of his relationship with epstein earlier and as a result he is exposed to all of the financial downside of this >> absolutely. >> and i'll say up to $80 million in financial clawbacks. >> thank you so much hugh son, we appreciate it. the dow down 400 points as we hand it over. thanks for watching "power lunch. >> "closing bell" starts right now. >> kelly, thanks so much welcome. i'm scott wapner from post 9 here at the new york stock exchange in the thick of it all. this make or break hour begins with stocks down sharply as we look ahead to the most important event of the week. tomorrow morning's jobs report, only hours left now to trade ahead of that and so much potentially riding on the release. take a look at our score card with 60 minutes to go in regulation the majors as you see are all in the red even as bond yields fall today dig a little deeper, though, in the market and take a look at the russell 2000 that is where the real damage is

today as small caps lead things lower. we're down by more than 2% now 40 points on the russell that takes us to our talk of the tape the banks, especially the smaller regional ones getting smashed again today. the etf that tracks that space sitting at its lowest level in more than two years, and one name in particular, silicon valley bank, the parent company there, there it is, svb financial down near 60% on word it has to raise capital. how concern something that let's ask cameron dawson, chief investment officer of new age wealth regional banks are selling off hard i showed you what the russell is doing, the four biggest banks have lost near $50 billion in market cap what's it mean >> nothing like a forced capital raise to wake the market up to the risk of higher interest rates and tighter liquidity. that's what we're seeing today i think when we look at the russell 2000 we should keep two stats in mind, 45% of the russell 2000 is unprofitable,

and then 40% of the debt that small caps has is floating rate. they're not making money unprofitable and costs are going up as the fed is raising rates that's the stress of higher rates working their way through the system >> it raises the question as to whether what we see with svb and i want to show it again down near 60% is a canary in the coal mine that, you know, had we been looking in the wrong maces for the most acute fallout from what the fed has done we watched the job market. we said, oh, the job market looks strong we, of course, foe what it's done to housing because rates in general have gone up maybe we've been looking in the wrong place. >> i think that's really important to know, and i think the one question is how systemic this will be do we see this cascade into other parts? we do know that svb is particularly exposed to cash burning companies. they fund venture companies early start-up companies so these are the companies that are most at risk when the fed raises

rates and when liquidity gets tight. that's what we're seeing with them there's also another dynamic we're seeing, deposits leave the banking system they're going after higher treasury yields, so that's what we hear from key corp. that's why the other banks are participating in the sell-off, because deposits are finding higher yields. >> they're finding higher yields what you don't want to do if you're a bigger bank is have to raise the interest rates on your depositors because obviously the spread, the net interest margin which we talk when all the time, it's like the bread and butter for the banking centers, that gets hit and thus that becomes an issue in and of itself. >> add on top of that the fact that loan growth is starting to slow down. if we look at last year and the h-8 data, loans were still growing at over 10%. 10%, 12%, but in january they slowed to 4% overall and 4% for commercial industrial. that shows you that pinch from higher rates >> let me read you what btig's jonathan krinski said regarding

this issue and what it may mean to the broader market. we would argue banks and semis are two groups that historically have been very good leading indicators typically markets can do okay if either are languishing but when one is having an outsized move, it's usually wise to listen. in this case, the outsized move is clearly banks to the downside as we wonder where we are and where we're going in the midst of a 12 or so day stretch super critical from powell to the jobs report tomorrow to cpi and ppi and retail sales, all of it culminating with the fed meeting on the 22nd. >> as you point out semis are strong the rest of the cyclicals are strong industrials, how well they are trading and the yield curve is deeply inverted and so there's mixed messages but i think that the message from the bank shouldn't be ignored the message from small caps shouldn't be ignored those are the leading indicators

of what you're starting to see financial stresses emerge. >> so steve liesman is with us, as well. we asked him to tell us what he thinks the fed might be thinking about all of this. i would love your answer to that question this seems to be part of the direct fallout of what they've done over the past year. >> no doubt. it's wise, scott, the fed prefers to move more carefully, and if you ever want to know why, people say the fed shouldn't telegraph it it does so generally in order to give banks and other players in the markets time to adjust of course, we've just gone through one of the most aggressive rate hike cycles in the generation or two, i guess you might say, and so the result is that some of these assets on the books of the banks are having very large losses in them, but what we don't know, scott, is the extent to which, a, the fed knows about this already. you would hope in this

post-dodd-frank world in scrutiny that the fed knows about this, that this is partially taken care of and gamed out, scott, in some of the stress testing they're doing and you also hope, scott, what we're seeing here is a trade that goes onto the large banks that is more -- what's the right word -- you know, the shoot first ask questions later, whereas, most officials at least say the banking system is well capitalized and some of the banks we've been talking about, one was a crypto bank or related to crypto. this bank sivb is locked up in or really associated with what's going on in silicon valley perhaps they're localized. we'll have to wait and see they'll have losses on their books for sure. >> on that note, i'm glad you leave it there, because the information is reporting in an exclusive report that they have

