And good morning I'm Karen Moscow along with Tom Keene and Paul Sweeney and stalks are falling at the open The S&P 500 down one and a half percent down 61 points at 40 61 Dow Jones Industrial Average down 1.3% or 430 points at 32,468 And the NASDAQ's down 1.8% or 217 points at 11,930 Ten year treasury up one 32nd yield 3.12% they yield on the two year 2.63% 9 X screwed oil is down two and a quarter percent on $2 42 cents at a $107 33 cents a barrel Go Mexico down 8 10% or $15 20 cents at 1867 40 ounce The Euro one 5 four two against the dollar again at one 30.76 I'm looking at Bitcoin this morning down more than 4% at $32,800 Tom and Paul Karen thanks so much We'll do more data checks here through the morning Clearly better than it was three hours ago but the tape has some challenges to it down negative four 17 On this market I don't need an equities Patrick palfrey now Credit Suisse Senior equity strategist So everybody has to recalibrate Patrick and you and John Gallup provided massive leadership on constructing a theory of a bull market Let's first begin with do you still construct a theory of a bull Mark I think right now there is a tremendous amount of investor concern around issues emanating from the war in Ukraine around China COVID shutdowns Around inflation and the deceleration So there's no shortage of issues that investors are grappling with It's not to say that a lot of those don't have validity and they are filtering through the markets The question is what does it do to earnings and what does it do to multiples Right now we're seeing the earnings backdrop remain actually quite healthy And part of it is because companies benefit from inflation from nominally we are in a very strong environment The problem though is with multiples and how we think about the impact of the cost of capital from higher interest rates And that's really where the conversation is central to right now It's settled there and we adjust it You know I get that the goal here is not to be 72% in cash I mean you know you can play with the cash margin and all that But to be clear here the fundamental aspects of bull market sectors allow you to continue to own those shares and then Wendy's step into buy them on the proverbial dip Right now as I indicated I mean earnings remain quite strong We're leaving this agreed season revenues were up 13% earnings were up 11% So there was a little bit of margin compression But not tremendously painful And frankly as we move through the back half of the year we see similar trajectory for growth EPS of around 10% Cyclical assets so those companies hitting either closer to the commodity or that can pass through costs more effectively are benefiting more So companies in industrials materials and energy are doing quite well When you look at technology though they are not as beneficial to inflation So they are actually getting dinged on the backdrop for corporate profits And that's really where I think a lot of the problems are is in those areas particularly around labor cost All right Patrick don't fight the fed Why is anybody in risk assets right here The fed is decidedly raising rates for the foreseeable future Where do you go Where do you hide What do you do Well I think for us it's being selective in finding those opportunities One example where I think there is a tremendous amount of opportunity is in areas of equities that are benefiting from inflation They trade at a tremendous discount relative to their more expensive peers And they're seeing revisions being actually driven higher because they benefiting from this inflation backtrack So think commodities think raw materials think energy materials and industrials Those are areas that are actually doing quite well on a relative basis I do think on an absolute basis it is a difficult environment because of the higher cost of capital which is penalizing PEs right now But on a relative basis there are certainly opportunities and that's really what investors need to do They can't like you said go to 72% cash They need to find the area where they can either insulate themselves or find that alpha that they're looking for So it's interesting Patrick a lot of folks here are saying you know we had a pretty good earnings season as you just mentioned here but boy this market is re rating those earnings in terms of multiples Where where do you think a floor for the S&P 500 is in terms of evaluation PE I mean I think we're getting close Right now we're around 7 and a half times And it comes down to how we think about the PE It's a function of interest rates and it's a function of credit spreads because we think of it from a cost of capital perspective And those are the two big components Interest rates have materially berated higher And we don't think you're going to get that back So I don't think you're going to get the multiple benefit from interest rates falling from here But we do think credit spreads will narrow as volatility subsides And that's really what will drive all lower in drive PEs and subsequently stock prices higher Look for credit trends that come in as the catalyst to ultimately push multiples up So I think we're close to that floor now Down negative four 33 SPX down 61 points NASDAQ down 1.6% Here it bounced off the bottom and see where it goes here 9 35 Wall Street time Petra coffee where this with Credit Suisse Patrick let's talk about the obvious elephants in the room which are these big tech stocks They still have a growth They still have profit They're still minting free cash flow over to the balance sheet return to shareholders If you love them in a multiple of 30 do you love them in a multiple of 23 Isn't that the argument I think it makes a lot of sense I guess it comes down to where the relative relative opportunities are and what's your time horizon If you're looking out over the next three to 5 years technology is effective that we liked in the past a lot It's a sector that we think will do incredibly well over a longer time horizon I think over the near term the earnings and fundamentals for the more cyclically oriented companies is just going to put them in a better position to outperform in this environment So I think it comes down to where ultimately do you put your time horizon and how much are you putting on the near term Because the cyclical assets are going to be where you want to be All the tech right now is doing very well particularly if it's cheaper And that's where if people are invested in tech and looking at tech that's where I would encourage them to look stay away from high growth particularly high growth with difficult profit margins or perhaps lower quality So that's an area that's particularly under pressure Patrick I see WTI crude oils off a little bit today but still well over a $100 a $107 per barrel As my energy trade is that played out I still have some more juice owning some of those energy names I think you still have some more juice And I think what it comes down to is we are potentially over the next ten to 15 years working through an energy transition of which right now oil and natural gas are a key component of that transition I think previously we had expected that we could basically boot one down and power one up but it seems like there is a longer glide pattern that transition And that's really going to underpin the success and energy I think over the next several years even as oil right now is at a particularly high level Patrick Paul you're thank you so much with Credit Suisse this morning as we all readjust Is that what we're doing Paul Work there Fantastic offices 11 Madison Avenue time just an old old building built in 19 30 maybe completely restored spectacular offices there We can't get a meal around there either There's no restaurants Yeah there's that one down there I don't know I tell you that you used to be the joke for 11 Madison park I think that got a little It was like yeah They got the food Quartet out there for me on the corner I'm good You know if Michael bark and when $200,000 at The Kentucky Derby he can he can swing it as well Down negative 400 will give you more data checks here through the morning With our news in New York City here is Michael Barr John Paul thank you very much Russian forces pushed forward in their assault on Ukraine seeking to capture the.