maybe he's right, but i'm putting my money on a stronger labor market >> steph, round it out for us. >> okay, general electric, aviation is humming. health care supply chains are getting fixed. and power profitability continues. they are splitting up into into three on january 4th that's a nice catalyst >> there grow! perfect timing, everybody. we'll see you tomorrow on "halftime. "the exchange" with kelly begins now. thank you very much, brian and hi, everybody! welcome to "the exchange." i'm kelly evans. and here's what's ahead. jolted, stunned, investors getting an early morning shocker from japan why it has rates jumping globally, and does it mean central banks are losing their grip on markets? plus, yesterday, carter worth warned us away from high-flying consumer stocks, but today we'll hear from one investor who says bet on the consumer in 2023. and three months ago, fedex kicked off a market scare by warning of global recession.

today, they report again so what should we be braced for? that plus nike coming up in earnings exchange. but we beginwith some green arrows for once. dominic chu has that for us. >> green arrows that were red at one point today. fairly symmetrical, kelly. at the lows at the session, we were down about 22 points, up about 20 at the highs of the session. we're tilting towards that higher end of the range right now. 38.29, the last trade for that broader s&p 0037 the nasdaq composite, up 25 points. one quarter of 1% advance. so a little bit of an underperformer today, and the dow industrials up about 150 points 1.5% of 1% so fractional gains. and at this point, the bulls will take it we've seen a nice downdraft since the fed announcement this past week. one place to keep an eye on the marketplace, it's being talked about a lot. kelly mentioned what would happen with the bank of japan and that surprise move on interest rates what that has done is at least put some volatility on the currency markets that has now taken the dollar to the downside, relative to many

developed market currencies. this etf bullish etf ticker uup tracks that dollar index over the past of the course year, going from the beginning of the year to the highs, you're talking about a 19% gain, roughly. that's huge when it comes to currencies overall now, since those highs, we've come down roughly 9% from those levels so as much as we want to talk about the strong u.s. dollar story, yes, very much still in place right now, but it's again well off the highs that we've seen over the course of the last few months in terms of the strength u.s. dollar versus all of those other big currencies out there this etf tracks them pretty closely. if you're looking for a stock of the day, the worst performer in the s&p 500 is tesla now, this has been a momentum downside mover for quite some time there are some idiosyncratic issues with regards to valuations on the rate side, also whether elon musk is going to continue his involvement to a substantial degree to twitter, the other company he now owns

and the ceo of, versus the company tesla that he is the main driver of there as well tesla shares down 5.5% right now. the worst performer on the s&p, by the way if you look at these levels, the reason why i put a three-year chart up here, it's still up 425% in that three-year span, but you've got to go all the way back to november of 2020 to find a level this low in tesla. so whether or not 2023 becomes that year where we find some stability, maybe a bounce, that remains to be seen but tesla shares certainly still in that downward drifting mode back over to you >> as tempting as it is to talk about tesla right now, we should get to the big market story of the day, coming from overseas. the bank of japan jolting global markets overnight, as stepping back from yield control. it will now let the yield on its ten-year bonds trade at a whopping half percent, instead of just a quarter percent. may sound like small potatoes, but it sent markets reeling. bond yields jumped globally after the year

japan's stock market lower our dollar tumbling lower. that's what that's showing there. so why did they surprise markets like this? and why the strong reaction? we have a delight today. cnbc contributor michelle caruso-cabrera here on set with me along with peter boockvar, who's also a contributor perfect duo to help break this down let's start with, why did they do this? >> so, if you think of what's happening with interest rates for the last ten years, think about it like a mattress, every single central bank in the world was pressing on their respective spring, right? and then suddenly, we started to see all of these central banks around the world lifting up on their springs, except for the bank of japan, they kept pressing and pressing and pressing and what they revealed today is their arms are getting tired. they can't do it anymore they'll start to let their interest rates rise, because they have to because it was going to get out of control if they didn't do something. >> why was the reason that they tried to keep rates down, just that it would be too expensive or what was the purpose of this policy >> they've always been way more

