so i don't see that happening for a couple of years yet. >> couple of years, all right, thank you, both. diana, we'll see you soon, mark, thank you. that does it for "the exchange." thank you for tuning in. i'll join "power lunch" which begins now. >> we'll see you in a moment i'm melissa lee with power lunch. stocks off the lows of the st s session now. we're wiping out yesterday's big gains and then some. the nasdaq sinking about 2.6% right now. look at this, it was this chart that sparked the sell-off, the ten year falling below the two year yield earlier this morning. this inversion has seen the recession the last three times it has happened. >> welcome, everybody. i'm tyler mathisen we're covering every angle of this big market sell-off bob pisani is in the thick of it

at the new york stock exchange you can say stocks are sinking you can say they are stinking, folks. trade tensions in washington, eamon javers has the latest from the white house on trade and steve liesman is here to explain what is a yield curve inversion and why it has so many people so worried. let's begin with mr. pisani at the nyse >> it is weak global economic data remember, yield curve inversion is in effect, not a cause. the global economic data that is issue we're seeing those sectors that would respond to that are the weakest, including retailers, energy, semiconductors, and industrials. everything is down rather uniformly, anywhere between 2.5 to 4%. a lot of emphasis on sectors that are already deep into correction territory, we're talking more than 20% down from their recent highs and almost all of these are due to trade tensions, global growth and tariffs being the two big aspects of that. pharmaceuticals is the one exception off the highs, a lot of separate issues dealing with

medicare for all you see metals, retail, banks, troubles because of the global economic situation and they're the ones down the most people asking me what levels are important? traders don't know what to do, they turn to technicals. s&p 500 the recent low last week 2844, the monday low at the close. the 200 day moving average a lot of people watch that, that's 2795 we're a good 5 5 points or so, maybe 60 away from that. the 10% correction level, folks, that's 2723. that's more than a hundred points away now. remember something, guys, we're only down 6% from the recent highs. this is not even a garden variety correction, down 10% it is chaotic and difficult to deal with in the month of august bear that in mind. back to you. >> bob, thank you. bob pisani trade fears back in the market, big reversal after yesterday's relief rally eamon javers joins us from washington >> everybody is trying to figure out where we are in the trade

war right now, who has the upper hand in terms of the negotiating which is ongoing behind the scenes we saw some of that negotiating slip into the public view earlier this week when the administration pulled back on some of those tariffs, pushing some of them out to december 15th on "squawk box," joe kernen pushed wilbur ross on the question what did the united states get if anything in exchange for pulling back those tariffs? what was the give on the chinese side here is that exchange. >> nobody wants to take any chance of disrupting the christmas season we don't think -- >> so you're saying we didn't extract anything from china to do this. no quid pro quo. >> not a quid pro quo. decision made to do what we decided to do, namely just be a little extra protective. >> wilbur ross saying that the united states is just being a little extra protective. by saying there is no quid pro quo here, what he seems to be suggesting is that the united

states didn't get anything from the chinese side in terms of equal concessions on their end in exchange for this move by the white house and the u.s. trade representative on pushing those tariffs out. at that point, that would give you the sense that maybe the chinese have the upper hand. why is that? wilbur ross also said that what they wanted to do was preserve that christmas shopping season, that's got economic ramifications and also, kelly, political ramifications if shoppers feel a big price increase when they go out to do their christmas shopping this year, that could play into the 2020 elections that's something that the white house doesn't want to risk going forward and that seems to explain where we are right now in this trade war. >> i have a question, didn't secretary ross this morning also indicate that there were no hard talks set for september, which is the market expectation right now. >> right, right. he was pressed on that i think kayla tausche pressed him on that. when is this talk going to happen we have been told again and again it is likely to happen but there is no firm date, nothing nailed down yet.

he was pressed on that, didn't commit to the idea that there is going to be any meetings at all in early september, that's the current market expectation and current expectation in political washington where this goes from now, looks like there are phone calls back and forth. will we see another set piece face to face setdown by the principles, unclear. >> the ten year yield falling below the two year yield today. steve liesman is here to explain. >> the yield curve inverted briefly this morning, meaning short rates were above long rates supposed to be the other way around this is so far a very different inversion from other times let's look at why inversion in general troubles the market and you'll see the circles there have been three inversions back to '85. more than that, we'll show you the last three each one a curtain raiser on a recession from anywhere from between 13 to 17 months ahead of time

darn near perfect. first you'll notice the last two inversions occurred at much higher yields. 2006, the ten year at 4.61%. remember that? and the two year at 4.8. the second thing you'll notice, the other inversions were larger later on in their inverting cycle. 52 basis points in 2000 and 19 in 2006. it was just two basis points this morning so it is kind of before a signal here. >> little mini inversion. >> that raises the question if yields are lower and inversion is smaller, is it sending the same recessionary signal well, joe larorgna thinks so here are the latest fed probabilities from the cme, 100% probability of a rate cut in september, with some chance of a 50, 73% another quarter point is pretty much baked in for

