>> weiss, what have you got? i'm short the xli again? >> industrials >> yes, the industrial etf, which raytheon is an elite holding there. i like that as a hedge >> all right, joe t. >> happy to be a bank of america shareholder given what they did today, giving restricted stock to employees making less than 500,000, while everyone else is firing employees, they have to retain their talent. i'll see you in overtime, the exchange is now. >> thank you very much, scott. i'm kelly evans. here's what's ahead this hour. microsoft weighing on the broader markets, but we're off the lows as it sets in that the quarter wasn't quite as bad as some feared. and while they can't control advertising spending, they can invest in ai as we move through a choppy earnings season, are you wasting your time investing in the u.s.? this year, international stocks

have been outperforming and our guest says that there is still more upside. wait until you see the shark image that he brings to us we've also, of course, got tesla on deck now to report. and we've got the analysts who thinks that the stock could go to 425, but for a different reason than you might think. he joins us to make his case first, let's get to the man, dom chu with the very latest on these markets. >> as you point out, we are well off session lows right now in fact, drifting towards session highs, believe it or not. now, let's put it in context we still have a dow that's about 197, 200 points, 35,356. the s&p is now below 4,000, down 32 points. now, at the highs of the session, we were down 27 so we're kind of drifting that way, at the lows, we were down as much as 67. again, well off the lows we're still down three quarters of 1%, 39.85, the nasdaq composite, 11, 285, down or over 1% in terms of the loss.

the real epicenter has been that tech-heavier nasdaq trade. now, you mentioned the eric vs as well. all eyes on tesla after the closing bell today for its earnings report. but the entire electric vehicle industry is in focus right now, because of those tesla price cuts, we could see a looming perhaps price war developing in terms of evs, who undercuts what price where and when so tesla shares ahead of that report, down about one third of 1% livian automotive has been drifting between gains and losses, fisker gets downgraded it's off 5% today, watching loose sid group, so again, very much in focus on that ev side of things and then, of course, megacap technology, very much in the focus these days microsoft, of course, because of the earnings report. you can see there, microsoft is only down about a percent right now. but apple, alphabet, zpon, nvidia, some of the biggest tech and tech-related names out there still down we'll see if that septemberment shifts a little bit towards the closing bell, kell i'll send things back over to

you. >> and microsoft is where we start today, despite weak guidance and the slowest sales growth in six years, the tech giant is not slowing down its spending on ai is it the right bet and does it make the stock a buy here, or will competition catch up? let's ask kim forest, boca capital partners, ashley gold, and cnbc's very own steve kovach welcome, everybody kim, i'll start with you what's your reaction to the quarter and to the ai investments that they're working on here? >> sure. i don't think it was a surprising quarter i think they did well in a difficult environment, especially with the consumer slowing considerably, and a little less so in their corporate accounts, which is really what drives that company. so, not a big surprise and i do love their investment in ai, because, well, it can add value to their products. and i think that it's a smart move to do that. >> all right ashley, let me turn to you it does seem as though the

market is giving them a vote of confidence for this investment, contra maybe to what we saw with meta or facebook and meta and the meta verse but is google going to catch up? are others going to catch up and make what they've done so far look a little less enticing once there's more to pick from. >> i do think other companies are going to catch up. i think where microsoft has an advantage here is that chatgpt through open ai is really what's made ai in this iteration really break through to the masses in getting people to understand what this next wave of ai is, how it works, and what its possibilities are. so i think microsoft is having the association with chatgpt is really going to help them. it's something that is buzzy, something that people know about, that they've seen examples of. other stufs,f, it's kind of und the hood it's baked into stuff that they already do and meta isn't really a trusted name i'm not sure people are going to

care as much about current tech kp companies' investments in ai and what they're planning since chat gpt is so buzzy. >> what do we know about apple's ai efforts and what they may yet be trying to dazzle us with. >> there's the ai they use in their everyday technology, things like g-mail prompts and youtube sleep result i'm not totally sure with their long-term moon shot ai projects are. that's something that they've been a little more mum about but i know that as the market slows and digital advertising is cratering, these types of things that are more future focused are what these companies are thinking about >> all i can think is, you can't turn yard head around television without seeing a story about chat gpt >> it was on "snl" this weekend. >> isn't that like genius,