aggressive than everybody else, because they were flighting deflation. they were trying to get prices to rise for years and years and years. so they did something way more radical than even the united states did the u.s. says, we want interest rates to be lower, we're going to go out and buy $90 billion worth of treasuries. bank of japan said, no, no, no we want our interest rates to be at a certain amount. so we are going to buy as many treasury as we have to buy there are days when there are no trades in the japanese treasury market, because they are the entire market. they own 50% of the japanese government bond market that's how radically interventionist they are >> and peter, we know it's a huge market, so itself whatever they do has implications but when you hear what michelle is describing, you might understand why this is a preview of what's to come elsewhere. why did they stick with this policy when it seemed like everyone else was starting to back off >> they almost became an arm of the government, in terms of fiscal and monetary sort of meshing together that the fiscal side still had to spend a lot of money. they have extraordinary levels of debt, and the boj was sort of

meant to keep their financing costs so low but the position became untenable. on thursday, they're about to print headline inflation near 4% >> in japan, wow >> and food and energy, 2.8% and to continue with a straight face, keeping policy as is, just became, i think, as i said, untenable. and maybe koroda wanted to do something before he leaves at the end of march >> the governor, but here's what i don't understand, if their goal was to get inflation higher -- did they achieve what they wanted or did this not work it seems like the very goal is now the problem with this policy >> the problem with keeping the yield curve so suppressed is that it destroyed the japanese banking system the japanese topics bank stock index is down 88% in nominal terms from where it was in 1989. how can you have a healthy economy if you destroy your banking system, since so much monetary policy in lending is supposed to flow through the

banks. so rather than generating faster economic growth, it actually depressed economic growth in japan. >> and why they stuck with it, you know, a mystery, right they finally achieved what they wanted to achieve, and yet they're so enmeshed in this policy one of the implications of what they did for decades is that japanese investors, because they could get no yield in their home market, tended to be big, overseas buyers of other stuff the average japanese investor was far more likely to buy, say, a brazilian high-yield bond than your average american investor would be and that's why you saw yields all over the world go up because if the japanese at home can now start to -- and they're not getting there yet, but starting to get more yield at home, they will buy fewer things overseas so you have a big buyer that is potentially leaving the market >> and what's the implication beyond that immediate impact in some of the places that the japanese might investor, like over the next 6 to 12 months,

what's the board message for global monetary policy or for u.s. investors what are some of the twakeaways >> when you look at the last ten years, where's a lot of the excess really was in european bonds with negative interest rates and also in japan. so you have this sort of bubble deflating in these bond markets, that as michelle said, will have global implications. so the boj is going from 25 to 50 what happens if next year they go from 50 to 75 it will keep interest rates around the world evaluated for longer also to your point, the japanese used to own $1.3 trillion of u.s. treasuries going into this year that pile has now been reduced by about 250 billion and it's likely going to shrink. if foreign central banks have a next seller of u.s. treasuries this year, which will go as part of the story with the boj, likely continued seller as we go into 2023. >> so you have them selling, the fed not buying more, maybe selling. >> banks selling less, too

>> and a lot of supply coming. >> the size of the treasury auctions has increased rick has talked about how some of the results have been worse lately you think that's what's gets us a ten-year at 3.7% too high, normal iizing? that is the key rate for our entire financial system. >> you can make the argument, if you were just analyzing, u.s. growth and inflation stats, you can make the argument, growth is slowing, inflation is moderating, the ten-year should go to three. but for the reasons i just said, i can make the argument that the ten-year goes to 4.5 to 5. if we did that, it wouldn't be for good reason, it would be because these governments and central banks further lose control of their bond markets like the bank of england did >> there's one other thing to watch for here something called structured products something sold heavily to people in japan to people who wanted more yields. a lot of those will lose a lot of money if we see interest rates rise we have seen them to some degree here in the united states. there could be al of individual investors out there holding

