they are completely out of touch with their voters. they are still fighting a battle from two years ago as opposed to look into the future and try to fix problems and make things better. spent i've got to go important thank you very much to philip levine and charlie hurt me that that process week we back next week on wall street journal at lge ♪ ♪ jon jon welcome to bare ron's round table where we prepare you for the week ahead. i'm jack otter. coming up, 4, 5, 6, 7, how aggressive will the fed be with interest rate hikes this year? liz an saunders will explain. and later, stock picks from 2022 from one of the top investment strategists on wall street. we begin, as always, with what we think are the three most

important things investors ought to be thinking about right now. tech stocks were watered including peloton which -- battered this week. netflix scaling back its projections for sub subscriber growth. where does the stock go from here? and sony shares slumped after microsoft announced a mega-merger deal with activist vition -- activision blizzard. so, ben, another ugly week on wall street. how bad does this get? is this the end op the -- of the bull market? >> i don't think it's the end, but it really was a bloodbath. the s&p 500 had that its largest one week percentage decline since march 2020. goldman sachs down 10%, but the real damage was over at the nasdaq which dropped 14% from its all-time high and closed at its lowest level since june 2021 helped by netflix and, as you mentioned, peloton. elsewhere, oil rose for the week as did gold, silver and copper,

and the bond market really isn't freaking out yet. as long as financial markets remain calm, i will too. jon -- jack: yeah. tech stocks have become a greater and greater weighting in in indexes over the past 10-12 years which has been great for investors, but now it means there's nowhere to hide. >> no, there really isn't, and that's the hard part here. we have to see the big stocks like amazon and apple and those guys really start to at least hold up, not all anymore. because if they're dropping, there's a good chance the rest of the s&p 500 is too. but we are getting earnings from them next week, and i think that's the most important thing for us to watch at this point. if they can report some good numbers that really keep that, that arrest their falls, we should see the market rise too. jack: and we'll also hear from the fed next week. jack, let's talk about netflix. i've been saying for a long time if you didn't subscribe during a

lockdown, you probably weren't going to subscribe. and on thursday, of course, the company admitted that. the stock has fallen so hard though, as ben pointed out, is it a buy at this point? >> no. the stock's been getting absolutely peloton'd. but i think it could have more downside. netflix is starting to look to me like the oldest story stock in america. the 25-year-old company, it's been in streaming for 15 years. it still doesn't generate consistent free cash flow. it generated close to $2 billion in 2020. that's because production for shows and movies was shut down by the pandemic. this year wall street was looking for close to a billion dollars, now some analysts are slashing their estimates to more like 300 million because of netflix coming down so much on subscriber growth. and that's just a trickle for a company that even after this stock selloff, still a $220

billion company. it's approaching disney in stock market value, but it doesn't seem to be able to generate a tenth of disney's free cash flow, and that's just not what investors are looking for right now with interest rates about to rise. i like the service, it's been a wonderful performer over the past ten years, but there's still open questions not just when does the free cash flow get here, but also what's the durable competitive advantage. is it the technology? is netflix better than the rest of hollywood at making hitsing or has it just been outspending others. and if that's the case, there's more downside for the stock because subscribers aren't rushing in right now. jack: what are the levers it can pull? can it add ads, can it raise prices, crack down on password sharing? it has a clever a.i. can predict what i want to see versus what my wife wants to see. >> they can do ads. that's kind of a differentiating feature for them right now is

that some of the others have that and they don't. but, you know, if they want to resemble some of the others, they'd have to add sports, news. i still think that the service is a good deal, but as you said, you know, everybody here in the u.s. who signed up, wanted to. they've raised prices. i think they're going to get some pushback from consumers on those price hikes here in the u.s. and i think overseas they're being challenged by aggressive players like disney. jack: so, carlton, speaking of netflix, reed hastings made an interesting comment that his biggest competitor was fortnite and, apparently, microsoft agreed. >> yeah. microsoft announcing the $69 billion acquisition of activision blizzard. they get access to candy crush, the full gamut, but also you have to look at this and galaxy brain on you, it's a play on the metaverse. a lot of us don't understand what the metaverse means for us.

