it could be someone from outside the company. >> we will see matt, always good to see you love and enjoy reading your newsletter, and look forward to seeing you in the new year happy new year >> you too all right, folks, that does it for us. you can see dow is down by about 150, the nasdaq off by 111, the s&p down by 25, but happy new year, everybody. we look forward to seeing you back here on tuesday >> happy new year. >> happy new year, health and wellness to everybody, good-bye. good friday morning, and welcome to "squawk on the street," i'm morgan brennan with scott wapner and mike santoli live from the new york stock exchange we're going to take a look at futures. this friday morning, this last day, this last trading day of 2022, we're poised to open lower. so much for that, i guess, early

whiff of a santa rally we saw yesterday, with the dow down 151 points right now, the s&p in a position to open down 26 points and the nasdaq down 114 points our road map is going to start with the last trading day of 2022 major averages heading toward their worst performances in more than a decade. plus a generational opportunity in fixed income. and southwest hoping for stability. the airline saying it expects operations to return to normal today. >> all right, we're going to begin with the markets, though, on this last trading day of 2022 stocks are on pace for their worst year since 2008, the nasdaq, the biggers underperformer, down more than 30% on the year. we also have some new data today from cnbc's delivering alpha investor survey. when asked about the s&p's performance for next year, 40% of respondents say they believe it will rise 6 to 10%, which we know, and bob pisani has been talking about all week, mike

santoli, the fact that when you have a big down year, historically, you tend to be followed by a bounce that being said, not always the case, right? i mean, bespoke actually looked like volatility for this morning and what that means going into next year, and i have seen some other notes this morning sort of suggesting that we've seen similar second years of down moves earlier in the millennium as well, if you look at 2003, 2008, 2009 >> there are just not enough down 20% years in history to actually have a rule >> thankfully. >> right so, the sample size is small, and as scott and i were talking about last night, we had this very unusual situation this year where the high for the bull market was on the first trading day of the year. so, the year statistics are also the peak-to-trough statistics, basically. there have been multiple times when we have been down 20% over a 12-month period. it just didn't happen to

coincide with the exact calendar year all that being said, one-third of people in that survey saying returns next year will be less than 6% for the s&p 500. that strikes me as a high percentage of people expecting sub-par returns or below normal, below average returns. and i think that makessense in the sense of, all the forces that got us where we are here today mostly remain in place make a few observations, though. one is, most of the downside we've experienced was done by may, right point-to-point, the intraday low in may is basically where we've been trading right now valuations have compressed are bonds going to crash again next year? we started the year with the ten-year under 2%, and there was no cushion in bonds. they're down almost as much as stocks are this year, and the 60/40 portfolio is basically rarely been down as much as it is this year all i'm saying is it's a less risky starting point today than we were a year ago

there's not $2 trillion left in crypto to go away. we're down $2 trillion in crypto from the peak. >> this was a year, really, i mean, to your point of view, if you want to jump off on the crypto thing, where the froth really got wiped out, whether it's crypto or spacs or ark or, you know, if you say the high valuation names like tesla or even nvidia. really, really crashed down to earth. and by the way, 6 to 10%, that would feel like a win in the face of some pretty big headwinds. >> it would feel like a win, but it would not even get us back to the august high. >> but i mean, anything better than that we had last year >> may be a low bar. >> i do think it's a low bar one-third of the year had s&p moves of more than 1%. 122 trading days had moves of more than 1% it's the most volatile that stocks have been since 1945. gives you an idea the kind of year it's been

>> volatile in that sense, in the sense of big daily moves it was very gappy. you had a lot of people playing defense for much of the year what we didn't see, though, is that kind of real overshoot that sort of pure liquidation type of move that you sometimes get near the end of a bear market, and i know a lot of people have made that observation i don't think you need it all the time you can have a controlled demolition of valuations, and i think that's more or less what we got in response to all the higher cost of capital and what the fed was doing. big question, obviously, is going to be, was this really the end of something was it the end of 40 years of disinflation was it the end of 40 years of the ability of the fed to continue to create an accommodative backdrop for the economy when things get tough? that's -- those are bigger questions that i don't think are going to be resolved very soon >> it's also worth noting, and this was according to data track earlier this week -- you have used this word so many times on our air this year.

orderly. five trade sessions accounted for 95%-plus of s&p losses two of those days were disappointing inflation data others were disappointing earnings and also fed chair powell commentary. to your point, the fact that we-- and we have had bounces it's been a bear market, but we have had these bounces too, and i think that sort of raises the question, right, going into and again why you have this spread in terms of price targets for the s&p for 2023 across wall street right now, what this looks like going into next year, whether the recent bounce we've seen, again, maybe perhaps marks a bottom or whether we're going to go back and test some of those lows we saw earlier this year and the role that earnings and this idea of an earnings recession is going to play in that >> have we seen as big a divergence in recent years, where you've got tom lee at like a 4,705 and all the way down to a 3,300. it's difficult in the new year to figure out where we're going because of all the variables we have to deal with.

>> i would say in terms of the high-low, that's a very wide range. what i find also interesting, though, is the majority of people clustered around the market's going to do nothing it's going to be a swoop lower and then maybe higher and we might just end where we started. that seems to be where the central consensus seems to be gathering up >> soft landing? a soft landing for the market? >> or if it's hard, then the market's going to have discounted it ahead of time. there's all these overlapping cyclical patterns and tendencies that can't all play out, according to, you know, the way history says if january 3rd was the peak of this market, then it probably peaked too soon, so to speak, to anticipate a recession, because we haven't had one yet if october was the low in the s&p 500, then it probably was too early, because normally, if we're going to get a recession, it doesn't bottom until you're in it. so, that all is based on the premise that we get some kind of recession. and i do think it's plausible to say we muddle through or there's

kind of a no landing or the nominal economy grows fast enough to support corporate activity while we have some bouts of the real gdp going lower. who knows? what i do know is, valuation's compressed, the nasdaq 100 went from 30 times earnings to 20 is 20 low enough are we basically hoping that the pendulum just stops halfway through? >> in a recession, it's probably not. >> is there unfinished business on that front, even as the average stock is much cheaper? i mean, does best buy have to be below 12 times earnings? maybe. it has traded below that at times, but that's the kind of stock where nobody's making much of a fuss about it they've struggled. they're off the lows home builders are down 30% but also up 30% off the lows or thereabouts. 20% off the lows so it's a very interesting give-and-take in terms of how unusual this cycle was, and we're trying to apply the long-term, you know, rules to it >> some big names as we talked about the ones that corrected a

lot. it's not just a tesla world, although it's obviously grabbing a lot of headlines it was a meta -- a bad year for meta bigger market cap stocks that were sort of in the lights, the marquee names, paypal had its worst year, i think, ever, and you know, questions about stocks like that, what will -- what will the one-time darlings of the market do in the new year? i mentioned nvidia earlier, but paypal, whose market cap was bigger than bank of america at one point. >> i would put meta aside, because that was not a very high initial valuation coming into this year anyway, because that's really just kind of an execution -- a little bit of a -- almost a strategic decision and rebellion by the street. but when it comes to something like the paypals, i think it's sort of a long convalescence is usually the rule for those things, where you have this valuation surge, people realize they're addressing a huge need, realize they're going to be a

dominant player, and it's a huge addressable market, and they kind of overpay for it for a while, and you know, a lot of stocks could be like the microsoft from 1999 to 2012 type of rule, which is, company did well along the way did what it was supposed to do but it just never could recapture that valuation >> it also speaks to this idea of a market rotation and whether that's going to be lasting or not, right you saw so many investors move out of these big cap tech names into things like energy, which was such a small sliver of the overall s&p and which has grown, i think, from 2% rating to 6% rating still small, but that's a big jump it's the only s&p sector in the green for this year, and that's going to be a key question looking to next year as well, as some of these more cyclicals, energy, other commodities, industrials, which have also had a good run of it, at least recently this quarter, whether those continue to maintain leadership, especially when you look at something like a crude chart for this year, because

