we appreciate it and appreciate your top five picks. >> thanks, becky. let's take a quick check on the markets as we get ready to hand things over to "squawk on the street." you're going to see the dow futures up 143 points. s&p up by 22 the nasdaq up by 93. the folks, that does it for us today. >> tune in tomorrow. andrew's getting a haircut so we're all going to be -- >> not a meta typer. >> no, a really good one tune in. >> we'll see you later bye. good tuesday morning happy new year to everybody. welcome to "squawk on the street." i'm david faber with jim cramer and we are live from the new york stock exchange. let's give you a look at futures as we get ready to start a new trading year looks like we're going to open on a positive note, at least for those who own equities also a few moments from now we're going to have blackstone's pred and coo jon gray joining

us his firm's b reit received a $4 billion investment from the university of california it's been an interesting topic we're going to discuss that with him. let's begin with the first trading day of 2023. it's coming off the worst yearly performance since 2008 the nasdaq down 38%. it was a very tough year for technology-related names, high-growth names and the s&p 500 posted double digit decline. slidly 19.44%. the dow down only 8.8% jim, i think also important to mention the bond market had a horrible year. so so many people who are not just invested in equities but have that 60/40 split saw their portfolios get crushed last year because of that historic route in the bond market. >> right

we've had $2 trillion in savings in 2021. many people thought they would retire on their savings, at least related to social security and therefore decided to leave the workforce. i think a worrisome part of the fabric of the country. i believe that when you look at how fast rates went up, you saw a tremendous -- this was a cycle to end all cycles, it was incredible and it may not be enough because of wage growth, which we know is going to be important. so we've got this picture. they haven't won yet >> no. just because the calendar changes does it mean anything else really changes? or are we going to have similar conversations to what we had before vacation? >> well, i think there's twofold. one is there are people, very good analysts, who are saying it's time to get back into what

got destroyed in the nasdaq. so you see a square recommendation, a paypal recommendation and then there are the other people who say, it's never going back. stop it. we're now back into a world of price turns mobile got to be reasonable, 16 to 18 a high 20. if it's higher than that, then you've got to look at this camp. i'm in the latter camp the former camp doesn't turn me on to go back to the nasdaq names. you had the incredible enter price software companies you had companies that were once beautiful technology companies, really excited people and talking about megacap. david, you turn the calendar on megacap, it doesn't matter. >> it doesn't matter >> no. >> as you look out towards this year, what we can expect, obviously we're going to come back to the fed so many times. we've had this conversation. you're a bit lower in the terminal rate than some others in terms of where we're going to

end up >> right look, i come back to thinking if you have a portfolio of companies this make things and do stuff, the stocks that are -- which companies which are profitable and stocks that return some capital, either dividend or buy back and the valuation's not well above the average multiple investable. >> investable. we should point out, by the way, you hear the applause, you can see it as well the new york stock exchange is welcoming officials, enlistees of the u.s. armed forces this is a joint enlistment armed forces ceremony. a number of armed forces fwess here a bit of a ceremony and that's why you see the applause on that as well. >> there's something great start the year >> it is >> with people that -- i mean, obviously the eagles game on sunday we honored people who serve. what a change from the '70s where -- back to when my dad was

a sargeant like, wow. real. >> speaking of more at least, there is still a horrible conflict going on in this world that continues. >> right. >> that impacts grain, oil prices, so many other things and then there is more of a cold war between our country and china. each would be two of the important things that are much harder to measure in 2023. >> i did a long 4400 word open pus for the club the two most worrisome things are russia, what do they do because they're not winning? but they have to be stopped. who's going to stop them and then taiwan where 60% of the chinese semiconductors come from don't you have to have more than just a guarantee don't you have boots on the grouped for taiwan i think these are not the bonds,

not the bangs. >> they're the harder things to -- depending on -- >> change in a heartbeat what we're going to be talking about, by the way, in a few minutes is an area of financials that i'm most worried. >> which is? >> companies that have -- that could be underwater because the fed took actions fdic says the banks have 700 billion in held for sale bonds that are underwater. something to worry about and i mention these things because people come back and say, 2008, what are the similarities banks were stronger but they had issues. >> much stronger we don't seem to have any systemic issues? >> no, there are none. there are none regulators changed >> but i think it's going to be exciting. >> i hope so i hope so. >> it's exciting because we have

a series of wage stabilization we're done. >> we're going to take a quick break. the festivities will continue. on the other side blackstone's coo and president, jon gray. $4 billion iesennvtmt in the firm's b reit and the broader economy. keep it here (thunder) lions? nope. (lion rumbles) we do it with our people.

blackstone shares, they're moving up a bit. 1.3% right now on news that its

real estate fund has received a 4 $4 billion investment from the university of california jon is joining us. happy new year tell me about this deal around how it came about. and why should b reit be happy about it as well >> happy new year, david it is a happy start of the year for us we start with a big win for the university of california, for blackstone and for b reit. it is a $4 billion common equity investment into b reit with an effective minimum hold period of six years. this is a massive affirmation of the quality of what we built with b reit, the asset values and the outlook for the business

we feel terrific about that. i would be remiss if i didn't give you a little bit of credit here, david, because i was on your program back on december 8th answering a bunch of questions around b reit and one of our long-time investors, university of california investments, $150 billion capitol, their cio reached out and said, hey, jon, is there something we can do together here is there an opportunity to deploy some capital? we've been long-term partners. and we spent a bunch of time talking about a potential structure. we came up with a structure that was a win-win here for us and them and they went out around the countries meeting with the ceos of our portfolio companies, looking at the valuations, liquidity, concluded this is where they wanted to deploy capital. and he said this weekend, if i was building a real estate portfolio from scratch, b reit is exactly what i would have

created. so we think this is great for our investors in b reit and obviously great for blackstone and terrific for the university of california system as well >> right you know, the deal is structured so you go 4 billion of equity. you take 1 billion of your stock. guarantee an 11.25% annualized return to be clear, that's not a deal that the average b reit investor can get, jon >> no, it's not. you described it well, david they are investing in the common stock of b reit on the same fees and terms as other investors that is important. no matter what the structure is, you wouldn't put this kind of capital into b reit without having a lot of confidence in the underlying assets, their values, and the outlook. the other point i would make is when we do typical large-scale

funds for us, big investors do get some additional consideration. in this case they're investing $4 billion, the typical b reit investor does about $70,000. typical investor can get liquidity after a month. this is six years effectively as we talked about. so we did create this with a billion dollars of our withholdings, and given them down side protection and giving us up side that shows our confidence here from both sides we see this as a real win-win. >> you know you referenced our conversation of a number of weeks back, december 8th obviously a lot of focus on b reit at that point and in the weeks as well on redemptions, affirmation. where do things stand right now? jon, this doesn't necessarily

impact the need by some investors to redeem and your inability to make them fully liquid as is, of course, your right. >> yeah. i think what is important here is to contextualize the redemption story as we talked about on your program back then, you know, this is a semiliquid vehicle it was designed up front to provide some liquidity, but with limitations, including a 5% cap on redemptions on a quarterly basis all subject to the board's approval, so that was in place i think the other important thing to note is in december that just happened here after eight weeks of i would describe as relentlessly negative press coverage, just 3% of our u.s. investors are seeking liquidity and 5% overall if you think about a typical s&p stock about 4, 4.5% trades in a