brilliant timing for microsoft here's a quarter where consumer demand is imploding, sales are only up 2% azure, i don't know. it depends on where you really thought expectations were. it wasn't a disaster, but a clear slowing. and if it weren't for us talking about this buzzy new toy that they seem to have gotten quite right, everyone's reaction might have been a lot worse. >> it was the first question, not why is azure slowing down, why is your worst revenue growth since 2017 no, what do you plan to do with open ai and chat gpt right now they're selling it in azure, in a limited way, but they're going to put this technology to use nadella's words across their entire stack. that means all your office applications, everything they make is going to have some layer of this ai technology. that's his vision. and he also said, look, we're at the beginning of a new commuting platform forget the meta verse. that was the buzz word of two years ago. this is not a buzz word, this is

reality. they're putting money behind this, kelly. >> and the difference is that we've all used it. i mean, seriously, if anyone watching right now has not said into chat gpt, pick your interface, hey, make a business tv show that rhymes in verse -- the stuff -- the creative aspect is what blinds my mind about it. i can understand if it came up with facts, and a lot of its facts are wrong, that's not whoo i care about, i care about the way that it can right haikus that make sense. it's better than i am. >> i've always been a big proponent of using haikus to deliver any kind of news, because it kind of buffers stuff. but to be series, i think microsoft is spot-on in its use of technology, that it is going tone hands people's, not only fun of using it, but actually once they get in the groove, it's going to do a lot of grunt work, which is what ai really should do. it should mine the world, come up with stuff that we need, and then let the human being be able to direct what to do with what

we have. and i think that's what microsoft is really putting their money into, as opposed to like meta, trying to make the meta verse, whatever that is >> right and i understand sort of the meta verse is inevitable it's already here. it's not that it's nothing, it's just less clear that the sort of investment valuation case, the use case and all the rest of it. kim, lead this for us on the stock angle, especially in a market that's very, very nervous right now, and with tech valuations having massively reset, do you think microsoft's multiple makes sense here? what's the read through for the rest of big tech have we cleared some land mines or are they still out there? >> well, i think that it's pretty still richly valued, but if you're going to look out longer term and god knows i look three to five years out, looking at the landscape of big tech, i think microsoft is a clear winner not only because of the culture of the company that they want to provide their buyers of their

product with value, but how they've been deploying their resources. this ai focus really demonstrates that. >> and i'm just curious before we let you go, let's not forget all of these salvos coming down from the doj and others against google and others. what do you think? how big are these going to amount to in terms of a distraction and a headache at a time when they need to be trying to catch up, frankly, unless there's something i don't know about in this whole microsoft, a i race >> it's a big distraction and a headache the doj case about the ad technology that came out yesterday is a pretty serious lawsuit. 150 pages. jonathan cantor, who does anti-trust at the justice department has been working on this for a long time this is his top important thing that he's focusing on. this is a fairly sophisticated lawsuit, and it's a little different from the other anti-trust lawsuits we were seeing, because it focuses on

markets, on musoney, and on the way that companies like google tie their products together and make customers use them sort of as a package so i think this is going to be quite a bit of a headache for them and at least make them slow down or stop altogether any investments in new add technology and it's obviously hard at a time when digital advertising is down across the board. >> great point steve, a final word. >> final word, oh, my, consumer demand we're talking a lot. that is what really stuck out to me in this microsoft report, to see pc windows revenue go down 39%. to see xbox gaming revenue go down this is christmas. video game sales were down pc sales were down nadella and cfo amy hood said, we're back to pre-pandemic levels as far as demand for pcs. we've seen that demand faltering in that december quarter among other industries and next week, when we get the rest of the big tech earnings,

apple, amazon, his what is the readthrough with those they're kind of resistant to this consumer demand is that still true >> we will leave it there. great stuff, you guys. thank you all, steve kovach, ashley gold, kim forest. five-year notes went up for auction the top of the hour. you know we'll get rick santelli in here to tell us how it went over >> yes, kelly. this is the second option. if you do recall, yesterday's 42 billion in two-year notes, that was an "a. this five-year note option, also an "a. a real solid option. 43 billion fives, below the when issued market. lower yield, higher price. some of the metrics are clearly off the charts the bid to cover 2.64. that means there was $2.64 chasing every dollar in securities available the best since august of 2020. but here's the biggy indirects, this is the one you like, kelly. this is all of that foreign