that the ceo of silicon valley bank is telling vc clients to quote, unquote stay calm and saying that they have, quote, ample liquidity to support their clients. you know, i just wonder, steve, as you hear a ceo, these often become these words that we remember in times like these, you know, and i just wonder whether the whole time we've been looking kind of in the wrong place as i mentioned with cameron, for the real fallout from what's happened due to this regime that the fed has been on. >> you know, scott, that is both clever contemporaneously and historically because it always leads back to the banks. you remember those spvs we thought were remote to the banks ended up not being remote to the banks? there's always issues there. the banks always get hit somehow, some way. the test is in this

post-dodd-frank regime of greater mandated liquidity if they have the buffers to take this the old saying was, a bank president has to say he's liquid isn't. usually it's too late by then but we'll see. if they have the liquidity, part of my understanding of what happened at silicon is they had a lot of venture clients who have been withdrawing their deposits now, that's part of a broader issue where the banks are going to have to pay up in terms of a higher deposit rate but this bank apparently had a withdrawal of liquidity of deposits from their clients that are specifically in the silicon valley area related to the pain that's going on there. if it is not more broad-based i think we'll be okay and perhaps this is a little more of a hysterical follow-on to the larger banks >> stay with me. i want to bring in richard fisher, former dallas fed president, cnbc contributor. good to see you today, as well >> sure. >> mr. fisher, i'm curious as to

what your take is on the store we're talking about as somebody who used to sit in that room >> well, first of all, if you look at silver gate or what we were talking about, silicon valley bank, these are heavily venture or speculative-based customers and lendees who they're lending to and we've been saying for a long time, steve has been saying, as well, these are firms that were made possible by having free money, zero cost, zero interest rates and very accommodative regime that went on for far too long as you heard me say, so i'm not surprised here you also mentioned that the fed and other people keep talking about the big banks are in good shape. there's not a credit crisis, but, scott, to me this is just a

fallout from having hooked people on free money for too long and now that we're going back to actually discounting the present value of future profits, cash flows, et cetera, against a much higher rate in a 5% world, short end of the yield curve or 4% world or if you're in real estate and it's at 10%, so i'm not surprised by any of this and the question is, does it rattle the system the fed will exercise a put if there's a credit crisis and what they're saying right now they don't see it we'll have to see if these are little trip wires leading us in that direction. >> because to your point, you know, when you overserve someone, there's the difference between a hangover and alcohol poisoning and we don't know really what the fallout here is, whether this is a canary in the coal mine. do you -- liesman, steve liesman

who is with us raised the question of presumably because of the way that the rules have changed that the fed would know theoretically what lies beneath, so to speak. how would you address that >> i think steve is correct. they're not living in an ignorant world they're testing constantly well aware that federal reserve banks in the districts are reporting back to them on what's going on, so i don't think there's a big surprise here. my favorite quote, by the way, when we -- ben bernanke made of mistake of blurting out 2013 what became the tape tantrum, the biggest bourbon drinker in america called bernanke and said you don't go from while turkey to cold turkey overnight and this is, i think -- i knew steve would love that one but still here's the point the fed has been very deliberate here, it's not an overnight

adjustment it's been a fierce adjustment and in my mind it's correcting for painfully excessive accommodation for far too long >> but, so you're leading to the idea that -- >> hey, scott. >> hang on, steve. you're leading to the idea that -- you speak of the pace. because of that pace, that it's inevitable that something is going to break how could it not >> absolutely. >> somehow all roads lead to the banks. >> and eventually lead to the fed. now, i do think because of this we're not going to see -- my guess is the odds of a 50% hike at the next meeting is very, very low we'll see a series of tie traces, 25 basis points going forward until we slay the inflation dragon signaling everything very openly up front. and asking whether they're banks or investors or anybody else,

for them to adjust to the new world. money won't be free anymore. we live in a 5% plus world get used to it. >> steve, and, steve liesman, this ideaof what we got this week which roiled the markets, higher, faster, and for longer idea, it all plays into the story we're talking about here >> yeah, and i have to comment, i think richard is making an interesting point here which is whether or not fears of systemic risk keep the fed to a 25 and getting back to where i first started, that's one of the reasons the fed prefers to move at 25 basis points is to give the bank some leeway to make the changes and i will say today, scott, the odds of a 50 basis rate hike have come down, 68%, now at 56% if i could i want to ask rich a question richard, there is an ace in the hole for the banks

that is massive amounts of interest paid on reserves. to what extent does the decrease in the value of the portfolio of the bond portfolio they have, is that offset by the payment of interest on reserves >> to a limited extent now, we've heard members of congress now start complaining that they're being paid interest on reserves. guess what, that was an act of congress that forced the fed to do so in the beginning so, yes, it's a mitigating factor and helpful but doesn't complete the job >> these are the last moments to get ahead of a release of the jobs report which many see as binary richard fisher, you heard him say i don't hi they'll go 50 but tomorrow could lean the fed in one direction or the other. >> well, it could be that news like this today with these bank issues mean we go from a world

where bad news is good news to now bad news is actually bad news, meaning that that bad news of tight policy, tight liquidity and a weaker environment just points to more pressure down on earnings that could possibly cascade through the year. >> richard, before i let you go, a quick comment from you and a simple answer to this question, has the fed done too much now at this point should they just stop? should they just stop? >> i don't think so, because we still have inflationary pressure it's been mitigated somewhat the employment numbers are still strong, although again it is easing off a bit and you just can't run the risk here of stopping and letting inflation stay at a very high plateau or even increase without looking like you're the arthur burns again, so if anything, they'll

err and go too far but the last thing they want to do is fail on the inflation front because we are the central bank, the most important one in the world and can't abandon getting back to 2% >> richard >> have a nice day. >> that's richard fisher, the former dallas fed president. steve will stick around. cameron is staying with us let's bring in stephanie link of hightower advisers what's your take on what's happening today? we haven't talked about small caps, you know, nearly enough probably relative to other areas of the market. but that seems to be the most acute point of pain certainly over the last couple of days >> well, it's also been an outperformer up until the last couple of days, right? it trades along with value and cyclicals, and those sectors have done pretty well this year and actually all of last year, right?

