Closing Bell - Closing Bell Overtime 10/17/22

Episode Date: October 17, 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.

All right, welcome to Overtime, everybody. 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 little bit. I'll speak to a technical strategist who says he's fade this rally in stocks at the same time. Others argue just the opposite. And that's where we begin with our talk of the tape today. After this big Monday move on Wall Street, why it could actually keep going for a while, at least according to one bear turned bull who joins me once again right now, Eric Johnston with Cantor Fitzgerald here with me on set. You might recall he made a tactical call a couple of weeks ago on this show that stocks were going to take off into the end of the year. He is back. When I heard you were coming back, I was like,

uh-oh, did he change his call? Because sometimes you're very tactical and you could change your call, but in fact you have not. You're sticking with it. I have not. Yeah, my conviction remains very high. So there's really four main points around why we think that. The first one is that if you look at the inflation picture right now, we actually think that there is deflation going on right now over the past three months, despite what the CPI says. I can talk more about that. Number two is we think the Fed is going to be done, as we said, December 14th. Last hike,

less than two months away. Point three is that we think earnings are going to come in this quarter and guidance better than people fear. And then number four is that we think positioning technicals and some of the other backtesting that we've done also suggest strong upside. All right. So let's take each one of these individually for the sake of the conversation, OK? Sure. The Fed done December 14th. I mean, that's debatable, right? That's debatable. I can see why you would suggest that. Some people think, OK, November, big hike, maybe it's another 75. That's quite fair. December, maybe you get 50, 25 or 50. And OK, we'll go there. Inflation firmly falling, you suggest. Why are you so sure of that if so many others refuse to go there? So, yeah, I think there's two different things. CPI and inflation are very different. And this

is such an important point. The CPI, 30 percent of CPI is what they call owner's equivalent rent. OK, which is basically looking at house prices. And if you look the last few months, that's been up 0.7% month over month, or about an 8.5% annualized. So just for everyone to kind of sit back, does anyone think that housing, house prices have been rising the last three months? Of course not. Case-Shiller index is the accurate measure. And if you look back in June of 2020, Case-Shiller started to tick up after the pandemic. The owner's equivalent rent in CPI didn't start ticking up until July of 2021. That was one year after this big bull market started in housing because of COVID. It was one year late. So right

now, if you put the Case-Shiller numbers into that CPI number, replacing owner's equivalent rent, the last three months, not only is inflation lower, we're actually seeing deflation by about 2%. Right now, no one's talking about it. We're talking about it a lot. And we think the Fed, the most powerful central bank in the world, clearly has access to this information. And we believe they ultimately will not make the same mistake twice. I mean, I'll tell you who else

is talking about it is like Jeremy Siegel, Professor Siegel, right? You've heard him on this program on halftime really lose it over the fact that he thinks the Fed is doing way too much because inflation is rolling over, like you suggest, and they're blind to it or at least won't won't acknowledge it at the current time. I want you to do something. Listen to Morgan Stanley's Mike Wilson. He was on the network today. He's been as bearish and as right as they come. OK, even he thinks that this can go on for a little bit. Let's listen to Wilson. We'll talk on the other side. Sure. We think the earnings recession and probably an economic recession at some point will play through and that's not fully priced. However, the room has gotten crowded and, you know, we don't tend to trade against our core view too frequently, but we felt like this is a good chance to do that.

We've had a bearish view for all year. We think the 200-week moving average is a really important technical level that a lot of people don't talk about. The bear market is not over, but you can have major moves off of these technical support levels. And that's the world we've been in. It's technicals versus the fundamentals. And so we've got to play it both ways. We can't get too dogmatic in our views. We've been bearish all year, and it's time for some relief. See, eventually, I mean mean his point also is eventually it's all going to come home to roost which kind of yours too yeah right this only lasts until it doesn't that's right i mean i think um yeah i broadly agree with that um you know this is not

a long bull market call that we're making at all okay we were bullish we turned as we turned bearish january 10th of this year at the exact top of the market. We were right for 1,100 points, S&P 3,600. We turned bullish. We think we're getting a rally at the end of the year, and then we're going to reassess from there. But this is by no means that I'm some now secular bull market bull. That's not the case at all. But we're looking, if we're going to see a 10% rally that I think we're going to see, we want to be there for it and we're going to call that. Okay. So on the earnings front, right, you suggested earlier that earnings are holding up better than feared. Certainly seem to be. The question is how long can they? And maybe

it's just going to take a little bit longer for all of this to show up in earnings. You also suggest that the odds of a soft landing are rising. Now, this is where I would take significant issue with because there's no evidence of that. How would you make a call like that when I'm trying to figure out what you would base that on? Sure. So right now, the unemployment rate is still 3.5%. Year-over-year spending, consumer spending is up 10% year-over-year. GDP on a nominal basis is up about 10% year-over-year. Okay? So the core of the economy at the moment is still doing very well, which is why I certainly

think that earnings are going to be better than feared. OK, yeah. Look, I mean, do you hear Moynihan the last hour with Sarah? I'd like to get back to your point. Sure. Right. I mean, he talks about, you know, people are spending a little bit less, but by and large, the consumer is doing pretty well. OK, yes, exactly.

