it is friday, september 23rd, 2022 and "squawk box" begins right now. good morning welcome to "squawk box" hered o cnbc we are live from the nasdaq market site in times square. i'm kwrebecca quick here with melissa lee. joe and andrew are off today dow is indicated down by 220 points at this point, the declines will put dow in territory at these levels below the june closing lows let's talk about now we got

there. dow and s&p and nasdaq on losing streaks. dow down 2.4%. s&p and nasdaq off 3%. this comes offer the declines of 3% to 5% last week you are seeing a steady decline. if you go back to june, you will talk about the dow which only needed to open down 188 points to be below the june closing levels s&p still needs further to fall. it has to open down 91 points. nasdaq would have to close down more than 421 points you are sitting above the june lows nasdaq before thelosses on the future this morning, you need another decline of 4% to get there. this morning, we are looking in the red. a lot of that is doing with

treasury yields. if you look at where we stand across the complex you are looking at higher yields 10-year treasury at 3.74%. 2-year treasury at 4.188%. 2-year treasury closed at the highest yield since 2007 you have to go back to 2011 for the 10 year. melissa, we were talking about this before we came out. the yield is being driven by the central bank activity from other central banks. >> it is called super thursday the moves around the world in central banks with raising rates and what it is doing to the currency markets let's look at the currency and commodities. this is all part of the story. hitting two-decade highs bank of japan intervening for the first time since 1998. you typically sell u.s.

treasuries to get u.s. dollars what does that do? you send yields higher that is one move we saw pre-market yesterday which is still unfolding today. >> that makes sense. you see treasury yields go up and you are watching investors look to the treasury market for the first time and think i can get yield locked in and promised there versus what is happening in the stock market. the dollar goes up central banks react. yields the treasury market go and investors say i don't want to be in equities. i want to be in treasuries over here you watch that balance out it is tough for the markets. >> it is not just japan. swiss national bank is looking to defend currency as well they could be selling some of their treasury reserves. 18% of the reserves are in treasuries that could be another force. on top of that, the fed is selling bonds. that is the question with the 10-year treasury right now at

3.7% look at cryptocurrency that is a proxy trade. closely pinned to where the yields are going in the treasury market bitcoin down 1.5% today. ripple and dogecoin. dogecoin is a winner today oil markets with a pull back seeing demand destruction fears. dollar strength playing in the picture. wti is down as well as brent off 2% gold, the alleged inflation hedge. look at that picture we are down by 1%. >> we should talk about the goldman call out today you have david costin cutting the target that is not a very long way from where we are now that is near the lows on the street

right now, 3757 is where we closed yesterday. >> it is not necessarily the move lower it is implying we are going to close the year lower than the june lows. he is saying not only will we test the june lows, but close below the june lows. that is important psychological reset for wall street. everybody is watching to see if we retest or test the june lows. they are saying we are breaking through it >> the outlook is murky. if you look at 2023 with the crosswinds and alternative outcomes, they are looking at the baseline soft landing and hard landing scenario. the hard landing is evident. that is what is playing out in the market this week that assumption. among the corporate stories. boeing reaching a settlement with the 737 max

phil lebeau is joining us. this is one more fine against the company. >> one more fine it is one more case where boeing is almost done with all of the litigation involving the 737 max. this is the settlement with the s.e.c. for boeing and former ceo. here is what was agreed to and announced late yesterday by the s.e.c. boeing and the muilenburg neither deny or admit about the safety and certification process. boeing will pay $200 million muilenburg will pay $1 million the chair of the s.e.c., gary gensler said they misled investors about the safety of the max despite knowing about serious safety concerns. 346 people died in two 737 max

crashes in 2018 and 2019 boeing paid $2.5 billion already to settle the doj criminal investigation into the 737 max look at the shares of boeing you have to remember we are going all the way back to 2018 with this chart to show you the impact that the max crashes and investigation and everything that happened. it was grounded for 20 months, guys it wasn't until 2020, late in 2020, that it was lifted the grounding was lifted by the faa and most other agencies around the world boeing, we reached out to them, says we do not admit nor deny the allegations from the s.e.c we made changes since the max crashes with the safety of the aircraft the company believes it has been moving forward since this investigation first started back in 2018. guys, back to you. >> phil, we can look at boeing

stock and see what's happened to it over time the other question is what happened with airbus airbus is hinting a bigger jetliner may make sense. a-220 at some point. >> well, a larger version of the 220. a stretch version, yes a number of people think it could fill a niche within the market when you are looking at boeing and airbus, keep in mind they generally trade and this goes back years and years generally they trade in tandem there has been separation in the performance within the last couple years that's happened as airbus has been able to pick up market share in mapart because of the a-220, but boeing has struggled to get the max deliveries back to the level they were before this began production is 831 a month

when the crash happened, they were in the 50s and looking to move higher. boeing would libelingke to get t the level of hmanufacturing. that is down the road. the problem is figuring out what is happening with business and deliveries in china. they have not started delivery to china yet >> phil, thank you in other corporate news, humana and cvs is looking to buy cano health. the deal is likely to be struck in the next few weeks. cano could fetch $4 billion. jana partners taking a stake in freshpet. it could sell the business shares are down 60% this year. the investor calls the company under valued.

fedex is raising shipping rates for ground and express service by an average of 7% in january. that rate increase is higher than previous years and it comes just a week after the company slashed profit and sales forecast fedex, u.p.s. and other shippers are suddenly stuck with excess capacity just as holiday merchandise was shipped early and inflation hitting consumer demanded the average number of packages that fedex handled in the last quarter was 11% from a year ago. melissa, the question is where does that get it in the pricing comparison with the competitors? dhl or u.p.s. or the u.s. post office i would say the u.s. post office has put itself out of the running with the changes >> not at all. the bigger problem for fedex is fedex.

u.p.s. came out after fedex slashed guidance >> they are raising rates like this, are the competitors going to be a better or cheaper alternative or will they raise rates to keep up with inflationary costs >> will consumers push back? when we come back, investment ideas in a rising rate environment the 2-year treasury yield this morning is unbelievable. every 24 hours, we see huge clicks higher. 4.19%. earlier this week, we were waiting for it to cross the 4% threshold. we are there and much more we'll talk about this when we come back. as we head to break, check out the market's winners and losers. stay tuned you are watching "squawk box" and this is cnbc

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switch to the fastest mobile service - xfinity mobile. now with the best price on two lines of unlimited. just $30 a line. welcome back to "squawk box. it is friday morning if you are just waking up, this is something that could get your attention today. the stock market average down.

a lot of red arrows in the early going. dow futures off 232 points if we were to close at these levels or open at these slevels we will fall below the june lows for the dow. down 238 on track to open lower than the closing lows in june we got here by the losses we have seen in the last two weeks. the last week, all of these major averages down 4% to 5% this week, trending down 2%. these losses added up quickly. the nasdaq this morning indicated to open down by 122 points s&p indicated off 33 in our what's working, we focus on yields. 2-year treasury up over 4% in the last 20 years, that yielded 100% in returns compared to the current yields of three

dow. verizon is 6.5%. ibm is 5%. chevron is not quite 4%. the 2-year treasury is a viable alternative. let's bring in greg branch of veritas and r.j. gallows at federated. gentlemen, you sound down on the markets. you think we will hit new lows for the year what is working right for in your view? is the bond market giving you a choice >> obviously it is i think that is one of the headwinds that we will face throughout the year in the equities market. not only do we have the fundamental and macro view deteriorating or people coming to that bearish feel, but because the bond market and even the treasury market is giving a

4% plus risk-free return, but we will see entities and municipalities that moved up the risk curve move back down in the traditional categories that they normally reside in that will be another demand factor for equities that we will see a stiff headwind throughout the year and i think lead us to being one of the contributing factors that lead us through the june lows through the next couple months. >> r.j., what do you see with demand by customers seeking alternative to stocks at this point? >> unfortunately, as a bond manager, it has been the opposite municipal bond market, my primary focus, has seen record redemption going back to any tracking mutual fund flows losses are big

double digits in every asset class. muni, treasury, corporate, you name it. investors sell losses. i think right now, we are actually getting to the point where you shouldn't be selling your bond. the 4% yield as you mentioned is the highest since 2007 on the treasury index meanwhile, we believe at this point the worst of the rate increase is over it is probably the eighth or ninth inning in the abysmal bond market return. now time to leg in a longer duration asset cautiously because the fed is still tightening the end point of tightening is in sight now than six or nine months ago. >> you are saying longer duration length of time. what latter would you construct

or barbell construct if an investor were interested in doing that, r.j. >> at federated, we manage fixed income wit we don't talk about latter we have been upgrading because we think recession is more likely number two, short duration which has been a rocket ship higher. we are getting close to the top of the rocket pattern. we are managing fixed income we believe a little short duration is probably the safe place to be with rocky economic roads. >> greg, what is the take on the move in the 10-year treasury this week and what that means for equity valuations particularly when it comes to what you are calling the

defensive areas of the market which is big cap technology which commands a premium of the s&p? >> i think the major dislocation is actually in the short end i disagree there is a lot more fed hiking to go, right even just this year. they said they want to be at a fed fund rate of above 4%. that is another full point of raises this year i don't know if participants digested that. we are liking to see another 75 bps. there is a lot of room left in the hiking sicycle. what that means is investors need to be compensated because what we believe is inflation will remain high over the short duration that is why we see the inversion. that is why we will continue to see the inversion.

i will agree that's where we will see the opportunity it will be on the short end where we need be compensated for the inflation environment that is like thly to remain high thrg 2023. >> greg and r.j., thank you for your time. >> thank you when we come back, move over pepsi. there's a new game in town a tech giant winning the super bowl halftime show we've got the details when "squawk box" comes right back. >> announcer: the presidents cup leaderboard is sponsored by the grand wagoneer

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welcome back to "squawk box. apple music is the sponsor of the halftime show replatcing pepsi. more than 120 million viewers waf watched the halftime show last year. >> it was a long run for pepsi they had a ten-year run. they announced back in may they were moving on dr. dre and the rest of them they will now focus on digital and video and other nfl properties it wasn't a bidding war where they got into it apple is paying a hefty sum. >> it doesn't seem like it with that many people in that moment in time. >> this is the rare live sports. olympics and nfl