october. you go to january and bake in a full 75 basis points of cuts to the short end. we'll get a feel for how serious the fed sees all this as a threat to the u.s. economy next week in speeches and interviews with key officials at jackson hole most important friday morning from jay powell and does h suggest that the fed can respond to trade tariffs or push back on the president to say, if you want to fix this thing, you have the ability to do so >> and the category of what is different, what is the same, this time around, versus past inversions, i understand the inversion seems to be more mild in terms of points, basis points at the same time, the fed has -- >> to which i could respond, give it time, it may get there early days. >> tomorrow or later this week or next week for that matter but have we ever been at a point where the fed has so few bullets, if we did go into recession, have we been at a point where we have this much in negative yielding debt around the world and do you think those two things matter in terms of

interpreting this inversion versus past inversions. >> that's a very interesting thing to think about other side of the coin of inversions happening at lower yields the other side of which is the fed has less ammunition to respond in which case you could argue that any inversion is actually worse but i would prefer at the moment to side on the optimistic side that a mild inversion that doesn't stick around very long could be just a fleeting signal. >> that's my question. does a inversion has to persist for it to be meaningful. this was two hours. >> i don't know if they have my other thing in the back there, what i did when i look at all the things that it inverted, when it inverts, it stays inverted for a while i might have missed one or two instances. i haven't seen the time when it has gone negative and popped back up and gone positive and everything was okay. we had false positives, declines in the ten year. we haven't had it go negative without it persisting negative

and having a recessionary signal it could be different this time, but unfortunately, melissa raised the possibility it could be different this time on the downside as well as on the upside. >> all right, steve, thank you steve liesman. so how should investors navigate this volatility and are we heading for a recession? lori is head of u.s. equity strategy, diane swonk with grand thorton and david rosenberg with glasskin chef. thank you for being with us. diana, i'll start with you some will say this is just the inverted yield curve is a culmination of all of the other data points we have leading up to this point and that weak data from around the world, weakening data here in the united states, et cetera. >> i do think it is different this time. it doesn't matter if the market sees it as a recession signal because it can become a self-fulfilling prophecy, something the fed is concerned about at this stage of the game.

a lot of reasons to say it is different. and even then it may not matter because if the market believes it is a true recession signal, it will have ramifications throughout the market place. what will be interesting is how to react to the retail sales data tomorrow, likely to be strong, coming off to the july number -- the june number also strong this is going to be a lot of noise for the market to sort of absorb and try to figure out how to place their bets. >> what are the steps in the self-fulfilling prophecy in your view if we're going to put aside whether or not it is the same or different or whatever it is caused by and just think, you know what, we have it now, and if the market believes it, that's all that matters, isn't that the inversion will stick around for longer, it will get deeper >> yes. >> all of the above. and i think that the important issue here too is that it will pull the fed in and the fed has to be strategic, as you mense mentioned already, they have less bullets

say they do back to back, 50, you want it to be without the census time. last time pushing back against the president, and in the context of a stronger economy, now the fragility we see out there, the fed is very aware of the self-fulfilling prophecy last december was their cautionary tale. they don't want to go there again. we saw the consumer pull back in a very good economy and the fourth quarter and in retrospect after revisions is now much weaker than it was when the fed made that last rate hike in 20 18. >> let me turn to you with a freshman economics question. i get the idea that what an inversion is, and i get the idea that it has been roughly predictive of past recessions. but why, why is it -- what is the behavior telling you about investors in bonds they're piling into ten year bonds and driving the yield down

or are they buying short bonds two years because they think eventually the fed is going to jump in, reduce rates and improve the profitability of those two years, greater than it will the ten year. >> i think it is a combination of the two, probably more the former than the latter i think at the end of the day, the reason you're seeing the yield curve invert is that historically it has been reacting to forces in the economy that are recessionary in and of themselves. when economists debate today, they're saying there is something broken about the ten year, something broken about the bond it is not reacting to the same things today that it did in the past and i think that's why there has been a lot of debate, i think people are reacting to the yield curve inversion today. because there is a lot of other stuff to worry about, frankly. >> the ten year is saying slower growth is coming >> yes. >> and therefore people are going to the, quote, safe haven of the ten year. >> exactly and we're also seeing other safety trades work very well so we're seeing utility stocks,

reits stocks, safety trades in general going parabollic when you look at them relative to the s&p 500. that's telling you interest there is a deep seeded fear. >> is the fed in a pickle and as much as if they don't react, it will be disappointing to the markets and the markets will be concerned. but if they overreact and do step up their language, and the rate cut pace, the markets can say, there is something to be worried about. >> there is always this symbiotic relationship between the markets and the fed and the fed and the markets. always like that we're just more hyperfocused than in the past a couple of things, the first is that in the last set of published fomc minutes, the fed used the word risks to the downside, and uncertainties, 46

