>> i love amy's call we own vertex, as well another health care company, cooper company they make contact lenses, and frank, i'm very upset. josh does not follow me on threads. this is unacceptable >> this is important information, guys. that will do it for us "the exchange" starts right now. ♪ ♪ thank you, frank i'll follow you on threads here is what is ahead. the job report showing the labor market may not be slowing fast enough the dow down more than 400 points will we see the same in the june jobs report out tomorrow if the answer is yes, how many more hikes could be ahead, and how are you going to position yourself in the market right now? plus, it's not a new dawn, but maybe all about damage control that's how one of our guests describes janet yellen's

trip to china this week. he joins us with what he is watching on her visit as tensions between the u.s. and china remain high. and tesla and chinese rivals signing a truce to end price wars in the world's biggest ev market but there is an ulterior motive to musk? at the lows of the session, we were down north of 500 on the dow. so we're off our worst levels. the dow industrials, down 417 points the s&p trying to hold above the 4400 mark. 4406 the current level down about 1%, 40 points to the downside to give you an idea of the trading range so far today, at the highs we were still down 24 points so still, well off of the worst levels of the session. the nasdaq composite off 1%, 135

points to the downside 13,657 the last trade there. from a macro perspective, we spoke about what is happening with inflation and jobs and what that could mean for a high in rates. that's taking the steam out of crude prices, tilting just slightly positive. they have been negative the entire session as worries of the economic condition of the world keeps oil around $70 a barrel. and then if you take a look at the interest rate picture, we saw a breakout above 4% for the ten-year note yield. above 5% for the two-year note yield. so the two-year, ten-year spread, which shows that inversion, it's now at 98 basis points overall we're still hovering near some of the most inverted levels over the course of the last year. and even to that, going back decades. that's something to watch. that interest rate complex is

leading to severe underperformance in key parts of the financial world, specifically the regional banks. if you look at those names, bank of hawaii, u.s. bank and others, intraday so far, up 2.5 to 5%. some of the biggest laggards, concerns about the economy, what it means for commercial real estate, lending and everything else watch the regional banks >> regional banks and commercial real estate, absolutely. steve liesman is here to break down these numbers steve, this was a blockbuster number, right? so that's good, or not >> umm, you've got to get with the program. >> right >> we're -- we want jobs, strong wages. >> feels morally weird >> but we also want the fed to stop hiking and not cause a recession. here's what happened

strong jobs and service sector data prompted the street to rethink its look at rate hikes and raising bond yields. adp private sector payroll growth, more than double the estimate at 497,000. suggesting a strong jobs report on the way this morning. education and health services drove the hiring jobless claims were higher, but not much higher, and not much of an increase so far in continuing claims that's just those who lose work, file for a claim and quickly finding work and the employment component growing, as well this raises questions, is that 240,000 mark yesterday with the wall street estimate for the jobs report, could it be on the weak side or whether the market should be thinking like the fed does, about two more hikes this year here are the probabilities dom just showed you have to pay attention to interest rates. here's what it means in the fed funds future market.

you can see about a 90% of a probability of a hike in july. that second hike, creeping up to almost 30% for september and more getting closer to 50% for the november hike. and the dow president making hawkish remarks, saying the fed should hike again and tightening banking standards that some thought might have saved the fed's hands. tomorrow morning, i'm going to talk about all this with austan goolsbee at 11:30. >> definitely going to tune into that one stick around here for another view on the job market, let's bring in someone who has a front row seat to labor trends evan, one of the trends that caught our eye in the latest report is that applicant volume and wages remain stagnant in june, which is a good thing in the fight against inflation, right? >> absolutely. sentiment was down in the

recruiter sentiment, but we saw applications, either increkrcreg 33%, receiving compensation still being the number one reason and we're seeing compensation increasing. >> what is driving that increase i ask as -- >> it's got -- it's got to be that people are looking for jobs that pay more money. we think people are worried about the recession, worried about the economy, worried about infl inflation, and worried about increasing interest rates. therefore, they're taking jobs that pay more money. we saw this before -- we saw this at the beginning of the pandemic, people having potentially two jobs, two full-time jobs and if you look at the job market, 4 million people still quit in may, and 6.2 million people were hired. so there's a lot of fluctuation going on in the job market itself people are looking for where they're getting paid more money. >> i love that idea.