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good morning welcome back to "squawk box. we are live from the nasdaq market site in times square. i'm rebecca quick along with melissa lee. let's check out the markets this morning. if you are looking for relief, you are not getting it the market has been down three days in a row. losses building on the big losses from last week. the dow futures this morning are weakening. down 307 points. if we were to open at these levels, you are talking about the dow falling below the june lows we need a decline of 188 points to get there the june lows are getting close for the s&p and nasdaq as well if you want to look at what is dragging things lower, not just the dow, but dow laggards.

leading is salesforce. down another 2%. this is a punishing year >> the pe is still high. 31 still commands a premium >> caterpillar and chevron not a kind year for software companies. salesforce hit hard. it has been a good year for consumer staples regarded as defensive stocks out performing which stocks offer an opportunity? dom chu has the sectornomics >> melissa and becky, the stocks have been out performers not to say they're positive, but they have not fallen as much as the broader market look at the spdr etf ticker down

9% that is still bad. it is nothing compared to the 22% drop for the s&p overall consumer staples, that relative safe harbor in a storm in the economy or markets one thing that a lot of traders and investors may look at closer when it comes to the defensive names and if we were to get a market economic and market down turn is just how much these companies pay dividends. they are income producing instruments. the data at y charts look at the coverage of the consumer companies. how much can they actually cover their dividend payments with the cash they generate some of the best dividend coverage ratios in the sector from tyson they can pay six times dividend payments arch daniel is four times. kroger, four times costco and church & dwight up

three times. one of the least likely to be able to sustain a dividend payment if a broader down turn and things got bad for the markets and economy are some of the dividends that are low altria they pay out everything they get in cash. kraft heinz below one. clorox below one we are looking at dividend payers, melissa, we are looking at the economic down turn. a lot of questions >> really good points, dom when you look at staples in the relative out performance in the broader markets, you think clorox and i know you have looked at this clorox pe is 34. microsoft in the 20s you have to wonder they both pay dividends and defensive. you go through the mental arithmetic of which one would

you rather in a way. which one is more defensive when you pay a premium to market multiple >> melissa, i had this conversation a number of times with a number of folks we highlight the fact that the mega cap technology names since the great financial crisis is the relative safe harbor apple tin particular is one of those. you have to look at the valuation side of things vis-a-vis interest rates that is what is changing in the last year or so with the inflation picture. the interest rate scenario will keep gog ing higher if inflatio is a problem that will bring on real pressure it is approaching that 3% or 4% range, then it will be a lot more work for you to pay a company to get that return to

compete are risk free rates. that is the reason why a lot of folks say the tech trade isn't playing out like the relative safe haven like the ones like consumer staples do. >> dom chu, thanks when we come back, veteran wall street leader sally will talk about what investors need to know about what is happening right now. she has an outlook how women are faring when it comes to their financial health here is a hint it's not good. first, reminder to join us at the delivering alpha conference this is the most powerful investment event of the year guess what we are returning to in-person in new york next wednesday, september 28th among the guests, don't miss david rubensein and paula volent we have investors coming this is the time you need to know what they are thinking. markets in turmoil you can go to deli

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welcome back look how we are opening on

friday morning s&p looking to be down 43. nasdaq looking to be down 149. we worsened in last half hour. we will watch this closely look at the faang stocks this is the group that is seen as a more defensive area of the market the question here, i think, for investors is, how much longer will it hold on to the market multiple in the rising rates environment as we see the 10-year treasury tick-er this morning. 3.76%. red arrows across the board with big cap tech. elivis released the first women's financial health index and the second wellness survey yesterday in honor the wellness day. that survey found that of women sur surveyed 38% were concerned of market volatility as opposed to 58% of men

however, women are not feeling about about the financial health let's bring in sally krauchek. sally, good to see you the headline is women's financial health is the worse in five years what led to that >> it is rough out there when we started to do this work, becky, we said let's find a comprehensive index that shows what is going on with the health of women we couldn't find one we took a step back and has an ellevest specific number which gathers reacurring deposits and broader issues like inflation. women have less wealth things like pay parental leave gender pay gap what we saw is the pandemic is

bad and the inflation being tough and consumer confidence dropping and roe v. wade struck down which is a financial and economic issue for women women are in tough shape. >> what is interesting to me is 14% of women are prepared for recession at this point. if you look on the horizon, we arewatching the markets giving us an indication of what is to come with the economy, sallie. >> you know the fed essentially said we will tighten this until we go into recession that is what is happening right now. the good news about this is they are doing the right things women are cutting spending they are keeping recurring deposits going and not pulling money out of the markets to a greater extent than men, they are standing firm at ellevest, we send emails

saying stay the course we know. you told us that already so they really are making the right moves. the other slight good news is versus a year as, we said how important is financial wellness to you 14% said it is important today, you know, we want to shore up the wellness. it is number two in terms of what is most important to them women say financial wellness ranks overall wellness it is a wake-up call. >> sallie, you have been doing this a long time you know the markets well. let's talk about staying the course there are a lot of people who are starting to panic a little bit. goldman sachs throwing in the towel today and cut the year end target for s&p 500 to 3,600. we are 150 or 160 points from

what they are calling the year-end target. they are agreeing that markets may not go up by the end of the year if you are telling people to stay the course is that because you think things are going to get better or the solution is going to be just as a long-term investor to ride out the rough waters there may be more to come. >> exactly right becky, thank you for pointing out how long i've been doing this >> i only know because i was here. >> remember back in the day we said don't fight the fed we didn't have to fight the fed for so long. we forgot you are not supposed to fight the fed what is happening is the fed is powerful increasing interest rates are a tough environment. at ellevest, we are all about diff diversified and asset all allocation stay the course. up investments now for women who live longer than men

staying the course is the right thing to do. what i remind myself over my glass of wine at night after a tough day in the markets is absent this market and we recover from 100% of the bear markets and recessions and you don't want to bet against the u.s. >> sallie, i heard a smart woman speak on "worldwide exchange" in the last hour. she is concerned about the u.s. market in particular and think there is are better bargains to be had overseas. she thinks this is just the beginning. market valuations have come down, but not enough in the united states. she actually came up with the new line and instead of buying the dip, she is saying sell the rip. she went back to the nasdaq and what happened in 2001 where you had a 78% decline in the nasdaq, but 7% gains of bulls within the bear market. she is saying take advantage of

any uptick in the markets to get rid of some things and don't expect quick turn around what would you say >> again, this is why diversification is helpful globally diversified portfolios are helpful as well because they haven't done as well for years now it is good to have the diversification and across bonds as well. i tell you where we are even gaining with clients and on the private wealth side is individuals who made a lot of money and were in individual stocks and stocks of the companies and didn't want to sell because the stock is doing so well. i want to stay here and the business each fooel feels good t to to sell. now the advice we give is the market is efficient as the market is more efficient than any individual or perspective.

making sure you take the opportunity to diversify and recognize because the stock went down doesn't mean it is going up that is why you diversidiversif. real diversification is important. the other trend among women is continued interest and impact investing. during the period of down turn make sure my money is doing triple duty. >> diversification let's talk about that for a moment for a long time people avoided bonds. lately, the bond market and treasury market is looking a heck of a lot better than the losses in the equities market at this point on the 2-year, you can get 4.2% this morning that is crazy. that is a guaranteed return from the government would you tell people diversification. here we go 4.205% >> we are in an inflationary

environment. >> it is safe unless you are dealing with 8% inflation. it is safer than cash. it is safer than equities where you see continued declines the value of money is not keeping pace with inflation at 4.2% >> we have been in a place where you are not safe anywhere. don't fight the fed. the fed is, you know, told us they will do everything they can to squash inflation. that will hurt and be painful. we also know that the recovery -- you can't choose it. so much of recovery takes place on single days when nobody except on this show rings the bell and says today is the sday. if you miss out on the ten best days, you miss out on the whole thing. continuing to be in the markets and not trying to find that one day. >> it is different messages for people who are trying to take advantage on the daily basis

people who are long-term investors. sallie, great to have you here. >> thank you we are looking to end the week on a negative note. futures pointing to a lower open across the board with the dow looking to open down 1%. same for down we're looking at a 1.25% at the open and the nasdaq down by 1.4%. stay tuned you're watching "squawk box" on cnbc and not appreciate when they do? [dog groans] so whatever is at work to pull all this off, it's working. as are those earrings. ♪ ♪ even work works! i just booked this parking spot... this desk... and this conference room! i am filing status reports on an app that i made! i'm not even a coder! and it works!... i like your bag! [people cheer at concert]

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welcome back to "squawk box. futures are right now close to session lows we are watching the two-year note very, very carefully. it is moving higher by 1.9% on

the yield. we're well north above 4%. we're looking at 1% declines across the board for the major averages when the market opens joining us now, the ceo and chief investment officer of defiance etf great to have you with us. we've been discussing this goldman sachs note this morning, taking their target down to 3600 they say they the s&p should be yielding more like 14 times, which would be two terms lower from here. how are you thinking about valuations in this sort of market when we know that rates are going higher >> good morning, melissa thank you for having me. well, i think we're in a bit more of a dire situation after the last fed call than we sort of werebefore. the market didn't want to hear -- the market expected the 75 bounce but i didn't want to

hear higher for longer that tells us we're going to have some headwinds in the coming months. there are a couple of things going on i think on one hand, the fed has done a lot they've done the highest amount of rate hikes and the highest sort of sizable rate hikes and that takes a long time to filter into the data where they can see the impact of that and see whether or not it's working. so in the near term, they're not seeing that and they're sort of going onward in terms of corporate america and earnings and whatnot, so for earnings have been positive. but it remains to be seen whether they maintain that pricing power and can continue to grow with this rising-rate environment. i'm anxious to see what the next quarter brings. >> i'm not really getting the clear picture then from you, sylvia a we're waiting to see what the

earning season will bear or or do you think the path of least resistance is in fact lower. >> i think the path of least resistance is probably a reset and slightly lower valuations. in terms of what that actually means for investors and i've been saying this all along i think if you're a long-term investor, you can start buying in this type of market you can buy on the way down. i do think that the market has done a lot of work for equities. you see bear market territories, we're close to retesting the june lows if we open up where we are right now. so i do think that it's an opportunity for investors to get back into the market it doesn't mean we won't have a slightly lower dip there i'm okay with that because i think the dip is going to be significantly higher than the next pull back will be. >> sylvia, thank you. >> thank you when we come back, much more on what's been pressuring the

stock market this morning. our coverage continues at the top of the hour. right now, though, as we head to a break, check out this morning's biggest s&p 500 losers you're going to see what's been driving things lower for the dow, the top loser was salesforce s&p will look at the broader indices right now. s&p is off by 1.3% the dow off by 1.25%, the nasdaq by 1.5%. check this out, it's the travel stocks that are really making it in those leading five laggards carnival off by 5.4% royal caribbean is down by 3.8%. costco rounds out that list. it's down by 3.2%. this is "squawk box" and we will be right back. -being of you and your family first. i promise to serve, not sell. i promise our relationship

