Closing Bell - Closing Bell Overtime 10/6/22

Episode Date: October 6, 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.

Welcome to Overtime. I'm Mike Santoli, in for Scott Wapner. You just heard the bells, but we are just getting started. And we begin with our talk of the tape. A big call for your money from Guggenheim's Scott Minard. Just moments ago, he released a new note to investors saying the Fed could be forced to stop tightening as soon as early November. Scott joins us now in an overtime exclusive by phone. Scott, as I speak to you over the din being made by the mortgage REIT that's closing the bell, closing the session today. Scott, very interesting note. Your big case here seems to be that the Fed is at risk of overtightening or at least that something in the global markets might break along the way and essentially force the Fed's hand and that investors should be prepared for this type of scenario.

Why do you see that playing out here? Well, you know, Mike, this has been my view ever since I went to the central bank conference at the Hoover Institution earlier in the year, and I had a chance to talk with various Fed presidents and other officials, and it was clear to me that the comment I walked out with and I took back to my traders was the Fed will push this until something breaks. And so, you know, it's very clear as things have gone on over the past few weeks, especially in the last two weeks, that we are seeing cracks all over the place. into the gilt market to prop up gilt to offset the risk of what could have become a global financial downward spiral. And, you know, there are other things out there that have been challenging. We know that mortgage REITs have been in the mode of having to be forced liquidators of

mortgages just at the same time that the Federal Reserve is allowing their mortgage portfolio to run off. And then, of course, we have this synchronized tightening by all the central banks or the major central banks around the world, including the Bank of Japan and the ECB. So global liquidity is receding. It's receding rapidly. I pointed out before that for the first time in history since the Great Depression, M2, the broad definition of money, is actually contracting. And the pace at which the Fed and other central banks were removing accommodation

is beginning to spill over into the financial markets. And that's the place that when you hear Fed policymakers talk, all they talk about is inflation. They're not focused on financial conditions. I'm not saying that they wouldn't react to them. Matter of fact, what I would say is they're going to be likely to have to react to them because I think the market is going to force a pivot on them. And I think we're only weeks away. I guess the question is exactly how that plays out. What type of threshold event would be required? Because we can point to these wobbles, these, as you call them, cracks in the market, whether in the U.K., in Japan, you know, Chinese currency, all these things that seem like they're putting some pressure on the system. Treasury liquidity hasn't been good for a while, probably has gotten worse.

So a lot of things seem like they're building in this direction of potentially putting a lot more pressure on the system. On the other hand, you look at things, these financial stress indexes that are out there, and it doesn't really seem like they're in the danger zone. Maybe the Fed is simply expecting that it should be able to go a little bit further in terms of its rate hiking program, get in the zone of where they're trying to get rates above 4 percent, and they may get lucky and inflation could ease back. I mean, what's to say that it comes to a head before that moment? Well, Mike, I think that what you just said is true. But history has shown us that financial accidents tend to occur

during periods of Fed tightening, and they come out of very dark corners of the financial markets. We saw the incident in the U.K. where the pension funds had a derivatives crisis, essentially, around their LDI strategy. But if you go back in time, go back to 1987, the stock market crash occurred as a result of central bank tightening. And nobody had expected that on Black Monday we were going to have a collapse in stocks. The same thing was true for Orange County.

When Orange County suddenly had to declare bankruptcy, nobody expected it. This was an obscure part of the municipal market. And then, of course, long-term capital. That was in 1998 when the Fed was raising rates. And again, here was a hedge fund that had a huge exposure to options and other levered assets that they had to liquidate. And eventually, the central banks just had to step in, intervene, and lower rates to bail out the market. So, you know, I think that we're getting close to that. You know, we're seeing stress indices like Bank of America's move index on volatility.

The VIX has been elevated but yet has not gotten to a level that would be consistent with a capitulation, which tells me that the bear market is well entrenched and has further to go. And, you know, October in particular, over the last 50 years, based upon S&P data, is by far the most volatile market of the month. So, you know, the environment hawkish communication up. I think that we're quite likely to end up having something break in the financial markets. Well, it's interesting because you mentioned in your piece that the Fed has raised short-term rates by three full percentage points in seven months. I would imagine eight months ago, if we had imagined what would happen if that were to occur, the Fed to hike by 300 basis points in seven months, maybe we would have thought something would already have broken. Does that tell us anything about resilience or is it just, you know, we got lucky?

And also the argument that the financial system in general is in a little bit better shape, more capital buffers. You have the Fed saying it learned its lesson about how much it needs to keep in the way of reserves in the system based on the 2018 experience. So I guess, again, the question being, why do we think that the fuse is so short at this moment? Well, look, the things the Fed is measuring are much better than the historic business. Obviously, banks are much better at capital prior to the great financial crisis.