times in a 12-page document. the fed is like a risk manager, they have to weigh the balance of probabilities, which is all tilted to the downside and then you have this other have interesting development that nobody talks about, which is that at the recent semiannual congressional testimony, jay powell told congress that the fed likely overtightened this cycle. what is the grounds for having a restrictive policy stance now? we saw the powell pivot in january and it took seven months to actually put words into action and, you know, we're focused on the yield curve, various parts started inverting last november. the only reason everybody is focused on it now is because so many pundits were saying, don't worry, and now it inverts. but you don't need an inversion of the yield curve to have a recession. japan had multiple recessions without their yield curve ever inverting. what happened in the u.s. this

cycle is we had a huge monetary shock, where president trump is right, the fed overtightened, have not corrected that. with the balance sheet and the nine rate hikes, the fed tightened policy de facto 400 basis points this cycle. the only central bank to do that fed policy influences the economy with a lag of 24 to 36 months so we haven't seen the full impact of what they did in years past hit the economy, except we know it is happening globally. and the u.s. economy is definitely at risk of recession and that's irrespective of what happens in the curve it is the aggressive overall fed tightening that has yet to hit home because of the lags >> you led me and, diana, your reaction, you led me to the question that i want to ask diane. it seems to me that last fall the market was squeezing the fed. and saying you have gone too tight and that's why the market sold off as abruptly and sharply as it did until that pivot that

you correctly mentioned back in january. is this time, diane, the market saying to the president we're squeezing you because we don't like what you're doing on tariffs? >> i think what we saw last fall was also in response to the trade war and in fact the fed, given the data we have now, if the fed had that data at the time, i don't think they would have made that fourth rate hike. i also think it is important that we wouldn't have the economy -- we have the economy we do today, which is what we expected to have with two rate hikes. and now it is now with fed rate cuts and the promise of them and the biggest effect of the federal reserve is their announcement and that pivot that paul made and then i call it the pirouette, we went to rate cuts, that really was a very important move by the fed because it reassured the markets they understood where we were we got confirmation of that when we saw the data revised for the whole year of 2018, mostly in the fourth quarter taken off

half percent at the end of the day, this is the trade war is the cause the federal reserve was miscalculated the cost of the trade war and they now went to far. they had to back off this is in response to bad policies and it is the fed's job to do that is to try to short the economy regardless of the policy that are done they can't just stand back and say, well, it is your turn to do better policies. they got to act if this affects the u.s. economy and -- >> let me ask the same question to you, am i wrong or right that last fall market was squeezing the fed. am i wrong or right that right now the market is squeezing president trump? >> i think that the markets were squeezing the fed late last year, you're right i think particular when the trap door opened up, after the fomc meeting in december, it wasn't just the rate hike, it was the fact that in the middle of a

market maelstrom powell said we have more to do. the markets are telling the fed, you're basically tone deaf right now i would say that, yeah, you're 100% correct. i think the fed came off and said we're not going to an easing cycle i would say that it is a really global trade war right now there is other parts of the world where there is also rising trade frictions. this is the big elephant in the room is the u.s. and china but you also have the situation in argentina, people thought that brexit was going to go smoothly that's not going to happen look at the data around the world. germany is negative gdp, the chinese numbers overnight, china is not stabilizing so the global economy is cooling off. so, of course, you know, we -- people call the u.s. treasury market the cleanest shirt in the laundry basket if you look for positive yields today, you have a -- you won't extend credit risk anymore with the uncertainties, but you might want to extend duration risks.

what is happening is you're looking through this inversion caused by the rally in the ten year note. look what is happening in the long bond. what you're seeing here is a flight towards quality, but flight towards duration and a period where underlying inflation will move lower the next few years >> to that point, lori, how do you invest you're at your s&p 500 target for the year of 2850 and you're the u.s. equity strategist and bonds are outperforming equities this year what do you do >> we're at 2950, so we're a little below it right now. i think we'll trade lower in the near term. i think 10% drawdown from the late july highs is pretty much in the bag at this point i think when we get there, we have to re-evaluate. we are at extremely euphoric levels in terms of positioning it is starting to unwind it is early days valuations at peak levels. we have to get more pain in this market if we want a setup for next year. we're telling people to buy reits, utilities and staples

we are keeping a little bit of money in things like financials because what we're seeing in this market is that things can turn on a dime so we're tilting defensive now, but we are keeping some cyclicals in our back pocket. >> okay. thank you very much. lori, diane, and david shares of macy's down 15% today. they hit their lowest level in a decade after a disappointing earnings report. the stock losing nearly half of its value just this year courtney reagan is here to look at some of the issues affecting them or many of them >> some of issues are self-inflicted some of them are external for macy's too shopper didn't love some of the private label women's sports wear merchandise that macy's had out and sales of warm weather clothing in general were slow, adding international tourist spending again down, but this quarter by 9% compared to 3% in the first quarter.