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good morning stocks looking to end the week on a down note as investors continue to digest this flurry of global central bank rate hikes, implications for risk assets things they're doing to shore up their currencies. things are on the move this morning and we'll get you up to

date plus, week two of the nfl on amazon prime the numbers from last week's game were pretty eye-popping we're going to break down amazon's ratings touchdown and find out if other streaming platforms are looking to enter the sports arena the second hour of "squawk box" z begins right now ♪ good morning, welcome back to "squawk box" here at cnbc i'm melissa lee along with becky quick this morning joe and andrew are off today we're seeing a deteriorating picture across the board as you get closer to the u.s. open here on this friday's session the typically looking to loose 1.3% at the open the dow looking to be down by 1.25%. that translates to a loss of 400

points the nasdaq looking to be down by 1.46%. this is what is driving the markets this morning take a look at treasuries and the moves of yields that we are seeing this morning. the two-year, we, of course, are on two-year watch, that's 4.236% the ten-year yield, we're going to crack 3.8 we closed at 3.75% yesterday we've seen it -- >> this is on a second by second basis. the two year note half an hour ago had not crossed 4.2% same story when we were watching the ten year over a matter of minutes, you were seeing these yields tick higher and higher. i don't know if you're getting into technical issues, moment stuff that's happening we're going to talk to a lot of people about this today. the other issue we should point out just going back to the futures this morning, the dow at these levels and actually far below these levels is going to

open below those june closing lows it's going to take out the june lows at the open it only needed to open down another 188 points it's down 387 right now. you're looking at some things that could key other movements too. >> the s&p 500 we're not far from retesting the june lows either and the intraday june lows, 3636 that is a level we could be watching on the s&p 500. >> that would be 91 points today. it's only 91 points from yesterday's close. let's take a look at what the points were for the s&p 500 on this it's not something you would anticipate hitting today but you are seeing on a percentage basis, at least, the s&p is a weaker performer today than the dow it's off by 31 points. that's getting it within 60 points or so from the june low. >> let's take a check quickly on oil as well as crypto. we're seeing both asset classes move lower oil, it's a combination of fear of demand destruction, a stronger dollar, twti is down by

3.38% right now. and crypto which has become a proxy for the nasdaq trade, of course, really the direction determined by the move higher in the ten-year yield we're seeing pressure on the nasdaq, we're seeing pressure on crypto this morning, bitcoin, ether, all down by more than 2%. >> and you were watching this last night 13 hours ago, you were still running through this with the traders what were they saying last night? >> the suspicion is that the fear of central bank of intervention in currency markets is what is driving the moves in theyield you can make the case that japan has plenty of u.s. dollars held, but traders go five steps out and so the thinking is, if they continue to defend the yen, which is, you know -- many people say is a failing -- a very difficult thing to do in such a huge market -- >> when they won't raise rates

>> it's an internal conflict in terms of keeping rates low and defending a currency and the next step would be to sell treasuries swiss national bank has a lot of u.s. dollars but the fear is, there's going to be pressure on the ten-year, especially when the fed starts to sell its balance sheet. >> and the central banks are trying to combat inflation we have a lot of people on today to be talking about this a lot of people walking through what's been happening within inflation picture and how that's playing out in every one of these markets. again, we're continuing to watch this, the two-year note right now -- >> 3.82% >> 3.825%. we're going to octalk all about these moves and the implications we're going to get right over to dom chu. he's been taking a look at the markets. what are you seeing? things are moving quickly.

>> they're not just moving quickly. they're moving in large part because many of this things you're talking about right now i was listening to the conversation about the rates and everything else that you were saying and one of the reasons why it's important is because even if you look at the rate picture and you have that selling pressure that could hypothetically be because of maybe other central banks or maybe our own and everything else, what you aren't seeing a massive panic about is a global economic recession if there were a global economic recession coming, you might actually see a bid for long-term treasuries at some of these levels which are way higher, way more income guaranteed by the u.s. government in a time of an economic downturn. there's a weird push and pull coming one of the other things that's not helping the market narrative this morning is what's happening with the s&p 500 according to goldman sachs. the chief equity strategist there in a note to clients has taken his target for the s&p 500

at the year end for this year to be 3600 which puts him at just about a street low, i want to s say, along with bank of america. g goldman cutting its target by 4% what's more important, it's just below where that june low for the markets was which was 3636 as melissa points out. now, the valuation model supports a 15 pe versus close to a 17, 18 pe. multiple compression part of that story as well another reason why, they're listing a litany of them, among the highlights, why are they doing this because there's less clarity in the path of interest rates, also earnings coming up on the corporate side of things and many other parts that are way more influx right now as a reason for that target cut is a hard landing inevitable. they say that a number of their

stock investing clients have now said that a hard landing and economic downturn that would be more difficult is almost inevitable those are their words. and that the s&p 500 in a recessionary scenario could hit around 3150. now to put that in percentage context, that is now 17% below where we are right now so there's a lot more negativity coming out from equity strategists and that negativity is coming from speaking to those clients who are part of that bank picture there as well as we look at the way things are shaping up right now, that negative narrative, becky, is very much about this kind of pessimism that seems to be permeating more and more through the markets right now. >> just on the goldman sachs note they had previously estabpublis that we could get to 3150. they had previously said that but a hard landing was not their

base case scenario it's not clear that this is still -- i don't think it's a base case scenario at this point. i think they're pointing out that it's becoming more likely you should point out that goldman sachs was playing catch up here. their year-end target had been 4300 4% from where we already are they're saying, okay, next week is the end of the quarter, we better throw in the towel at this point and say we're not going to hit that 4300 target. but they make the point that they think it's more likely that a hard landing scenario would come up and it's a lot meryer. the other question is, what happens when some of the technical levels that we might be blowing through in a lot of different places we're going to get the technical analysis on a lot of this stuff too. we'll check in with you in just a little bit so many things are moving this morning. got to keep everybody on their toes about what's happening.

thanks, dom. >> you got it, guys. the volatility that we're seeing in the treasury market is extraordinary and maybe the treasury market is doing a lot of the work for the fed. let's get to steve liesman it's been an interesting week when it comes to what our central bank has done and what other central banks around the world have done as well. >> interesting in the confusion terms here >> interesting times, exactly, steve. >> yeah, and interesting for fed reporters and investors. one of the most remarkable parts of the fed meeting was not only that it sharply raised if forecast to 4.6%, but that the fed chair powell, he embraced that forecast. he called it likely and a plausible path powell is now hugging the dots just three months ago, powell advised investors to take them

with a glarain of salt widespread agreement among fed officials on that path except for one dovish outlier that might have given powell for confidence to do what he doesn't o often do is speak for the committee's intentions there could be more going on it feels like the dot plots have gone from an exercise in unfiltered transparency to a more curated communications tool he adds that a reason for the cha changes, it looks all to be working and then some. the outlook for the funds rate this morning keeps going up. what number do we have there it's now at 4.76 for the may 2023 contract and it was only towards the end of the press conference when powell embraced

the dots that the two-year began its move convincingly over 4%. it's now this morning 4.23 and rising it seems more important now to follow the so-called dots. but investors also have to keep in mind, they've not been very accurate a year ago, the fed forecast the funds rate at 0.3%, a number that's likely to end right now at 4%. melissa? >> steve, i'm wondering what your take is i know you're not a treasury reporter or anything like that but the move higher in the ten-year yield and -- how economists view a steepening yield curve that steepens for the wrong reasons. >> yeah. i mean, it -- yields are complicated creatures, i guess is the best way to put it. there's a lot embedded in there. there's inflation embedded in there. there's an outlook for the

economy embedded in there. there's an -- there's term premium embedded in it right now, i think the market -- by the way, there's also a lot of supply and demand you were talking earlier about what's going on with the federal reserve and quantitative tightening that's going on as well. you also have, by the way, the stronger dollar. you pointed out. it's interesting, you pointed it out as a negative for yields but it could also be a positive in that economists tend to think of an interest rate as a flag that a country waves. when it's high, people see it and it could attract money so right now, we are almost certainly the best game in town when it comes to yields. i was actually just looking at global yields. i'll give you a cross-section. the german ten year is at 2% you can buy the german ten year and you're making money on both sides of that trade if you're a

european the french at 2.64 if you want to go there, have at it so right now the concern is that these big movements, something breaks along the way that there's concern about the liquidity in there right now markets appear to be functioning reasonably well. but these are tremendous times here, tremendous change going on with these big rate hikes from the fed and now the key is that the market is embedding these forecasts, melissa, the idea that powell is out there hugging these dots, so to speak, telling the markets to take seriously the fed's forecast, you know, there's no -- very little question anymore when you see -- this morning i came in and i made the fed funds chart with something like 4.60 and i had the producer remake that chart three times because we don't have it live. it's now 4.75. it is up substantially this

morning as the market, powell embraced the dot and is the markets are now embracing them as well. >> and the next step for the markets now is digesting it in terms of what it means for valuations that's to be seen. >> exactly >> thank you >> steve, thank you. >> sure. when we come back, richard fisher is going to join us to talk about the fed, the move that we're watching in the treasury market this morning and much more. before we head to a break, though, let's get a check on the markets once can't take your eyes off of it or you're going to miss the latest moves dow futures which, by the way, an hour and 15 minutes ago, we were down by 150 points. the dow is indicated off by about 384. the s&p futures down by 53 the nasdaq down by 175 the dow, by the way, at these levels would open below the june closing lows continuing to watch that continuing to watch the treasury

markets. this is a friday you're headed into a weekend and weilbe h wl ear with you to watch all of it. "squawk box" will be right now >> announcer: this cnbc program is sponsored by baird.

