Closing Bell - Closing Bell Overtime 08/26/22

Episode Date: August 26, 2022

A fast-paced look at the after-hours moves and late-breaking news live from the New York Stock Exchange. Closing Bell Overtime drills down into stocks and sectors, interviews some of the world’s most influential investors and gets you ready for the next day’s action.

Mike, thank you very much. Welcome, everybody, to Overtime on this Friday. I'm Scott Wapner. You just heard the bells. We are just getting started from here at Post 9 at the New York Stock Exchange. In just a few minutes, I'll speak live to former Fed Vice Chair Roger Ferguson on what the Fed's next move is likely to be now after that very hawkish Powell speech in Jackson Hole, an interview you cannot literally afford to miss. We begin, though, with our talk of the tape, this ugly sell-off, what could be a reality check for investors on where rates are going and the fallout for stocks. Let's ask Liz Young, SoFi's head of investment strategy, and Joe Terranova, Virtus Investment Partners chief market strategist, both members of the Halftime Investment Committee, both sitting next to me here at Post 9. Liz, I turn to you first. What's your big takeaway from what was undeniably a very hawkish Fed chair today? Undeniably. But what I heard from him was, I don't know what everybody misunderstood from my comments before, so allow me to repeat myself and not leave a shadow of a doubt.

Still going to do what they were planning on before. He has said already he expects there to be some pain in the economy, both on consumers and probably on businesses and on the labor market. So none of this, and I know everybody has said this today, none of this has really been a surprise. I think the market got way too far ahead of itself in a valuation perspective and needs to pull back and stay at a lower valuation until inflation really does come down. But I am not calling for a catastrophe. Joe, he underscored, if nothing else, how resolute he and the Fed are

going to be. To Liz's point, the stock market was not as aligned as the bond market was with the Fed chair. And now the stock market's fallen out of bed for what it heard today. Is this an overreaction? What happens from here? So financial conditions have eased since the beginning of July, somewhere around 75 to 80 basis points, according to Goldman Sachs. What the Federal Reserve chairman successfully did today in his communication is he tightened those conditions over the course of four and a half hours, probably by about 20 basis points. And I think there was cause in him needing to do that. I think what unfortunately now happens for the market is that you lose a potential near-term catalyst for equities to move higher. Ask yourself the question, what's going to make equities move higher?

September 13th when CPI comes out, boy, that better be a significant pullback inflation. Otherwise, the chairman, consistent with his words, he's going 75 basis points at the end of September. Now you're really waiting for October to see how corporate earnings are going to be, if they're going to have that resiliency once again. Did you really think he was going to be dovish in any way? No. Today, how did we lose anything? By saying we lost something implies that the market was expecting something different.

Because without question, a minimum of 75 basis points was communicated to markets today. That's what you think? I sat with you. Yeah, absolutely. Well, that's not what Jan Hatzius of Goldman Sachs put out after the speech. He says, and I quote, we continue to expect the FOMC to slow the pace from here, delivering a 50 basis point hike in September and 25 in November and December. Who's missing what? That's not enough. No, I mean, that won't be enough. I don't think that he clearly delivered a this is going to be 75.

I think he still left a ton of flexibility to do 50. We might get 75 because he continues to communicate that we'd rather go at it hard first, right, and slow down later. But even if it's 50, it's 50 in September and another 50 in November, in my opinion, because they still have to be aggressive at this, at least through the end of the year. We talked on Tuesday about Jan's note. You said at the time to me, 50 basis points, 25 in November, 25 in December. I said markets rally. You said 75 basis points. I said markets go down. This was an extremely hawkish communication from the Federal Reserve. OK, quite candidly, I hope next year the chairman skips Jackson Hole because this is two

years in a row that he's put the markets offside. In eight minutes, he put everybody offside because that's how long the speech was. For all the buildup, he spoke for eight minutes. Do markets go down three and a half percent because they're happy with what the chairman said? There's something in what the chairman said today. To your point, Scott, at the opening of the show, it's inconsistent to the performance of equities since the beginning of July. They got a little bit too far ahead of themselves. He's recalibrating expectations. Now, I don't think that means you're a seller of equities here. I just think you're going to have to do what? You're going to have

to go back and focus on time. It's going to take a little bit longer to navigate through this process. I had somebody call me today, a very well-known hedge fund manager, say that Powell's clause came out today and that the market is kidding itself if it doesn't see it. That he invoked Volcker for a reason. Who kept interest rates high for two years? This has been 10 minutes. And the market somehow is convincing itself or had at least before a thousand point sell off in the Dow that rate cuts were coming next year. Powell slammed the door. At least he seemed to slam the door on that, not knowing obviously what the next six to eight to 10 months are going to bring. Yeah. So I think his clause came out in the sense that he feels like people haven't been listening. But there's two distinctions I want to make here. What the market had been pricing in as far as hikes for the rest of the year and in 2023,

even a cut that still might come March, June, whatever the time frame is, that didn't actually change very much today, even after he spoke spoke but what I think the market needed to get used to is his comments around the pain that he expects to be inflicted because before this the rally was really predicated upon we're gonna be able to manufacture a soft landing and it's gonna everything's gonna be okay now I still think that's possible but that's where the market was pricing was this soft landing was pretty sure and now we're hearing, you know what, he's okay with the recession. He's okay with some more pain. I'm okay with some more pain too,

because I think we have room in parts of the economy. It's just a matter of how heavy is that pain and how fast does it happen? Leaseman, Steve Leaseman, of course, our senior economics reporter out there said that particular comment by Powell of the fact that there's going to be pain for households and for businesses was the clearest cut sign yet of how resolute the Fed is going to be and maybe in some sense what they're willing to tolerate, that maybe they are willing to tolerate a recession because that's the only thing that's going to break inflation's back. The question now becomes, how serious is a recession going to be and if it's a formality? So I think the economy is falling from a much higher level. So just take as an example, the ISM manufacturing readings before Memorial Day, they were up at about 56 or 57. They're still in expansion territory at 52 or 53.

