are approaching the close, 15 seconds to go, there is the closing bell. 2.7 -- of 2.5%. the s&p 500 music -- s&p 500 moving 43 points. the dow had flung 512 point throughout the day. at its low it had declined how many? >> over 500 point. >> >> those two groups have declined. >> it is not a relief. >> the utilities index was the best performing group in the s&p 500, but it was down 9/10 of 1%. in terms of what happened, this is a three-month low. no, eight-month lows. joe: the s&p 500 falls to its lowest level since august 25.

that is a red headline. and the china selloff. it is a concern. they are down 20% from the recent high. here in the united states, the dow transportation average also down 20%. betty: so the question is, what if we hit a bear market, then what? what happens. joe: there will be a buying opportunity somewhere. hopeful, wishful thinking. the garden-variety bear market has a 20-25% drop. this is not what it was in 2008 when it was a bloodbath. who knows? these things feed on themselves. mike: joe made a great point. everybody was expecting this net interest expansion that would help. but what really happened in the

aird quarter, citigroup had good numbers. jpmorgan be estimates. but those have been rationed down because the markets really affected, these are kind of the canary in the cold line -- coal mine. a lot of activity got postponed. it deals got postponed. that is part of the story with the banks. we really are getting the worst and of the deal. -- worst end of the deal. scarlet: and you are watching the five year. just putting it in perspective. the lowest since august. and how much of these tech stocks that people love are getting smashed. mike: biotech as part of that story. scarlet: and treasury markets. i think at one point, the yield

was below 10%. betty: the action you see in treasuries is more needed. lisa: it is based -- basically people are looking at 10 year treasuries, the yield should be much lower. right now, this is something that people are looking at, the reason why we are looking at this completion gauge. it shows a substantial drop, something you would expect with this sentiment and expectations for inflation. scarlet: and you have equities leading this leg of the risk selloff. we should take a dive into the terminal. this is the global market cap. we have seen creation and destruction on global companies. bloomberg tracks all of the company stocks out there. we go all the way back to 2011. this is the second half of the bull market, not the beginning. global equities added $31

trillion in market value from 2011-midway 2013. since then, we have seen $14.5 million in market cap destroyed from the high in june of 2015. this is 2011 until june 2015. -- calluses this -- calais allus is this low and whether the fed was going to move. and we have moved past the stimulus. there are still questions about what happened next with all of the political issues. joe: i want to dive into the terminal and look at the selloff and put this in perspective. the s&p 500 year-over-year percentage change, where it is today versus where it was a year ago. it is down 6.9% from this time one year ago. that is the worst year-over-year performance since the crisis.

6.6%an see we are down back in august, we are now down worse at this time. this is the worst performance. another way of looking at how uniquely ugly this selloff has been. this is relative to anytime since we started the bull market. honestly, all of the factors coming to a head right now have all been at play for previous years as stocks rallied . people are not sure that central banks can be what they have been. the cash is already there and people have tons of cash. where are they going to put it? where is it safer at this point? at some point, when there is not the same kind of incredible fear , people will go back to realizing, ok, not much has changed except people are more accepting of the negative factors out there. is a great primary.

people have been asking since the beginning of the year, what has changed to make so many people so bearish about china? weakening wasency a big thing. and political uncertainty, especially in this country. at some point you have to wonder about donald trump and how he is viewed in china and the whole interaction there. people have not really talked about that. i ask people, how do you model a donald trump presidency? are we looking at stocks with donald trump right now? mike: if it is not donald trump, you think about hillary clinton and you wonder what her health care will possibly look like with drug prices. so uncertainty across the world, including home. scarlet: ok. mike, thank you.