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but it's really the treasury markets that's the focus this morning too. take a look at the two-year note it was not yielding 4.2% just about 45 minutes ago cross that line and it hasn't looked back. it's now yielding 4.259% just the moves we've seen this morning in the last 45 minutes or so. the ten-year note picking up melissa, you said yesterday it closed at 3.75 this morning it's above 3.8. again, this move just happening in the last 45 minutes to an hour or so it's not just here in the united states, yields are rising and treasury markets around the globe, you can check out the bund in germany, it's almost 2.1% forget about any of those forget interest rates anywhere at this point. former dallas fed president richard fisher joins us right now to talk more about all of these moves. he's now senior adviser to barclays and, richard, we're

kind of scratching our head watching some of these things. it's been pretty phenomenal to see movements, basis points like this, jumping in minutes >> i don't think it's unexpected, becky. i want to come back to steve's comment about hugging the dots i was a dot for almost ten years and janet yellen never hugged me so -- >> and you're feeling neglected. >> i'm feeling neglected and hurt look, the most important part is what they're doing for the next meeting, the short-term future the long-term, it's pure guess work and we know where they're going. and they have to slay the inflationary dragon. they let that horse out of the barn it's hard to get them back in. and they got work to do. the business of the landing hard or soft, the greater evil is inflation if you're a central banker we've seen these movements

money was free for so long, becky, that we have a whole slew of investors and advisers that have forgotten, when money costs something, the two-year, the ten-year where it is, there's an opportunity cost in terms of investing in other assets and equities so i'm not surprised i do think we're going to see a 4% ten-year pretty soon. certainly by year end. and we'll just have to see where this goes. the best thing, becky -- look at the pound this morning look at the dxy, 112 i believe -- this is my personal view -- that the strong dollar is holding yields down we ought to be grateful for it we have to finance next year a trillion and a half new issuance of treasuries, a trillion comes out of deficit, half a trillion

comes off the fed spending their treasuries out of the balance sheet. thankfully, someone is buying it it's foreign private investors as china is selling off, japanese just rolled their treasury bills, we are very fortunate that we're the most -- we're the most attractive country as was mentioned earlier and the analogy i use is we're secretarial at belmont in 1963 we're 31 lengths ahead of every other country right now, and that's sucking in capital, suppressing yields in my view. >> bank of england just raised 50 basis points was that yesterday, two days ago, this week all kind of -- >> they waited until after the queen's funeral. that was interesting. >> they raised 50 basis points but watching this morning that traders are putting 50% odds on 100-basis point hike come november they have some catch-up to do. it's going to come quickly what are the repercussions of all of those moves from other central banks going to be?

>> first, i think the british pound is weakened because of the tax announcements that have been made and then the subsidies -- >> by the -- by tax hikes, you mean these price -- price caps that they're putting on things that they're going to have to pay the difference, they're just -- >> exactly their intention to lower taxes even more. i think part of it is fiscal policy countries are spending more particularly on defense, by the way, thanks to our friend, v vladimir putin, and we're seeing that everywhere. again, europe is really threatened right now they are probably in an outright recession, at the beginning of a recession. they were teetering on a bounce even before russia and ukraine becky, we're the place to be we're very lucky on that front it hurts corporate earnings if you're translating back, it hurts our exports. we all know the price of a

strong dollar. but right now, we're sucking in capital at a record rate you have to go back to 212 to see this kind of internal -- or flows into the u.s. dollar and into the u.s. treasuries that's helping us as the fed pairs back. >> thatmay be a little comfort to those on main street who are bracing themselves on the pain that fed chair powell has warned about in the press conference. it's great to get the take of a former dot who is now unshackled and unable to speak his mind, richard. i wonder, you know, when it comes to thinking about how quickly the fed is embarking on the cycle, along with -- paired with qt and not seeing the impacts of either of these things fully yet, what is most likely to, quote/unquote, break first? i understand that slaying the inflation dragon is first and foremost that could, though, cause a hard landing landing. in that scenario, what do you see, how do we think about that? >> what you worry about when

you're at the fed is the health of the credit system if you have a breakdown like we had in '08 or '09 or march of 2020, then you have to step in but if you listen carefully to powell and the other members of the committee, they keep saying that, you know, the banks are in good shape, the credit market is in good shape. and i do remember going back to 2012 when powell joined our committee, he warned the chairman outright that if we laid on for too long, quantitative easing at the zero bound, expect to have when we turn it around, to have a 20 to 30% correction in equities that was before the taper tantrum of 2013 when we went too fast we had enormous lockup i don't think a market sell-off will deter them.

we've already seen bonds, treasuries and credit come off 20% from the peak. the real issue is the health of the credit system. and they keep saying over and over and over again, that our system isin good shape if that suddenly locks up, expect them to step in and whether the economy weakens or not, that is the issue of where there would be a fed put right now. there is no fed put and there is no strike price that we can determine -- >> maybe the unemployment rate is a fed put how far does the fed go? is 5% the number how do you start thinking about that obviously there has to be a limit to which the fed will say, we're going to re-evaluate our trajectory >> well, look, the last speech i gave in 2015, i think it was, because that's when i left after that, i used a number that i actually cleared with the board and that was the flex point --

inflationary flex point for unemployment was 6%. well, we've gone down to 3.6, 3.7. it's somewhere in between. if you look at the plot dots, the sep, they're talking about things in the force and i've heard goldman sachs and others occasionally whisper, we're talking about 5% unemployment. right now the labor markets are strong, again, powell keeps emphasizing that, so do the other members. there's a lot of room here and i think it's probably closer to the high fours or maybe five when that might indicate to them that they've gone too far. >> richard, just in terms of things locking up, we are not at that point this is not like things -- at least at this point, it's not like things that we've seen back in 2007, 2008 when things were kind of getting ugly we should probably make that

point clear and take a look around, you're still looking at the vix only at 27 or 28 this morning. we have not seen that level of volatility for precisely that reason because there are things that aren't locking up you can call this orderly. but it's not panic at this point because there aren't things freezing up. >> well, i agree with that it's -- it appears to be disorderly depending on your positions. but it's consistent. again, the credit markets so far are in good shape. i'm worried, though, becky, you know, a lot of these asset classes, securitization, leveraged loans, junk, even though the spreads haven't widened, but the base has gone way up the bond market is up 20%. and i think some of these companies where money was free, you could look out forever

there was no opportunity cost. now, there is an opportunity cost you can go into the ten-year, the two-year, the five-year. that shortens the time horizon over which you have to discount the present value of earnings and future cash flows. so this has happened very suddenly and i think investors are still adjusting and they're not done and the volatility has really been in the fixed income markets as you pointed out earlier in the show. >> maybe this is just a case of investors finally believing what fed chair jay powell has been saying for awhile, oh, he means it. >> well, jackson hole he punch it had market in the nose. he was blunt, short, dramatic. i think the way he handled that looking at it from a fed standpoint was just right. he nailed it instead of giving a long theoretical speech, he just said, this is the problem and we're going to deal with it.

and we'll -- he said we'll keep at it twice in that speech you know what paul volker's autobiography is titled, keeping at it. the chairman keeps that autobiography of what we call st. paul at the fed right in front of him at his desk keeping at it. >> richard fisher telling us something we had not learned about the fed chairman this week we've talked so much about it. there's a little insight we didn't have until now. richard, great to see you. thank you. >> thanks for having me, always. thank you. and before we head to break, a few stocks to watch this morning, raytheon one a $189 million pentagon contract beating out boeing and lockheed martin boeing will pay $200 million

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box. we've eased off the session lows right now. let's take a check at this moment, the s&p looking to 1.37% at the open the dow is off by 3.59 the nasdaq looking to be lower by 1.47% the nasdaq has lost over the course of the good morning check out the laggards, chevron, caterpillar, nike, disney, johnson & johnson. we're seeing a lot down 2% big focus right now, what is happening in the treasury market extraordinary volatility over the past 48 hours including this morning 4.233% is where we stand on the two-year note the ten-year yield is very closely to 3.8% this morning we've had close of 3.75% yesterday. we're seeing some pretty good moves in the european markets this morning as well with the uk finance minister

unveiling a new package to help the uk deal with the pressures going on there we have the dax down 2.5%. and we're also taking a look at the movement in the bond markets around the world the ten-year bund in germany is yielding north of 2% right now the two-year bund is also making extraordinary moves. its biggest weekly gain since 19 1990 let's go straight to steve liesman. steve? >> melissa, one thing that's going on right now that seems to be dramatically affecting foreign markets is this announcement of a broad tax cut in england and what's happened is a massive increase in the yield on the ten-year. take a look at the chart here. you've gone from, i don't know, call it the 350 area to the 378, 379 yield on the pressure ten-year and that has really surged, still surging, as britain announces a debt finance

tax cut, meaning it will be borrowing more money in foreign markets, essentially adding to inflation at a time when the fiscal sides should be on the other side of that in helping to reduce spending. this comes when they have a plan to subsidy energy and cap energy expenditures by british households this obviously affecting the pound and you can see it at a 37-year low. it was down in 110 level the last i looked at it. bouncing around a little bit on the bottom there but dramatically pressuring the british currency and also, again, washing up on our shores. if you take a look at what happened at the two-year here in the united states, it has come up with concerns across the fixed income spectrum on just how much the fiscal side is going to help the monetary policy side. britain, you'll remember, just raised by 50 basis points.