>> that's how remote works >> i love that idea about people having two jobs. i can't handle one job, let alone doing two jobs working from home. so i wonder, the great recession, and the great quitting that we have seen over the past couple of years, is that over? people now looking for work and looking for high salaries, and we're back to where we were precovid, back into "old normal." >> so we think that this is never going to return to the old normal the quit rates are higher than they were on the average in 2019 and if you look at the bls numbers, they were up in may so up april -- march, april, may consecutively. over 4 million people quit their jobs in may. why are they quitting? they're looking for a better opportunity, looking for more compensation yet if you look at last month's labor numbers, the participation rates, the unemployment numbers

went up, more people were -- there were more jobs created maybe that's seeing this return to people carrying two full-time jobs again, these are across the recruiter index. it's in the sub-$100,000 salary mark where we are seeing more participation and more opportunity. >> steve, you wanted to jump in here >> there's a question whether or not these wages are driving inflation or chasing inflation i don't know if evan has data on that, but to me it seems like you have people trying to get wages that are commensurate with their increase in cost so it doesn't strike me that is the driver or the cause of inflation. you may get to that point eventually the other issue -- >> as an employee, it feels like your dollar isn't going as far >> it definitely isn't >> even though inflation is temporary, you have eaten that >> what would be nice is to keep those 4%, 5% annual wages and

have inflation come down more than that, then you could be getting real wage gauge. the other thing i keep driving home, i don't know if evan want toss talk about this, if the inflation problem is in the service sector, as powell suggests, the only supply the service sector provides is labor. maybe there's some paper clips or post-it notes obviously, there's software. but the only thing that really costs -- so it strikes me, when i look at the adp numbers today and i see a surge in hiring in the leisure and hospitality, i see more restaurants open, i see more workers in the airlines i see the possibility for inflation to attenuate as a result of labor and hiring so rather than being our enemy, in both cases, i think labor is our friend when it comes to inflation. >> fascinating >> crazy >> go ahead.

>> no, i don't think so. you look at the health care sector -- >> right >> that's the number one sector again. up 19%, according to the recruiter index, and according to our partners, the actual jobs themselves, 27% of those open jobs in health care are for nursing. nurses, 27% of the health care jobs are nurses. only 3% being for positions. and another 3% for a call center or customer service operation that could be outsourced so, again, in-person jobs, in the health care sector, in that sub, let's call it not the highest level salary roles, but in those -- in the nursing roles. representing a very large share of that health care marketplace. that's fascinating my takeaway from this conversation is i need a second job to fight back. >> that probably should have happened long ago. but now you can feel morally good about hiring. >> we came full circle

evan and steve, thank you both fascinating stuff. a second job for me. that stronger than expected data pressuring the market with yields rising on fears of more fed rate hikes, this has investors asking where to look for value as always. my next guest manages a morningstar five-star rated fund, up nearly 10% this year, with meta, comcast and exxon as some of the top holdings he's also looking abroad for value. joining me now is matt mcclenen, first eagles team leader give me a sense of where you look when you look for value so much talk about the china conversation >> if you look at the global portfolio, roughly half of our equities are in the united states, the other half outside the united states, across asia, europe, and latin america. so we really -- one of the

things that is important to know is that the u.s. equity market has been pricing a return to normal multiples went back to 20 times earnings, implied volatility went down to the low teens as a risk perception and we have seen the reemergence of narrative stories like the ai story propelling stocks. out side the united states, you referenced china's equity market it's been trading at ovnly abou ten times, so half the valuation. and markets like japan that people have written off have been quite firm and only trading at multiple earnings we have seen some encouraging changes, giving payout ratios on the rise there >> fascinating let's go back to the domestic markets. i wonder what you think about

the launch of threads last night with meta. so much attention in the business and general media a lot of us have been typing away furiousfuriously. is that going to move the bottom line for meta? >> meta has an enormous amount of enterprise value, so expanding the reach of instagram is not going to totally change the economics of the business, but it is an example of what i would call the consentristy in a business like meta where you have the ability to layer on additional services and monetize your existing platform while we have our worries about the united states equity market as a whole, our margin is happening one security at a time we're looking for these kinds of situation where is you have entrenched market share and some form of latency. not long ago, meta was trading