lisa, thank you. our dynamic duo here. we will move on to john, the cfo at wells fargo. they released the earnings report early this morning. we want to get to the earnings, however let's talk first about the market in anxiety right now. with the you make of this. ? john: there is plenty of it. it is reflected in underlining fundamentals. we see payment data and alone data and it is pretty much starting at the beginning of the year, and so that has not all come through yet. it is consistent with behavior and activity of most of the clients with a regular banking business. it have to be reckoned with -- it has to be reckoned with and we are waiting to see how people react when statements come out with lower equity values and lower retirement values. it has been germanic over a

short -- dramatic over a short. of time. time.iod of joe: what do you see on the ground in terms of economic activity and specifically in the state of the mortgage market? john: we are not seeing a high meaningfulof a economic slowdown, we are looking at payments up, the housing market is stronger this year than last are. we have small increments all supply available, mortgage availability, it is stronger with family growth and people coming into the right covert -- cocohert. and autos have the biggest year in the long time -- in a long time.

and we have seen credit card receivables increasing for the first time in a while, so people are doing things. with the unemployment data recently, everything is looking strong in the context of 2.5% gdp growth. nothing yet. the reaction to the market moves over the course of the last couple of weeks could change behavior, but right up until the end of the year the banking activity with our 78 million customers, i would not have said we were leaning toward a recessionary. -- period. say that bankers need to be more realistic, even with the fed committed to the rates. scarlet: how much of a growth driver can profit on loans be in the next year? john: just to back up to last year, we generated $23 billion worth of net income last year and had 4% interest income

growth during the year with no rate increases. the increase in the second half of december do not contribute much. so i would not expect margins to 2, 3, 4 ofl may be these basis points whenever they happen. or four this 2, 3 year depending on how the data is interpreted by the fed. as it happens there should be a widening impact for the sector. as well as we have been growing net interest income and that increases rates and doing that by having a low deposit base and making more loans, that has been effective. we are enthusiastic of things to come. betty: that leads to the question, which is, having taken back expectations? are you confident that they will raise rates throughout 2016?

is that a disruptor for your plants? -- plans? john: i take from the market action today that there is a recalibration perhaps in expectation about what happens with banks this year. as i said, we have been outperforming for years now with a 0% interest rate policy and if we become -- if we start to see these increases it will be an upside. in the meantime, we are growing by adding customers and adding loans and deposits, that is contributing to our stable revenue over the last couple of years. joe: you mentioned you are not looking at any particular sign of a slowed down, by what to ask specifically in regions of the is oil where it sensitive, do you see signs of weakness there? and what is your take on the oil economy, how you see it from your world?

analysis in all of the msas where oil employment is above 3% or 5%, to figure out if we see stress in the portfolios and at this point we have not really done that. for our customers in the energy business, upstream, midstream and energy services, there has been a real change of fortune of the last year. that is 2% of our own portfolio, we are meaningful to the business, but it is not overwhelming. credit is harder to come by in that space. there has been capital raising going on in the first half of 2015 as people tried to short balances and bring in partners. there is a line of professional investors trying to get in and take advantage of the initial weakness. that did slow down a little bit in terms of pricing.

but in the field, things are beginning to change. i think the workout cycle is going to peak over the next few quarters, banks will see losses in that portion of the portfolio. and people are looking for rebalancing in supply and demand. scarlet: john, thank you for joining us. thankt: i also want to betty for joining us. we have much more on today's market action. the dow is falling as much as 533 points and we have a session low closing down 391 points. they are closing at their lowest levels since august 2015. we will be back.

scarlet: welcome back. let's get the first word news. mark: an investigation into a france's health minister says is an accident of gravity. one man is brain-dead and others are facing possible permit brain-damaged after volunteering to take part in nature test that went wrong. labial conducted a private was testing a new painkiller compound. 90 healthy volunteers were given the experimental drug in various doses. just hours after the united nations declared the ebola outbreak over, a death caused by the virus was reported in sierra leone. doctors say there is

no cause for alarm. and france looking to crack down on extremists is losing patience with the european union. a french minister says today that the eu is dragging its feet in cutting off finances the terrorists. they want the eu to tighten currencies like bitcoin. and debris field was spotted where two helicopters collided last night near hawaii. military officials say that 12 crew members were on board when they went down two miles from the north shore of luwawu. military officials say there were no civilians on board. dayal news 24 hours a powered by our journalists and viewers from around the world. back to you. scarlet: i want to bring in