So how I'm not my view is not that we're actually going to have a soft landing. My view is that over the course of the next couple of months, the view in the market is going to be that the odds of that have gone up a lot. And the reason why is because the market's going to see the Fed is done and the Fed is done and inflation's falling. We're seeing deflation. And that's all happening, amazingly enough, with the unemployment rate still at three and a half percent. And the reason why I think inflation is coming down now without the unemployment rate rising is because the reasons for inflation were not necessarily, they were related to a lot of things, including the fiscal spending, the supply chain issues, and other things that are new to this type of cycle, which is why inflation can fall without

the unemployment rate at the moment going higher. I'll beg your pardon for just a moment. I want to alert our viewers. There is some action in overtime today by way of XPO. We're going to show that because they've done a partial pre-announcement. It's ahead of their investor day tomorrow. And as part of their spin of RXO, that's their high tech brokerage business. So they have done a partial pre-announce. You may see shares start to move there. Looked like their revenues were a little bit light, but the guidance they seem to have raised, which is interesting to note in light of the conversation that Eric and I are having right now. And it also, by the way, happens to come on a day where XPO was downgraded to a hold over at Deutsche Bank. So we're going to keep our eye there.

It's important. It's interesting to think about the shippers and the transports, especially after what FedEx had to say a handful of weeks ago. But it does play into the story of things aren't really bad yet. And that's do think that 2023 is going to be a very challenging year, because we're going to be living with this 4.5% or 4.75% Fed funds rate, which is going to be very challenging. And a lot of what has been holding up the economy, I think, is going to be wearing off over time. But with the information that the market is going to be seeing over the next couple of months, the chances of that soft landing are going to, are going to go up because ultimately,

if the unemployment rate is below 4%, then you're translating that into a pretty strong, you know, economy and tough to have a, certainly tough to have a deep recession in that scenario. What if the Fed takes a look at, you know, what you cite as strengths, right? Things are holding up. The employment job market's good. Unemployment's only three and a half percent and says, see, that that means we haven't done our job enough. We need they'll never say it

explicitly. Obviously, they need unemployment to go up. They need demand to be hit. And until they see that start to unfold, they're going to stay with their pedal on the floor. How do you respond to that? So I think a couple of things. One of the things is I think this idea that there is a delay around when Fed hikes hit the economy. The conventional wisdom is 6 to 12 months, 6 to 18 months. It's only been 7 months since the first hike. So I think that's going to be one reason why they're going to why they're going to pause.

And then the second reason is, is that I'm hoping that they do recognize that this cycle is so different than prior cycles. You know, the post-COVID pent up demand caused a lot of inflation is going to be waning over time. The fiscal spending surged in early 2021. Now the deficit is now 4% on an annual basis. So spending has, you know, come down a lot. You know, housing surged. That's now with mortgage rates where they are coming down a lot. So a lot of the things that were, you know, even the froth in the stock market, right? Think about the losses that have occurred in the net worth across this country. Because bonds and stocks have gotten hit simultaneously, many people's 401k is down 20%. So you put all these things combined, and they have done a good job around bringing down deflation and getting things more under control, and really what I was calling for, which was squashing it.

And I think they've really done that. And I think they can say, look, we've gone far and now we're going to take a rest. All right. We'll see. They'll maybe take a look around. Let's broaden out the conversation and bring in CNBC contributor Courtney Garcia of Payne Capital Management and Emily Rowland of John Hancock Investment Management. It's great to see both of you here. Emily, you first. What do you think about what Mr. Johnston has to say? Are you on the same page in terms of thinking that this rally has a considerable amount of runway to it? Yeah, I mean, I think certainly there are some oversold conditions out there. There's a lot of cash on the sidelines here that's waiting to get deployed, potentially some short covering.