The banking system is in extremely strong shape. But at the same time, they're facing large losses on their bridge financings. And when you look at the shadow banking system, the pressures are building. Their pressures are building in leveraged loans, in CLOs, in the mortgage market. And so, you know, it's just a matter of a pinprick that could bring about, you know, a Fed pause or a pivot. And let me give you just one example, Mike, and it's interesting. We're on the eve of this right now. Seventy-five percent of the time over the last 25 years, nonfarm payrolls have come in lower than expectation for the month of September, a number we're going to get tomorrow. Something like that would probably catch investors off guard and could, you know, immediately lead to a rally that

people who are waiting around to pick the bottom are going to miss the rally. So the argument I make in the paper is, look, all the signs are here. I can't tell you exactly what will cause it, but the environment is ripe. And when the ped pivots, they're not going to pre-announce it. No one's going to ring a bell. And with everything, you know, at very attractive levels like corporate bonds, treasury bonds, even equities, which I still think have another, you know, some downside left here. But again, nobody can pick the bottom perfectly. And, you know, the fourth quarter historically is a seasonally very, very good quarter for equities and risk assets. And so I just think investors are still too busy licking their wounds and looking for a bottom. And it's time for them to commit some capital.

So you think that they're too busy looking for a bottom, but you think that in advance of a potential accident it makes sense to start being positioned for the eventual capitulation of the Fed that will get us out of it? Exactly. And, look, you don't have to wait in and you don't need to reposition everything in a day, but it's certainly time to start waiting in. And, you know, all of these sectors look very attractive. I made a comment on TV a couple of weeks ago, for instance, that there's a generational opportunity here to buy cheap, below-investment-grade bonds, which will mature in the next few years,

where these companies are over-levered, and one of two things will happen. They're going to refinance their debt, and the bonds you're buying at $0.50 to $0.70 on the dollar are going to get paid off, or you're going to have the keys to a profitable company. And the company I've mentioned is Carvana in the past. That's one example. That's a place where, you know, that's a very interesting opportunity. And investors could step in and take advantage of that. Or, you know, if you're not, you know, sophisticated enough to do that, look at ETFs like LQD or HYG, which are, you know, making new lows every day. And, you know, we're down below prices that we saw in the pandemic. At some point, this thing's going to reverse course.

And, you know, if you buy it now and you're down another 5%, and then, you know, you get a 30% or 40% rally from there, you know, you're not going to care about that 5%. If you want then, you know, you get a 30 or 40 percent rally from there, you know, you're not going to care about that 5 percent. If you want to, you know, be a little more cautious, then start averaging in. But, you know, don't wait till the last minute because I think you'll miss the opportunity. I mean, if enough people do that kind of thing and feel as if, you know, we're kind of close to whatever bridge over the Gulf that we need to cross, we're kind of close to whatever bridge over the gulf that we need to cross, we're probably never going to have that moment of truth.

And the Fed's going to say, I guess we have the ammo to keep going and keep hiking and keep speaking in a hawkish way. Well, I think you're right until something happens which is destabilizing to the financial system. And we already got there in the U.K. in the gilt market, and the central bank had to intervene. But what's interesting is whether you look at that situation, you look at the situation in Japan, you look at the situation in China, the fundamental problems have not been addressed.

And until they address the fundamental problems, we're going to have more and more of this stress. But let's face it, we've come down a long way. And when I look at the charts, I see fairly good support for the S&P in the 33.50 to 34.50 area. This is all consistent with the statement I made on Scottshow, you know, back in the second week of September, that I would expect to see about a 20% decline from there in equity prices. You know, we're not there yet. We have some more work to do. But, you know, on the dip, which I think is coming in the next couple of weeks it's the opportunity to be a buyer. Yeah I mean obviously those those instances you mentioned from the past right. Orange County long term capital a lot of those things really didn't come along with tremendous equity downside beyond what we've already seen in the market right now.

So it would fit in with those types of scenarios. I mean, you're in the bond market every day. Are there specific pockets where you're seeing liquidity really seize up, where you're really seeing dislocated prices and things like that at this point, or are you just anticipating that? No, no, we're definitely seeing it. You know, it's very difficult to sell any block sizes in corporate bonds or high-yield bonds. Even treasuries are trading in smaller lot sizes than they normally would. And then there are areas of complete dysfunction. For instance, I think emerging markets, the liquidity is exceptionally tight. And right now, if you're a high-yield bond borrower and you want to come to the market,