brent is poised to -- and i say brent because that's the world's benchmark. it's more tied to the refined products, is more tied to what we've seen take place with the russian invasion of ukraine and the impact it had on energy prices globally, but brent is poised to end the year up, what, 7% but look at that chart it was a crazy year. if you just slept through the whole year and just woke up now and saw a 7% gain, you'd be like, okay, fine, whatever but it was a crazy year for energy crisis. what is next year going to look like that's another area where you have investors running the gamut here, saying everything from, disinflation is going to hit commodities and commodity prices in a more meaningful way to, you're going to see another big energy spike emanating from europe again, especially if this ukraine conflict continues on, and by the way, that's going to have ripple effects as well to things like currencies, potentially i have had one investor say to me you could see a referendum on the euro, for example, if you continue to see these sustained pain points

around energy on that continent. >> let's turn now to the latest around southwest airlines. the airline now saying it expects to operate a normal schedule today this meltdown has just been, mike, extraordinary over the last week. they had a call with the media yesterday. the ceo, boko jb jordan, is talg about shifting their priorities to upgrade some of their systems where really it was the weather, yes, but their systems failed them just incredibly they had to manually assign pilots and flight attendants to flights when their own sort of technology system couldn't handle it. you had volunteers literally being called in to help figure everything out you've seen the pictures, i'm sure all of you have seen, thousands and thousands of bags, the luggage just strewn all over airports and tarmacs and seemingly everywhere else. >> yeah, and it's just one very

extreme example of something you see across industries and the economy, which is there was a priority built over many years for just in time, for lean operations, for efficiency, for getting away from the idea of having kind of, you know, inert assets or redundancies built in because you wanted to be maximizing efficiency, and it's not -- it can't actually accommodate massive disruption like this. now, they were overexposed to airports where extreme weather just couldn't be dealt with very easily, so i mean, it's not just purely a southwest issue in terms of how they ran the place that they got hit hardest. they were exposed to the toughest areas, right? in that unusual cold snap and things like that but yeah, it's -- what's fascinating to me, we talk about this too, is that this is the sort of thing the market shows itself sometimes willing to look through if it feels like it's a blip if it feels like it's just, oh, they're kind of getting a bad rap or they had this one

misstep, but there will have to be a lot of investment there will have to be kpriz compromising on margins down the road, and i think you're seeing it across industry we're going to produce stuff here, own our own production we're not going to look at the lowest cost way of doing business, because we can't anymore. >> yeah, and to that point, it's been just -- that has been a huge shift, and that sort of speaks to everything we've seen play out with supply chains and reshoring, near shoring, all of that to go back to the southwest piece of the puzzle, you did have the chief commercial officer come out and say this will certainly impact the company's fourth quarter u results. you had transportation secretary buttigieg saying the government is putting it under a microscope, threatened the airline with tens of thousands of dollars per violation, per passenger, and fines, which kind of got -- raised my eyebrows a little bit >> yeah. >> so, to your point, like, it's going to be a noisy quarter, and

i think everybody can sort of get on board with that fact. but this is also the airline that had reinstated its dividends. >> oh yeah >> not that long ago, and had been seen as a particularly strong player until this week it wasn't we're going to be talking a lot more about the storm impact as well next hour with the ceo of generac, which has had a horrible year but a very strong week on the heels of that storm. >> that's the worst s&p 500 stock on the year, generac, but back to southwest. if you're a consumer or a flyer, passenger, whatever, traveler, and you're making your plans, and to mike's point, you really don't have much choice the way that the airline route structure is these days and where hubs are, you're going to fly based on price, and you're going to fly based on convenience, and what is mad today is not necessarily mad tomorro tomorrow, because you may not necessarily have a choice when you want to fly on your next

vacation or business trip or wherever, which would theoretically minimize the impact over the longer term for the bottom line for a southwest airlines >> yeah. >> all right, we're going to take a quick break here. with futures indicating a lower open after that bounce higher that we saw yesterday, we're lower for the month for the major averages we're higher for the quarter for the dow and the s&p. we're on pace for the worst year for the major averages since 2008 we're just going to take a check on the biggest laggards, speak speaking of, for 2022. almost all ev names. lucid, rivian, tesla, down we got more "squawk on the street" after this break matics. we all know this equation, right? he'd crunched numbers day and night. that's it. to maximize profitability. morning. i have quarterly numbers that are beautiful. and forecast revenue from every corner of your organization. is that important? or you could use workday.

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bonds and portfolios have been nothing but a disappointment for some investors over the last decade some fund managers expecting a big resurgence >> well, scott, fixed income yields have been so low over the last decade, even negative in some cases like in japan still now, but it's been a tough go for bond investors to find value, but the bond resurgence is upon us >> i have never seen, really, a better opportunity in the bond market to get into the bond market than i have right now and that's my whole career >> a new bank of america fund manager survey for december shows investors are overweight bonds relative to any other asset class for the first time since 2009

why? well, we know yields have subtly declined, resulting in higher interest rate payments and those yields are expected to stay high in 2023 as the fed has signalled no immediate pivot even if inflation comes down a little, it's not expected to be majorly dramatic and result in a pivot right away, so given that fed uncertainty, experts at bank of america, u.s. bank wealth management, all suggest sticking to shorter-term fixed income assets >> my perspective is just, be fairly tight to benchmark shorter in duration as we get into the first quarter of the year we'll see this interplay between the fed, inflation, and the economy, and see what that sequencing looks like. >> for investors watching, you can look at vanguard's ultra-short etf or the treasury bond etf those are two you're seeing on your screen right now. both with high dividend yields of almost 1.4%, and you have citi analysts that say that many are missing out in the explosion of corporate bond etf options.

ig, lqd, track investment grade corporate bond markets you can see they're on your screen as well with their yields and offer yields both above 3% that dividend yield is over 7% and i know i'm talking about bonds and etfs that track the market they may be sleepier than crypto or new tech offerings out there, but they do offer stability as we head into a very uncertain 2023, guys >> yeah, kristina, and stability may be the way to think about it i find it interesting that there's almost a novelty factor, people who for almost a generation aren't used to the availability of safe yield are saying, wow, look at this. i can have this as a cushion in my portfolio, but also, probably worth keeping in mind that if you are afraid of a recession, bonds could probably finally act as a hedge against other risks that you might be holding, as opposed to just, you know, saying, oh, i'm getting 3% as a way of getting some income >> yeah, excellent point,

because we really saw that relationship between equities and bonds fall apart, especially in 2022 with the selloff, and so a lot of these experts, of course, they're going to be bullish bonds because that's what they cover. they're saying that finally that relationship that we know of, when the markets tank, you're going to see bonds go or people get back into the bonds because it's a safer bet, so that is the reason they're saying this relationship is going to come back you have several fund managers, bank of america, all of them are saying for the first half of the year, bonds is where to go, and then the second half of the year is when you should be pivoting back into equities >> all right, kristina, thank you. taking a look at futures, we've got eight mitetohepengnus t oni bell we got more "squawk on the street" when we return oh, i can tell business is going through the “woof”. but seriously we need a reliable way to help keep everyone connected from wherever we go. well at at&t we'll help you find the right wireless plan for you. so, you can stay connected to all your drivers and stores on america's most reliable 5g network.

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check out the biggest gainers on the dow for the year, not surprisingly from two of the better performing sectors of the year, led by chevron energy far and away the best performer. merck, from healthcare, up 44%, near 45% othn e year opening bell, just minutes away.