carol who is joining us today. he have been talking about the volatility all day long. >> hard to ignore. one thing we saw today was just a lot of market watchers looking at valuations and saying it does not fit with the growth in the united states and we are starting to see the market go back to instinct. look at the it economic reports, they show we got off to a very weak start in 2016 and also ended the year on a week -- weak note. we need to see the market correct. i think about how many people last year who said they wanted to hear -- see the market correct. correct in 2015, the overall valuation was high and if you look at growth we have globally and certainly in the u.s., things are starting to slow

down. we need to see the match up better. scarlet: we will pick up where you left off, we want to bring in a global energy economist, oliver reddick. he has been following with care oh just talked about. joe: so far in 2000 fixed-income of the story has been foiled. in majorlobbered benchmarks, falling below $30, what is going on? >> fundamentally there is a hole underneath fundamentals, you are building inventories and until you stop the building inventories commit oil -- inventories, oil will go longer -- lower. scarlet: in the last two years you have seen strength in the first half, certainly in 2014 which was a gold mine. is in the blue line, that is a straight line.

then things fall apart. do you see the conditions for a second quarter recovery in oil prices? >> we think we will see those conditions, we think we see inventories beginning to fall. crude oil in america in the second half of the year more globally, we think that will happen. risks are on the demand side and the recovery on the supply side. the risk is probably reduced to something difficult to quantify. scarlet: how much of what we see right now, the volatility, we said it was china but how much is that energy story? news like $12 worth, the conditions are poor. from a fundamentalist perspective, you do not need to chase the stock market to get that. the new negative news in america , inventories are starting to

rise. this puts a? behind the -- question mark behind the story. news has been mixed. the market is going slightly backward, this is not like things are falling apart. , alli want to bring you in over. talk about the stock angle. two weeks of trading in this market, what really stands out to you? >> i think one is a sentiment shift. when you talk to people who were bullish on the year going into 2016, with a toxin them now it is no longer the story of when we will get to that level, it is more a question of whether or not the fundamentals are in the company and are they able to support stocks at this point, buying at 8% down, there are a lot of people who are now saying this could be a bear market. the question is whether or not

that will move into a recession. scarlet: we talked about corporate earnings and downgrade issues, a lot more downgrade than upgrades, you see the s&p do better as a result. we will see if the negative sentiment when it comes to earnings plays differently. >> oil and earnings, a lot of it will be with energy but i think it will be a fallacy to talk about oil and stock correlation, because it leads to people writing off the negativity on stocks. just real quick numbers, in the past eight years oil and stocks move together about 66% of the time. in the past 60 days, they have 3, soup about 2/ correlations have risen. but if you go back to 2011, they were moving more closely. scarlet: how carefully do you watch equities as a leading

indicator for oil? >> i try not to. it makes me really unhappy. i try to ignore them. scarlet: do you look at high-yields? >> the high-yield market seems ourndicate that we -- producers will produce less. this will come down hard over the course of this year. and the equity markets, where they were amy is they reflect -- to a certain degree. they will be running away from oil. scarlet: thank you so much. stuart. and of course, oliver. we'll be right back. ♪

♪ scarlet: welcome back. divewant to take a deeper into what is going on here in the markets. specifically what we want to do is look at hedge funds features -- futures. scarlet: and when the fed will move on interest rates. if you come inside, you can take a look at how the odds have been dropping for march. this is a better way of looking at it. the red line tracks the odds, those are greater in september that the fed would raise rates. but they have since plummeted. this goes right in line with the

selloff. joe: that is the most extraordinary chart. we had a greater than 50% chance of a hike at the end of the year now the probability is cut in half. >> it can be extreme and drop off that quickly. know, the fed has a lot of time before they do anything. there are a lot of points to get to. joe: and i recall in october after the volatility in august and september, people do not fear a hike in this, then we had a surprising surge in the market and just like that -- you can really change. it is really sensitive. scarlet: on october 14, the odds were about 10%. there you go. coming up, you'll hear from wall street's top voices on the market selloff. we will be back. the only way to get better is to challenge yourself,

and that's what we're doing at xfinity. we are challenging ourselves to improve every aspect of your experience. and this includes our commitment to being on time. every time. that's why if we're ever late for an appointment, we'll credit your account $20. it's our promise to you. we're doing everything we can to give you the best experience possible. because we should fit into your life. not the other way around.