this is a giveback because there's a lot of nervousness for sure, right? powell comments this week, very hawkish. data dependent but maybe less willing to wait and see, right, in terms of we'll go and we got to go more i don't know if it's 50 or 25. it probably is 75 more basis points of tightening and the market is nervous about that because we don't know what the outcome is going to be and they're focused on as richard just said, they're focused on inflation and it is still high but it is coming down from the peak, so we have to watch that but the fed can go this aggressively because the job market is so healthy now, i will say tomorrow, yes, is important, but it's one number, scott. i'm keeping an eye on initial claims, which are starting to inch higher. i did not like that challenger gray number which if you add off the layoffs from january and february, it's the worst number since 2009, so, you know, you're starting to see cracks and the silicon valley bank, this is

absolutely a catalyst to have the market sell off. i mean, the fact that the company backed half of the u.s. venture capital in technology and life sciences, i mean, that is so incredibly speculative and the fact that the company is just now figuring out higher rates will hurt their business, this deserves to be down even more in my opinion, and i do not think the large six banks are in anywhere near this kind of shape. they're very much diversified into wealth management, asset management, capital markets, trading, yes, we know net interest income is a big part of their books, however, numbers are coming down for net ii after the last quarter and everybody lowed their nii numbers for the entire year because we saw what was happening. deposit banks are going higher that's actually a pressure point. >> i understand. but why are we fixated on the large banks where -- when it's the smaller ones where, you know, maybe some of the more

important issues lie you just said and this goes to the heart of our conversation, the fed can continue to go because the job market is so strong well, as i asked at the outset, maybe we're looking in the wrong place and that's not the decider of whether the fed is breaking anything it's what we're talking about today. it's below the surface that the cracks start. >> right okay, well, the cracks can start at some of these speculative banks that are involved in crypto that should be no surprise silicon valley bank, even though this is very disappointing and it's kind of like where is management and what are they even thinking kind of a thing, they do have a p/e backer and are raising capital. they are reorganizing. >> look at these losses, though. i'm sorry to interrupt but look at the losses in the other part of the regional bank complex, four, five, 6%, 7% declines.

surely silicon valley bank isn't the only one sitting on unrealized losses that may be at some point forced to take those losses, if not raise capital and isn't that a concerning point to you? >> well, of course, this whole thing is a concerning point to me, for sure but my whole point is, the big six banks are the biggest ones, right, and they actually are overcapitalized right now. they have had years and years of regulators on top of them making sure that they raise enough capital and, by the way, the 22 other banks, largest banks in the country had to do the same thing, so the capital levels are better, and i do think that silicon valley was one of the most risky i don't want to talk about the crypto exposed banks i don't. they don't mean anything they're so small but silicon was one of the bigger names of the bigger companies and were much

more exposed it's not that i'm not troubled by it. i don't think it's a contagion at this point in time because, again, you have these other banks, the biggest banks in the world that are so overcapitalized. i don't think this is a great financial crisis kind of a situation. i want to say this is a one or two-off kind of thing. does that mean the banks will be good investments for the near term, probably not everyone is going to be nervous but i will bet you anything when the companies report earnings people will feel better about the underlying situation by the way, the big six, they have very little mortgage exposure too something that they have changed over the last many, many years. >> and let's be clear, and, by the way, let me point out the market we're bleeding a little bit as we head towards the stretch here we got about 40 minutes to go, dow down 561 -- 5.63 the nasdaq down better than 2% russell 2000, let's show that as well on a day where bond yields are backing off, the russell has

been all day where the action is, 2 2/3% decline there and by the way, nobody -- i'm certainly not insinuating that this is the beginning stages of a financial crisis by any stretch. it's merely the obvious fallout from what the fed has done, and there are going to be impacts that are not thought about until they actually start to develop and maybe these are the early stages, steve liesman, of, in fact, that very moment but you heard steph herself say, fed can do more, job market is fine until something breaks >> yeah, let me -- i want to pick up on some of the things stephanie said because there's a lot of wisdom in that, and i want to detail something here, which is that the six biggest banks and the 20 or so next biggest banks all have extra capital liquidity in part because they're too big to fail and so they have to have extra

liquidity. going beyond that number of those top tier banks that are considered too big to fail, banks are not too big to fail and i'm not saying silicon valley bank is going to fail or anything like that, but they make business decisions, and they get caught making the wrong decisions and some banks are going to get hurt and some are not going to get hurt, especially a bank that has a concentration in an industry that has been hurt by the recent rise in interest rates, especially hard. so, i know it feels like it could be systemic, but there's this distinction, scott, between these lower tier or smaller banks and these higher tier banks that have this extra liquidity added on by mandate by regulation by law that have required them to have that that doesn't mean they're perfectly safe, but they're ostensibly safer and below that you'll have some ups and downs in some of those businesses.