you got a mess tourists typically buy full price merchandise and make few to no returns. so it is kind of a big hit when you're missing those sales as a result of all that, macy's discounted merchandise more than planned to entice consumers it buy and that took a big bite of their earnings and margins analysts say it was the right thing to do to go into the second half of the year. there is also massive economic head winds and uncertainty ahead. i asked jeff gennette about the economy and the consumer and he said, look, there is a lot of noise to sort through. the negative, tariffs, tourism being down positive, the consumer is confident, low unemployment and interest rates are low it doesn't feel, he said, as good as it did at this point last year. he's saying he cannot raise prices to offset tariffs, which he learned the hard way in may, when the last round of tariffs went from 10 to 25%. he said the customer has no appetite for that. >> stick around. macy's isn't the only retailer

feeling the pain now retail is one of the biggest draggers on the s&p 500. so is there light at the end of the tunnel for retail or a freight train? joining us is michael benetti at credit suisse. last week he warned that the department stores could go through a sober holiday. michael, welcome >> thank you, good to be here. >> talk us through macy's. what went wrong there and what do they have to do to right it >> courtney covered a lot of it. they had earth early in tweathee quarter. they tried to insource a lot of the problems so you know they can control them the women's fashion issue, the tourism was external but as we look outside of macy's, we see demand in this category decelerating. we got very concerned was the conflict between the ceos comments that we think the u.s.

consumer is healthy, we did beta test a few price increases and there was no appetite for it hard for us to live in a world where traffic is negative. and no appetite for pricing. and you have this looming threat of the cost structure getting even worse if tariffs come through. we wake up every day, we don't know which way the ball will bounce on the tariffs. the market is discounting that now. the market does not think we're going to have a good holiday macy's, the stock is making a bet they didn't take their expectations for the back half down enough. they think they can self-correct some of the issues and be off to a -- >> are the most vulnerable players in this store category those that are principally mall based stores and not necessarily discount stores? if i look at a kohl's or target or walmart or any of a number of other -- tjmaxx, most are not in large malls.

strip malls, but not large enclosed malls and they are not -- they're not the discounters. >> yeah, the malls are very easy target to pick on here it has been just persistent traffic declines, consumers moved away from that there are periods in time and different retailers off mall that see better trends i would say it is more idiosyncratic to the company tjmaxx continues to win. ross stores, burlington, they continue to win. kohl's in a different situation. their trends didn't decouple from the malls their traffic was no better than the macy's of the world for a while. they turned down the ability for consumers to return amazon prime purchases in their stores, sounds like the traffic is accelerated there a little bit they have a couple of initiatives that are different we'll see how sustainable those are long-term. >> when michael was talking about beta testing price

increases with customers and them not going for it, it made me think that should the tariffs ever come into effect, given jeff gennette's comments to you last quarter, they will just have to eat that as well there is no way to pass it on to the consumer. >> we talked to macy's today and they gave us an example of some suitcase brands where they tried to take that percentage step up. the customers didn't buy those brands it is a difference from what he told me in may before he did this sort of practice test he said they wouldn't go for it. 10% we can figure out. 25% we got some work to do to figure out how to take that, if we cannot pass those price increases along, which he previously said he was going to have to do >> if we don't get a reprieve, michael, come december 15th in terms of the tariffs that would impact macy's goods, how much do your estimates have to come down at that point? given what you know about

consumers balking at price increases? >> i thought the 10% increase would cause more panic you see the ceo on tv, on your channel, express significant amounts of concern i've been sitting next to the executives every step of the way. this is causing a lot of concern. they're very concerned about it. today they came out, they said we think we figured out how to handle 10% 25% is a different ball game if 25% comes through, we're back to the posture they had a couple of months ago on networks like this, it is a significant concern. the consumer is not willing to take up their budget on apparel, footwear, accessories, those kinds of things, they have not been for several years the entire basket of goods is inflating. they're not going to find more room for apparel, they're going to navigate to the off pricers that have good product at lower

prices that will continue the trend of winning if not accelerate the trend of winning. >> thank you appreciate it. chip stocks one of the sector's most sensitive to the trade war, getting slammed today. amd, micron, nvidia down big to josh lipton in san francisco for more >> let's check out the smh, the etf that tracks the chip strong for the year, but now in correction, down more than 10% from its recent high in late july semis weighed down today by renewed concerns about the u.s. economy. just given how cyclical the names are. as well as continued trade tensions china is a key market as well as an important link in their supply chains. so where do chip investors put money to work now? i caught up with mitch steves to get his take he said the best defensive name he covers is ssynopsis, down har