The bar is very, very low right now as far as earnings seasons goes. I keep hearing everybody talk about how earnings have come in better than expected. We now have 10% of companies having reported and we're at negative 7% year over year growth. So I'm not sure quite where that optimism is coming. And then you can see on the days where rates come down, you know, you see this massive backup in bond yields taking a little bit of a breather. That's equities off to the races. So I think, again, if you can see rates come down, I think equity markets catch their breath. I completely agree that inflationary pressures are going to subside and they're going to do so quickly. But I think what we need to recognize here is that is a short term problem being solved. And by the time the Fed is done fighting the inflation fight,

they're going to have a much bigger problem on their hands in 2023, which is recession. Court, I mean, it is a little bit early to declare victory. We just started. We just started with the banks. And there are some significant reasons in the environment, let's say, that have led to their results being better than feared, I would say. But we're going to get a reality check, aren't we? Once tech companies start to report en masse, right, the dollar is going to come home to roost there. We're going to find out about other issues that exist that may not be as rosy as we want to believe at this moment. Yeah, and we're definitely going to have to see how can. How companies

continue to report here. And the banks I think were really important because they give you a really good bellwether to how the consumer is doing. I think they did come out as we expected to show the consumer is still on really good

footing which does. Keep the economy running here which is good news. But I do think especially we have the- tech companies coming to your point but I think the bigger one too is going to be all of your consumer facing companies.

They're also going to tell of whether moving forward our people still spending or is that inflation really starting to tampen down demand. To the point that the fed wants to see in order for them to lower interest rates so. We

definitely need to see not just how they're they're guiding are not reporting now by how the guiding in the future. Think is those consumer companies which are going to be the most important we're still couple weeks away from that.

These mega caps, Eric, are critically important to your thesis, right? They better not lay an egg or your idea of a significant move lays a bigger one. Yes, that's fair. So we're going to get next week Apple, Amazon, Microsoft. And currency is definitely going to be a headwind, and you're likely going to see the guides reflect that. I think the market will put very little value on the currency moves and what they're doing to earnings. Why? Because you think we just already know it, we expect it?

Yes, people are going to look through it. They're going to say, look, that's currency, currency moves. Now, in fairness, the dollar is probably going to be strong for a much longer period of time. But I think the market will dismiss that. As far as the core earnings for these companies, I think it'll come in, you know, I think there'll be a sigh of relief. I think it won't be the beats that we saw, you know, the past year, but I also don't think we're going to see significant misses. And so I do think there will be a sigh of relief from the market because the nervousness around it is high, and the price performance of,

you know, a Google and Amazon has been pretty poor. So, you know, the market is certainly in valuations. You look at a Google, Google is a teen's valuation. Meta is a teen's type, type multiple. So if numbers come in, you know, OK, which I think they will, not great. OK, then I think the stocks can rally. Emily, what's your view on these stocks? Right. I mean, we've got to get through this week. It's just Monday and we have a lot of earnings this week, but everybody's already looking ahead to what lies ahead. Yeah, I think the third quarter is going to be fine. I mean, if you think about how the U.S. economy held up, we did all right really until the very end of the quarter. I think Courtney's point about the forward guidance is absolutely critical here. You know, you've got tons of headwinds right now. The stronger dollar was mentioned, higher input costs, the cost of capital has risen to extensive

levels. The pace of the year-over-year change in the U.S. economy right now is absolutely stunning. So you've got to look and find CFOs and CEOs who can navigate this, who can maintain margins, who have a lot of cash on their balance sheets and a limited need to tap the capital markets in order to grow, in order to be more profitable. So looking for those higher quality companies with lots of cash, great return on equity, ability to fight this war on margins that we're about to face and come out of it on the other side. It makes a lot of sense. Higher quality, more defensive assets are the way to go. Court, what looks most reasonable to you in the market today?

Yeah, and I still think that you want to look at, yeah, to your point that what you just said, companies with high cash flow, companies that are can't can continue to do well even if we are in a higher rate environment even if rates come down they're probably not going to be. At levels they were over the last decade. So things like health care things like energy- that's really where we've been looking

I think you want to continue to look there because keep in mind. Nothing fundamentally has changed a week two weeks ago than it did today. We're still in this period where yes things are coming up because we have an oversold condition. But the

overall macro picture hasn't changed you want to continue to be in those same areas what's a reason of oh you want to respond to that you look like you were going to say something what what's a reasonable um multiple to start thinking about and what earnings are you really looking for because ultimately that's what's going to matter more than anything else yes so the peak in 2023 numbers from a bottoms-up perspective was $252. They're now $241. So they've gotten cut by about 4% or 5% so far. I think that ultimately, they're going to go below $225, below $220. Oh, you do? Okay. I do. However, coming out of this quarter, my guess is they'll come down around $4 to $5. And so we're going to exit this quarter with people seeing the next year number at $2.36.