on the issue you asked richard earlier, will the fed stop i will tell you systemic risk, if confirmed by the fed, will cause them to stop that would be the thing. i just don't think we're near that point anyway. >> maybe this ends up much to do about nothing and we, frankly, just don't know. it's worthy of keeping an eye on as we just were flashing some boards of stocks that are really moving hard because we're having this conversation about silicon valley, it's the western-based regional banks where you're seeing really some of the destruction today for certain. this idea, cameron, what's the fed going to do? will they stop that's certainly not how they've been talking, nor is it how some bright market mights are thinking blackrock's rick reeder is a member of the 6% club. he's a club member we think there is a reasonable chance the fed will have to bring the fed funds rate to 6% keep it there for an extended period to slow the economy and get inflation down

we mentioned greg france told you watching this program and have over the past few days, he told you, greg branch did the other day, 6 and 6 1/2%. maybe on the high side who knows. that's being talked about. >> if we start to see continuing themes in the initial claims start to pick up, those calls for 6% will start to back off. and it's important to note that a lot of the layoffs that have already been announced don't actually kick in until the second quarter so we'll have a better judge of what's going on within the labor market as we move through the rest of the first half of this year i think the other thing to watch really closely is bankruptcies, so bankruptcies we've had 39 filings year to date that's the highest since 2009. that's still somewhat okay but if that continues to kick up, that could point to more broader financial stress and i think to richard's point we don't know if this is systemic create so can't make that judgment but watch those bankruptcies to tell. >> steve, when i bring up, you know, 6%, the 6% club and the

number of people who are applying for memberships continues to grow by the day, are they over their skis do you think that's a legitimate possibility at this point? >> no, i mean, i think they're not. i think if -- do you remember we had a discussion, scott, where some members of your panel, that was the noon 3578, not as good as this panel here obviously, but they say it was irresponsible of bullard to talk about a 7% funds rate with his model that showed between 5 and 7 and i argued at the time it was irresponsible for any investor around the table not to be investing with some possibility built in of a 6 or 7% funds rate, so i think it's possible, but, scott, the reason i was looking down when you asked me the question, i want you guys to put up the two-year, which is actually falling while we've been talking here while the market has been coming down over this period of time here, we've now erased, scott, the almost -- if you could go back

to tuesday at 10:00 a.m., we pretty much round tripped the rise in the two-year yield since before powell started talking. i had it down at 15 or 19. maybe it's still up five basis points or so but you've now gotten rid of that and a quick look while we're talking about the probability that is still around 54% for the 50 basis point hike in march so all that is coming down and, you're right, we're having the bond rally at the same time so there might be oddly something of a night to safety, which is interesting, because one of the fallouts of these banks holding these securities would be they would have to sell them. >> you're somewhat clairvoyant because i was going to mention what jeffrey gundlach. he was saying the two-year yield chart looks like the top is not in place long rates remain in a

multi-month range. again, it's this idea that the fed is going to go higher and maybe faster and stay there longer, steve, than some had anticipated, though as we bring in these new risks to the story, you get the reaction in the bond market that you're noting as we're having this conversation >> yeah. for sure it was remarkable how much the bond market has really sold off in the past month or two if you have the january 24th fed funds contract, go back to february 1, i think it's fff 24, i believe, is the code and you go back there, you'll see 100 basis point rise in that outlook for the funds rate by the year end. never seen anything like that, scott. it's come a long, long way and the result of that is ultimately that the whole shift both earlier and longer has been out there for the fed funds over the next year or so. >> yeah, and, cameron, i'm

looking at a note from chris ferrone who is thinking about the fallout from all this. we're showing you that on the screen right here, dow down more than 500 he ays, we talk about the curve, inverted yield curve, look at the red on your screen as the s&p slides by 73, near 2%, barely anything hanging on in the green and says the curve at 110 remains a constant focus on our screens, it's not just u.s. with an inverted curve, though, we count at least 11 developed economies with similar circumstances, we're paying closer attention to credit, the high yield etf if you're playing wherever you are stuck below its 200-day average and acting softer than equities put it on your radar what do you think? >> here's the catch. the resteepening of the curve is really when the risk starts to hit. the thing to remember is bull steepeners are not your friend when it's seeing the yields fall, two-year is rallying,

that's the indication of economic stress and so it's usually when we see the resteepening, that's when the worst kind of performance for risk assets happen and it's important to remember, we've never seen risk assets bottom before that resteepening has started to begin. >> it goes hand and hand with we've never seen risk assets bottom while the fed is still embarked on a tightening regime, right? >> yep and we have seen rallies when the curve has been inverted. that's actually really common. you can see big rallies even while the curve is inverted but watch that resteepening. if you see that two-year actually top and move very sharply to the downside, that is the bond market pricing in a recession. pricing in acute economic weakness. >> everybody, stay where you are. that means you watching and you talking, all of you talking, stay right there too let me get the twitter question of the day in because we want interaction with you as well our viewers. we want to know how will markets react to the jobs report