interest 75.7, i have a 22-year database. i don't have a higher number than that. the only fly in the ointment, direct bidders, 15.4%, a little below ten-auction average. and dealers take 8.8%. i don't have a smaller percentage, so customers cleared the buffet table, a solid "a." we now have 85 billion in our pockets. tomorrow will be 35 billion. it tells you investors are looking for yields to drop back to you. >> very well said. crystal clear, rick santelli, thank you very much. we appreciate it back to the broader markets, where another clear trend that's emerging since the new year, how about europe out-performing u.s. it's been helped by a milder winter there, easing fears about that massive energy crunch the euro stocks jumping 6% this month, about double the performance of the s&p and my next guest expects this trend to last for maybe years. and says it's not too late to get in on this trade

joining us is jeff kleintop at charles schwab and cnbc's seema mody here with us as well. welcome to both of you for years, you expect europe to -- how does that make any sense? >> well, you know, wherever we go through a recession, we reset the clock. you know, back in 2022, we thought it would be the first year in a decade to see international outperformance of u.s. stocks and the start of a longer-term trend. the reason for the change in relative performance is the recession. i know, an official recession hasn't been declared yet, but we believe a global recession began last year. >> wow, you do >> i do. i do every time i see this, we see a reversal in the relative performance of u.s. and international stocks whatever outperformed the last cycle becomes the laggard. we go from leaders to the laggards and we've been using a shark chart to talk about these cycles >> yeah, we have a big vision of it just so people can see. it's basically, this they go in these long kind of spans

and you think we're in a period where there's going to be a big trend reversal and the bottom line -- here's what i find interesting, jeff. i would expect you to say, a global recession started last year here's the shark i thought you were going to say a global recession started last year, so european stocks will start to underperform, as well i'm surprised you think that they will continue to outperform and why is that? >> when we get into these cycles, it's behavioral as much as it's fundamental. in the '80s and 2000s, the blue line was rising and the orange line was rising when the u.s. outperformed in the '90s and 2010s. after a full cycle of outperformance, trends revert, valuations are too high, earnings and expectations are too high and whatever has done well, we're now seeing the opposite. earnings are actually doing better internationally than her in the u.s this quarter, u.s. s&p 500 earnings down 3% year over year for the quarter. in europe, up ten. 10% year over year valuations are very different, as well. we're also seeing a lot of other

factors like the characteristics that are driving the market. it's no longer liquidity-driven tech stocks that are driving the markets higher it's higher dividend yields and lower price-to-cash flow ratios that have been driving the markets within and across sectors. and those are more prevalent outside the u.s. >> seema, i am truly a little surprised by all of these developments >> what's doing even better than europe, kelly, is emerging marketing up 10% this year $13 billion in inflows and surpassing all records that we've seen really, if you take a step back, the emerging market trade was dead for ten years it did nothing and suddenly, you're seeing this sharp, sharp turn in sentiment part of it has to do with more wall street strategists expecting international equities to outperform the u.s., as jeff was alluding to. but then you have these other drivers like the china reopening, being emboldened by new numbers that we've seen, which would suggest that the chinese are now visiting macao more you're starting to see that activity pick up on the ground and valuations, too, even when

you look at because emerging markets are so depressed for so many years, even the big spike that we've seen this year, still trading at 12 times earnings, still cheaper than the s&p 500 and the nasdaq >> is this like a last hurrah moment, though, jeff again, i don't typically think about global recessions as a period of time, when equities anywhere do well >> well, it's a transition period and usually, markets tend to bottom before the -- before the recession's over but here's what's important. we're already in a bull market for international investing. european stocks are up over 20%. the bear market is over for these equities not to say volatility can't reemerge and i would say that china poses an upside risk to growth, but inflation as well. and should the european central bank become much more hawkish than it's expected to be right now, that could be a negative. tri alternatively, if the fed moves though aggressively cutting rates, that powered u.s. tech stocks in the last cycle i think the base case scenario of hike and then hold for the

global central banks points to international and emerging market outperformance this year and probably for years to come >> i would also point out, and it's not just china. china is lieading emerging markt inflows by around 7 billion so far this year. but india is up, south korea, japan. there's an interesting story that came out overnight with hindenburg, a short seller, taking aim at not just india's most powerful man, but asia's richest man, $118 billion in wealth accusations of fraud and stock price manipulation their cfo providing a statement to cnbc, disputing those claims. but those specific stocks are down about 6 to 8% today but clearly, i'm curious over time, as investors try to gain more exposure to international stocks, whether governance becomes a bigger concern, especially for india, and maybe jeff, if you have comments there. >> i do. i think we've seen some of this develop within china, right? we're now able to audit chinese

companies, auditors,as well. so there's more transparency coming, particular for those shares listed on u.s. exchanges. i think we're seeing more and more of that as we see more opening and the desire to get capitol from the rest of the world. there's a recognition that we need to step up and auditors are recognizing this as well. i think we're moving in that direction and investors are increasingly looking there with their portfolios >> you can hear the skepticism in my voice, but i'm trying to understand seema, jeff klein, and the case for investing somewhere else today. if you want to stay here, look at tesla can today's results help turn things around? we'll go under the hood and hear from one analyst who thinks the stock could triple from here plus, ibm, ccsx and a couple major airlines are on deck as wehead to break, here's a look at the markets overall.