given month. this idea that there's been a tsunami of resenses isn't really consistent with the facts. our investors are actually quite happy. obviously some concerns have been raised by these commentators, but overall the performance, the fact that we've delivered three times the public reit, our positions in the sunbelt and logistics and rental housing, our long-term hedge balance sheet, our investors have confidence in us and this investment today from the university of california i think will add to that confidence. >> you say they vetted the portfolio and have confidence in the nav. doesn't mean there won't be questions of your nav and the public reit market has been down sharply. does it mean the university of california agrees with the way you're valuing things and the value of those specific assets

as opposed to the public reits >> well, they have to -- the university would have to speak for itself, but obviously they did a lot of work and would not write this kind of check, i don't believe, unless they had confidence in the assets and in their valuations in addition, as we talked about last month, there are a number of things that we've done i think can give investors confidence with the portfolio. one is we sold $5 billion of real estate last year above our marks, which we think is a very good validator we were moving cap rates up, discount rates up, essentially taking the multiples down on the assets last year as cash flow grew and importantly our cash flow in b reit grew 13% last year or year to date 65% higher than public reits we also had this big hedge in place on interest rates which generated more than 4 billion of

value. i would point out on the public reits, they tend to go higher than public. if you go back to 2021 in our public sectors, they were up 63%. we did not markup our portfolio 63%. i think commentators sometimes lose sight of that our focus is on nav. this investment reflects confidence in our valuations. >> right we talked about the potential for you to having to perhaps speed up in terms of meeting future redemptions does this change this dynamic? frankly, you have 4 billion in new liquidity. are there enough assets that you're looking at or prices that you want to buy or is this something you will leg into over a long period of time? >> the nice thing about having liquidity is it gives you a lot of optionality and we said we

had $9 billion of cash and immediately quit at this we sold a large set of assets which generation dollars this is $4 billion so this gives us flexibility to deal with deployment there may be opportunities in a dislocated market and we love the idea of being able to take advantage of that. obviously there's redemptions. we have a lot of tools we talked about that we've got the ability to sell assets we have the ability to deploy assets this is a new tool, raising institutional capital. this is a big, robust vehicle and the important thing is it owns the right kind of real estate obviously we're in a challenging period the economy is likely to slow here but we think this portfolio is very well-positioned for the environment. >> well, you mentioned the environment. obviously we're happy to have you with the change of the calendar here, but you're saying

many of the same things you were saying towards the end of last year how challenging do you believe the economy is now, jon. what are your expectations for this year. we continue to watch the fed and we expect to continue to raise rates through the early part of the year >> well, if you step back, i think we're sort of in the third phase of the post covid period the first phase was mid 2020 through the end of '21, that boom period with huge stimulus, asset prices went up, the economy boomed, inflation went up last year the fed moved very aggressively taking the cost of capital from 0 to 4.5% that impacted interest rate sensitive assets, stocks, bonds, for sale housing, furniture and goods. but the real economy hung in there pretty well. we do expect as we move into this year, 2023, we'll see a

slowdown in the economy because of the way of the fed policy at the same time we think inflation is slowing we're seeing that in the portfolio companies, in shipping costs, commodity costs the labor market is starting to cool a bit, which is encouraging, but we think the fed will hold rates once they finish in the next quarter or two at these elevated levels then we'll see a bit of a slowdown for the year. on the positive side, we don't have the kind of imbalances we did back in 2008 and '09 and that makes us feel better but i think everyone should recognize it will be a tougher year economically in 2023. >> jion, it's jim coming on happy new year. >> happy new year. >> let's say i'm an adviser for wealthy people and i came to you, look, i have people they want to get the same rate that the university of california got because we think it's a great

opportunity. what do you say to that? >> well, what i would say to them is what cal regents did is fundamentally different. it's 57,000 times larger than a typical investor it's also for a duration that's 72 times larger than the liquidity of individual investors. as we do in other vehicles, there are different terms. i would also point out to them that cal regents didn't just do this for the minimum return. they have real confidence in the vehicle. and what i would say is the diligence they did, the thoroughness reflects the fact that this is the kind of portfolio they want to invest in and they take a long-term approach i think, jim, one of the issues has been over time the focus on, you know, publicly quit at this, is this a daily mutual fund? it's not it's a semi-liquid vehicle, and at blackstone the way we've been able to deliver better returns is having them trade a bit of

liquidity for a longer term hold leg in over time invest in high quality real estate with a good sponsor and good things should happen over time >> one of my friends jonathan michael son is a terrific strategist at jpmorgan one concern is the minimal repricing of leveraged loans after a decade of protection and rising leverage, you can't speak for others, but it sounds like you are constantly pricing do you see risk to the fact that others in your industry simply haven't repriced and are kind of whistling past the grafrd? graveyard? >> i think it depends by asset class. the area that has the most exposure are more growth and tech oriented investments. you guys have talked about this a lot.

companies that don't earn profits. it reminds me of the early 2000s where we had an equity bubble on technology that's where there will be repricing. specifically in non-investment grade credit what i'd say, jim, it was much more disciplined than what we experienced back in '86, '07 average loan deals was sub50% versus the 70, 80% last time so i'm not as certain as michael is that there will be increased defaults, certainly, but i think there was much more prudence in the system this time than there was 15 years ago >> jon, let me end on sort of a subject of my expertise for many years, m&a specific to private equity, which is how we used to describe blackstone. you know, is the financing there at a rate that still is going to make deals favorable in terms of return based on current prices

or are we in a period where it's just hard to find an equilibrium? >> well, i would say, david, in these moments of uncertainty it is harder to find equilibrium but you can get transactions d done we bought emerson's technology business for $14 billion we did a creative partnership with them. we went to the direct lending market and we got something done that we think will be a terrific long-term investment for the private equity group and investors. those are harder to do than when markets are functioning more smoothly my forecast would be that when the fed completes its mission which, as i said, i expect in the first half of the year, i think spreads should come down market participants will return and we'll see more transaction activity but we may need a little bit of patience. >> sounds like we're going to need it. >> jon, always appreciate your taking time, particularly on the

first trading day of the year. well timed thank you. >> thank you both. >> jon gray from blackstone. >> congratulations to you. you brought to life this issue it's obvious something you see is a very serious, rigorous investor it's interesting to see the disconnect between something that's happening with retail and one of the foremost investors of our time. >> they saw an opportunity obviously they do have a preferred deal to some extent. >> right right. >> at the same time blackstone believes it's going to make plenty of money from their investment it does validate the core portfolio from your point. what's nice, it came about as a result of our interview. >> by the way, to executives out there, we love it when they come on when it's tough and we are relenting when you come on and say that this is exactly what could happen >> it pays regardless. coming up, we're going to get jim's first mad dash of

2023 we're going to count down to an opening bell stay with us

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all right. let's get our first mad dash of the year before we get our first opening bell >> right i just want to say what was just talked about, one of the problems that twe have in 2022 was the leveraged loans and the other was fintech, whether it can bounce back. it was as disastrous as real estate became because of the rates, as of megatech. this morning we have truist upgrading paypal. >> paypal was a disaster pressure on the ceo. you constantly hear. >> well, one of the things -- i'm glad you mentioned that. potential leadership evolution we would not be surprised by the changes. shallman will be 65.

