bond, that would be competition for eck tquities. >> we are half way of normalization if we think of it. >> 2.7% or a triple b five year of paper is extremely interested >> kevin is our guest host today, he'll be with us tomorrow >> make sure you join is tomorrow with mr. wonderful. "squawk on the street" begins right now. this is cnbc's breaking news, market sell off. >> good morning, i am carl quintanilla and david faber and cramer is on his way back from the super bowl where his eagles are finally champions. off session lows and 5% pull back from all time highs nikkei dropped 2.5 and the 10-yr

got us high as 88 this morning our global map futures falling sharply picking off where friday drop off. >> we have broadcom raising that bit for qualcomm it would be the largest technology deal if it got done it is best and final and it is worth more than $121 billion in cash and stocks. shares of wells fargo sinks. stocks are on track to extend the sell off on friday if the dow falls 235 points today, that would constitute a 5% pull back on its all time high on january 26th might we know how long it has been since we gotten that 5. >> it is been the story. it is how long the streaks have been last week we got rid of two of them which is more than 60 bases point tcp fr drop of the day. it emblems of how extended the market was and everyone i think,

a week ago were saying it was overdue. markets are over heated so this is how it looks and when ever that happens, you can grab at the headlines for why it could go further and i think just looking at the dow open makes a lot of sense they always say markets don't bottom on a friday you have to figure they're going the test the big question is is there anything not get lose along the way. yields are going up and stocks are going down need to reduce risks across the board. you want top see these signs of mechanical of for selling. i am not going to say that it happens but that's where we are at >> the biggest picture goes back to wage and higher rates and not to mention the normal deficit

this year that has to be financed by the finance. higher aids go together with a positive market. we have seen it before how does that shake out when we look at historic norms >> we have seen it before, that was the way it was before the financial crisis i think the adjustment back to that world for stocks at these evaluations are not going to be smooth i think you can say rates are going up for the right reasons and higher growth and all that stuff works. >> unless you are a greece fan and you think that bubble stocks we have yellen says it is a source of some concern that is asset evaluations are so high. but, we never heard her say that while under her term powell starts today by the way >> i think that's been the kind of central bank for a while.

it is not our job to restrain the markets going up we just want to make sure the damage is not so bad on the way down so, yeah, powell's starting today. you have to throw that into the mix of what's, you know, why it was not a good excuse to have this pull back happens now just because you don't know. >> for more on the sell off. lets bring in ed yardeni, thank you for joining us this morning. >> thank you very much >> you have been constructive on what earnings have been doing, are you of the mind as this is reasonable >> well, i think the sell-off. it makes sense of a bit of a hindsight, clearly the margin was going straight up in a multiple fashion i have been arguing that this particular month is unusual of earnings we monitor what analysts are

thinking of earnings every single week. since the tax cut, s&p 500 earnings expectations increased by $9 a share. that's a big, big number >> and that's where the company, ubs have done some nice work c consensus are going faster than those companies not. >> that's right. we'll get the first quarter in april, i think there is still plenty of room for good use and the next earnings season and not just this one. look, the other thing we want to trade closely as analyst expectations for rev lenue we a flabbergasted, what are the tax cuts of corporate earnings have to do with revenues?

the global economy is doing extremely well >> dollars been pretty weak. >> yes >> you see a little bit of help on the top line there. i wonder if that's a big part of it when you look at how the market tried to price in the good news of earnings. markets was up 8% at some point, that's what about earnings went up to the highs. i guess how much of a mix match there is if there is any at all between what stocks are sitting at now and what this their's earnings look like >> we can be reevaluating things pretty quickly here tomorrow morning. i mean the markets are down 3.9% from its record. that's really nothing. 5% decline in terms of the s&p 500 today pans out, that's not

even -- not even a correction. once we had the 10% that's something to be concerned about. since the beginning of the market, counting of all these corrections and panic attack, this may as one make it 60 one of these days the panic attack will be the beginning of a bare market but i don't think it is. >> we were talking about reasons for this whether it is the wage number on friday >> yep >> yields to a lesser degree i guess you might argue the continued drama we have regarding the funding of the government what do you think is the culprit so far >> i think you are right, i pick number one, i think you gave me only two doors i think it is the wage number came out with employment of 2.9% on a year to year basis, that's the highest since june of 2009 why should the markets be upset

about that in wo, workers are mg more by the way, average out earnings for production and supervise ari workers have been meandering throughout the year. maybe they got salary increases in january, i don't see upward pressure in here in wages of these numbers. >> i guess the other question is when it comes to yields right now. they're calming downright now. >> right >> the markets looking like it is going down even with yield not necessarily continue to upside i do think if there is a relationship, it is not a fixed one between stock evaluations and where bond yields are, you have a smaller cushion right now from rates for stock evaluations then you had in the cycle. it does not mean you never had a

much smaller one is that something that explains a little bit of the static in the market of the last week. >> well, again, we all know a period of time here to come up with earth shaking conclusions lets not forget that earnings are coming in a lot stronger thanks to the tax cuts, there is $2 trillion of cash coming back from over seas as a result of the lower tax rate and repeated earnings and i have been listening to these conference calls, they're giddy with excitement of all the money they have and what they're going to spend it on. some are prepaying their pension liabilities and others are investing more and already announced paying off more to labor. so, i think there is a lot of moving parts here. i see a lot of them continue to sustain the bull market. >> speaking of moving parts, what explains some of the action that we saw over night other

than natural follow through the u.s. nikkei down 2.5. the nasdaq is on a 7% pull back. >> well, that's some what worrisome. the global economy is looking awfully good the stock markets are becoming totally integrated perhaps the reason the german markets down, their bond yield is soaring all the way to 6.7, i don't have it on my screen this morning. only a few days ago, 0.55. so it may be that over in europe, they're starting to realize that the ecb is going to sprinkle a lot of fairy dust janet yellen left on friday, i

apprecia call her the fairy dust of the market >> this notion that the market like to test new test shares what is your opinion on ka casusation there >> i think it is more correlation. in 87 green span came in august and by october, the markets went into a free fall he did make a rookie mistake within a couple of weeks start th if we are going to have any trouble here, it may be '87 again. it was one day bare market and

beginning of a great bull market >> yes, we appreciate the insight on this early monday morning. thanks, talk to you again soon, ed yardeni >> i got a lot more as we count down to the opening bell more "squawk on the street" continues from post 9 at the nyc when we return

selling follalling through here we'll get the opening bell in just about 15 minutes on a busy monday >> all right, i want to get to corporate news, of course, this morning. it is a big race that broadcom has brought to the table for qualcomm their best and final offer released this morning about 7:00 a.m. eastern time it is $82 a share. the increase is all in broadc broadcom's stocks. they go from 60 cash to 10 stocks to $22 worth of stock any way you measure in terms of at least premiums over the unaffected stock price and of the percentage increase that we are seeing today it is big. will it be enough to actually get qualcomm shareholders to pressure qualcomm management to sit down the table that remains unanswered and unlikely in fact, if you look,

you will see a filing even out this morning indicates on february 2nd, and i am told in days since then and there is not many they have tried to engage, that's the broadcom side with qualcomm advisers on their new revised proposal and have been met with potentially silence broadcom's stock is up and qualcomm's stock is down hoch tan is saying i am walking away because my stock prices have been crushed and they sort of see it in that light as an easy way to put all these conditions in a deal that essentially will lead him to not have to do it and there ever be able to say well, we tried don't be fooled, they're going to the vote on march 6th here. there is no doubt about that they will and do want qualcomm shareholders to have the

opportunity to use the vote on the slate of the director that's up of the $82 share offer. there are components of this offer that we know a bit more but not perhaps not as much if qualcomm actually engage in negotiations what they're going to do to sway concerns of antitrust risks. in the press release this morning, the company indicates a willingness of a large break free they don't put down what the number is. i am told -- i am told that in fact that number we can talk about this later, guys i am told that number could approach $10 billion the decision not actually put in in the release and not allow qualcomm shareholders to know what it is is designed in part to get qualcomm to come to the table. well, if they ask the question, we'll answer it.