three of its nine members at the meeting wanted to go 75. and what you see here is not a lot of commitment from the fiscal side. i guess substantial questions here in the states about how much help that -- the federal reserve is going to get from the fiscal side, especially with elections coming democrats may have a chance of holding on to one or more houses so not a lot of confidence out there and it's been something i've been talking about for awhile, melissa, there does not seem to be much help from the fiscal side. it's all been on the monetary policy side. just one quick note here, we see the initial moves higher in uk yields and lower in sterling as highlighting a serious risk of a full-sterling crisis and stay short across u.s. -- uk assets. >> it is an extraordinary time, steve, when you see a central bank doing so much to raise interest rates and you see its

efforts being basically abolished on the fiscal side of things it's just an inherent contradiction in policy in the uk one that we're seeing also to some extent in japan with the intervention in its currency market, but it's effort to keeps rates low. it's an interesting time for central banks overall here with the inflation picture. >> and you left out my favorite which is turkey which, again, cut rates. so you do have -- it's sort of laughable, but it's still true you do have the ecb and the fed, i will point out that we don't necessarily have additional fiscal impulse from the united states here, but we did ask in the fed survey, 80% of respondents said they did not change their inflation forecast because of the inflation reduction act. there was one line i'll have to find it again when powell seemed to make a slight appeal to the fiscal side to help out a little

bit. but when i was a reporter in moscow and i came up learning economics in the early days of the transition there, there was always a sense from the imf and others that if you want to solve the inflation problem, it happens both on the monetary and fiscal side. certainly britain this morning going the other way on that score. >> all of that makes sense in theory obviously you should not have fiscal authorities moving one direction, central banks moving another because they're canceling each other out at best but you also understand when you're dealing with such crazy inflationary prices on energy, when you're not talking about 10 or 20% hikes, you're talking about 100, 200 potential, 250% increases for energy prices for businesses, for consumers, what that does to your economy too. you can understand why the politicians are trying to do anything desperately to try and help out in this they're looking at this as the

equivalent of the covid shutdowns, where a government has to act in an energy situation. unfortunately it follows the actual shutdowns we're watching inflation spin out of control on it i will say at this point, in england, at least, they're saying that at this point they've confirmed that the central bank is absolutely sacrosanct that it's not going to be messed with from the politicians at this point. you wonder when and if you get to a point like turk t the pressure is going to grow rapidly. >> becky, you raised a really interesting point. i wish i could do this live which i can't. you raise this question as to whether or not the monetary authority has to lean now against what the fiscal side is doing. on your first point, you can imagine that there's scope in a big economy, in the united

states and europe and england and germany to help out low and moderate-income people on their energy bills of course a widespread program is one that does really the opposite of what you would hope, right? you have this huge surge in energy prices that acts as a tax, it ends up being disinflationary. you come in with a big fiscal spend and you don't do yourself any good in terms of trying to break inflation. it's one thing to help out people who don't have the means to do so, but a broad tax cut which, by the way, evercore calls regressive because they seem to be doing away with a top rate here. that seems to be -- i don't know what you would call it maybe perhaps a bit misplaced. would that be a british euphemism that would be appropriate there? >> and it's costing the

government a whole lot more than it did a year ago. steve, thank you. let's take a look at energy prices this morning. we've been showing you them all throughout the morning trading lower. we're feeling the pressure concerns about command, destruction hitting brent as well as wti. joining us, energy aspects founder and director of research great to have you with us. we're seeing commodities across the board, when it comes also to the metals, particularly industrial metals as well as oil falling and i'm wondering if you're thinking that its demand that is winning out versus supply concerns and if that's going to be the theme that carries us through the end of the year >> yeah, i mean, look, right now liquidity is in this market. i think that's the biggest driver and i don't think that's going to necessarily change because traders will come within the new year with targets and you're going to get a much -- you're going to get a lot more trading and transactions we have been saying for some time now that we are bearish in the near term.

we're bullish year end and next year right here, right now it is a very bearish macro environment recession is absolutely at the top of people's minds. but i think more than that, there's a reversal or a little bit of a watering down with the sanctions on coal. russian coal has started to build some thfears that they mih backtrack. that's been a driver this morning. >> so when you say bearish short term on oil, what does that mean we're seeing oil at around 80 a barrel >> i would talk about brent, because i think that's -- >> okay. >> i don't think brent is going to go to $90 it can trade up to there. >> bullish into year end meaning what what changes the trajectory of that trade >> yeah, above $100. i think it's 110, 115.

i think ultimately we have to realize that -- we've been dated since the start of the year. that hasn't changed. the reason we haven't drawn more commercial stocks because of the spr. it comes to the front end of the end of the year. crude comes into practice in the face of -- you are going to see some change because of that. ultimately, it is going to be the spr that kind of moves us out of this and you do have the chinese -- and china seems to be focusing on growth than anything else yes, there's going to be -- the picture will look different. but, again, it doesn't necessarily mean you're going to get liquidity back you need volatility to come back down you're seeing a disconnection in the market >> thank you coming up, the search for yield investors are looking for dividend plays during these times and bertha coombs has

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when your digital solutions work, the world works. that's why the world works with servicenow. hey! whats good your highness?! the health care sector is an investor favorite, especially in a defensive market, but not least among its appeal is the dividend yields of some of the health care players. bi bertha coombs joins us on that

>> health care has been seen as a port in the storm during this mark voltilly we have been experiencing, but in a rising rate environment, the stocks are also providing some healthy dividends led by the drug makers who have a yield on average of about 2.5% viatris topped the list with a 5.4% yield, but looking at the chart you can see why. there's gilead with indicated dividends of $2.92 a share that's a 4.6% yield. but again, that stock is down about 10% over the last year while merck spin-off organon is at 4.3%. a big reason again is the fact that these guys have seen their stock price decline so that has boosted their yield. most of them analysts are not in love with them but when we did a screener, a cnbc pro screener for above average dividend players that

have high buy ratings and osabove average stock performance, two names stand out. first, more than half of analysts covering abbvie rated a buy, and everyone i talked to really likes this one. i don't know if it's because of botox, with a 3.9% yield and indicated annual dividend of more than 5.5%, it's one of the top picks for art hogan at the riley and gina sanchez meantime, almost two-thirds of analysts rate pharmacy giant cvs health a buy at a 2.2% dividend yield. it's one of the best health services firms right now you can read more about our screen of these health care dividend players on cnbc pro >> all right bertha, thank you very much. >> let's talk more about the broader moves in the market and what we're seeing overseas as well as here in the united states peter boockvar, also cnbc

contributor, out this morning, and you're pretty concerned about what you're calling violent moves this morning what do you think are sparking the violent moves? where do we go from here >> well, on the fx side, it's certainly the aggressive fed that was re-enforced on wednesday. and the follow-up with one of the rate hikes yesterday by variety of central banks leading the this sharp rise in interest rates. we had so many years of artificially suppressed interest rates. just visualize all of them sitting on a beach ball in the water and once they get off, that beach ball is going to spike higher i think that's what we're seeing right now. >> that's a pretty specific picture of what happens when that comes skyrocketing out. is this a situation where we're seeing all of that right now and you think it plays out in the next week or so? where does it go, i guess, peter?

>> i think in the very short term that these moves are so acute that it's probably a capitulation again, i emphasize short term and maybe we see a short term peak in the dollar, a short term rise in yields but over the next couple quarters, this certainly can continue, as just a general unwind, again, of a decade plus of artificially suppressed interest rates where at the peak, we had $18 billion worth of bonds yielding below zero, and now that's slightly in positive territory even with these rate moves, interest rates are still below the rate of inflation, not just in the u.s., but elsewhere >> the two-year yield, if you think about where the two-year yield was about a year ago, peter, we were at less than .25% the move over the year is bananas, to use a layman's term. we were talking to richard

fisher, earlier, and he said the credit markets are functioning and things look orderly, but when you see this volatility in the fixed income market, in the currency market, do you think to yourself, this is not right, and i understand things look okay on the surface, but there's something else that's going to rear its ugly head it doesn't seem normal to see moves we're seeing in the currency markets in developed countries that are moves akin to what goes on in emerging markets. >> you're absolutely right i do worry about the liquidity and what this means for the trading and other things if there's liquidity challenges in the treasury market, which should be the most liquid in the world, you can only imagine what the liquidity is going to be like in the leverage loan market where it takes a couple weeks just to clear a bond so i think that the rule which limited banks' abilities to make markets because of higher capital needs, that there's a

lot more friction to trading, and we're going to have to start to get used to, and to what you just said, more third-world type moves in developed markets >> peter, does that get us back to the point, the things you're talking about now, the friction that comes with trading, the difficulties companies will have trying to raise funds in the bond market, does that get to this point of other people we have heard barry sternlic and many others who have been calling for the fed to maybe slow down and pause and take a look around at this point, or is this something they just have to live with because inflation is so inherent in our economy and here and around the globe at this point >> i think because of the delayed impact of a lot of these rate increases, i do think they should be slowing the pace of these increases. i can agree with them, they want to get to 4%, 4.5%, but it's the

speed at which they're getting there that is creating the most amount of danger right now and the most amount of disruption. they is say inflation is high, we need to quickly raise interest rates, but the rest of us have to live with the velocity of their rate increases. you can only imagine the housing market slowing with mortgage rates at 6%, now they're closing to 7%, and what they're going to do to that market. or if you're a leverage loan borrower, you did not budget for a 400 point basis point increase >> peter, thanks for checking in and jumping on with us this morning. we appreciate it >> let's take a check on futures as we approach the 8:00 hour we're looking at a lower open across the board, but we're off the premarket session lows a reminder, "squawk box" will be live from cnbc's delivering alpha conference next week join in person, meet with economic leaders, policymakers

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with xfinity mobile. or add a line to your plan today at xfinitymobile.com breaking news. stock futures are trading decisively lower as bond yields surge. it's looking likely it will take out the dow's june closing lows. goldman sachs does not like what it sees at all it's cutting its year end s&p

target we have what you need to know to navigate the news and the volatility the final hour of "squawk box" begins right now >> good morning, everyone. welcome back to "squawk box" here on cnbc we're live from the nasdaq market site in times square. i'm becky quick along with melissa lee. joe and andrew are both off today. on this friday morning, you are going to see pretty extreme pressure in many of the major markets this morning starting with the u.s. equity futures you're going to see the dow futures off by about 350 points. this would put us below the june closing lows for the dow it only needed to be down by about 180 points and you can see we're well below that. however, the dow is the best performer of these three major averages, the futures, this morning. on a percentage basis, the s&p