tomorrow a rally or a sell-off? head to @cnbcclosingbell on twitter. we'll share the results later in the hour 30 minutes to go as we watch the market sell off. there are a lot of moves to keep an eye on. chri kristina partsinevelos is doing that for us. >> a double downgrade for etsy by jefferies underperforming and new price target of $85. this is a huge drop from the original, $150 price target they had. look at the stock now at 107, down over 5% at the moment that's why the online parkeplace, you're seeing shares fall etsy needs to spend more time on marketing as the loss of customers increases. the stock right now is heading for its worst week since october and now and oil blocking it below its 200-day moving average. lastly, bj's wholesale is outperforming after a big beat on earnings and beat estimates

and higher renewal rates for members, all that despite also noting that there's significant improvement and we're going to show you the stock when the earnings came out jumped up 3% despite the selloff and you will of this despite uncertainty about the macro environment but there you have it, one down and one positive for today despite the sea of red. >> all right, i have a feeling we'll see you again before we leave. thank you very much. you know about the sell-off by now it is accelerating a bit as we head towards the close, all of that ahead of that critical jobs report coming tomorrow ahead of next week's key economic data. their cpi and ppi. retail sales let's bring in dubravko lakos. i'm curious on your thoughts >> one thing i'll say when you have such a sharp increase in cost of capital, the unknown of unknowns, the risk of unknown -- the risk of unknown and unknowns

is the highest gfc what you're seeing with regional banks and seeing on the crypto side, that's just one of the potential, you know, identify effects in one of the casualties that we're basically seeing. we don't know what we're in for. bottom line to me, what's happening today is not entirely surprising because we're in a restrictive environment so that's the tricky part and valuation by itself on the equity side is far from attractive it's unattractive. >> do you worry that these -- what may be to some one-offs, i mentioned silicon valley bank, the stock of the moment that we're watching so critically today. do you worry these are canary in the coal mine moments? >> yes, i do worry yes, i do, and i think it's not just regionals but you have the commercial real estate and leverage loan world very much floating so -- you're starting to see delinquencies in certain parts like subprime auto,

multilone purpose so definitely seeing signs pointing in the wrong direction and so if inflation and interest rates and cost of capital don't come down and right now the trajectory seems to suggest they won't, it's -- things are getting uglier >> i mean, you were already writing about this heading into this interview long before we were witnessing what we are within the small cap complex, the effect that the rising cost of capital is going to ultimately have on corporate earnings and the cracks in the corporates that are showing up at this point to you >> yes, you do look, many people initially focus on s&p and large caps where balance sheets are in decent shape for the most part 90% of that is fixed but to your point the issue as you move down, small and midcap looking at 30, 45% of outstanding debt being floating and that's when you start to see sensitivities really pick up if rates and if cost of capital stays elevated, that is. that's one area we should pay

close attention to on the back of this recent release, a lot of small "company"s has been talking about interest expense burden rising and pressuring their margins, right i don't think that's getting enough attention >> how defensive do you think people should be right now in their portfolios >> i think you got to be defensive. i think you have to be -- jem have a preference for high quality versus low quality year to date there's been a sort of big run-up and squeez junk, unprofitable high beta complex is the area you have to be careful of. so i'd be leaning towards high quality, good balance sheet, profitable businesses, businesses that can withstand these kind of shocks and elevated cost of capital and anything that's sort of higher paid or borderline unprofitable, i would be cautious. >> see, stephanie link, it brings me back to you on this notion of what to be in and what to get out of. the idea of whether, you know, steph, some have suggested you should be buying on the

weakness, others saying, no, take the opportunity and sell on war strength you have. you sold oxy a day or two ago. there's another name i can't recall that was in that same conversation, and now i find out that you're selling cliffs as well after a big gain. >> yeah. >> you seem to be talking a more positive game in the market than maybe your moves are reflecting. i feel like you're looking to get out rather than get in >> well, no, i mean -- every time i sell something i do try to buy something but i want to be patient given we have so many unknowns the other name i sold last week was dr horton because i was up 30% from when i bought it last year i can't imagine that these stocks, i don't i there's a disaster happening in housing. i think we're seeing a massive decline but not a disaster i think that we've had underproduction for 13 years so this is a cyclical downturn and

a result of higher rates short term these stocks are not going to outperform so when i look at cliffs, up 30% in like two months' time, i think it's very prudent and i'll tell you one area i'm worried about is auto because i know about auto loans and how they have been drifting higher but i'm more worried about we had supply deficits for the last several years because we had scompli constraint issues now supply chains are getting fixed and you'll have a glut of auto at a time when interest rates are very high so i just think the auto industry might struggle a bit so i don't want they housing exposure and no auto exposure. what do i want, stocks that have been clobbered in terms of end market exposure and people -- where there are secular doubts, like i believe in industrials because i think onshoring and restoring is a big theme so that's one area i like a lot you know i have a big position in boeing and i look consumer

