spoke to someone in ryan's office who said the vote is still on for tomorrow at this point. >> they think they have the votes. >> at this point. >> right. >> it's still on until it's not, maybe. >> well yeah. >> we'll see. >> melissa, thank you. >> my pleasure. >> marc, great to see you. thanks. make sure you join us tomorrow. "squawk on the street" is next. ♪ good wednesday morning. welcome to "squawk on the street." i'm carl quintanilla with jim cramer at the nyse. faber is off. futures as you heard just below the flat line after tuesday's selloff. the worst day for stocks this year. europe is red. nikkei down about 2% overnight, oil trying to hang onto 2.4 and we begin with the stock slide. is the rally over? good to have jim back on a day like this. nike takes a hit, second best dow stock of the year and fedex

shares higher despite a miss. what's up next for the delivery company? first up, tuesday's session went from that record intraday high for the nas earlier in the session to the worst day of the year. jim, we're going to walk through reasons why this happened, the play book if it in fact changed anything at all. >> yes. i think that short-term there is a sense that if the -- ten-year's calling all the shots and the ten-year is showing perhaps things are slowing or will slow because we will not get the stimulus because trump is in the swamp. i've also been listening to the coverage and joe's right there could be some things that he was talking with mr. javers about the manafort situation. but the fact is i think comey scared more people than what people were willing to talk about. comey came out and many people feel destroyed hillary clinton's chances because he basically just says, hey, listen, it could be really bad. and comey comes out yesterday and uses the word criminal in the same context and that makes people feel like we can rebel against this guy.

he's as weakened as hillary was. now, will that happen? i think that this whole replacing of health care is such a -- so the ten-year, oil going down, nike, the fact comey is out there saying things showing me once again that the fbi director is willing to speculate the supreme court nominee who does a great job by separating himself from trump, suddenly you think, you know what, if trump is really threatening people by saying you will not be re-elected if you don't go for this, well, i think that some of them may say, well, who the hell are you mister being investigated by comey, don't have any political capital and look at the ten-year and by the way look at -- i mean, there's just too many questions. >> right. >> but that's short term. longer term in the end fedex,

which i regard and every book i've written i've said fedex is the company that knows the world better than any company, run by an economist, that makes me feel a heck of a lot better than nike. so let's not forget the individual companies and what it means for fedex to say things are better. >> so you are prepared to see a vote fail in the house. >> first time, yes. >> markets to stumble further. >> yes, just a little though because we have to watch the ten-year. >> yeah. >> i think that the ten-year is saying -- ten-year's incorrect. now, i know it's the biggest market in the world so you don't want to really call it out. >> yeah. >> but i think that the idea that -- steve liesman and i, bunch of our people were with some cfos last weekend, now they're very negative but still looking for 2.8, 2.9. i think the ten-year's wrong. i think there is going to be more growth. and i think that companies are saying there's more growth. but short term we're in the swamp. and the swamp is like we thought we were out of the swamp. >> yeah, peter boockvar has a good note out this morning. he just says the markets lately reflected some naivete on

exactly how things get done in washington, right? we're coming to terms of that. >> somehow these congress people not responding to tweets. the electorate responds to tweets. these congresspeople respond to their constituents. maybe their constituents are going to be turned on by trump, which is always a possibility because he does have a great pull with the constituents, but i do think this is short term. i think that we'll still get tax relief. but if you go and listen to fedex which has like a 36% tax rate you're thinking, wow, that company could make an awful lot of money in 2019. >> that's funny you say that because goldman had a pod cast covered this morning by business insider. they say tax cut might be a 2018 story. >> yeah. >> might be a 2019 story. infrastructure may be smaller than people expect because of the morass we're in over health care. >> look, i agree with that. and i think if you were -- i was just in europe where people are so bullish. holy cow. i mean, they are bullish about brexit. they're bullish about the

economy. they're bullish about the fact that the high watermark in nationalism occurred in the netherlands. they're bullish about the fact that jeremy's going to start spending more money. and i come over here and it's like, you know, i got elected, you believe border tax, health care. i mean, i feel like that somehow like we're doing badly and they're doing well. i mean, we are doing well here. but we are very caught up in -- i listen to joe. joe talk about mainstream media and is that proposing the idea that comey did -- that there's an investigation. comey is a wild card like i've never seen. he's head of the fbi. i mean, the old days the fbi would say no comment. this guy's like yeah, sure, whatever you want. what do you need? an investigation? okay. criminal? sure. you don't say criminal and president in the same darn paragraph until you know something for heaven sakes. but he did it to hillary. >> why didn't the market respond to him on that day? why did it take until tuesday? >> well, i think it was this -- you know, i think the swamp is

saying, okay, maybe this president is not as strong as we thought. and i think that's a shame because i think there was progress -- from a business point of view. >> yeah. >> that there was a head of steam and now the ten-year's saying what were you doing buying bank of america. now, there were a bunch of fed heads saying, listen, we have to raise rates. but the curve is such -- i hate to talk at the curve for the home gamers. >> sure. >> the banks, you cannot raise numbers as much as we thought. i think that will be short term. and i do think that comey will not speak again today. and i do think that supreme court -- i think he gets the nominee -- i think he will be approved. but at the moment it just seems like trump's one of them. and like trump was above them. and somehow ryan has pulled them down. and i think that that is -- when you pull trump down, you ruin a lot of the tripod of the repatriation definitely lower taxes. not deregulation. deregulation is still going to

go on. but oil's going down because the more you deregulate oil, the more they pump. >> that's very true. and we're going to look for more clues today about the legislative calendar and status of the vote tomorrow night. >> yes. >> jim mentioned nike down in the premarket. earnings did beat forecast, but revenues slight mise miss. results impacted by the stronger dollar, heightened competition from the likes of adidas and under armour. futures down four and their guidance mid single digit with the current quarter. >> you know, when you get -- when -- one of the things i've loved about nike conference calls, parker puts on a great call. but when they say in the call saying, listen, we are disappointed, clear eyed with the challenges we have faced and opportunities we have not fully capitalized on. hold it. that's the cfo, i thought they were fully capitalizing? no, we're not fully capitalizing. go through the conference call and suddenly digital disruption. they were winning, they were growing at 40 and now it's slowed down.

it's like the nike call is like, guys, come on, man, aren't we doing like the lebron -- isn't lebron doing good? the jordans? and then you go on the fedex call and it's like forget that number. we're killing it. so when you see one the conference call goes up and the other the nike call is like i'm sending mark parker a couple -- some under armour shoes saying listen they're not doing as well. and kevin plank put out that wry meaning w-r-y at this point. >> i wonder what you made of nike's equation of promotional activity and e-commerce. it seems like the less bricks and mortar we have the more promotional the environment gets. >> well, this is that same urban -- urban outfitters upgratu upgraded today, but this direct to consumer we thought was a big win, we're killing ourselves, one of the things nike's done, nike's a technology company. thai going to come back. by the way nike ran four points

and the expectation this was going to be the dynamite quarter it wasn't. in the conference call they basically said we thought it was going to be a dynamite quarter and we didn't put it together. i do want to distinguish china. i've got howard schultz on tonight and a swan song for his ceo and they're talking about china spending like mad. so china's not the problem. it's north america. it's competition. it's adidas. like adidas was not -- this is like one of these things was like what are you doing, adidas? you're not even supposed to be a player. well, adidas is killing it. >> that's an amazing chart over two years. >> the adidas conference call necessarily not that you could understand it at all but basically said we are killing nike. that was the shorthand. >> yeah. as for fedex jim mentions the earnings miss, revenue essentially in line. company says it handled fewer packages than it expected from the largest retail customers during the holiday season after increased spending and staffing in anticipation of a surge. fedex made some nice comments about profit margins, but the dow jones headline braced for a holiday crush that didn't come.

now, why might that have been? >> what call were they on? one of the things that was great on the fedex call there's a couple times they say it's like we had huge volume, but we also made money. that is -- that's about u.p.s. saying we had huge volume and got killed. this was a conference call basically said, okay, there's only one player in this industry. there's us, u.p.s. no longer -- the u.s. postal service, that's like an arm of us. we're doing this tnt, we're going to dominate. and don't forget we have spent. when you hear we have spent, by the way, amazon has said unless these guys start spending, we're going to build our own network. fedex has spent. so fedex is almost done with killing their profit margins with spending. the world is their oyster. i love the kind of guidance that they gave. if you read the fedex conference call, you really think, you know what, worldwide growth is coming back. that's kind of what i felt when i was in london. fedex conference call is joyous. it's as joyous as the headline

is and headline's negative. fedex versus nike is an interesting contrast because nike's saying, look, the direct-to-consumer is not as good as we thought. fedex is saying direct-to-consumer's fabulous and the volume numbers are good. everyone should read fedex call to realize how stupid they are if they trade off of headlines. the headlines were wrong. >> well, fedex has the added advantage of having a huge business-to-business business, right? >> oh, yeah. >> they're not all consumer. by the way, we're not even mentioning oil up 30 year on year. >> look, i know, fedex has some -- well, they actually dispense with that very quickly. they can do that. it's 37.5% tax rate. ground revenue up 6%, segment margins will be 15%, so they reconfirm. talk about q-4 in fiscal year '18-'19 better outlook. almost like someone said let's go over that u.p.s. conference call and every single line they went wrong tell them why we're not u.p.s. and you came away from the conference call and said, wow,

there's really one international freight company. and it's fedex. you felt great about it. >> when we come back, when it rains it pours for the retail sector. we're going to explain that. later on david rosenberg, chief economist and strategist gluskin shef, take another look at the premarket, s&p today would be down five straight and we haven't done that since just before election day. back in a minute. i love how usaa gives me the peace of mind and the security just like the marines did. at one point, i did change to a different company with car insurance, and i was not happy with the customer service. we have switched back over and we feel like we're back home now. the process through usaa is so effortless, that you feel like you're a part of the family. i love that i can pass the membership to my children, and that they can be protected.