So we're falling back from a much higher level. But, Scott, without question, the price that you pay to combat inflation is an economic contraction. That is the only way out of this. You cannot increase supplies of goods. You cannot increase services. You can't add barrels of oil. You have to have demand destruction. And that's what the Federal Reserve is going to do without question. Now, the easiest thing to do is to listen to what the Fed chair had to say today,

to look at a 1000 point decline on a Friday in the Dow as a result, a near 500 point, near 4% decline in the Nasdaq and say, OK, the story of stocks is over. That is not that is not how Tom Lee sees it, who was on halftime with me today and said the following. There's, I think, a misconception that just because the Fed is raising rates, markets have to fall. It really depends on how much is priced into market expectations already. If you look at the rates markets, it's already priced in the Fed being pretty aggressive into year end and actually even staying pretty tight throughout 2023. Okay, so that's Tom Lee. Now let's add to the conversation Bryn Talkington of Requisite Capital, member of the Halftime

Investment Committee, of course. So I want you, Bryn, to respond to what Tom Lee has to say, that everybody's getting a little overboard with the notion of what the Fed's going to do and the fact that stocks still can't perform. He still thinks you can do 4,800, if not more, on the S&P this year. I mean, he was right during COVID, in the dark days of COVID. I just don't see it, though. And so what Tom is saying is, well, the market can go higher as long as we know when the Fed's going to stop. But when the Fed is telling us they need months and months of data, and we have not been in this inflationary environment in decades. So anyone going back and saying, when you look back at previous Fed hikes, if you're talking about the 2000s, throw that out the window. And so you have the consumer is slowing, which is 70% of the GDP.

GDP is slowing. The Fed is tightening to a slowing, stalling economy. And guess what, Scott? We have QT starting next week. And so I just don't see how we have this V-shaped rally over the next four months to end where we started in January, just because the ingredients aren't here. Because also you think about this, Jay Powell, every single word was scripted. When he's using words like pain, that's a very specific word. He's trying to tell us and tell the market and tell the Americans what is to come. And so we are going to have a recession sometime in 2023.

I also don't think the market will whistle past the graveyard and just race to 4,800. So I think Tom is great. I get what he's saying. I read his research. I just think we're going to be in a much choppier market. The trend lines on the S&P and the NASDAQ, we are making lower highs and lower lows. That has to reverse, first of all, and that we're going in the wrong direction right now. So I'm in the camp that we are going to chop along this until we get nicely over the 200-day moving average. I don't think we're even close to start moving in the direction that Tom's talking about. I'm going to distill what you just said, Bryn, as I throw it back to you again for a follow-up of four words. Don't fight the Fed. That's exactly what you're saying. That's essentially what you're saying. I am saying that, yes. So, I mean, we've written multiple pieces. I've said it all year long.

Don't fight the Fed because there are two people in charge of this market, the Federal Reserve and the algos. And, you know, earlier you, Liz and Joe were talking about the market moving up in July and early August. We had one of the biggest short coverings in years. And so that energy of what's happening with the algorithms and the hedge funds doing that massive short covering was a huge part of the rally. And then, I mean, we bounced right off that 200-day. And so, once again, the Fed and the algos are in charge. Don't fight the Fed. You know, we're invested.

We're buying companies, right? We're buying. We have a lot of new clients with cash. And so we're dollar-cost averaging. But the way we're doing it is smaller amounts, longer time, because I think there's going to be opportunities to pick up really good strategies and companies here. But anyone thinking that we're going to go straight back up, I think, is not managing necessarily clients expectations to what probably probabilistically will happen. Now I turn my attention to Mr. I'm thinking of buying the Q's. Words that you stated multiple times this week. That would seem to fly in the face of don't fight the Fed.

Does it not? And are you still thinking of making that trade? Well, first of all, I haven't bought the Q's yet because you know me well enough to know I like money more than I like being right. OK, so I'm sitting back patiently with discipline, waiting for an opportunity. I think the downside of a 4% decline today might be deemed an opportunity. You're back into the moving averages right here, a little bit below the 100-day moving average. I'll probably wait a couple of days before I put that trade on. But from the perspective of how you strategically want to approach the market,

this is what I believe is going to be working as we move forward. I think the downside is protected by the chairman's comments that the economy, as a result of his actions, is going to contract. What does that mean? That means that the price of oil is going to move lower unless you get some form of an exogenous supply shock. As the price of oil moves lower, that's going to buffer and protect the downside in the market. Yeah, but you're painting a pivot picture again. No. Maybe not wrongly. Maybe not wrongly.

I mean, if you say that economic conditions are going to deteriorate. And oil will go down in that form. But if economic conditions deteriorate, that will, in theory, cause the pivot, the great pivot that everybody thinks is going to happen. I'm not. My thesis is not predicated on a pivot. What I'm just saying is the downside, the downside is protected. Do I think that you could be a passive index investor? And Bryn is talking about not getting to 4,800 again for the S&P. I don't disagree with that at all.

But I say don't be an index investor be a strategic investor understand that growth growth at a reasonable price quality growth comes back. I wouldn't be investing towards cyclically sensitive businesses. I wouldn't be investing towards hyper growth. I would be investing towards health care. I would be investing towards healthcare. I would be investing towards mega caps in an environment where growth is scarce. You want to invest strategically around that type of growth. I would be a strategic investor, not an index investor. Liz. I agree. You have to be more specific in an environment like this. I am not at this point comfortable with going full-on into

technology. And if that means the queues, that means the queues. But because you have to think about what gets punished in this environment, as the Fed keeps raising rates, which they will, tech communications are going to continue to get punished, and there's a lid on the opportunity. If you want growth potential, I completely agree with healthcare. And you have to think about, too, things like consumer discretionary. What if the consumer does end up holding up? And even if the labor market softens a little bit, consumers keep spending. Think about what is the growth that could get us out of this. I think it's more like health care and consumer discretionary.