stocks and i like china re-opening that is a cyclical story in terms of re-opening versus secular but i think there's opportunities there so i want to have a little cash we talked about this the other day. i want a little cash so into this downturn i can actually add to those kinds of companies, but i agree with the high quality blue chip free cash flow companies, number one and number two in the market share that get hit with everything else, those are the names that i want onto own. >> dubravko, steph lays out what she considers to be higher quality. what is it to you? what are those places to look. >> i'll flag two sectors health care. i think health care is one that i know last year did very well but more recently it's had a pretty decent, you know, pullback one of the weakest performing sectors year to date and has a lot of defensive qualities and more attractive valuation and so health care i would have a relative overweight on utilities is another sector that i think has gotten hit hard on

account of rates moving higher and possesses a lot of defensive charac charac characteristics. >> do you feel as a result of some risks that you've highlighted for us that rates will start moving lower again, and that's going to provide opportunities within the more defensive places like utilities and some of the other so-called bond proxies >> look, scott, i think it's a very, very tough call here i think we're seeing this inversion before i came on you talked about, ithink on the front end we need to see what the fed does, tomorrow's job numbers is important if that comes in hotter, i think the front end may need to go up higher just as people start to price in an even pore aggressive fed. the back end is tricky if we start pricing in a recession, the back end doesn't necessarily have to go up. you basically could start to see an even bigger inversion in the curve. >> steve liesman, does a cool jobs report tomorrow save the day, so to speak does that just ease the pressure on everything because the fed

can sit there and take a breath and not have to tell us higher, faster, for longer, et cetera? >> it definitely would ease the pressure the trouble, scott, everything i'm reading, i must have read a half a dozen forecast, everybody is on the strong side. how everybody is above average it's not supposed to happen that way but we're looking at 200, 225 so it could take the pressure off, but i think the problem is that if you take the banks and the discussion we've been having out of the equation, i think a number at or above consensus would be one that would definitely lean the fed toward a 50 basis point rate hike. >> these moves and the big banks, i know we focused so heavily on the smaller banks within the russell 2000, which is down 2 2/3% but jpmorgan down 5 1/2% just about there.

i'm looking at goldman sachs, not down nearly as much its business different bank of america, down 6% i see mike may quo by the way waiting in the wings too so happy heary here and he'll join the conversation momentarily too but you got to pay attention to what is happening with the bigger banks. >> definitely. i think the question now is being raised mr. the profitability interest that net interest side of things but getting back to valuation territory where things start to look a little more attractive. trading closer now to book value because of these sharp moves so i think the push/pull between earnings and virginia valuation. >> i'm looking at the s&p. we had made so much of it when cameron it was below its 200-day moving average and one sign that we hung on at that moment, you know, bounced. it was able to bounce and it had stayed there it's at 3918 now so, you know, we're back at technical levels doing more technical damage within the market and i know you watch that

too. >> i think we've seen this deterioration in breadth so hook at the perjury of names trading above their 52-day moving average, for example, that is much lower than it was back at the december lows. so even though we're still above those december low, a lot of stocks are starting to trade with weaker trends that's a little flashing yellow sign on the technical side the fact we're breaking through important levels should get investors' attention to retest in december is certainly likely at this point. >> you watching these levels as closely as we are? >> i try to as close as possible look -- >> go ahead. >> i was going to add one more thing. the discussion is very focused on the u.s., but, for instance, we're not talking about japan and what's happening with boj and ycc. that's potential big negative liquidity event and so i'm just flagging another risk i think is being underappreciated in the broader context.

>> no, and i appreciate you doing that and i really appreciate you being here we're going to leave it there for the moment dubravko, thank you, stephanie, we'll see you and we have business to take care before we close it up in a little more than 15, 17 minutes or so. let's get back to kristina partsinevelos for a look at the key stocks we need to watch. >> we're seeing lots of big moves in the chinese tech and internet space starting with jd.com shares down 11.5%. they posted an earnings beat but executives noted full recovery for the consumer will take tieng. that's why it's heading for its worst day since october. also concerns about how its price war with pdd holdings could impact it. it's down 7% the second worst performer on the nasdaq 100 after jd.com. both of those stocks have been under pressure as they ramp up efforts to compete with one another. and those concerns over

tightening competition and a slow recovery in china are weighing on the entire chinese internet sector. the kweb, it's down 5.3% firmly negative territory and today's move sent it below its 200-day moving average just barely you can see on the right side over here and this is the first time since november that's happened scott. >> all right kristina, thank you very much for that. let's get to the results of our twitter question we asked how do you think markets are going to react to that jobs report tomorrow? the majority of you saying, sell off. near 59% maybe pushed a bit by the action in the market today but we shall see. now in the market zone the closing bell market zone mike santoli here to break down these crucial moments. wells fargo and mike may yore is here of what we're seeing in the banks big and small and stephanie link is still with us. mr. santoli, you first lots to consider today.

