Closing Bell - Closing Bell: Market Moves Higher, Focus On The Fed & Energy Outlook 11/23/22

Episode Date: November 23, 2022

Stocks trading higher after the minutes from the Federal Reserve's most recent meeting indicated the central bank plans smaller rate hikes in the next few months because of cooling inflation. Fmr. Kansas City Fed President Thomas Hoenig discusses how high interest rates could go and when he thinks the Fed could eventually pivot. Allspring Global Investments' Brian Jacobsen discusses how investors should be positioning ahead of smaller rate hikes by the Fed. Energy Aspects Head of Research Amrita Sen discusses the outlook for energy prices as oil slides and natural gas spikes. And D.A. Davidson's Michael Baker reveals the three retail stocks he thinks are recession proof.

The major average is giving up an early pop, but regaining ground after the release of the Fed minutes. The Nasdaq's in the lead as we head into the final hour of trading. This is the make or break hour for your money. Welcome to The Closing Bell. I'm Melissa Lee. And today for Sarah Eisen, let's take a check on where we stand in the markets. As for that pop, we got the S&P 500 up by just about a half a percent right now. We had been, I would say, seven points higher at the highs of the session on the S&P. The Nasdaq feeling the bigger pop. Of course, all this moved on the back of the session on the S&P, the Nasdaq, feeling the bigger pop.

Of course, all this moved on the back of the release of the FOMC minutes and that pullback in yields that we saw right after that. Check out the oil action today, pulling back sharply amid a discussion among G7 countries over price cap on Russian exports. We'll talk much more about that news in just a moment. And ahead on the show as well, former Kansas City Fed President Thomas Honig gives his outlook for Fed policy and the economy, plus his reaction to the Fed Minutes released just this afternoon. Let's begin with the Fed Minutes. We've got full team coverage to break it down here. Steve Leisman's got the major takeaways. Mike Santoli's tracking the market reaction. And Brian Jacobson from All Spring Global Investments joins us with his analysis. Steve,

start us off. Hey, thanks, Melissa. Yeah, after a meeting in which the Fed had hiked 75 basis points for the fourth straight time, the minutes showed agreement by officials to then slow the pace of rate hikes in the future. The minutes to that November meeting said, quote, a substantial majority of participants judged that a slowing in the pace of increase would soon be appropriate. Most people believe that means a 50-base point rate hike coming in December. At the same time, the Fed looked to have some disagreement about how much further to go. The minute said some officials were more concerned about the cumulative impact of rate hikes on the economy, while others suggested the Fed may have yet more work to do than previously expected because of higher than expected inflation.

Here's market pricing right now for rate hikes. Here's what it looks like. An 81% probability of a 50-base point hike in December, 70% for 50 in February, and 51%, in other words, that March 25-base point hike, that's kind of on the cusp right there with 49% thinking there will be no hike. So an additional 100 to call it 125 basis points of tightening still to come, still priced in. The minutes importantly came before the recent inflation report that came in lower than expectations, but they perceive the stuff we got in the last week, retail sales and business spending data that have prompted

upgrades to the growth outlook and suggested some more work ahead for the Fed to cool the economy. Melissa. You know, Steve, I thought the Fed to cool the economy. Melissa. You know, Steve, I thought what was interesting was the language. And of course, we were always looking at the language when it comes to Fed statements and Fed minutes. When it comes to that notion of downshift, the term substantial majority was used. But when it comes to that, the how high we have to go, only various officials was used. And I felt like that was a big difference and underscored sort of the division as to where that terminal rate should be. I think that's exactly right. I've been saying for a while now, Melissa, the disagreements on the Fed are in the future. They're

not in the immediate present, I guess is the best way to put it. Two things are clear. One is that we're like, I think that 80 percent probability is maybe even low for the 50 in December. That's going to happen. More rate hikes are also going to happen. But how much more is unclear? And you've got various tests. And that's the place where the Fed is a little bit divided. Some were concerned about things like financial stability from rapid rate hikes,

things like the impact on the economy and the lagged effects of rate hikes. Others are saying, you know what? Infl inflation is high. It's still too high. We may have a lot more work to do. I wouldn't worry too much about that for the moment. I think this idea of the Fed going to 5% is probably pretty locked in. I had previously thought it was 4.5% several months ago. It looks like a half a point has been added, I think, to the conventional wisdom here. Yeah, five percent by June is what the markets are pressing in now. Steve, thank you. Steve Leisman, let's now get to Mike Santoli for the market reaction. Mike, it was interesting to watch the markets get a pop, but in particular, the higher valuation, sort of the riskier areas of the market, like an ARK or an IGV, they really took off.