♪ welcome back. >> let's get to mark crumpton with first word news. administration is holding on federal lands until -- charge to mining al'sanies and the cold -- co impact on the impairment. says he hopes to start a conversation on drug policy with his article on meeting el c hapo.

the public's attention has been focused on how he met with the drug lord last october while he was on the run. el chapo was recaptured last week. and the album david billy released just days before his death is poised to become number one. ♪ blackstar is on track to knock adele's album out of the top spot. bowiee tenfold after died, this is because first number one album in the u.s. and the duchess of cambridge will temporarily have royal duties in an editor's chair. she will be focusing on articles related to childhood mental illness. hersister has also tried hand at journalism, writing articles for vanity fair and the spectator. ,lobal news 24 hours a day

powered by article 400 journalists from around the 2400 journalists from around the world. scarlet: let's get a quick recap. it was a brutal day for a long equities, the dollar is falling as much as 536 points and ended down 391 points. the s&p 500 also drop. all three groups decline. banks got hit by a 3.2%. and in terms of where we are falling to, the nasdaq is now at its lowest since 2014. yearthe worst start to a for u.s. equities, ever. joe: that is not good. >> you really see the tone and sentiment out there. and we have a lot to talk about. a lot of good names out there. we will see with a had to say. >> this is a characteristic

market correction. higherre in a regime of volatility with components of what i call volatile volatility. >> looking to this volatility verywe see, we are positive on fundamentals. .> the world will is doing fine it has not been contaminated by what is happening in the sector. once it is taken away, it does not do well. >> how do you expect this to slow down? >> it is manic-depressive and its wings from the positives -- swings from the positives to the negatives, to interpreting everything positively, to negatively and you get these enormous swings of sentiment. >> it will be hard for the fed to consider raising rates if we are considering this environment. >> they should be on a path

for further hikes. >> there will not be a rate hike in january. it is a probability of 25% or less. >> i think they will do 2%. >> i don't think it will come until late in the second quarter. scarlet: david, you heard commentary from our previous guests. what do you think, is this a correction, and implosion, are we going from optimistic to pessimistic? >> i think it is definitely a correction. looking back over the last five years we have come a long way. in that time a lot of good things have happened. we have had earnings growth, a recession or an economy improving, we have had buybacks. a lot of things going with the investor and a lot of those things are now going away and to some degree it is natural.

-- because thees market goes in cycles. joe: maybe -- a lot of people are talking about this selloff as an easing period. it was tweeted at the markets regime is transitioning to a higher volatility with elements of volatile volatility, how does the fed engaged in volatility suppression? how is it a form of volatility? >> the thing that people normally talk about is the fed moves rate and how they lowered it and now it is 50. but the real way in which they look at volatility is through the bond buying program, buying mortgage securities. they bought trillions of dollars of worth of mortgage securities and what happens is all of those mortgages have options and when

they take those out of the you arehat is when removing option volatility from the market. so the rates have been suppressed through that. scarlet: david, when you look at past trends or cycles we have seen, does this remind you of anything? we get freaked out that there are metrics right now that remind us of 2007 or 2008, anything going on right now that remind you of another time in our market cycle? >> to start out with, this does 2008.mind me of 2007, we are not the edge of a systemic crisis. thanks are in good shape -- b anks are in good shape. employment is well. there are a lot of things that say we are not at the risk of another great recession. the other side of the coin is, if you look back in the early 1980's, there was a small recession.

we talk about this with other desks. we are at the edge of a profit recession where profits will go negative are flat. aarlet: we might be entering profit recession, but not on the cusp of a great recession, where does that leave us in the business cycle? or is it not fair to compare because things have changed so much? >> we are in uncharted territory. that is not awful or scary. but we have a lot of things to gather, things to look at that we've never had before. we have never had to try to get off the euro. we still have the largest balance sheet, china trying to transition from -- to a consumer economy and worldwide, inflation and growth are really anemic. they are relying on central banks to boost that.