Bryn, what if Hotzius is right? What if Jan Hotzius is right? And that he should continue to expect the FOMC to slow the pace from here, delivering that 50 basis point hike in September, 25 in November and December, as he wrote today after what Powell had to say, Chairman Powell had to say. What if he's right? Then this upset might be much ado about nothing. I think Jan could be very right. I actually, there really was no need to listen to Jay Powell today because the market instantly, the algos instantly reacted and told you what was happening. I actually did go back and read

last year's meeting. And on this very topic, Chairman Powell talked about how rate hikes can take up to a year to actually fully embed themselves into the market. And so, you know, Scott, 275 basis point moves are massive. And so doing 50, I think is wise. 375, you would have to have over the next couple of months that the data is continuing to be hot because once again, he said, and they've said repeatedly, this takes a long time to get and make its way through the economy. So to me, 50 is not a dovish pivot. 50 is just acknowledging that 275s were extraordinarily high and aggressive. Yeah, but you could make the argument, though, Bryn, that the market was fully expecting, let's say, 50, that 75 would suggest that the Fed thinks inflation is going to be higher for longer. And that's the biggest risk in this whole thing, I think, to begin with, is that inflation is going to be higher for longer and thus rates are going to be a lot

higher for longer than people are thinking about. That to me is number one risk in the in the big picture. So, Scott, tell me a time on this rhetorical when the Fed has done two seventy five basis point rate hikes. Plus, let's say whether they do 50 or 75. I don't know when the economy has had two negative quarters and is continuing to slow. It's so rare. Like we are in these like really very nebulous times. And so this is why I think it's so challenging for me to really like wrap my arms around some V-shaped recovery just because we are in these uncharted waters. It just doesn't work that way.

The Fed doesn't tighten into a stalling economy. They stop and start cutting. And so I just think that investors need to tread lightly. That's why I think Jan is probably spot on with 50, because the Fed doesn't want to over-tighten and do 375 basis points unless you get that inflation number continuing, like PCE more importantly, to move higher. That does feel like maybe even understating, like risks one through five are hotter inflation for too long, thus higher rates. And the Fed is really behind the eight ball if it faces.

That's like the worst dilemma for Jay Powell, is it not? I said the other day they're boxed in at that point. If the rate hikes don't work, what do you do in that situation? The only mechanism I believe he has at his disposal is to weaken the economy and weaken it significantly. And that would be the message that I believe investors should be focused on today. I don't think it necessarily equates to a market that takes out the 4,800 or breaks below 3,600. I'm an investor in equities. I want to be in equities. But I to be in equities. But I think the message is the economy is going to contract.

Do with that information as you wish. People that were telling you this is the roaring 20s or that the economy was going to accelerate, I just don't see that as consistent with his message today. There are still people who think that you're going to still have the roaring 20s. It's just going to be a bit delayed in taking off because of the current environment that we're in. We're only in 2022. You've got a lot of the 20s left. So we'll see. We'd love for you guys to stick if you can. If you have plans to cancel them. I don't know what else to say. Bryn, I really appreciate you joining the conversation,

too. We'll talk to you soon. Let's get to our Twitter question of the day right now. We're asking, what will the Fed do at its next meeting in September? A 50 basis point hike. Will it be 75? 100? Head to at CNBC Overtime on Twitter. You can cast your vote. We'll share the results coming up at the end of the show. Now, you know about the-off today, the Dow losing more than 1,000 points after Fed Chair Powell's speech at Jackson Hole. He said there's going to be pain ahead. More to react now is the former Fed Vice Chair, Roger Ferguson, who joins us now live. We're grateful for your time today out in Jackson Hole. What was your reaction?

What is it today to what was, as we say, an undeniably hawkish chair? Look, my reaction was very similar to yours. Undeniably hawkish. I think the market, I think, has decided they're going to listen, which is why the equity markets, as you've been talking about, came off quite a bit. And importantly, he left three lessons at the very end. One is that the Fed, the central bank, is responsible for inflation. Two, that well-contained inflation expectations are not a cause for complacency because they might change at any moment. And the third thing he said that struck me was that they intend to stick with it. So lesson very clear, a resolute Fed chairman today here in Jackson Hole.

Oh, boy, you walked right into my follow-up question was on that exact point of the nature of how resolute Chairman Powell sounded today when he mentioned the pain for households and to some businesses. Steve Leisman, our senior economics reporter, of course, at that very moment flagged it. Did we not think that he was going to be as resolute as he sounded today? Why the disconnect between what happened today there and what I'm witnessing here at the stock exchange? I'm not 100 percent certain because I was not particularly surprised that he was resolute. He certainly talked about the word pain. He said that there was going to be a long period of sub-trend growth.

He also talked about having to keep rates higher for longer. None of those things were a surprise to me or I think to many other listeners. I think what's really going on here is that the market themselves have gotten excited about the possibility of a hump, moving up a bit and then coming down sometime next year. And I think today he took that off the table. And I think that was the point of disconnect, was not intending to signal any sense of a cut anytime next year. Yeah, I mean, he invoked, as I said, Mr. Volcker today, not by accident, I would assume. And by the way, as you know better than me and better

than most, Volcker raised rates for a long time. We have just essentially started on this path of this new regime. And it seems like the market is so hasty to think that Chairman Powell is going to reverse course when he is clearly citing, if not using, the Volcker model as he figures out how to break inflation as the former Fed chairman did himself. Look, I think you raise a good point. By definition, nothing in that speech was accidental. It was a well-scripted speech. He read it word for word, so not an accident that he invoked Paul Volcker's name. I think we have to recognize that the current situation is not as dire as the one that Volcker confronted, in part because inflation expectations are currently reasonably well anchored. But importantly, he wants to, Chairman Powell wants to make sure, as he says now, that paying

now is far less than paying if we delay. And so he's been clear there will be pain, but I think he sees this as a path towards a much more sustainable economy. I think where the break is with the market, or was with the market, is the willingness that I think the Fed is clearly signaling to see us go into a slowdown here. And I think the market had not expected the Fed to be so ready to talk about pain. The other thing that was interesting today was he did not talk about a path towards a soft landing. And so something that came off the table was the soft landing or softish landing discussion

and a path towards that. That was, in my mind, noticeably absent, along with the things that were noticeably there. Mine as well, which is I wanted your reaction to that exact point, because it wasn't lost on a lot of people that he did not go there. And does that tell you that Chairman Powell, gosh, if not almost wanting a recession at this point to really break inflation, he's fully prepared that that is likely to be the result? I certainly would say that no one wants a recession. It is very painful.