the nasdaq was down 2% it's a less than 1% drop right now. the dow is down 111. the ten-year yield at 345. "the exchange" is back after this ♪ ♪ a cyber-attack can grind everything to a halt. cisco security keeps your company moving forward. because if it's connected, it's protected. cisco.

welcome back shares of tesla now fractionally higher today, as they head into

earnings after the bell or results or earnings, but they're up about 16% to start the year one of my next guest says there's more room to run, thanks not just to the ev stuff, but also their emerging player in energy storage joining us now, tiv higgins is a reporter at "the wall street journal" and a cnbc contributor. welcome to both of you i don't mean to be skeptical two segments in a row, but i tried to do this powerful wall thing and it was expensive and it didn't quite work and this was maybe a couple of years ago, so maybe things have changed. do tell. >> yeah, i think this is definitely the biggest market share in the u.s. and globally and so they tend to take the bigger hit in terms of criticism on evs but i would say, you know, when you look at the competition, they are doing -- tesla is doing very well. they obviously have the best margin profile, gross margin profile there. almost every other ev is running at a loss. they have a pretty good 20 to

25-person gross margin profile they're allowing off almost 10 billion in free cash flow a year very solid balance sheet with 25 billion in hand. but obviously, the stock has gotten hit, because there's a lot of consumer there. i think the consumers are stretched, interest rates are very high. financial rates are very high. so i think those are big challenges for them in the near-term, for sure. there'll be a drag here on tesla going into earnings, especially because this number of quarter has a price cuts >> would you say that the big question is obviously going to be profit margins and the extent to which they're taking a cut maybe now the try to elbow out the competition as capital becomes more scarce and costly >> sorry, tim, go ahead. >> we've seen them in the last few weeks pull that lever to try to generate more demand. kind of concern among consumers. i think investors want to know at what cost

there's this balance between tesla being a growth stock story going forward and seeing remarkable growth or, you know, what's it going to really cost the company. margins are going to be hit. >> we also have this news from dow jones and "the wall street journal" is now going to try to raise $3 billion to try to pay off this twitter debt. these companies aren't related, except they are through his presence, obviously. so is there any significance for us to think through here in terms of his need to do a twitter kind of fundraise the ripple effect back on tesla in terms of if -- i don't know if there would need to be more stock sales or what's left in terms of that at this point. how much more risk is there in the stock from that point of view do you think? >> absolutely. i think investors will feel relief when they see twitter start to stabilize, because there's this concern in the back of many's minds that elon's go-to technique in the past to raise cash has been to sell tesla shares, to borrow against his stock, and spacex and in

tesla. so if he can kind of alleviate those concerns and kind of de-couple the risks seen between tesla and twitter, that's probably going to be a win for investors, you know, looking forward to the next year or so >> and even as i have been reporting this, vn.j., he is tweeting "no" to this report about exploring raising up to $3 billion. which should be bearish for tesla. if he says he's not going to do it this way, how's he going to get the cash >> i think, you know, when you look at tesla, obviously, the last six months is like a perfect storm with interest rates going up, consumers, shutdowns. and so i think, i would say, look forward from here you know, if you start to put a peak on rates as you're going into mid2023, production starts to ramp up and obviously, the price cuts as conventioned might have had them gain some share here into the first quarter as they brought down inventories

i think all of that tesla as a stock, as an investment fairly well, given that you probably saw us on the worst headlines in the last six months in terms of shutdowns, interest rates, and so we think things probably start to improve as you go through, especially into the back half of the year. >> the shares are still positive, despite him tweeting, no, that he's not going to go this route tim, what would your final comment here be to investors who are awaiting this report, trying to figure out what's going to happen with pricing and profits for tesla here, and figuring out how that sets up a stock for the rest of the year >> to me today is all about listening toelon's tone and the call, presumably, it will be there. how optimistic is he history would suggest that he will go into salesman mode to sell that vision of tesla to get people back into the idea that it's a tech company versus recent weeks where it looked a heck of a lot like an auto company doing the normal auto companies sorts of things,