talking about whether he de departs. david, i am against this it can bounce for a couple of days but in the end i see regulation for fintech i see fintech two high multiple. yes, anything can bounce but we need staying power this year and i would rather be at jpmorgan. >> you hear our first opening bell of the year the big board, you see them all. u.s. armed forces, the commanding general of the united states training. >> u.s.a. >> u.s.a. >> u.s.a. >> opening the nasdaq. ww international >> that was great. >> very nice in here very nice. wonderful. >> david, if you look at this market, you're going to see megatech we're talking about amazon because of the attacks were

relentless the question is do you feel that they have fallen enough and they're out of people's portfolios enough that they can bottom they're all trading with each other, okay? i didn't see apple pre-announce today, which is actually good news because we know that they had a supply problem when i look at these stocks and i think, you know what, they're still no good until they make radical changes, until zuckerberg addresses the losses of the metaverse, until amazon addresses and right sizes its company, until alphabet commits to owning profitability and letting some people go we just don't have that yet. >> yeah. >> and that is the crescendo that we need we need big changes in big tech. i'd much rather be in companies levered to infrastructure, health care, things that were

either from washington or do well in a slowdown. >> well, at the bottom of the last board you saw there was tesla, speaking of stocks that obviously have horrible years last year, jim questions about whether it's bottomed not yet. not yet it would appear as you see the stock is down another 5% we did get fourth quarter deliveries and production numbers as well. delivered over 405,000 vehicles. that was up 40% year over year and 47% for production but below what annual be lists had anticipated. >> not enough. not enough. >> they had hold in their expectations a couple of months back as well stock is getting hit yet again this has been one of the more interesting scenarios to watch last year as we all know he continues to be the ceo of twitter. he continues to occasionally

tweet things that seem to ostracize certain potential buyers of his tesla product and there just continue to be a lot of questions about the ability of tesla to grow at the rate that had been anticipated previously >> right. >> it's still going to grow quickly. yet, the other side is a multiple now, jim, that many say is reasonable based on that growth >> well, i think you need to know, is he able to sell spacex shares there's a valuation of 138 billion. we need to know how far along he is of selling tesla stock for -- >> he says he's done, remember >> but -- >> i know. >> i can tell you i'm done and you say, jim, if you aren't done, i'm uncomfortable sitting next to you because it means to me that you have credibility issues david, this is the year that the other companies come for tesla this is the year where ford, as bedraggled as you think it is will be producing at a level of

say 350,000 ev gm committed to that you may think all those companies are suboptimal versus tesla, but they're going to have cars, and that means there's going to be discounting. now there was discounting in the fourth quarter of tesla which is one reason -- >> there's an expectation of further discounting expected to come with tesla in the need to move tesla >> tesla fits into this group of stocks where i'm saying, they just don't make it for me this year >> i mean, if you can buy tesla at what really ends up being a 25 multiple or something like that based on 23 or 24 numbers, we can already look ahead to next year and the numbers. >> no, you're right. tesla is a bit of a better situation. >> it's a higher multiple. >> look, i just think there's -- we underestimated how much competition there was last year to cloud >> yeah.

>> we underestimated how much competition there was to advertising. i don't want to under estimate how much there is to tev because i spend too much time with mary barra from gm and jim from ford. >> and then we haven't mentioned china where the growth opportunities for tesla is perhaps one of the most important parts of the overall company. obviously the shanghai plant, which was eye doll for a bit -- >> right. >> -- but how about -- >> and the domestic market there where they have a lot of competition as well. >> yes companies that are part of the china stock market is doing well remember what we do have what we have is kind of bizarre situation where we have herd immunity developing in china unfortunately herd immunity means survival of the fittest. >> china, as always, somewhat

opaque in terms of trying to understand what's really happening there. >> right. >> there are numbers that seem to indicate metropolitan areas like beijing are starting to see a significant rise in activity but at the same time you have covid running throughout the country. you have overrun emergency rooms, hospitals you have people who simply don't want to go to work or stay away as a result of the fact that it's now -- there is a covid policy. >> one of my themes for the investing club, have to come up with themes, one is we became the most investable country in the world. that china has alienated many. people where they give you money. people were reluctant to take the money. the alliance of russia and china has just isolated these countries. but the need to have the semiconductors and technology, how desperate are we >> all right so if i want to -- sort of a

group of names to focus on this year, you know, if we rewound the clock a year ago i would have warranted to hear about exxon, chevron >> i'm not giving -- >> very bullish forecast for those companies given the performance of the stock i would have loved somebody on our show to say, you know what, i'm all in on merck. >> merck was a big miss, not chevron. >> a year from now when you and i are sitting here, what are we going to look back on and say, there was eight missed opportunity, maybe fully understood that went up a lot. >> i want companies with great balance sheets returning capital that are doing self-help that comes back to johnson & johnson. nothing is a no brainer. i often hear people come on our air saying, it's a no brainer. are you kidding me these are pieces of stock, a piece of paper the idea you will get a faster

growing group, products is so attractive to me that i do not understand why that stock isn't at 200. >> right >> now we have a ge breakup that's not attractive. >> it's not as attractive to you. we should point out, of course, ge medical is already trading -- >> 2 1/4 growth. >> the split is occurring. ge's aerospace and power division still together, but eventually that will split apart and i don't know if we can go back 20 years or how far we have sometimes these companies don't come back. it doesn't mean that the leadership of mr. culp isn't strong but this was a $600 billion market value company it's hard to imagine whatever the sum of the parts is will ever come back to that number. sometimes it just makes sense to

sell >> right i think -- i call the ceo is excellent. but the hand you've got was so horrendous that maybe there's not -- >> so hard to reinvent you can look at iconic companies, whether it's ibm, hp. one company was reinvented, which is interesting, which was microsoft. >> great job. >> nadella -- >> right he executed well to his core he removed the phone, moved to the cloud. that's 30 times earnings which makes it the most expensive of the megacaps, other than amazon, because we can't really ferret out -- alphabet is the con conundrum. sells at a market multiple. >> has for quite some time everybody's refrain is alphabet's so cheap. >> you mentioned the biggest mistake that money managers make in 2022, they missed saint

merck. you told me over and over again that the merck -- basically their innovation. >> i was focused on their antiviral. i've reported so much which has done very well, but not in our country. the. >> that's right. >> paxlovid is the antiviral over the world they have sold a lot of that but there are other things as well. >> if you are in a slowdown world, people because it and i think that was the letter. that was the one everybody should have had and it was non nonstop. >> listening to you as i do, going into this year you're still very bullish on lily the obesity drug or what will be fully approved >> still not being approved. prescriptions are being written

for this thing it is going to be, i bet, this is a drug reduction where you lose 15 pounds with one dose, maybe lose 20, 25 -- 15% of your body fat look, let's put it this way, you lose a lot of weight we hear different things about what it's going to do. let's put it this way. if there's a drug with no side effect that makes you lose weight and obesity is a major problem in our country -- >> did you happen to see those tweets from bill ackman over the weekend about pepsi and coke >> no. i don't follow -- >> i don't typically follow him as well. they were kind of interesting. picking a fight with him to a certain extent about the impact they have on society. >> michael bloomberg long believed that. but it's a fight that has not been won those companies are very po powerful you have drug companies with