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>> announcer: the opening bell is brought to you by nuveen, a leader in income, alternatives, and responsible investing. two minutes until the opening bell we're keeping our eye on, we've been talking about it all week, but tesla. it's actually lower premarket right now, down about 1% in what's been another volatile week, a volatile month a volatile year for this name. finished up 9% yesterday we did see that bounce, and you do have some analysts coming out this morning and suggesting that maybe it's oversold here but it's coming -- >> you think down 60% oversold worst month, quarter, year ever? >> i mean, on a technical basis, coming into yesterday, it was just mega oversold, which only just means that the momentum to the downside has been very extreme in a very short period of time. it's essentially been what's

gone on with high growth, sort of high-concept tech stocks and digital stocks, all year, only more so. tesla is always, and more so, in terms of the upside and the downside yesterday, we did see strong bounces in everything that's been weak coming into, you know, coming into the day. so, the laggards for the year bounced hard yesterday, short covering, some relief from the tax loss selling and just the idea of portfolio manicuring going into year-end, maybe running its course, so hard to know if you want to make much of yesterday's bounce, but there's so much room between where it was a couple of days ago and, you know, the high 100s, even, would still represent really just retracing back to where the down trend looks like it is. >> i feel like when you're saying that, i'm thinking of apple too. the laggards getting a bounce yesterday, people trying to figure out maybe the bottom. it's close we'll discuss that more in a few

minutes. >> well, and all the other mega cap or once formerly mega cap tech names as well got the opening bell, counting down here. let's see. all right, that's your last opening bell for 2022. we take a look at the realtime exchange here at the big board, we've got planet fitness celebrating kicking off the new year right, and at the nasdaq, it's times square alliance getting ready for, well, tomorrow night as times square gets ready for another ball dropping. but as you can see right there on the board, scott, it's a lot of red on this last trading day. and to mike's point earlier, i mean, you do have a lot of tax loss selling still going on. it's lower volume. it tends to be more volatile in

weeks like this. and certainly a lot of uncertainty going into 2023. >> i'm curious your take on apple, just back to it as we discussed this, because the worst year since '08 it's such an important stock does it maintain the level of importance that it has had into the new year especially in what is an uncertain year and environment >> i mean, it certainly maintains its importance i don't think anything has happened to downgrade -- obviously, there's mathematically what it means for the indexes. the fact that it is not just a widely held stock among individual buzz one that people are very attached to it's made people a ton of money over the years it's one that people feel more comfortable buying and holding and it's a good corporate citizen, it reflects kind of the current best practices of shareholder return, we're going to get our net cash down but we have tens of billions of net cash, that kind of thing so all that, yes, i think it all maintains its importance it's not going to define where

the market goes because it just doesn't really move and respond to the same macro forces that seems to be swinging things, the monetary policy side of it and all the rest i also keep pointing out, what it's done recently in terms of really breaking down a bit is just, again, coming into line with where most of mega cap growth has been for months >> we haven't really talked about it, but the other name that has relative to some of the other mega cap tech stocks held in -- and i say that with a 30% decline this year -- is microsoft. >> yeah. >> microsoft has had a relatively strong year, versus the names like netflix and amazon and tesla, et cetera, that we talk about so often. >> it's definitely sort of the low drama. they make their numbers. there's not going to be a lot of boom-bust elements of their business i think one of the challenges for the market is microsoft, if we're going to be paying up for steady growth, then microsoft at

23 times forward earnings, you know, is fine. there's no reason it can't trade to 19. it's traded way below that in the past the overall s&p is under 7 my point is you still have the argument as to what to pay for stability, again, in an economy where you do have other sources of growth. it's not a beneficiary of inflation, if we're going to keep getting inflation all these things, i think, are part of the reflection of the fact that it is still the very largest stocks in this market that have retained their kind of valuation premium. >> yeah, their premium >> and they have not yet really given way to the point that the typical one has. >> maybe that's, then, the question that needs to be answered first and foremost for this group is whether they deserve to continue to have any premium. they're always going to get a premium, so maybe that's not the right way to say it. >> they may not always >> but is there at some point -- >> some self-inflicted reasons, the reason why it doesn't.

>> is there some point -- apple is a good example of this. we have had this debate for years now. at some point, do they become value propositions within tech more broadly are they seen as more defensive names within tech more broadly >> well, they were alphabet, for example, people used to come on the network and say, this stock is cheap it's a value stock apple used to be viewed in some ways as a value name >> apple was >> within this yeuniverse >> apple was for sure. alphabet is now trading cheaper than it ever has based on current numbers so to say it's too expensive now, i think you have to say that the business has either gotten mature, that it can't grow much, or that maybe there are challenges from around the edges of other parts of search and maybe some of their unproductive investments are going to be a bit of an albatross. >> just want to note that all the major averages are trading lower in these few minutes post-opening bell. just about every sector in the s&p is in the red. energy just turning positive, fractionally, but worth noting that other than energy, which is the only sector that's in the

green for the year, the other relative outperformers to the broader s&p this year are the defensive names, are utilities, consumer staples, and healthcare, raise this question, i feel like we've had a lodt of people on our air that say, you want to raise the focus going into 2023. >> by historical standards, they're probably either, if not expensive now, they're right on the doorstep of being viewed that way but yet, people still come on and suggest that, you know, that the healthcare is the place you want to be stay defensive with some staples, although, you know, i have people come on and say, well, coca-cola, is that too expensive now? are there other opportunities? >> you hear that every time. you really do. and you know, it's one of those things where, yes, you have to actually pay for the ability to not worry as much about the safety, the dividend, about whether the business is going to actually be able to power through. look, i think you could look at healthcare, though

i mean, big pharma is not expensive. you could find parts of healthcare that seem like they're a little bit overloved unh, one of the reasons the dow has done so well this year relative to the other indexes, is united healthcare is the highest-priced stock in a stock-weighted index and has done really well its massive outperformance this year is considered to be a bit of this predictable toll-taker on the u.s. economy. whether that's a good or bad thing, that a health insurer is -- has that status, but -- >> look at merck we just did it before the prior break. right? it's one of the second best dow performer on the year. >> obviously, we touched on it earlier, but going to circle back on cryptocurrency, which have just been bludgeoned this year bitcoin down something like 75% since its high

microstrategy just turning positive, but keeping an eye on that one, it just hit a fresh 52-week low, just a few moments ago. it's had another week of selling. put a filing out on wednesday, basically said, still a net buyer of bitcoin but for the first time ever, actually sold some of its holdings they say they're doing it for tax purposes "microstrategy plans to carry back the capital losses resulting from this transaction against previous capital gains that it might generate a tax benefit. we know that taxes, quarterly earnings, how all of this is reported around cryptocurrencies is very wonky, and certainly folks in the industry have called for changes, that there are some changes coming. but when you have what's been considered not only a bitcoin bull in michael sailer, the cofounder and chairman of the company, but also considered to be a crypto whale, a bitcoin whale in general >> is the pied piper of the

space. >> that headline alone certainly pushing the stock lower. >> i get that the headline can hit a raw nerve, but to me, it makes all the sense in the world that this is a company where the average cost that they've paid for bitcoin is above $30,000 therefore, some of the purchases are well above there it's just basic tax management to say, i'm going to sell some of the higher cost basis lots and take a loss. i don't know all the intricacies of how you could book that, but the point is, it just makes sense to sell at a loss, offset some capital gains, use that going forward as a potential buffer to further taxes and not really change the overall exposure, because they bet the company on bitcoin, and they continue to maintain that bet. so, if you're worried about bitcoin, microstrategy as a corollary to it, fine. the fact that they trimmed back and then bought at lower prices, to me, is not the reason to be incrementally concerned. >> yeah, it goes back to the fact that we have seen some of these big fintechs hit so hard this year as well.