they're not doing so in papers will they tell snus we'll have to wait and see there is a lot of debate whether going with a higher held water, the decision was made by broadcom and its advisers that would put the company in limbo too much that would require too much and while they went back and forth on it. they decided not to follow through with actually a heller water revision we'll have to wait and see as well they put in another condition of the offer being they buy nxp at 110 or not buy it at all. if qualcomm does want to succeed in buying nxp, they'll have to pay the 110 current price that it contracts to pay for the company. we'll see today if we'll pay 132 or whatever the number may be. that would be a reason for

broadcom to say we are walking though, it does remain unclear whether they would go to the vote there is this intention to go to a vote regardless of whether or not qualcomm engages them. yes, they're trying to apply maximum pressure to get qualcomm shareholders to say to management just talk to them and see what you can work on antitrust if anything athat's amendable to you my expectation on what i am hearing that's not going to happen they're not going to engage. iss can play an important role and this may play to their favor. antitrust is a key risk. >> are they not, qualcomm shareholders that's making that case to management saying please get there in take. >> hock tan is going to be meeting with shareholders today.

the man who runs broadcom and qualcomm shareholders. he's certainly going to be making that case it is an interesting choice and not to put in writing of the reverse break fee would be it is an important component of this even if it is 10 or $11 billion, a bigger number than we have seen, it would not be -- for what qualcomm would look like at the end of that. it is still not enough to actually really give them what they need in terms of wanting to do the deal. >> well, a lot of moving parts on this one. >> yeah, there is quite a few. >> we'll follow up on that we'll talk to our cashin as we count down to the opening bell take a look at our markets today as "squawk on the street" comes back on the nyc in a minute. [ click, keyboard clacking ]

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we got less than seven minutes until we get to the opening bell rates maybe going up or markets going down give me your take here of the last week of action. >> friday was intense in the sense that there was a fire boycott. the release of the republican memo had people wondering do i want to buy into a washington weekend with possible resignations or maybe a constitutional crisis.

so there was a shunning which is why you are down 600 points in just about a billion share which is no great shape. that may temper a little bit today while things are not crystal clear in washington yet. i think the focus is going to begin to shift into the debt ceiling and a variety of other things so we'll look at that from a trader's standpoint you would like to see the pull back continue maybe come down and the s&p 500 to the moving average. there is other support levels under 2700 if you find some mark lined in the sand it will be a rough opening and we'll go through the morning and maybe they can continue >> some irony, people keep on pointing to the bond market as the culprit of this.

the last two days, it has not been doing anything. the yield is steady. if the stock markets caught up in its trading dynamic and a shot in january, now, we are calling that tactical thing, do we have a wash out, is there a low risk entry point here for traders. >> clearly the market is over board as you said again and again on-air it looks like we are getting one. i would also tell you there is some doubt around about the efficacy of the central banks. the boj stepped in and okay, that's enough. when they move back, rates moved again. we'll see where that comes up again. in the short run, i would put my hope in finding some technical support and if you begin to get a bounce, well, a lot of those

people who were too skeptical may come rushing in. i don't know if it will turn into a spiking reversal but i think it can get a quick term. >> have we manage to put washington aside for debt or no? >> no, it is going to stay there again and the debate for debt ceiling whether they issue the democratic memo now or where you go so that issue is still not clear. you know the president proclaims that this exonerates him and it does not quite do that there is no sign of collusion but they're going to debate this and keep debating anyway >> what kind of tone does powell need to set in his early days? >> i think he's got to look like i am in control and we don't need to change our plans that was a little bit of the worry in what was going on of that wage number had people say, wait a minute, not so much the fed but maybe fiscal stimulus and the tax cut or whatever

coming at a time where we are down to fully employ, there is going to be some drastic move. where it force powell despite of what he prefers to do to step in quickly or perhaps -- >> we have been talking about late cycle stimulus since the legislation looked feasible. >> certainly a number that fits in with that i would not say it is a hair trigger but it was a response they got up until then, this was all and until now you kind of trigger the movement here. >> i was going to say, yeah, that one fear, this could force powell's hand and the feds have to move faster even if it does not happen, you wonder if the markets themselves are going to say well, they'll be late. in other words, if the feds stays calm and slow, you wonder if the markets will be okay with that >> you think the bond vigilante?

>> well, you don't know if the point is going to follow through. >> will that start to have an impact or is it at least a threat >> it is a threat. it is a threat being talked about on the trading floors that again if you are coming in and you need more money with one key buyer not in there playing and maybe not a lot of help from the bank of japan and others that rates, yields may move up on their own. we'll be watching it carefully >> the whole thing sort of sets up of a little bit of what could be good for the real economy the market may not if these evaluations will be okay for a while. >> too much sugar, that's what they are worried just enough as tasty and a little too much and brings some hardship >> earning estimates have been

solid. interestingly, the chart on earnings as gouyou go into a quarter goes down. it is not happening this time. that's because you are getting projection based on the fishe beneficiaries of some of the tax reform they actually looked pretty good what the markets are watching is what kind of outlook are they getting and chiming in not only this quarter is good but we expect for it to continue. >> eventually, you may be want to see the markets getting down to some critical level sometimes of a risk where you get a premature balance and you don't allow the market to flush down, is it more welcome than 10 at the upside in the opening >> i think so, the washington's situation put into factor have not been clarified >> lets get to the opening bell here and get the s&p 500 at the bottom of the screen at the big

board of a provider of hydraulic fracturing [ applause ] keep your eyes on various sectors. it is a heavy earnings week with media names, chipotle and consumer and michael kors. we'll look for some different sector including utilities helping us understand the behavior >> utilities look like they have a little bit of relief yielding more than 3% right now so maybe that's a little bit of a balance there. you mentioned bristol-meyes.

i did notice the gm and ford last week. they were straight down. you just wonder if people worry about rates or housing >> right now ford is flatten down and everything. >> dow needed 235 points down to hit 5% we got that. for the s&p 500, you need about 33 points, not quite there nasdaq needs 109 >> i think you will see that on the close and compares it to the past >> certainly worth discussing of wells fargo down 9% this morning after this extraordinary move by the federal reserve and last move under the reign of janet yellen to reign in and a portion of a certain extend of the future ca fiasco that took place of that bank of many years in terms of

fake accounts and putting that blame at the feet of the board of director and changing that board and holding them of an asset level that's no higher than they ended last year with as respect of any number of analysts weighing in and talking about the caps and manageable for the company. it is a two-quarter average, the time line for resolution is clear and tight at least, say those that would be bullish on the stock at this point. the signals are that wells fargo kind of remediated pretty quickly but that caps growth >> morgan stanley, while the fed issued -- we are hindering operating leverage and some of the broader dynamics are working in favor >> what was the sudden last straw at the last minute that forced this? >> yeah, you had this period where you were not getting fresh

revelation it was mostly out there and yet, it does seem like a little bit of a belated punitive move and the stock. it just made the inverted v. it was really on fire from november and straight up into sort of ahm mid-60s and gave up two month's worth of gains over night. >> as you point out, how much do they have to and will they need to cut expenses in order to stay profitable or more or less of profitability given they cannot grow their asset number at this point at least some time you got a bunch of analyst trying to figure out what the downside earnings maybe. below that, what's the appropriate multiples and the market is making its decision. >> the next step, of course, maybe some of the same analysts, who's in that beneficiary here, is it the u.s. bank corp. or they got a lot of over lapping territories or if they decide to do some asset sales or something

else >> likely to become a source of fund for those who can trade into jp name or another name for better growth prospect >> intel and vizer and coke. >> ba at the bottom of the list today on the dow is curious. >> yeah. i think that's a matter of just exactly how much air you have under that style it went up every single day and aggressive evaluation right now. i think you talk about an easy profit taking choice to trim back on. that would be my guess as to wh it is happening. >> we'll watch it all closely, the new era begins today at the federal reserve as jerome powell suck seeceeds as fed chair steve liesman is with us >> powell has been sworn in, he

spent five years in that position taking the reign from gone at this point, fed chair janet yellen powell eleasing a statement online on the fed's website. which he says he's humble and hon honor to take the position he went onto talk about the state of the economy and the financial system >> today unemployment is low and economy is growing and our inflation is low our financial system is resilient than it was before the financial crisis a decade ago. we intend to keep it that way. >> that all maybe true but powell has some issues in front, he's got the tax cut stimulus and the impact of the economy and higher deficits coming and tight labor markets rising inflation of high market prices and high market valuations he went onto say the feds will