thing they didn't understand, that they thought were protecting them, but instead will hold them is that another tip of the iceberg. is this some dark corner of the financial market that is set up to achieve "a," but instead will have terrible repercussions. >> and we're still at the very early innings of this experiment, where the entire global economic system is operating on zero rates. what's it going to look like now under these higher rates also, what does this mean for the bank of japan. do we view this, especially with the governor about to leave, as, is this a sign of, hey, we did t. we were able to hit some of these inflation targets, so now we can back off a little bit, or is this more of a moment where they say, we're just trying to disentangle ourselves and kind of let markets return to something more normal and more healthy. >> probably a little of both >> yeah. and i think the latter i think they want to -- well, the bank of japan also feeling all of this peer pressure, that everyone else is doing it, except them, in terms of tightening and it is good to see some

normalization. but a lot of things break during that process and also, these interest rate sbr increases are happening with debt levels that are extraordinarily high so the interest expense that all of these governments will be paying on all the debt that they've accumulated over the last couple of years dwgoes up lot. >> japan has the highest debt-to-gdp ratio in the entire world. we spent a lot of the last crisis worrying about italy. this time we might be thinking more about japan >> and we have our own debt levels to consider as well >> michelle caruso-cabrera and peter boockvar since the end of october, the 30-year fix ed mortgage rate has dropped a full percentage point, but it hasn't translated into better numbers on the construction front and in fact, the sector may be nearing layoffs, a warning sign for the broader economy. diana olick has the latest diana? >> and kelly, mortgage rates are actually now inching up again, but i'll get to that in a second i want to focus on building permits, the report we got this morning for both single and multi-family homes, because

they're an indicator of what builders see in the future, and those are the real headlines of this report. single-family permits dropped 7% in november compared with october and were down nearly 30% year over year this despite the fact that rates came down a bit in november. as you said. when builders were filing these permanents, builders still see affordability as a major hurdle, despite the fact that about a third of them are offering their customers mortgage rate buydowns, so that's a red flag then multiple-family permits dropped a much harder 18% for the month, down nearly 11% from a year ago this slowdown is a combination of several things. higher costs for construction, higher interest rates increasing the cost of capitol, and believe it or not, potential oversupply. there were roughly 932,000 multi-family units under construction in november that's the highest number since december of 1973 and on top of that, we're seeing rents grow at the slowest pace in nearly two years. that's according to a new report from realtor.com today

and did i mention those mortgage rates? all right, so the 30-year fixed up popped up 11 basis points this morning to 6.38%. that after hitting a recent low of 6.13% just last week. what should i say, kelly merry christmas? i don't know >> i know. and you mentioned the layoff issue, but annetteta markowska put out a note today saying, listen, these could flag broader layoffs in the construction sector skp and suunfortunately, as we know, it's a leading sign for the rest of the economy >> barely a year ago, you and i were sitting here saying, we need more labor in the construction market. that's the problem we can't get labor there's not enough and now suddenly things are 180. it's amazing how quickly things cooled off because of those sugar p higher interest rates. >> dine diana, thank you

nike and fedex are up 35% from their highs we have a preview of the results and how to position, next. plus, a look at the sectors currently trading at the biggest discounts in the market. this is one of them, down 37% this year. the domino breaks it down for us here's a final look at markets where the dow is up 117 points, about a third of a percent, but the nasdaq in danger of turning negative, up just a point right now as it contends with a ten-year yield up at almost 3.7%. we're back after this. what if you were a global energy company? with operations in scotland, technologists in india,

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welcome back, everybody. it's time for earnings exchange. and when you've got fedex and nike reporting, you don't need a third name today let's get right to it and we'll start with fedex those shares are up 12% this quarter as they look to bounce back from a round of seriously steep cost cuts. in september, the company said they would have to cost cuts by 2.7 billion. this resulted in furloughs, warehouse closures and the suspension of sunday deliveries, right ahead of the holiday rush. cnbc's frank holland has the story as we brace for earnings tonight. and boris schlossberg joins us with our trades today. he's managing director of fx strategy and a cnbc contributor. welcome, guys. frank, what are you watching