gaming is a natural way to start, and we'll see what ore potential comes from there. jack: interesting reactions. sony got absolutely hammered, but activision shares are at in this point nowhere near the offer price which means the market thinks maybe deal won't happen. i guess they're worried the ftc could say no merger. >> exactly. so on the sony front, they have call of duty, but the concern there is, okay, if this deal goes through, are we going to have a competition issue with microsoft. will we still have that. now, also, we have the biden administration, they're making -- taking a close look at m&a. microsoft has been out of the regulatory doghouse for 20 years, but when you're spending about $70 billion or so to buy other companies, regulators are going to be watching. they're going to want to make sure that there's still a competitive market for gaming or whatever else this type of acquisition can lead to. jack: yeah. we should keep in mind what a huge, huge business this is. it's $180 billion a year

revenue, dwarfing the global film industry. thanks, carlton. coming up, will inflation cool off or keep climbing, and what does that mean for your portfolio? i'll ask charles schwab's liz ann psalmedders what we can ann psalmedders what we can expect in ♪ ♪ wow, we're crunching tons of polygons here! what's going on? where's regina? hi, i'm ladonna. i invest in invesco qqq, a fund that gives me access to the nasdaq-100 innovations, like real time cgi. okay... yeah... oh. don't worry i got it! become an agent of innovation with invesco qqq hi, my name is cherrie. i'm 76 and i live on the oregon coast. yeah... oh. don't worry i got it!

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♪ jack: the federal reserve is expected to make several interest rate hikes this year to bring inflation under control, but how aggressive will they get, and how will higher rates affect the market and your money? joining me now, charles schwab's chief investment strategist, liz ann saunders. thanks for joining us on the show. >> my pleasure. jack: one of the really cool things about your research is

you focus on the forward-looking indicators. what are the data telling you about inflation right now? >> there is some hope. first of all, we have what i would consider the reverse space effects that will start to kick in at some point. we have to remember what caused the initial eye-popping numbers in inflation in the middle part of 2021 was the comparison to the year prior when we were in lockdown mode and we went into that pandemic-fueled deflation era. and now, of course, as we get further into 2022, those costs go -- comps go up against much hotter numbers. if you look at ratios like ism, new orders relative to production or inventories, those tend to be leading indicators. those are started to roll over, so it's not universal. we still have the wage pressures. this is not an imminent decline in inflation. but looking at rate of change, that second derivative, and leading indicators suggests that

we could start to see an easing in pressures over the next several months. jack: and, of course, the fed is working on that. bill ackman and some others are have suggested the fed might go with 50 basis points instead of the usual quarter interest point, and, of course, everybody's speculating about how many rate hike we'll see. i think the market is predicting four, but jamie dimon said we might see as many as seven. what do you think? >> i think it depends on the data. sometimes there's this underlying notion that i think people have when asking a question about that, that the fed has a playbook and they're just deciding when to sort of drip out the information to us slowly, market watchers. but the data will dictate the speed, the timing, whether they want to front-end load it with 50 basis point hike versus your more standard 25 basis points, how quickly they start qp once tapering ends. but there isn't a set playbook at this point, so it really

depends on what the data says. obviously, the inflation data. and some of that is driven by the virus, and that's the big wildcard that none of us can try to gauge. jack: well, yeah. speaking of that, what is the effect that omicron is having on the markets and the economy right now and over the coming months? >> well, we've seen a pretty big downgrade to gdp numbers not just for the fourth quarter which, of course, is already in the books, we just don't know the reading yet, but in the first half of the year based on whether it's consensus estimates of economists or some of the well known economists at some of the major investment banking firms have been ratcheting down numbers. some of that is a function of omicron. but probably not all of it. in fact, i think if those lower numbers are accurate, i think omicron doesn't explain all of that. i think we're actually experiencing some of what is considered counter-cyclical inflation where pro-cyclical inflation you get in the early stage where rising demand causes