Yes, a little bit spring-loaded there, Melissa. Also, bond yields coming lower, right? So that was one of the responses. Longer-term yields come in. It more or less underscored the premise of part of this rally that we've gotten in the last five or six weeks, which is maybe the Fed's destination is well in hand. Look, suddenly, the last few months are a lesson in how to make a half percent rate hike in December seem dovish. And I think the market has bought into that. Now, where is it taking us is interesting. We're right sitting at these levels.

We got to add an intraday high last week, just above 40, 25 or so. It's up 15 percent from that October 13th low. The next test, and everybody watching this, is really between 1 and 3 percent up from here. It's a 200-day average. It's this downtrend line right here. It's a 200-day average. It's this downtrend line right here. It's just above 4,100. So that's where you have to decide if this was another bear market rally or it could be something more, and maybe this was an actual bottoming process with this messy retest in October.

So that's the debate to come if we get a little bit higher. Now, stocks versus bonds, been a very consistent story all year. Here's a one-year chart of the aggregate bond index relative to the S&P 500. They are right in tune right now. You've seen this kind of give and take in terms of the relationship. You've had a stock catch-up, two bond returns. Now, clearly, you're getting yield on top of that, but not that much. Really, this has been the whole story.

And if you use stabilization in bonds so that your portfolio has had a little bit more ballast in there than it did, let's say, into the middle part of this year. All right, Mike, thank you, Mike Santoli. Let's now bring in Brian Jacobson from All Spring Global Investments. Brian, great to have you with us. What was your reaction to the minutes here? What caught your eye? Yeah, actually, I think some of those adjectives or determiner statements that they were using to describe how many people felt what, you know, so I think we're going to have a battle between two, few is three, some is four, but I've never seen various before. So maybe they had to bust out the thesaurus in order to figure out they didn't want to repeat several of them. So you'll have a battle between those who want to go higher and those who think that maybe we should take a little bit of a pause. And then here at Allspring on my multi-asset team,

we had a discussion about it just before I came on here. And it does seem like if you had to take the over or under in terms of what the market is pricing in, maybe this shifts it a little bit more to the under as far as how high they might need to go. So the under, I mean, I think what Steve Leisman was saying was very interesting in terms of the Fed agreeing what to do immediately, but not necessarily out into the future. And that's what equity markets look at. So, I mean, the question of how high and for how long the rate remains there are huge questions, Brian. I mean, does that I feel like the markets assume that once we hit that terminal rate, there will be some sort of a turn then that there will be an easing then when in actuality we might stay at that terminal rate for quite some time, depending on how how things shake out. And what will that do to your investment outlook?

Yeah, that's the hope of the Fed. And I think that the experience would suggest to us that they have oftentimes had to reverse course because they are a little late to the game. They were late to the game in terms of hiking. They will probably be a little bit late to the game in terms of when it's appropriate to cut. And the market, if you look at what they've done in the past, really it was only the 2004 to 2006 experience that they were able to hike and hold for a while. And that's because they were moving at a very predictable, somewhat glacial pace with those hikes. So I can understand why the market might be pricing in that they need to reverse course.

The Fed might be a little bit stubborn when it comes to actually when they get to say four and a half to four point seven five and that's actually why maybe instead of trying to go fast high and hold it for long they might want to go a little bit slower go a little bit shorter as far as how high they need to go and actually begin to hold it at that level for maybe let's say until the end of December so if they go too fast and too high, then they have to reverse course too quickly. Right. The reaction rates was pretty notable. And in turn, we saw some of these sort of higher P.E. areas of the market really take off. IGB ARC is up three percent, for instance. The NASDAQ 100 is up one one percent. We've got semiconductors up by a percent as well. Brian,

if I told you that we're going to hit three.5% in the next two weeks or something, does that change what you take a look at? Does it change how you view some of these, quote-unquote, riskier areas of the market? You know, it does. The areas that we're most interested in right now, so up to this point, we've been overweight, the United States relative to Europe, consumer staples relative to the broader market to be a little bit more defensive. But if we're going to be at 3.5% on the 10-year, which we think is very realistic,

actually would not be surprised if we get there by the end of this year, that would tend to favor more, let's say, technology. Some of those more FAANG stocks that were interest rate sensitive as rates went up, so those are the ones that got hurt the most, they're likely to be beneficiaries here. So we're actually a little bit more interested in, say, technology. And then for the defensiveness, REITs, that's an interest rate sensitive part of the market. We like our managers in that space. We think that maybe it's an area that's been oversold. So it's two of those areas that we would actually really like if we were moving down to 3.5 on the 10-year Treasury. All right, Brian, thank you. Brian Jacobson of AllSpring.