cutting prices and trying to move metal >> if they unroll a friends and family deal, then it's over. really tim higgins, thank you both of your time today. we look forward to it. still ahead, will the thread of deep cuts to defense spending swoop investors. it comes as the aerospace and defense etf is less than 3% away from a new 52-week high. we'll explore that, ahead. first, small caps are seeing big gains to start the year and we'll look at whether the run can continue and how if at all you should play it and as we go to break, the dow is near session highs, similar to yesterday today paring a loss, we're 70 points away from going positive. adg s like amex, merck are leinthe way with chevron and apple the worst performers

welcome back to "the exchange," everybody dow could go positive. it's down 74 compared with an earlier drop of almost 500 points we got about .4% drop of the s&p on the nose. and the nasdaq down two-thirds of a percent take a look what's going on with megacap tech microsoft the worst performer, originally, it was setting the tone for all of tech after those weak results but now microsoft is only down one third of 1%. i want to make sure you see this one over here. it's really made a turnaround. the worst performer right now of the bunch is actually alphabet, google's parent company, down 3% today. that's quite a turnaround, apple one of the stocks weighing on the dow with a 1% drop let's get to tyler mathisen now for a cnbc news update >> kelly, thank you very much. president biden says the u.s. will send 31 of its abrams battle tanks to ukraine. this on the heels of germany also agreeing to send its leopard tanks. biden says the new weapons for

ukraine show the allies' unwavering opposition to putin's war. >> putin expected europe and the united states to weaken our resolve. he expected our support for ukraine to crumble with time he was wrong he was wrong he was wrong from the beginning and continues to be wrong. we are united. >> a suspect in the half moon bay mass shooting will face seven counts of murder and another count of attempted murder prosecutors say that they will file the charges when the 66-year-old suspect makes his first court appearance later this afternoon and a study by the secret service finds about one quarter of mass casualty attacks are fueled by conspiracy theories or hatef ful ideologies personal grievances were the most common motive kelly, back to you >> tyler, i'll see you shortly thank you so much. coming up, can big blue, ibm offset pressure from the

greenback? will fuel costs derail csx's bottom line and what impact did the holiday travel season have on american and southwest? we will try to answer all of though qstnshe iueio aadn earnings exchange. ld. or is it goodbye? you know, it seems like hope and trust are in short supply. [clap] now, as businesses we can blame and shame. or... [whistles] we can make a change. [clap] we can make work, work for our communities. create more equal opportunities. [clap] it's time for business to show its true worth. because it's not goodbye, world. it's hello, team earth. [clap] we planned well for retirement, but i wish we had more cash. you think those two have any idea? that they can sell their life insurance policy for cash? so they're basically sitting on a goldmine? i don't think they have a clue. that's crazy! well, not everyone knows coventry's helped thousands of people sell their policies for cash. even term policies. i

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we have a raft of different kind of companies let's get the action and trade on four big names on deck, and we'll start with ibm, whose shares are basically flat over the last year, and lately that's a good thing the street is looking for possible benefits from the pullback in the dollar, frank holland has the story today and delano spaparo has our trades what's at stake here for ibm >> let's start off, kelly, a lot of questions following that microsoft report they do cloud, hybrid cloud, on-prem as well. they have a lot of different things microsoft beating ever-so-slightly on their cloud revenue. is that a good thing for ibm also, the other part of this story is microsoft's raised the stakes with its investment in open ai. how do other players like an ibm and oracle, google, and amazon,

how do they raise the stakes last year we saw google thought they were raising the stakes by acquirie ing mandian. one of the first ways we've got to get to answer that question is software revenue. estimates have that software revenue wail declining year over year so the question is, will their revenues be hurt as much by this i.t. spending slowdown as people believe? and then there's also the dollar questions, for not only their overall business, but specifically for their consulting business. that's about a third of revenues are people still hiring their consultants, and do they still want that work that ibm/big blue is known for >> absolutely. people are excited about ibm are you excited about ibm? >> yeah, kelly i'm kicking myself for not having more shares when it was around the 120 range and now if you look at the performances, they're relatively better than the rest of the market during 2022 but looking forward, i think what people are going to be looking for as investors is