i mean, paypal, the company formerly known as square, block, these are names that in addition though their actual bread and butter financial services offerings, have levered themselves in some form or fashion in terms of product offerings and in terms of how the market sees them to cryptocurrencies, to things like bitcoin. you've also got names like coinbase under a little bit of pressure today, but in general, at least in recent weeks, recent months, bitcoin has been trading, dare i say, in a pretty narrow range, sort of between the 16,000 to $17,000 mark >> it's been anchored around $16,000. >> that is very -- use the word relative -- stable for that cryptocurrency, for that asset class, given what we've seen over the years >> there has been this sort of perverse impact of the ftx meltdown and the revelation that they were inventing their own token out of thin air and using it to collateralize borrowing and this, what are we even doing here, kind of story, to some of the crypto instruments, whereas bitcoin is, look, the code has

been written forever we know how it works we know how many there are we know how many there are going to be. you can think it's useless or useful, but we know what it is we paid a certain price for it enough people think it's some form of digital gold or the raw material of the next generation of the internet that it's going to hold some value >> i feel like it's worth discussing too, since we're talking about some well-known people who are making some interesting investment decisions that performance of hedge funds this past year, the worst returns in some 14 years now, the performance is going to beat the s&p, which i suppose is the point. you're supposed to weather the storm. but it's been a difficult year for most i'm not going to say everybody, because there are the mu multistrats who have done really well some of them, like citadel, who was up based on their multistrategy commodities and

currencies and fixed income and all of the other things. >> and frankly, a lot of just, you know, one algo day trading pods that they also finance. but you're absolutely right. look, when stocks and bonds are both down huge in a given year, it's not going to be easy for a hedge fund -- you're always going to be net long in aggregate to really perform. but you're right on the macro with hedge funds too macro currencies, bonds, all that stuff trending. when that stuff is trending, they can play it >> by the way, i feel like we should keep an eye on the dollar best year since 2015, but we've seen that come off pretty aggressively just this month we have a story that's moving now the house ways and means committee has just released the tax returns of former president donald trump included are the personal returns of donald and melania trump, as well as some returns from trump's businesses. much of the information had previously been released, but returns from 2019 and 2020 had

not previously been seen nbc news is currently going through the thousands of pages that are now out we'll let you know of any pertinent details that do emerge the former president has responded, saying the release of his returns was an outrageous abuse of power and had no legitimate legislative purpose before we head to break, it is time for the bond report. let's take a look at how treasuries are faring on this friday morning largely last i checked a bit higher across the board. yeah there you go the ten-year is 3.879% we are really higher across the board versus a week ago. just to put this in perspective, the ten-year started 2022 at 1.5% we'll be right back. can see if it may qualify for a payroll tax refund

of up to $26,000 per employee. all it takes is eight minutes to get started. then work with professionals to assist your business with its forms and submit the application. go to getrefunds.com to learn more.

♪ welcome back to "squawk on the street," rick santelli here live with the last breaking news of 2022 in the form of, well, chicago pmi. it's a december read expected to

be around 40 our last look at 37.2 was the weakest since may of 2020. we jump to 44.9. that puts us back on par with october's read, which was 45.2, so it isn't necessarily a stellar read, but it's much better than the lowest level since may of 2020 at 37.9. we see interest rates continue to creep up. as a matter of fact, yesterday's low in ten-year treasuries happened to be the starting point for that cpi about three weeks ago. quk t see wl "sawonhetrt"il return after a short break

welcome back to "squawk on the street." let's get to bob pisani for a look at the markets. >> and we are sort of ending the year the way the year has gone it's the triumph of value over growth so, take a look this morning on the sectors here semis down, communication services, weaker, consumer discretionary, weaker, and energy, there's value, down, but relatively outperforming energy's been the big winner for the year, of course. so, that's sort of the way the year has gone. major indexes in 2022, we're right on the cusp of a down 20% year in the s&p 500. that's a very rare occurrence, but the industrials, doing better russell 2000, almost the same amount nasdaq's been the big loser.

so, want to look at this 20% decline level for the s&p. that level, we need to close at 3,812 or below that. you see that we're right there at 3,812, we go below that, and we're in down 20% territory. so, the bad news is this would be the fourth worst year for the stock market1945 that's right 2008 was worse, 1974, 2002, and 2022 looking like it's going to be down 20%. stocks do tend to rise in the following year, so we only get about one quarter of the years do we have down years. the average gain in the following year is up 14% and it's up 80% of the time. so, the bad news, we've got one of the worst years since world war ii the good news is down years tend to be followed by up years in the next hour we'll talk a little about sectors that might outperform on that in the meantime, he's here

art cashin is going to be here, 1:30 eastern time, along with the old retired nyc members. the saying, wait until the sun shining nelly. art hasn't been here all year so it's going to be quite a celebration to see art on the floor. we'll talk with him about his outlook for 2023. >> so excited to see art he's a national treasure and equally excited to see what tie he decides to wear in honor of this occasion. bob pisani, thank you. here with more on the markets as we kick off the final trading day of the year, oppenheimer's chief investment strategist john, thanks for being on with us today what a year it's been. we've been talking about it, the fact that wall street really -- so many on wall street got it so wrong this year. you started the year, i guess, back in december of last year with a price target year-end on the s&p of 5330. that's a 1500-point differential from where we are right now. i want to get your thoughts on

how that estimate got it so wrong versus where we're poised to close today >> very simply, morgan, thanks for having me on the show, is in december of 2021 we put that target in, the s&p 500 was ticking higher the fed had fairly well announced it would be accelerating its tapering program in the first quarter with likelihood of raising rates. but what couldn't be seen was the aggression -- or, rather, the aggression of russia into ukraine, which disrupted oil prices, which is central oil prices are core to inflation. and then in addition to that, of course, zero tolerance to covid by president xi in china, which further delayed the supply chain recovery with that, it was a great boost to inflation, making the job of the fed harder as a result, they were more

aggressive that said, you know, we did bring down our target. i think midyear we came down to 4800 and then 4400 we went to 4400 for next year and 4000 for this year you know, the bears have had it this year. they were wrong for almost 13 years, notwithstanding some pullbacks that were -- i think the worst was in 2018 when the s&p was down, i think it was 19.8 or something. just brushed against a bear. what what we've got to say now, this reminds us that the setup for 2009 where the federal reserve had taken actions, no one believed the fed would be able to get the economy to recover. first quarter of '09, market was down 27% hopefully that won't be the case this year, okay. but then the s&p rose from march 9th to the end of the year

something like 63% and tech was -- >> you think next year is going to be an up year is what you're telling me. >> i think, yeah i think it's going to be a modestly higher, a little richer higher i was thinking 10% to 4400 at that time the market was rallying on that october rally in there but i would think, you know, 10%, 12% upside from here would be highly likely as the fed -- should the fed be able to prove that, indeed, it can pause inflation. we don't think the fed will pause, at least in the first half of this year. we don't expect the fed to start cutting rates in the first half of the year. but we think the increases will be more modest the data that has been released this week is mixed some hotter than expected. some weaker than expected. you know, that chicago number, as i recall, was hotter than expected, but the housing numbers, that's really come

down, if you look at the case-shiller on a month-over-month, it was down in the teens as i recall. so, i think what's happening is we've got -- the big issues, i think mentioned earlier on the show, it's about the consumer and it's about jobs, how we move forward. but the risks still remain china has stopped the zero covid policy in the process of that, there's a risk of pickup there what's that going to do to the rest of the world? you've also got the idea that related to jobs, is this going to affect jobs hard? no still recall there's about 1.79 jobs for every person unemployed, if they wanted the jobs >> you know, really so much of it boils down to how fast does inflation come down? that will determine if the fed can truly step back, if they feel they don't have to do more damage to the labor market and

can maybe support equity valuations better. what do you think is going to be the path of inflation? >> yeah, i think we're going to see the path of inflation show what it's begun to show already in the fourth quarter is that, indeed, the fed does have effect hopefully politicians in washington will be able to keep their hands off the till, so to speak, and we won't have a lot of fiscal stimulus coming due to offset the positive efforts of the fed. you know, one thing this year that's never been mentioned is really the politicians, from the start of the pandemic, in 2020 when they started taking action as well as the biden administration, they overdid it when adding stimulus when the fed was doing the job. the fed has taken the blame for most of this we've been big believers in the ben bernanke fed, which we still think is alive and well with jerome powell.