>> plenty. you know, the most bullish people were the ones looking at the market action itself and leadership profile and breadth and small caps and the credit markets not being disturbed and that's progressively fallen away it's a little soon for a retest of last week's low we went below last week's low just a couple of minutes ago really so it obviously reinforces the idea of a messy range, at the top end nothing can go wrong and now we have things going wrong so banks being as kind of indiscriminately attacked is unnerving always if any group is going to come under that kind of pressure, still, you know, we are kind of where we are above 3900 and i think there's a chance that tomorrow -- the fact that we have this jobs number coming tomorrow is causing people to sit back more and be a little more apprehensive about betting the support will hole. it could be spring loaded if we do get that cool jobs number tomorrow. >> you talk about, you know, the

fear of things going wrong the question is, you know, you can deal with a couple of things going wrong. >> right. >> you can't deal with, you know, a handful or two handfuls of things going wrong, especially in the place where you said the banks. >> i also think there's this real indecision about what to be more afraid of, because we came into the week and it was all about overheating economy, high pressure growth, fed is going to have to do a lot more to shut it down and now it's much more about commercial real estate looks like it has cracks we obviously have some of the banks kind of bracing for something more on the credit side obviously it's localized at this point but it's out there that's why i do think it's caused people to say, i have the backstop of higher yielding, cash-like instruments and can wade in for awhile even though i think people are congratulating themselves far too much for hiding in 5% short-term treasuries in a 5% inflationed economy with you're getting that

pretax if you cracked the code it's cash. it's savings, it's not going to lose money but it's also not necessarily going to take you forward. >> look at that move in the kre, regional bank etf. down 8%. kbe, 7% but, mike mayo is sitting here too so glad you're here on a day like this. thank you for making the trek over here. what should we pay closest attention to >> well, look, tail risk happens and remain elevated and there's a warning today with the incident at silicon valley that the biggest risks are outside of the largest banks. the largest banks have been regulated and regulated and over and over again we have an annual fed stress test that i estimate is the equivalent of the last three recessions combined. so the key word here for the largest banks is resiliency, resiliency of the balance sheet, resiliency of the business model

and resiliency of funding even if that resiliency isn't quite as strong as i thought with interest rates at 3% interest rates at 5%, you know, the title of our note today, bank stocks have gotten powell'd the fed going up so much warning number one is beware of financial firms outside of the largest banks and warning number two, this economy is a little bit like a souffle you get your ingredients, you cook it and then you put it into the oven but if you look at it or open the oven too often it can collapse so going from zero to 5% interest rates in a period that's faster than any time in four decades you're going to have casualties but it's more likely than not to be outside of the largest banks, the largest banks are a pillar of strength everybody is getting painted with the same brush. it looks sloppy. the time -- aisle not saying this is the bottom but this is that sort of seminal event, the silicon valley day closer to the bottom than the top. >> unless it's simply a warning

sign of what is still to come within the smaller banks how concerned are you about those sized banks? forget about silicon valley specifically but you see the losses spreading throughout that space. if you take the biggest banks out of the equation and your point is well made but how concerned would you be today about the regional banks, the smaller ones >> they're not important so all the regulation that's taken place since the global financial crisis and, scott, as you know i was the first to be on that and say sell, i'm closer to saying, buy, a small buy for the next six weeks because we're in an air pocket before earnings and round tripped bank of america and still at $30 but over the next year you're going to see the banks show resiliency through the recession. you're showing -- i think you'll see faster growth in revenues than expenses and banks, the big

banks are there. so it's a little sloppy, the trading today. and it's indiscriminate and partly irrational and that's what gets me excited you say this is the time i should think about what i should be adding to, not selling? >> what do you make of that, mike >> i think -- i see a lot of the same things. bank of america trading back to -- >> book value. >> book value, as i said earlier. also in the last -- i was just looking at this. in the last couple of hours you haven't seen intraday b of a make new loans and while smaller names have done so that makes sense. it's going to be difficult you can't disprove the notion that, you know, credit risk is going up or that credit costs are going to be rising you have to also view today as if it were just silicon valley bank you could say that's a one-off, an extreme narrow example but on monday key corp

warned about net interest, right? you had powell saying we'll hook at the regional banks will commercial real estate exposure this week. you have -- credit suisse couldn't file its report, right? so none of this means it's all spiraling in the drain what it does mean is there's a psychological what if out there and people are acting on it without necessarily looking specifically at what's priced in, where the risk really is >> when mike says, mike mayo says, well, these are not systemically important institutions, do you have a rebuttal >> no, i think that's absolutely true we have a pretty expansive definition right now in this regulatory structure of what systemically important is. 50 largest bank, vast majority of assets and credit risk, so it wouldn't be pretty if a lot of them fell by the wayside or needed to raise a lot of capital or anything like that, but i think we're still kind of not there. we just don't know if that's really going to be the case. >> and just to remind you,

jpmorgan is 20 times bigger than silicon valley, and to extrapolate what happened to silicon valley to the whole space today is really getting off the rails a little bit >> yeah, i don't think we are. it's a matter -- if silicon valley was the only bank stock that was down today, your point would be very well taken and quite valid. but when you look at -- i could throw you 50 regional bank stocks then they look like garbage today. >> well, i'd say one is the macro overhang investors are concerned about a fed policy mistake the biggest pace of rate increases in four decades, you don't know how it's going to play out you don't know if it's going to be a hard landing so you do have investors selling for that reason and you're right. commercial real estate especially office is the center of attention then the micro with the funding concerns, when w say concerns, these are earnings