at half of its current valuation. so it shows you how quickly sentiment can shift with respect to evan a large established name like this. >> so buy meta today or sell it given these things are fickle? >> look, we are long-term shareholders we feel that the company remains rationally valued here and it has the opportunity for more growth ahead. so we're long-term holders of our investment here in meta. >> i want to ask you about the bond market. you said the u.s. bond market is sending more worrying signals. we heard some of this from dom chu at the top of the hour, but explain what it is that you are see thing that is worrying you >> yeah, so, look, when i think about what the equity market is pricing, the fixed income market is sending different signals some indicating a recession. beyond that, we see spreads

widening for corporate credits, and particular soft segments of the corporate market so the bond market on the one hand is saying, you know, inflation is set to rush to normal on the other hand, it's implying the path to get there could be more challenging than the equity market is pricing at this point in time. one of the things that potentially explains this tension between the equity market and the bond market is that everyone is very focused on monetary policy, but there hasn't been enough focus on fiscal policy. the budget deficit expanded just under 4% of gdp last july to just under 8%. so we have seen a massive fiscal expansion. that raises the risk of longer term stagflation risk, if it's not addressed. and i think in some ways, the resilience that we have seen in the corporate sector -- >> you say if it's not addressed, but that fiscal

issue, i live in washington. i don't see either party any time soon coming up with massive spending cuts to deal with that fiscal issue both parties have shown that when they are in power, they spend money. that's just how you win votes in this political world that we live in. i think that's why -- if you are flagging that as a long-term concern, that's something we have to pay attention to >> it's a definite concern if you have an out of control fiscal picture, it raises the possibility of stagflation we know from the '70s that stagflation was very bad for equity market valuations so the policymakers here have a tradeoff between recession risk on one hand and stagflation risks on the other hand. so i think this does need to be focused on it is a reason why, you know, we have a potential hedge in gold in our portfolios. you know, pricing to some extent

is a less than perfect economic reality. >> something else to worry about. appreciate your time mortgage rates are shooting higher diana has the details. >> yeah, the average rate on the 30-year fixed jumped 14 basis points to 7.22%, thanks to that much stronger than expected adp jobs report. that's the highest rate since last november. rates had begun rising next week, crossing over that 7% line and direct affect on mortgage demand applications to purchase a home, which had been rising, dropped 5%, 22% lower than one year ago. interesting, though, the average loan size for a purchase application dropped to its lowest level since january of this year, likely driven by a drop in home buying in some of the higher priced markets and more activity on the lower end applications to refinance fell 4%, and 30% lower than the same week a year ago. earlier today, the ceo of

compass real estate said 7% is now the new normal and people are accepting it. that remains to be seen, especially given that home prices are heating up again. tomorrow's jobs report could impact rates, but it may have been upstaged by the news today. >> diana, thanks whoa, 7% the new normal. coming up, janet yellen kicking off her first trip to china. what is on the agenda, and what would real progress look like? fred kemp joins us next. speaking of china, tesla and its ev rivals there just signed a pledge to end the price war and promote core socialist values. is this part of a tight rope that elon musk has to walk doing business in china? we're going to ask the ceo mark fields and here is another quick check on the mafrmarkets.

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are you ready? -i'm ready! alright. xfinity rewards creates experiences big and small, and once-in-a-lifetime. welcome back to "the exchange," everybody treasury secretary janet yellen kicking off her first trip to china since taking office, and tensions between the two countries couldn't be any higher right now. emily will kins is in washington with the white house's expectations for the house eunice yoon is in beijing, and fred kemp is here with the policy implications that investors would need to know emily, i haven't got an chance to welcome you to the washington, d.c. bureau, but i will as soon as i get there in person but let's start with you

>> i'm looking forward to meeting you in person. but yellen's trip, it's really part of this bigger effort by the biden administration to strengthen the line of communication with beijing the administration down played expectation for this trip, saying it does not expect any policy breakthroughs, but wants to lay the ground work for future communications. it's a similar message to what we heard when secretary of state antony blinken went to china last month yellen tweeted the administration is charged with deepening communication between two countries on a range of issues she further tweeted that she would take action to protect u.s. marble security interests when needed, saying it is an opportunity to avoid miscommunication and misunderstanding the secretary outlined some of her own goals with meetings for top level officials, including diversifying supply chains and working together on areas like