in terms of cycles, you've the financial markets ahead. in the u.s. economy is doing fine, but the global economy is just doing ok. the financial markets got too far ahead. joe: a lot of people were bullish on the banks, people talking about how banks did well in tightening cycles. they have been getting smashed this year and financials are one of the worst performing cycles of the s&p 500, what did everybody get wrong? is not inhe verdict on fundamentals, because this --who isasis -- thesis going to benefit from the hiking of rates? that is banks. and so whathort would happen, the banks would pay the same to depositors and a little bit more and reap the

benefit of investing the higher yields and loans and just up -- adjust up. everybody was out in -- piled in. everybody seleka and has gone up -- saw the front end has gone up. we have a yield that is not providing much growth for the banks to make money. we will see a little bit of a -- from the fed hike in that all the cash that the banks have, they'll get this 25 basis points. they will adjust higher. all in all, i think it has been a buy the rumor. scarlet: the spread got to 150 basis points this weekend, the narrowest sense 2000 -- since

2008, does it signal a recession? >> if you look back that spread, it has slope, but if you see things continue to rally and the front end come up, that would be a little bit more concerning. at the current time we are not there and i think investors are overreacting to the selloff. >> one last question, central banks have to be watching this closely. the fed has reacted to volatility, should global central banks stay put or react to markets? they can try to prop up the markets, but is that a good thing or should we let the --ket do with it needs to do what it needs to do? rallying for as

hike in december, but then the market has a short-term memory so right now everybody is saying that the fed will not hike next month, but really things change quickly. i think the fed has more of a measured emotional scale than a lot of people in the market and they are not looking day to day, there tried make good decisions based on data and not overreact to sell us from the market. scarlet: david, thank you for joining us. the global equity selloff is it something that we are keeping a close eye on. next, we will link it with what it might mean for janet yellen and to the federal reserve, the odds for a recession, will it increase? ♪

>> this is a special report. scarlet: it is time for the business flash, a look at the biggest business stories. returning to his chicago home after a heart transplant and it expects to be back to work a sooner than later. he says he feels like he has been given a new set of wings. he suffered a heart attack in october and underwent a transport later in the month. stores is closing 269 worldwide, roughly 100 of them are smaller format express outlets. another 60 of them are money-losing stores in brazil. it wants to focus on better performance locations and e-commerce. scarlet: and citigroup and wells

fargo are bidding quarterly estimates -- beating quarterly estimates. wells fargo's revenue from lending and security investments increased. they are building their loan portfolio. they will profit from higher interest rates. and that is the business flash. with the global market selloff, you have to wonder what the fed things -- thinks. we got a glance of what they are thinking. >> john williams was speaking at a panel discussion and talk about what worries him the most. >> if you asked me what keeps me up at night, i would say almost all of them are outside the u.s. borders. a sharp slowdown in china and asia. joe: joining us now to talk about the fed is tim dewey, an economics professor. thank you for joining us.

very simply, are you worried about an imminent recession? is not an think there economy wide shock we are experiencing. we are expanding -- experiencing some specific shocks and shocks from the dollar, but i do not feel like this is an economy wide shock. scarlet: it can feel like a recession and that can be problematic with what it does for the psychology of consumers, the market and investors, can we get close to that? tim: i think it is more resilient than people on wall street give it credit for, especially if you have daily selloffs when emotions are high. that will not resonate with the general population. when you have the more confident sellers, then the general population -- job so start to

decline, we're not there yet. scarlet: we have seen a hold off because of volatility from overseas like in china, will it do that this time around for the next rate increase? tim: january is off the table, march is in the air. if you look at things they pointed to, for example low oil prices and a strong dollar, that eighing on the outlook. that would lead you away from rate hikes later in the year. joe: the volatility is likely to have some affect on when the fed hikes, what about the flipside? critics have said, look at this is when it hikes prematurely, on a wish and a prayer that it will hit targets. this is now the consequent is of a premature hike, the market cannot handle it?