tweaks here and there so is it possible -- we've lowered numbers at our firm for the big banks and it could wind up being reduced by 10% but you eliminate the recession discount, you get a 30% pop. so the recession discount is what is hurting these banks more than anything else. >> yeah, i appreciate you being here that's mike may yore of weapons fa -- wells fargo. a stock bucking the trend, not the only one, general electric is up 5% if it was up 8% earlier as they reaffirmed guidance today, what's your take here on a stock that you own you're still betting big on, yep? >> yeah, i am still betting really big on this name and i think even next year even sets up better after they spin off the power and renewables business, so splits work, scott, companies get more simple when you split off stuff, right the businesses have been ignored because it's too big the conglomerates don't work they are separating all their

businesses and ge aerospace has always been the gem of the company. that's what's driving the guidance today for mid to high teens organic growth for the company overall and then longer term mid to upper single digit organic growth for ge aerospace. i own ge health care as well which has been stellar and that is underappreciated because that company has been around for 125 years and have a real business recurring revenues, digital focus, so i like the two pieces and i like them separated because they can now really shine and i think that's exactly what you're seeing >> what do you think about walt disney today, steph, too, which is one of yours? the stock is down near 3% because ceo bob iger was to some people hinting at raising streaming prices, obviously he's still bullish on it. you know, they had an investor day today talking about that what do you think of that?

i'm sorry, it was at morgan stanley's conference out in san francisco, my yeah, yeah, firsd foremost he's laser focused on content and organized the teams to have complete treat of content, distribution and marketing. so they have financial responsibility which under the prior ceo they had none. and costs spiraled out of control. that's number one. number two if he raises prices on streaming that gets to his goal which is what he wants to see profitability in streaming we just haven't seen the details just yet we don't know what that will do to subscribers but not releasing numbers anymore just like netflix is and focused on profitability. other ways to make money in disney with the parks and that piece getting more profitable. china re-opening as well especially on the park side and the $5.5 billion cost cutting plan in content and noncontent that actually should help on the margin front i like what i heard today.

wasn't a surprise at all >> steph, thanks for hanging out with us for the last hour. cnbc contributor, of course, too. just want to check the market dow down by about 500. we're, you know, a little bit from the two-minute warning. mike mayo is still with us i asked him to come back because i want to read you what somebody texted me, works at a big shop said regional banks could be more important since they have not been a focus from a regulatory perspective not sure i agree with mayo what do you make of that right? you've had all the regulatory focus on the big boys and haven't paid attention to the regional banks, maybe therein lies more risk as a result what do you think? >> look, most of the assets are concentrated in the ten largest banks. if you were to string together three or four regional banks, they all had a similar problem on the same day at the same time, is it possible yeah, the regulators have put so much focus on the largest banks and so much relatively less

focus on the smaller banks, it's certainly possible i mean when i started my career over three decades ago, it was the savings and loans, it was small banks having problems and one benefit of nashville banking is that ink ba of america is in many geographies, jpmorgan is in many products. you're diversifying. you're not subject to, say, just venture capital funding for your balance sheet. so the resiliency should pay off for the largest banks, not completely dismissing a series of regional banks having problems when there's not many eyes looking at them but don't forget, the second order risk from the whole private equity community, from the nonbank community, from the fintechs, that's where you have the least scrutiny and i think that's where some of the greatest risk lies. >> look at that. look at loss, silvergate, pac west, first republic bank down 17%. mayo, you're free to leave don't move

i'm glad you stuck around. i want your opinion, mr. santoli on what chris -- >> yeah. >> paying closer attention to credit with the jnk. stuck below its 200-day. put it on your radar. >> i love chris and his work, of course, i have a little bit of an allergy toward doing technical analysis on the bond etfs tell me what the spreads are doing. that junk etf was going down because treasury yields were rocketing higher no just because -- that being said, credit has softened up high yield has underperformed treasuries and i was looking back at everybody's famous maybe template for what's going on over the last 15 months which is the 2000 to 2002 bear market and what you did see there is even when you got the good bear market rallies to, like, a multimonth high, spreads were

still elevated at those highs. my point is credit has performed better now so far up to this week than it has in those periods, so, yeah, absolutely keep an eye on it. that's what the bank stuff is all about. it's about credit risk emerging, it's about funding costs going up dramatically potentially and it's about a reminder from the silicon valley situation that there's a lot of on paper losses in bond portfolios out there because they had to take a hit on them so that's all not going to go away just because we say the system has a whole is solvent. >> some argue when the fed is doing what it's doing, you know, the likes of which we haven't seen in the generations really, the first place -- it always results from a credit crisis of some kind. don't look at the equity market. that market will react to what the fed is doing it's credit. >> that's what cycles do they make a lot of unc uncreditworthy borrowers access

to loans and that's what gets broken, that relationship and so, yeah, that's where we are. we don't know exactly what the chain reactions will be and what the spillover effects might be >> there's the bell. coming to a close here the dow will go out with a better than 560-point loss morgan and jon in "overtime. >> that is the score card for an ugly day on wall street. but welcome to "closing bell: overtime." i'm jon fortt. morgan brennan is covering the norfolk southern testimony and will be here in just a bit we have a busy afternoon of earnings coming your way including numbers from oracle, gap, docusign and more and we're going to talk to alan blinder about why he doesn't think the fed is going to go as high with rate hikes as some people think. for now straight to this late day sell-off wit