And again, that's going to be better than, you know, a lot of people think we're going at $195, $200. And so that eventually could happen. But for right now, I think there's going to be a disappointment for those who are expecting that because I think it will only come down by a few dollars. If you look at the year 2000 and the year 2008 and when estimates came down, it took time. You know, we look at it, you know, we think we were obviously looking at markets every day, but it does take time for these numbers to come down. They don't come down all at once. Well, see, this is the difficult part for our viewers. It's the now versus the then.

Yes. And knowing how long the now is going to last, what your investment strategy should be for the now, knowing that the then is coming. Sometimes we don't we never think about the then. But in this case, we figure it's only a matter of time before the economy slows further because of what the Fed is doing. And there's a runway of time that it takes for all of the Fed doing to filter into the economy. So what am I supposed to do? Yeah, I think you're right. There's different horizons. And I think for those that have not sold yet, who are a long-term investor and have not sold yet, if we get the rally, which I think we're going to get to the 4,000 area, that's going to be an opportunity for them to lighten up. If you're a shorter-term trader, you should be very long equities right now. It depends on what your style is and how you're investing.

But I think this rally, from the longer-term perspective, should be an opportunity to sell into, okay, when we, you know, towards the end of the year, when we get this rally, and move into what are now very attractive interest rates in the short-term part of the curve. Emily, what about this idea of bonds competing with stocks, which Eric just ended his last comment about? I mean, that's been part of the narrative as well that

people need to think about or they certainly have had to think about over the last several months. Yeah, we see the income on high quality bonds as being incredibly competitive right now. You're looking at over five percent on the aggregate bond index right now. We haven't been able to say that in over 10 years. So we think as we wait out this choppy macroeconomic environment, we think it makes sense to move up the capital structure, get paid income, and really, again, sort of wait things out. There are parts of the equity market that are on sale. It's crazy to me that the quality factor has actually underperformed the S&P 500 so far this year. So I think that there's an opportunity there. But again, fixed income used to be kind of the boring part of a portfolio,

and I don't think it's so boring anymore. Courtney, last word to you. Is the strategy that you would apply as well sell any great pops that you get? Is it still, you know, guilty until proven innocent in terms of this bear market? Yeah, man, I'm definitely optimistic in the short term here. But I do think you want to make sure you are going to continue to be defensive. And especially right now, you're going to see things like your technology companies, which have gotten hit the hardest, are going to start to rally here. But I do think those will likely continue to underperform. So don't get don't like really jump in there quite yet.

I think you want to continue to remain as you were previously. As the rally continues, certain things are going to affect it better than others. Make sure you stay well positioned for that. We're going to leave it there. I appreciate the conversation very much. Thank you, everybody. Courtney, Emily and, of course, Eric sitting right here next to me. We'll see you again soon.

Sounds good. That's Eric Johnson, Kenner Fitzgerald joining me here on set. Let's get to our Twitter question of the day. Now, we want to know, are the lows in for the year? Pertains to the conversation we just had. How are you feeling about that? Head to at CNBC Overtime on Twitter. Cast your vote.

We'll share the results coming up a little bit later on in the show, which we are just getting started here in overtime. Up next, trouble in the charts. Top technician Chris Verone says don't be fooled by this bounce. Why he is fading the rallies and says you should as well. He'll tell you exactly where he's looking to fade it to. And later, the big debate over small caps. Is this the one part of the market where you can hide out?

We'll tackle that question. We're live from the New York Stock Exchange. Overtime's right back. All right, we're back in overtime. A strong rally on the street today. Every sector finishing higher. Our next guest, though, says you should be selling into that strength throughout the rest of the year. Joining us now is Chris Verone. He's the head of technical analysis at Strategas. It's good to see

you. I mean, we just had a conversation about how this rally can actually last for a while. And you say sell right into it. Why? Well, as we always say, we know we don't know, but I want to be very mindful of what the trend here is. And remember, think about Thursday, big up. Friday, big down. Today, big up. I mean, that is price action that, to us, is still more endemic of a bear market than a bull market. And we're only two weeks removed from what was that huge two-day rally

that Monday and Tuesday, and we're only a few weeks removed from that post-Labor Day move. So calling these bear market bounces is really difficult business. I think it's reflective of just how exhausting bear markets are. So we take a step back and just say, OK, let's not forget the trend. Most stocks are still below downward sloping 200-day averages. I think until that changes, you've got to be very, very careful with how aggressive you play these bounces. I mean, the bear market can still be fully intact. I hear you on the trend, but if this can actually last for, I don't know,

there are some projections that you could get a 10% move in stocks if interest rates start to come down a bit. Why would I want to sell in the face of that? Now, I'm not suggesting that anybody is great at timing anything, but still, if I think that it actually can last, why should I just sell out of everything at the moment that I have an opportunity to? Well, I think what's interesting about the question is really that the justification for a lot of today's move was yields down, but actually, where did yield close?