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look at futures, slightly down market today. nike going to shave about 20 points off the dow at the open. another sign of tough times for retail. sears holdings down sharply after issuing a warning about its future in light of slumping sales. sears said, quote, our historical operating results indicate substantial doubt exists related to the company's ability to continue as a going concern. the past month has been tough for retail, target among the biggest losers down 19. but this would be historic. >> right. and i think you have to balance this against what sears just said the other day was just that, look, we're refinancing. we've got craftsman going. the thing that bothers me about sears is that i wish obviously

this was not -- this was known to them when they put out all those promotional things that drove the stock up from 7 to 9. so if you bought the stock thinking they're out of the woods, you found out that they're deeply in the woods today. and you made a mistake. and i'm not saying they misled. i'm saying that this is more important than all the things that they're saying. now, some people say probably it's boilerplate, come on, we've got the club going and things are really starting to look up because we're closing the bad stores. but what this is about is if you're doing business with sears, i have pvh on tonight, i don't know how much business they do with sears, but if you're doing business with sears and you see this, you're going to say, you know, i'm concerned i may not get paid. my father sold boxes and bags to retailers for 50 years, and what he was most worried about was not getting paid. because we had a couple lean years where we literally one person wiped out, "moana" just so you know wiped out my whole 1973. we didn't even eat dinner

because of moana, we didn't have spam. we had 10,000 bags in our garage. one client -- one customer can wipe out a supplier. that's what you have to be concerned about. >> interesting, i think lasry was asked about it at the end of squawk. melissa said are you in, and he said he's comfortable if you're at the right edge of the structure. >> he's comfortable with valeant too, so he's comfortable. he's comfortable in a lot of places i'm not comfortable. but you know what, he's a lot richer than i am. so he can afford to take a couple hits. i don't know if buffett's in there. >> yeah, he was at walmart until recently. >> walmart's holding up well because they do well on the border tax. >> speaking of which, i was going to ask you we have some tax executives from retailers meeting with lawmakers today, a part of this ongoing nrf initiative. kec kevin brady, house ways and means told squawk this week that

he felt that was a given or starting to be thought of as a given, is that in addition to why retail and everything else got smacked? >> yeah, when you listen to these conference calls, listen to fedex, if you're brick and mortar, you're not really needed. kohl's came out the other day and said, look, we're terrible with this. and jc penney obviously. walmart -- one-third of walmart is import. two-thirds is here. now, they also include food. but remember, walmart may not -- walmart may be able to eat the margin a little bit better. notice how well walmart holds up? this is because the border tax would be a boom for the companies that have the best balance sheet and have the most bargaining power, which is walmart. actually, i think it's the shock of how much walmart is doing better than target and kohl's and jc penney. >> yeah. >> has to do with the balance sheet. and one-third is imported. that's what they do a huge amount -- they've done well to try to keep american companies in business. >> yes. >> people should realize walmart is not the same as the other guys. >> good to watch especially on a day like today.

we're going to get cramer's mad dash, we'll count down to the opening bell. take a look at how the markets respond after tuesday's selloff. back in just a minute. 'american'. r first nn at at&t, we employ more than 200,000 people with good-paying jobs. connecting consumers and budiness through mobile, internet, and entertainment. at&t invests more into america's economy than any other public company. bringing american's more choices, more freedom, and entertainment everywhere. no company is more invested in america's future than at&t. the newly advanced gle can see in your blind spot. ok let's call his agent. i'm coming over right now. [ dinosaur roar ] onboard cameras and radar detect danger all around you. driver assist systems pull you back into your lane if drifting. bye chief. bye bobby. and will even help you brake, if necessary.

it makes driving less of a production. lease the gle350 for $579 a month at your local mercedes-benz dealer. mercedes-benz. the best or nothing. ♪ guyhey nicole, happening here? this is my new alert system for whenever anything happens in the market. kid's a natural. but thinkorswim already lets you create custom alerts for all the things that are important to you. shhh. alerts on anything at all? not only that, you can act on that opportunity with just one tap right from the alert. wow, i guess we don't need the kid anymore. custom alerts on thinkorswim. only at td ameritrade. uh, yeah. what is?r, larry. the whole wheelie thing. what do you mean? i just got this baby to get around the plant floor. right, but now ge technology monitors every machine. yeah, it brings massive amounts of information right to you. so you don't need that. well, it makes me look young and uh..."with it." time to move on. oh i'll move on...

right into the future. ...backwards. you're going backwards. the future's all around us! not just on your little tablet, my friend. take a look at futures in the red after the rally stumbled on tuesday, we did have the nikkei down. asian stocks down about the most in two weeks, and europe's having some trouble getting out of the gate as well. it's time for the mad dash ahead of the market open, check in with cramer on ge, which is apparently been speaking to nelson peltz. >> yes. nelson peltz, try own 66.8 shares. trian got very excited in 2015. they made -- this is nelson peltz big embrace. remember they're an engaged

shareholder, don't regard themselves as an activist, big embrace with jeff immelt, i think they felt very let down. that last quarter was very disappointing and they got ge to change some of their targets for bonuses if they can actually hit the industrial profit that trian thought they could. this is the magic $2 number. and i'm going to tell you, this may answer a big conundrum, was trian going to dump its ge, was trian going to push for a board seat? this is jeff immelt reacting to the fact that perhaps they can reduce the $2 billion that -- very aggressive targets that trian wants. does this make peace between peltz and immelt? no. but would make peace would be immelt hitting his targets. if he doesn't hit the targets, they don't get the bonus, i don't think we've heard the last from trian. this is a sign that trian i think is saying what the heck, i thought you were going to do better than this. by the way, do it with

industrial. don't do it with finance. >> yes. >> whoa. >> the statement out of trian, we invested in '15 because we liked the industrial business. we appreciated the initiative to separate capital and believed management would meet its commitment to shareholders. we're pleased with the new framework. >> right. i think jeff immelt, i don't think he's thrilled with some of the targets that he was not able to get to. and i think he wants very much to do what trian wants. it's not like he's sitting here saying, no, i don't want to take out the big cost. i think he wants to take out the big costs too. i think ge, got to get the baker hughes deal done, got to get the $2 billion in unincorporated costs out. i think jeff can do it. jeff isn't having it. look, the industrials have all been like this and his hasn't. i think that this was a sign of good faith, maybe trian will not say you got to put a guy on the board because you're doing exactly what we want. >> so you'd argue net positive for now? >> yeah. my travel trust owns ge, why?

because i too felt they could do the $2 number. i believe jeff immelt can do this. so obviously does peltz or else they would have dumped their stock and said we're not happy. we want to be on the board. >> good insight on that, opening bell in six minutes. don't go away.

you're watching cnbc's "squawk on the street" live from the financial capital of the world. the opening bell in about three minutes. you probably know all the statistics from yesterday, worst day for stocks this year. breaking that streak of no 1% declines on the s&p was really a reflation trade in general. people looking at a double top in the ten-year yield, lower high in the dollar, i wonder what you make of assets other than stocks. >> j.p. morgan quantitative strategy group saying we're going to have higher volatility. they say it's a technical move but are pointing out we're in a vulnerable phase. equities seem vulnerable. i don't want to make a big deal of it because i think the ten-year can easily fool us. i think that the numbers in aggregate should be viewed by representative companies that are talking, like lennar. you know, large home builders saying things are quite strong.