I think what he's observing is that if a slow economy, perhaps a short, mild recession, is the price to be paid for getting inflation out of the system now and maintaining credibility, he is willing to go there. So I wouldn't say wanting that, but I think he signaled clearly that a period of below-trend growth, some pain for households, is more likely than not. And I think he's setting us up for, you know, what could be a harder landing than perhaps he had mentioned earlier on.

So let's finish up, if we could, sir, with trying to put the chairman's words into actual action. What happens in September, your best guess? What would you argue for if you were in that room? Well, let me talk about what happens between now and then. I think between now and September, they certainly, it's clear that at least 50 basis points. I think they're going to want to keep 75 basis points as a real option. The week before the meeting, there will be new data, freshest data on inflation. And I think they want the ability to go 75 in September if that's what the data call for. You know, after that, I think perhaps another 50. So, you know, I think they're going to try to be

as front loaded as they can being data dependent. And so between now and the next meeting, 50 for sure, keep 75 as an option. When we get to, when they get to the meeting, 75 very much on the table, maybe even likely if the inflation data called for that. And then I think they want to also signal that they're not going to reverse course too quickly. So they want to keep this tightening of financial conditions for as long as they possibly can. And lastly, before I let you go, I want you to react to an email that I just got, and I don't think they'll mind me mentioning this on the air. They wouldn't have sent it to me in the first place. From Jeffrey Gundlach of Double Line, who, when he was last with me, had suggested that

Powell was on the ladder and he's finally painting. And here he says, Powell, the painter, just underscoring the point that he has his brush out, he's got his cans of paint out, and he's going to do what he has to do. Is that how you see it now? If the market had any doubt about the resolve of this Fed chair, whether he was taking inflation seriously or not. There is no doubt left anymore after today. Is that fair? I think it's fair. I think there never should have been any doubt, but it was really important seeing the disconnect for the chairman today to be as he was resolute. And as I said, the lessons at the end, you know, the Fed takes responsibility for inflation,

cannot be complacent because inflation expectations are contained, and we have to stick with it until the job is done. And if that means some pain, then I think he's clearly saying he's prepared to take the economy to that place if that's what's called for, for them to do their job, which is keep inflation under control. Mr. Ferguson, I'm grateful for your time today. Thank you so much. I appreciate it so very much. That's Roger Ferguson, former Fed vice chair, as you see there in Jackson Hole, reacting to that speech today, which sent the market into a bit of a tailspin over the last few hours of trading. The Dow finishing down by 1,000 points. Meantime, we will have much more reaction to Chairman Powell's speech in a CNBC special this evening

called The Fed Factor. It's hosted by Dominic Chiu and another gentleman Powell's speech in a CNBC special this evening called The Fed Factor. It's hosted by Dominic Chiu and another gentleman who's been in Jackson Hole gaming this whole thing out and talking to the people who matter. That's our own Steve Leisman. Tonight, six o'clock Eastern time. It's time for a CNBC News Update now with Shepard Smith. Hey, Shep. Hey, Scott. Thanks very much. From the news on CNBC, here's what's happening. A redacted version of the Mar-a-Lago search affidavit released today by the Department of Justice. Among the revelations that the search led in May, the FBI recovered 15 boxes from Mar-a-Lago and 14 of them had classified markings on them, including 67 documents marked confidential, 93 marked secret, and 25 marked top secret.

The redacted affidavit does not reveal specifics of the material or Mr. Trump's reasons for keeping it, only that some of the items had the highest national security restrictions. The affidavit also stated the search would likely find evidence of obstruction and that there was probable cause to believe that classified national security materials were being improperly stored at Mar-a-Lago. The former president responding, blasting the entire process, calling the raid a break-in, a witch hunt, and a total public relations subterfuge by the DOJ and the FBI. Tonight, much more on the fallout from the release of the redacted affidavit. Dom Chiu and Steve Leisman talk the markets with us and the FBI. Tonight, much more on the fallout from the release of the redacted affidavit.

Dom Chiu and Steve Leisman talk the markets with us and the Fed. And we'll meet the man in charge of Monday's Artemis mission to the moon on the news. No pundits, no panels, no opinion. 7 Eastern, CNBC. Scott, back to you. Just the facts, man. That's what you got. Shepard Smith, we'll see you tonight. Thanks so much. Look forward to that. Bank stocks. Actually, let's take a look at the market reset. I should do that first. I told you that the Dow was down by a thousand points, a little bit more than that. NASDAQ totally upset today, down about 500. So a significant loss for technology. Joe Terranova still sitting with me. We good? He's good? All right, he's good.

We're trying to get him checked back in. It's live TV. It's what happens. No breaks. It's what we do. Let's go. So yesterday, I think I had two technicians on the show, at least one, and then somebody who follows the technicals, too, to try and glean what happens from here, suggested that the technicals were in favor of the Bulls.