make the best objective decisions. as you guys are talking about early, the interest outlook influx and equity are influx as well >> we were asking what kind of tone he need to set and how the first few days are >> the market has shown that it will test fed chair initially and he does need to explain his view on how the tax cut will impact the economy to explain his view on higher evaluations he has not done that he should have ample opportunity. he'll have testimonies before congress we are waiting to hear how jay powell processes these things. the outside outlook here, guys, i think it is four rake hikes and four under consideration

i don't think five is a possi e possibility. i don't think jay powell is going to speed things up that quickly into 125 basis points of tightening what it means to have a 3% 10-year yield. it was considered by the fed to be full appointment. there is that inflation tail risk even though it is not evident right now. >> steve, how relevant is it that people have gone back and looked at transcripts from meetings that are years old now but highlight that powell appears to be a net skeptic on qe and general one of the meetings that says, i am quoting here, "we have seem to be way too confident that exit from the balance sheet can be managed smoothly. how much does that matter now? >> it matters, the question is what lesson do you draw from it. i see something like that and i see what powell is saying now about qe

his basic line is that it worked and seemed to be a right call. here is the guy when the evidence come in have changed his mind he did not have the exact right instinct early on of the line of some of the hawks there. a line with some of the hawks and separated themselves and despite by the way of what was not obviously the politically right move to make he aligned themselves with yellen and the more sectors and he's solidly behind what the reserve did. he's more to the right of the center when it comes to interest rates. i don't think he's anything but a gradual. >> steve, you mentioned he has access to the -- what kind of communicator he may be, is he going to air on the side of more communicationand transparency as janet yellen seemed to do or may that bemodified? >> i think he's going to be a

communicator i think he's going to communicate in simple terms and much less academic he's not a phd in economics and so i think he may leave some of the heavy lifting when it comes to the economic talks to talk on the economists on wall street and the bond market and to this as yet unnamed vice chair. i will tell you there is a lot of people that are looking to the white house right now and saying hey, where is this job? if you are going to put powell in this job as a non economist and you better have and i know the white house is behind this idea having a strong economist in the vice chair position i think people are not getting the full judgment yet on the power federal reserve until the chair is in officer. we know larry lindsey has withdrawn from that. i don't know what the other names that are out there guys. >> finally, steve, before i let

you go thoughts on wells fargo, we were talking about how unpresented this consent order is. >> we cannot think of another time that the federal reserve has done this. let alone keeping its balance sheet unchanged. one way to think about this is the strong warning to boards not the mess up. on the other hand, wells fargo found a way to mess up in a very, very unique way. and so it seems like this punishment is very unique. i am not sure how much of a warning it is to the board in the sense that what wells fargo did was deep and broad and long standing and it is hard to imagine in other situations where that happens a t tt the bk and this punishment would be levied on the bank. >> an interesting day as well and a few years. steve liesman at the nasdaq watching the markets >> dow is down 228

s&p 500 are followed by some semis as we saw some commentary of the iphone numbers pressu pressuring >> speaking of apple, that stock was up it is down roughly 5% for the year which is certainly pressuring the broader averages overtime we are still talking about an s&p 500 that's up 2.5% despite a three quarter of a decline today. nasdaq is up 4% without apple participating. >> exactly for the biggest stock in the market, it is not a bell weather, it seems to be going on its own streak and kind of demand the rest of fang proper is down today. it is giving back a little bit of that, you know, year to date upside >> netflix is only up 36% for the year >> that's right. >> it is terrible. >> bob pisani is on the floor watching everything. >> hey, carl, happy monday

global markets are down 1.5 down or 2% in asia. not much today take a look at the sectors, semiconductor is a big market leader leading to the downside banks and another one is down, industrials and energy and consumer staples are less bad at this point less call it that way. in terms of what matters to the market there is a stew of things that matter, we have been talking about inflation risk, watch the ism number at 10:00. a better number may be bad overall and valuation risks a market is too expensive and the debt ceiling is coming up, that's coming up more and more in conversations this stew is what's affecting the markets. you want to stay on port of the inflation story. look at what's happening with the s&p 500 up 2.5%.

>> all right, can we find abbott where is a bottom? we have what's called a 90% downside on friday it is a fairly rare occurrence, you look for signs of seller exhausted and signs for buyers becoming more active in the market you look for a 90% upside of the opposite or some series of reasonably strong and indicates that sellers are exhausted and buyers are coming back that's not happening today what about as dow market how do we know we are starting to enter a down market what happens here is buying power, the demands, the bids that's out there starts to fall apart and the selling pressure, the supply and pressure starts supplying. the most important thing is you see a notable decline in the advance decline line that's not happening january, we had record highs towards the end of january

we are not anywhere near any serious worries right now. technicals, i went around on this on friday, we agreed of a nice round number around the 50-day moving average which is 2716, that's 40 points of the s&p 500 right now. a very big number of the 200-day, that's 2532 that's significantly below where the market is now. here is one piece of good news and two pieces i will show you the multiplesare shrinking remember we said the stock market is a concern. two weeks ago 18.5 forward earnings we come down last week or so multiples below 18 it is a long way to go before you hit closer to the normal average. it is going down and that's a good sign. another good sign is the vix futures. the futures are lower price. that's a little odd.

this is ca the vix traders are worried of what's happening right now and less worried of what's happening further out. that's unusual many times in the past, this has happened and it signals short term bottoms so we'll keep an eye on that. i do think it is a small sign of good news right now. we are not doing anything of a bounce right here. dow is sitting at 248 points >> carl, back to you >> bob pisani, thank you >> lets check in with rick santelli as well >> it is a fascinating day on a number of fronts the notion was what would happen if interest rates moved up rather dramatically and how would it affect stocks the old adages that the fixed income markets would be governor for equities equities moving down a little bit. well, rates should come down and all things being equal with central bank distortion,

maybe it is getting a little rough. it is working at this point. we are on change if you go over seas, you look at two-day, it is minus 55 and lower by basis point the two-day of bund chart as you see trading 72 well off and down 5 basis point. which brings us to the comparisons. 10 minus bund. it is breaking out why is that important? well, that's important because you know the trades, if we start to break in out, our rates are being equal it should come back down a little bit if we get more interest from europe lets see how it looks today, this is like the vix of the credit markets relationship with

equities we have seen it at the worst level since march. again, we did not have stocks do what they have done especially the big january that was note totally vaporized that you see by the equity markets. finally, flat yield curve. lets look at 10s minus 2s. it is not really flat anymore. it is the steepest of the second week of november hovering above 70 basis points. the dollar index, one would think it is doing a lot better, it is doing a little bit better. the year to date chart shows how little better it is actually doing. >> mike, back to you >> rick, thanks very much. appreciate it. more of the market sell-off, we are joined by the ceo and wells fargo scott rand good to see you both >> jim, as we start trading

today, spooi&p 500 is up 2.5% today maybe in december, that's great, 20% last year, we are doing fine the way we got here, down 4 and 5 in a week, does it matter? >> i am not sure what's happening on friday that many market participants have gotten over excited of january rates. there were a whole a lot of people saying four times of raises my expectation is a two-rate rises are likely than four with the general deflation environment coming from technology, that'll be just fine i think that was the trigger for the sell-off which i think is a healthy shake up markets never go smoothly out to the right. if this goes about 6% to a 10 shake up or a little bit more, i

don't think it matters and does not take away from the philosophy that i still have >> do you feel if it is time to say okay, fine, it is a little bit of a discount already. >> you can trickle it in the respect of pe ratios a bit below 18 the long-term averages are 16. 5% or 6% would take you to the long-term average. at a time where the outlook earnings were rather good. i usually think that even if we don't buy right now, i think you run the risk if you don't buy right now that it will recover i think you should retrickling money in rather than filling your boots >> scott, it was common to say that last year was so strong and calm for stocks that we were due for some kind of a higher volatility type of environment and maybe more of a two-way tape, is this what we are getting right now or do you think something perhaps, has changed of the markets path