alzheimer's. drug companies with weight loss. drug companies solving cancer while you're going into a slowdown, it makes it a lot easier pfizer is not a hard stock to own. >> no. >> it is interesting that the party members in china are fighting against pavlovid. >> if i hear you, we're going to discuss it many times, the playbook you see working is similar to what you saw towards the end of the year, don't fall for the fallen angels, the high growth companies that no longer have the multiples that once seemed to attract people as high as they were >> right they all want you in maybe this is a good time. data dog if it's selling at a price of sales, forget it the if it's selling at a price to earnings that's still way too high, forget it. it's not bob dylan losers now -- the winners will

later be less. no the what it is is a recognition we're in a slowdown and certain stocks do better in slowdown, period don't out think it it's a mistake we're going into a slowdown. a fed-mandated slowdown. >> you heard it from jon gray. superb did not say recession but did obviously indicate that the fed is going to get to a certain number but that it's going to stay there i think that becomes one of the key questions. how long do they remain at whatever the terminal rate is, 5, 5.5%. blackstone shares do seem to be responding to that in the way they weren't in the first few minutes of trading up almost 4% >> let's use some you are familiar with. zoom, one of the worst like peloton. docusign they're all bouncing but if they don't do something, if they don't reinvent, if zoom

doesn't use its cash, you're back in the suit versus bristol-myers. hey, look, if you want in the s&p a stock that's a loser, illumina they make fantastic gene sequencing i'm looking for companies that are in health care that have gone down a lot. i'm not looking for fintech companies, period. david, the street, the brokers love fintech because there are so many deals. they love the -- david, this software, you know, the enterprise software. every venture capitalist is still acting as if it's 2020 don't get sucked in. >> we won't. let's get over to bob pisani for the first time this year, get a read on things >> happy new year. starting out stront. not only here but overseas

they've been open a couple days. we had a nice move up in the hang seng. up 2.5% so far this week, including yesterday. germany was up germany had inflation numbers out lower than expected. very good start to the year for them they are up two years. that's the stock 500 here in the. u.s., there's a tendency in the u.s. for the losing sectors to do sore in the following year. what sebctors had an you go glitch up side, communication and semiconductors what was the big value, energy what's under performing? energy another comparative winner was health care. that also is under performing. so we are using a classic playbook here. you can see this with some of the big tech names here.

apple was down 25% it's to the up side. switched negative there. microsoft, alphabet, amazon, meta all had very tough years and are leading the leader board in the technology area as well how about some of the other sectors and stocks that were big losers with the exception of tesla, you see it down 6% there, again, same pattern disney had a very rough year paypal had a rough year. they also are the leader board right there. so absent news like tesla we're following a standard pattern as for 2023, the opinions are all just over the map. it's amazing the dispersion on where people are on earnings estimates, price targets here's an average. an average of 22 strategists they are top down people, looking at the economy from a macro point of view and they look at the stock market from macro, not like analysts do. 22 of them, they think the s&p is going to be up 6%

4078 is the average price target at the end of 2023 earnings down 4.35%. very important for you to believe mooefs of the determination. it would be rather unusual to have prices up notably and earnings down. some people are trying to explain this julien emmanuel, he's trying to explain this ment estimates down, earnings up in 2023. he's noted this has happened many years, he lists them in his report, 1998, 2009, 2020, where we had prices up and earnings down this is all true, but it's fairly rare occurrence it's good to follow earnings trends, folks. that's why you're buying stocks largely. he also noted that we've had up years after large rate hikes in '82 and '85.

yes, we can have an up year with earnings down, but it's a really tough struggle to get through. finally, just want to point out, david, this is the anniversary, january 3rd, 2022 was the height of the stock market. that was the closing high that we had that was 4,796 and we were just about 20% exactly below that one year ago we closed at an historic high. david, back to you >> bob, thank you. >> one year ago. >> one year ago. >> great report. >> outperformed in the s&p since then we haven't performed well in the bond market which we'll get to of course, overall don't forget you can get on the cnbc investing club with jim, find out more >> i have some surprises. >> or just point your phone at the qr code on the screen. speaking of bonds before we head to break, because remember, last year was also good for the bond market. let's see what we're doing now yields are down. >> yeah. >> hence, prices are a bit

higher the two-year note edging out at 4.3% we'll be right back.

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you can see the s&p gainers on this first trading day of the year include newmon. paramount and paypal, which jim mentioned, got an upgrade. truist upgraded that stock >> yes >> we'll have "stop trading" with jim after this.

let's get to "stop trading". >> i like these themes but t-mobile downgraded to pure performance. i don't want to do that. t-mobile is the best verizon, at&t aren't there's no reason for me to think you have to switch horses from t-mobile when you have two other companies that i think are hobbled. so, i'm looking for winners, and a lot of times the winners are here. >> you're a believer i don't know the reason for that downgrade, but you're not a believer - >> valuation versus verizon and at&t and many other reasons.

verizon's top bid. at&t is tough. balance sheets, you know, if you're thinking about balance sheets going into recession. >> both balance sheets -- listen, they had a lot of spending, at&t balance sheet, although they offloaded a lot of debt >> sell cnn, i don't know. the dow is down. people who get excited about this market will be as disappointed as if you got excited about last year's market typically last week. let's be careful fewer winners. but if you get a stock like regeneron, which is doing everything right and won't be affected by a slowdown, don't be -- don't mind that it was in the top part of the -- of the nasdaq 100 don't be put off by winners. >> what do you got tonight on the show >> well, i like to go over the beginning of the year the best investments for the dow. i'm going to go through s&p and

nasdaq i pick the bottom and then the top and try to find out the best and for the club, david, at 2:00 today, i'm starting the home stretch with jeff marks, a podcast. you remember the club? it will be around 2:00ish. i missed you and i'm glad to see you. >> good to be back again. >> it is good to be back. >> soon enough we'll have our other partner as well. we have a lot more ahead this morning when we come back, we'll have a lot more on tesla stock. take a look, down another 8.7% after those delivery and production numbers did not come in where analysts expected keep it here

good tuesday morning, everybody. welcome to another hour of "squawk on the street. i'm david faber with sara eisen and mike santoli carl and morgan have the morning off. let's give you a look at markets. in half an hour, positive markets. that's it. we're down right now we'll see how we do over the rest of the day. of course, you don't want to miss the final hour of trading. >> most important.