You had a complete round trip on bond yields. Tens closed above 4%. I think 30-year yields closed up. I mean, this year, the entire year, has been about rates and FX. What also closed at the high of today's was dollar-yen, right? So the things I would look to from a macro standpoint to say that there's a change really haven't happened. And I think almost more important than whether the next 150 or 200 points on the S&P is higher or lower is what the leadership looks like. And that's another thing that really hasn't changed over the course

of the last several months. Kind of our thinking has been that the risk to the market comes from the top, comes from the big weights. And that's been true both on up weeks and down weeks. It's been the top of the market that underperforms, the Apples, the Teslas, the Amazons, the Googles. So I think the leadership and the macro are really unchanged here. But see, I would I guess I would counter by saying, OK, you're right. Rates moved off the lows. You're right. The dollar moved off the lows. You're right. The dollar moved off the lows. And the fact of the matter is that the stock market held in there pretty well, at least showing some level of resiliency that at times hasn't existed.

Yeah, and I think, you know, when you go back to Thursday's move off a weak CPI print or a pot one, you know, you have to respect any time the market responds to news differently than you might expect. So certainly want to respect that. But go back to that rally that we had this summer, a very big rally from June to August. What didn't take the bait was the macro, right? You really saw no change in FX and rates very quickly started to move higher again. So I think if we're going to give this move, this current bounce, which is maybe at best 72 hours old or three sessions old, if we're going to give it credibility, don't we need to see improvement in the macro? And I think that comes from rates down and dollar yen down. And we haven't seen that. This has been a macro gear.

And I think the macro is still largely intact. Your point is totally fair and makes complete sense to me. What happens if we retake some of these critical technical levels, like the 200-day moving average? Is that a game changer? Well, it's a long way away. So let's start a little bit more modest than that. That big rally we had two weeks ago, Monday, Tuesday, 3805 was the high on the S&P that week. I think that would kind of be the first threshold to kind of evaluate where we are. Let's call it 285 on triple Qs. So 285 on Qs, 3805 on S&P. I think if there's an index that's actually acting a little bit better here, it's really small caps.

I mean, IWM did not make a lower low last week. So I want to give a little hat tip to the relative performance we're seeing from small caps. It fits my theme of own the average stock, not the index. Our call all year has been be different than the index. It is the index that's at risk. There are things to do, I think, at the stock level. Yeah. No, it's why we have a segment coming up about small caps and the outperformance

before we get out of here tonight in overtime. Chris, I appreciate it very much. That's Chris Varone. Strategist joining us up next, a five-star bit of trading advice. Capital Wealth Planning's Kevin Simpson. He's back. He's always got some moves going on. He's going to tell you what his latest ones are, including a big bet on energy.

We're going to tell you about that trade when we come back in overtime. All right, welcome back. It's time for a CNBC News update with Tyler Matheson. Hey, Ty. Hey, Scott. Thank you very much. And here's what's happening at this hour. A new wave of attacks from Russian drones and missiles hitting Ukraine this day. An overnight attack striking a sunflower oil storage facility in Mikhelev, sending flames into the sky. Russia now using Iranian-made kamikaze drones equipped with small warheads to strike civilian targets. Significant radioactive contamination being found at an elementary school in suburban St. Louis. Jana Elementary School sits in the floodplain of Coldwater Creek, which was contaminated by nuclear waste from weapons production during World War II. President Joe Biden formally launching the federal application

meantime for Americans seeking student loan forgiveness. In total, more than 40 million Americans can stand to benefit from this relief. And about 90 percent, 90 percent of that relief is going to go to people making less than $75,000 a year. Let me be clear. Not a dime will go to those in the top five percent of the income bracket, period. And tonight on the news, California police arresting a suspect connected to a series of six murders. Tune in to see how officials say they stopped the man before he could kill a seventh victim. Scott, back to you. All right, Tyler, appreciate that very much. Thank you. That's Tyler Matheson. Stocks rallying in today's session. As you know, the S&P 500 finishing sharply higher. And while my next guest says we should expect to see more