an increase in prices, and then sometimes later in the cycle the increase in prices starts to put downward pressure on demand and, in turn, growth. so i think it's a combination of omicron and simply the fact that, you know, as was once say about commodities more specifically, but the cure for high prices is high prices, and that is causing a dampening of demand. jack: the fed's work might get done for it. that's interesting. i want to ask you a question i asked ben which is what are you looking forward to decide if the recent downdraft in stocks is just an air pocket or the start of something more serious? >> well, we could see a continuation of what we have been seeing which is much more weakness under the surface than what you see if you're just looking at the index level. of course, the difference is so early in this year that we have started to feel the pain at the index level which was decidedly not the case last year. i think the real force that

matters always -- not just in this cycle -- is this shift from very loose monetary policy to tighter monetary policy. and that almost always ushers in bouts of volatility and weakness. jack: great point. look, we're out of time, but can you give me maybe one sector that schwab thinks we ought to overweight under these conditions? >> well, we are decidedly not taking a major sector approach. we think investors are probably ill-served to try to bet on a sector or two. we think factor investing makes more sense. we believe in the combination of reasonable value, still reasonable growth with, kind of a quality overlay. and the one sector that checks a lot of those boxes is health care. and that's the one sector we have an outperform, but that's very different than saying we think health care will be a consistent outperformer of all other sectors. it just encompasses a lot of those quality factors we think that will, ultimately, be the

leadership this year. jack: got it. you might be buying at a discount. it's been a tough few months for health care. thanks a lot, liz ann, always great to hear from you. >> my pleasure. jack: coming up, stock picks for 2022, t. rowe price's david giroux is next. ♪ we gotta tell people that liberty mutual customizes car insurance so you only pay for what you need, and we gotta do it fast. [limu emu squawks] woo! new personal record, limu! only pay for what you need. ♪ liberty, liberty, liberty, liberty. ♪ you're a one-man stitchwork master. but your staffing plan needs to go up a size. you need to hire. i need indeed. indeed you do. indeed instant match instantly delivers quality candidates matching your job description. visit indeed.com/hire

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♪ jack: every year bare ron's convenes a group of top investors and strategists to find out where they're putting their money. that's our cover story this week, and a member of that group, t. rowe price chief investment officer david giroux join ises us now. really appreciate it. >> pleasure to be with you. jack: one of the key tenets has been to look for companies that

will be disrupters and avoid those being disrupted. that's been part of the market-crushing strategy for you, but over the past few weeks, many disrupters have been sold off. what's happening? and will the tech darlings become the sort of the next nifty 50? >> i don't think that's the case. let's look at the marketplace right now. i've been talking about for a while that there was an area of the market, a narrow part of the market where you were seeing excessive valuation. now, what is happening though is the market's starting to throw the baby out with the bath water. you are starting to see some situations where really attractive companies that are not, that have reasonable valuations are quite atrack ty, and we're taking -- attractive, and we're taking advantage of that opportunity. jack. jack: real quick, just explain that investment thesis. you look for the disrupters, you avoid the disrupted.

>> yeah, absolutely. i think one of the things we've learned over time is that companies that are going through secular disruption systematically underperform. and i think people, investors, the market tends to underestimate how large that group of companies is. before coming on, i looked at it today, and about 24.5% of the s&p 500 is either, is already undergoing some degree of disruption to their business model or is likely to go through disruption over the next five years. again, what we've found over time is avoiding those companies that are being disrupted, just avoiding them in totality is usually a way to create a lot of value for shareholders. jack: -- >> david, it's ben leveson. amazon was one of the original disrupters, but everybody is picking it to outperform this year. you did. what's going on there? >> the aws business is

continuing to do quite well, and we think if you look at the sum of the parts for amazon, we think if aws was an independent company, you know, it would trade at $2,000, $2,100. we would think that was great. so you could make the argument there's a 25- there's a discount on the sum of the parts to amazon based on where it's trading today. >> hey, david, this is carlton. just curious, i understand that you like general electric. some people have been hesitant getting into the stock ahead of the spin-off it's planning. what's your take on it, is and where are you seeing the opportunity? >> yeah. i think one of the really important things we believe right now is that we hi covid -- we think covid becomes endemic in the next couple months potentially. we think we're going to have a much more healthy spring environment relative to the past, and that's going to allow