500 and the nasdaq both weaker the s&p 500 down 47. the nasdaq off by about 154. also, the treasury market which has been driving this for quite some time, is doing that once again this morning there you see the dow jones industrials back to the june lows, if we are toopen at thes levels the u.s. treasury market is what's really been running things this morning. you're going to see the ten-year at 3.76% we were above 3.8% earlier this morning. the two-year is still firmly implanted above 4.21%. we hadn't seen 4.2%. we crossed that threshold about an hour, hour and a half ago, and are firmly implanted above that also, look at what's been happening for the slide in the british pound. it's hitting its lowest level against the dollar in more than 35 years the uk unveiling new tax plans and some big plans for government borrowing to pay for the caps they have instituted or

promised they will make for british consumers and businesses to say that you will not pay beyond certain rates still going to be sharp increases in terms of et electricity prices you have to pay for that somehow and they're telling us how they're going to do that that's what's kicked off the slide in the pound this morning. government bond yields are soaring there as well as people are trying to figure out how to pay for all this 3.76% is where the ten-year is, and you see that sharp hike in just recent days this is a global issue at this point. yields across europe, the ten-year guild, we saw, italy's 10 year is almost at 4.3%. joining us right now from the nyse is our senior markets commentator mike santoli it's not often you see so many severe moves happening in such a

coordinated way across markets >> yeah, becky the speed of the moves and how far out of the recent range all of these instruments are, whether it is currencies or bonds, is obviously the pressure the source of all the pressure right here you mentioned the dow likely to go below its june low. a little more relevant in terms of the indexes it's not too far above the june lows the retest of the lows is under way. if we were to turn higher from here for some reason or none at all, you would look back and say that's a de facto retest of the low. why do you get retests it's gnaw because you know you're going to touch the old level. it's fear we might go below. the market has to see if there's demand at the same prices as there was back in june right now, it looks like this is the range people are hoping holds and we have no real confidence, mostly because

policymakers are rushing to the destination in what they have to do to the energy crisis without much concern to the damage done along the way, whether to economic growth or just to financial market functioning so i think the type of activity you see this morning puts people on alert for the notion that something could rupture in the system we don't know that's going to happen i think it's a positive that's what's on everybody's mind at this moment, but the don't overthink it trade is to stay out of the way and keep risk levels low not a lot of trading capital when you're losing money on stocks and bonds all year. take a look globally at what's gone on with government bonds. this is global government bonds. this is global stocks. it's not that complicated a picture of what's happening here this is mostly about the value of risk-free money and corporate securities valued against it that's where we are right at this moment. take a look at transports

because we talk about how the overall s&p 500 still hovering slightly above the june lows transports have basically taken it out you see some of the bellwether groups have already been there you also have big bellwether stocks like alphabet and microsoft have also breached the june lows. really, the remaining source of valuation excess arguably or premium is in still in the five or eight largest stocks. semi-conductors very similar story to transports where essentially let's see if people are willing to buy near the june lows we're now below that for semis too. a lot of this pain has been felt, guys it's clearly something that has been an unfolding story for months it's not that complicated even though the implications puts everybody unnerved >> mike, it doesn't always feel orderly, but if you look at the vix, last i checked it was only at 29.

why? >> there's a little consternation about that, and i understand why a couple reasons one is it hasn't been a sudden sharp vertical steep crash it's been a grind lower. it's been 3% down weeks, 5% down weeks. that's not the activity that causes institutional investors to pay high prices for 30 days worth of downside protection in the s&p 500. the other thing is it's not equities that are really the source and the locust of all the volatility and the pain. if you look at the move index, it's double last year's level. that's where the action is, where it's really keeping the markets unsettled. foreign exchange vol, similar story. i get people are saying we really need to get the vix higher if we want to see evidence that you have people throwing in the towel. that's probably true if we do need one of those types of get me out at any cost type lows

but when the s&p has not actually been out of the range it's been in for four or five months, why are we expecting the vix to price in these monstrous 30-day moves i think that's the explanation, probably some other strucktual reasons why including the fact big institutions have really reduced their exposure to equities all year. if you own less, you need to hedge less all those reasons, i'm not trying to rationalize why it's correct to be below 30 i'm telling you why i think it is >> things don't get broken when they happen gradually rather than quickly >> or people are not incentivized to bet they're going to break in the next 30 days when it grinds lower as opposed to falling apart suddenly >> mike, thank you thanks for getting up early. >> let's focus more on the big jump in rates in the impact in equities we're seeing. joining us, the president of global strategies, and dana

daria. good to have you both. i want to start off with you and get your take on what's going on in terms of the interest rates what do you make of these huge moves and are we nearing a top at all for two years and ten-year treasury yields >> melissa, i don't think we're anywhere close to the top. i have been saying for a long time, yields will keep going up out of consensus i'm out of consensus again we're going to hit at least 4% on the ten-year. and the other point about yields since you asked about it is the fact that the two to ten-year yield after inverting minus 56 points yesterday, we are steepening today to about minus 43, minus 44 what that means to me is that the bond market anticipates the recession in the first half of 2023, and it's already looking forward to the eventual recovery that's what happened in 2006, 2007 we are following the same

pattern as we did that time. second, this is not just a recession. this is a stagflation. and in a stagflation, both bonds and equities are losers, and i have been saying this for several months, and that's what we're going through right now, and we have further to run in the stagflation than we have so far. the last point is the dollar is just king. it's absolutely dominant becky spoke about it earlier in the program as well, and we saw that uk paper, five-year paper increased by 55 basis points just today what this says to me is that we need to get prepared for a september 1985 type accord where the five major countries in the world united states, west germany, france, japan, and uk got together in the plaza hotel

in new york in order to weaken the dollar there is going to be some kind of a move, i fear, because that in turn will give rise to market distortions, as we found in 1989-'90, that started the japanese market collapse, and if we do intervene, it will weaken the dollar but it will cost absolutely new problems for the global markets >> right you mentioned, i should note, the dollar index, hits a fresh two decade high, breaching 112 dana, in a world in which the ten-year yield goes 4% or higher, what is the approperate valuation for markets. because we're right about 17 right now. >> yeah, no, i think it's a really important point and maybe what gets lost a little bit when we're looking at just the technicals and what's going on in markets and how the reaction is happening real time,

because rates are moving so high, but the long story here is that we have had ten years of essentially free money, and if you just look at all the empirical evidence we have on markets, how markets behave, decades of research have surfaced basic fundamentals you can count on markets over the long term that haven't been up ended. they looked like they were for years because money was free, but we move back to that reality where price does matter. valuation does matter. and then you add to that the fact that we're moving sort of out of this era of globalization into a world where we're all spending more on defense there's not necessarily the ability to have the most efficient cheapest supply chains now it's going to be we want to protect supply chains, et cetera that also suggests that multiples over time are maybe going to come in that the inflation rate maybe settles at a bit of a higher rate than we used to experience, and you have to take into

account when you're investing what does that mean for expected returns over the long haul and what companies are willing to invest and what types of companies. an example on that, thing about had small growth companies where they're just this side of being in the public market to begin with they look like private equity almost, and even some of the private equity deals we have seen in the last couple years, the sort of stupid multiples paid for companies where profitability is not even in the picture, and what does that mean now? so if i'm a public market investor now and looking at stocks and want to be diversified, i would look very long and hard, one, at diversifying, and two, at what is the profitability rate? what are the fundamentals i should pay attention to. the price i'm paying, the profitability of that company, and diversifying across and not taking the idiosyncratic risk. in down markets, there's a lot of dispersion in return.

companies that maybe would survive don't survive anymore. >> we have seen a lot of that happen already with the high multiple stocks and the compression we have seen in multiples. thank you. >> thank you, melissa. >> when we come back, in light of this morning's big market moves, we're going to go deep into surging inflation for that, we'll be joined by former white house chief of staff mick mulvaney and former white house council of economic advisers chairman austan u' wchee yoreating "squawk box" and this is cnbc d fastest 5g network. but, they don't. they only cover select cities with 5g. so, for me and the hundreds of drivers in my fleet, staying connected, cutting downtime, and delivering on time depends on t-mobile 5g. and with coverage of over 96% of interstate highway miles, they've got us covered. (vo) unconventional thinking delivers four times the 5g coverage of verizon. and it's ready right now. t-mobile for business.

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coming up, top market technician katie stockton joins us the dow looking like it will take out june's closing low at the opening bell don't go anywhere. "squawk box" will be right back. if you wake up thinking about the market and want to make the right moves fast... get decision tech. for insights on when to buy and sell. and proactive alerts on market events. that's decision tech. only from fidelity. this is not just laundry. this is laundry that's smarter than the dial.

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welcome back to "squawk box," everybody, on this friday morning. dow furchs are under some pretty significant pressure going to watch and see that they're down, indicated off by about 346 points i think that gets us down to almost 350 points below for the futures. below fair value if things stay as low as they are, the dow is very easily going to take out its closing low from back in june. we have been making our way back toward that level for the last twost weeks now. joining us for more on what we're seeing in the marbts this morning is katie stockton, and we made the point that maybe the

s&p is the more broadly followed index, but the s&p is down about 45 points, and that puts it around 45 points from its closing low, too, if we were to open at these levels what are you watching? what should we be worried about with the technical indicators? >> it feels like it's about the macro technical picture where we have an acceleration higher in the trery yields and the market is not responding favorably here there's the potential these moves are overdone, but quite frankly, none of the oversold readings we have gotten in equities have elicited any response, and we can say the same on the flip side for treasury yields and the dollar so the exhaustive signals we have seen for the ten-year treasury yields, it was stopped out today, one of the signals we track, and of course, it just seems bent on reaching the next resistance of about 4% so i think what we don't want to do is challenge these trends i think we want to stay on the

right side of the trends and just respect the momentum behind them of course, we have the major indices this morning fast approaching those either long term support levels or the summertime lows, and if you look overseas in europe and uk, we have pending breakdowns. we're seeing those levels taken out already overseas and we wait to see if those breakdowns are confirmed. i would argue also that complacency seems to still be an issue for the market with the vix hovering around 28, 29, despite this type of price action >> the complacency being a problem not because it means people aren't panicking but because you think we can't kind of resolve this until there is panic? >> right i do think we'll need to have some kind of panic, some kind of capitulation in sentiment or a fearful type of indication from the vix. we tend to see any kind of bear market cycle end with at least a

reading up in the 48 to maybe 52 range. it doesn't have to get to that 80, 90 range like we saw at the covid corrective low, but at least that kind of high 40s tends to be something that we need to see before bear market cycle culminates >> we haven't been near that you're looking at the last year where i don't thing it's gotten above 35 >> right and that 35 level is certainly a resistance area if you want to call it that, and it's something i think we'll probably see relatively soon, and to position for that, we have just been recommending top down hedging strategies, inverse etfs, things of that nature because even the best sectors of the market, the sectors that have outperformed, exhibited positive relative str strength, they're moving into trading ranges or seeing breakdowns we highlighted this week health care and consumer staples. as two examples that had

exhibited good relative strength, yet now we're seeing those as sources of breakdowns >> katie, we keep pointing to the treasury market, the two-year, the ten-year as being kind of the thing that's wagging everything else, the tail wagging the dog, or maybe they are the dog. what do you watch? which markets are you kind of keying off, which technical levels >> all of the above, quite honestly we look at crude oil prices, of course, gold prices, gold and the dollar are somewhat related, as you know, and gold you would see as a safe haven in this environment. so we actually do see some relative performance emerging from the precious metals complex here over the past couple weeks, and we do think that's indicative of what we're seeing. we also watch bitcoin, as you can imagine, as being sort of far down the risk spectrum, and bitcoin has not been acting well, and of course, at coins have lagged bitcoin of late.