there's still steady growth. they're estimating about 3.4% for this year. down to 2024, about 6.6%, compound annual growth so those are things that you want in times of uncertainty one thing they also did over the last, you know, five to ten years is divesting in assets that weren't as profitable so that's ma makes this this exciting time for investors that are investing in ibm >> or it should be, but did microsoft just cast a cloud or a shadow over things delano, what's your read on the microsoft quarter and some of the headwinds that now poses as we move into the -- through ibm and also next week, more of its megacap tech peers >> yeah, i think honestly, the big thing that everyone is looking at was obviously the cloud growth and speaking for some of that, with enterprise services, that's an area that everyone is really focused on is that cloud growth and i think that it's biggest factor and so i think their earnings were okay.

we're seeing them down a little bit now, but pulling back. but it is a bellwether for the rest of tech, right? and seeing that the demand is sticking or softening. and so that's the big thing that i'm focused on when it comes to all of these megacap names >> if this things turns positive by the close, that's going to be very telling capital one turning around as well anyway, let's move on to csx, which is also reporting. the transport giant down 4% this week after union pacific weak results yesterday or mixed, i should say, they had rising input costs, labor disputes, weakening macro, a lot of things to watch here. frank holland, help us unpack this one is it going to be a barometer economically, you think? >> i don't know it's going to be a barometer economically, but this one is actually really simple csx stock is trades on it operating margin the street's estimate right now is higher than it was a year ago. the street's estimate is 60.8% a year ago, that number was

60.1%. and the year before, it was 57%. that means the company's just getting less profitable as we continue on. obviously, they had to pay their workers more the other question is, can they still charge the same premium when it comes to freight and then, their biggest segment, that's merchandise, to get more than half of revenue from that that's autos, metals, and chemicals. there's headwinds and tailwinds there. maybe they're not shipping as many autos after earlier this the year, there weren't as many autos to ship. now with chemicals and things like that, is that a steady stream or is that going to also slow down? the real question here is operating ratio when it comes to the stock. is it becoming more profitable or less profitable >> that's a great point about how it could be geared to the auto sector. and can't they just report profit margins like everybody else instead of having to make us invert it to figure out what they're saying, what would you do with the stock here >> yeah, kelly, this is one i actually don't own, but after looking at it, obviously, a top line and bottom line has been growing for them but the big thing that was cautionary to me was the fact that we are in a macro

environment that may see a slowdown and pullback. that will have some sort of effect on them potentially they've been doing well with covering costs and have been able to obviously kind of protect themselves but this is one that is cautionary, just because of the macro environment, and that's the area that they would potentially see some headwinds in >> all right we'll leave it on that rather cautious note as well. frank, thank you very much our frank holland. you can catch the cso of csx on "squawk on the street" tomorrow at 10:00 a.m finally, we have four airlines reporting tomorrow, including american and southwest american's up 27% over the past year after they doubled revenue guidance on strong bookings. southwest expected to report a loss and a big charge from those holiday cancellations. phil lebeau is here with the story. i almost feel as though southwest is masking the broader story, where was it united in particular that has put up incredible strength in the airline space.

>> this is the tale of two airlines we were with the ceo a couple of weeks ago, when they raised their dpins for the fourth quarter in terms of what to expected we're going to see strong numbers from them today. that's built in. and that's why you see the strength that you see in shares of american. southwest complete opposite. we know that there's going to be a big charge related to the holiday meltdown we know that their guidance is going to reflect the fact that there could be a lingering impact here in terms of cost, in terms of potentially customers booking away lots of issues that still need to be sorted out there so for investors, this is a case where you have specific issues with southwest, put them with southwest. do not extrapolate those for the rest of the industry >> right, exactly. and delano, what about the stocks >> 100% right. i think if you look at it over a period of time, all the airline stocks, especially, american airlines performing pretty well. now, of course, southwest has had a little bit of trouble. i do agree that that's specific to southwest and if you look at them over a long period of time, that stock has performed really well so the big thing i'm focusing on

when it comes to the airlines is if that business travel returns the same way that leisure travel has returned there's still some upside. overall, i think a lot of american airlines has been baked into the price but that's just want to have exposure to this area that still has some upside that relates to 2019 these are two stocks and two areas that are performing rather well that you'll potentially be in >> and let's quick in a sneaky one about tesla. do you want any exposure into earnings here or will you wait this one out >> this is what i've been holding on to and have been kind of crushed in the last couple of years. so, so i've released all my holdings in tesla and i think i'll be holding the rest for now. got to see how deliveries are. obviously, a lot of things going on legality wise with tesla. i still think it's the best player in the space and something that as the industry grows, it will still perform well but it's going to be a volatile