here >> i don't think so, a lot of this move, that's basically a vertical move to cough you have 4% of that move. i think it is minor, i think yo. i mean, let's face it. retail investors, they have been underinvested in stocks for a long time. they're finally getting interested they have plenty of cash on the sidelines. and so we're recommending for our clients, i mean, you still want to lean towards industrials, consumer discretionary, financials, things that are going to benefit from a continuation of this recovery and you need to be stepping in on the way down. now, if this pullback would have happened over a three or four-week period, people would be feeling a little better but, you know, right now you've got a lot of retail investors out there that are spooked because it happened in a couple of days. i think that's probably a natural feeling. they have been waiting for pullbacks. here it is you've got to start trickling it in but, you know, if you look at technical support, you know, you're seeing a 50-day moving

average at 27.15 almost certainly we're going to test that. that's not much of a magnet, but a little bit of one. but when you look further out, the 200-day moving average is down at 2530 it has been a long time since we touched the 200-day moving average and to trade lower than this, you know, not a ton lower, but lower, i think retail investors should welcome that. i mean, markets just don't go straight up forever. we're finally having a pullback. you need to have a plan. you need to be ready to step in. >> jim, to your point about two hikes and sort of sluggish inflation, how do you ren sil that with some of the survey data, prices paid on ism, things like that? >> the nfib has been boosted, of course, by deregulation and perceptions of deregulation. and independence of mid size businesses do feel tied up in federal red tape so that's given them hope. i think that's some of the explanation for the survey results. >> also, jobs hard to fill, no

qualified applicants, things like that. >> yeah, but the trade is still not going up very much i think if you really parse that, looking forward, what you just said, carl, could translate into 2 or 3% wage growth that doesn't mean as much consumer price inflation, if any. you know, the underlying productivity is probably better than the statistics say, because of the rapid implementation of technology so i think it would actually be quite sweet for the economy if you had -- for the reasons you describe, 2 or 3% wage growth. >> no final stage pricing power. >> very little yeah >> scott, you know, there's been some conversation about whether we're now in this environment where stock prices and bond prices are more correlated in other words, they go up together, down together, which would be kind of against the old risk on, risk off pattern we have become used to in the last several years. is that the case, do you think, and how much will that matter? >> yeah, i think really -- i think really this year, and we've been talking about this with our clients this year is all about the fed

and central banks. jim mentioned two rate hikes, that's what we're looking for. but the markets, you know, start to sweat, you know, three or more and, you know, two or three to me is no big deal. that's fine. the market can stomach that. but when you look at four or more, that's a huge headwind for the market and, you know, central banks around the world are going to be, you know, taking back a little bit of this stimulus. so for me, i don't think we're going to see a lot of inflation. i don't think we're going to see, you know, three-plus percent gdp growth so really for me i think it's unlikely the fed hikes four or more times but the market is sweating that right now. and that 2.9% year over year wage gain average hourly earnings, that was the straw that broke the camel's back on friday wages are going to be a huge deal, because that's what the highest corporate expenses are and we have really high margins right now. so people are fearful of the potential for a huge rate increase, wage increase, hurting

corporate margins. i mean, it's not a complicated story, really, to understand after this big run up. >> all right well, we'll see if we're in for a wall street versus main street kind of tone for this year scott, jim, thanks a lot for your time this morning. >> thanks, guys. >> if you're wondering what the white house reaction to the selloff last couple days is, our eamon javers has that for you in washington good morning, eamon. >> good morning, carl. that's right they are monitoring the stock market selloff here at the white house today. i spoke to a white house official a few moments ago in the west wing who told me, we are always concerned when the market loses any value, but we're also confident in the economy's fundamentals so this white house to an unusual degree has really said that they do monitor the stock market and they measure their success as a white house by what's going on in the stock market this white house has commented on the stock market more than maybe any other market but what you just heard there from your most recent guest is that a lot of the cause of the sellout is the increase in wages. and ironically, it is an increase in wages that this

white house has been looking forward to so this is a good news, bad news situation for the white house. the wages are up, but the stock market is off. and they say they're concerned about that but confident in the fundamentals in the economy, carl >> all right, eamon, thank you for that eamon javers in washington we'll come back to you later on. let's get some movers this morning at the nasdaq with bertha coombs this morning hey, bertha. >> hi, carl. we are off the lows here, the open in part because of the reversal in apple. apple getting down to its 200-day moving average this morning, has bounced off to that, up into positive territory. so we'll see if that momentum continues. apple, of course, down year-to-date it's in correction territory take a look at some of those fang names we are watching right now google and netflix. they are off about 9% from their all-time highs amazon held us up on friday. was positive today all of the fang names drawing us lower we are seeing a few stocks getting a bit of a bid here. take a look. autodesk is now positive a couple of the beaten up

stocks, like wynn resorts today, positive, as well, bucking the trend. o'reilly automotive positive all morning since the open so we'll see if maybe we get a little bit of the buy the dip mentality this morning as more stocks start to go into the green. back to you. >> bertha, thank you very much for that. as for some other market indicators, vix did get to 19 and change off the high, obviously, stocks off the lows in the early session. >> yeah, it seemed a little bit of an outsized move to the upside for vix, just based on the percentage gain in stocks. but i think it's because you had such a break from that low volatility environment people were piled on the wrong side of it a lot of folks are going to look for that to come down 2 or 3 points in a hurry and that would give that classic spike on a chart that sometimes means the storm is passing we haven't really seen that yet. really today is very controlled down side. i mean, it's not as if -- it's not as if the spill gates are open at this point

you have, you know, about a -- you know, 25% of all volume to the up side. and you have some traction in certain areas. so definitely follow through selling. but it's not really as if the dam has broke. >> we have no shortage of guests, of course, who come on and what has been the right advice for such a long period of time advise buying the dips. or certainly like to reassure people that this is no different than what we have seen in the past what are the arguments that are out there, and who is making them that actually say this is a bit different, and you should be more concerned >> i think the main arguments are stocks are -- have so outperformed and basically, you have such high valuations, you priced in a fair amount of the profit news and that we just don't know what the world after central bank stimulus efforts looks like. i think that's still your main -- i don't think a lot of people say, oh, here are the leading indicators of recession, which will bring a bear market it's not that easy a case to make so you really have to make it

more of a financial argument that the kind of financial gears could get fouled up, just because of some of the bond market moves, the currency moves and all the rest i also do think, there could be a real economy overheat as a shadow for this market for a while, right you talk about how late cycle, throwing stimulus on it, and that could just restrain the markets. even if it doesn't cause some kind of a meltdown. >> and the bears on top of that put overt weak dollar policy. >> sure. >> deficit finance tax cuts, right? >> yep. >> other things that -- long-term, as dudley has suggested, will pay a price for. no free lunch, that kind of thing. >> and i think the idea that we're just not -- we're no longer very battle-tested as investors. there was a time during this bull market, you know, 2010/'11, these deep gut checks. >> that was bill miller's point friday that essentially we're out of practice we haven't had to handle 5%. it feels different in your muscles are cold

the chartists have actually had a nice couple of days. mill miller tabeck highlighted at the 200 day and bounced off of that, which was around 162 or so apple is up about 1.5% and as cashen said a few moments ago, s&p 50 day would be 27.15, so some cushion above that >> yeah, the 50 -- yeah. if people think that's a foregone conclusion, that's fine i do think we're so far above the 200, if you want to get technical, which is really the definition of an up trend. that's a long way to go down, maybe it's probably 12% high to low at this point. it would feel like something big was happening. it wouldn't just feel like a little wiggle back to the up line. >> transports relatively flat. obviously, that's been a key one to watch in light of rising oil prices jet fuel prices. freight costs. guidance from some of the

carriers not much movement in that. but a long way off from levels around mid january january 16th or so getting some data crossing the tape, as well, on a week where earnings continue to roll in i think about 80 s&p companies this time it's going to be ism services for january let's get to rick santelli for those numbers. good morning, rick. >> all right, carl and the survey says, 59.9. all right. it's nice to see a surprise to the upside, right? 59.9 is about 3 points more than we were expecting. and buckle up for this 59.9 means that right there, that number we're talking about is the highest in my 20-year database the highest in my 20-year database 59. 9. it usurped what had been the highest in my database, which was the lead we had in october of last year, 59.8 we usurped it by .1. and last year had a .1 positive