let's not lose sight of that and not just decide that bank of america is done, stick a fork in it because of the ten-year is where it is. i do think when i was in europe, the european markets are very strong. and a lot of them, uk is the strongest. i think uk next week will begin to have some turbulence and there's a lot of inflation there, but i look at the stocks that were down yesterday and i say to myself, okay, we've been due. this was the -- this is more of a sense that maybe some volatility's coming back because we do not have a president who could come out today and say big win. i mean he's a big win guy. he does say big day for health care working hard in tweet, what i want is big win for health care. thank you. and if that tweet gets -- if we see that tweet, then you're going to say why didn't i use this market to buy the airlines or whatever else i sold on. >> the president, our kayla tausche reports, will meet with the house freedom caucus at 11:30 at the white house per a

source to discuss the forthcoming vote. we'll see how intransigent members of the freedom caucus are. >> i think what we're finding is who is this freedom caucus to stand up against trump, the answer is well, they're elected officials and not responding to the tweets. i was watching -- i don't know if you ever watch the -- our version of "the apprentice," "the partner". >> you love that show! >> i do. it's a great show. but he's like i'm very unhappy with all you guys. ooi i'm going to make you work harder. trump's unhappy with those guys, he's going to make them work harder. no, they don't want to be the apprentice. they're happy being the congress. so it's a difficult different audience, but i think that trump gets his way in the end, or in some form. giving up on trump right here that's been going on for days. >> we're going to find out a lot more about the status of the vote, rand paul said there's

easily 35 noes but wip counting is very difficult. markets are not necessarily the best at it. we're going to have to wait and see until we get closer tomorrow night. s&p at the bottom of your screen, at the big board celebrating its ipo hong kong based art trading company, over at the nasdaq it's cisco celebrating its recent acquisition of appdynamics. [ bell ringing ] >> whoa! >> yeah. okay. i love the appdynamics. chuck robbins changed the narrative by making it far more of an intellectual property story than analytics story. suddenly a gong. >> there is a gong. and rest in peace chuck barris died at 87. >> an amazing workhorse.

he was delivering 20 hours of tv as producer or host to the american public, a week. >> a lot of people inspired bim e by him are business people. he had a corporation. now, dick clark had a corporation, these were people who were businesses that were named themselves, they were like one-man businesses that thrived. he changed a lot of people. when that show first came on it's like that's all you did. that was water cooler. >> you know it. jamie farr and everybody else. you mentioned the airlines, jim, morgan stanley does move on american. >> yeah, you know, look, american did say i didn't like their comments about how the balance sheet's not good. they're doing better than thought, but a lot of this is in reaction to united airlines the other day going to 2.5% capacity. i think things are much better in the airline group. by the way there's a guy who spoke recently named warren buffett who likes the airlines. i think he's factored in many of these things. i would be careful dumping the airlines. i think it's an opportunity not

a situation to panic. i think they're doing better. now, i will say i was surprised united airlines went to 2.5, 3.5 because everyone else is clustered at 1 to 2, but don't give up on that group. the international ones are harder because there's a lot more cut throat, though i got to tell you the price my wife just paid for a ticket was outrageous. >> really? >> holy cow. holy cow. don't be fooled. these companies are making a lot of money. please, they're making a lot of money. >> yeah, i mean, people wonder at what point sentiment, consumer sentiment, is going to start translating into things like vacations and airline tickets. >> i know, but i go back and how quickly could it suddenly go bad for priceline? expedia and priceline would give you the last read. read was very, very positive. i think we get into a funk very quickly in this country. and some people kind of want a funk. and i think that's a shame. let's not lose sight of the fact that our technology companies are killing it. it's really interesting. when i was in london at one

point i was listening to a technology panel and it was like, well, you know, we've got these five companies that are doing great. and i'm like i've never heard of any of those. wow, you're going to stop google with -- which is based by the way in barcelona. and part of paris' new tech -- i don't know, the tower tech fell. if i was tim cook, i'd be saying, wow, okay, yeah, i'm really worried. yeah, i'd be shaking. >> petrified, stupefied. >> are you kidding me? >> yesterday we had all-time highs on apple, facebook, basically f.a.n.g. >> yeah, f.a.n.g. was good. david always talks a lot to me -- david's not here. he makes fun of me when i talk about the technicals, but some people telling me listen, facebook, jim, forget how well they're doing. it was an island reversal. it's like what are they stuck on

"giligan's island"? by the way there was a piece out today that likes snap. >> yes. this is two days in a row where some of these smaller firms have buy ratings on snap. today it's drexel. >> yeah, what did they say what was the reason? lots of millennials using snap. well no kidding. i mean, please, don't forget that zuckerberg's got instagram, which basically is copying everything that snap's doing, shamelessly i may add, and therefore taking a lot of business. but they were talking about 60% daily active users. okay, fine, i've been saying if it goes to 17 it's interesting. these guys want to try to get in here before it goes back to where it was. >> yeah, i think monday we get the initiations from people who helped the deal happen, all the big firms. >> it could always be like tesla where goldman has a sell and elon musk gives them the business. but musk is an iconoclast. >> yes. >> i think a lot of these people who brought snap public, i think

they're inclined to like it. >> without nike, jim, we'd probably be about flat. >> so if adidas was in the dow we'd be killing it. >> don't joke. don't joke. sometimes they make moves like that. >> look, i come back and i say technology was so sold down yesterday and yet look there's micron, micron having a really great quarter. micron's total commodity, but credit suisse goes from 30 to 35 on momentum. the momentum is not -- the momentum at micron is not stopped by repeal, replace, repair. it's just not. and we can totally equate aca to everything, but i think we make a very big mistake. i do not like the retailers. some people are saying to me, jim, if sears goes -- well, sears has been a shared donor forever. i don't want them to go. i like how they give a little share every month to home depot. i don't like retail, but i do like tech. i think tech is good. i think people want to sell

tech. making a mistake. i think that industrial's good. i think that industrial got taken down 1.5% yesterday and i see a lot of good happening there too. 3m in particular. >> yeah, big proxy for global growth. >> a dow stock i think can offset -- by the way, the drug stocks. i've been waiting for the drug stocks. i can't tell you how many people in uk told me you know bristol-myers is in play. i keep saying can you tell my by who, and they say why do you even ask that question. i say well i ask because i don't even know who -- [ bell ringing ] wow! >> does that mean we have to leave? >> yes, we're done. holy cow. i thought this was the love connection. i go back in europe and i just keep thinking that you had this ppg deal today where ppg offed axo to bell. how much do people want to be in europe because they think the euro is about to climb as well? ppg if they get that they have a huge market share in aerospace

codings which is a good business. i was surprised they came back so quickly. by the way all i hear is unilever, don't lose sight, kraft heinz out there, out there, out there. >> is there a health care name that you're using as a tell for this bill? >> absolutely. for the bill? >> yeah. >> i think that you want to watch eli lily, why? because vice president pence was -- >> hometown company. >> he was a great defender of eli lily, and the fact it's going up and was very down yesterday is positive sign for that particular group. >> i saw a chart this weekend of health care stocks since obamacare started, seven years tomorrow. >> right. >> and insurers are the leading class. >> and united health. humana, all the ones when they stop doing the merger kind of caught up. by the way, united health down a buck and a half, that's interesting up 166, that company

is killing it. i mean, these companies are going to be winners too. who are the losers in this? i've got to tell you public companies they really kind of with the exception -- i think the hospitals are, but they've not pulled back. i don't want to be in aca, but people want to own it so badly. >> in terms of certain levels, are you more interested in oil at 45? >> yes. >> at the ten-year at 2.3? >> oil and the ten-year are pretty much in control. i had rusty brazille on "mad money" the other day, the spigot turns off at 45. the saudis seem helpless to be able to keep the price up. i think that's a mistake. don't underestimate what the saudis can do. the ten-year is a referendum on trump. and i think that therefore i'd like to believe that interest rates are kind of -- well, we should listen to rick. i want to listen to rick because

rick's been spot on. >> i tweeted a chart courtesy of a buddy which put together trump approval and the ten-year yield. and it's remarkable. >> yeah, they really are the same. i mean, it's incredible. i don't know which is chicken and egg there, but yeah. i think the ten-year, i don't think it goes to 2.2, but if it went to 2.2, you would see the banks have another leg down. >> sure. for the time being dow's down 31. we're watching obviously the action closely this morning. let's get to bob pisani. bob. >> good morning, carl. happy wednesday everybody. modest declines in the market given what happened yesterday. let's take a look at the sectors and a lot of what we've seen recently which is sectors weak for fundamental reasons, banks on the ten-year, energy stocks on weak oil down, retail we know what's going on retail continue to be weak, tech's bouncing back. tough day for tech yesterday, but it moved up here. we were at the highest level since 2000 in the tech etf on monday. utilities also doing a little bit better here. we're in this very strange sort of middle ground now.

i call it a stock's netherworld where the market's down but it's not really oversold yet. we haven't gotten to that area where you can say, oh, yeah, obviously the market should be buying. selling yesterday was heavy 4 billion shares but not panicking. very orderly all throughout the day and most sectors are still in up trends if you look at the longer term charts. that doesn't mean everything is working. we have noted certain etfs have already moved into correction territory largely because of the fundamental issues in their indices. so look s&p 500 only 2% off of its recent highs, but exploration production stocks as oils hit the lowest levels since november down 15%, they're in correction already. metals and mining have been weak. the steel stocks have been weak all month. regional banks because of the move in the ten-year, flattening in the yield curve down 11%. and retail is essentially in correction. we know what's going on there. these sectors again all fundamental issues with their business. right now i guess the question is where do we go from here. there are three things bothering the market. the first one of course is the trump agenda.