today, but should hold up. he argues even if we are heading to an economic downturn. likes amd and nvidia taking on the chin in today's trade. high risk, high reward name he could call out would be micron, if the economy takes a turn for the worse it will sell a lot less units all that matters for investors more broadly too semis often lead the market on the way up and the way down. back to you. >> thank you very much josh lipton. citi, bank of america, jpm and wells fargo are among the hardest hit today. are there any buys in this wreckage bill baruk and erin gibbs both join me. bill, i'll start with you. they say crisis like this can be the best time to invest. but did the signs just keep

getting worse if you're an investor in the financials here? >> interesting angle from the start of 2017 in through this june, we have futures that were bullish on the treasury complex one main reason was the massive mounting of a record number short position in the complex. in the future. leverage this was a ticking time bomb it was going to explode at some time and it is exploding now we're seeing capitulation. we're seeing recordo yields. this proves to be a capitulation, there will be opportunity. where are there constructive charts in the banks now. goldman sachs is one of them there is a nice channel from the december low trend line going up. just below 195 is the trend line hitting the moving average there is good support from goldman sachs and value here as well stay within that defined channel.

jpmorgan, hitting a ceiling, there is -- if you squint your eyes, a bit of an inverted head and shoulders pattern developing that could be a bullish pattern as well. >> i think the use of the word capitulation is interesting, because it means one of two things either that this trade has gone too far and it is time for it to go the other way or in the case of what a lot of the macro bears think now, it means throw in the towel, the business cycle it over. >> so for me, i don't see this being a capitulation yet i think two major issues we have are even if the yield curve gets away from being iner issed, we're looking at very flat, very tough margins. and financials are very much a rawl you play. that we have not seen in the market even taking into account the last week and a half, investors are still very growth focused. until you see value taking a

lead, financials aren't going to be the leaders that being said, the one stock that i would be willing to take on a very short-term trade basis is e-trade brokerage. it is at the bottom of the trading range and could easily pop up to 49. >> i think anything said with a grimace, i'll not sold on. >> very short-term >> bill, the final word and you said goldman sachs, you like the chart. jpmorgan, it looks interesting what don't you like? >> i would stay away from wells fargo right now. overall you want to play your game plan. look for constructive charts that look good and finding value. don't chase things in an environment like this. >> bill and erin, thank you. appreciate it. we'll go to sue her raera a check in with a news update. >> thanks so much.

hong kong police fired tear gas at a group of pro democracy protesters rallying outside a police station in a crowded urban neighborhood the state department is urging all sides to refrain from violence, saying it is concerned by reports of chinese military movement along the border. earlier, a police official condemned the recent protests. >> hong kong police have always facilitate peaceful and orderly protests over the years. but the extremely radical and violent acts have closed -- and most severely condemned. >> ford is extending the warranty on 560,000 small cars in the u.s. and canada to over a host of problems with a troubled six speed automatic transmission it covers 2014 through 2016 ford focus models as well as the 2014 and '15ed for fiestas. sunseter recalling 270,000

vinyl awning coverings used with motorized awnings. the motorized awnings can open unexpectedly when the cover is removed, posing a serious risk of injury. melissa, back to you. >> sue, thank you. a check on where we stand in the markets, heading back toward session lows 726 points to be exact down by 2 we're seeing weakness in financials and energy as well as material stocks. the oil market is closing for the day. seema mody doing all kinds of duty today at the commodity desk >> as we were discussing in the 1:00 p.m. hour, it is the growth supply picture sending prices down down 3% on the day the data didn't help, showing that u.s. crude oil stockpiles rising unexpectedly for a second week in a row as refine is are

cut output last week the oil decline comes as forecast for u.s. shell production is that that market will reach a surplus by next year also data showing weakness in germany and china contributing to the decline we're seeing in energy stocks. both germany and china are big consumers of oil the worst performing energy stocks right now here at 2:30 p.m. eastern, oil and gas names, apache, halliburton, marathon and devon energy investors looking for safety, rick santelli at the cme for us, bo pisani at the nyse. rick, we start with you. >> gets ever closer to retesting zero it look like stocks are paying close attention revisiting their lows. look at the two day of 10s you see the deterioration after

we traded under yesterday's 162 low yield. it accelerated maybe the big chart continues to be 30 year bonds this chart starts on august -- july 22nd. in 16 trading days, it lost 6 0 basis points from 262 to 202 the fly in the ointment for the fed and many emerging markets and others, the dollar index one week chart it is firm half a cent from the highs we look at the yield curves of other countries, other countries don't have a currency as strong as ours. kelly back to you. >> thank you now to bob pisani at the nyse. looking at the safety trade, bob. >> it is a sort of commonplace that investors tend to move toward more defensive sectors on days like today. it is true we are seeing some outperformance in the defensive sectors, and on theier