revision from 59 to 56 we're getting some internals here bear with me the ism employment index record high also -- i don't have the exact numbers. ism manufacturing new orders, 62.7 versus 54.5 these are all really good numbers. now, of course, the service sector is much bigger than a manufacturing sector, which according to many, had really renaissance in 2015 and 2016 it's going to be very important to watch if the treasuries and the stock market pay attention to this data carl, back to you. >> all right, rick, thank you very much for that rick santelli. welcome back to "squawk on the street." the market calm gone dow down 221 wall street bracing for another tough day as the dow hits that 5% pullback from recent highs. and best and final offer broadcom sweetens its bid for

qualcomm we're going to have details and analysis coming up next. plus, a punishment from the fed. wells fargo shares down sharply after the bank gets a slap from janet yellen on her last day on the job. we've got those details. let's get back to the story of the day of course, that is the market selloff. jim o'neill, of course, former goldman sachs management chairman, joins us over the phone. jim, you wrote a few days ago, as long as financial conditions don't tighten excessively, global performance for the rest of the decade could end up being more robust than anyone would have imagined just a few years ago. i assume that view is still intact >> well, financial conditions have just turned a bit so i think we have to wait and see how sustained this is. just listening to rick's summary of the latest data, we may have entered the period -- sorry, i should have started with a caveat what the hell do i know about any of this? what the hell did i ever know? certainly these days i'm not as

engaged as i was so, you know, remember that before i sa i what i'm going to say next but part of me thinks that the dilemma here is clearly coming from the cyclical strength of the u.s. more importantly, the wage inflation fears. so the fact we've just had a really strong services ism number, i rather suspect that's not going to help at all in fact, amight add to the problem. the market is a market will probably go through a phase here that the u.s. is going to strongly, and is going to generate inflation and the fed is going to -- the market is priced in. blah, blah, blah so i think -- i think some of the rot won't disappear until we see some calming evidence about inflation. and indeed if we don't get calming evidence about inflation, markets might struggle further so -- you know, i also quickly add on top of that, as you guys have focused on earlier, we've

traveled such a long, long way, just hearing you guys talk about how far it is to check the down side and still be under the 200-day moving average sort of tells you everything you need to know an enormous start to the year, on top of what was already a very buoyant 2017 market so, you know, some kind of significant correction for people that have been around a number of decades, the likes i have you know, shouldn't be the world's greatest surprise in a way. but, you know, we'll have to wait and see this is a bit more economic database than some other corrections you might have typically seen in the past >> yeah. but to your prior point, it sounds like you think there's less space between economic growth and rising prices than some of our other guests >> well, the fact of the matter is, u.s. wages appear to be finally picking up and it's coming at a time where the employment market on traditional criteria is way

through what most economists' definition of full employment would be and, of course, we've got a fiscal stimulus coming on top. from a pure -- ignoring the politics of it, from a pure economic perspective, the u.s. doesn't need a fiscal stimulus so you have got the circumstances apparent for the first time in a long, long time for some sort of pickup in u.s. inflation. you know, it might turn out to be a damp squid, with little moments like this than the past decade or so occasionally showed but this time around, it seems to have a bit more consistent grounding. and, of course, given what the fed's mandate is, and how generous they've been, they and for that matter other central banks will be and should be really mindful, as good a job as how they have handled the past decade, if we're charitable to them the last thing they want to do is start bringing back the 1970s and presiding over an era of rapidly rising wage growth and

sort of a circular problem of inflation. now, i don't want to get carried away while i'm saying that but you can see why some policymakers will be thinking, you know, the market has only got three fed -- at least before friday so they'll be pleased this fall. but the next month shows another high wage, they'll be reminded to move faster. >> jim, bearing in mind your disclaimer that you're no longer right in the thick of the game, i wonder if you have a view on -- we have these sharp moves in the capital markets after a long period of calm. the question always turns to, are there crowded trades that big institutions are trapped in? did people just kind of place heavy bets on continued low volatility by selling volatility, or a lot of these risk parity strategies do you have any glimpse of whether we're seeing stress in those areas yet, or is it not possible to say? >> well, for somebody like me, it's almost completely impossible because, you know, i'm not involved but with that said, from my

experience, there is nothing like the financial markets to jump on top of what seems to be a nice, easy trend so it would be very surprising if there wasn't a lot of momentum investing that's gone on related to low vol and everything that goes with it and, of course, all of those will not only have to unwind, but the more the market goes down, have to unwind more. so i am sure a lot of those kind of trades are the ones that are completely under the cache in europe and asia this morning and as you guys start your day again today. >> hey, jim, whether was the last time we saw any real signs of significant inflation in a developed economy? >> there you go. that's why -- i don't know a long time. that's why -- >> it's a long time, right >> that's why this needs to be thought of a little bit differently, in my view. this is not -- it's not like some, you know, okay, we don't

have any big selloffs for the past 15 months or anything at all. but in the previous two or three years, you had them related to some strange concern and politically in the u.s. or elsewhere in the world or that kind of thing. we haven't seen it connected to the sort of thing that ultimately kills bull markets, because the inflation genie is out of the bottle. and they're so-called behind the curve. and so, you know, with the -- the other caveat i've already said once but saying that one again, with the caveat that this is only a very brief period of where we've seen these signs, we have clearly got evidence of the u.s. economy being through full employment, wage growth picking up, and a fiscal stimulus coming on top of it, which, you know, if that was 30 years ago, somebody like me will be saying the central banks are going to tighten way more than the markets have got priced in

but it's tough to say that, even, never mind genuinely fear it, because of everything that the markets and any of us in it the past decade or so have gone through. but that is the reality of what it would have been in the '70s and '80s >> good insight, jim always good to check in with you. thanks for coming to the phone. >> good luck, guys >> jim o'neill, former goldman sachs asset management chair. >> all right this morning we've got another chapter in one of the most extraordinary m & a battles we've seen in quite some time. broadcom raising its offer for qualcomm the new offer is $82 a share, consists of 60 bucks a share in cash that will be the previous offer. but they have increased the stock component from what had been $10 to $22. they are calling it best and final. the question is, will it actually work in any way in getting them any closer to buying qualcomm. you can see, in fact, the reaction of investors this morning is almost to take it as, well, best and final, but almost sort of saying, so long.

now, that is not the way that broadcom and its advisers want this to be interpreted they still have every intention of taking this to shareholders in which they are trying to seat or unseat all the directors of qualcomm with their own slate and want this $82 a share bid to be seen, judged at that meeting essentially on its merits. and be seen as shareholders as an opportunity to say yes or no to that $82 a share offer. first part, qualcomm has not engaged in any way with broadcom on the offer itself. and they have most recently tried on february 2, according to an s.e.c. filing, people tell me, in fact, there were calls made over the weekend, as well, trying to get qualcomm to sit down and negotiate one of the key parts of today's revised offer is the inclusions of a reverse break feed. but we don't know how large it is people close to the situation indicate, it could be as large

as or even exceed $10 billion as i reported on friday there was talk it would be a massive break fee. the largest we have seen that would, in fact, be perhaps the largest break fee we have ever seen. but, of course, given the size of this deal at 120-plus billion dollars, still as a percentage, while it would be quite large, would still only amount to 6.5, maybe $6.80 a share or so per qualcomm share is that enough to entertain qualcomm and its shareholders for them to believe that the antitrust risk that qualcomm sees as being so prominent in this deal would be offset by a $10 billion reverse break fee? that remains unclear the expectation is in the marketplace at this point that qualcomm is not going to engage with broadcom. and, in fact, it will go to that shareholder vote, and we'll see where things end up in terms of the directors and what the referendum is on the deal itself that said, maximum pressure, they're going to certainly try

to apply the ceo of broadcom today and expected to make the case for his deal. and why on an anti trust -- on the antitrust view, it is something that, in their opinion, they say can get done within 12 months of when they sign the deal. by the way, they also include a so-called ticking fee. in other words, they would increase the price ever so slightly basis points wise if, in fact, it were to go beyond 12 months but so much of this, guys, will come back or does come back to qualcomm's firm belief that this is simply not a deal that will get by the antitrust regulators. not just here, but even more so in europe and in china you get a lot of back and forth on that very issue it certainly feels very much unclear to me, at least, based on the conversations i've had that there is going to be any engagement and so that they won't actually tell them what the real break free would be, which is very strange. >> very odd. >> very strange choice in their part to not put it in writing. but simply sort of --