>> thank you, sara let's get some economic data crossing the tape and go to rick santelli for that. >> yes, david. construction spending for november expected to be down 0.4 of 1%, a much better number. up 0.2%. last month down 0.3 gets upgraded to down 0.2 believe it or not, 0.2 is the best read since it was up 0.8 and the low water mark down 0.1 in august. that was the weakest since april of 2020. right now interest rates hovering in the tens at 3.72%, the lowest level since the 27th of december. and very near the earlier comps going back to the 23rd, pre-christmas, as interest rates start to dip and give back much of their gains from the end of last year. sara, back to you. >> rick, thank you rick santelli. we're 30 minutes into the

trading session. want to point out three big movers, starting with the casino operators. wynn gets overweight from equal weight on macau reopening. and truist raising the price target to $95. acording to the nikkei news, apple is cutting q1 orders for airpods, mac books on a rough 2022 doesn't look -- down 2.3% right now. >> the broader market as well giving up early gains with the s&p. down ever so slightly. let's get over to mike santoli, who is on set with us as well. just because the calendar changes i'm not sure what else changes. we're having the same conversation, certainly, about what we expect this year is there anything that is sort of front and center in terms of the new year >> there are -- it's an opportunity to assess where we

are now versus a year ago, if nothing else you're absolutely right. we're basically still kind of operating under the overlapping shadows of a recession that almost everybody expects to hit. and then a fed that still feels it has to lean against inflation for the time being that's been the story for the better part of this past year. what has happened over the past year, valuations did get radically reset to an unusual degree in a 12-month period. s&p goes from 21 times forward earnings to blow 17. below 17 is not cheap. the earnings may not come through. it's still skewed towards the heavyweight growth stocks. it's important to recognize, that is the average over the last 20 years. that's the average multiple over the last 20 years is around 16.5 ten years we operated below 15 no saying we hit a floor we have a yield cushion that got rebuilt. a year ago we were under 2% on the ten-year now you can get investment grade yields, very safe index level bond yields, 2.5 to 5%

that enables bonds to act as the backstop for a portfolio and allows you to take more risks on the equity side. maybe they should start playing the role they normally do. finally, expectations are rel livety low maybe they should be relatively low. i don't think the whole reset is over, but a year ago, the consensus strategist's forecast for the s&p was 2250 top tick was 3814. now people are saying, maybe the s&p gets back to where it traded three weeks ago. that's kind of the difference in now versus then. >> in other words, the consensus was dead wrong last year i think on the economy, too, when it was all about transitory inflation. the consensus on the economy, if you read most of these wall street forecasters, is that we manage a soft landing. we either avoid recession all together or we go into some sort of mild recession. and i do wonder, mike, even though you said expectations are low for the market, if that is too rosy of a forecast, the other expectation built in is the federal reserve stops

raising interest rates by the middle of this year and the market is expecting cuts by the end of this year something the fed is not talking about. >> no doubt about it things have to go right in order for the market to actually avoid, you know, if nothing else, going back to the recent lows i would say the consensus is for that mild recession. i think for the most part, the weight of the opinion, it seems to say, we're going to have some kind of downturn the yield curve is telling you that you're right we could get tested on the mild part. >> let's turn to tesla because it is losing even more ground than the broader market coming off its worst year also ever want to hit tesla? >> yeah. >> we're sinking even lower on some delivery numbers. i think we have phil lebeau on those numbers, phil, which missed consensus and didn't inspire much confidence on the demand side. >> right now you've got shares, sara, trading down at over $111. $111 there is a possibility, don't be

surprised if later this week if things continue on this trajectory, we see shares dropping below $100 for the first time since august of 2020. here's the reason for the pressure this morning. it was the q4 and full-year delivery numbers that were less than expectations. 405,000 for the fourth quarter the consensus was 415,000. 1.3 million for all of last year most were expecting it to be 1.35, maybe 1.35 the analysts today, here's their reaction dan ives at wedbush saying a miss is a miss and the bulls are not popping champagne on these numbers. tony out with a rather bearish note saying we see demand problems remaining until tesla is able to introduce a lower priced offering in volume, which may only be in 2025. note that year, 2025 because it's also coming up in ryan brinkman's note from jpmorgan he says, our base case assumption is that year over year growth, while remaining impressive overall, is likely to

decline each year from here on out. their forecast, 26% growth in '23. 24% in '24 and just 20% in 2025 here are the tesla annual delivery numbers going back really back to 2013, 2014. you want to focus on the last two years here the growth between 2021 and 2022, 40%. that is significant because tesla's guidance is that it will average 50% annual delivery growth year in, year out again, the keyword there, average. the bulls are going to say, well, they never said they were going to hit it every single year, but 40% is well below 50%. are you telling me they're going to come up well over 50% over the next several years in order to offset that that's why when you take a look at shares of tesla, and we're showing you a three-year chart here, remember they report earnings on january 25th that is likely when we will hear from elon musk that's the expectation that we will hear from him

that's also likely when the company will reset guidance, if it does reset guidance that will certainly be a focus of the conference call in addition to what's happening with the gross auto margins, no doubt coming under pressure as the company cuts prices. guys, back to you. >> phil, is there anything to glean about what's happening in china for tesla on production and on the demand side, which has been one of the big worry spots for the entire market, but for tesla in particular? all with the new appointment of chinese leadership within tesla. >> yeah, look, the appointment of the chinese leader is going to get a lot of attention because people are always saying, who is going to run tesla when elon musk is gone i don't see elon musk going away any time soon. there may have been discussion and you'll hear board members say we have picked a suck succe successor, i don't see him going anywhere any time soon the company has increased

production in shanghai they did that in october and early november then you had the covid restrictions that cut down on production as well as deliveries david, you also see them having to cut prices in china so, it clearly, the momentum here or the trend here in china is that you're going to see continued pressure there relative to the growth that many people were expecting. doesn't mean they're not growing sales there or increasing sales to a certain extent. it's just not at the same level it was before. >> yeah. it's going to be a story we continue to follow as closely as we did last year, phil, with your help. thank you. phil lebeau. let's get more on tesla as we look ahead for what this year has in store for the company let's bring in managing director at canacord. buy rating $275 price target on the stock nice to have you you wrote in a very recent note that you thought at least in your opinion that these numbers

that we got on production and delivery were better than at least the worst case fears market doesn't seem to be taking it that way, george, does it >> no. i think everyone's now waiting for the conference call. elon musk gave a chat on twitter spaces a couple of weeks ago and alluded to the fact that the company is going to value unit over margins as we head into the cyclical downturn in autos i think we're all waiting to see how bad the margins and the average selling prices could get next year. we have confidence over the long term is that every time -- and why we think the company prefers unit over margin if you think about it, every time they sell a car, there's a $15,000 opportunity to add software to that vehicle that's 30% gross margin in addition that $15,000 is autopilot. right now we assume they're at about a mid-teens penetration rate as that product gets better, as people feel more comfortable with it, we think there's a long-term opportunity to really

enhance gross margins. >> so, that's one of the key reasons why you still have a $275 price target on the stock >> yeah. well, that reason, and if you look at this company relative to others, i'm sort of a meat and potatoes kind of guy, this is about earnings and earnings growth even if you assume it's 20% or 30% earnings growth, we assume it's a little higher than that we get to $11 nongap earnings by 2025 if you compare this to the other big tech companies, we think tesla should be comped to, it's incredibly attractive. this is trading at close to 10, 11 times earnings on 2025. that group, which includes apple and amazon and nvidia and meta, they trade about 17 times. so, you're getting much better growth for a much better valuation. we think it screams relative to those companies. >> those companies trade on 17 times 2025 or today? >> it's -- if you look at them as a group right now, nvidia, apple, microsoft, they trade about 17 times 2025, correct >> okay. yeah