We had gotten above the, I don't know, what was it, the 20-day and the E-minis, and then, you know, the next time we bump up against the 200-day moving average, said Paul Hickey of Bespoke, we're going to go through it. Now here we are, 24 hours later, has that whole game changed? No, I don't think it has. I really don't. You're still at the upper end of the range that was established since the early part of July. So we were able to successfully build some positive momentum from those treacherous levels that we witnessed in June. We carried that through the month of August. I think right now the perspective that bullish algorithms are going to have at this market is that consolidation equals up. They want to see consolidation. So I think the next several

days are going to be very critical in the market. I'll go back to any form of criticism that could be put my way towards my comments and saying I wanted to buy the Q's and I haven't bought them just yet because I'm following that momentum over the next several days. Well, I'm saying like you said in the next, I think you said in the next few days, I'm going to look at that trade. Are you insinuating that you think the Q's are going to come down further more and give you an even better opportunity than the 4% sell-off you got today? So I always look at everything through a statistical probability. And right now, the probability of further declines in the market is very high. That's just based on where we are. The surprise that was delivered from Chairman Powell, I've heard people use the word

he walloped the market. He did. Without question. But I'm going to take issue again with this notion of a surprise. The only surprise was theoretically for the people who haven't been paying attention, who thought he pivoted when his press conference happened the last time. So what you're not doing there respectfully is you're not including a lot of the non-discretionary rules-based funds that account for hundreds of billions of dollars within the market. Now, you could argue and say, hey, look, they're following some stuff that's voodoo. Okay, that's fine. That's someone's perspective. But they are participating in markets. They're

driving markets. Bryn mentioned algos. They're non-discretionary. They're not taking information and acting upon it, what the Federal Reserve might just do. They're focusing on range expansion. They're focusing on volume expansion. They're focusing on particular stocks leading the market higher. And they're focusing on technicals. All of those conditions have been positive for the better part of the last six weeks. And that's where I say the market was a little caught offside because the algo community was leaning towards a breakout above the 200 day. Yeah. Well, let's add another voice to the conversation. It's David Ellison, Hennessy Funds portfolio manager. He joins us right now to react to all this as well.

Your headline, it's good to have you on the show, is that the Fed pivot is postponed. I could make the argument very easily that it was never scheduled. Well, I guess, you know, the bulls have been wanting you to pivot. The market's gone up sort of anticipating that. And I think the bulls got everything they want the last couple of months and now they didn't get they got a very quick sort of, oh, no, it's not going to happen. But I think, you know, today's action is I don't know. This is what happens when markets move very quickly and the Fed is involved.

You know, I've seen rates go up and down. I don't think it really matters that much. Rates aren't really that high yet. I don't think they're going to get high enough to really make that big of a difference and, you know, really take the economy down. I think the issue is supply chain. You know, we had the financial crisis in 2008.

That was a financial crisis. They were illiquid and the Fed had to come in. Now it's not. Inflation had to come in now it's not inflation is really different but it's it's the supply chain that's going to be fixed by. All of these big companies have got to fix and that's going to

take a while. And that's creating the inflation in the fed is acting to try to. Sort of balance it out but I think it's an opportunity here I think if they move rates higher the market may go down more may test the new lows.

But that's an opportunity long term. For everybody because I think this is not going to go on forever. Capitalism is too strong. It's too embedded in the system. There isn't any colas. You know, you're just not going to get a long term spat of inflation like you had back in the Volcker days. It's just the economy is just too capitalistic now. I know. But what if the Fed breaks it in the process of doing what it's doing isn't that more likely than not well

you know i i think the question for the market is whether the fed's action will close wall street and when i mean close wall street meaning not being able to raise money, not being able to do IPOs. We know now this year has been very bad for IPOs. There's been a lot of delay there. You know, it's been not that bad for raising debt. So Wall Street is still kind of open. The banks are very liquid. They're lending. They want to lend. As rates go higher, they're going

to want to want to lend even more. Yes, there there's credit issues but there's plenty of good lenders out there so. Wall Street is open companies can finance themselves I think the companies that are in trouble. Where there's risk for owning them are the ones that are losing money and need capital. Because they're going to have to dilute shareholders big time to get that additional capital so. stay away from the money losers because they're going to have trouble because Wall Street is starting to sort of not want them to be, you know, in the game of raising capital now. You mentioned maybe the idea of going back and testing the lows and that would be a buying opportunity. Now, it's easy to say until we actually start going back down to those levels

and everybody feels like garbage. But is that your base case at this point? Do you think we're going to go back and do that, or do we come too far, even with how bad we feel today with a 1,000-point drop? Well, let's not take one day and turn it into a bear market, and let's not take one day and turn it into a bear market and let's not take one day and turn it into a bull market. So let's see what happens next week. Let's see how the Fed said their piece.

They're not going to talk again. Hopefully they'll just shut up and go on vacation next week and go off and do something around Jackson Hole and not be seen again for another week or so. And let's let the market deal with the fact that, you know, rates are going to be a little higher and maybe financial conditions are going to be a little tighter. And the QT is going to start next month. And let's see what happens. And the market may say, look, you know, the you know, the things are, I think, is difficult now from from an emotional and verbiage point of view than they've been in a long time, because you got the Fed saying, oh, no, we're going to raise rates. It's going to be tough for a long time. A lot of the words they used were he used today were pretty tough. I mean, here's the Fed chairman

writing a speech and it went on for, I think, eight minutes or something. And he used some pretty difficult words in terms of it's going to be difficult. We're going to have some hard time. So he didn't just say that off the cuff. And so the market's dealing with that now. And so, you know, that that's again, that turns into the buying opportunity. Maybe it's not today. Maybe it's next week. Maybe it's next month. But I think that's you know, we're getting to the point now where we have maximum pain emotionally and the Fed is exerting it. So, you know, we'll see what happens. It's the art of the jawbone like I've never seen. And we'll see if it comes to fruition, how he maybe hopes his words do what the actions not necessarily or don't necessarily have to match with. Now, the whole reason we had you on today

was to discuss financials, which is the portfolio that you manage. So let me let me go there, if I may, because it's a sector, frankly, that we haven't talked about in a while. And while we talk about health care is a good place to be or maybe you want to be in energy or tech is really in question now. I don't hear a lot of people talking about the financials these days, and maybe that's in part because they don't think rates are going to rise a lot from here. Why should I be into the financials in a time like this? Well, I think, you know, my view is, again, I have both. Both funds are fully invested.