Thank you. Oil's recent slide is accelerating today as G7 countries discuss a price cap on Russian exports. Up next, we'll ask an energy expert just how far crude could fall. You're watching Closing Bell on CNBC. Welcome back. It's been a wild day in the commodities market as crude oil pulls back sharply while nat gas spikes. Pippa Stevens has a look at what is driving the nat gas pop. Pippa.

Hey, Melissa. Off the best levels of the day, which earlier saw the contract up 12 percent at a two-month high, but still holding a gain of more than 8%. Four key factors here driving the action. The first and most important is weather. Forecasts are calling for colder temperatures, which means greater demand from heating. The second is that possible rail strike.

If it curtails coal deliveries, that could also boost demand for nat gas. We also saw the contract cross above its 50-day moving average, which is supporting prices. And then there's simply volatility ahead of Monday's expiration. Melissa. All right, Pippa, thank you. Pippa Stevens. For more NatGas and crude, let's bring in Energy Aspect's head of research, Amrita Sen. Amrita, great to have you with us.

Thanks. NatGas, you say, is all about weather, right? It's getting colder. The forecasts are calling for colder weather. So no surprise to you. No, look, the latest weather runs have really been a lot colder. And potentially next week, we are calling for a triple digit withdrawal from storage the first this season. And then, of course, you've got the rail strikes, which is affecting or which could potentially impact coal movement. So that's kind of adding further to the impetus. But yeah,

the weather run has really been very, very bullish for nat gas prices this week. All right. Let's talk crude because we did see a 4 percent drop on close here, Amrita. And a lot of this is the price cap. I mean, that decision is coming up. The proposed price cap is higher than what many people had thought, according to Reuters reports, 65 to 70. Why was that a surprise? And why do you think they moved higher? So just a couple of points on the price cap. We are hearing the price cap will be around $65. And right now, Russian crude euros is trading at around 60 or even slightly lower than that after today's correction in flat price. Now, the price cap does not impact Europe's ability to buy Russian oil. I think that's the problem and that's the

confusion in the market. The issue is, remember remember the EU is coming up with the embargo on the 5th of December. That supersedes the price cap. But the confusion in the market is, and particularly in the US, we have so many clients constantly asking us, oh does this change your view on how much Russian oil can flow into Europe? No. The EU is still going to go ahead with the embargo, which means come 5th of December, barring the countries that have been exempt, Europe cannot import Russian oil.

The price cap is about other countries, like in Asia. The reason Europe is working with the US to come up with this number is because Europe is home to 95% of maritime services, so shipping, insurance, things like that. So that's what they are trying to ease. The price cap was always about the rest of the world's ability to buy Russian oil. OK, so can you factor in China at this point, Amrita?

I mean, before when it was looked at, China was opening up because China, I'm assuming, is part of that part of the world that would be affected potentially by the price caps or would fall under that sort of group of countries. Now we have the opposite picture where we're having increased lockdowns at this point. So how does that impact everything? I would say China, much more than Russia, has been one of the biggest drivers and probably will be the bigger driver for 2023 prices for the simple reason that the swing in Chinese demand could be over a million barrels per day, depending on the lockdowns. Back in April, it was two million barrels per day.

And Chinese buying has been extremely erratic. And our view has been for some time that reopening is really not going to happen until April at the very earliest. It's probably going to take even longer and it's going to be slow. In terms of the price gap, no other country has actually accepted the price gap. It's only the G7. So for all the headlines and the hoo-ha around the price gap, what is very, very interesting right now is that unless and until other countries actually accept it, and Russia, who has said, I'm not going to sell under the price gap

anyways, accepts the price gap, it's a bit of a moot point. But the confusion it creates is why prices are down today. Right. I also want to ask you about FTX, which I never thought I would say to you, Amrita. But you actually noted in one of your research reports that initially when there was the collapse of FTX, we saw the fallout in cryptocurrencies. We also saw oil fall. Do you believe that that sort of relationship will continue or was that just the initial shock of it? Yeah, I also never thought the amount of research I had to do on FTX, I'm like, what is this? And our economists were like, stop calling it correlation.