their most important business, aerospace, to get back to peak profitability in '23 and '24. so i think there's a really compelling case here that this should be a $160 stock. close your eyes and think about the next two years. i have no idea what's going to happen tomorrow, next week, but i think the two-year horizon you're going to make a lot of money. >> david, jack howe. i enjoy diet dr. pepper. it's actually one of my secrets to staying slim and youthful looking. what do you like about keurig dr. pepper stock? >> it's really simple. they have the same eps growth rate as coke and pepsi, but less risk, better capital allocation, you have better management, you have better optionality, and you're trading for a 10-15 cent discount towards coke and pepsi trades. doesn't make any sense in my opinion. jack: david giroux, i've got to

leave everyone with an important joke, do you know what kind of doctor dr. pepper was? a fizz-ician. [laughter] okay, no more jokes. up next, round table members will give their investment ideas. jack has some prizing - - once upon a time, at the magical everly estate, landscaper larry and his trusty crew... were delayed when the new kid totaled his truck. timber... fortunately, they were covered by progressive, so it was a happy ending... for almost everyone. tums vs. mozzarella stick so it was a happy ending... when heartburn hits, fight back fast with tums chewy bites. fast heartburn relief in every bite. crunchy outside, chewy inside. ♪ tums, tums, tums, tums ♪ tums chewy bites

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like real time cgi. okay... yeah... oh. don't worry i got it! become an agent of innovation with invesco qqq ♪ jack: jack, one thing very few people you said about the oil -- understand about the oil industry is pre-pandemic a lot of those fracking company were losing money on every barrel of oil they pulled out of the ground. >> that's exactly right. look, oil is the new don't coyne, and i mean that in the most complimentary sense. going into friday, jack, the energy sector had outperformed tech by 23 percentage points year to date.

it's the biggest -- second biggest margin ever. and the darling of the market right now is these drillers that you mentioned, a company called devon energy. it's returned around 180% over the past year. i spoke with their ceo this past week, and he stresses that they're going to limit production growth to 5% a year, that the industry is more disciplined now on production. the company's breaking the prices around low 30s per barrel, and we're at 85. so you can imagine what that's doing to free cash flow. the dividend yield is approaching 7% if you assume that's going to continue going forward. i spoke with one analyst who said saudi arabia used the pandemic and the downturn in demand to produce too much for too long purposefully to cause u.s. shale drillers pain so that they would learn their lesson on overproducing, and they seem to have done just that because i'm hearing a lot of discipline in

the group. and it suggests this oil price could stay higher for longer. jack: a lot of those frackers, it cost them $600 to truce -- $60 to produce, and it was only making them 30. let's get some ideas. carlton, start with you. >> savings bonds, i've been hearing about hem for months, inflation really hurts a lot of our wallets. but when it comes to these bonds, you can get about 7% of them. -- on them. a little bit of certainty when banks aren't giving us a lot. jack: 7.12%, you've got to go to treasury direct to do it. and, ben, you are a contrarian today. >> i'm intrigued by peloton. the stock is down around 80% from its all-time high, and it's trading around where it was at the end of 2019. that's before the pandemic and nearly three times as many customers and subscribers as it did back then.

and the stock got upgrade on friday, it's starting to bounce back, but it may be worth it. jack. jack: absolutely. i could see apple and nike certainly eyeing that company. ben, carlton, jack, thanks so much. to read more, check out this week's edition at barron's.com. don't forget to follow us on don't forget to follow us on twitter @barron's ... dr. michael youssef: our postmodern culture has invaded every aspect of life, has erased or erasing the knowledge of the scripture. how did we get here? god's word is saying choose life, choose life. if you want to live, read, believe, and obey god's word. if you want life and life abundant, drink deeply from the spring waters of the word of god and be satisfied. male announcer: up next on "leading the way."