>> we'll have to see how 2023 shakes out thanks for joining us. >> thanks for having me. >> scott wapner, thanks for joining us on "squawk on the street." we'll see you more later today. >> thank you for having me happy new year to you guys. >> you, too. >> your real last word of the year start thinking now. in the meantime, mike is with me for the next hour and we're counting down the last trading day of 2022. a lot more "squawk on the street" right after the break. has no idea she's sitting on a goldmine. well she doesn't know that if she owns a life insurance policy of $100,000 or more she can sell all or part of it to coventry for cash. even a term policy. even a term policy? even a term policy! find out if you're sitting on a goldmine. call coventry direct today at the number on your screen, or visit coventrydirect.com.

good friday morning. welcome to another hour of "squawk on the street. i'm morgan brennan with mike santoli. we are live from post 9 at the new york stock exchange. carl and david are off today taking a quick look at markets on this final trading day of 2022. we are lower with all the major averages the s&p trading at 3819, down about 0.75 of 1% the nasdaq and s&p lower, along with tech stocks and communication. along with materials some names underperforming as of late, in the case of tech stocks, all year long, under pressure again today. >> they are.

we are 30 minutes now into the trading session. here are three big movers we're watching, including china-based ev maker li auto said it expects to deliver 23,000 vehicle this is month, up from the 14,000 cars it delivered in 2021. that up close to 2%. shaw communications up african da's competition tribunal dismissed a case by the watchdog to block the acquisition by rival rogers communications. shaw rallying almost 10% on that news, and rogers up as well. we're watching the biggest gainers on the s&p 500 for this year energy leading the way occidental topping the list there. up 115% on the year. hess, marathon petroleum, exxonmobil, and.

>> crude oil almost round trip. >> and it shifts to the investment thesis we saw with the -- and slb trying to move away from the fossil fuel -- >> after 15 years, the change will take hold in my head. >> we've had a few name changes this year, actually. but it does speak to one of those key questions for a group that has outperformed heftily versus everything else this year can those gains continue into next year? it also speaks to the fact you have so many strategists saying, focus on stuff, focus on value, focus on defensive areas in the market, focus on steady growth, free cash flow generation, energy stocks. when you look at exxon or che chevron, for example, since they shifted from output to cash flow, are examples of that. >> they check off all the boxes. earnings growth in general is pretty scarce at the moment and energy has we did also want to highlight

expectations for 2023 in a survey we did among professional investors. what returns would you expect from the s&p next year the largest single cluster there, 40%, saying 6% to 10% that's basically bracketing the long-term returns. not too many people think the market can go up 20% the market goes up 20% in a year far more often than it goes up 6% to 10%. >> really? i didn't realize that. >> in an individual calendar year it almost never matches the historical annualized return it doesn't go negative very often but we did this year, clearly. >> that's where it sets us up for the debate we're going to have in a few moments. it sets us up for the debate on what does next year look like? does it, as john who was just on last hour, suggests, set us up for an up year now he compared it to this past year we're now closing to 2009, or

does it set us up for another down year, maybe a 2008 into 2009 >> not to compare this to the great financial crisis. >> by the way, at the end of 2008, the s&p was already down 40% and it was at a level it first reached more than a decade earlier. we're not -- we're not surveying that magnitude of damage just yet. >> to be clear. >> proper analogy is our next guest has an s&p target of 4350 for next year. tom lee of fund strak global advisers and cnbc contributor. he's with us by telephone. your call is that the s&p 500 can work its way back to just about the record highs that were set above 4800 in january of this year. what gets us there are we going to have everything that pressured the markets this year playing in reverse in 2023? >> michael, yes. in fact, i heard your comments about 20% years.

i think that's spot on that the question we have to ask in 2023 is, what is the probability the market has an above average year number one, i think it has a lot to do with credit markets, which spreads have been stabilizing and rallying a year after high yields has a negative year, which is this year, the average gain, 22%. i think volatility, which was alley vated this year, historical drops more than 20% in a year where it's averaged over 25% typically market gains are over 20%. for those who think the fed is going to crush the market, one thing to keep in mind is historically from peak to max draw down when the fed starts a hike cycle and pauses, the average drawdown is 18%, peak to pause. we've already fallen 20% we have already discounted a fed

tightening cycle i think that's where inflation becomes the big pivot because for the last three months inflation annualized around 2.5% i think the february fmoc is really the time where the fed could true up and it looks like we're in a dovish trajectory i think that would be a huge catalyst for markets. >> when you say that inflation has annualized in the last few months near the target, you're talking about core pce, i assume, on that? >> yeah. you can -- correct core -- you can do core cpi or core pce both have annualized at roughly 2.5% >> got ya. i guess the question then is, does that just leave us open to be concerned about what the economy is actually able to offer, the lag effect of the tightening, all the leading indicators of recession that

seem to be taking shape? >> that's definitely the battle that's shaping up because, on the one hand, people who pick stocks focus on the earnings decline. when we look at -- i used to be a stock analyst. if 2023 is a year where earnings have declining but they rebound in 2024, one, markets begin to look through that, in fact, on average stocks bottom 12 months before earnings estimates bottom one of the things we have to wonder is this an extended earnings contraction that isn't discounted by 20% decline. >> that's an interesting stat and key as we talk about earnings recession looking at fourth quarter and going into 2023 i think you've got seven of the s&p sectors expected to see earnings contract in q4. where would you be putting money

to work right now, tom, given the fact this is uncertain and given the fact that you personally, last i checked, have a street high in terms of where the s&p ends next year >> yeah. i think it's -- i think the least controversial view to make is that cyclicals could begin to work because, as you know, we've already had a pretty big decline in pmis, and that would be industrious. i think that's a more consensus view i think one of the less -- and i think energy still works that's been our favorite sector since 2020 i think one of the groups that could surprise us is technology. i know investors have taken a beaten this year on tech but there's really two reasons number one, tech is going to benefit from things that potentially happen near bottom like the dollar weakening, the

fed pausing and rates falling. that's simply has to do with valuation. more importantly, as we think about the structural problem of labor shortage, which is going to continue, the historical solution has always been for companies to increase their investment in industrial and technology spend to create productivity so, the tech might actually have tailwind because of the weak dollar and companies try to invest their way out of wage inflation. >> what do you see as the single biggest risk to your thesis next year >> i think the risk remains that the fed has to stay tighter. therefore, it actually does -- it doesn't lead to a soft landing. it leads to an outright recession and maybe even a financial crisis i think the thing that remains the biggest risk is if wages actually accelerate. wage growth, even looking at the sticky atlanta fed wage tracker, that's beginning to plateau.

even three-month annualized it's lower than it was six months ago. if that begins to accelerate, then it means the fed has more wood to chop and that raises the risk. >> yeah. clearly that is the higher for longer and tighter than we're hoping for, the market's hoping for scenario good to talk to you. thanks much. happy new year >> happy new year. as we head to break, here is our road map, including microstrategies first ever bitcoin sale. >> the ceo of generac is with us for more on the state of the energy grid. homeowners in some states could pay 20% to 30% more for property insurance in the new year we're going to tell you where and why. "squawk on the street's" second hour is just getting started

i screwed up. mhm. i got us t-mobile home internet. now cell phone users have priority over us. and your marriage survived that? you can almost feel the drag when people walk by with their phones. oh i can't hear you... you're froze-- ladies, please! you put it on airplane mode when you pass our house.