volatility in the weeks ahead, he is finding pockets of opportunity. He always seems to do that. Joining us now, five-star fund manager Kevin Simpson of Capital Wealth Planning. You really are always on the hunt for opportunity, regardless of where volatility lies. And you're finding it yet again? Well, when you invest the way we do, Scott, you never really have to call a bottom because there's always opportunities. You look for companies that make money, that have EBITDA, and that return cash to shareholders. And that thesis seems to work in any environment, including a market that has intense volatility like we're seeing. So we've added to Devin again. I feel like you and I have been talking more about Devin recently than even Apple. But the story about this-, right, there's a reason why you and everybody else, even the growth managers now, you know,

where were they years ago, but we like we like cash flow. And you can't get it to this extent anywhere else where you're seeing this bifurcated dividend. So there's a 3% fixed dividend, which is really attractive, even where interest rates are, and then a variable dividend that will pay up to 50% of free cash flow to shareholders. So you're talking about a dividend that's probably going to be somewhere in the 7%, 8%, possibly as much as 9% range, and you've got a forward PE of 7%. So when you look at those fundamentals, I think you can really invest there and be much more comfortable putting your head on the pillow at night, not worrying about the massive swings of the market.

You got another D in a ticker that you like. Deere, you added to that? Yeah, Deere is a relatively new position to us. We've added to it again. We cycled out of Caterpillar twice over the past year, and we just felt like the top and bottom line numbers were a little bit more supportive of John Deere. The agriculture play, the infrastructure play, even the inflation play to a certain extent. You've got only a 1.27 dividend, which a year ago would have been a lot more attractive than it is now since Tina's taken a hike. But over the past 10 years, John Deere has raised their dividend by 8 percent per year. So you're getting a dividend increase. So there's inherently a hedge against inflation in and of itself. Forward PE is 15. And the company itself, the reputation of this 100 plus year old brand is just impeccable. So I don't see anybody coming in

taking away market share. Now, their margins might go down a little bit. The pricing power might be somewhat limited. But this is a stock that if you're talking about wading through what we expect to be a recession, no stock is recession proof. But John Deere is a name that you can also own and sleep at night. And again, this mantra that we keep hearing, but it never gets boring, is we want to get paid while we wait. Yeah. So we're off to a really nice start to the week. And we seem to be off to a pretty nice start to the week and we seem to be off to a pretty decent start to earnings season as well. Does this have some staying power? Is this bounce different than others, garden variety? And what's your view of that? Yeah, I don't think so.

I was rooting for it the whole time you were talking with Eric and I love the now versus then commentary. But from our perspective, our lens, it really can't be a sustainable end until one of two things, if not both, happen. And that is inflation comes down in a meaningful way and or and or the Fed pivots. And I can't see either one of those two things happening anytime soon. The hawkish tone that they're taking is not something that I see abating at the November meeting. Perhaps the December could be. And we're not that far off. I mean, if we're looking at next year being a situation where, unfortunately, central banks fuel us and force us and push us into a recession, which is horrible,

a recession is what will also put pressure on inflation in addition to these higher rates. So the plan will work. So your now then analogy or the thought process is we know where we're going. We know the recipe to get out of it. We don't know the time frame, but a recession would lead the Fed to then have to reduce rates a little bit to take pressure off the economy. And when that happens, the market will probably be off to the races. And we're closer to that than we were a long time ago. We'll see. Kev, I appreciate it as always. Thank you. That's Kevin Simpson, Capital Wealth Planning joining us. We'll talk to you again soon. I'm sure that's coming up. Big moves for small caps, but is now really the time to get in on

that trade. We debated in today's Halftime Overtime. And don't forget, you can catch us on the go by following the Closing Bell podcast on your favorite podcast app. Overtime's right back. In today's halftime overtime, big moves and small caps. The S&P small cap 600 doubling the broader S&P 500 in October. But according to SoFi's Liz Young and Requisites Bryn Talkington, there's still debate about whether now is the right time to get into that trade. Listen. Caps lead out of recessions. So you do want to have a position in those for that moment. And at this point, when they are more attractively valued, this is a great time to build a position if you don't have one. I think it's still too early in general to take a large position. I think that sometime mid early next year, as we if we do go into a recession or continue to slow, you will get a better opportunity at even cheaper times.

Well, joining us now is Jim Labenthal, Serity Partners chief equity strategist. Jimmy, welcome. You heard the debate. What side are you on? Well, I'm on the side that it's just a little too early, just a little too early, Scott, but that's really what it comes down to. Where are we in this economic cycle? I'm nowhere near as pessimistic as my friend Bryn is, but I think Liz is just a little bit on the early side. Here's why. Here's why.