not as much by a lot of people think. >> look the at the classic defensive sectors. utilities up 14% the s&p 500 is only up about that much, 12 or 13% even a much larger more important sector like consumer staples, they're only up 16%, maybe a 2% outperformance. it is true certain personal items in the consumer sector are doing much better overall. personal products. consumer staples, storage the res, certain other sectors of the reits sector are doing much better leisure products, restaurants, home builders doing just better than the rest of the market. this is good news. the problem is many sectors are very small reits, for example, utilities, about 3% of the s&p 500 together not really enough to make a big move on the index. it is true consumer staples have

a higher weighting the question is are all of them together enough to really provide the rotation for investors who might want to come out of cyclicals? they have to say, look, there is not enough room to get into the smaller sectors. i think that's the dilemma rotations work so far this year, we'll see if it does in the second half. >> that is the question we will pose now where are the pros going for safety in this market? two senior portfolio managers here to tell us. valerie grant and kevin karen. is safety not so safe anymore? bond prices are so high and the prices of a lot of the bond proxy sectors are so high. that's the place that people would want to go when worried about the economy. >> right, my core message is to

stay diversified it is very difficult to predict which sectors or which factors will work at any specific point in time. we're underweight energy, underweight materials, overweight consumer discretionary as well as consumer staples that has helped us in terms of performance rell five to the broader market we don't have much exposure to utilities. we have a good foot hold in reits which has been helpful. >> you change to pick companies with cash on the books and very little debt. you have an extraordinary amount of excess savings in china built up for decades, now being worked out of the system. what that means is that a disruptive process of some kind could take hold.

with more uncertainty and greater chance of deflationary pressures, we want to own companies that are very consistent with debt that is very low on the balance sheet because more cash on the balance sheet because that would tend to do better in that kind of environment. that woke would focus on healthcare, staples, where balance sheets are very good technology would be another one. mostly here where the data seems to be consistent with an economy that is expanding, and we see most of the pressure reflected in these inverted yield curves coming from outside our borders. >> let me ask you a kind of, don't know, fuzzy question there are certain things on the investment horizon you can see coming some things you can see coming

like an inverted yield curve other things you can't see coming, like the president introducing tariffs, maybe you could have postponing them, putting them back on, whatever. how do you invest against things you can see coming, things maybe you can see coming and things that can smack you out of nowhere? what do you do >> as i said before, i think really, really important to maintain diversification for the reasons that you just articulated. one of the things that we do in the portfolio that i manage is to look at corporate responsibility and sustainability as an additional factor that we embed into our investment process here's why there is a lot of evidence that shows that companies that consistently underperform on environmental, social and governance issues have more risk if you're in an environment like we have now, you have a lot of

volatility, that's an underappreciated way of mitigating some of the volatility in the broader market. >> people watch us all day long. we haven't had a commercial in five hours probably making all the bosses unhappy. yesterday i can well imagine there would be a lot of people saying, i better invest, i better invest. today people are saying i better sell, i better sell, inverted yield curve and they're telling me there will be a recession coming >> essentially we have an adage that says the best time to fix the roof is when the sun is shining, not when it is raining. we focused our attention on dealing with the bigger issues, dealing with things like debt and the preponderance of debt which exploded globally. we reflected that in our investment discipline. that's why we want to own companies that have less debt.

when we deal with the changing in the economy, from one period to the next, we're not looking at day to day, we're looking at maybe three, six, nine months to understand what the broad trends are. >> i sympathize with the idea. >> just average those together. >> average them together and you're at zero >> the way the dow is going now, it is sinking. >> we are at session lows for the dow and the s&p. >> don't do anything. >> down 770 points now thank you. appreciate it, guys. mortgage apps surging 21% last week. yields continue to drop. what does this all mean for the housing market diana olick sitting down with the ceo of zelman and associates diana? >> what better day to talk thank you for being here with

us we have the dow down 700 plus points home builders going with us. it is all about falling rates and falling mortgage rates should be a good thing for the housing market how do you see the scenario playing out for housing? >> a good thing for housing. for every 25 basis point decline in the mortgage rate, that's equivalent to 3% price in the home right now home prices are down it makes it much more affordable today the housing market is responding to that lower rate. we're seeing very good activity at the low end of the market. >> we also have fear of recession and consumers are -- had when it comes to that kind of thing. >> most consumers are not as privy to what is happening on wall street. all of us are laser focused on the market and volatility. not everyone has stocks or own stocks in the stock market main street is doing very well

consumers have jobs. they're seeing wage inflation. if the stock market remains this volatile and see this type of downward pressure continuing, it is going to have an impact it is your more sophisticated homeowner, someone who is thinking about trading up. there you see more trepidation and rates don't matter to them. >> i'm wondering why the home builders aren't reacting more. they have been steadily coming down since january we have not seen more home builder activity first six months building permits for single family are down compared to last year why are the builders not more bullish? >> the builders are doing well we just published our preprivatery home building s survey for july. because of 20 18, predominantly due to rates spiking in 2018, wu builders got caught with too