It's not a real correlation, which is true. But Melissa, the problem is we're in November, right? We always get sell-offs like this in November before Thanksgiving. Liquidity dries up. And that's why you get crazy correlations like this, because you don't have specialist trading in this market. So you get random correlations like Bitcoin or just generally crypto with crude. Now, there is some genuine issues around asset allocation. We have seen move away from energy or oil in particular to equities for sure. And also

we've heard from some institutional clients who've had to sell their oil positions to effectively get some margin to be able to warehouse their risk around crypto so sure there's some genuine relationship but it's genuinely much more to do with just the lack of liquidity in november every year last year we had a similar sell-off around the spr a couple of years ago we had the same thing so thanksgiving around thanksgiving it always becomes a bit of a Black Friday. All right. Amrita, thank you. Fascinating. Amrita Sen. Let's get a check on the markets as we head out to break.

We've got the Dow right now higher by about 141 points. The S&P 500 strengthening just a touch. We're at 4032 right now, higher by 0.7% than NASDAQ, holding on to its gain of 1.2%. After the break, we'll bring you new details about Bob Iger's first week back at the top job at Disney and what he's telling employees. And later, former Kansas City Fed President Thomas Honig will join us with his first reaction to the Fed Minutes. And as we head to break, check out some of today's top search tickers on CNBC.com. The 10-year yield getting the most interest today, followed by Tesla, crude oil, Amazon and the S&P 500. We'll be right back. Welcome back. We've got a developing story on Disney. CEO Bob Iger will hold a town hall

meeting with employees on Monday, a week after coming back to lead the company. Alex Sherman of CNBC.com broke that story, joins us now on the phone. Alex, what will the agenda be? Well, we don't know. I mean, it's probably not going to be a lot of detailed specifics about Bob Iger's plans to reorganize the company or new hires, because remember, he didn't even know he was going to have this job a week ago. So I would imagine it's probably going to be more in terms of why he took the job. He'll be answering some questions from Disney employees. And also in the memo, he specifically notes Disney's legacy of creativity, innovation, and inspiration. So I would imagine one of the things he's really going to harp on is how to bring the Disney culture back to Disney so that all of the employees can be proud of Disney,

which was one of the things I think his predecessor, Bob Chapek, may have struggled with. All right, Alex, thanks so much for putting in with the story. Alex Sherman, we're seeing Disney shares up by 3% right now. Up next, former Kansas City Fed President Thomas Honig on how high he thinks interest rates are heading and whether the Fed will be able to avoid a recession. Fed minutes out in just the last hour. Stocks jumping on that news that the Fed officials agree they see smaller rate hikes coming soon. Joining us now is former Kansas City Fed President Thomas Honig. Thomas, great to have you with us. Thank you. Good to be with you, Melissa. Thank you. Slowing down seems to be, you know, expected. It's sort of what the what the end rate should be, what the terminal rate should be. That seems to be the question, Thomas. And so I'm wondering how you think about that.

Where should that be? Is it you know, the markets are pricing in five percent by June, although Bullard just this week or last week said between five and seven percent would be the restrictive zone. What's your what's your take? Well, I suspect given the discussion that I read in the minutes that the rate will be, you're right, they're going to slow it. It'll be 50 basis point in December, subject to any surprises. And I think given that they're looking at maybe the potential real GDP growth being around 2.5%. If they get rates up to 5%, they'll want to – that'll be kind of the target. If inflation comes in higher, they'll move it higher than 5%. And that's where a lot of the discussion in December we'll focus on,

where it should be the end rate. And I think they're talking right now uh at least uh in their public statements that five five and a quarter percent is the number and i think that's probably the number they will be and then once they get there and i i suspect it'll be before june but once again then the discussion will turn to how long you leave it and that's a big issue in terms of making sure you get inflation numbers down towards the 2% or to stay there. And that will be a big discussion item in the FOMC. I feel like that's even perhaps the bigger issue, or it should be, at least for market participants, for investors and traders.

That is, you know, how long do we stay at that terminal rate? We don't know yet. I think there's a notion in the market that once we get to that terminal rate the coast is clear but clearly that's not that's not the point so you know when you're thinking about how high we could potentially be at the terminal rate is it a matter of months is it a matter of a year well i would think they would i think if they were doing it they should shoot for say March and get there in the March timeframe, maybe the next move after that, get to the 5% level. So 50 basis point increases.

And then they need to stay there until inflation comes down below 3%, or at least in the neighborhood of 3%. If the market kind of bullies them into lowering rates sooner than that, then I think they risk inflation reigniting. Because remember, the consumer is still pretty engaged in the economy. They're still consuming. We've seen retail sales still higher than some people thought it would be. So they need to plan on staying there quite a while.

The market needs to accept that, I think, if we're going to bring inflation down towards the 2% and have it stay there. So that'll be their challenge. You use a really interesting phrase, Thomas, and that is if the market bullies them. Do you think that the market has bullied them? I mean, do you think that the Fed, that Jerome Powell would acknowledge that that sometimes has happened or that that is a factor? The market reaction is a factor in what they do or how they say things? Sure. I don't know if he would he would admit it. You'd have to ask him that. But I think the market has in the past and would do it again, you know, become, you know, from the start of the taper tantrum on.