99% of the borrowers cannot access the market because the market can't digest a new issue high yield bond. So we're seeing it and I think you make a very good point, which is the downside, when Orange County happened, when long term capital happened, that was definitely a buy, you know, buy the news event. And, you know, the downside, it occurs after the announcement somewhat limited. So, you know, investors, you know, should probably spend, be less concerned about timing the market and more concerned about looking at valuations. Yeah. Well, Scott, I really appreciate you coming on and walking us through

your thoughts for today. Appreciate it. Talk to you soon. I appreciate it, Mike. Thank you. All right. Well, joining me now with some instant reaction to that interview and what's happening in the market, it's Adam Parker on set. Adam, good to see you. Good to see you. Thanks for having me. Now, I mean, the general set of issues Scott's talking about, that's been hovering over the markets for a while. Is Fed going to go too far? Is something going to basically, are we going to have an accident along the way or not? And what's priced in? Yeah, I mean, look, everyone has a different amount of capital. They're deploying different time horizons. So, I mean, I think a lot of your viewers are probably a little bit shorter term with a little less capital than Scott, right? And that's saying it

mildly, meaning I don't think most people want to buy the equity market before the imminent fixed income disaster that he's forecasting. That feels wrong to me. But I know what he means. He's probably not been involved in equities and been right and trying to figure out when to make a multi-year investment. So I think there's always kind of a mismatch of assets and timing. My own personal view is that it's really hard to know what the Fed's going to do. We know, and I say this all the time on this program, these guys were buying billions of dollars of mortgage-backed securities when housing was amazing in every MSA. So they could continue to be

hawkish and they've kind of on that path. And I feel like we'll know next Thursday with the CPI, another data point, it's going to be high. I know it's going to be high. So I don't know if the data short-term, I know we mentioned the jobs report. I don't know if we're going to get enough dovish data in the near term. I thought his point on November was kind of interesting. That's clearly out of consensus if they get dovish by then. So I'm more focused on earnings, and I think earnings are going to be bad. I think guidance is going to be bad. And I think the key performance indicator we're focusing on at Trivariate is inventory. Because I know a week or two ago when we were on together, you saw Nike, you saw Micron, you started to see some

weaker inventory numbers. And I think that's the main thing I'm focused on in the next week or two as earnings start unfolding. And, of course, again, the big question is, has the market got part of the way there, right, in terms of figuring out that things are not going to live up to expectations? You know, I think part of the way. And I think maybe that part of what Scott said I agree with. Like, we're down, but we probably could go down more. We think earnings estimates are 15% too high for next year. That's, I think, an interesting debate that I've been warming up to the last two, three weeks is, are we sure 2024 earnings are going to be above 2023? Or could this be, we have a very high nominal GDP now, It's starting to come down. And maybe it's just going to be a very slow bathtub shape sort of thing and not the V shape that's currently in most institutional investors I talk to.

They're underwriting 2024 numbers being above 2023. Right. And they need that to get the valuations to look, you know, once in a lifetime attractive at a minimum. Right. So I think that's an interesting debate. Let's see how things slow. Right, if the Fed gets inflation, let's say it's down to 2%, 3%,

nominal growth is not great. Right. Yeah. I don't think there's any way mathematically they get to 2% to 3% anytime soon. They'd need a colossal recession to get there. So I think what they should do is just say, look, we ran below 2% for a decade,

made you believe deflation wasn't a problem. We're going to run above 2% for a decade, make you think hyperinflation is not a problem, and maybe equities, they can kind of massage the language. I think another important point is the reason people want to own equities when the Fed gets dovish is they think the price to earnings ratio is going to expand, right? That's what they're saying. But remember, the price of the market is the price to earnings times the earnings, right? You know, you cross out the E in the numerator, cross out the E in the down, or get the price. Right, so the problem is, as they get dovish, it's probably because their earnings are coming down. And so I have a little bit less confidence that that cocktail was so, you know, enticing at this point.

It's still early in the downward earnings revision. Well, and history does say that the first cut is actually not one to buy if you've been in a recession. So we'll have to see how that goes out. Sit tight for a minute. Let's get to our Twitter question of the day. We want to know what you think about Scott Minard's big call. Will the Fed be forced to stop tightening by the end of the World Series next month? Head to at CNBC Overtime on Twitter to vote.

We'll share the results later in the hour. And we're just getting started here in overtime. Up next, our all-star panel standing by to break down today's market pullback, plus how they're positioned heading into tomorrow's jobs report. We are live from the New York Stock Exchange Overtime. We'll be right back. I want to get you some headlines on AMD, the company preannouncing lower revenues for the third quarter. It now sees $5.6 billion in third quarter revenue. The previous guidance was $6.7 billion, plus or minus $200 million. The company citing weaker client segment revenues from that lower processor

shipments due to weaker than expected PC market. It's an issue we've known for a while, but clearly the magnitude not necessarily understood. AMD shares as a reflex falling five and a half percent right now. Let's bring in CNBC contributor Stephanie Link, Hightower's chief investment strategist, as well as Keith Lerner, Truist's co-chief investment officer, and Trivariates Adam Parker. Still with us, just quickly, Adam, on AMD. I mean, you haven't looked at the numbers, but directionally, what's your take? Again, we teed it up. These companies are starting to overproduce consumption, not really different from Micron.