i was questioning why the fed felt so strongly that they needed to raise rates, it does feel premature given their outlook and the present reason to do this. but i do not know if any five basis points is what was driving the volatility we are looking at now in the financial markets. muchnk you can attribute of what we are doing again to this stronger dollar and weaker oil that is coming from overseas factors more so than domestic factors. scarlet: quickly, does the fed need to keep up with the economic backdrop that is there? scarlet: should the fed continue on its course to getting back to normal? tim: i think that is what they are going to be weighing in the next months, they will say, this volatility, if it looks like it is passing and we are closer to

the economic outlook, particularly in the labor inflation side, you'll see that they will try to normalize rates. what does that mean? from the labor perspective you will need to see jobs at 150,000 or more coming more consistently and we are well above that in terms of the last quarter. whether you get inflation numbers down is still a wildcard. joe: thank you, tim doing from the university of oregon. scarlet: coming up, looking at china. they have entered a bear market and they are up 20% from a high, what to expect from those markets, next. ♪

scarlet: this is a special

report. i want to bring in the executive editor tracy elway as we look ahead to china and the markets. here is the set up, you can look at the world equity index rankings. the shanghai is the world's worst performer, down 20% if he rounded. that would make it in the bear market and down 5% since the start of the year, how many trading days has there been? there are effects from this massive collapse. >> that is right. the thing to remember about the asian markets is there are a lot of weird structured products linked to things like equities market, the big indexes, and also currency. so everyone's in a while -- every once in a while, we see talks of losses on those products. --: what is the phenomenon what is the phenomenon is that markets in developed countries

are paying a lot more to china than they used to. it was a sideshow, but what do you think it is that is causing markets to fix it on china so much? >> markets are shifting from --oil supply,oil, to oil demand and looking at china is a natural thing to do. it is the second largest economy in the world. it is rebalancing its economy from manufacturing to consumers, if it cannot make that happen then we have to reevaluate the demand side for lots of things, not just oil. >> what can we anticipate from regulators in terms of, there is so much to prop up the market, what they do in conflict of what they do one week, to the next week? should they let it settle? >> i get nervous when anybody asks me what chinese regulators will do.

nobody knows. one week they are in the market and they are doing five different things to prop it up and next week they are mia. it is difficult to predict. that in itself is a problem. it is uncertainty beard -- uncertainty. joe: monday is a holiday, but you will be watching the markets. what is one thing you will have your eye on? >> china, the u.n. is the big one and a lot of people are saying that the market will open, people stay up late and watch. and canada will be open on monday and we have seen the canadian dollar plummet. up wet: thank you, coming will hear from a chairman on what he thinks is the biggest risk for the global economy. ♪

scarlet: -- >> this is a bloomberg market special report. our guest fees major risks -- sees major risks in the global economy. >> i think there are faultlines in the economy that have not been corrected since the crisis, the biggest one being the amount of debt. that has been shifted around from the private sector to the public sector, but it has not been removed and not much deleveraging has occurred. >> let's talk about that. he talks about faultlines and there are a lot of faultlines. the energy picture needs to clear or we need to see a bottom . it just fell down for the energy sector. that is a big sector. scarlet: analysts were making

productions on where things would be based on the idea that oil would stabilize. that has not happened. joe: absolutely. and you remember that we talked to david levy and he predicted that for the first time in the postwar era there was going to be a u.s. recession caused by overseas things. scarlet: he tends to be negative. joe: absolutely. but the point is this would be unusual, normally we do not think that the u.s. is exposed to global volatility. it is supposed to go in the other direction, but exports have been rising and we have got more profits from overseas, so you have to wonder to what extent maybe there is an effect or the global slowdown will have more of an effect than people estimated. scarlet: what i find interesting is this time we have corporate debt. that is a whole new ballgame. >> so many company's borrow at

low prices and buybacks have helped prop the market, but they will stop doing that. i will be problematic. our special coverage will continue after this break.

day investors run for the doors. is a bloomberg special report live from bloomberg television and radio. ♪ live from bloomberg, i am scarlet fu. it was a turbulent day for anybody long in equities. the dow fallin m