They react really strongly. That forces the Fed to rethink their situation. They don't want a volatile market. But I think the Fed has to, and I think given Powell's recent speeches, at least, I think they're committed to saying, all right, we're going to get there and we're going to stay there until inflation comes down, and we're not going to be pushed too fast. You mentioned the consumer doing pretty well, and we've got a lot of retail earnings recently,

and I think the commentary within the conference calls about the consumer has been interesting. The notion that consumers are drawing savings down, that credit usage is higher, that credit usage is outpacing debit usage. There are some strains that are being shown right now. Jerome Powell and many others have talked about this lag effect. Is this just the beginning of it, Thomas? And how do you think about what the full impact of the consumer will be? I think that's what people at home want to know. Are we going to see unemployment to 5 percent? Is that pretty much a foregone conclusion? And are we going to see much tougher times ahead?

I think it is highly likely that we'll get to 5 percent. If we're going to bring the inflation numbers down, that's been the tradition. If we get to 5 percent and no higher than that, then I consider that a mild recession myself. And I think the Fed would be pretty pleased with that if they got inflation down and employment didn't go more than 5 or 5.25%. I think the consumer has been a strong point and will be. They received a lot of money during pandemic. That's still there. And they're coming down.

They're drawing their savings down. But they also had less leverage. So they're leveraging up somewhat. And I think wages, even though they're not keeping up with inflation, they have at least been advancing. So you have those three factors in there, keeping the consumer engaged. And that'll be, I think, important to the Fed as they try and gauge the end rate for raising and then how long they keep it there. The consumer is key. And then behind that will be the investment sector and whether not only durable goods, but investment in planned equipment stays reasonably strong or reasonably level,

should I say. Right, right. You know, the other effect of easy money or free money ending, Thomas, is that excesses are drawn out of the market. And I think one evidence or one example of this, well, there are many in the markets, in the stock market. There are SPACs, there are some other speculative stocks, but there's also cryptocurrency. There's the downfall of FTX, which may never have happened or never have gotten to the state that it got to without free money, free money that needed to go someplace, needed to be invested, needed to be invested in that company without the due diligence, need to be invested in cryptocurrencies, et cetera. Do you think as a tide comes out, Thomas, there will be others

waiting in the wings that will show themselves? I certainly think so. I mean, free money for so many years and the malinvestment that came from that for, now not all, and I agree, not all stock buybacks are bad or anything like that, but those are just re-leveraged companies and move their debt levels higher and they paid it out in dividends. They have a reckoning.

No, they took on debt. That debt has to be refinanced. They took on debt. That debt has to be refinanced. They don't have the equity. So those things are going to have to kind of come up and be leveled out. And that's going to be painful. And that's why I say the other side of this is not just the consumer. It's businesses who have to continue to invest in plant equipment and future growth. And that's where the tradeoff between getting rates back up to where they should be, getting some of the bad action out of the market, and getting focused on investing in productive means in the future. And I will agree. I mean, zero interest rates and free money is why cryptocurrencies took off so much. You're looking for an alternative. It was a game to play. That's going to be adjusted. There's some other areas and some other companies that

were able to hold on and leverage themselves. And they'll have to, shall we say, level up now and pay the price. Yeah. Thomas, thank you for your time. Appreciate it. Glad to be with you. Thank you for having me. Bye. Thomas Honig. Let's take a check in where we stand in the markets as we approach the final minutes of trading on this Wednesday. The Dow is up by a quarter of a percent. The S&P has backed off just a touch. We're still higher by a half a percent. And the Nasdaq holding on just under a percent gain at this point. Today's early movers kicking into high gear today after scoring big gains in yesterday's session. We will reveal that name next.

And you can listen to Closing Bell on the go by following the Closing Bell podcast on your favorite podcast app. Let's check out today's stealth mover. Manchester United, the stock is soaring and investors are shouting gold. Did I do that okay? Anyway, the Glazer family announcing they are exploring strategic alternatives for the iconic soccer team, including a possible sale. It's unclear who could make a pitch to buy the team. Ford estimates Manchester United is worth $4.6 billion, quite a score for the Glazers, who paid $1.4 billion 17 years ago. Well, it has been a rough year for retail, which is significantly underperforming the broader market.