now, i guess the question is, you're saying this is cyclical nonsecular doesn't that have to get into the valuation as well, the fact that this is basically subject to some of the same cyclical forces, some are going to argue the model lineup is not really been refreshed very recently and how exactly is it going to compete in a global auto market where everybody is trying to, you know, do a lot in evs? >> yeah. and i think that's -- people are trying to figure out how cyclical this is, what the secular growth is going to look like even into a downturn. the stocks came off like 70% last year. it's down another 10% or 9% today. so, clearly a lot of this, in our opinion, is priced in. with regards to new models, they announced two things -- one thing yesterday that was interesting. they announced an analyst day and also going to introduce their gen 3 platform, which is this low-cost model that people

are talking about. maybe it ramps in '24 into '25 don't forget, the second half of this year they're bringing on the cyber truck, which is a game-changer some of the orders they have may or may not stay, but people assume 1.5 million orders for the cyber truck last time we saw some published numbers. >> do you have confidence, george, that musk is not going anywhere, as phil lebeau said? you and i have talked about this before he's tweeting an awful lot and trying to find a leader for that company, but how much visibility do you have into that, obviously, critical question for tesla? >> i mean, i can't claim to have much visibility into the way he's thinking. but i do know that i find it highly unlikely that he's going to leave the company and stock under $12. i think he sees a lot of work ahead. they launched a robotics product. we'll see how real that is over

the next several years but i fully expect him to stay at a high level of tesla for a long period of time. there's rumors of an appointment of a chinese executive but i do expect elon to be the ceo for the foreseeable future >> yeah. obviously, a lot of shareholders hope that won't be the case of him being ceo of twitter george, appreciate your time thank you. >> happy new year. as we head to break, let's give you a road map for the rest of the hour. it includes university of california investing $4 billion into black stone's breit fund. and sam bankman-fried is headed back to court this afternoon. we'll tell you what to expect. why imf chief kristalina georgieva is warning it's ingog to be a tough year ahead we'll be back. is more than a trading platform. it's an entire trading experience. with innovation that lets you customize interfaces, charts

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we're continuing to follow the chaos in crypto. ftx founder sam bankman-fried set to appear in a manhattan federal court later today. our kate rooney with the latest. good morning. >> good morning. the former ftx ceo plans to plead not guilty in today's court appearance, according to a source familiar with the matter. he's expected to be in lower manhattan around 2:00 p.m. eastern today for that hearing it's almost two weeks after bankman-fried was extradited from the bahamas, had criminal charges read against him and released on $250 million bail. since then, bankman-fried has

been on house arrest at his parents' home in palo alto that bond is secured, in part, by his parents' property that you're seeing right here his legal team this morning requested the court also redact the names of and any identifying information about two other people who still need to co-sign that bond by thursday. they said in recent weeks that bankman-fried's parents have become the target of intense media scrutiny, harassment and threats and received what they called a steady stream of threatening correspondence they say there is, quote, serious cause for concern that two additional people would face similar intrusions on their privacy, as well as threats and harassment if their identities are disclosed. while they don't need to post the entire bail amount, his parents and other people are on the hook if bankman-fried does not show up for court. the not guilty plea is pretty much in line what he said in interviews he's trying to blame them on slopping aaccounting and denying

any fraud. prosecutors say he used ftx to backstop alameda by property and make political donations, among other things the expected not guilty plea is at odds with his top lieutenants, caroline elson and gary wang, both cooperating with federal investigations and have already pleaded guilty back to you. >> okay. it continues thank you. still to come, blackstone shares moving slightly higher. that is the firm's breit fund is getting $4 billion investment from the university of california we'll fill you in on exactly wh n'gonyere.y.

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privately traded real estate investment trust that grew rapidly over the last five or six years, but came into focus towards the end of last year when it was forced to limit reredemptions has landed a new customer or new investor, and that is the university of california system, which has

chosen to invest $4 billion into the fund it's a bit of -- even though they're investing in the same shares that retail investors buy through their brokers, it has a different structure to it because blackstone is actually putting in $1 billion, there's a six-year hold period and creating what what is essentially 11.25% return over the six-year period for the university of california you can see that right there now, blackstone, of course, believes it will be able to generate a return in excess of that they're also getting the 1.25% management fee, getting some fees above certain hurdle rates as well. they believe they can generate returns actually -- all they need to do is generate returns of 8.7% for their $1 billion to be earning a good deal of return for them what it really is, though, potentially an endorsement of the portfolio blackstone has put together with all the money it took in over the last few years.

over these last few weeks, i'm told, and jon gray, the president of blackstone told us as well, that university has done a lot of due diligence on those properties came and took a look closely where they wanted to and how they wanted to deploy that capital. of course, liked the real estate portfolio as it was. so, a positive sign. mike, not getting a big response in the market. this was and has been a significant engine for profits at blackstone over the past few years. >> for sure. obviously adds liquidity to the fund you kind of can put aside those immediate concerns if this is for redemptions and all the rest of it. to what degree -- now, they have to generate over time a return off of this. to what degree is this a chance for them to be opportunistic about buying new properties or is it a cushion? >> i think they see it as liquidity they will use towards buying new properties. i did ask jon gray about that and he did indicate they're not

going to rush necessarily into the markets, but it is an interesting time here where they may see some opportunities asked gray about the macro environment given blackstone's perspective on capital markets, not to mention its portfolio companies. what does he expect as we head into this year take a listen. >> we do expect, as we move into this year, 2023, we'll see a further slowdown in the economy because of the weight of fed policy but at the same time, we think inflation is slowing we're seeing that in our portfolio companies, in shipping costs, in commodity costs. the labor market's starting to cool a bit, which is encouraging. but we think the fed will hold rates once they finish in the next quarter or two at these elevated levels. then we'll see a bit of a slowdown through the year. >> just a bit of a slowdown through the year didn't say the word recession. >> everyone's expecting maybe a

little recession. >> right. >> it's definitely a strong possibility. but nobody is expecting any kind of hard landing or anything -- anything super challenging, i think, as much as the forecast because it's fed-induced and because we come from a strong consumer cushion and that's the key of how much more the fed is going to have to do and how -- i'm curious, back on the reit store, is this going to continue to outperform? wasn't it up double digits last year. >> 8.4% as of the end of november that's obviously on their net asset value, how they mark it. don't have the marks for the end of the year as of yet but that's where the university of california is investing, based on where they are now. jon gray continues to say, yeah, we have a much better portfolio than publicly traded reits and he points out those publicly traded reits have traded at discounts and premiums to breit. >> there's always going to be a bit of a gap between public and private. if there are lag effects to what

the fed has already done, commercial real estate might be one of the areas that gets hit later, not right away. >> especially if people are coming back to work. we're back to work, but not fully back to work. >> no. they don't have -- their commercial portfolio is pretty limited. you're talking about office buildings and -- >> public reits are basically down 30% in the last 12 months, on average. still to come, why the imf chief is warning of a tough world ahead for the world economy. first, check out top gainers on the dow so far we're getting a bit of the losers of last year, winners today, communication services is the top sector along with financials dow gainers were hard hit last year, boeing, disney for sure, nike up a percent as well. so is walmart. we'll rhtachebeig bk re on "squawk on the street.