>> i guess they feel they need an inducement to start negotiations, right? >> that is the attempt they're making right here. and they decided not to go with a hell or high water provision, which does have legal ramifications in terms of a willingness in the part of the buyer to more or less do as it implies anything to get a deal done that is not a place that broadcom is one to go for a variety of reasons >> thank you very much >> sure thing. >> keep watching. let's get back to the markets. dow still down triple digits, down 150 right now with us now is robert shiller, professor of economics at yale university and the head of u.s. equity of b of a merrill lynch savita, i know you crunched the numbers, and your group is taking stock of kind of the technical and sentiment backdrop and all the rest of it where does it all boil down right now? we had the market seemed to price in a lot of good news in january, and is this just a giveback phase >> yeah. no, it's a great question. i think sentiment has basically been driving a lot of the gains

we have seen over the last month. and we've kind of cut in half the january gains, which were pretty robust. so i think what's comforting is the fact that earnings are actually coming in pretty well, and guidance is coming in pretty well what we worry about from a numbers basis is that a couple of things seem to be changing. so one, obviously, rates that was the big surprise over the last let's call it five days but, you know, in addition to that, there's also this potential for a big reversal in the dollar, which i think has been maybe a bigger driver of performance in 2017 that we give it credit for. and then there's also signs of inflation, which could squeeze margins for some of the more labor-intensive areas of the s&p 500. netting it out, we're not seeing signs of an i mminent recession. i would love to hear what robert

thinks but we are seeing signs of maybe a shift in performance from some of the more asset reflation areas of the market to some of the more real inflation areas of the market we haven't seen for a while. and the one thing i would add, just to sort of set this in context, this pullback that we have seen over the last several days, it hasn't even breached 5% 5% pullbacks happen on average three times a year we're just not used to it. this feels weird, because we haven't had one in a while but this is actually pretty normal >> yeah, we've been above average for a while in that respect. professor shiller, what would be your assessment of where the public mood has been with regard to this bull market, putting it in context of others that you've studied before in terms of that late cycle, enthusiasm and all the rest >> well, i have an investor overvaluation confidence index

valuation confidence it's at -- the lowest it's been since 2000 in the peak of the market in 2000, most people thought the market was overvalued. and for individual investors, we're at the same place again. which is -- but this is long-term. i'm not talking about the last few days this has been going on for a year or more so there is a lack of confidence the market has gone up a lot more than earnings have gone up. and people are aware of that but i don't know that there's anything happening so abruptly that will change this. so i'm also agreeing that i could easily see the market correcting back up from this price decline. >> so in other words, the public thinks the stocks are expensive. but what's the rest of their behavior telling you in terms of their willingness to participate and throw money at the market? >> well, the level of the market

itself is an indication of -- you know, it's kind of investor confidence in each other at a time like this, when you see sudden price drops, the question immediately arises on anyone's normal person's mind, is this the beginning of a correction and so people are looking at each other for a sign of alarm and they're looking for some story that would justify a correction so, you know, the jobs market report last friday, the general sense that our new fed chairman will continue the rate increases, that's a story that you could see causing investors to imagine that the market -- other investors think the market will go down but i don't know that it's such a new and sharp story. so i'm not -- it's not like two years ago, when we saw a similar price drop there was more of a story then >> speaking of new fed chair

pal, savita, both his comments this morning and yellen's comments over the weekend, as we look at some pictures, seem to hammer home this point that a drop in asset valuations is not a threat to our core financial system >> yeah. i mean, nthat was an interestin statement. so i think that's good it means the fed is, you know, following their mandate. but here's the thing if we have rate hikes that surprise to the up side, because of better growth, then that is actually a pretty bullish backdrop for equities. if we have, you know, a higher rate hikes than would be expected because of run-arpin inflation, that's a negative scenario now, i still think that the inflationary backdrop could be more contained than it has been in prior sick cycles, because of secular forces if you think about the disruption story, there is still disruptive influencers in every pocket of the market that are pushing prices down rather than

moving them higher even tax reform. a lot of companies have said, they're going to pass that benefit on to the consumer through lower prices if you look at demographics, demographics are not particularly inflationary at this point so maybe we do get an environment where inflation picks up on the margin, doesn't overheat, and growth is actually improving at the same time so far, our indicators are suggesting that we're not getting a lot of these, you know, kind of flashing red lights so one thing i'll point out, we have a set of 19 indicators we look at. we're desperately looking for the 20th indicator to make it a nice, round number we have 19 indicators we look at to tell us whether, you know, we're seeing all the signs of a top in the market. at this point, only about half of those indicators have flashed. normally you need close to 100% of those indicators to tell you, stay away before you really want to sell equities >> all right

silver linings there sa serena and bob schuler. the markets have bounced and the nasdaq has turned green. thanks again. dow now down 81. core session low 355 when we come back, shares of wells fargo tanking after the fed chair janet yellen issues an unprecedented punishment to the bank on her last day on the job. we've got details. plus more on the market down turn we should mention, once again, off session lows we'll talk to the chairman and ceo, as well, when "squawk on the street" continues. ♪ (nadia white) the moment a fish is pulled out from the water, it's a race against time. and keeping it in the right conditions is the best way to get that fish to your plate safely. (dane chauvel) sometimes the product arrives, and the cold chain has been interrupted, and we need to be able to identify where in the cold chain that occurred.

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wells fargo getting in on unprecedented punishment from the fed on yellen's last day as chair. our wilfred frost joins us >> shares down about 7%, a decline of $23 billion in market capitalization as investors react to friday evening's unprecedented reprimand from the federal reserve before the bank's, quote, pervasive and persistent misconduct dating back to its sales practice scandal. there have been a slew of analyst downgrades for the stock. the fed's consent order will limit wells fargo's growth by capping total assets in response, the bank will shrink some noncore business lines so they can still write new loans. but they are clearly constrained from going fully on the offensive in an otherwise attractive environment for banks. the bank must submit a new risk management plan in the next 60 days and face a review on the

30th of september before sanctions can be lifted. ceo tim stone maintain's ts the company is open for business and the impact of earnings until then will only be $400 million, or less than 2% of last year's full year profits. but the share price decline suggests investors fear a far greater impact wells fargo is also replacing four board members, following three changes in 2016 and three just last month. including a new chair in betsy duke many have questioned the timing of this, given that it arrived on janet yellen's last day in office, but i would point out that jerome powell also voted for the action, alongside yellen, so the timing just impac impacts whose watch this fell under as opposed to altering whether it was going to happen or not powell will play a key role on whether to lift the sanctions come september 30th. wells fargo share price around 40% behind the bank index since the news first broke carl >> okay. i'll take it, wilfred.

thank you. wells fargo, as you saw, down quite a bit this morning much more so than the larger banking group. the dow continues to be down a bit, but the broader market really bouncing back this morning. the dow saw its largest price drop in history. percentage-wise, didn't make the top -- i don't know, mike. >> 599. >> thank you 599. just to put it in some perspective. but let's get more on the -- certainly the sudden drop that we saw over the last week. let's bring in financial chairman and ceo ron country shoe ski nice to have you again. >> good morning. >> during the down turn we have seen the last few trading days, what do you tell your retail client base and what do they actually end up doing? >> look, let's put some perspective on this. first of all, relax. i mean, geez, since 1980, i got in business in 1980. we have had nearly 205%

corrections as the market has gone up 23 times we're not even at a 5% correction i mean, what's happening revenue is coming in stronger. earnings are being revised upward tax reform stimulus hasn't hit we're talking about more government stimulus to spur growth what really happened, the market had a little tantrum, because interest rates increased, you know, somewhat which i think is healthy so, you know, i think everyone just needs to relax a little bit. we have some traders that get long some trades and need to unwind you get a correction it's healthy. >> yeah. people also point out that there are plenty of cases in which the broader equity markets moved up while interest rates were moving up but ron, is there a point at which you think you start to advise clients to look more appropriately on fixed income instruments, if the yields become high enough, certainly, to attract them as an asset class, more so than they have previously >> well, look, if fixed income