>> kelly, one of the points right now, fedex chairs up 12 points this quarrel, doubling the s&p 500. a lot of consensus, the bad news has already been priced in this stock. today, we're looking at more details of that 2.2 to 2.7 billion cost cutting plans $1,700 million of those savings are supposed to happen in this quarter. another question is, with all of that cutting, are they able to keep this holiday season as profitable as possible and looking forward into 2023, lunar new year, coming up on january 22nd, do they have enough capacity in place to handle that? big questions for the ceo. in his second report of that dire earnings warning where he forecasted a potential global recession that he said was weighing on their volumes, something to watch a couple other factors according to analysts, the estimates for fedex's operating margin, this stock can trade on margin, is the lowest since 2001, if you take out covid. not a great sign for this company. also, are they still on track for their 1.5 billion share

repurchase plan? a big question if they're still on track, that means the management means the fedex shares are still under valued even with all of these earnings warnings, there are still volumes not only for ecommerce, but also for freight fedex is the biggest trucker when it comes to the less than truckload segment in the u.s >> wow i don't know if we can show a chart of fedex versus u.p.s. here to date, but when we spoke with stephanie link about the stock yesterday, she said, look, i basically take this as an opportunity if it pulls back to buy u.p.s. on that weakness. this is also becoming not so much a tale of the economy, but which of these is the better performer. >> yeah, on the street, the consensus view is that, you know, fedex really dropped the ball on execution. and i think at this point, a lot of the analysts are very weary of them, despite all the promises that they're making and u.p.s. actually has sort of a smaller footprint strategy, which has really helped them to

maintain their margins and not really run into trouble as fedex has just done. but there are a couple of tailwinds for fedex that could rescue them. obviously, one is the reopening of china, which could create a lot more volume, and as you referred to, the lunar new year. then the fact that the oil prices have dropped so sharply since even they warned a couple of months ago. that could provide a little bit of margin relief for them. the stock is very cheap at 12 times earnings, 2.5% dividend, effectively. and they've always essentially raised their dividend. they have a 30% payout ratio so relatively decent shape financially, but the big, big open sis execution and the secondary question, are we going to get a massive global slowdown in '23, which will destroy any kind of forward guidance that they have at this point. >> oh, sure. >> so it's definitely not a stock that you're going to be looking to do for growth, but it may be obviously a long-term value play at this point >> do you have a preference? would you look to own u.p.s. here or do you think both of them you

just have to wait and see? >> i think, you know -- the good thing about fedex is, as everybody said, is a lot of the bad news is priced in. and if they can actually show on this conference call this they have some improvement in execution, they'll probably get a tremendous amount of investor reinterest in the play one of the ways you might want to play this is to simply sell 160 puts, which will put you into the 155 cost basis at this point, about $5. and if they expire worthless, it's like a 30% annualized return if you do get put stock to you, at least you have it put at a very decent price. and fedex will certainly be here to stay. >> and frank, we should put that two-year chart back up, but u.p.s. is basically flat while fedex is down 40% in that period of time. i don't know if that coincides with carol may taking over, but that is a remarkable gap here. >> fedex has the bigger business over in china, and boris referenced roz romanian's forecast if china has the ability to

reopen, fedex would be a bellwether there they would have a lot of insight into that business, and what they say on the call would not only likely move u.p.s., but the trucking business here in the u.s. >> absolutely. it's a great point we are about to talk more about that with nike frank holland, boris, stay with us we really appreciate it. shares of nike down 40% down themselves as they battle inventory backlogs and inflation woes, but it is slowing demand in china that has hit them the hardest. china is about 17% of their annual revenue, probably moreo their earnings cnbc's senior markets commentator michael santoli has the story here >> expectations for the current quarter for nike and for the current phyfiscal year have bee knocked down since september clearly the bar is lower that's after nike did give that reduced guidance mostly it was about inventories. much heavier than expected and the margin implications of

trying to clear that inventory one of the big questions in the report today is did nike take the pain already with that guidance, and maybe they've done better than a lot of analysts anticipated. obviously, china, a big element. looking for stabilization there. i don't think anyone is talking about a big pickup in activity, but that's going to be all about how they're thinking about fiscal 2024, frankly, because the current fiscal year, 2023, is already underway when it comes to a comeback in china and currency, obviously, the stock doesn't principally trade on that, but it's become more of a tail wind since the last guidance was given, that was in september. the most relative currency pairs dollars weaker against that thing. one other issue, some of the analysts are talking about that maybe there's some market share advantages out of nike out of the dissolution. some of the full-priced new releases from nike may be better