So it's not like I'm, you know, 20 percent cash waiting for the end of the world. Just to give you some, you know, just full disclosure. But my view is that, you know, we've been struggling in this sector for many years now. It's always been credit. It's been rates. You know, the view is that the U.S. is going to end up like Japan. We're going to have zero rates. Mortgage rates are going to be at one percent. The banks are going to have no spread and they're going to trade at half a book. That's Japan. And it looks like, you know, that that may not happen. And so if you get rates that that move up a little bit more and stay at this

level or a little bit higher for the next, let's say, three to five years, that's a tremendous opportunity for the banks because it's going to allow them to lend at much higher levels. So if you look at Bank of America as example, their current yield on assets today or at the end of the quarter was 2.23 percent. So again, 2.23 percent. The three-month T-bill is 2.7 percent. The six-month T-bill is like 3.10, 3.1 percent. So they've got this massive opportunity to raise the yield on assets over the next couple of years. And if they can hang on to some semblance of deposit costs, margins are going to are

going to expand noticeably. And that's across the whole traditional bank sector. We haven't had that opportunity, you know, in a long, long time in terms of seeing the opportunity to raise revenues. And again, if rates go right back down again, then you're back to where you were. But my sense is the Fed's going to keep rates higher longer. And so that will be good for the for the group. I appreciate your time and I appreciate you doing your own pivot and talking to us broadly

and reacting to what the Fed chair said today before I hit you on your wheelhouse of what are the financials right now. David, we'll talk to you soon. That's David Ellison again, Hennessy Funds portfolio manager, joining us live in overtime. In today's halftime overtime, the cautious call on NVIDIA. You need to hear about this noted tech investor, Paul Meeks, telling CNBC Asia he would not be a buyer of that dip. Those shares are down more than 14% since the company's earnings warning. Joe, you own the stock. What about Meeks, who had, I've got to say, pretty tough talk? The way I look at NVIDIA, I think, unfortunately, it can go lower.

I wouldn't be a buyer even on the dip. Every time they report or communicate to us, they're lowering numbers yet again. You can't buy a stock like that. What do you think? Well, i'm obviously long nvidia i purchased nvidia in early july i asked you to react i purchased nvidia at a much lower level at 148 so i'm playing a little bit with the house's money uh last quarter sales growth of three percent not good we understand that three-year sales growth for this company should be where it's been, which is up around 35%. That's problematic. We understand the issues surrounding gaming. Management has been incredibly clear with us on that. I spoke the other day with Jim Cramer on Halftime about the concerns I had with Ethereum mining going away.

That's a significant amount of demand for GPUs that's not going to be there. That really, Scott, is all priced in. I look at this company and understand that you must have a very long-term perspective on it. And I know that that can be difficult in the interim for investors to digest for a company that's very volatile. But if you're willing to be patient in the long term, this is a company that is a leader. It's at the forefront of all the places you need to be in the industry. They, along with AMD, are the leaders in that. And sometimes you have to set the expectation. You're going to have to incur volatility in this stock. Assuming data center demand, which is the other critical part

of the story, it's not just gaming, it's data center. And if gaming is going to be worse for longer, data center needs to be stronger quicker. And it needs to pick up a lot of the slack that you're going to lose from gaming. No? Respectfully, you left out cloud. And that's where a little bit of the strength has been for NVIDIA. So it's kind of somewhat of a balancing act there. You've got a lot of respect for these today.

That's the second one I've noted in like three minutes. You're the judge. I mean, of course we do, especially on a Friday with the market down so much. Just making sure. But I think that has to be something you have to, sometimes you have to set the expectation on timeframes. And I think overall, 2022, I've said this on air, this isn't a V, this is a U. And that's why it feels so weird to people because we haven't had this since 2008. Mike Santoli, I mean, what a difference a year makes for, I don't know, arguably, if not the one of the most loved stocks of all time. For sure. You know, one thing that probably has weighed on it, in addition to everything else, is obviously the sort of whiplash of being this hyper growth story. And then it comes down to a kind of a period, a lull

in growth. It's still a $400 billion market cap, still a top 10 weight in the S&P 500. So I think when the market itself is getting swamped, it's not going to typically escape that very easily. It's more than double the market cap of any other U.S. semiconductor stock right now. So just think about that, right? I mean, double, more than double the market cap of any other U.S. semiconductor stock right now. So just think about that. Right. I mean, double more than double Intel, Qualcomm, any of them. So I think that's just part of the mechanical piece of it. And it's a matter of waiting for the numbers to trough and then start to go up, because when that happens, it's not going to matter so much what the nominal multiple is. I know I know you scoff at the notion of long duration assets, so-called not doing well if rates rise. It is a fact of life, though, right now in this current environment

that if rates go up, that tech's going to have to try. I don't scoff at the fact that it's a factor. I scoff that it's the simple skeleton key for deciding what happens to growth stocks. By the way, Yield did nothing today. That's right. Nothing. OK. And tech got destroyed. So I think it's much more about, you know, it compresses valuations across the board. Where are the premium valuations? They are in growth tech. When rates are going up and nominal growth is going to be high and the Fed is talking about keeping rates higher for longer, that's the kind of economy that in theory you should have more real asset and cyclical stuff do better.

So it's a flow of funds out of, you know, growth stories into other stuff. So it's not that it's not maybe it's a distinction without a difference. But I would just point out that the moves in tech have been so much more dramatic than could be explained by what's happened in rates that you can't just reduce it to that. I'm glad I'm glad I'm glad you you explained the scoffing. We got to the bottom of that. I don't like unexplained scoffing. I understand. Forgive me, Joe, for interrupting. But let me ask you this. When you lose 1,000 points in the Dow on a Friday, what do we glean from that in a market that seemed to be set up

rather well technically? Now do we have to rethink everything? The degree to which it was set up well technically, and I've been leaning on this with you for a while, is the credibility gained by the character of the rally off the low. It wasn't at 4,200, it looked like it was going to the moon. It was, it seems as if you had a pretty good favorable supply demand. You still have, you know, hedge funds, massively short S&P futures and all that kind of backdrop. I completely agree with Joe in the sense that in a time of year when the people making decisions based on macro and fundamental information are less a big part of the pie of the action day to day, and it's more about the trend following systematic traders. Yeah, then you get a little bit of a melt like that. By the way, they also exacerbated the upside of the rally the last couple of weeks. Just put a quick