I happen to love small cap stocks because that's where you can do gumshoe detective work and find out things that the rest of the market doesn't know. And I mean that legally, you know, talking to customers, competitors, suppliers. The problem with small caps is that when times get tough in the markets, this is the place that gets liquidated the first. And when there's too many sellers and not enough buyers, you get real dislocations because of liquidity concerns. Finally, finally, if you really get into a bad recession and a bear market,

any small cap stock that has financing concerns, maybe it needs to roll over maturing debt, or it wants to finance a new activity to get an upper hand on competitors, they'll find those capital markets hard to access in times of market distress. So I just think it's too early. And one last thing, Scott, you know, the opportunity set in large cap stocks from these levels is so ripe right now that I just don't think you need to dip down into small caps. Not yet. I mean, I also I just feel like you're being you're being pretty diplomatic. I mean, you started out by saying it's just a little too early. But it sounds like once you actually make the fundamental case around small caps, it's way too early.

Liz may be right that they lead on the way out. The problem is we haven't even gone in. Well, you know, Scott, it's actually not me being diplomatic. It's me communicating something that you know, which is that I'm not so sure we're going to have a recession. I'm with Ed Yardeni in this rolling growth recession. And if I'm wrong and we do have a recession, I think the strength of this economy would say that there's the likelihood it's going to be short and shallow. But either way, I do think it's too early for small caps. What about this rally in general, Jim? I know you predispose at this point to be more bullish

than most, and that's fine and fair, given what your thesis is. Does this feel like it's the start of something different? I mean, as we've said all show long, can't declare victory over earnings just yet. We just started, and it's going to get real interesting next week. Yeah, I heard you, and you were very clear, concise, and on the money. It comes down to earnings, Scott. So far, I really like what I'm seeing in earnings. That's the battleground. We've been talking about this being the next battleground. What are earnings doing? So far, so good. But as you pointed out, it's way too early. So let's see how things go this week. You know, one thing I kind of disagree with Joe, my friend Joe on the report, halftime report today is I don't think it's necessarily all about tech and telecom. I think

it's about some of these cyclical sectors. Can they pull up the slack that may occur from tech and telecom? That's what's interesting to me. Well, I think his point, though, his broader point is the importance that those tech stocks have to the overall picture at a time where the Nasdaq has been crazy challenged, right? We've been talking about the Nasdaq trading at a two year low. So, oh, by the way, the heavyweights come along. They better get out of the ring on their feet instead of their backs. Yeah, I will agree with you. And they're a big part even of the S&P 500. So, you know, Apple, 22 times earnings, six and a half percent of the S&P 500, a lot more in the triple Q's. You really don't want to see that come a cropper next week. And I think there's a debate brewing as to whether these iPhone 14 production, they're not cuts,

but they walked back the production increases that had been planned, what that really means for the stock. So that is going to be one to pay attention to. Bottom line is earnings are what is needed to make this rally sustainable. Got you. Jimmy, appreciate your time. As always, that's farmer Jim Labenthal joining us in overtime. Up next, we're tracking some big stock moves in overtime. Christina Partinello standing by with that. Hi. Hi. So Newton documents right now reportedly revealing how often Amazon employees are quitting the company. And Alaska Airlines has finally reached a deal with its pilots. I'll have those details and obviously much, much more next.

We're back and we're tracking the biggest movers in overtime as we always do. Christina Parts and Novelos is on the case for us yet again. Let's start with shares of Intel. They're moving slightly higher, three-tenths of a percentage right now after a Wall Street report, a Wall Street Journal report, I should say, says the chipmaker is considering a lower valuation for its self-driving car unit, Mobileye. So Mobileye was originally expected to hit roughly $50 billion in valuation, but it is now set to target, and this is according to the report, under $20 billion with a smaller number of shares issued.

With major U.S. air carriers facing a shortage of pilots, Alaska Airlines has finally reached an agreement with the pilots union after three years of negotiations. The deal would improve pilot job security, pay, and scheduling. You can see the stock up two-tenths of a percentage point. And then shares of Amazon, moving slightly after a new report from Engadget, found that Amazon churns through workers at a rate faster than the industry average. The publication citing leaked Amazon documents revealing an estimated $8 billion annually in attrition costs and says workers choosing to leave the company occurs twice as often as people being laid off or fired.

Keep in mind, though, Amazon is the second largest employer in America, and CNBC has reached out for a comment. You can see shares are up 0.2%. Scott. All right, Christina, thank you very much. That is Christina Parts and Levels. Up next, we're counting down to Netflix. The streaming giant reports results right here tomorrow in overtime. We're going to tell you the key things you need to watch in our two-minute drill.