climate and debt issues. she's been adamant that the administration does not support a de-coupling of u.s. and china interests. she likely won't be the last member of biden's cabinet to head to china. >> looks like more to come any talk about china limiting exports of those rare earth minerals earlier this week >> they are expect thing will come up during yellen's trip she's a little concerned at what this could mean for supply chains these minerals are used in computer trips she also wants to understand a little bit more about what china is thinking here this isn't a full ban, but getting a better sense of what that is going to mean. >> emily, thank you. that's what the white house is hoping for how is her trip being perceived so far in beijing? we have global coverage and

eunice yoon has more on that >> treasury secretary yellen has a long day on friday an official said that on her first day of meetings with chinese officials, she's going to start off with a sitdown with the former vice premier, the man who negotiated the trade deal with the u.s., with the trump administration for china and then he's going to attend -- she's going to attend a business round table that's hosted by china, she will have a bilateral with the premier, and then be treated to a dinner hosted by the former pboc, or central bank governor now, for the chinese side, based on official commentary, as well as state media reports, the chinese have suggested that they are seeking what they call signs of u.s. sincerity. so that is some combination of either reducing or cancelling the trump era tariffs on chinese goods, lifting sanctions on chinese companies and

individuals, and ending the export curves. yellen is viewed here as a pragmatic person, a sympathetic ear. she's previously said she wasn't so sure about the benefits of the tariffs. and also has called de-coupling something that the chinese don't like, disastrous she's also said that she is coming here, looking to find common ground, and that's exactly what the chinese would like to do, as well. >> eunice, so interesting what you flagged here it looks as though she's meeting more with officials who used to be in their jobs, the former officials, rather than those who are currently in their jobs. in washington, this is true also sometimes the real power source is the people who were the formers, not the people who are just getting up to speed in the jobs right now >> yeah, that's true you know, it came up in the -- when the senior treasury official briefed reporters

people were asking, you know, isn't that kind of unusual that she would be doing it? and that official had said that they didn't feel it was unusual at all, that these are close friends, people that she knows well and also are very well known in international financial circles. but one thing that is important to keep in mind is that she is here through the weekend the expectation is still there she will meet with president xi jinping's new economic team. >> that's fascinating, eunice. janet yellen with a long history there. my next guest said yellen's visit to china is about damage control, not a new dawn for relations. fred kemp joins me now fred, you say that like it's a bad thing almost this is not a new dawn for relations, this is just about damage control but it kind of makes me feel like damage control is what we need this relationship has been

deteriorating so much over the past couple of months, hasn't it >> i couldn't agree more with you. i think the damage control is an end of itself, and part of the damage control is for janet yellen, she talked about this a lot, to have closer relationships -- she has close relationships from her time in the fed in china but she doesn't have relationships with the new team she's dealing with. so she's underscored she just neat needs to get to know these people and talk to them. they don't expect any breakthroughs on any of the fronts >> i want to ask you about that. i am going to put a pin in that idea of somewhat they expect but finish your sentence >> i think from the u.s. side, they're trying to calm waters. we are in a geopolitical and economic fragile and volatile period this is the worst chinese/u.s. relations have ever been people said the chinese are saying we're involved in economic, political suppression. so why would you want to meet

with us at this time all you have to do is look at the statistics you have 20% trade fall -- sorry, 20% youth unemployment. exports shrinking by over 7% this is a huge number here, foreign direct investment fell by 72% what's happening is global inve investors, not just u.s. investors, are getting more and more worried about investing in china. forecasters are downgrading them, so we want to calm waters. certainly biden doesn't want a crisis on top of the russia crisis when he goes into an election year. and for the china side, they have to put a floor under their economic decline and build up again and start growing again at paces they were growing before >> so you raised this idea that treasury is sort of avoiding,

saying exactly what the deliverables are going to be as a reporter covering these trips over the years, what you try to do is get out of the officials you are covering what their sense is of the deliverables from that trip. you want to know what are they going to get out of this they always try to avoid telling you that, because they want to underpromise and overdeliver let me put you on the spot what do you think a win here for janet yellen would look like what are the deliverables? the win column if she can get them >> so we'll have to see what they say in whatever press release. what we know she'll want to do is get a little bit of a read on the chinese economic outlook if it's really as bad as it seems, 5.3% in going down, then the global economic outlook depends on that, and u.s. growth can be influenced, as well >> one more question on that i'm sorry to interrupt, but can she get real information while she's there? i mean, you have seen these