than expected because of that. >> i know some parents in town whose parents wanted yeezies and it was like, no, no, no. is it true this company still trades at a 24 times forward multiple >> it's a global premium band. they've really kind of in some ways deserve it. they've been a tremendous performer. and mike is right. they could get a little bit of a benefit out of the adidas woes as we go forward china will be a tremendous boon for them, because they will boom down and consumers have responded to a lot of their promotions, as well so one last thing that's interesting is the world cup story. messi has been the ambassador for adidas, but messi is like the face of soccer past. what's interesting is mbappe is an ambassador for nike, and that

kind of tremendous amount of fuel going forward is underappreciated at this point, especially with the incredible world cup that we had. i think they may get tremendous benefit out of that. there's a lot of things positive going for them over the next month or two and they kind of really undersold their problems, so they can surprise to the upside as we go forward >> mike, can you give a comment as well about the multiple especially in a year where the stock is down 24%, still trading at 34 times in a market like this is quite striking >> and i do think it's a challenge. because this basically represented the ceiling for nike's valuation, pre-pandemic nike was one of those companies, you could put disney in that category that got completely revalued higher based on that global, defensible brand franchise thesis i don't necessarily think that it can sustain a multiple like this, but you have to start seeing the growth drivers kicking in to hold up this way i don't think it's an interest rate story

it's all about, was there a bit of a pull forward through the pandemic, and have you given nike too much credit for being able to sustain the margins. i think it remains a challenge to keep this multiple than it is a no-brainer to pay it >> boris, final comment, if you would. many different markets are tied together, stories like nike. we've heard some analysts saying their kind of contrarian take for next year is china could be a really good market story do you share that view >> well, it's certainly going to be a better market story than it was last year. if you look at something like starbucks, which is really investing a lot to china and i think it's better than anybody else on the american brands, you have to believe that, yes, china even growing at 3 to 4% is just so huge relative to the rest of the world, simply because it's such a massive market that you have to believe that those brands that have very, very strong footprints in

china, any kind of upside momentum is going to be very positive for them going forward. so, yeah, i do think that -- and that's one of the reasons, the big bet on nike. when china comes back, any incremental dollar will really help them. >> boris, mike, always a pleasure thank you so much. coming up, zombie office buildings. office reits have been getting hammered this year skuand you c see the vacancies in places like manhattan. what it means for these trades, coming up. and a closer look at some of the names on the move this hour. this one having another bad day. maybe you can guess it we'll have that name next. here's a quick look at the dow as we head to break. t two-to-one advancers outpacing decliners. i can walk in front of this today. here, we have boeing outperforming with aaiof gn nearly 2%. t"the exchange" is back after this if your work, works for your community, then you're on team earth.

welcome back we're still in the green even the nasdaq, now up 21 points small gains. the dow is up half a percent near session highs right now here are some of the movers this hour we're watching moderna, the top performer in health care today after piper sandler said they've seen covid vaccine revenues at the high end of guidance next year it comes on the heels of an update at jeffries yesterday moderna tacking on another 7%. lo lucid motors moving higher, but the shares are down 80% today, even with today's 2% pop and warner brother's discovery getting hit once again today shares of wdb are down more than 62% since their trading debut in april, falling 17% over the past week alone, as they tackle

larger than expected writ write-downs. ongoing restructuring. one preview from the media executives is we could see a proxy fight here, maybe even going after david zaslav, down 16% this year, after netflix ad-supported tiers are off to a slow start stuff space for streaming right now. let's get to tyler mathisen for a cnbc news update >> what a story there, kelly thank you. here's what's happening at this hour, folks. ukrainian president zelenskyy making a surprise trip to the combat zone and thanking troops for their sacrifices he went to the eastern city of bakhmut, a bold move to dishearten russians seeking to encircle the city. and delta airlines reportedly working on offering free wi-fi on its flights. "the wall street journal" says the rollout could start early next year, with passengers needing and a membership in delta's loyalty program to access the free service. sounds like a small sacrifice for that and argentina celebrating its world cup win with a massive

parade through the nation's capital. hundreds of thousands of people crowding the streets of buenos aires, hoping to catch a view of their national team and maybe lionel messi the celebrations took over some roads and highway overpasses after rumors that the parade route had been changed that was the best soccer match i ever saw, kelly. >> i wish i saw a couple minutes with it. thank you, tyler mathisen. still ahead, this stock is a standout despite worries about a spending slowdown, our strategist sees 20% upside the me anand two other recession-proof stocks the buy, next ♪ ♪