ride, for sure >> phil, last word >> watch the gross auto margins. that's the stat that everybody will be watching if it's just one stat you're looking for, watch that one. what's the consensus >> 22.6% it was 28. -- i'm sorry, 26.4% 26.8% is where it was in the third quarter. it was about 2 to 3% higher last year if it's relatively close to 26.2, i don't think you're going to see much of an impact on the stock. >> i totally agree that is the metric of all metrics to keep an eye on tonight. guys, thank you very much. we appreciate it phil lebeau. phil will join us tomorrow with an exclusive interview with the alaska air ceo, by the way talk about their earnings and what's going on with the airlines don't miss it. still ahead here, the january effect is in full effect this year the small caps are posting big gains and we'lte y wt tch next after this. we all have a purpose in life - a “why.” maybe it's perfecting that special place that you want to keep in the family...

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when you stay at a vrbo you always get the whole home not part of it but the whole upstairs the whole downstairs the whole fridge and the whole secret nap room because is it really a vacation home if you have to share a house with a host? ♪ only with vrbo welcome back, everybody. the so-called january effect is in full swing, as small caps outperform the s&p i didn't know that was the january effect dom chu is here with a look with some of those small-cap standoffs. >> to be fair, kelly, there's a number of different things that people associate with this january effect, but we'll go

with that one for right now. what we'll talk about, kelly, is the outperformance so far in the first two and a half weeks or so of this year as kelly points out, those small cap stocks are outperforming both the midcaps and the s&p 500 large caps by a decent amount. 100 basis points in two weeks is a pretty decent gap if terms of performance. the reason why, one of them is because of the way things are setting up for these small-cap stocks because the winnings that we have in many of these small caps, the russell 2000 in particular tilt a little bit more towards health care that's been an outperforms versus technology. with the russell 2000 make up 17% and an industrial 16%. these sectors are half of that index. remember, 25 to 26% of that in technology is in the s&p 500 you mentioned those biotech stocks te kelly, take a look at this performance. the market cap weighted which assigns more weight to the market cap, bioshare etf is up

3.5% here. the white line is the equal-weighted biotech spider, which is now outperforming right now, indicating that some of those smaller cap biotech names, kelly, are the ones that are outperforming right now. and that's the reason why it's so important >> is this, you know, just a little bit of a halo effect, a fund flows effect. where else might we see it show up >> there's been some sentiment shift over the past of the last three to six months. a lot more focus on biotech, especially the large side of things, but certainly on the small. and we've got that kind of halo effect but what's curious some of the bigger performers that you know of in the russell 2000 are ail brand consumer-oriented names that you might have heard of take a look at these if you look at basically names like bloomin brands, dave and busters, even crocs, those stocks are bigger weightings than the russell 2000. they're consumer oriented and they've been outperforming if you take a look at the overall picture, interesting, that doesn't really spin that recessionary consumer slowdown

narrative if the small-cap consumer names are doing pretty well >> it's a very murky sort of environment right now. when steve kovach says xbox sales or revenue is down 12% year on year on the holiday quarter, that tells you about the consumer on the one hand then you talk about dave and bu buster's crocs, that gives you a different feeling. >> the reason why a lot of folks can't figure out what it's all about right now is because typically, if you talk about a rising rate environment, inflationary environment, you would think that those smaller companies, micro-type companies would underperform they're more reliant on debt markets. they have to borrow more rates rise the economy slows down but that's not playing out in the first couple of weeks of the year it just lends more of that cloudiness to the market narrative, which is the reason why so many folks are still trying to figure out what the positioning should be. >> watch and wait, shall we say. dom, thanks. still ahead, the etf climbing more than 23% since early october.

and with president biden announcing today that the u.s. is reversing its stance on sending tanks to ukraine, one investor says there's still room to run where he's buying it next on "the exchange. [music playing] ♪ imagine something of your very own. ♪ ♪ something you can have and hold. ♪ ♪ i'd build a road in gold just to have some dreaming, ♪ ♪ dreaming is free. ♪ accenture, let there be change.