trips. there's a lot of pomp and circumstance she will be buffeted by chinese initials who are meeting and greeting all day long. is she going to have access to real, on the ground economic information about what's going on in china while she's there? >> it's going to be trade for trade. what do you have to show us, and we'll show you there's no doubt the chinese have been obfuscating more than they used to, but they're more likely to tell janel yellen than to tell me or you. >> so the big win is just information is >> and technology. the fight for the commanding heights in technology is what this is all about right now. the chinese implemented these new sanctions to be implecmented on august 1. i didn't know about these two, elements of semiconductors that they put export controls on over the weekend. at least i've been reading about them now this was a shot across the bow

to answer the restrictions we have been putting on semiconductors and cloud computing. so she'll want to know what are your plans for de-couples or cutting off technology experts how is that going to affect our supply side? they're going to want to know, what further restrictions are you going to put on u.s. technology exports to us again, i'm not sure how much will show up in a communique, but that may be the most important part of the whole communication. >> she might walk out of there with some information about what's going on in the chinese economy right now, and maybe what the chinese government's plans are to do next thank you, fred kempe, for your time today coming up, you can't spell threads without ads. so now that meta's twitter killer is out, will big brands be able to pay up for another social media platform? as take a look at the dow heat map, with microsoft and united

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good afternoon, everybody. welcome back to "the exchange. i'm tyler mathsen with a cnbc news update. houston police confirmed this afternoon that the texas teen who was missing for the past eight years was at home the whole time rudy fer yas made national headlines when it was reported he had been located safe, but was nonverbal and unable to communicate. police say they're unsure of his mother's motivation for maintaining that he was missing for so long.

>> ocean gate is suspending all commercial operations following the deadly tourist descent to the wreckage of the titanic. the sub imploded about 1600 meet from the bow of the sheet. five people on board died. new york city is about to receive $6.8 billion from the federal government to build a new tunnel, the most ever for a mass transit project it will parallel a pair of single track tunnels built in 1910 officials say the current tums are deteriorating because of their age and saltwater exposure back to you. >> feels like we are due for a new tunnel or two. coming up, former ford ceo mark fields is here to weigh in on the apparent price war truce between tesla and the ev makers

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welcome back to "the exchange." elon musk's tess ha has joined

chinese automakers in a dale to rein in prices tesla and chinese rivals pledging to maintain fair competition and avoid abnormal pricing to help stabilize the market for consumers this comes after tesla slashed prices earlier this year in the face of rising competition for more on all that, let's bring in somebody who knows about this market, mark field, the former ford ceo and cnbc contributor. i look at this it's fascinating and i think if you did this in the united states, you would have a federal anti-trust investigation in five minutes. >> absolutely. you talk about anti-trust violations trying to coordinate pricing. this would not fly in the u.s. >> this is the automakers getting together and setting a floor for pricing. >> at the end of the day, this was pushed by the chinese government and tesla competitors. particularly the ministry of information and technology

they basically told the dealer association of automobile manufacturers, you have to get together tesla, you started this price war. the health of the automotive infrastructure and ecosystem in china is extremely important we as the government have put a lot of policies in place this year to support it and we can't afford to have our own chinese homegrown competitors continue to burn through cash and have a price disruption >> mark, as an investor, i would say this might be a signal that tesla can't win in china, because the thumb is on the scale for the homegrown competitors. the government is saying to tesla, stop doing the things you need to do to win in china >> well, this is bad news for tesla. basically it handcuffs them. if you think about it, their chinese competitors are coming out with a very good product the reasons tesla took the price cuts earlier this year is because they were losing market

share. when you take that pricing lever away, the good news is their margins will be better because they won't be cutting pricing. but the market share will continue to go down and volume will continue to struggle, which means their plant will be running at undercapacity, which will be a big drain on them. >> i just finished a documentary on chinese corporate espionage airing here on cnbc these days but in that documentary, one of the experts we interviewed said that he was in china, talking to auto suppliers, the people who supply parts to can tesla in china. one company told them a competitor came and said give us the same parts you give to tesla, exactly the same, we'll fit them into our cars if that's the environment you're operating in with tesla, you can't do your own pricing strategy, competitors are buying your parts from suppliers, how can you make any headway there >> listen, they have a decent business there