i was trying to work. we're workin' it too. yeah! work it girl! woo! i want to hear you say it out loud. well, i could switch us to xfinity. those smiles. that's why i do what i do. that and the paycheck. we continue to watch the travel sector. southwest airlines says it is planning to return to normal operations today seema mody has a check on the sector >> mike, that's right. after canceling roughly 13,000 flights in the last week, southwest saying today's schedule will be back to normal. so far, flight tracking tool flightaware shows 41 flights have been canceled on friday in a letter penned by transportation secretary pete buttigieg to southwest airline bob gordon on thursday, he wrote the department will use the fullest extent of its investigative and enforcement powers to hold southwest accountable. now, shares of the company lower

today and on pace to end the week down about 8.6% for the week, the airlines jets etf on pace for the fourth weekly loss and on track to end the year down nearly 20% its third down year. this as reuters reports the cdc is considering sampling wastewater taken from planes coming from overseas to track any new variants as covid cases in china continue to rise and concerns continue to grow around the lack of transparency on the spread of the virus, and if it is a new variant let's take a look across the travel industry at the worst performers that includes allegiant travel and jetblue, and airbnb, worst year since going public in 2020. >> for more on southwest's mass cancellations, the future of the company and airline regulations, let's bring in former continental airlines ceo gordon

bethune. great to have you on when you have the transportation secretary coming out saying they're going to use full regulatory powers to investigate southwest and what went wrong over the past week, more bark than bite? how do you so he it? >> good analogy. all bark, no bite. you never look out the window and look at the snowstorm. look at buffalo and tell me what went wrong there catastrophic winter tends to be a bad time of the year, which is why companies don't put their pigments in wintertime it's a difficult storm southwest got behind the technology curve being able to handle all the growth they've assimilated over the last two decades and it caught them compounded and started snowballing because of their unique routing system. it affected them more than anybody else >> we've been asking this question all week, but how quickly can southwest make the investments to update, upgrade

and overhaul that technology system >> well, i'm not sure i'd be 100% accurate in guessing. it's going to take quite some time i think they're looking, at least i understand, at a complete new approach, which may be the best avenue rather than patching what they have today. looks to me like they need to have a lot more power behind their technological systems assigning people to an airplane. >> there's the tech piece of this and also the structure of the network and how they fly their planes across the country, which is a little different than the hub model we see some of the other airlines implement as well do you expect you'll see a shift in terms of, i guess, more longer term, more fundamentally in terms of how that network is structured, especially given the fact that some of the airlines have fare the better this past week and may provide an example of how things could go well or at least better in times of distress and storms?

>> morgan, i bet you that's on the table. obviously, you have to look at continuing what has worked for so many years. is this approach one that has a finite limit, and i think they're going to explore that. at the same time, it's worked a lot, a lot of years for them you really can't just throw it out, you know, without some deep th thinking. >> gordon, if this whole episode creates some movement towards requiring greater compensation of customers, if they're bumped, if there are delays, cancellations, is there anything the industry is going to have to cope with, do you think, in terms of greater demands, less flexibility, let's say, in how they can manage their schedules? we've been in this period right now where customers have been able to pay up, paying fees for

things they didn't before. i'm just wondering if the swing of power is going to be moving back towards the customers a little bit. >> i don't think so. demand's really strong, as you noticed over the weekend of course, this storm at a time when they overscheduled their resources because they were maximum revenue generating ideas rather than operational excellence i think they're going to focus on the operational excellence paying off but they'll still be excellent growing, they have to be, with their business model growing every year i don't think anybody will give up the letter from the secretary of transportation is not going to help anything. it's going to take some hard choices by the ceo and people at southwest of how best to proceed. and i think that's on the table. >> the other big travel story unfolding is china reopening just want to get your thoughts on what that could potentially look like as we head into 2023, what it means for global travel

trends, what it also means for potential pricing at a time where the world is so focused on things like inflation. >> well, morgan, lately the international travel lapse in china has pretty much returned to normal. china is entering -- that's a huge, huge market. i think that will continue to grow covid, that's way beyond my pay grade trying to anticipate where our government will be in reaction to a country like china opening up their territory but i don't see it i think it's a boost in revenue, not a negative. >> how quickly can airlines add capacity since we know there has been these growing backlogs at the plane manufacturers like boeing, like airbus? >> everyone is trying to get their hands on things, as spirit/jetblue merger and acquisition. those airplanes are difficult to come to because the market's there, as you can see from the traffic. the market wants to go they want to travel. a lot of pent-up demand.

it's just getting the airplanes and the crews together to do that reliably. of course, we had a hiccup this past weekend >> gordon, happy new year. >> happy new year to you still to come, the impact of severe weather on the energy grid the ceo of generac will join us. don't go away.

ah, these bills are crazy. she has no idea she's sitting on a goldmine. well she doesn't know that if she owns a life insurance policy of $100,000 or more she can sell all or part of it to coventry for cash. even a term policy. even a term policy? even a term policy! find out if you're sitting on a goldmine. call coventry direct today at the number on your screen, or visit coventrydirect.com.

the street." we want to get a check on bitcoin this morning, which is down a little bit again today. it's trading below 17,000. it's lost about two-thirds of its value this year. keep in mind, it's been trading in this tight range for some time, between 16,000 and 17,000. it's now one of the biggest -- we should say, now one of its biggest supporters, selling for the first time per a filing, microstrategy, led by michael sailor, closing first ever sale of the token for tax purposes. keep in mind, the software company still a net buyer. microstrategy stock doing worse

than bitcoin in 2022 down 17%, trading at lowest levels since 2020. it's not the only crypto news in the headlines. sam bankman-fried expected to be arraigned before a manhattan district judge next week several associates already pleading guilty. bankman-fried is being charged with multiple charges of wire fraud and conspiracy if convicted, he could face up to 115 years in prison many of the bitcoin enthusiasts would probably not appreciate having their name in the same read as aisam bankman-fried, and given the fact we have seen this broader cryptocurrency crush, sailor, for example, has basically said it's dysfunctional relationship between bitcoin and the rest of the cryptocurrency market. >> arbitrage and lending and all the defi stuff. >> nonetheless, the entire sector, more broadly, has come under fierce pressure this year. >> tremendous. we'll see if he can can stabilize. coming up, a look at what the fed has in store for next

year and what's already priced in in terms of rate hikes.