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welcome back to "squawk on the street." i'm bertha coombs.

here's your cnbc update at this hour republicans in the house will be electing a new speaker in a vote in just over an hour republican leader kevin mccarthy is in danger of falling short of the necessary votes as a small band of far-right members has refused to support him the process for selecting a speaker hasn't taken more than one vote in over 100 years buffalo bills' safety damar hamlin remains in critical condition in the hospital after he suffered cardiac arrest on field during last night's nfl game hamlin made a tackle in the first quarter and then collapsed and needed cpr players from both teams very emotional, shaken up as the second year player was taken by ambulance to a local hospital. the game was suspended about an hour after his collapse. and as support continues to roll in for hamlin from players on his team and across the league, fans are showing support by donating to his fund-raiser

he set up over the holiday season the online toy drive on gofundme has raised over $3 million with over 100,000 donations so far. he had only set out to raise $2,500, sara it's just an amazing outpouring. >> absolutely, bertha, thank you. it was tough to watch. the new year kicking off with a big week of economic data as recession warnings continue to grow ahead of fresh fed minutes tomorrow afternoon and a jobs report on friday. joining us now with his thoughts is former atlanta fed president dennis lockhart. it's good to see you again happy new year. >> happy new year to you >> so, jobs data this week on openings we're still expecting millions of openings on the jobs report we're still expecting resilience and jobs to be added even if that pace of growth is slowing what's that going to mean for the fed? >> it will mean they have to stay the course, in at least the

first two meetings of the year, and watch the inflation data, and as you point out, very importantly the labor market data i think the labor market data are key to the policy outlook at the moment they need to see some slowing in the labor market friday's report is an important one. >> why, just to play devil's advocate, why do they need to see that why can't we continue to have job gains, wage growth, which is good for america, if we see the overall inflation rate coming down on goods, can't they continue to slow down and pause? >> well, you remember from jay powell's last press conference and the one before that as well, he gave an indication of how the fed is thinking about inflation and they're thinking about inflation in three buckets -- goods inflation, housing inflation, and services inflation.

and wage growth or wage inflation is a key element in the services inflation goods and housing both seem to have turned and are headed in the right direction. but apparently services inflation not yet really beginning to decelerate. so, that's the reason why i think the labor market is the key thing to watch at the moment >> dennis, just to pick up on sara's question, if you go back 25, 30 years the fed had a theory that unemployment maybe couldn't fall below 6% or 5% without -- or do you think for now, the fed feels like, look, cpi's too high, pce is too high for us to ease off we need to point to the labor market as something that could,

perhaps, be the release valve? >> well, i think the relationship between inflation and labor market costs over the years, it tends to change and evolve we're dealing with a somewhat novel situation coming out of the covid crisis where we have what could be at least close to a structurally tight labor market and that's somewhat new, quite frankly. and we're dealing with the implications of that so, as i said earlier, i continue to believe that in the coming months the thing to watch is the labor market. >> all right and then just in terms of a lot of folks pointing to some parts of the cpe, the inflation reading, that seem like they lag, shelter components, clearly the fed officials are very well aware of that. and so perhaps they can give a nod in that direction, but they seem not to want to go too far

in the direction of anticipating the data becoming more friendly. >> i agree with that i think they are also on a path right now of getting the rate setting to a restrictive enough position or a point that they then feel comfortable on hold for a few months at least, and perhaps longer, in order to wring inflationary pressures out of the economy they certainly want to avoid a stop/go pattern. i think that would be, you know, akin to at least a minor policy error. so, you know, in the coming months they're going to want to calibrate the setting to appoint, which they're very comfortable to sit on it for some months and ensure that all the arrows, inflation arrows, are headed in the right direction. >> we're going to get a new makeup of fed voters this year, and it's notable that bullard

will not be voting he's been very outspoken on the hawkish side and in terms, ckashkari will coe in, he's a hawk, i think he's switched over, and a few more moderates. i just wonder if you'll be looking for more dissents as we get into this is period where they've shrunk the size of the rate increases but still expect the rate to go significantly higher >> it's certainly possible because i think there will be people on the economy who feel we should go further or, perhaps, stop earlier. so, there could be more dissents this is a pretty tight consensus we're looking at on the committee right now at least so it would have to fall apart a bit, i think, in the coming meetings to become a very, let's just say, a very diffuse set of views on the committee. >> got it.

something we'll watch, of course dennis lockhart, thank you for the time >> thank you >> appreciate it a quick note as we head to break. later this week, cnbc's going to be live from miami at goldman sachs' global energy and clean tech conference. we'll have exclusive interviews from the ceos of chesapeake energy and pioneer natural resources. that's coming up on thursday we'll be right back here stay with us

welcome back to "squawk on the street." stocks are drifting slightly lower at this hour the communication services sector still a relative outperformer as names like meta and disney trade higher. fox is lower after wolf research downgraded the stock to underperform, saying it doesn't have a strong offering in the streaming space. the firm also cut t-mobile to pure perform now, i'll send it back downtown

to you, david. >> thank you, pippa. while tesla right now, of course, the shares down as much as 10% is certainly wiping out billions for elon musk, perhaps some good news for one of his private ventures the rocket and satellite company spacex raising over $750 million. it was a new funding round, $137 billion, according to correspondence obtained by cnbc. the company last valued at $127 billion during an equity round in may they are also, mike, trying to find liquidity for existing employees. this is part of bringing in new money to do that. >> were they not permitted to sell insiders around this valuation? i think it's been relatively stable in terms of the valuation the last several months anyway and it's interesting because it's clearly a company that it's not really about the macro environment right now. there's so much on what's to come it's a little bit of a throwback

to some of the big picture long-term bets that people were willing to make, you know, based on it is technology they have and all the rest of it but it is interesting they keep, up be, being able to fund themselves. >> they reached a lot of milestones, haven't they, in space. >> yeah, without a doubt starlink, people don't talk about spacex, perhaps, ever becoming a public company but perhaps starlink, the broadband service, essentially for which they've sent up so many satellites, that could conceivably become a public company. starlink has been very important in ukraine's efforts against russian war. he can feel better as he watches -- >> more than a third of what tesla is right now given what that valuation has fallen to. >> interesting use cases, including airplanes and signing deals there. something to watch. i want to point out what's happening right now in the market we have lost the early gains,

but come back a little bit, down 29 points or so on the dow s&p has turned negative but there are pockets of strength today in much of last year's losers communication services, industrials and financials just ticked positive. the biggest laggards on the s&p 500. tesla is down 9% it was down 10% a moment ago etsy is down 5%. molson coors also on that list

retailers expecting a tough year ahead as they try to keep clearing excessive inventory and face recession fears early spending data from the holiday season saw sales increase from last year. our next guest predicts while retail sales decelerate, they won't fall to great recession levels joining us is david baker to talk through how to deal with this space, michael. the retail stocks, consumer discretionary, have not been performing particularly well in anticipation of a slowdown from the consumer do you think 2023 will be different? >> well, we're actually a little more positive on stocks than we