investments get a yield that's attractive enough, i don't think 284 on the ten-year is an attractive yield as compared to equity returns i don't think it's there so i would say -- i wouldn't say it today. >> what's the number for you what do you sense is a number that would become more attractive >> look, i think people forget, you know -- forget when the ten-year was normally, you know, in the 4% range, and you had a little more inflation, and markets. you know, everything was fine. everything adjusts a little bit. i don't have a number for you there. but what i will tell you is that -- here's what i'm telling investors, all right don't -- you know, turn off the tv for a moment. it isn't all lions and tigers and bears. >> don't turn the tv off that's the wrong advice, ron. >> i know. i'm just saying to you, look, i mean -- i mean, it just -- this is a normal correction i think if you have some cash, you invest more into this market i believe this market is going

higher there is a lot of stimulus coming into this market. if there's any challenge, if there's anything you want to look at, i'll tell you what to look at. watch the dollar a little bit. because the dollar weakness is something that, you know, impacts oil, it impacts foreign investment and it may discourage other governments from actually, you know, normalizing their interest rates. but as far as i'm concerned, all is pretty good here. and we're going to have just a normal correction, which is healthy for this market. >> ron, you said that, you know, bonds, fixed income, doesn't look very attractive to you. but there has been this case out there that because the demographic and other reasons clients like yours will end upholding more bonds in aggregate than maybe we would otherwise expect so there is still in flows into bonds, even when there was no money going into stock funds is that something you're seeing through your client base, or is that something you think makes sense? >> actually, we are generally seeing investors rotate back

into equities. i think that there was -- since the financial crisis, the amount of funds that float into bonds was huge even as rates were approaching zero or the ten-year 2%. so i'm actually seeing it going the other way. i always think, you know, if you give me $100,000, and you're going to give me back $103,000, ten years from now, which is, you know, effectively -- or compounded with that 3%, you know, i'll take an equity risk >> hey, ron, how much of the tail winds you're describing from stimulus and everything else get undone to some degree by what's happening in washington, whether that's looking for another short-term cr, whether it has something to do with the memos that are being released or not released how much is that is an offset? >> i don't think very much i mean, i think that also makes good reading the politics of this i don't think that we're going to have another circus around a

shutdown i believe that that is sort of a sideshow if you want a challenge here, the real challenge is going to be the stimulus and the government, what they're talking about is another potential $300 billion of nondiscretionary spending it's at a late end of a cycle. and i will say that when you factor that into everything else going on, that's what's going to make the fed's job tough because that's throwing a lot of stimulus into a market that's already growing. >> yeah. and is a continued concern ron, thank you for joining us. appreciate it. >> always. >> and while you were talking, ron, by the way, we should point out, the s&p did go into positive territory ever so briefly. it is down now let's almost call it flat. thank you. >> dow now down 38 points. when we come back, a lot more on this wave of buying, and the bounce back here. dow off more than 300 points on

the low. almost positive here "squawk on the street" oh continues on this monday in a moment after a day like this,

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hello,everybody. i'm sue herera here's your cnbc news update at this hour. former sports doctor, larry nassar was sentenced up to 140 years in prison. the last sentencing in his sex abuse scandal, he had already been sentenced up to 235 years in two previous sentencing. federal investigators are trying to figure out why a switch was in a wrong position, leading to an amtrak train colliding with a parked freight train on sunday in south carolina the engineer, michael chemickem michael sela were killed. the international olympic committee says 13 russian athletes and two who had become coaches will not be invited to the winter games despite their lifetime bans being overturned this after russia's olympic committee requested they be allowed to participate back here at home, philadelphia fans celebrating their team's first super bowl win. and first nfl championship since 1960

the eagles upsetting the new england patriots and tom brady 41-33, despite brady throwing for more than 500 yards. eagles' qb, nick foles, named the game's most valuable player. you're up to date. carl, i'll send it back downtown to you i can't help thinking of jim cramer i'm so happy for him. >> we can't -- we can't wait to check in with him, sue thanks, sue herera. take a look at financials this morning coming off the worst day since may of last year >> it's been a mixed picture still up more than the market year-to-date, up 4%. xlf, obviously the s&p 500 financial sector etf that mostly tracks that. but today it's a little bit mixed depending on what sub sector you look at wel wells fargo is having an impact, super bowl on the kdwb, the kdw bank index, etf, market cap weighted so wells fargo is one of the biggest holdings that one is down

there you go 85 basis points. almost 1%. it's kind of an interesting setup here, because when treasury yields were going up last week, banks did not really benefit from that. it's almost as if they were going up too fast or the two-year note wasn't going up fast enough or banks had had their run and seems they have settled back a bit today, second-worst performing sector among the big s&p sectors. but it's still -- i think an area that people are going to be looking for for signs that some bellwether stocks are getting oversold and bouncing. and i think you're seeing that goldman sachs is green on the day. jpmorgan, about flat so you're starting to see sort of winners and losers emerge from there it's not so much of a wash >> a point on his way off the set, although nfib is cheering deregulation broadly, the fed still has carte blanche to keep regs pretty strict, in light of even despite reports they are, too. >> i've been wondering about that if the market is going to take back some of that deregulation

premium they put into the bank stocks broadly, or if they think wells fargo is a one-off >> at thtake a look at stocks a go to break. dow didn't quite get to positive territory like the s&p did down 90 points more "squawk on the street" continues in a moment.

markets trying to claw back after the big drop at the open and, of course, following the selloff on friday. is it time to buy or are we in a longer-term pullback weighing in this morning, john than goll lab at credit suisse, and chief market strategist at cantor fitzgerald. good to see you. busy week. no f new fed chair. earnings rolling on. how ominous was friday here's the story two reports back-to-back that said inflation may be worse. it wasn't that interest rates were rising, it's that wage inflation became a concern, and

the market took it seriously do i think that it ultimately damages a rally? no but it's something people are going to be focusing more on. >> so not even a tactical move down overall, or not >> i mean, the market was up 43% before the pulldown. now it's up 39%. i don't know if this really changes a whole lot. i mean, the earnings season is crazy-good the 2018 numbers are rising. what people don't realize is with earnings estimates going up so much, the multiple in stocks is a full multiple point lower than it was on the day before the tax passed so the argument that stocks are looking cheap or expensive or frothy just doesn't hold any more >> you were looking at the possibility of an interest rate scare of some sort to rattle stocks has it passed? is this just going to be maybe a continuing story, where we're going to have to deal with these eruptions? >> i do think so look, i think we got a lot of volatility on the short end of the curve. you and i have talked about it we saw that. that scared equities a little

bit. i think the modest amount of wage inflation that we saw, we expected that, as well 18 states hiked minimum wages. that bleeds through to comps, obviously, who have to compete for that same work force so we expected that, as well however, over the course of time, we still think there is a lot of accommodation in the market central banks have already printed $400 billion this year so we're generally speaking bullish of equities. but we think the short end of the curve, the two-year, we think could go to about 270 to 280. and the long end could punch above three. so as we go through these fits and starts of higher rates, we do thinkequities will respond, because as we know, equity valuations are dependent not only on earnings, but also on the cost of capital at which we discount cash flows. very important. >> so when you say respond, you mean work through a transition to a changing world, changing environment? >> i think that's -- i think that's right, slowly over the course of the year but if we look at where we are in the cycle, if we just look at something as simple as the 210

spread at 60 basis points, that tells me we have time to go before we flatten completely, which we think we will, but probably not until early '19 and that's very common to say in late-stage bull rallies. so i think we continue to move higher but after fits and starts of considerably more volatility this year than last. which isn't saying much, by the way, because we had no vol last year, at all. >> right and in the history of those years, 2013, with very few pullbacks, the following year, if it was tilted to the up side, you had a down side action, as well, jonathan is that something -- i guess i'll pose it this way. should we be disappointed the market bounced this morning, as opposed to kind of giving you a little bit of a deeper cut right away >> the market bounced because you had this ism service report, which basically is telling you that the economy is on fire. and that's really what this whole thing has been about so you have good news and bad news the economy is great earnings are coming through. the bad news is, just like you said, you've got to expect some inflation to come along with that so it's a balancing act. and today's report said more

economy, a little less inflation relatively, and so the market bounces. so no, i'm not surprised by it is the market craving misses on some economic prints >> well, i think so. look, the surprises have been largely to the up side >> well, i guess -- >> there's not a lot of room for error. >> there has been some regional fed surveys that have come in soft that weather stuff. >> look, i would take a look at the other side of the argument from jonathan. i would say, look, risk/reward equities is not great. yes, the turn on forward earnings has come in but, again, that's an expectation. there is not a lot of room for down side surprise, whether on economic data or on earnings or revenue growth >> so we just wound that tight. >> i think so. >> guys, thanks. >> we'll see what happens later on today as we watch some of the price action this morning. mike >> all right as we head to a break, let's take a look at shares of bristol-myers this morning, announcing its cancer drug has been approved for use in patients with a certain type of melanoma, and did well in clinical trials in certain lung

cancer patients. the stock started up, but is looking down bristol-myers also reported earnings that beat on e thtop and bottom earning line. "squawk on the street" will be right back [ click, keyboard clacking ] [ keyboard clacking ] [ click, keyboard clacking ] ♪ good questions lead to good answers. our advisors can help you find both. talk to one today and see why we're bullish on the future. yours.