sit their biggest market and there is a lot of value to tesla worldwide competing in china. not only because of the economies at scale, but when you face the most competitive competitors in china, which they are right now, they can take those learnings and use them in other markets. but the bottom line is, the chinese government just made it a lot harder for their business. and you know the visit that musk made two, three weeks ago, wasn't to go sit down and have tea. it was the government saying you will probably do this or you will face consequences >> i flagged this in the intro aused this term, abnormal pricing. they want to avoid abnormal pricing. tesla has done this price cut strategy here. are there prices here abnormal >> well, they're looking at -- first off, they have pricing freedom. they are looking at the business elon has said i'm willing to

sacrifice margins for volume, because the ev market is growing. the established competitors are just introducing product now, so it's a land grab and he's making from his perspective, for tesla, a rational judgment. but you can't do that in china because of these handcuffs placed on him. keep in mind, this pledge was nonbinding, so tesla may decide at a certain point to jump on the grenade and let it explode >> if you do a deal with the chinese government, it's pretty binding, isn't it? >> when they say you have complete freedom to follow this or not, take that with a wink and a nod. >> mark, thank you for your expertise. the stakes couldn't be higher. still ahead, meta's twitter competitor threads has launched and is off to a good start what comes next? we're back in two bhin nuts. . j.

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welcome back to "the exchange." meta moving lower with the rest of the market, but outperforming its social media peers today and coming off a 52-week high after launching its app, which they

are calling threads. ceo mark zuckerberg saying on threads that it's already surpassed 30 million sign-ups as of this morning. he says it feels like the beginning of something special but we have a lot of work ahead to build out the app julia joins me now this is a fascinating move in the blockbuster fight between these two tech titans. i wonder, we had jim cramer on earlier today saying the key for meta is going to be bundling this in in terms of advertising with all the other products. you think it's scaleable in that way or is there some other secret sauce for making money? >> as soon as meta is ready to put ads on the platform, advertiser also be ready to buy them advertisers want to chase the eyeballs so i think the fact that it's been able to grow to 30million downloads so quickly means they're on track to grow -- to continue growing here. they did say they're not going to put ads on right away as soon as they are ready, they

have a distangt advantage. they're not just going to be targeting new ads, they also have information about who you are on instagram, what types of products and content you interact with on instagram, what you like on instagram. so they can use all of that to target ads at you, as a threads user, that will be intentional and potentially far more valuable than what you are going to get if you have less information about the user so all that data is very valuable >> i've seen twitter loyalists saying threads is gathering up all the information, but do consumers make their decision based on privacy any more? we all just agree that our privacy is lost forever, right >> if you are using any of the social platforms such as instagram and meta, you understand that you are getting targeted ads based on your behavior on that platform. that's just how it works and you should enjoy it if ads are more valuable for you as a result there is an interesting

conversation to be had about whether people use instagram in a very different way than they use twitter and whether it will take some time as some of my sources have indicated, it might take time to build up the same kind of audience or rapport with your followers on this new threads platform as you have on twitter. so a lot of people have told me, i use instagram for one thing. instagram is not realtime. i use twitter in a very realtime way. it's all about news and politics, and that type of content. instagram is more about vacation and family so the question is whether threads becomes a third thing, maybe a hybrid of these two. or if it can re-create that realtime, newsy, breaking news element of twitter and help people find a new audience for that there may be a different type of follower base that you are looking for rather than what you have on instagram. >> i've been soliciting on threads nicknames for the cage mask for musk and zuckerberg we had the rumble in the jungle,

the thrilla in manila. what is this going to be called? i say the rage in middle able. but one follower said it should be called the fray by the bay. so there is some creativity there on threads already julia, thank you still ahead, a lot of talk about out there. talk about the lag effect of the interest rate hikes but my next guest says it's already being felt in the economy, and could that pain get worse? we'll talk about it next what if you could make analyzing a big bank's data... no big deal? go on... well, what if you partner with ibm and red hat, use a hybrid cloud solution to connect data across clouds, then analyze all that data with watson. okay, but this needs to meet our... security standards? yup. compliance standards? mm-hmm. so they get the insights they need... yup. in real time... check. ...to make quick decisions? check. aaaand check. that's the solution ibm and a global bank created. what will you create? ibm. let's create.