much spec inventory. they're building through the spec they got caught with. you don't see it in the government data. we have boots on the ground. we have seen pretty strong activity throughout the first seven months of the year the last seven months, every month has been better than seasonal and we both resulting financially now in a robust year over year increase, roughly 20%. >> you have proprietary information on the eye buyer market the companies like open door and zillow that will buy your house for you immediately, no questions asked, but at a discount what are you seeing in that market you called it revolutionary. >> it is revolutionary for anybody who owns a home today and wants to sell that home, especially a mother like myself with little children that you imagine mine aren't little anymore. we dropped off our oldest in college. university of miami, go, zoe you think about that mother with little children and needs to keep the home clean and get the kids out of the house and the

realtor wants to show the house, stage the house, tell you your carpet looks bad, cabinet looks old, fix up the home, that consumer by the idea of getting a liquid or cash and getting rid of the home in three days without needing a realtor is revolutionary. >> do you think the tech companies will buy into this >> zillow is big in it they have done quite heroic pivot leaving -- >> one of them buying zillow >> i think they have to prove it first. those faang companies need to see it works before they step in i think those companies have a lot of heavy lifting to do before they prove it can be an profitable business. >> thank you so much for joining us tyler, back to you. >> thank you very much. moving on, falling yields are helping the housing market for now. that won't be the case if we fall into a full blown recession. with us is joe lavorgna.

what do you think about what ivy zelman said there? >> it maybes a lot of sense, a lot of sense in part because in general there hasn't been a lot of buildup credit is tight. hasn't been overbuilding that is typically categorized past booms or economic expansion. if mortgage rates fall and fall much further as i expect they will, housing should do very, very well. >> is the slowdown that the yield curve is signaling more a reflection of last year's and the year before that monetary policy or the trade tensions >> it is monetary policy i'll give you one example. the weakest part of the economy, the single weakest part of the economy is construction. weaker than consumption, any category weaker than capex, all the categories weaker than exports. that's a function of the fact that rates went up relatively

high it is not trade. it is about the fed. >> you say that the yield curve needs to uninvert. that's easy to say how do you get it to do that >> they should have moved 50 last month and now made that gaffe about a midcycle adjustment. now we'll come to the september 18 meeting, depending where the market is, they should go 50 i might argue for 75 basis point cut. you do more than the difference between the fed funds rate and ten year note, back in july, 30 basis points may have to do upwards of 75. >> joe, is the u.s. economy that bad or what? i understand what you're saying about construction, but the june data was pretty much strong across the board, the inflation numbers have held up better than expected

>> you're exactly right, kelly the problem with the macro data is by the time it is obvious that you're weak, it is too late and i think you have to look at the u.s. 2% economy which doesn't have a lot of monetary ammunition if really any left versus a global economy raptly downshifting. if it has to cut rates, to prevent dollar strength, generally i'm a big believer in markets. if you look at the equity market and defenses versus cyclicals, the decline in real rates, they all seem to be saying growth is going to be weaker and as the insurance policy paula talked about in june the fed is supposed to get ahead of it and cut, not hike, because you don't want to wait so see that data turn. >> has the fed cut by 75 basis points before, joe >> yes. >> they have >> january of 2009. >> okay. would you also advocate that the fed take the -- the criticism

with the fed is that it let the market dictate where it goes and right now it is pressing the fed to do more than it has telegraphed at the prior meeting. is there an argument to be made for an intrameeting rate cut. >> that seems to would make the situation we describe even worse. >> would it freak the markets out? >> if you think they're hostage to the markets you can't even wait to the meeting -- powell i don't think has done a -- if predates powell. the way you do it is first get out in front of the market by moving more aggressively, then they become basically hostage to markets, you have this causality, this circularity, they don't go as much, so the fed then has to go more to catch up with the markets, but my guess, melissa is ultimately

we'll see zero rates, the fed will be done because they can't do more, and then we turn it over to the fiscal side to see if he get stimulus there. >> thank you ipos are feel the heat today. leslie pickers joins us with those details. ipos are selling off dramatically today the initial offering of the year you ebetter plummeting about 7%. from just a few months ago and tracking the worst weekly performance ever its competitor lyft also dropping, but not quite as drastically as today it's also about 25% below its own ipo price. ipo is exposed to the retail, taking some of the biggest hits today. the chinese coffee chain are experiencing the biggest declines of that 2019 ipo class.