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apple officially entering correction territory can now be the time to buy find out on tradingnation.cnbc.com more "squawk on the street" coming up.

now let's head out to the c & e group in chicago rick santelli is there with his santelli exchange. hey, rick. >> thanks, mike. jim bianco, thank you for joining us today you know, you had a chart in one of your writings that showed all the central anks' balance shee accrued together, and the level. now, remember, we all have this feeling central banks, ours in particular, is kind of pulling the water back but as of february 2nd, it's the biggest balance sheet combined ever that level is? >> $16.4 trillion.

>> never been higher >> the week before it was slightly higher, yes. >> and what percentage do all these central banks own in terms of the credit markets, fixed income, sovereign markets? >> 33% of all sovereign bonds are now owned by central banks, up from 14% before the crisis. >> all right so let's play this one real macro and real easy. if central banks own 33% of the securities, and their balance sheets are bigger than they have ever been and stocks correlate with that balance sheet total, when we see religion and other central banks like our fed, is there any way we can go through normalization without a lot more stock market anguish >> no. the simple answer is no. when you start reversing trillions of dollars of central bank purchases, and you start putting trillions of dollars worth of bonds on the marketplace, maybe not sell them, but at least not buy them in the future, you're going to have pain. central banks have been able to

get away with it for a decade, because no one has forced their hand until now now we've got the most serious -- >> a new character in a novel. name begins with an i. >> inflation it's -- we've got the biggest response out of markets for inflation in the post crisis period, because they're worried, if this is it, we're going to get inflation now, we're going to force that reversal out of central banks that we have talked about for a decade, and you're starting to see the worry there. now, it doesn't mean we're going to have inflation. it means that the markets are more worried about it than ever. >> so if the amazon effect continues, and central banks outside the u.s. find religion, it could be shock-absorbed to some extent. >> exactly it doesn't mean we're going to have inflation it means the market is more worried about it now than we have had any point since 2009. >> i was also happy, we agreed, who do you think the most important person in the world is right now if you're worried about your portfolios? >> mario dragic. >> absolutely, jim i just love that listen, mario draghi, his term

ends in 2019 there's all these notions he's cut his balance sheet by $30 billion euros. isn't this going to be a musical chairs, and who doesn't have a chairs probably, exactly the fed got a pass remember, we should talk about central banks, not about the fed. >> absolutely. >> you coined the phrase, all central bank stimulus is fungible the fed got a pass because they went first when the ecb decides to pull back and doj decides to pull back, you're going see reaction if inflation is the thing that forces them, then, you know, we've seen in the last week or so is a sign that that could be the work >> let's play more what if games. let's say mario draghi really holds out and abe holds out and the fed continues. is it possible the tight correlations with equities all getting strong and weak together, could break a bit in favor of u.s. stocks being firmer in that equation? >> it could break.

but the thing is if they just decide to not move, yes, i see the inflation. yes, they should move. decided i won't. it could make it worse they need inflation to back off. otherwise, it forces their hand. that's what i think the markets are worried about right now. >> jim, thank you as always. david faber, back to you >> thank you very much, rick santelli and now it's another name, jon fortt and we'll get a look at what's coming up on "squawk alley. jon? >> that was awesome. >> it was. [ no audio ] the way the public gets surveilled and the way our attention gets common deered well, he's doing something about it the center for humane technology find out what that is coming up on "squawk alley." david, back to you. >> jon fortt, thank you. let's get a look at a sector sort >> we're trying to figure out what is going on with the markets. we're off the lows technology stocks are helping

the cause. the tech sector is the best performer in the s&p 500 today you've got shares of auto desk and also broadcom, cemantec and others leading the charge. certainly ones to watch. back to you. dom, thank you very much markets now starting to bounce back after a selloff that began on friday continued right at the open for more on what to expect it market now, we're joined by oppenheimer asset management chief strategist and the executive vice president and market strategist at post nine good to see you. >> good to see you tony, we've been talking about this push-pull between strong economic funneld. wi -- fund mentals have things changed in your world in terms of how that plays out? >> in the short run, yes, long run, no. markets are starting to question the idea that new normal, the post crisis climate we've seen,

it's been in the low threes or so we would question whether the economic trajectory has changed on a permanent basis sure, economic growth this year will likely be mid twos or and does warrant the three rate hikes that markets are priced for. in essence, the bond market was adjusting for these three hikes having built in only one months ago. the real question about interest rates now is what's the story for the fed in 2019? bond markets sake that they'll be one hike. if they need be three, two or three, then there is another adjustment to come it's much too soon to start pricing in 2019. it probably will be six months at least before the bond market can say there will be a lot more as -- because they'll be needed to slow the economy. >> you're saying right now the bond market has figured 2018 out if we get three rate hikes >> there is always the risk of more there is a chance for four but the odds of that are low because of low inflation and the risk that the fed inverts the yield curve. so we would say three -- the three hike story is built in the odds of four are low

so we've got much of this year priced in. >> and, jon, everyone is characterizing this pullback as overdue. and maybe something deeper is overdue. how do you play this if you play it at all from an equity perspective? from our speshgtive, we're not blinking at this point we think what happened last week was essentially the market had been in a every day is a celebration kind of mode since the start of the year. at 1.18 sessions, 14 were up tons of record highs on a global basis. i think last week was bate a bia cold bucket of water it came via a better than expected jobs number and the ten year hitting that 2.8 marker we look at that, we remember last march we hit 2.6 and then we didn't go beyond that chances are robotics on the factory floor, global technology

and globalization will keep inflation in check this year >> that's the second time this morning we heard technology again as a suppressor or something that is a disinflationary force. that's not going to get resolved in six months. >> no. nor will this powerful force, dem graphics the united states -- the reason the u.s. growth is around 3% to start with is 1% increase in the number of human beings to buy and 2% in how productive they were lately the last five years, it's a 0.5 for demographics the population is aging, only to the baby boom generation of 1946 to '64 this force, number of people turning 65 to leave the workforce won't he end until 2029 when the last babyboomer turns 65 it's a very potent force in economic growth and potent force for the interest rate story and a reason to believe in the idea that growth will be longer term lower than historical averages >> john, even if this pull back was not a change in trend last year, march 1st, you had the peak of the cyclical stocks,

infrastructure trades, they all gave way f.a.n.g. took off. are we in for a transition like that here? >> i think without a doubt we're in for some kind of a transition we'll have to see how things clear out in the next couple of days maybe the next couple of weeks we have to think that value will get a bid in here somewhere. and in addition to that, we think small and mid caps look pretty good. we've also seen multiples come down just based on what happened last week. my recollection is the trailing 12 on the s&p 500 went from 23.4 to 22.4. a bit of relief. and earnings keep going up >> bargain at 22.4, right? just kidding >> within reason >> that's a quick adjustment thank you. >> thanks so much. >> when we come back, a lot more on the markets today as the dow stage this is come back. down 26 session lows down 355. cryptocurrencies in the red though bitcoin down 10% we'll talk about the rough morning they've had when "squawk

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good morning it is 8:00 a.m. at apple headquarters it's 11:00 a.m. on wall street and "squawk alley" is live ♪ a busy morning dow bounces back from session lows with tech mounting a comeback of its own. a lot going on today jerome powell begins his first official day as chair of the federal reserve. his predecessor janet yellen joins cbs sunday morning over the weekend to comment on the