con vergex had a great line, is it over, 1.0, everything from november to now on the three points, the movement towards reducing regulations, lower taxes and infrastructure spending. that ended yesterday. can you go to trump 2.0 where you get delayed movement in that trump agenda? that's still out there. and that's why the potential for the market exists. but we also have fundamentals, we talk about oil being weak, concerns about autos with prices dropping a little bit, delinquencies ticking up in the loan business part of that. finally the fed meeting. i keep pointing this out the dollar and ten-year have been weak since the fed meeting and there's a causation there going on. it's a famous thing that runs through the markets, one of these old saws, three steps and a stumble. it's been around a long time. based on the idea every time the fed hikes three times in a row without a decline, the stock market has tended to stumble. this is a very well studied phenomenon. yields tend to drift up over time, although not necessarily immediately. but more importantly the bond

yields curve tends to flatten. that's exactly what we've been seeing. and of course that's why for example the banks have been having a very difficult time of it rekently. speaking of the banks let's take a look. we're not in correction territory here, but we're not that far. so citi group at 62 as i recall at its high that was at the end of february, towards the beginning of march. most of this stuff topped out close to where the president's speech was to congress. if you look at that we're 7%, 8% off of the recent highs for citi group. and most of these other bank stocks, particularly the regional banks are even closer at this point to 10% correction. so not quite there yet but getting close. my sense is as of right now the path of least resistance is still likely down, but a lot depends on this vote in congress if it happens tomorrow and it's positive, i think it's quite likely the markets could bounce. right now the dow down 31 points. carl, back to you. >> bob, thank you very much for that. jim, i wonder what you make of financials lagging, but we got

f.a.n.g. in the green and early. >> yeah, i think tech is way oversold yesterday. i think that bob is so right and yet you get a vote. i mean, look, could it be a tarp situation first vote no, second vote yes, i don't know, i think the ten-year is a false tell. i know everyone's banking on it. i kind of like the banks, but i really like tech because the quarters were so good. it really does matter. we can't conflate what's going on in congress with how well these companies are doing. >> which companies? >> the tech companies. >> the tech companies. >> apple, there's tim cook in china doing fantastic, india's been incredible, the big new phone's coming out. and we're supposed to sell that? on the idea that trump's fighting with congress? >> i mean, you wouldn't disagree that tech has been leveraged to hopes of tax reform, or at least repatriation. >> i think in some cases yes. but i think the f.a.n.g. stocks are -- those are uniquely -- you know, facebook's pulling away.

there's a new story today about alphabet and how it's changing its search, but alphabet is going to a different model much less advertising oriented. netflix i'm not hearing anything but good things in terms of adoptions overseas. talk about amazon, bring it on, i listen to fedex call and we're buying a huge number of planes because we have huge demand and it's amazon. and i think amazon is the winner in every one of these -- amazon by the way winner in border tax too. amazon, geez, tiring after a while. wow. >> let's get to bertha coombs and check in on the nasdaq. >> yesterday the point of pain here on the nasdaq was really technology and health care. and that's where you're seeing a bit of a bid come back this morning talking to one strategist who was saying, you know, in some ways this was a bit of a garden variety pullback. we hadn't seen a pullback or any move in fact of 1% on the nasdaq since early december. take a look at biotechs. that's helping to lead the way back this morning.

and you can sort of argue a bit of a garden variety pullback because biotechs, particularly the large caps, have so far outperformed the market this quarter having one of their best quarters in a while. same is true for apple having its best quarter here after reaching new all-time highs since 2013. apple of course yesterday with that sort of some people are calling it kind of a ho hum refresh of the ipad, not really exciting people when it comes to chips and their suppliers. but chips again this morning are coming back. micron among the best performers in terms of gainers here on the nasdaq this morning with its earnings poised for this afternoon. and finally the airlines as you mentioned with that morgan stanley downgrade are a drag american airlines worst performer in the nasdaq 100 as morgan stanley cuts it to equal weight from overweight worried about the fact that maybe these guys might be tapped out in terms of being able to reduce capacity right now. back to you.

>> ber ttha, we'll talk to you soon, over at the nasdaq. more on the markets following the selloff yesterday including reaction from veteran strategist byron wien and goldman and nike accounting for the losses right now. dow is down 34 points. don't go away. hello, my name is watson. i am helping 8 million taxpayers get the largest refund they deserve. one million people can benefit from precision cancer care. 197 million passengers can fly with less turbulence. i am on my way to working with one billion people. i look forward to working with you.

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look at dow 30, nike taking an outsized chunk. apple and cat leading the charge. jim is doing some work on i think a thesis regarding america first now. >> yes. i think that we have to -- the best way to judge trump are not necessarily what's going on in congress but by what he's got already going, which is deregulation and favoring american companies in order to put people to work, that that's something he uniquely is able to control far more than congress, congress more of a wild card. look at these steel companies j.p. morgan called about letter x that's their favorite u.s. steel. they like ak steel. but the one i really focus on is

newcorps. he was on my plane going to europe. no off the record obviously, but nucor is doing well. they spent a fortune and all they wanted is a fair and level playing field. and trump is giving it to them. now, in fairness to the previous president he had made it very tough for korea to dump some kinds of steel, and china some kinds. but you watch these stocks, these are companies that basically trump has said, you know what, we're not going to let this industry go down the drain. we're going to support it. so, you know, when you look at these and you look at nucor, understand nucor is going to have a big year, big. and it's not in the stock. i feel it's important for people to recognize. there are other ways to judge trump than just looking at health care, looking at banks. look at these america first stocks. they are doing well. i'm telling you to write this guy off after a couple of bad days, comey and very republican -- >> sure. >> a mistake. it's a mistake to write him off because it's going to come back

and bite you. >> how do you fold in what some argue are is a lack of response from coal companies to perspective coal policy? >> well, in the end they got to use coal. you can support coal all you want, but the clients they don't want it. natural gas because it was so warm -- it's 80s in texas. i mean, it's rather incredible -- big coal state. it is incredible how warm it got and natural gas is just way too cheap. so you can't make the company -- it isn't like trump is anti nat gas. he's pro nat gas. he's pro drilling. he's pro pipelines. so in the end coal just got bit by the fact it was a really warm winter. now, the big coal companies csx and norfolk southern, they benefit. they've been doing a little more exporting of coal. but just remember that in the end the utilities determine how much coal is being used, not the steel companies, different kinds of coal. and utilities, they have looked at the nat gas market and just said, geez, this is incredible.

>> yeah. >> csx went up a lot because they felt, you know, we got a new ceo. and i felt that was way overdone. in the end it's still a railroad. it's not like they discovered something -- >> csx really hasn't cracked the 50-day since, you got to go back to july. >> those guys were buying csx they must think it's going to be able to merge with another railroad. i don't think that's in the cards. i really don't. i think that there's -- that industry's done consolidating in a major way. >> dow down 34. pretty steady open. we'll get stop trading with jim in just a moment. ♪ we're drowning in information. where, in all of this, is the stuff that matters? the stakes are so high, your finances, your future.

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time for cramer and stop trading. >> geez, general mills reported a number i was unfortunate yesterday. stifel today comes out and goes buy to hold and does a lot of things talking about sharp disconnect between a sound strategy and the execution. the volume declines are bad, as long as i mention let's not forget kraft heinz is out there. they mention that money, they're ready to go. when you see this, when you see a kellogg, which is not performing that well and you realize, well, if it's execution, kraft heinz is an executer, also an executioner, so let's keep in mind before you start selling general mills you got a nice yield, it's got some

big brands. and i would not just -- you know, kraft heinz is not sitting there saying, wow, they're doing a bad job. i guess if we would do a bad job if we came in, it would be opposite. >> in analyst speak you're saying there's some optionalty? >> yeah. i think selling this one -- they had some very good snack businesses as well. look, a mondelez could be ready to pounce. they're done, restructuring this year. giving up on the ones that have come down a lot is a big mistake in my mind. particularly if you think the ten-year is going to 2.3, i would rather be in big g. >> so howard tonight? >> yeah, i've got political ambitions, ambitions to do the roastery, a lot of people feel issue is technology, kevin johnson, foremost technologist, there he is. and manny, how bad is retail in america? pvh reports almost everything, i believe. maybe even has a worry about sears. sears used to have everything. >> man, a lot of viewers saying

just thinking of childhood memories paging through the catalog at christmas. >> hey, my first suit was a kmart suit. whoa, impressive. it was corduroy. >> i want some photo evidence of that. see you tonight. >> it was a whole strange -- >> it's good to have you back, jim. >> love being back. >> we'll see you tonight. we got all the bases covered on yesterday's selloff and continued step lower today. dow's down 58. our first name has always been 'american'. at at&t, we employ more than 200,000 people with good-paying jobs. connecting consumers and budiness through mobile, internet, and entertainment. at&t invests more into america's economy than any other public company. bringing american's more choices, more freedom,

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in real estate, infrastructure and emerging markets. partner with pgim the global investment management businesses of prudential. ♪ good wednesday morning. welcome back to "squawk on the street." i'm carl quintanilla with kelly evans, mike santoli at the new york stock exchange. david and sara off today. dow's down 71, we're watching fedex and nike, the ten-year back to 2.38 and change, and the president meeting with the house freedom caucus on health care at 11:30. >> our roadmap begins with the trump rally fading. stocks are pairing their early losses after suffering their biggest one-day fall since the

election. >> retail wrecked sears stocks getting hit hard after doubts about ability to stay in business. >> and nike under pressure, outlook weak as well. competition in the strong dollar weighing on that company. >> breaking economic data this morning to start the hour. let's get to diana olick. diana. >> existing home sales down 3.7% to a seasonally adjusted annualized rate of 5.48 million units. that's a miss. the street was looking for 5.55, sales still up 5.4% from a year ago, but we're coming off of that very strong january and retreating a bit. what's the problem? no supply of homes for sale. inventory down 6.4% year over year. that is 21 straight months of declines. and this is the smallest amount of inventory in february on record, that is since the realtors began tracking this in 1999. what's happening? prices go up.