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with calhope's free and secure mental health resources, it's easy to get the help you and your loved ones need when you need it the most. call our warm line at (833) 317-4673 or live chat at calhope.org today. welcome back to "the exchange." the debate on whether next week will bring a recession or next year, i should say, will bring a recession or soft landing, the debate is still up in the air, but my next guest says no matter what happens, the consumer will still do well and he's got three names he thinks will come out on top.

let's bring in adlan boomer you always like visa i can't remember a time you've been on that you haven't been a fan of that stock. you still are? >> i'm a fan good to see you, kelly welcome back i love visa. visa is like the toll road that almost all spending goes through. they've got a huge market share in terms of payment processing through their network, almost 50% of the global payments that are processed, i like this stock. and you know, the one thing that i would change if i were the yeah, pay some more dividends. i think it's a great company >> but does that caution tell you something? is there a reason -- do they need to invest that cash for a better return, or do you think that they are more cautious about the outlook than maybe you are? >> of course i think anytime a company is paying out such a small percentage in terms of dividends, the view is that they've got internal things that they can invest in for a for the rate of return so i just think if you're already the biggest, there's

probably more of a likelihood that you kind of stay where you are, maybe not a tremendous amount of growth opportunity so as a dividend investor, i love dividends anytime i see a stock with a low payout ratio that has been increasing dividends in the past, that's a really good sign for me in the future what i love about visa the most is their margins visa this year operated at a 67% ebit margin. can they increased their margins this year my over 1% and next year, we think they'll do it again by about almost half a percent. >> wow, that's -- 67%. that's pretty astonishing. let's move on to constellation brands they can't be that high. >> yeah, constellation brands has about half the profit margin, about 34% eebit margin and you know, again, what i love about the three names i'm talking about today, each of them has not only started off with a really good profit margin, they were able to

increase their margins in 2022, which is a really challenging year because of inflation. constellation, they're big in all the mexican beers, in other spirits as well, but the fact that they've been able to maintain and grow their margins, new products that they're rolling out, i'm a real big fan of onstellation. >> i have to ask as well i understand the argument that demand for beer, wine, whatever you call it is essentially recessionproof, but to me it seems quite discretionary. you can get buzzed from a lot of things you don't need to pay a premium for it people might have fewer parties. there might be fewer work celebrations why wouldn't that stock get hit if there were a little bit of a consumer pullback. >> i don't know about in your house, but it's always time for cracking a beer. whether you're at a party, whether you're at home but keep in mind, constellation

owns a real big stake in canopy. you mentioned the multiple ways to get buzzed nowadays and canopy growth is in cannabis, in recreational and medicinal. so if regulations trend, they're well positioned to profit from that trend today >> finally, international flavors and fragrances a little bit more of a b-to-b play >> absolutely. most people don't know this company exists, although they consume the products about every day. food is one of those things that whether the economy is roar organize whether things slow down, you got to eat and the things that they provide, they're the largest provider of specialty ingredients in the world they have something like 25% market share in things that we consume that ultimately are really part of the value chain of getting food on to your plate. and they've got pretty good margins. a lot lower than the other two names. their profit margins are about 10%. but they grew their margins this year by about 25%.