so we have them all on our radar, and yet we try to treat them individually so as a technical analyst, we're really just trying to concern ourselves with the trends, and then we hope that they'll make sense from a macro perspective or from a fundamental perspective. >> it sounds broadly like you think the momentum in the various asset classes will continue in the direction in which they are right now for equities i get that. for the dollar index which just hit a fresh two-decade high, do you also see that momentum continuing even here, and for yields, do you see the yields continuing higher with the momentum, especially on the ten-year sigh where many people say there's probably a cap in sight to the ten-year yield? >> yeah, i wouldn't disagree with the thought about that. but the momentum as you mentioned is still there it's still very much to the upside behind the dollar index and yields and checking the individual sort of crossing on the fx side, i mean, the pound just continues lower

there's really, the signs of downside exhaustion we have seen there have been completely shrugged off so it's really a caution to fight these trends and i think we can assume that at least with no resistance nearby for the dollar index, actually, the resistance is well above, around 121 for the dollar index, and for 10-year treasury yields resistance being around 4%, we have to trust the up trends will persist. consolidation phase would be very natural, yet the market seems bent on moving higher in those areas. >> how do you feel about the largest cap stocks in the s&p 500? because while we have seen them test june lows, many of then, we have seen them come off their highs, we have seen their multiples compress, we haven't seen them come to market multiple i'm wondering if that is in the cards according to the technicals >> i would worry about that for sure because you saw off that august peak some

underperformance from the mega cap complex, including apple apple has really been sort of the stalwart performer for the whole equity market, and i think we should reasonably be focused on it, if it were to break down, i think that's going to create a bit of a waterfall effect in that we'll see underperformance then, also transfer to the higher growth names that have actually done relatively well if you look at the sort of small to midcap software names, they look so beaten up and they have actually held up relatively well, but i think that's where you're going to start to see them reach new lows as well. it's all eyes on apple, reasonably so, and the support we're watching there is around 150. we feel like that's psychologically a significant level. it's a support level based on the metrics we follow. if that potentially breaking, we could see that as a negative indication for of course the major indices. >> katie, if we do fall below the june closing low for the s&p

500, if we fall below that, what are the next levels, the next floors >> the support i have been watching for the s&p 500 is already being tested it's around 3815 that 3636 level is obviously widely watched as well if 3815 is broken on a consecutive weekly closing basis, we can trust we'll get one close below today. if we get it again next friday, that would be a major breakdown in our work in the next targeted support level based on fibonacci retracements would be around 3200 that wouldn't be a near term objective. it's something more likely relevant in 2023, but it would increase downside risks. there is some interim support for the s&p 500 around 3500, and i wouldn't rule out a test of that level before year end >> all right, katie, thank you katie stockton >> when we come back, we're going to speak with muhammad el

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this morning here's what we have seen unfold before dawn. the uk's new prime minister unveiling the country's biggest tax cuts since 1972. the flood of stimulus sparking a sell-off in the british pound. stocks dipping and this has been spreading throughout the globe that nervousness spillingover into the rest of europe first and then here. the stock 600 down more than 2% today. back here at home, futures are pointing to more losses on wall street you're talking about significant declines even after the losses of the last twost weeks. joining us is former white house chief of staff under president trump, mick mulvaney austan goolsbee who served as the council of economic advisers chair under president obama and is now a professor at the university of chicago's booth

school of business, and our own rick santelli. rick, i want to start with you because of the moves we have seen describe what people have called pretty violent moves including peter boockvar >> oh, yeah, and peter would know have great respect for peter and his research what we are seeing in my opinion is the opening chapter of capitulation it's not going to end today, although i do think the extremes i'm seeing, 4.26 in twos 3.82 in 10s. i would think if i was in the pits these days i would be looking to fade those, not in the grand scheme of things but at least for today the problem is that we have gone from tina to a new tina. there is no alternative, believe me, stocks aren't everybody's first choice anymore but there still is no alternative to the u.s ultimately, what we are seeing is that global central bank policies really for the last 20 years to save us from pain, to rip off the band-aid slowly, it

all came home to roost manipulation has a certain runway and we have come to the end of that runway foreign exchange is the battlefield, and as the pound deteriorates and you put tax cuts, which makes sense because there's an energy crisis around the globe that will outsurvive all of this and continue to give us pain. putting money in people's hands to try to pay these bills is going to create more debt, more spiral, more weakness in the currencies, hence bigger interest rate differentials. i think the long end of the u.s. treasury market is going to be a very nice place for people to come and hang out. i'm not saying rates are going to stop going up, but i do think if you could start to get a 4% yield on a ten-year note and you're happy with that for a while to camp out, there's going to be quite a club that will be doing so >> is this kind of the death

knell for modern monetary theory, this idea that central banks can do whatever they want, go wherever they want? we're watching in europe this morning, specifically in the uk, this idea of trying to borrow more and saying okay, this is not going to come cheap, it is not going to come free >> yeah, i think in a way it should be the death knell of modern monetary theory or if you look at turkey where they already had inflation of 80% but they started cutting the rates in the face of that on modern monetary theory, but as you see with the uk cutting taxes for high income people in the face of these problems and arguing that the tax cuts will pay for themselves, there are bad ideas that just don't go away. they just keep coming back so we will probably be back to that modern monetary theory kind of idea again soon >> soon? >> not anytime soon. >> i don't think soon, maybe two, three decades down the road this is a lesson we may have to

learn the hard way again mick, let's talk about what central banks are doing and what governments are doing because central banks are trying to rein things in. governments are spending more. europe, the uk is a big deal, but it's happened here too steve liesman was talking earlier about how 80% of respondents in the last economic survey he ran said the last economic package, the democrats passed in terms of trying to rein in any of the inflationary pressures, they don't think it's going to help at all >> and becky, keep in mind one of the things governments in all countries across parties are really good at is spending money. a lot of people think there's too much bipartisanship in washington when it comes to spending and there's evidence recently they were able to figure out a way to pass all this legislation. what are they hung up on the permitting changes joe manchin is insisting on. they can agree on spending money but not deregulating what the british are doing is fascinating. they're getting rid of existing

taxes. they're stopping new tax increases on the pay roll tax. they're stopping or reducing transfer taxes on real estate. more interesting to me, reducing regulation of land use making it easier to build more houses. they opened up the door to fracking which is new for them it looks like what they're trying todo is deal with their inflation and impending recession on the supply side by making it easier to get goods and services to market very interesting to see how it works out. >> let's talk about the federal reserve, maybe other central banks too, but this idea that they made things so liquid for so long, didn't raise rates, now they're in a position where they don't have firing power left and they're going to have to raise rates, as we look at an economic slowdown, that is the intent of what they're doing to try to deal with this would you rate the fed as doing a good job >> i think what they're doing now, they should be raising rates. they should have started

earlier. the thing is, there's one side that says the inflation came from too much demand, and that's the traditional fed should just raise rates to reduce demand, but there's this whole supply side component that mick mentioned, if you think the inflation is at least partly coming from supply side, fed raising interest rate is not going to pump oil. fed raising interest rate is not going to make computer chips and so there is a danger of stagflation. the fed has got to balance out some things that it doesn't normally need to balance out >> rick, when you look at these moves that are taking place, you said you don't think modern monetary theory is going to come back for a long time to come, at least i think that was you maybe it was mick. these are some pretty difficult lessons that we're going to have to learn what would you equate it to because you have been watching the bond markets for a very long time >> yeah, it's not only modern

monetary theory. it was never a good idea it was a stupid idea, and we're seeing living proof of that. you can't print forever and think you can get away with it look at what the pound is doing, but i think if there's a lesson to be learned here, it's the fact that central bankers in general and governments in particular have this unique relationship that we need to find a way to separate it isn't necessarily a political relationship it's an enabling relationship. they're enablers by these low interest rates and hanging out at zero for so long, they allowed governments to do anything they allowed companies to remain that should have died. they ruined the entire infrastructure of global finance. and to think it's going to come together easily or central banks have any plan, there is no way to put this humpty dumpty back together there needs to be lots of financial destruction first, and from that, the arizona will rise the best fertilizer for the

global economy right now is for all of these issues, whether it's foreign exchange, government debt, corporate, all of these financial instruments have to be pushed down to some level that represents true risk to value returns versus the pie in the sky valuations and returns that many were getting with virtually no risk >> all right austin, i want to come back to you and have you put on your economics hat and talk this through for a minute we are now talking about goldman sachs and other places saying a hard landing is much more likely what does a hard landing look like from the economic perspective? how would you lay that out and what are the odds of a hard landing in your opinion? >> well, i think decently high i always have my economic hat on, becky, and i appreciate that the thing is, the most common cause of recession in the united states, more than two-thirds of the recessions we have ever had

since keeping the data, came from the fed raising interest rates faster than the economy can handle when you're in an environment where the fed is going to meeting after meeting raise 75 basis points or more, there's a decent chance that they overshoot and create a recession/hard landing rather than soft landing. you know what that looks like. it looks like savage times for any part of the economy that's interest rate sensitive. that's housing, autos, durables, and investment those are the first places where you see things go wrong. >> mick, from an omb perspective, what happens as interest rates rise? how much more difficult is this for us to finance our debt >> it becomes a vicious cycle. you end up borrowing more money to pay the interest bill the interest bill this year will exceed the money we spend on the department of agriculture, interior, commerce, treasury put together a huge sum of money. the real question is this, the

fed is doing what the fed is doing. i blame the fed for making bad decisions. i don't roly blame them for raising interest rates because it's really the only tool they have where's the other tools we could be bringing to bear here to make the situation better where is the discussion in this country for the last six months, 12 months, about deregulating. why are we having discussions like the germans who are now burning coal, the british who are going to explore fracking. where is the same discussion in this country led the fed do what it does on demand destruction, but where is the policy coming out of washington, d.c. on the supply side to make it easier to make more things and bring prices down that way instead of having a hard landing and focusing just on demand destruction. >> austan, what's your response to that? >> i agree the supply side is where to do it i think mick and i if we sat in a room, we could come up with

some bipartisan ways to do it. be a little careful on the tax cut side the uk announced something that's in this space, but it was a bad idea the market is reacting badly to it because they think it's going to make inflation worse. >> is it >> it was policies across europe that caused this you have the chicken and the egg all wrong here, austan you look at what the temperatures are across the globe, because they will correlate with the moves you're seeing in the markets. as temperatures drops, so will stocks and the price of many sovereign securities why? because the uk people can't afford to heat their place it's going to be very much similar in europe, and mr. mulvaney has it spot on, read the headlines out of california, and weep, because we're not learning our lesson. >> i'll let you respond to that. >> well, the argument that on the day they announce a massive