228,400 the median price for an existing home sold in february. that is up 7.7% year over year. the realtors note that is three times the growth of hourly wages. affordability is weakening as demand is strong, days on market it takes an average of 45 days to sell a home in february. that's compared to 59 days a year ago. so, again, very short supply. strong demand, higher prices weakening sales because as you see a lot more people cannot find or afford a home. back to you guys. >> maybe explains that home builder sentiment going up so much, diana, thank you. stocks are coming off the worst trading day of the year though. all three averages falling more than 1% yesterday. this morning we're looking at some losses. the dow's down almost 60, the s&p 3, nasdaq trying to hang onto a gain here. let's bring in chief international economist at deutsche bank here at post nine,

and jeff kleintop chief global strategist at charles schwab. jeff, what do you think about the market not only we have a day like yesterday we haven't seen since the election but sentiment doesn't look so good this morning either. >> right. maybe that's a good thing. we have been in one of the ten longest streaks without a 1% pullback in history, maybe we were due for this. a lot of investors have been sitting on the sidelines waiting for a pullback. this is that opportunity, i think, to buy. this is not the big one. this is not the big 20%, 30%, 50% decline so many investors have been worried about just around the corner for a variety of reasons. this rally i think is still supported by the fact that earnings are headed higher, global economic growth and u.s. economic growth is strengthening, and that should limit the downside. this is a buyable dip though it may not be over yet. >> torsen, let's talk a little bit. there's been this divergence of sentiment data since the election so good, consumer confidence, home builder confidence, ceo confidence, small business confidence, you name it, what about the

fundamentals? >> absolutely. we're still waiting for the hot data or fundamentals as you say play out. we're still in the honeymoon phase. we have to see exactly when we'll get that follow through, but i think the real trigger here is that valuations have been going up. and the main story that has changed recently is that european signals are changing. the ecb is now starting to say maybe we will -- before we end qe and people look at european equities cheaper than u.s. equities. much more european story saying maybe i should value where u.s. equities are to the other options i have. >> tors ten, are we going through wlast become a typical first quarter questioning of the strength of the u.s. expansion? i mean obviously the treasury yields doing what they're doing suggest that people are saying, you know, maybe growth in the first quarter is a little bit more sluggish than we expect. >> absolutely, mike. the issue has been for the last several years we have had a residual seasonality issue. remember in 2009 we had a huge dip down in q-1 that resulted in

a huge hangover of residual seasonality that q-1 for last several years has been weak. we are looking at that issue where we have weak q-1 growth. sending a strong signal we might be exactly onto this risk gdp data could for now be weak but we believe we should look through that. >> jeff, maybe you can prioritize your favorites right now assuming the dip continues, as you said, would you jump back first in europe or first in the u.s.? >> i think first in the u.s. i'd prioritize the u.s., better economic momentum in the u.s., we've seen better breadth here and don't have concerns about what the ecb's going to do or what the real political risk looks like over the remainder of the year. i look to financials pulled back most sharply as yield curve has flattened the most in four or five months. but that's an area we think higher longer term rates will benefit that sector and a good area to buy.

>> jeff, yesterday dick bove told us, about financials, get away, get out. cited a litany of things from slowing loan growth to deregulation he thinks isn't going to happen. so why do you think the financials are going to be an okay bet? >> well, i think loan growth is okay. look, a slowing or accelerating it's doing all right. the key is that these banks are not suffering from the same sort of losses in terms of very low interest rates and very weak short end rate environment that they have for so long. that coming back, volatility coming back and maybe an m&a environment that's a bit more friendly given a more friendly antitrust environment in washington, all that can benefit the banks. but the key is it's not just a u.s. story. it's a global one. the banks tend to move globally. and i think that's a positive story as wooe seeing better growth in europe from a global demand perspective. and that's a positive story. >> torsten, as people try to

decide is this a routine pullback or something deeper to worry about. you do your checks around the world and say the capital markets conditions look okay, but even overnight people are saying, well, short term funding rates in china maybe they've bliped higher, maybe markets are pricing in too much volatility, anything jumps out this should be a risk more focused on? >> forget the politicians for a minute, both in europe and the u.s., and say what is the data actually showing and the organic recovery is actually very well in the u.s. and organic recovery is starting to appear in europe. so i think in europe that is the changing tone of markets. more and more client questions about, hey, well, maybe the changing thing we should be looking at and maybe the trigger for some of these valuation worries in the u.s. could be that the rest of the world, hey, maybe is not that bad and maybe that is basically leading flows away from u.s. equities to equities elsewhere. >> i wonder some have tried to argue that the dutch vote marks some sort of high watermark in nationalism, is that the feeling where you are? i mean, the french debate and the polls with le pen

notwithstanding. >> well, if you look at the bedding odds for le pen coming down more recently. sending a strong signal the whole narrative that you can't believe voting polls, can't believe the polls trump won and brexit happened, maybe it's true we should be looking at debating polls and we should be looking at this expectation that maybe we are back to an environment where we're not going for the black swan in the outlooks. >> one final question, torsten, since you've talked about having green shoots in recovery and strengthen that the european central bank might be moving towards tightening, why are global bond yields all falling? you know, we see the ten-year gone from 2.6% back below 2.4%, if this tide is turning, if there's inflation, if the economies are stronger than what accounts for that? >> i think everyone is waking up to that story. i mean, there's so much set that long u.s. yields should be higher, if european shoppers about to shop less in the u.s. and stay more in their backyard, that would vote for high yields across the board.

hold onto your seats i think in the coming quarters we will see a general lift in yield curve. >> hold onto your seats. all right, torsten slok, jeff kleintop, thank you both for joining us today. watching banks continue their fall this morning after the big hit yesterday. wilfred frost is back at hq with more on that. hey, wilf. >> carl, indeed banks fell significantly with the kbw off 4% worst day since brexit. falling confidence in president trump's ability to enact his agenda has been cited as a big reason. however, the fall in interest rates is a more legitimate explanation for the decline and not just yesterday's fall in yields but also the flattening of the yield curve since the fed hiked rates last week. the spread between the ten-year and the two-year is now at its lowest since election day. this interest rate influence is highlighted in share price reaction too. bank of america, the most interest rate sensitive of the big banks, was the biggest underperformer both yesterday and over the last week nearly down 10% over the last week. and yesterday the interest rate

sensitive regional retail banks underperformed their larger investment banking peers. clearly the rate moves themselves are linked to the possible slipping of the trump legislative agenda, but when it comes to financial deregulation it's important to note that the bank bosses have always been more hopeful of softening regulation relating to changing personnel and tone as opposed to a huge legislative rollback. and that remains very much intact. worth noting also that j.p. morgan increased their quarterly dividend yesterday to 0.5 per share only a 4% increase but comes earlier than expected and links back to what cfo mary ann lake said yesterday that the bank was at an inflection point in terms of capital even without any regulatory change. on that note barclays moments ago upgraded price target on j.p. morgan to $100 per share around 10% upside from current price. today of course as you said though banks continuing their declines. the banks index down about 1%.

carl. >> all right, wilf, we're going to watch that closely. i think b of a at one point yesterday was the biggest s&p loser. >> and goldman, look at the impact that had on the dow. >> yeah, it was one of those give up days when it comes to the very big banks. i think it's very notable that the whole group has underperformed since about december 1st. i mean, it's been the most popular trade to be overweighted down 8% from the high. i think the question now is are they down enough. >> since december 1st. >> basically that's all the outperformance in the first few weeks after the election. >> wow. >> another one when we come back sears another company getting crushed after the company says it has, quote, substantial doubt about its future. the retail sector taking a hit. we'll discuss that. shares of nike down, weak guidance for futures orders. we'll get details and analysis straight ahead on that. the biggest laggard on the dow. back after a break. ♪