Julia Borson joins us right after this. We're back in overtime. Netflix gearing up to report its results tomorrow. Our Julia Borsten here with the setup for us. Highly anticipated, Julia, as it always is. And Netflix is under pressure to return to growth after losing 1.2 million subscribers in the first two quarters of the year. With so much competition and consumers under pressure, the stock is down about 60 percent year to date. A key third quarter number to watch is one million.

That's how many subscribers Netflix said it expected to add in Q3. And even more important is what happens in the all-important fourth quarter. The Street is projecting that Netflix will guide to the addition of about 4 million new subscribers. Now, the other key thing to watch is expectations for Netflix's ad-supported service, which will start to roll out on November 1st. And Wells Fargo saying, quote, we think AVOD, that's ad- ad supported streaming, will be big for Netflix long term and a big subject of the print. But 2023 will largely be about testing success with ad customers versus raking in the revenue. Analysts are also looking for commentary on

potential price hikes in the works and also plans around a content investment. Scott. So, Julia, you know this company so well. I want to read you something that since you ended on the analysts that Bank of America said today as they reiterated their underperform rating on the stock. And I just want your take on it. Quote, we think the rally is likely a result of Netflix finally putting pen to paper on numbers rather than the numbers actually looking sustainable. we think investors could begin to approach this as additive, but not necessarily a driver of subs. What's your take on Bank of America's concern on this? Well, yeah, I've actually been talking to a lot of sources about this.

And there's this idea that maybe having this lower cost ad supported service will replace people who might have dropped the service entirely. So maybe it's going to help them maintain their numbers, but maybe it's not going to be a driver of growth, particularly in the U.S., which is such a saturated market. So the question is, does it stem the churn, stem the decline, or can it actually be a positive growth driver? And then also, how much of this is already baked into the stock? We'll find out, I guess, tomorrow. And I know we'll see you then in overtime. Julia, thank you. That's Julia Borsten out on the West Coast for us. Ahead of that big earnings report, up next is Santoli's last word when we come back. All right, let's get the results now of our Twitter question of the day. We asked you, are the lows for the year in?

And 63% of you said no. In fact, they're not. Let's get to Mike Santoli for his last word. I was expecting that yes was going to win. Really? People would think at least for the year. Yeah, I mean, I think we're just too close to them, right? So if the lows in, it meant that, you know, 3, hundred ish in the S&P last Thursday morning would have been it. I think

people are conditioned to assume that rallies are head fakes. I was talking last hour about the fact that the last five up days in the market has only been five in the last four or five weeks. Every one of them, two percent or more in the S&P. So there hasn't been. And I think that gets back to another point, which is I always used to say when we were just crawling higher in the markets like 2019, 2017, boring is bullish. So exciting markets tend not to be bullish until the fever breaks. So that's what we watch for. Bond volatility, currency volatility really are dictating things. And we'll see if it goes from here. I think in the very short term, it makes sense to expect a rally attempt for many reasons. I mean, you've made the point, I think,

on multiple occasions that, you know, these rallies are all guilty until proven innocent. The trend is still intact and the trend is not great. But the trend, if you actually want to define what it is, would still be a downtrend if the S&P went up like 400 points right now. Right. So in other words, you can get a 10 percent rally and you're still in a downtrend. That's what makes it tricky, I think. And it's one of those deals where it can sort of build up a cushion to absorb whatever's left to come.

It's not like the market has a destiny that says it has to trade at this level at some point. I feel like we're delaying the inevitable of earnings falling off. However, that said, that doesn't mean that earnings have to completely fall off the Grand Canyon cliff. That's right. Right? They can slow without being the train wreck that some are predicting. All the things that people are saying about how people have never traded this environment, if you started trading 15 years ago,

you don't really get it because it's not going to be zero interest rates and it's not going to be the Fed coming in there. Well, another thing we don't know about is how a high nominal growth economy translates into earnings. When companies have pricing power, they're hoarding labor,

they're not going to have unemployment shooting up. We don't know what the earnings impact is going to be. Netflix tomorrow, first of the biggies, gives you on many different levels. And the stock, by the way, is one of the best performers in the last few months. Stock's fascinating. It's really I would look at it from a longer term view. It's just kind of basing going sideways between 200 and 250. There's a massive amount of upside headroom just to where it fell off a cliff in the mid 300s last time. So kind of a fascinating, almost binary outcome. The old 700 days seem so long ago.

We'll see you tomorrow in overtime when it all breaks. Thank you. We'll see you as well. That's Mike Santoli. Fast Money begins now.