coda on that. Then I got to run. But I want to give you that opportunity. No, it works both ways. And I think that, you know, you're both right to be thinking about technology and as a longer duration asset. The only important point is it's such a large sector. Part of that sector. Yes. Longer duration exit. The other part of that sector. It's the type of growth that you want. All right. I'll see you in a little bit for your last word. Speaking of technology, our technology reporter is Steve Kovac. He's wearing a couple of different hats today. As you know, stocks are selling off, or they did, into the close. You have a look at some of the other movers we need to keep our eye on here? Yeah, Scott, I got an all-tech edition for you today. Shares of buy now, pay later giant Affirm falling 21% today after reporting mixed results

in Q4 earnings. But it was the light guidance for the current quarter and full fiscal year that really hurt the stock. And on top of that, Affirm is about to have a new major competitor entering the space. Apple expected to launch its own buy now, pay later service as soon as next month. Meanwhile, Salesforce also struggling today. Off earnings down 5%. The company revising guidance lower, blaming economic headwinds, especially foreign exchange pressures amid concerns businesses are spending less on IT. And finally, Apple down more than 3% today following a political report that DOJ could file an antitrust lawsuit against the company by the end of this year. Regulators in the U.S. and around the world have been probing Apple's market power with its App Store,

and any antitrust action against the company is likely to focus on the fees it charges developers to publish and sell apps on iOS. Scott, back to you. All right. Steve Kovach, thank you for the Alltech edition. We appreciate it. We'll see you. Energy, the best-performing sector today, the best performer this week. Pippa Stevens has more on those stocks for you, Pippa. Hey, Scott. Well, you know, energy did perform pretty well this week in an otherwise very bleak week for the broader market. And the strength was really led by the upstream players. That's name likes APA, Oxy, Fang. All those guys were moving higher. And that follows a rebound in oil and gas prices.

Oil once again higher on the week with Brent back above $100. And natural gas holding above the $9.30 per MMBTU level. And that is providing some lift for energy equities. And the group has been really hit hard based on weakness in the broader market. And it's down still sharply from the high back in June. And so this is an indication that maybe some investors are saying the downside was overdone. And given that rising commodity prices is a fear in the broader market, there are some saying that if you own the sector, that can help insulate against some of the headwinds from higher commodity prices. And we look at what's going on in Europe, and they are just seeing their prices skyrocket over there, which begs the question of what's going to happen in the U.S.

in terms of our LNG capacity. So there are a lot of kind of factors to watch here going into the back half of the year. All right, Pippa. Thank you. That's Pippa Stevens joining us there. I think, Joe, I think every final trade today on Halftime Report was energy. So is that now we back there or now we have a crowd again? What's the story? It's been like that for weeks. I think energy, I think the pricing of both natural gas and oil

is probably the most important indicator, both for monetary policy and how markets are going to react. If we get an economic contraction, can we get demand destruction in terms of utilization for gasoline and oil and therefore bring down the price of oil, which kind of buffers the downside for equities? Or are we in a situation where you have some form of exogenous supply shock? I'm not trying to scare anyone, but we are in hurricane season. That could greatly impact refiners if they needed to shut down. So I think energy is a leading indicator. Again, I utilize it as a hedge in my portfolio. That's really what it is.

So, Mike, my question, I think, to you would be, is energy leading the market, good or bad for the market? Right. I don't think it's the best for the market if energy is the thing that's mainly leading. I would almost look at it the other way around. It's like if the market's struggling, energy is probably the haven. A lot of roads lead in that direction. You hear people constantly saying, buy stocks where the earnings estimates are going up. Buy stocks that are returning capital. In other words, a lot of the ways that you think you can insulate yourself from a tough tape kind of make your way toward energy because those are the stocks that have those characteristics.

That's why people say health care, too. Although health care has even faltered a bit in the last little while. So energy is the one that has that kind of bigger picture story behind it. And utilities. Yeah. Think about your last word. I hope you got something left. I thought you were on the table already. I'm going to come back to you soon. I'll come back to you soon. That's Mike Santoli. Stocks plunging today. As you know, the S&P 500 closing down more than three percent. Let's bring in Barry Bannister. He's Stiefel's chief equity strategist. Good to see you today. Thank you for joining us on this Friday. So what now? Well, Powell didn't want the bullish Wall Street reaction, but he knows that policy works with a lag of about six months.

So whatever they do in September is going to show up in first quarter March of 2023. They're aware of that. And as a consequence, I think by then you'll have much lower inflation, much. And I think that the Fed will be more in a position to turn more dovish. The market hopefully anticipates that in advance. So I wouldn't overreact to what we saw today. I looked at all the measures before I came in here. Financial conditions are only back to where they were on a five year average prior to COVID. P.E. ratios have gotten more reasonable. So I really don't expect the new low crowd to win out on this one. So nothing significantly changed today. I mean,

do you feel like the stock market was just a little off sides with Powell? The bond market in recent days sort of moved more into alignment where perhaps they thought the Fed was going to be. Maybe it just took the stock market an extra day to get there. I think, you know, if you think about the market, it tends to move directionally right, but then gets ahead of itself or overshoots on the downside. I think it may have gotten a little ahead of itself in the very near term. But six months from now, and that's when the policy will really take effect, we're going to have dramatically lower inflation, energy, food, goods, even services, shelter, rent. They've all either rolled over or all of their leading indicators have rolled over. I would worry a lot less about that. We didn't, as you said before on the show, have that much of a bond market reaction today. So it didn't lead me to believe that valuations

will go under a lot of pressure. Earnings are still good. Consumers are still sitting on two trillion dollars of extra cash. The top 75 percent of all consumers distribute that cash fairly well. It's not all concentrated. So the situation is really not that bad. Every leading indicator indicates there's no traditional recession until June of 2023. So I would take issue with this. What if, as you say, you know, six months from now, you expect inflation to be a lot lower than it is now? And we obviously all hope you are correct. The problem with that is, OK, great. So it goes from nine percent to five percent. That's not two percent. And then they still have a lot more work to do to get it to 2 percent.