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welcome back. sears is getting slammed this morning after releasing its annual report and expressing its doubt in its ability to continue as a going concern courtney reagan has more on this roiling the retail sector again this morning. >> good morning, kelly. fewer consumers are shopping in stores, fewer investors are shopping for retail stocks today. sears holding down sharply after the retailer acknowledging for the first time in annual 10k filing the broader market concerns that the department store can continue operating. sears says, quote, our historical operating results indicate substantial doubt exists related to the company's ability to continue as a going

concern. sears then continues to undergo a number of financial gymnastics with liquidity support from ceo and majority holder eddie lambert and his hedge fund. still, says we cannot predict with certainty the outcome of our actions to generate liquidity including ability of additional debt financing or actions would expect as currently plan. that's to be continued. j. crew shows its total comparable sales are down 11% in the first seven weeks of the year j. crew comp sales dropped 7% last year though it did see losses narrow and even posted a small profit in the holiday quarter versus a loss in the same period the year before. now, the xrt retail etf are under pressure as are shares of nike after disappointing futures orders and disappointing revenue pulling down shares of competitor under armour as well. reports from bloomberg suggesting payless shoe store may file for bankruptcy next

week and women's beauty looking to shutter doors and move online as looking to stem losses. we have a lot of bleeding red in the retail sector today. there's so much going on here, i hope i'm not out of a retail job soon. back to you guys. >> yeah, you know, courtney, it's interesting the whole sears move people are trying to set it up saying this is just an acknowledgment of what we knew. >> right. >> but clearly auditors or somebody inside sears said, look, we actually have to place this on the record because they have been kept afloat in a sense by a lot of these financial maneuvers. >> 100% it's so complicated. if you've looked at what eddie lampert has tried to do, also the biggest debt holder as well as the biggest equity holder. i mean it has been said that in a way it looks like he's rearranging or selling deck chairs on the titanic. we know that he's always valued the hard assets, whether that's the real estate, the brands themselves, which he's been selling off. they spun off that seritage,

that reit. they're doing everything they can i think to extract value, but again, the market has really doubted whether those retail operations will continue. but until now sears hasn't acknowledged that outloud in this way. >> and, court, there's one little angle of this i think is kind of interesting, i wonder if you've seen it yet. all these liquidation sales for jc penney for locations being closed is that putting pressure on the -- >> that's a very good observation for certain. you'll get some consumers frustrated when they go to the liquidation sales hoping to get a deal they can't find the size and style they want because of course as we know when it gets to that point the inventory pickings are a little slimmer. but yes very temporarily it could make the prices look much more competitive if you are around one of those stores that's closing and liquidating that merchandise then those prices would be considerably lower than those off price brands like a t.j. max dprx, ro

sales or marshall's. >> all right, courtney reagan adding to retail. thank you. >> thanks. heading to break, look at nike. down 6% after reporting a sales miss after the market last night helping to drag the market lower today. stocks right now also under pressure. the ten-year yield not giving the stock market much room to bounce. dow down about 78 right now. stay with us. hey gary, what'd you got here? this bad boy is a mobile trading desk so that i can take my trading platform wherever i go. you know that thinkorswim seamlessly syncs across tradall your devices, right?go. oh, so my custom studies will go with me? anywhere you want to go! the market's hot! sync your platform on any device with thinkorswim. on at td ameritrade

nike out with earnings, a decidedly mixed quarter, disappointing on revenue and sales growth but beating on the bottom line. competition obviously weighing on the retailer. mark parker addressed that on the call saying nike will adjust operations to meet customers' changing demands. >> in product, we're doubling our cadence and scale of innovation through performance and sports style. throughout our supply chain we're doubling our speed from product insight to delivery to the consumer. and in the marketplace we're doubling our direct connections with consumers through digital,

membership and personalization. >> stock currently down about 6% or so. we're joined this morning by scott of buckingham research, matt of barclays both here at post nine. good to see both of you. stock went on this nice little tear ahead of the print. i wondered if you were surprised by the results last time out. >> i was a little surprised by the results, specifically the futures result. north american futures down 9%, there's some worry in the near term that indicates nike's revenue growth is getting weaker. at the end of the day though the nike story wasn't really about this quarter. the nike story is about the back half of this year and going into next year and innovation. and the one thing that mark parker said and we just heard it on the call was they're doubling down on innovation. the fears that nike's innovation is over are overstated. they talked about a lot of new shoe models they're coming out and they're doubling that. that i think is the key to the story. and an acceleration of growth into the back half, a weak acceleration. >> is that enough to overcome

adidas and forex and near term promotional environment? >> i look at it that way, the athletic apparel footwear market is about a $50 million market, combined nike and adidas have about 40% market share. to me it's not nike versus adidas, there's still a lot of share to grow. looking at it in a different way, adidas had its best year in north america in at least a generation. it added about $650 million in sales. this year arguably nike's worst year in north america in a generation it averaged about $550 million -- it grew by about $550 million. so it's just on a different playing field. and we think that they can both grow at the same time. >> what about china, matt, is adidas winning there? >> i don't think adidas is winning there. one of the key sports for china and to be successful in china, take market share in china is basketball. the one thing nike said on the last quarter is basketball is back. and we're already seeing signs of an improvement or reacceleration in their basketball business. they talked about the paul

george. they talked about launching a new fly net material. >> an air jordan 11 sneakers, as i understand it, were quite a hit. >> yes, they were. that actually illustrates nike has so many different shoes. they are in a different playing field. they have so many different models. if they have weakness in one shoe, they have a hundred more shoes where they're having strength. so i think a lot of people focus on one thing to try to nitpick nike and that's not what you should do with this story. >> scott, when it comes to this stock it's still kind of retained this multiple, 22 forward earnings, about where it traded in the middle of 2014. couple great years after that but growing 20 and 15 times on the bottom line and that's not really what we're looking at right now. does it have to just kind of kick around in this area and have the earnings growth catch up for a while? >> so on a constant currency basis it's continuing to grow at that rate. they even implied for fy '18 they will continue.

fx has been a much bigger head wind than ever before. on a trading basis this is a one metric stock, north american futures, if they're accelerating, the stock goes up. unfortunately they've decelerated for the last four or five quarters. our view is we're sort of reaching the trough. this was a cleanup quarter. inventory is down 8% in north america. gross margins are up in north america. and matt's point that there's a lot of new products on the come, nike's a paranoid company and that's a good thing, right? they don't want to lose. and i think what they said yesterday on the call really establishes that this could -- or is likely to be a good stock for the next 12 months. >> it's funny. i mean, they have a lot of similarities with apple, formal and informal. but the paranoia and sense of a supercycle, right? and a trouf in between product cycles, would you agree with that? >> yeah. >> we're waiting for the next iphone, except it's a shoe. >> i would 100% agree with that and nike is one company that won't ship inventory into the marketplace just to ship inventory and maintain sales.

they want to keep the brand strong and very careful about the disruption that's occurring in the overall retail industry right now and how that might have an indirect impact on the brand image and the products themselves. >> meaning it's not as cool to buy if you're not in a store? >> not necessarily meaning that. meaning that a lot of physical retailers are closing stores, if nike was originally going to ship inventory toward those stores, that inventory could get redirected to a t.j.maxx off price and then compete with your own product on discount and that's something nike does not want to do. >> why mark parker said direct-to-consumer looking there to navigate through this period and avoid some of the ways those merchandise might get out there in ways they can't control. >> that's right. >> that's right. >> well, obviously hurting the dow a bit today. but it's a fascinating story. thanks, guys, appreciate it. >> thank you. >> when we come back, any hedge funds -- or why hedge funds i should say are surprising supporters of the proposed gop border adjustment tax.

and we're continuing to keep an eye on the markets. the dow's down 65 points. more analysis with ubs director of floor operations arthur cashin himself straight ahead. yes? please repeat the objective. ♪ thrivent mutual funds. managed by humans, not robots. before investing, carefully read and consider fund objectives, risks, charges and expenses in the prospectus at thriventfunds.com. ( ♪ ) upstate new york is a good place to pursue your dreams. at vicarious visions, i get to be creative, work with awesome people, and we get to make great games. ( ♪ ) what i like about the area, feels like everybody knows each other. and i can go to my local coffee shop and they know who i am. it's really cool.