welcome back to "the exchange." stocks well off session lows but it's the bond market where we're seeing some really big moves the two-year treasury yield hitting the highest level in 16 years on the heels of stronger than expected weekly job data. 16 years ago that was the great financial crisis are we not paying attention to the warning signs the bond marketing is flashing before our eyes joining us is peter bookbar along with our very own dom chu. thank you for being here peter, what do you make of this? >> so, yields are back to where they were right before svb collapsed, when the market assumed the fed was going to continue to raise rates. and, of course, what happened with the banks dissipated and now rear right back. back then the s&p 500 was around

4000, 4100, and we are at 4100 with no change in earnings expectations to here i think that's going to be an interesting reality check. >> is that a sign the investors are confident the banks cleaned up their act or it's the narrative and it's attention deficit disorder marketing >> i think there's some confidence we won't see any more major bank failures but i think the confidence is dissipating in terms of the economic impact of higher interest rates and how banks have reined it in in terms of credit extension. it's not just banks. it's the i o calendar, notwithstanding a few over the past few weeks. it's vc funding, lef laverage l funding. there's a dryup where the government is crowding out private sector >> we had diana olick on talking about housing, mortgage rates at 7% that being sort of the new

normal right now boy, you wonder what that means for buyers >> it's not -- i mean, the interesting part about the housing dynamic right now, and it's does diana has spoken a lot about, is interest rates are at the enter of what's going on right now. but the real estate market is right now constrained because there aren't deals getting done. there's no supply of housing out there. those people in homes and already borrowing to finance them are staying in those homes. >> i tell you what, i've done no smart financial things in my life but one thing i did was refinance at 3% in december of '21. i'll be in that house until i die. there's no way i can sell. >> you're not the only person that feels that way. it's also changing the way demographics work. normally you have people, when their kids get older and leave the house, they might downsize they might try to find something smaller, cash out and go somewhere else the problem is there's nothing to move into and if you had to borrow a little more, you're borrowing at higher rates

even neighborhoods in metropolitan areas, where schools are important, if you look at the dynamic there, it's curious. people are no longer leaving their homes once their kids get out of school. they're staying there. >> they can't afford to downsize which is crazy. >> a little weird. there's a shifting dynamic right now. i'm not sure it's straight just because of rates doing what they're doing. there's also a change in behavior >> peter, this is what the fed wants, right they want to see this kind of change in behavior, otherwise they wouldn't be raising rates >> well, textbook rise, you raise interest rates, you slow down the housing market, you receive a decline in home prices to mitigate raising interest rates. we have not seen that. the housing market is actually sort of upside down from that perspective. the fed's actions, and you go back over 20 years of them keeping rates low, the housing market's actually kind of not doing what they want them to because home prices are not falling. we're not loosening the opportunity for people to buy

homes because home prices are high mortgage rates are high. it's almost a stagflationary situation in the housing market. >> we ran out of time with diana earlier. one of the questions i wanted to ask her, who are the buyers at 7% who are the people getting in saying, well, i just have to buy right now? >> well, it's new home buyers. by the way, the real estate market is not the only place you're finding paying up or paying higher multiples. look at the stock market over the course of the last six to nine months. interest rates have been steadily climbing and yet multiples, the are willing to p stock are -- eamon, this will be curious. right now the s&p trades at roughly 19 times next year's expected earnings, which is right where it was in february of 2020 before the pandemic. >> just a couple seconds left. same question to you as the housing market who are the buyers saying, you know what, this is the price for me they're not new stock buyers,

are they >> this could be flows are still moving into mutual funds the valuation story is if people are still chasing something, they feel like they have to get in by the way, i tweeted out the chart of the forward pe on both threads and twitter @thedomino. >> peter >> if you're buying a new home, you're not paying 7% you may be getting a teaser rate from the builder. >> have to go. that does it for "the exchange." "power lunch" is next after this quick break.

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(vo) it's time to switch to verizon. sadie did. and now she has myplan. ( ♪♪ ) the first unlimited plan that lets her choose exactly what goes in it. now she gets to pick only the perks she wants and saves on every one. and with an incredible new iphone on us, no wonder sadie is celebrating. introducing myplan. get exactly what you want. only pay for what you need. act now and get iphone 14 pro on us when you switch. it's your verizon. good afternoon and welcome to "power lunch. alongside contessa brewer, i'm tyler mathisen stocks are selling off, down 500 points at the low. off that a little bit. jobs numbers coming in a little too hot for th