welcome back to "squawk on the street." here's your cnbc news update at this hour. democrats in congress have released six years worth of tax returns from former president trump, capping a multiyear effort to disclose the documents. much of the data has previously been released but today's document dump includes more than 6,000 pages that members of the public can now examine more evidence of rising covid cases putting intense pressure on china's health care system newly obtained video shows patients being treated on the driveway outside a major hospital in shanghai international health officials continue to urge china to share any information about the country's latest surge in covid infections. china says the u.s. is at fault for a recent incident where military planes from the two nations came within 20 feet

of each other. beijing says u.s. surveillance operations pose a serious threat to china's national security the u.s. says its plane was in international air space conducting a lawful and routine mission. mike, i'll send it back to you >> i'll actually take it, thank you. investors are, of course, keeping a close eye on the fed and the new year senior economic reporter steve liesman joins us in terms of what to expect for fed policy. that's a big, broad, open-ended question give us the headline, steve. >> somebody's got to do it, morgan here's what we know. the fed is going to be hiking and holding next year while it cuts its balance sheet deeply. with the question of how much rates rise, the only certainty for 2023 is the fed is going to be a source of ongoing volatility the market has the fed priced to hit its peak rate in june under 5% and gradually easing back over the year. i'm not sure what that statement

is back over the year over 4.6% in february and march there is upwards of a 60% probability of a 25-basis-point hike that brings the fund rate to 4.88% disagreements over the outlook start in earnest in may. the market trades with a 7% chance of cut in may, 40% chance of no change and 41% chance of a 25-basis point hike and 12% chance of a 50-basis point hike. you can see either the market's all over the place or everybody is spreading their bets all over the place come may that pricing reflects a broad view about growth and about bringing down inflation. here's goldman sachs writing, we are skeptical that the fmoc will cut the funds rate until the economy is threatening to enter recession and we do not expect this to happen next year and then inflation will likely underperform in the second half

as labor market conditions weaken considerably with a peak unemployment rate of 6% resulting in a gradual pace of rate cuts starting in september. what's least likely to be a subject of debate, i think, is the fed's plan to reduce the balance sheet. the fed cut its assets by $400 billion this year and plans to bring it down by $1.1 trillion next year to around $7.4 trillion still pretty elevated. i think that process is going to have more impact as the year goes by. it might be a reason for the fed to go a little bit slower at the beginning of the year and maybe stop hiking a little sooner, guys >> interesting definitely going to be one to watch. a lot of this comes down to labor and what happens in the labor market, right? we saw jobless claims tick up a little bit yesterday in the weekly numbers, but how sticky do we think it's going to be what does that mean? what does that mean in terms of, i guess, the dynamics and some data points the fed will be watching so closely next year?

>> you know, morgan, you can answer that question somehow better than i can. talk to those great people you talk to in the aerospace and defense business and ask them how quick they're going to be to let people go they worked to hire my guess is not so quickly wall street is always a little quicker to let people go some of the tech companies, they've run out of funding they're repositioning. i think a lot of folks will hold onto labor i think your use of the word sticky is the right word right there. i think labor is going to remain a problem. the question is whether other inflation aspects can come down around the labor inflation problem we might have. and that includes some of the goods sector, you know, the clearing of supply chains has been an issue. energy could be helpful depending -- if we continue on the current track. we could get some help from those sectors and eventually even housing as the year goes by, some of those lower housing numbers will work in

an optimistic scenario for 2023 is maybe we don't have huge -- a huge gain on unemployment and we see inflation come down without a big gain there >> yeah. that would be, you know, kind of -- pretty soft as landings go maybe not even much of a landing, steve thanks we'll catch you soon we are about an hour into the trading session. let's bring in bob pisani for a closer look at what's moving on the final trading day of the year maybe put a button on the year. >> we're ending the year like we sort of were most of the year, value relatively outperforming growth so, communication, services, discretionary, weak today. energy tending to be outperforming. the only real suspense left is if we get 20% decline or not it's 3812 on the s&p 500 if we drop below 3812 that would be a very rare 20% decline does it matter 19% or 20%? no, but for the history books they tend to split that line

below 20% is a very rare occurrence here. take a look at the major indices for the year the dow has been the relative outperformer because of the prevalence there you see the value and the growth sectors, energy relative outperformance you see the dow outperform because the dow has a lot of stocks in it, defensive names, consumer staple names, merck, for example. that's why you get the outperformance the s&p on the cups down 20% nasdaq down 33%. below 20%, 3812, you go down mroe that. the bad news is this is the fourth worst years for stocks since 1945 there's no guilding the lily 2008 was worse that was a 50% peak-to-trough decline. we're using calendar years 1974, 2002, and 2022 would make the fourth worst year. if there's any bad news, it's down years like this tend to be

followed by up years it's very unusual to have two down years in a row. there's an extraordinarily rare situation. it only happened four times in about 80 years or so number of down years is about a quarter since 1945 27%. it's an up year when it's down four out of five years one thing that's very interesting, mike, that is different about down years the following year is the losers tend to do better in the following year in a down year than the winners whereas if you follow up years, you tend to let the winners stay there and they tend to do better that's some of the observation. >> some 20% loss years were bear market culminated or almost did, right? >> that's right. >> it wasn't always straight up in the new year following it. >> there were very few years -- those three other years really distort the picture notably. there were historic events and

the cusp of the debate is 2022-23 a rare event like a 2008-2009 like covid, we have an extraordinary confluence of events that just create a firestorm. >> bob pisani, thank you happy new year. >> thank you we're going to turn to energy across the board, commodities closing the year strongly wti on pace for its second year of gains nat gas on pace for its third. a brutal winter storm with millions losing power, raising questions about whether the country's infrastructure is up to snuff joining us, generac chairman and ceo aaron jagdfeld it's great to have you back on the show a lot to get to today. i do want to start specifically with this storm and what that's meant for your business and demand for it. i imagine you've been fielding calls given the fact we did see power outages in cold weather

through so many parts of country. >> thank you for having me on. it wasn't just the cold weather but the timing it's over the holiday weekend, which i think that changes your perspective on how important power is when you lose it on a holiday. you have your family coming in, you've got a lot of plans and a lot of those plans were ruined for 2.5 million households here in north america i think it just continues to point to fragility of the nation's power grid and continues to be outages are happening more frequently, they're lasting longer in duration clearly, that has impact on households and on businesses in terms of really getting to figure out what that strategy is to create resilience for their own needs. >> so what does that mean in terms of your business as we look to 2023 i ask that because we've seen a couple of analyst upgrades this week to generac, we've seen some downgrades in recent weeks it's been the worst performer on

the s&p from a stock standpoint. at least one analyst noting core residential business is in the early stages of a downturn with field level inventories estimated to be two times normal if that's the case, it's quite a reversal versus what we saw last year, for example, when you just couldn't make generators quickly enough to get into the hands of people looking to buy them >> that's right. we actually had a great year this year in terms of productivity we ramped our production because we did want to catch that backlog we had coming into the year what we ended up doing is outstripped our insulation capacity our network, they weren't able to hire enough labor, they weren't able to get the permits pulled we ended up with higher than expected level of field inventory, which is something we have to work through through the fourth quarter and through the first half of next year. the good news is, underprincipling -- the underlying demand of homeowners remains strong as we said in the third quarter,

it was really only the second highest quarter for us in terms of sales leads for homestand-by generators it goes back to things we talked about, the winter storm, the hurricane season, all of the different reasons why we're seeing people lose power people are concerned about that. they're concerned about that at a level they've never been concerned about before i think that's just something that as we think about the long term here for business, you know, we'll return to growth again. we only grew 20% this year we grew 50% last year. the market was disappointed in that we were disappointed in that we thought we were going to grow more than that longer term, we feel we're definitely catching all the mega trends that are going to be able to propel our business forward. >> to dig into that a little further, housing recession or even if we were to see next year more broadly an economic recession, you would continue to grow despite that? >> typically what happens is, you know, people think of us as the discretionary.