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good morning everybody. i'm sue herera. here's your cnbc news update at this hour. we start out with a senate committee holding a hearing on the nomination of alex acosta to be the labor secretary. he is facing questions about how he would backup american workers because his record provides few clues. >> it was crystal clear that every member of this committee wants americans to find jobs, good jobs, safe jobs. even if you don't all agree on the how. i share this school with you, we may not always agree on the how, but at least let us begin by agreeing on the need. >> the south korean military says north korea launched several missiles today but that the test ended in failure.

it didn't elaborate only to say that the type of missiles were unknown. now, earlier this month north korea fired four ballistic missiles into the sea of japan. more than 19,000 polaris all terrain vehicles are being recalled following reports of more than 45 fires. the recall involves 2015 and 2016 sportsman 850 and 1000 model atvs. they were sold nationwide from may 2014 through this month. that's the news update this hour. i'll send it back downtown. kelly, back to you. thank you, sue. these markets are continuing their selloff after suffering their worst day of the year yesterday. the dow's down 70 points right now and we're joined by ubs director of floor operations arthur cashin. good morning. >> good morning. >> yesterday you said people need to focus on what ally bank had to say about what's happening with auto loans. that clearly reverberated why does it matter to the whole market as we continue to look at why this selloff is happening? >> well, it's not quite the mortgage crisis all over again, but it is a very, very large

chunk of somewhat suspect paper we're beginning to see delinquencies build. you're all too young, but when i was starting to drive, car loans were all about three years. and then as the recession came along and wages started to stagnate, they decided to let people buy cars by stretching the loans out so you would still have to repay the $5,000 or whatever. but you do it in many more smaller payments. so now we have auto loans out seven, eight years in some cases. that's a lot of money. and you have regional banks that have pockets of them, you have a variety of people. so when that came out, i know a lot of people were pointing to the political situation, which was a factor, but the ally bank comments reverberated through that market and you got the regional banks, you got the stocks like auto nation got hit.

so you could see it was that story going around. >> you know, art, you get a 1% down day after not having one for so long and people start noticing the stuff within the market that's actually been pulling back for a while. obviously that's the case with the banks, you know, with the steel stocks or a lot of the stuff that was sort of the favorites going in, transports and everything else. where does that leave you right now in terms of saying, well, look, we've actually done a lot of the work of a pullback without the s&p getting much damage, or does the rest of it have to come back to reflect that? >> well, i think the case is still open. one of the caution signals that was up before the pullback was the fact that the small caps were beginning to diverge negatively. and the problem there was if you take this as a kind of trump agenda, one of the fears had been he might purposely or accidentally get too into a trade war, where do you want to be with the multinationals. so the favorite group was the small caps. and when they started to diverge

negatively, by the way they're now down on the year. >> yeah. >> the small caps in general. so that's going to bear watching. that doesn't make it sound like it was a quick one-off. under further weakness we'll watch the s&p theoretical support 2330 to 2335, i think. >> we've been asking, i asked jim this morning the most interesting level for you, is it some sort of equity mark? is it a ten-year at 2 something? is it oil at 40 something? >> yeah, oil. >> really? >> you picked up a couple of pennies because we rolled the contract, but if oil breaks below 47 clearly, we may not have enough bandages and stretchers to go around. >> you think we're picking up pennies in front of a bulldozer there? >> yeah. bulldozer seems to be speeding up too. >> is that another area that could have market impact? the interesting thing about some of these things talk about the bank -- stuff is happening with the car stuff doesn't look so good, the oil, but you could

also argue they're their own contained type of things. you mentioned the politics did have an impact yesterday. what about that is just a top level concern going forward? >> well, you got a couple things going on. they said they were going to have a vote on thursday. we'll see if that happens. the president has gotten more deeply involved. he's been up to the hill several times. he's been campaigning for this bill. now, if he had not done that and the bill got blown up, he could or somebody could point fingers at ryan and say, oh, you had a bad count, what did you do. but now he's pretty deeply invested in this. so we're going to watch to see do they postpone the vote tomorrow? that will be one signal to the market. do they go ahead with it? can they pull it off? what they want to do is just -- this is not going to be the final bill by any means. but they want to keep the concept of the bill alive and moving. if they get it through, the market may rejoice somewhat just on the idea that things are moving. that's the market's great

concern that if we get backed up or, you know, blockaded, that's going to be a problem. >> so moving even if it's an 18-story instead of a '17 story? >> yeah, it is a way to see that things are -- what did we learn? we've seen the president go out of his way to underscore all the promises he made. so the first thing the market said was looks like he wants to be good for his word. we know what his word was, that's where he's going, can he illicit the cooperation he needs? that's the question on the table now. >> arthur, thank you for stopping by this morning. art cashin here at post nine. >> speaking of oil, we're getting some eia inventory numbers. jackie's got that for us. >> good morning to you, carl. take a look at the intraday chart when it comes to crude oil. really fell off a cliff when this number came out at 10:30. department of energy reporting an inventory build in crude of nearly 5 million barrels, that was higher than what we got from the epi at 4.5 last night and

higher than platte's expectations of 2 million barrels. this is part of the oil story we've been seeing week after week, nine weeks in a row rig counts are going up, looking at u.s. production in this report also well over 5.9 million barrels a day. may contract now trading at 47.42. back to you. >> jackie, thank you very much. when we come back, the border tax debate continues to heat up. one group that's on board, hedge funds. we're going to explain why. meanwhile, shares of fedex, company misses on estimates saying it handles fewer packages than expected during the holidays. revenue roughly in line with forecast and it's good for almost 2%. back in a minute.

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most of the retail sector. one surprising supporter, hedge funds. our leslie picker is with us to tell us. count me among the surprised. >> that's right. meant to help bowings and ge, big companies, but hedge funds could save tens of billions as well. imports likely to be exempt and a large number of hedge funds are organized abroad in such places lie cayman islands or bermuda, but most investment professionals live in the u.s. for tax purposes the investment professionals could export their service of managing a portfolio to the foreign fund and if the border tax is enacted, could see go from 45% to zero. that's a big if. we still don't know what the specific rules of the border tax will look like or if one will be passed at all.

lawmakers could also find a way to carve out the benefits that hedge funds receive, but tax experts i spoke with said that would be incredibly difficult to do. for one, they could pass what's called a lookthrough test where the government audits foreign funds to determine which lps are american versus foreign. funds with higher proportion of foreign lps would receive the benefit while those with primarily u.s. based lps would not. they could also eliminate benefits for services altogether. but tax experts say that's easier said than done. for example, exporting software is that a product or a service? either way we could see hedge funds currently organized in the u.s., reorganize abroad to take advantage of the border tax once it's passed, guys. >> that's a fascinating wrinkle right there, right? part of the intent of the border adjustment tax is to take away that incentive. >> uh-huh. >> to put production overseas. >> exactly. you don't think of hedge funds services when it comes to exports but become an incredibly big part of our export economy

and the challenge is that fine line. where do you draw the line between what is a service and what is a product? how do you prevent benefits going towards hedge fund managers if that's your intent? it's difficult to do. >> is there a coordinated industry effort to lobby on this the way the retailers are doing? >> not coordinated and definitely not public. because of the headlines you would see as a result. hedge fund managers don't want to be known as guys evading taxes even if that is their intent. it's something they could quietly benefit from if the rules are created in that way. >> why don't we all just set up -- you know, cnbc, we're going to export our services to some cayman thing and now we get the tax benefit. i mean, the services are so fungible. if they allow this to happen, everybody would be lining up. if you could take a tax rate from 45% to zero. >> that's the thing. even the look through test which most tax experts say would be the government's best chance at avoiding this big windfall for hedge funds, even that say you're a u.s. lp in a fund, you could set up a foreign

subsidiary and invest through the hedge fund that way and just have this whole pyramid of foreign subsidiaries that are investing so the gp of the fund receives the benefits. the complications that arise from this thing are tremendous. >> it's a good reminder of that too especially because the trump administration when they talk about the trade deficit they've often only spoken about the goods deficit. they want to kind of consider services this thing off to the side. >> yeah. this wouldn't be a small -- there's no way people are going to let something that they can take advantage of in this way just go, you know, without -- >> if we do start a cayman thing, i'm manny -- >> get the mail at the mailbox. >> especially in these months, the winter months. >> leslie, great stuff. let's head to the cme group. rick santelli joins us with "the santelli exchange". >> thank you, good morning, kelly. i'd like to welcome my very special guest, lacy hunt. lacy, thanks for taking the time. >> my pleasure. >> listen, in your most recent writing, and it's a topic near and dear to my heart and of course it's about debt.

but your debt-to-gdp level is a bit higher than many including the fed. you have it at 370% of gdp on total debt. can you explain how you arrived at that percentage? >> well, i include the government sector, the state and local, the business sector, the household sector, i also include the foreign debt because a lot of foreign operations finance activities that tangent sially impact the u.s. economy. while some people would exclude the bank debt, again, there's heavy foreign lending overseas. and so i look at the broadest debt levels that we have. however, even my 370% is really not an adequate figure because this does not include off balance sheet items such as leases which need to be included and will be very shortly. and it of course does not include the unfunded liabilities of the pension plans in the

private sector and government sector. we have a very overindebted economy and it's cutting heavily into our growth rate. >> all right. lacy, as far as solutions, one thing you point to there's a lot of reasons the fed should raise rates to normalize, but you say that that is one of the problems. explain. >> i think federal reserve policy is biting very hard, much harder than is generally understood. the fed is tightening into a deteriorating economic situation. the nominal gdp growth rate, which is our best measured series, last year was the lowest rate of growth since the recession. only 2.9%. the economy is weakening further here in early 2017. and as a result of the federal reserve actions we're seeing a outright contraction in the reserve aggregates as well as a rise in the short term rates. that's beginning to cut into the demand for credit. we've actually seen a decline in

bank lending over the last three months. and it's across all major categories of bank loans, the commercial and industrial, the commercial real estate, consumer loans are still rising but at a much slower pace. the money supply growth also is slowing very dramatically from about a 7% rate of growth last year to about 5.25% over the last three and six months. these are -- this is a very risky policy. and we have to keep in mind that late stage tightenings by the federal reserve, and this is a very late stage expansion with exhausted pent up demand, have never worked well. and i'm afraid that the fed is on a very -- walking a very serious tight rope, monetary policy is too restrictive for reasonable economic growth. >> well, lacy, we're going to have to leave it there. you certainly opened a variety of issues that should be contemplated, even though many

of us believe the fed should normalize. the exit isn't going to be pretty, potentially. thanks, lacy. mike santoli, back to you. >> all right, rick santelli, thank very much. let's head to jon fortt with a look at what's coming up on "squawk alley." hi, jon. >> good morning, mike. adobe ceo going to join us from adobe's summit conference to talk about their new push, further push into the enterprise with the cloud. also tom mcclellan is going to talk to us about what's going on with apple, markets overall and timing. and finally byron wien frrks u from blackstone. also that coming up on "squawk alley."