Up next, a top retail analyst reveals the three stocks he says are relatively recession-proof. That story, plus deer plowing higher, Tesla taking off. We take you inside the Market Zone. We are now in the closing bell market zone. CNBC Senior Economics Senior Markets Commentator Mike Santelli is here to break down these crucial moments of the trading day. Plus, Seema Modi is on Deere and D.A. Davidson's Michael Baker is here to talk retail. But first, we've got to get to Mike. I almost changed your title, Mike. Changed your expertise.

You know, this market reaction today is really interesting because we saw, you know, equities get that initial pop, pull back a little bit from that pop. But yields, yields are still, you know, they're still low. The yields are still low. You know, the market, of course, was is sort of seasonally primed to to levitate a little bit right here. And I think it was just sort of a little bit on alert for the potential of an unexpected hawkish surprise within the Fed minutes, which may have come because Jay Powell, remember, in the press conference after this particular meeting three weeks ago, said that given what the committee members knew that if they were revising their outlook, they would have taken the terminal rate for Fed funds higher or at least he would have.

And so we didn't see that general sentiment reflected in there. It's a pretty small move, but it is stretching this rally toward or above 15 percent over the last five or six weeks. It feels as if it's in a comfortable spot with regard to what we know about the Fed. But, of course, you know, three weeks, we'll find out what they're actually going to do and what they say about it. Yeah. And a lot happens in the next three weeks in terms of other economic data points. But what we've learned within this rally in terms of taking a look at what got the most pops is that if we said that yields were going to be three and a half percent on the 10 year, it seems like there is this gravity that this pull to technology, regardless of what what the what was behind the three and a half percent. Right. I mean, I do think that is the reflex move. I don't think all the moves in tech up and down are fully explained or even close to that by yields. But yeah, that is what's going on right now. They are the most depressed areas. SpecTech, though,

that seems still to have, you know, unfinished business, let's say, in terms of valuation on the downside. All right. Let's get to Deere here. One of the top performers on the S&P 500, the heavy equipment maker beating Wall Street's earnings estimates, issuing an upbeat outlook for next year thanks to price hikes, an increase in infrastructure projects and easing supply constraints. Yesterday on Closing Bell, famed investor Mario Gabelli discussed why he's bullish on the stock. There's a lot of stocks that you want to own despite an economic contraction. Give you another example.

Farm equipment. John Deere is reporting tomorrow morning. The American farmer works fence to plows, fence to fence, and they are going to get $525 billion of cash flow from livestock and commodities, Jared. Last year, they got like 400 odd. And so where are they going to spend the money? Are they going to be equipment available? Will they be able to do automated And so where are they going to spend the money? Are they going to be equipment available? Will they be able to do automated farming? Will they be able to do

other things? Seema Modi joins us with some of the details here behind this report. Seema, a lot of the analysts like this. They liked in particular that free cash flow was particularly strong, particularly in the out year, the raised guidance. Right. And growth in precision technology, that was really the bright spot, Melissa. That business specifically saw sales increase 59% year over year. This is the division that includes semi and fully autonomous tractors, planters and sprayers that require less manual labor. On the call, CEO John May made an interesting point. He said that the lack of skilled workers, Melissa, right now is prompting more farmers to invest in equipment that is enhanced with technology. There was also discussion around the infrastructure bill finally starting to kick in with the order

book for the construction business, already 70% full next year. As you discussed, higher pricing, certainly a prevalent theme. Management also indicated that supply chain issues are starting to ease, which was encouraging as well. I guess the question here, Melissa, is all the good news priced into the stock? It was up 20 percent going into earnings this year, now up an additional 5 percent. So expectations high going into 2023. And what happens, Seema, when crop prices continue to fall? And I say will continue in theory because the Fed is doing what it's doing, et cetera. And then there's the uncertainty around geopolitics, Melissa. JP Morgan analysts

there were writing that if this war in Ukraine continues, that could raise the likelihood of higher crop prices, which in doubt will extend the agriculture equipment cycle. So, yes, the price of crops heavily tied to farmer sentiment and therefore how much they're willing to spend on big machinery and all the equipment they need next year. That's pivotal. All right. Seema, thanks. Seema Modi. Check out shares of Coupa Software at this point. The stock is soaring on a report private equity firm Vista Equity Partners is exploring a takeover of the cloud company. Vista Equity says it has no comment on this report. Frank Holland, though, joins us with the latest on this one. Frank, there's a lot

of competition in supply chain software from SAP and Oracle. So what makes Coupa in particular an attractive target? Well, Melissa, you know what? I'm going to go to the supply chain issues we're seeing with Apple this week. If you look at the Apple iPhone 14, getting a new one, the delivery times, they've doubled just over the last month. And supply chain disruptions like the ones that Apple are seeing due to COVID lockdowns in China are a big tailwind for supply chain software, whether it's Coupa or anyone else. The real need for Coupa's core businesses of supply chain data, predictive analytics, excuse me, business spend management Again, only increasing, disruption from the Ukraine war, the trade war, etc We've seen so much of it And there's also half of U.S. CEOs saying they believe that supply chain issues will continue into next year