tax cut when they already have high inflation, the market goes down, rick's trying to reinterpret that as it's something about what central banks and energy policy -- >> the tax cut is needed because the expenses are going wild. >> i mean, it does strike me that the cures they're coming up with are not going to help inflation. it does strike me that the cures are not going to help with inflation and that's what the market is reacting to. >> yes, and i agree with that. the focus has got to be the central banks tightening, but we have got to focus on the 95% of the economy that has nothing to do with washington, that has nothing to do with policy. it's about computer chips, the war in ukraine, what's happening in china with the supply chain and their lockdowns. and it's going to be a bumpy road, for sure >> becky, you could make the

argument what the british are doing is making it more profitable to invest they're going to bet heavily on the supply side. yes, they're lowering taxes. that's inflationary in the short term, but what i think they're doing is figuring out how to solve this in the midterm and long term. they're macking it more profitable to invest not only domestically, but to have other folks invest in britain with the hopes of building more supply. this is not a problem that's going away when i took over the budget office, in 2017, we hadn't spent all the hurricane katrina money yet. all of this money that congress has spent over the last couple years with covid, much remains to go out. the british are looking at this as a longer term problem and looking for ways to solve it longer term and more investment is one of the ways to do that. >> thank you guys. let's get more on the markets this morning mohamed el-erian joins us now. what's your take on the big moves we have seen in the treasury market, the big moves we have seen in the currency

markets? >> thank you, melissa. look, we are adjusting to the three paradigm changes we talked about on squawk. the change in the liquidity paradigm, the change in the growth paradigm, and that was going to be bumpy, but it offered the prospect of a better destination, a less distorted destination. what is worrisome in the last 24 to 48 hours is two other things, an accelerated loss of confidence in policy making. you have heard the fed discussion if you are here in the uk, there's a lot of concerns about policymakers here. so policymaking going from it being a repressor of volatility to an amplifier of volatility, and let's not forget what's happening to flows bank of america reported $50 billion went into cash funds out of every single asset class. we're starting to see those technical dislocation and even

the treasury market is not functioning well so i'm less worried about the first three things but i'm spending a lot of time on the final two things because they can create very unsettling volatility, not just volatility. >> i want to highlight what you said about the treasury market and your focus on it right now because the volatility we have seen, i mean, i haven't seen it before but you may have seen it before in terms of the huge moves we're seeing in yields even intraday, and i'm wondering if you think there's something that that is signaling because so many people say that there's nothing wrong with the credit markets overall, and that's where they would start being concerned about what the fed is doing and the impacts. >> yeah, so normally you worry about the peripheral markets, about the high yield market, the leverage loan market and spend very little time worrying about the treasury market, but there are episodes and you will remember them, may 2013.

again in march 2020. when the problem is the safest market, when the problem is the mother of all markets around the world, which is the treasury market and i can tell you, yesterday's price action and what i heard from people trading that market makes you uncomfortable. so keep a really close eye on the functioning of the market. not the yield, but the functioning of the market. >> what does the curve steepening under these circumstances tell you we were talking to sheree kumar, and he said he believed the curve steepening signals that investors are looking forward to beyond the recession to better times which seems like an optimistic take but it could very well be true. there may be certain technical issues causing the ten-year to go higher and tlefrb the curve to steepen >> i hope he's right but i'm all

about technical issues a lot of people can't get done what they want to get done so they're getting done what they can get done. don't underestimate the amount of suboptimal decisions being made right now because liquidity has become so patchy i would be careful extrapolating too much in terms of what does it mean for the economy, because right now, technicals are really in control of quite a few curves >> when we see issues in the treasury market, do we eventually then see the next shoe to drop or the next domino to fall, whatever metaphor you want to use, trouble in the credit markets, trouble in the leverage loan markets, things like that, or can it be isolated >> so, the treasury market is the one you cannot isolate you can isolate other markets but that's the one you cannot isolate. it's a reflection of strucktual weaknesses that a lot of people have written about it. the treasury itself has been looking into it, so this was long in the making, and it was

amplified in a major way by the duration of qe and the size of qe, so these are structural. it matters because, remember, if you can't get what you want to get done, you will start spreading contagious that's why it matters to the credit market. matters to the ct market you start spreading contagion around markets so, let's keep an eye on it. i'm hoping it will pass. i'm hoping this is just short-term various things coming together, but of the five factors, this is the one along with the loss of confidence in policymaking that i would keep a very close eye on. the other stuff, we can navigate, and we understand how to navigate it >> how do you think about equity valuations here with treasury yields where they are going, where they are right now >> so, look, i think there's value. there's some very attractive signal names, but you just can't

avoid the macro factor right now. i was asked, you know, if you have had a lot of cash on the sideline like i have, because i've been worried -- in fact, i have a bet with joe, and i'm sorry he's not on today, because i was going to offer him the possibility to buy back his bet. i had a bet with joe about where we're going to get to on the s&p, and i had said 3,600 before we get to 4,400, and i think, unfortunately, that is likely. so, i wouldn't go in single names right now because they are being impacted in a major way but what's happening marketwide, but there are significant value being created. >> all right, mohamed, we'll play the tape back for joe maybe he'll take you up on the offer. mohamed el-erian, good to see you. coming up, what to watch take a look at oil this morning. it is trading lower. i,ent is at about $87 a barrel wt just above $80. you're watching "squawk box" on cnbc

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all right, for more on the markets, let's bring in managing partner and portfolio manager at dcla he's also, of course, a cnbc contributor. you've been around for a while, but the market's movements today are kind of something to sit up and catch your attention what are you thinking as you look through all of these crazy moves and everything from the equities markets to treasuries to the dollar and beyond what catches your attention the most, and how are you thinking about it all >> so, becky, this is happening

really fast, even though we've been talking about it being a slow order every week, getting 3% to 5% down. path of least resistance is s&p coming down until we really get in front of earnings season and we've already seen estimates come down, you've seen ge talk it down, fedex, companies are coming down, ford, so i think whoo w what we're going to see is basing around 3,500 on the s&p at these levels, there are certain stocks that you can start nibbling but i think right now with bonds going up, you're looking at monetary policies you're looking at countries defending currencies it's really hard to get in front of it, but as a long-term investor, i would not panic at this point look, this is what happens when you have equity risk premium you're going to get the ups and downs. none of us could call it, and if you do have cash on the side, you start nibbling, but we're going to get good values down here because there are really good companies with strong balance sheets, we went through

that, and as long as we don't destroy demand completely, i think we're going to come out of this in good shape but you have to have patience, and that's really hard at this point when people have seen a lot of value being destroyed. >> you said 3,500 is where you would start nibbling on the s&p 500. that is about 200 points from where the futures would indicate the s&p opening this morning in the meantime, just sit tight in is >> >> well, i think you look at specific stocks, but i would not sell you have to wait until the earnings season comes through. one of the things your guests have talked about, we have to focus on where we can get more supply out there because that's where we're seeing higher prices when it comes to food, it comes to energy, it comes to infrastructure, housing, and i think that's kind of where we need global intervention or even if we can work on it in the united states, that will offset some of the demand destruction and make the fed's job easier. >> fiscal -- go ahead, sarat

>> well, just in terms of, you know, food supply, things like that, where we just need to bring down the prices of a lot of the goods that people just need of basic staples, and i think that's adding to the inflationary pressure that is causing the fed and global governments to kind of raise rates. >> when you start talking about bringing down prices, you look at the energy costs in the uk, and what they're doing to try to cap prices is pretty inflationary too th they're going to have to sell more debt in order to finance the difference between the caps that they're putting on the and the reality of what they'll have to pay to secure those things. how do you do it in a noninflationary way that doesn't make the problem worse >> right, in terms of noninflationary ways, you just have to start, you know, supplying more you have to start drilling more or start going to coal and nuclear for the longer term, and i think that's put some pressure o on the prices, but manipulating with putting caps in, that's

just more inflationary those inflationary things are going to cause more pressure and it's not going to be a long-term solution but you are seeing oil prices come down and it will be interesting to see what winter looks like in europe right now, the negativity is overriding everything and people are not giving markets the benefit as to, hey, it's going to be a warmer winter, and i think when you put all those together, it's a potent, you know, cocktail for earnings coming down, and then a global slowdown while inflation is rising >> we've been talking about the uk guilt, kind of behaving like an emerging market in terms of the huge swings you've seen in currencies this morning. uk gilts are down 37% in dollar amounts so no the uk is not behaving like an emerging market it's much, much worse. it's behaving more like a cryptocurrency at this point >> you've seen it before too their inflation is double digits when it comes to things like housing and food, and when you

add to this what they've just done, the government policy in terms of cutting rates and capping, and i think people are looking at it as isolated and saying, hey, let's see what happens to them because they're not really tied into the eu anymore just like the rest of the cuountries there one of the things i think people -- and you're seeing this down trend in the markets because people are expecting, we don't know, but could there be some contagion somewhere, and if short-term funding issues come up, i think that's going to be a big issue as well. >> sarat, just very quickly, you seem pretty calm this morning. is that the case that's what you're feeling it's okay, just hold on for now? >> i am. we've been through this, becky, over the last decade, even though when monetary policy was at zero, things will come back but you just have to be patient, and it's ugly out there, so i'm not discounting that, hey, when you look at your screen, and you look at what's happened in the last month and everything has come back down and now we have earnings coming down but if you're a long-term investor and

you stayed within your diversified portfolio, you're going to get more opportunities now. if you have cash on the side and you're really scared of equities, you're going to get bonds at 4%, 5%, you can do that as well, but i would not sell at this time. i mean, i think this is the wrong thing to do, and you should just prepare for more opportunities, and you can also then revisit your portfolio and look for opportunities at companies that are beaten up, so i think there's great opportunity. >> sarat, thank you very much. that does it for us this week. melissa, thanks for being here today. we'll see you back here next week right now, it's time for "squawk on the street. ♪ good friday morning, welcome to "squawk on the street," i'm carl quintanilla with morgan brennan and david faber. cramer is on assignment. the dow does look to take out the june low today as the selling pressure in europe is pronounced down about 2%. big swings in currencies the pound near $1.10 oil is just 50 cents from a 7 handle our road map begins with the fed fears