are on the consumer. the xrt actually has been a pretty good place to be over the last six months. different than the xly consumer discretionary, that index, of course, includes tesla, which has been dragging it down. the xrt, more the big box retail space, has actually been pretty good it's outperformed in four of the last six months, and the back half of the year it did underperform since black friday that happens every year. retail does not perform well around the holidays. in 11 of the last 13 years, the xrt has underperformed the s&p 500 from black friday to year end. we think it sets up better for 2023 we know the consumer is weak estimates are coming down. we think that's a good thing margins should be better and we think the catalyst could occur in the next few weeks as we get a lot of negative preannouncements we expect in the next few weeks we'll get retailers preannouncing. that will lower estimates again and retail usually performs when the bar is set lower. >> why do you expect margins to

be strong if the consumer is weakening and inflation is coming down? >> yeah, two of the three margin pressure points we saw in 2022 when margins were low should be better in 2023 and the big one really is the inventory situation. we all know inventory was very, very high. that was sort of identified in the midpoint of last year, around the second quarter. and retailers have been working hard to pull those down. what we think we'll see, we saw it a little bit in the third quarter reports and we'll see it again, we'll still see year over year growth in inventory but much less so than we saw midyear. markdowns and clearing inventory will be a major margin drag in 2022, less so in 2023. in fact, could be a positive and then supply chain costs are coming down. two of the three margin negatives in 2022 are getting better in 2023 the one we're not sure about is wages, which still seems like it will be a pressure point next year. >> michael, just to get to one stock that really was at the

center of the whipsaw around the pandemic, best buy you were saying you think estimates might be bottoming right here it's one of those stocks that screams out looking cheap but that's only if the estimates don't go down a lot from here. >> yeah. well, estimates are -- have come down certainly negative in 2022, we know that, and the holiday season, estimates down 10% or 11% for the holiday season the consensus estimates are negative again for 2023. you're right, of course, if they miss that, then it won't be a great stock. we do think the current estimates already estimate weakness for 2023 and somewhere around midyear, we think the comps could actually turn positive and margins feel like they've been very low this year. they're one of the new companies, 2022 margins will be below where they were pre-pandemic we don't think they are a worst company than they were pre-pandemic they just had a big issue in 2022 with pull forward if we think to 2023 and beyond that, we think margins should get better from here off a much

lower base. >> since we're dwelling on the margin question, i guess my question on -- as apparel prices come down, who still has pricing power? which companies are res onat >> yeah. it is definitely tougher in apparel. now, the names i cover mostly are hard line retailers. so there are some apparel exposure in there, target, you know, walmart, et cetera do sell apparel. but we don't think there is a lot of pricing power there, so that will hurt the top line, for sure but, again, the margins should be better because of the massive markdowns that retailers had to take this year inventory growth will be much lower in 2023. retailers are ordering much more conservatively that should be much less of a margin drive we think across retail in apparel. >> you like both, right, target

and walmart for 2023. >> we do we do. >> michael, thank you. good to get your outlook michael baker. >> thank you well, we have been focused on tesla shares throughout the morning, but take a look at apple because they are down 3% taking the market cap. i believe it is down below the $2 trillion mark shares down 15% over the last month or so. some of those same concerns in terms of china, in terms of overall demand, mike, continue to sort of price up the share. >> yeah. that's one of these stocks that did resist the pull of tech lower for a long time last year. so it's really just more or less come into line you know, even as the stated estimates keep pointing out shows no earnings growth for fiscal 2023, that was never part of the plan. any softening of that will hit expec expectations i think it is one of those deals where what do we pay for this company when it is not about the

stability and the buybacks so it is not like it has those cushions that you might look for. >> well, and also the continued rumors and reports from this time out about demand. does apple ever pre-announce i think they did back once in 2019. >> yes. >> summer. there's buzz it is just rumors. but if they could pre-announce the quarter, maybe that would be some sort of event they finally acknowledge it themselves, that there is weakness, particularly coming from china. >> yeah. on the other hand, the company and the people that follow it point to you get a lot of these reports that their production is being cut or the suppliers have said they have orders canceled and it doesn't necessarily play into the actual official figures from apple so market not waiting to hear, i guess. >> and, mike, to your point, it outperformed the nasdaq through all of last year now through year over year. >> pretty close. top 30% down

what's really bouncing, as you mentioned before, is the stuff that really hit last year. mechanical move on the early part of the new year. >> as we head to break, we are also adding shares of block to outperform today, raising its price target saying sentiment can improve this year. we will talk to the analysts behind that call on closing bell 3:00 p.m. eastern time in the meantime, "squawk on the street" will be right back 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. the finance hr and planning system that helps cfos make better decisions faster. for a solve problems like a genius world. workday. for a changing world.

welcome back to "squawk on the street." well, mortgage rates certainly rose dramatically in 2022. could move higher again in the new year it's already wreaking a lot of havoc. >> already is, sara. that's for sure. after a brief reprieve, mortgage rates ended 2022 on a high note. the average rate on the 30-yore if i canned swung nearly a full percentage point lower from

7.25% to 6.25% but back up home prices have fallen since june but are still higher than they were a year ago for a buyer of a median priced home today's mortgage rate translates into about $2,100 without taxes or insurance, which is a 63% increase from a year ago that according to realtor.com whose chief economists predicts rates will head over 7% again this year and end the year at 7.5% on the bright side, there is much more supply on the market, 47% more than a year ago at the end of november. still below the historical average. but it is translating into a slower, less competitive market. homes are talking 56 days to sell, 15% longer than a year ago. prices have been coming down month to month at a rapid pace and the annual comparison is half of what it was in june. remember, prices are still an incredible 39% higher than they

were at the start of the pandemic now, looking ahead, it is of course much about the fed, which along with everyone else is looking towards the all important jobs report on friday. but it will also be about buyer demand where is the line for home buyers to jump back in they're used to a pricey housing market, just not so much a pricey mortgage market back to you guys. >> you mentioned all the things the fed is trying to do and working in the housing market. prices are coming down demand is down a lot but what about rent? because, as you know, such a big component of over all inflation and have remained stubbornly high we have seen early signs they are starting to roll over. what do you expect there >> yeah. rents are coming down pretty dramatically as well in the multi family sector, not quite as quickly in the single family market but multifamily is easing up a bit we're looking at a lot of new supply of multifamily rental units coming into the market next year. that could help ease the rents

as well. maybe a better outlook for the rental market. >> thanks, diana speaking, of course, of rates and mortgages, takes me to the banks, sara, we're taking a look at because we talked about the weakness of apple and tesla. jp morgan, bank of america, citi are all having quite a nice morning. you can see goldman sachs and morgan stanley performing along. they were not bad last year, down less than the s&p. >> because they are getting the higher rates, which they wanted, which helps with profitability, net interest income. but worries about recession that come along with that are not great for the banks. so it is a double edged sword, but we're also not saying a steeper yield curve. that hasn't helped the question for the banks is less to the market this year what does the city look like

if we can get away with a soft landing, mild recession, federal reserve continues to keep rates high, elevated, that could be a good scenario ultimately for the banks. of course, all we hear is this is not the great financial crisis banks are in good shape. >> of course including jp morgan and the market capital of $400 billion. that's more than tesla that will do it for us with "squawk on the street. tech check starts now. >> good tuesday morning. welcome to "tech check." tesla takes another tumble this adds on to their troubles but we have a fresh bull take this hour. plus, two upgrades why wall street is optimistic on paypal and block in 2023 paypal the top gainer. is workday the surprise stock of the new year two guests calling it a dark horse top pick today john, happy ne