And nearly half of them are saying that supply chain issues will force them to have to raise prices That's why it's an attractive business potentially for Vista to get into I actually spoke to Robert Smith last month during a CNBC event. He said he's looking for mission-critical software companies to buy. This would certainly fit the bill. Now, if you're asking why Coupa may consider selling, well, you can just look at their stock performance recently. Shares are down 70% off their high.

They also have a sky-high valuation, 100 times forward earnings. So while rates are down now, and that's not the only reason that the stock is down, that's certainly something that could put pressure on the stock if rates continue to go higher. And at the same time, they face a lot of competition from some major companies like SAP and Oracle that are in the supply chain software business, but they provide a wider suite of offerings under the umbrella of ERP. That includes back office management, manufacturing software, and also HR software. So there's a lot of times why, there's a lot of reasons why right now might be a good time for Coupa to look into selling. But as you mentioned, Vista not commenting on this

potential deal. And Mike, you got to wonder if a private equity firm is sniffing around a Coupa, which is 137 times forward, but has gone down by 70 percent over the past 12 months or so, if that gives permission for for investors at large to start looking at some of these software names that have really been taking a beating. Right. Certainly it would put in a perceived floor. I would point more to something like the five to six times revenue type multiple that Coupa now trades at, which to a private equity firm, if they believe they can get operations leaner, that might be more relevant in terms of what they can get for it on the back end. Now, Vista's in this business, right, of buying these types of subscription businesses, software

in particular. I do think it mimics what happened in 01 and 02 after the tech bust. You did have the lucky ones kind of sell at a huge discount ultimately to where they traded at their peak. But it was a pretty favorable outcome relative to where they had gotten to. And I think an investor can start to hunt in here around those valuation zones. All right. Frank Holland, thank you. Meantime, Tesla shares are popping as well today. The stock ending an upgrade to a neutral from a sell at Citi. Analysts there highlighting the automaker's strong positioning in the premium EV market and its improved execution is some of the reasons.

Meanwhile, closely watch Morgan Stanley analyst Adam Jonas also out with a new note today. Jonas reiterating his overweight rating on the stock, acknowledging the price is approaching his bear case scenario of $1.50 a share, but nonetheless he's sticking with his price target of $3.30. Phil LeBeau joins us now. These are valuation calls, this notion that Tesla has gotten beaten down so much that maybe at this point, we're pricing it a lot. Well, I think you're right, Melissa.

These were not, if you read these notes, there was nothing in these notes that made you say, I've got to go out and I've got to buy Tesla right now because it's off to the races. This truly was, both of these were notes saying, look, they're so beaten up. You've got to remember the fundamentals here in terms of where Tesla is positioned within the EV market. And then the other question becomes, Melissa, if you're an investor right now with Tesla, where is the next possible catalyst? You can look the next week when the company is expected to deliver the first Tesla semi-truck. That's supposed to happen on December 1st. That delivery in and of itself is not huge. What is significant is whether or not Elon Musk is at the delivery event and if

he talks. In a down market like this, Elon Musk talking is oxygen for Tesla investors. That is the kind of thing that they will look to. And that potentially could move the stock higher or at least stabilize it after the brutal year that it's been going through. Yeah. I mean, the problem is he might be too busy over Twitter looking through the supply closets at T-shirts that were left behind. And in fact, since that bid was put in for twitter the stock is down i think 50 percent or so um you know it's funny that phil said that neither of these analysts are coming out and banging the table on this the language that adam jonas uses a value opportunity is emerging it may not be here yet it's emerging that's correct melissa and and

keep in mind the one thing that you need to remember with Tesla shares, when they pop, historically, they move. They're off to the races very quickly. You can't just sit there and say, well, let me see if it goes up a little bit, and maybe I'll dip my toe in there. You either buy into it and wait for that pop, or you can wait until after it pops, but you're missing the real big move. Yeah, we'll see if that pattern holds. Phil, thank you. Phil LeBeau. You bet.