just really incredible considering all the inflation that consumer have experienced >> absolutely. that's the biggest takeaway for me we've been on that one for so long thanks for your time today and for all of these picks, appreciate it. >> merry christmas, happy holidays >> alan boomer from momentum still ahead, inflation and recession fears have both consumers and investors hunting for bargains we'll highlight which sectors are trading at an historical discount here's a preview and if you should buy in, tt nt.haisex

this thing, it's making me get an ice bath again. what do you mean? these straps are mind-blowing! they collect hundreds of data points like hrv and rem sleep, so you know all you need for recovery. and you are? i'm an investor...in invesco qqq, a fund that gives me access to... nasdaq 100 innovations like... wearable training optimization tech. uh, how long are you... i'm done. i'm okay. welcome back all three major averages are on pace for their worst year since 2008, but some sectors are holding up better than others. it's time for some sectoronomics. >> all right, so, we're still in

ranges right now, given what we've seen over the past several years, in terms of the covid pandemic lows, some of the highs in the wake of those things, but the s&p 500 over the course of the last year has been drifting lower, no doubt, and for this time being, at current levels, we are trading at just around 17 times forward earnings, meaning you pay $17 today for s&p 500 stocks for every dollar's worth of anticipated earnings they're going to make in the coming year this is a discount valuation to where it normally has traded on average over the last five years. which sectors in focus are the ones that are trading to bigger discounts to the market? check out what's happening with communication services a beaten up services, meta, has a lot to do with it. but over the last five years, trades around 19 times earnings. we are around 15 1/2 times earnings on a forward basises.

watch communication services, it could provide a relative balance. check out what's happening with consumer discretionary forward-priced earnings, closer to 29 times, it's now around 24 times, so, again trading at a discount to where it has on average over the last five years. this sector has amazon and tesla in it. and if you're looking for the sector that's trading at a premium, meaning people have been bidding up these shares compared to where they should be trading given their valuation for forward earnings, check out consumer staples, kelly, right now, it's trading around 22 times forward earnings typically going to just around 20 times you can see there on average yes, there's been a lot of focus on those dividend-paying consumer staple stocks we'll see if it stays that way, kel. >> it's a reminder that the overall market is just not cheap. >> kind of at the highs, right at the highs we saw over the past couple of years, the s&p 500 was trading at 22 to 23 times forward earnings expectations right now, it's closer to that

16, 17 times so it's below average, but the concern is that if we really do have an earnings recession, you may have even further to go, people getting a little bit more scared, not willing to pay this much for those expected earnings in the coming years. so, those valuations, yes, still very much a question, of course. that's not even taking into account some of the ripple effects from tighter interest rate policies from the fed that's going to be a wild card in the first half of next year >> dom, thanks no carnage being spared. the pimco muni etf is on pace for its worst year ever, but could a looming recession cause investors to rush back in? we'll ple atft t break. aerhe

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welcome back to "the exchange." the bond route of 2022 has left no part of fixed income unscathe, including the tax-free muni market. muni mutual fund outflows hit a record, with investors pulling more than $100 billion out of the space. but with rates potentially stabilizing as the fed is expected to slow hikes, could

the money return and the returns in 2023? let's bring in jeffs johnson, an dominic chu is along to continue jeff, welcome. muni performance next year, what should we fear >> well, i think the muni market's in pretty good shape for 2023 you've got a carry yield that we're forecasting for intermediate portfolios of somewhere between 2.4 and 2.7%, kelly. so, you know, that's a level we haven't seen in three or four years. so i think we're starting from a pretty good yield, a pretty good base and when you taxable equivalent that for high-tax states, that's upwards of about 5.5%. i think the muni market has set itself up for a pretty good year in '23 >> this is an area as well where maybe we talk about the difference between owning funds versus owning the bonds outright if you own it outright, only

risk you're talking about is default risk >> the thing about it, it used to be, if you were a muni investor, you had a lot of different advisers who specialized in picking individual funds and putting portfolios together. the problem is oftentimes you needed a lot of money, tens of thousands of dollars at least to be able to put portfolios together like that with theadvent of mutual funds andette fs you've taken the minimum concerns away and try to focus whether or not you will buy certain-types's funds you want for many, people still want a higher managers, hire managers at mutual fund level or advisers investments themselves comes down to picking's which states general obligation based on taxing authority or revenue bonds based on stadium sales, anything else? all complicated still. >> jeff, our expert. where would you put people's money? >> aseparate account manager each portfolio individually managed and mutual funds and

etfs the massive outpost in municipal, mutual bond funds, to the tune of $120 billion, interestingly, that money, a lot of it went back into etfs. etfs are actually up $24 billion this year. >> muni etfs seens 24ds billion in inflows this year $24 billion. a lot is the tax loss harvesting investors did in mutual funds selling the fund, capturing the loss and redeploying it innette fs and appleton partners managing individual portfolio and buying the bonds, you know, directly. we have a little more control over that tax laws harvesting activity. >> sure. >> and busy at that. >> fed rate hikes -- put it this way.