that stuff down a whopping 15% after reporting the first earnings as a public company with wider losses than expected. realreal reversing earlier gains on quarterly earnings that beat analyst expectations, resolve down about 10% today as well it's in this tough environment that -- disclosed the ipo prospective, the we company showing nearly a billion in losses, expected to raise billions ahead of a market debut next month guys >> a lot of these stocks, leslie, even prior to today were sort of wounded stories, right realreal had terrible earnings they're story stocks,, too. >> if you remember, most of these companies are only floating between 10% and 15%, so that can benefit them, where you have all this demand, but on a

day like today, they're also big beta stocks, so they're also going to decline much more than the broader market again, tiny float, you have a lot of sellers and not as many buyers do experience much more of a whiplash. >> leslie, thank you. drug stocks relative outperformers as investors seek safety meg tirrell is looking at those names. >> the drug stocks are down, but november as much as anything else health care as a whole is be performing. that makes sense drug companies businesses aren't as affected about worries about the economy. biotech stocks are kind of in the same stock, but they're peta the etf is off loess than the

broader market, while the xpi is down along with the rest of the market the flames can swing a lot, but what scares investors are headlines about broader prices, so everybody is just holding their you breaths. >> they're not really trade sensitive at all. >> they're not involved in the tanks, at least for drugs. it's all political headlines. >> and people still get sick and wants drugs. >> and there are questions of whether they can afford the drugs. >> and if they get more, they get sicker. >> i would edge ma these are companies more reliant on accessing the capital markets, so when conditions turn south, that may be more difficult. >> yes, you see that sometimes, and some people argue that interest rates have a big impact, there is some disagreement in the space about that, but yeah, they do swing more broadly. >> meg, thank you. a check on stocks, all major averages down more than 2%, take a look at this picture

dow is down 732, s&p 500 off by 2.67%, the nasdaq is down by 2.9% if you are an investor, what should your strategy bet let's believein jeff killburn. are you just going to say investment defenses? >> no, i'm not, melissa. what i'm here so tay is i think it's different this time i spent over a decade in the treasury pits, and the bond leadership that the market used to provide pre-crisis is very different. focus more on supply and demand. we're seeing 16 trillion in negative yields, that's the biggest story. i'm not in the armageddon cap by any means. i notice the inversion has a good track record, but we have a lot more room to run to the up side. >> i mean, why are you more concerned about that than the inversion, or why is that the bigger picture

how do you come away with that headline and say there's no armageddon coming? >> it's the global growth story. we have become so interlaced it's if we see one move over, in asia, it happens here. i think the fed is waiting to see what the ecb will do september 12th with that plethora of still russ, but remember operation twist i think they'll consider an opposite, maybe operation turn if they turn the opposite, they could sell all the ten-ye holdings if they sold the same number they bought in operation twist, i any powell has to consider that. >> what are you looking forward to in the close? >> i these you have to understand where a bit of panic is certainly we're seeing products being booked in invite tech

names, but some of the defensive names, like a lockheed martin, but relative strength matrix we use that a lot and it lit up on tlt in december it's outperforming the broader s&p 500. i think you have to stick with this trade until you get something from the go ahead. i know we've been saying it for ten years, don't fight with the fed, but people are repositioning. we haven't seen volatility like this for quite some time. >> if you believe there's an operation turn on the horizon, you don't want to be in the ten-year right now, do you >> no, you do. we'll wait for mr. powell it come out i think he hayes to considering it in conjunction with another rate cut the market is demanding one more rate cut, if not two where do you think yields will go >> i think they'll test the 150s oz but i think we do see a

couple people getting caught offsides look at the german bund. i think you'll see yields bounce off and work their way back up for 175. a lot of stocks underneath the market the yield is inseriously correlated. >> do you see a scenario where the yield could go to near zero? >> i don't, tyler. i think the fess has in recession mode, resays watch i think the fed as or tools. so no, i don't see us get anywhere near that >> jeff, thanks for your time. >> thank you. jeff killburg, joining us from chicago. >> what he said is if we could so a year-to-date chart, that proxy for the long bond is effect effortly up 20% that's a 40% annualized move the thing is looking parabolic,

if you look at the back end. that's where i would be watching the market, including a lot of proxies. >> that's your total return on that index there, that is not just yield obvious we look at yield and we forget what -- the price goes up what matters is total return, ultimately we are looking at the setoff, down by 176 points, so we're just about seven points and change off the session lows right now. nasdaq composite is down by 2.8%, and the dow 729 points our loss, and as you mentioned, kelly, the tlt, that's the winner on the day. >> this is all without the yield curve inverting again. it's close, but it's still positive

>> record low on the 30-years. >> that's the third most interesting thing that's happened today any other day, it would be number one. >> should be a big hour for the closing bell >> watch twitter you never know what might happen. >> thank you for watching "power lunch. "closing bell" starts in three seconds. welcome to "closing bell." i'm morgan brennan in for sara eisen on the floor of the new york stock exchange, a major sell-off we have the dow down more than 700 points after the bond market flashed a recession signal i'm standing at the macy's post, it's down 12.5% after earnings over the nest 59 minutes, we will tell you everything an investor needs to know in this market today i'm wilfred frost. let's look at what is driving the action fres