Are we taking that fully into account and appreciating that as much as we need to? Everything I model out says that the core PCE will hit the Fed's 2.7 target in the last step by middle of 23. And CPI headline will be just barely above three. So that's pretty good. S&P end of this year is what? What's your current target? You know, I've been doing this a long time, and fighting seasonality is not a very good profession. The market is weaker May to October and very strong November to April. When you go against that two out of three times, you lose. And that's worked for 72 years straight, if you take an average. So what I'm saying is we will be 4,400 by year end. We could have some of that backloaded in the fourth quarter, but I'm still bullish and I like growth, weakening inflation and a little

better than expected economy. In other words, no recession that pushes you into software, media, entertainment, technology, hardware, retail and semiconductors, which is big tech. We have a good debate about that. I mean, I might as well. Mike, what do you make of this? I got Mike Santoli here, Barry, in case you didn't know. And Joe Terranova as well. Let, what do you make of this? I got Mike Santoli here, Barry, in case you didn't know, and Joe Terranova as well. Let's just let's just broad this out. Well, I mean, first of all, I do think that the market, in addition to feeling like it might get some signal from Powell just to acknowledge the tightening, turning the pipeline and all the other things that the market has been focused on the leading indicators of inflation in addition to what the Fed is saying it's going to do about it. And I think those

things could still assert themselves and be relatively bullish for stocks. We got a good PCE inflation number today. We did. People didn't talk about it. University of Michigan Consumer Sentiment had better inflation expectations. So the point is, regardless of the message that was explicit there, it's still contingent on what we see on inflation. So all of that does make sense to me. You know, when we got this rally from thirty six hundred to, you know, forty two, what was the line? If it hangs on to more than half of it, that's routine. And it did. And it has so far. It's not got too much of a cushion there. Thirty nine fifty or something like that. The point is, it's dramatic in the path, but maybe it's not that strange, the overall cadence of it.

So, I mean, maybe Barry is going to be right, Joe, and others who are in his camp. And there are more people who are in his camp these days. I mean, there's a few more. I agree with Barry on the growth strategy, certainly if you're going to get an economy that's going to contract middle of 2023, inflation at two and a half percent. Boy, you're going to get one heck of a rally in equities if that's the case that unfolds. I think the other part of this that we need to think about, you know, we're talking about the chairman mentioning inflicting pain. Right. And there being pain. Okay. There could be economic pain. There could be pain in risk assets. I think we've seen that. Like, I think the price damage

has unfolded. Now, time is your enemy. The one area where I think there's further price damage that would greatly affect the outcome that Chairman Powell is trying to accomplish is in the real estate market. I haven't seen that yet in the real estate market. And maybe that's the one spot we should be kind of looking towards where, hey, you know what? That's where some pain is coming. Yeah. Barry, I appreciate your time. You enjoy the weekend.

And we'll see you on the other side, I'm sure, in the days ahead as we try and navigate all of this. Let's get the results now of our Twitter question. We asked, what will the Fed do at September's meeting? 58% of you said 75 basis points. So maybe now we are, I wonder what you guys would have voted before Powell's comments. I don't think that number would be that high. And that leads us into Mr. Santoli's last word. He's had many words, but he does have a last word.

Maybe the real news there is 70% said more than 50 basis points because some people said 100. Right. So, I mean, it does show you that today's words did skew rhetoric. I think that's the pricing kind of got in there, too. Powell would be happy with this poll? I mean, most likely to the degree that he cares about what people are braced for. What it does tell you, too, is that 50 is going to seem like a double surprise if that's where they settle.

I don't think that 75 versus 50 is really the swing factor that we're talking about. It's all about the destination and and the rest of it there. So, you know, Joe was just pointing out the the volatility index did not really seem to have a particularly strong reaction to today. Up to 25. 25. Look, you have a summer weekend ahead. Theoretically, the market should go to sleep to a degree before we get the jobs number. So that's one drag on volatility index.

But that didn't tell you that today's move somehow knocked us off out of the range of the of the bands that we've been trading in before. I mentioned the hot see us note earlier. You know what's coming on on Monday. At least 10 notes, if not more, gaming out what's going to happen in September. I'm gathering that there's going to be a lot of notes that match with our Twitter poll. Sure. Thinking that it's going to be maybe 75. What if Hotzius, though, is right? What do you make of what he says after what he heard? 50, 25, 25. Yeah.

I mean, I think that's certainly still within the range. And by the way, you know, you can say whatever you want on Monday, but there's going to be a jobs number and a CPI report before they have to make any decision. So, you know, it seemed at some point that Wall Street wanted a data-dependent Fed. They don't want a completely dogmatic Fed that has to get to a certain number by a certain point in time. So I do think that that's that would be OK. And I think that the whole I think really what he wanted to say was rates are going to stay elevated for a long period of time. We're going to step back and wait and see and just let things develop for a while as opposed to being quick to cut.

That was his warning about the 1970s. Give me your last thought, your last word, Joe Tate. So I think the market for the very first time in many weeks is on the defensive going into a weekend. I think we're going to learn a lot about the market next week. The buyback window is open. Companies can buy back their stock. It's on a discount. Are they going to step up and be purchasers of shares? I think that's going to tell us. There's a little concern about month end, you know, some of the mechanical trading that we thought.

But, you know, right now equities haven't really outperformed that much, so there shouldn't be as much to sell. We did some of that today. It feels like forever ago when we had those, you know, back-to-back 900-plus point declines on a Friday. So here we are back again because it wasn't really all that long ago. Guys, thank you so much. You guys have a good weekend. We, by the way, will have much more reaction to Chairman Powell's speech and today's sell off in a CNBC special report. It's the Fed factor. It's hosted by our own Dominic Chu and Steve Leisman, who's been out in Jackson Hole.

He's been talking to these Fed leaders all week long. That culminated with that speech today by the Fed chair described by most as very hawkish. You see the result in the stock market. So tonight they're going to go through all of that. Hope all of you have a good weekend. I'll see you on the other side. That does it for us. Fast Money begins now.