at some level interest rates a headwind for muni inputs inflation, talked the other day, a problem if returns, feel just not keeping up and being a good steward of your money over that period of time. >> kelly, excellent points and whether or not you, you have a view on tax policy going forward. over state, local, even federal level and whether you want to build portfolios taking advantage of tax harvesting and secular view where you think taxes would be, and if you want tax-f tax-free, if you believe taxes are going higher in years to come some created opportunities in certain parts of the muni market tied to closed funds investors i look to, trading discounts, where asset vallue some of the trading anomalies might society some up in regards to outright bonds. >> what are the best

opportunities across muni land right now? >> longer intermediate part of the curve. still steepness left there call it 10 to 15 years keep duration in check so if you do see higher rates in 2023 you're going to be in better shape. the other thing i think, when your owning the individual bonds and muns icipals in high grade, fault rate is 1/10 of 0.1 prt per percent delivering good tax-free income and preservation of capital. that's what investors want. >> after this year, dom, people looking to say, good value there, maybe not so boring. are they >> saying there is an alternative? >> exactly jeff, thank you for your time today. appreciate it. >> thank you, kelly. >> jeff johnson. huge thanks as well to dom. zombies are taking over manhattan, at least prime real estate, next on "the exchange.

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one more thing before we go. rising rates and recession fierce taken a big bite out of housing, but according to real estate mogul don peebles worse for office space. >> the commercial office space market hit by a double whammy. high rates and recessionary environment, but also a change in the way people work americans are working differently. remote work is here to stay. hybrid work is here to stay, and so there's a far less demand for office space and that's putting a lot of pressure on reits, for example, that have been hot, a large inventory. >> putting pressure on office buildings, too, across the river

in new york, tracking rise of zombie buildings robert you what can you tell us? >> kelly, add up all the empty office space in manhattan right now it would total 40 empire state buildings of vacant space over 100 million square feet of space. now, as don mentioned, remote work is one big reason only half of manhattan's workers are back in the office that's basically unchanged since september. but the new worry right now is layoffs. especially in tech meta laying off over 800 employees in new york. vacated over 250,000 square space but took over in hudson yards twitter laying off in manhattan unclear what it will do with its 140,000 square feet of space chelsea, amazon cutting its planned space in hudson yards, also new office buildings or class-a space is strong but it's the older buildings, class-b and c

seeing record tenant losses. property advisers estimating 40% of new york office buildings now face a critical choice whether to start costly renovations, try to bring back tenants or just leave the buildings empty as zombie buildings. analysts say defaults and distress likely next year. investors also feeling the pain. reits with exposure to new york like s.l. green and ornato down over 40% this year so far. kelly? >> robert, i asked dom, and others made the point. very expensive to convert office to residential much cheaper to just build residential new, and that's going to be another headwind for investors in these reits. >> that's right. i mean, the silver bullet would be convert some of this 100 million square feet in much-needed apartments still seeing record rents in manhattan. as you say, it's very expensive, land and building costs high

zoning complicated even then unclear on the commercial side whether we can bring people back to the city, then added layoffs not just in tech increasingly in the financial sector. >> true. >> the convention bullet is just not going to save the commercial space and some of these reits. >> right pulling back as well, perhaps mondays and fridays reflecting a new normal robert frank that does it for "the exchange." "power lunch" begins right out in. thank you. welcome to "power lunch" i'm tyler mathisen what we've got in store for you today. a central bank surprise. the bank of japan's, last holdout onultralow rates shift policy overnight and could mean a fed pivot in 2023 is off the table. we will hear the argument for that case later this hour. plus, the greatest corporate