and that may be fair when your power's on but when your power goes off and you lose power, especially if it's in a winter storm or holiday, you know, your sensitivity to that is highly elevated and it goes from being a discretionary item to a must have purchase. it goes to the top of the list, if you will, in terms of home improvement projects, very quickly. if my time at the company, almost three decades, we witnessed a decoupling when we start to see the economy go one direction. our business can go the other direction with outages that's really the -- that's the thesis here in the business, is that while it might be a discretionary item on an everyday basis when your power is on, as soon as your power goes out, it becomes a necessity. >> a lot of focus, aaron, in terms of how your business has tracked this year on the clean energy component of it, the storage products, and working through some of those issues where are you with all of that i know there's been some product issues you've had to kind of

make good on that seems to me where a lot of the investor focus has been for a while as opposed to, you know, the core >> yeah, it's a great -- it's a great thing we should talk about. exactly the -- what we've been doing here, we've been involving the company from our core markets, which are focused on internal question -- which are great products, by the way and have a lot of life left in them but focusing on future technology like energy storage about three years ago we began to acquire companies to get us into that space, solar plus storage markets, you know, we've gotten into smart thermostat and a couple other areas we believe are going to be really important areas in the future as the grid changes and evolves and as homeowners start to take much more control of their self-generation of power, their resiliency about storage, with battery products, and what we found is, frankly, we found a lot of success early on. and then we kind of ran into some stumbles. some acquired products of one

company in particular, we had a product problem we had to take care of here and do an upgrade we had to take a special charge for that in the third quarter. we had a partner of ours that filed for bankruptcy that was also a negative drag on the third quarter. so, we're working through those issues we're committed to those future technologies because we think it's an important place not only for generac but just where we need to go as a society in terms of focusing on renewable energy as a component of our energy landscape. we think generac has every right to play there with our distribution, our technical skills and our brand we think we're going to be a big part of that. >> yeah. it doesn't seem like the street's really focused on that in terms of many analysts' take on the company so, what do you think it's going to take for that narrative to actually impact the stock in a positive way how quickly can you meaningfully

grow that business to get to that place >> that's the interesting part it was always a small part of the business this is a long journey we got credit almost immediately increase in our multiple, at least to some degree for that part of the business and then i think when we had our challenges here in the second half of the year, you know, clearly the multiple compressed and that was a part of what you've seen in terms of pullback in the stock and then in our core markets, we talked, that inventory position was the other part of it in answering your question, morgan, we need to demonstrate that we can be successful in that clean energy and the energy technology segment we're going to grow. we do think it can be up to a third of the total company here in the next five years so, that's really what we're focused on again, we think technology continues to improve, we think we have every right to play and win in that space. we think it's going to be a big part of the business long term that said, our core markets like the homestand-by generators only

6% penetration in households we have 75% plus share of that market we basically created it a couple decades ago. so, a lot left in those core markets as well. so, we need to execute better and third quarter was the first time we've missed a quarter in about 20 quarters. i think we need to show we can get back on an execution strategy >> okay. aaron jagdfeld, generac chairman and ceo. thanks for joining us and happy new year. >> happy new year. as we head to a break, let's take a look at the biggest winners from the sector perspective. energy topping the list, up 58%. the only s&p sector in the green for 2022 utilities, consumer staples also holding up better relative to the broader market we're back in two.

welcome back to "squawk on the street." the number of workers employed by space companies jumped nearly 19% in the five years ending

2021, that as the space economy as blasted off the diversity of those swelling employee ranks has not kept pace an industry initiative it looking to tackle that productsc irvine studying chemical engineering and also intern at x-lab where they get hands-on experience designing and building prototypes. >> they have a lot of confidence in the interns and they will give you work to do on your own. so you do feel like you're not just being with your hand held you're able to do the work yourself. >> reporter: cruz may be joined by thousandses of additional students across the industry this coming year as the space economy has blasted off -- >> lift-off. >> reporter: -- so too has demand for engineers and other highly skilled workers, but the diversity of that talent pool

has not kept pace. >> you'll find that the number of women and people of color are about one-half to one-third of what's represented in our society. and those numbers really have not improved that much for the industry >> reporter: so the aerospace corporation crafted workforce 2030 initiative, comprised of four goals to bring women of underrepresented groups into the fold part of that process, recruit more students. >> it's clear from the research that companies innovate better more diverse your workforce is because you have people with different perspectives that come in and see things differently, and we are in the innovation business. >> reporter: the first of its kind pledge quickly swelled to involve more than 30 companies, including lockheed martin and spacex, offering 3,000 internships to students. an early partnership, slingshot aerospace, a startup co-founded by melly strickland that tracks

space degree in portland. >> for me to watch the entire industry come around this space workforce 2030 is a first. i've been in this industry for 25-plus years, and this is definitely a new start >> space workforce 2030 was unveiled in april at a big space conference, what's called the space symposium. as with many things space-related, it is a mission that is expected to take years to come to fruition. that said, prospective interns, who will be called the national space interns, have weeks to apply. the deadline for this is february 4th to submit an application. mike, this is going to be one to watch because so many different companies, both large and small within the industry, are involved in this now you have a growing list of colleges that are participating, too. >> i can't imagine it's a hard sell to come say, come work to put things into space. also so much competition for

those people. >> growing competition there was a time where the employees of spacex and blue other begin were seen as the new next gen employees, the new next gen workforce. now those companies, those startups have grown to a place and have been around long enough that place and been around long enough that you have those companies going out and starting their own entities as well so there is an excitement here and i think hopefully you start to see more and more folks come to the industry. by the way, across different studies from colleges, which i know in the case of strictland, they're not just looking for astro physicists, for example. they're looking to get more creative. >> well, a programming note as we head to break don't miss a cnbc special tonight. taking stock 2023, the economy the show will take a closer look

at the bond market, the ouook for the fed and what's in store for the consumer we'll be right back.

coming up next hour on "tech check," dogs of the dow.

a deeper look at cisco and verizon. th wl art atilstat the top of the next hour. don't go anywhere.

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homeowners could pay 20% to 30% more for property insurance in the new year contessa brewer is here to tell us why. >> they pay the most in the nation according to the insurance information institute and on track for 33% annual increases. the cost for insurance is so high in florida and so hard to get the real estate development deals are actually imploding according to a global brokage. costs are skyrocketing for insurance, lawsuits, fraud and of course monster storms like hurricane ian. factors that forced more than a dozen insurers to fold or flee the state altogether more than two dozen are on a financial watch list the legislature passed a new law to tackle the systemic problems. no more one-way attorneys fees where the insurers bears the cost of the lawsuit. apcia says that lines the

pockets of billboard lawyers at the expense of consumers, pointing out plaintiffs attorneys get nearly three-quarters of what the insurers shell out this new law also bans the assignment of benefits from a homeowner signs over the right to make a claim to a roofing contractor, for instance, who then in turn can sue the insurer without the homeowner's consent. that led to fraudulent claims and more lawsuits. and the legislature created a re-insurance fund that requires private flood insurance if they can find it at less than 20% more than what citizens charges. in other words, if you can find it and it only costs you 20% more, you have to have it. the ceo of slide insurance just told me he thinks these reforms will largely fix florida's insurance market in a few years. morgan, mike >> i mean, what you are

reporting is eye catching especially when you think about how much the population has swelled in florida in general. i want to just expand this out a little bit as we do our year-end review here, if you look at financials, i mean, the insurers, particularly the property casualty insurers, progressive, travelers, even the reinsurers, they've had an incredible year they're up double digit percentages this year. is this just on the back that maybe storms haven't been quite as bad from an insure law standpoint perspective or is it just rising interest rates >> no. hurricane ian will rank up there with the most expensive claims ever so for auto insurers and property insurers, that will be bad. but if you look at progressive and allstate, one of the interesting things is they have had a tough year in terms of how high their claims costs is and what their rate is why are they doing so well because now investors believe they're going to get the rate

increases needed to actually turn the profit and that they will start to see their margins improving in the next year. >> interesting inflationary contessa brewer, thank you happy new year and happy new year to you, mike santolli happy new year to our viewers. i'll see you next year and it's been a pleasure to be with you that will do it for "squawk on the street." "tech check" starts now. ♪ happy new year's indeed. good friday morning and welcome to "tech check." today the nasdaq is in the red, about to close out its worst year since 2008. but there is a comeback ahead. we'll discuss the dip heading into the new year. plus the meta verse and the ai are on the rise. and later, it has certainly been a rough year for crypto, so is 2022 its finale or could there be opportunity ahead