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with the health care debate raging in congress and the president's tax reform agenda slowing, markets seem to be doubting the promise of a pro growth agenda. joining us this morning, samir seman is wells fargo's global strategist and we have ariel investments' vice chairman. good to have you both with us. charles, there's policy expectations, we're in the midst of this fed track, earnings, you've got geopolitics, you've got comcomey.

how much is riding just on capitol hill right now? >> a lot of run in particular sectors was obviously very tied to washington, and usually, people overestimate the impact of washington, but this time i think it's fair to say. the area i've spent a lot of time recently on is bank stocks, because they are such a big part of the value indexes. and clearly, bank stocks were very cheap in june of last year. the regional bank index was 1.2 times tangible book. it got to fair value the day after the election, and then it ran all the way through fair value to overvalue. now we're coming back to earth a little bit. >> all right, so you're not unnerved by yesterday's sell-off? you imagine there's more to go? >> yeah. actually, in certain sectors -- you've got to look sector by sector -- but again, bank stocks were overpriced. on a scale of 1 to 8, regional stocks got to 10 1/2 where it's a bubble. we moved back down to 7, 7 1/2, but regional bank stocks are still too expensive. >> samir, what about you as we look around this market?

there are pleasant of of people looking for a bullback, we're starting to get one mow. what opportunities does that create? >> we agree it's secular-specific, but i think it's consumer discretionary. the u.s. economy is very much geared towards the consumer. that should continue to do well. it's taken a back seat so some of the cyclical sectors. looking at health care, that's had a tough time, obviously, with the aca repeal and uncertainty around that. it's thrown some babies out with the bath water. we like industries, high-quality, global industries will continue to benefit, whether we get fiscal spending or not, even though expectations have come up a little bit. and financials, we think they'll do well with less regulation, maybe a few more rate hikes from the fed, but they maybe are a little bit expensive here. >> sameer, you mentioned that some of the sectors look expensive here because we maybe front-loaded some of the growth expectations. right now, i think relatively quickly, the prospects for two more fed rate hikes for the remainder of the year has fallen below a 50/50 proposition.

we were looking for maybe four going into the fed meeting. do we have to re-evaluate the run rate of growth in general for the economy right now? >> we were never in the camp of getting three or four rate hikes this year. we've maintained that two rate hikes is appropriate for the economy this year based on where growth should come in, inflation should come in, and the fed has carefully carried this economy to get it to the point we're at now. they're not going to throw it away by being too aggressive, so we think they'll err on the side of caution. >> charlie, that's not where the market is. are we going to be forced to get there? >> well, i think we'll have an increase in rates. we talk about this every time i come on the show, and it doesn't to me matter in the long run that much whether it's two more or three more this year. interest rates right now, the fed funds rate is negative 1% on a real basis, 2% inflation, 1% fed fund rate. that cannot last longer term. so, short-term rates are going to go up, whether it's twice or three times doesn't matter long term. we're going to get higher rates over the next few years.

>> sameer, any idea, i mean, we're still waiting for some headlines on the health care bill. the president's meeting with the freedom caucus in about half an hour. how much is spring-loaded, if for whatever reason, they say we're definitely having the vote or we get some initial signals that the votes, in fact, are there? >> i think it's hinging on not just health care itself, but what does this mean for the president's growth agenda and for, you know, kind of the political capital that he possesses. i think if it were to get past where health care does get done, then clearly, he's got some momentum going into the second half as we look towards things like tax reform. if health care fizzles out, then we've got a lot more issues looking towards midterms next year. >> does the market care if tax reform happens this year or next year or do they just want some progress, not perfection? >> i think the market definitely cares whether tax reform gets done, and i think the sooner the better. now, if it gets pushed out and

we get it next year as opposed to this year, maybe it's only mild disappointment. but if it were to get completely shelled, i think there are some expectations built in, especially on the small cap equity side, absolutely. >> charlie, i don't mean to keep going back to this, but this prospect sameer's raised, we don't get a couple rate hikes this year, feels significant. and i wonder if, you know, we've seen yields dropping now, even though inflation's picking up and even though sentiment in some of the growth data has been better. so you know, could we get into a situation where the rate hikes are just the general upward path in rates you're describing over the next couple of years really doesn't come to bear? >> yeah, i don't mind coming back to this because i think this is a critical issue. the interest rates are the force of gravity that brings future earnings back to the present. and so, it really does matter. but what you have to understand is that we are still at historically low rates. the average 10-year rate over the last 200 years has been closer to 4%. we've gone from 1.6 to 2.6 in

less than a year. that's a big move, and yes, we've given a little bit of that back, but still the trend is back towards normal, back to regressing to the mean, which is a level more like 4%. it's going to happen, maybe not this week, maybe not this quarter, but longer term, it's going to happen. >> sameer, you know, the core issue for investors, whether it maybe came through policy or faster growth, is what can we expect out of earnings this year, right? are we going to have this typical kind of reduction in forecast earnings that you see over the course of a year, in which case the market looks that much more expensive? so, where do you think we're coming in relative to the s&p consensus over the next few quarters? >> you know, it probably is a little bit high, so, we're at 1.27 on earnings for the s&p, which is probably just a little bit where the street is. so, again, could there be some lowering of expectations? we think so, but nothing drastic. and the fair value we've placed on it based on that number is around 23.30. we're a little above that. so, we would say some

expectations are built in from a policy standpoint, but on the large cap side, they're not as great as in some of the other sectors and market caps. >> sameer, we've been polling just about everybody we know, looking at various levels in various asset classes, whether that's oil in the mid-40s, whether it's a ten-year at 2.4, whether it's some level on the s&p. do you have a number that's more important to you than others? >> i would say, you know, oil is probably one to watch, especially if it were to break below let's say $40, and we had some concerns from a credit standpoint. that's been an area of the markets that has been very well-behaved, and we think that's actually underpinned some of the equity in risk rally. so if oil went below $40, i think some of those concerns may come back. that's not a high probability, it's not our base case, but something i'd be watching. >> there's been discussion about producers here not being willing to let it fall -- i think there's some sort of bedrock in the mid-40s because of our ability to handle the cost of production. would you be surprised to see it

happen? >> you know, i would be, just because, you know, producers have shown a pretty good knack and ability to kind of tweak production as time goes on. so, one of the things that i'll be watching for is this decline has happened fairly recently. if counts were to start slowing in the coming weeks, i think you would see that supply response, and tell me, okay, they really are trying to keep it above $40. >> sameer, thank you for that. we're going to turn to wilfred frost on accounts of gunfire outside parliament in the uk. >> carl, thanks very much for this. the metropolitan police have confirmed in a tweet that they're treating this incident in the uk outside parliament as a firearm incident. it comes after reuters reported that two people have been shot near parliament. other news that we're seeing from this is that parliamentary activity has been suspended. reuters and sky news are reporting sounds, or bangs that

sound like gunshots fired in the region and that there were large crowds of people running away from parliament initially. westminster bridge, which attaches just to where big ben at the top of parliament has been closed and an air ambulance has just landed, as you can see in that picture, on parliament square. parliament square just in front of the houses of parliament and just to the corner of where westminster bridge connects with the north side of the thames river. sky news also reported that they believed, although could not confirm, that the prime minister's motorcade had left the area at high speed. no confirmation whether that was indeed the prime minister's motorcade. and this is an ongoing story. we, of course, are continuing to try and confirm further details. reuters, as you can see, confirming that shots have been fired outside the area. we're not sure how many people injured, but that air ambulance has landed just moemments ago

outside of parliament, carl. >> wilf, we'll look for you to keep us honest on details. this is just breaking in the past few minutes. wilfred frost back at hq. if you're just joining us, welcome to "squawk alley," carl quintanilla with jon fortt, kelly evans at post 9. watching the markets, which have been in the red most of the day, actually closer to session highs right now, down 35. a lot's on the agenda -- trump's tax policies, china, oil and health care, all weighing on sentiment as we see another down day for stocks. weighing in on those cracks in the so-called teflon rally is byron wien. byron, good to have you back. welcome. >> it's good to be here. >> i guess let's just take your temperature at large regarding anything you think is most important right now. we're going to watch details out of the uk, so forgive me if i have to interrupt. >> sure. >> but is the locust of activity in your view, on capitol hill? >> well, my view is that the market was due for a correction. the market