Now let's check in on the market internals. Mike? Yeah, Melissa, they've improved. They started off about 50-50. Now, overall volume levels, as you might imagine, are relatively light, but there is a more positive split in terms of the advancing versus declining volume here. Not quite 2-to to one, but pretty close to it. Take a look at the financial sector. The XLF ETF is now up at a more than six month

high. This takes you back to about May 4th, the last time we traded up around this 36 level. So higher yields at the same time that credit is holding together. OK, a decent formula for this value group. The volatility index has shown some downside. We're now under 21. It's bottomed this year a couple of times at or just below 20. Very similar angle of decline as we saw from June to August. So we'll see if it culminates in a similar way or not. All right, Mike, thanks.

We'll give you four and a half minutes to get ready for the overtime at the top of the hour. We'll see you then. All right, let get ready for the overtime at the top of the hour. We'll see you then. All right, let's turn now to retail shares of Nordstrom. In the red after reporting earnings, although pairing earlier losses, the retailers saying higher discounts are cutting into profitability. Meantime, we saw strong retail earnings this week from Best Buy, Burlington, and Abercrombie. All those stocks up double digits week to date. Joining us now, DA Davidson Senior Research Analyst Michael Baker.

Michael, great to have you with us. Hi, thanks, Melissa. It feels like the ones that have popped are ones that, you know, where the expectations were so cut down or so low that this was an upward surprise. I'm wondering what your take is. Is this any sort of a statement on the strength of the consumer? Well, yeah, certainly low expectations helped. but the XRT the retail ETF is going to go for instance the middle of the year- big under performance earlier in the year but

outperforming really since June thirtieth. I think some of that is that expectations have come down one of the things we saw the orange reports. This week is that inventory is still very high. But the year over year growth in inventory is

disarray did versus the second quarter so in other words the retailers are starting to work through that inventory glut and that trouble that they got themselves in uh over the summer so margins are still down but down less and i think uh investors are looking forward to the end of the year when inventory should be even a little bit cleaner and then next year when retailers can sort of start over with it with a clean slate, the market being forward looking in a way, I think we're sort of looking through the holiday season a little bit already. Mixed signals in the holiday season for sure. Some areas of spending, some areas of weakness. But I think it's the look ahead to clearing these inventories into better margins

next year. Yeah, the look ahead, though, in terms of the consumer is what, Michael? I mean, as we as we go out to next year and even beyond that, I mean, what we're hearing right now is a consumer that's showing signs of some stress. Savings being they're being drawn down. Credit use is higher. Debit use is down. There are lots of trade downs that we've been hearing about for the past couple of quarters over at Wal-Mart. Higher income consumers going to Wal-Mart. So so what is your take on where the consumer is? Are we going to start seeing the Fed's campaign actually work and therefore the consumer weaken at a time when retailers have finally cleared out their inventory? Yeah, no, I think you're exactly right. And earlier in the month, we cut all of our 2023 sales estimates really across the board and are below

consensus. And we did that after we saw the third quarter GDP report that showed savings rates down about 88 percent. The savings rate is about three percent right now. Historically, on average, it's seven percent. And during the pandemic, it got as high as 20 plus percent. So we are a little bit concerned about spending next year. We do think the margins will be better, but spending will be weaker. You know, So all in all, it makes us a little bit cautious heading into the back half or the last month of the year here. Not a great time to own retail. Black Friday to year-end retail has underperformed in nine of the last 12 years. So we really think you need to be cautious here tactically.

If you need to own anything, you want to own the names that have very little holiday exposure. Think the home centers, think auto parts retailers. Lowe's is actually a good name to own this time of the year. And O'Reilly has been a favorite name for us. And you also like O'Reilly and BJ. Ulta, O'Reilly and BJ's are the ones that we are showing to you right now. Are they buying opportunities right now, Michael? Yeah, sure. So the lows in O'Reilly, that's really back in the last month of the year of the tactical trade. Long-term, 12-month price targets, our favorite ideas are in May, BJ's, Alta, and O'Reilly. We like those three because the product mixes are recession-resistant. And also, none of those three have any kind of inventory issue.

That's been, of course, the big problem with retail this year. But these retailers really are not overstretching the inventories at all. We think of them as best in class. It's hard to call BJ's best in class when you have Costco out there. But certainly, BJ is a very high quality name in its own right. And we love the stickiness of their membership model. Wow, O'Reilly, quite a performance here today, up 20%, an outperformer versus the markets. Michael, thanks so much for your time and your take on retail.

Michael Baker. And here we are. We've got about 30 seconds left to the closing bell. We're holding on to gains here, although we're off the best levels of the day. The NASDAQ higher by about a percent. What we're seeing the most gains, I highlighted them before, the sort of growthier areas of the market, the higher valuation areas of the market. Software strong. ARK Innovation ETF is strong. As we close out this final session before Thanksgiving.

That does it for us here on The Closing Bell.