got the inventories wrong and are sitting on all this excess product. It hasnt 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 inflated because youre 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 its a really complicated picture particularly the timing of when goods will come in. Youve also got highend retailers say, look, were 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 its very hard to paint retail and even categories with the sort of a wideranging 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 whats 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 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 were 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 selloffs. It hasnt been this way in a while. What should you do youve 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 oneday decline after weve had this runup the last few days thats taking it allout in one fell swoop i think its really important for a Retail Investor whos at home there are major macro moves going on if you think about it in currencies, commodities, in fixed income right now, and theyre 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 points or 4 the s p 500 is down 4. 2 again, we havent 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. Thats it for me ill see you tomorrow, everyone. Now well send it into overtime to continue this selloff coverage with mike santoli. Welcome to overtime. Im mike santoli in for scott wapner you just heard the bells but were just Getting Started in just moments youll hear from jeffrey gundlach, what he thinks the fed should now do at next weeks meeting it is a big call and youll wanting to hear it. We begin with the talk of the tape the brutal selloff after a redhot read on inflation sent stocks tumbling. The dow down almost 1300 points, s p 500 down