welcome back the defense etf down -- well, everything that was down is up now. it's up a quarter percent. it is on pace for a second straight negative month. defense dominated the headlines recently both the u.s. and germany

reversed their positions, agreeing to send dozens of tanks to ukraine russia calling it provocation and announcing it connected hypersonic missile tests in the atlantic ocean as home, as the debt ceiling debate rolls on, republicans are considering budget cuts that could include defense spending the ita coming off a 37% gain in '22. lockheed margin reported a big order. welc welcome in mark, and we have dominic chu back you were bullish on defense, and soon after, we had the kevin mccarthy fight has that diminished your bullishness at all >> not really. we saw a pause in the sector, and that is to be expected but with the democrats so behind ukraine and republicans, the vast majority of republicans supporting defense, our view on government spending for defense isn't going to be skewed by a

minority in the republican party. it's also -- our view is also bolstered by the unfortunate headlines we see the export of drones to russia from its allies is creating a demand for the air missile defenses that our large defense contractors make, the ones that dominate the ita. >> dom, what would you add >> i would say this. the issue for many of these defense contractors, especially the so-called primes, the ones who do most of the work for the u.s. government, people like lockheed martin or boeing or general dynamics which makes the m-1 tank, is issue becomes how much mass or how many orders do you need for it to move the needle and really be that huge hai tailwind benefit the last 12 months, we've seen a massive surge in many of the defense stocks tied to this optimism optimism is a weird word

brighter spending. if things were to escalate, come to fruition, you might start to see a bipartisan agreement to say, hey, maybe we need to spend more on defense going forward. could be something to watch, as well. >> that, mark, was your point. the ukraine issue got democrats around to the idea of increasing defense spending, which they'd been more reluctant tradition traditionally to do. as we have a risk on january, while the data gets worse, we're talking about debt celling and, you know, escalation overseas, how would you be positioned more broadly? >> well, that's one reason why we like the feds unfortunately, global risks are one of the biggest outlier macro risks, and it is one way we protect the other parts of our portfolio, which are under pressure look, we saw a real weak computer consumer number out of microsoft, and that tells you,

that's a harbinger of a weaker consumer at the result of the fed and their action so that's why we want to be broadly diversified here i don't think you exit tech just because of the microsoft report today. we are concerned a little bit about the justice department on alphabet generally speaking, in a slower growth world, we want to own growth stocks because that's where top line growth would be we would pair it with other sectors that might do well in a volatile environment. >> it's amazing to hear that, that refrain come back own growth in a growth-scarce world. that was the refrain in the 2010s. people have been betting the opposite because of inflation. this would be a different story. i want to call attention to the turnarounds we've had today. mentioned alphabet it is the worst performer mega-cap tech. microsoft is on verge of turning positive capital one showing some springiness there, as well. >> absolutely sure reversals are interesting because, first of all, it is an intra-day. it is hard to extrap lolate

whether it'll be a trend it gives an idea that there is still, in some shady mcorners of the market, a dip mentality. if there are blue chip names out there, either i cover my shorts if i'm winning some of the trades, or i outright go long. you know what? it's come down far enough. i'm not going to go career long and say i'll bet the farm on it, but, hey, maybe i'll step up and buy. what you're seeing intraday, i mean, even tesla's stock, which was kind of down on the day, took a peek at green not sure if it is there now, but it is something you can watch. this is all ahead of an earnings catalyst after the bell. does it tell you there is a maybe path of least resistance right now, intraday for some of the stocks up? again, it looks like it right now. you know, i'll tell you what, kelly. at the end of the 2:00 hour, next hour, i'll go back and take a look and see if i can't find the biggest intraday reversals we'll highlight those in the last part of the show. >> mark, quick last word >> i think what dom is highlighting is, greed

eventually replaces fear the girth trade is alive and well people are afraid to miss out because we've had a roaring start. 9% move in the xlk since january. people are diving in or afraid to miss out. >> grade eventually replaces fear, gerf thank you, mark. dominic chu, thank you, as well. on "power lunch," tech, travel, even telephones being traded i will join tyler on the other side of this quick break n'gonyerdot awhe. wow, we're crunching tons of polygons here! what's going on? where's regina? hi, i'm ladonna. i invest in invesco qqq, a fund that gives me access to the nasdaq-100 innovations, like real time cgi. okay... yeah... oh. don't worry i got it! become an agent of innovation with invesco qqq

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♪ helhello, everyone welcome to "power lunch. stocks sinking as earnings weigh on the markets microsoft dragging down tech boeing weighing on the dow following its report we'll get you ready for tesla's report tonight plus, other big worry spots for markets. well, it is inflation, in