We saw their earnings report. I can't look at it on my phone, but I feel like this is an every-even-year thing. I know 2002, 4, 6, 8, 10, and 12, they all pre-negged either Q2 or Q3 at AMD. So, you know, probably just have to reduce the outlook for the fourth quarter, and they know it. For sure. Steph, you know, I guess thoughts on AMD, but also in the context of how you're positioned or how the market is positioned ahead of the start of earnings. Yeah, I don't think AMD is a surprise at all. As Adam mentioned, we had Micron. We've also had NVIDIA.

We've heard across the spectrum that PCs and gaming has been weaker than expected. I'm a little surprised at the reaction because this stock is down 53 percent year to date. A lot of bad news but that being said we're seeing double ordering and triple ordering coming home to roost throughout the semiconductor space. We've been talking about it I've been talking about it since March. I only own one

semiconductor. That's broadcom I think they're better positioned with their end markets cheap and offers a nice yield- but I am underweight tech- I am underweight semis in general- and I don't think I thought what I plan on staying that way into the end of the offers a nice yield. But I am underweight tech. I am underweight semis in general. And I don't think I plan on staying that way until the end of the year. I'm more focused on kind

of the commodity sectors. I like energy. I just added to Occidental just yesterday. I think that market stays very tight for a lot longer. I like materials, industrials. And what's interesting, Mike, is that value actually has outperformed bro and those are value sectors along with financials by about uh... values of a program about twelve percent here today uh... and i think that is going to continue so that's another reason why i'm not uh... uh... overweight or with the market rate attack

terms of the market it felt good on monday and tuesday and even yesterday's rally because that the fed was going to get it This is exactly what happened in June. The Fed is not going to pivot. If you listen to Neel Kashkari today, quite hawkish. He's a voting member starting next year, so it matters. So I think the Fed is going to stay very hawkish. They're going to continue to raise unless something breaks, like Maynard said.

But I think it's going to take a while to see something break, if it does at all. Poor PCE is much too high. Wages and salaries, much too high. Rents and, as I mentioned, commodities have actually stabilized as well. So I think you just want to be prudent, diversified, own high-quality companies, free cash flow, but more leaning on value versus growth. Yeah, and to your point on AMD, the stock has actually kind of firmed up just a bit, down about two and a half percent, no longer down more than five. Keith, in terms of general market field position here, we can kind of examine, I would say, the last six or eight days of trading as that really aggressive plunge to this real oversold level. New low for the year intraday at least, and then very strong rally that some folks are saying, again,

in the short term might earn back the benefit of the doubt for the bulls. What do you think? Well, first, Mike, great to be with you. You know, we were with you back in August around the highs, around 42 to 4,300, and we've said, hey, this is a good time to take some exposure off. But last week, during that plunge, youunge, at least on a short-term basis, our view was that things had become too extended on the downside, sentiment too negative,

especially how we closed to end the quarter. And we were saying this is not time to press the downside and we're more positive on a short-term perspective. And coming into this week, even after that rally, I still think the upside, we're likely to see more upside before this rally is over. As you know, and you follow this stuff too, Mike, I mean, you know, we're still very stretched. Most of the technical indicators, there's still a lot of doubt out there. And,

you know, position is light as we head into this fourth quarter. So I think there's more upside. Our point of view is, you know, that for the next six to 12 months, we still have more of a cautious view. But we would use a further bounce that we expect to reposition if you haven't done so already to become more defensive. We think that 4000 to 4100 level is going to be pretty hard level to get through. And again, this is a more tactical market, Mike. You know, we're just seeing, you know, June with the lows, we had a big 17 percent rally, a big 17 percent decline. And now we think we have a little bit more of this short-term rally to go. Yeah. I mean, Adam, what were you going to say? No, I'm just looking at, you scribbled out some AMD numbers, and I'm trying to do the math in my

head, but to me, they just probably cut their earnings by 30% for next year, right? And the question is, you don't know if that's the first of the negative revisions or there's going to be another one if they overproduce for a quarter or two. So I like Stephanie's point. It's down 50. So clearly the market was anticipatory. We know that. Maybe it was anticipatory of something down 20, 30.

But if we get another one like this, all these things that are perishable inventory are going to go lower. So, again, I think inventory is the number one thing I'm focused on through this pre-neg week this week and then through earnings. Well, we do want to get some more numbers here. Levi earnings are out. Court Reagan has those numbers. Hey, Court. Hi there, Scott. Yeah, so it does look like it is a slight beat here on Levi's for the bottom line with 40 cents adjusted.

The street here was looking for about 37 cents. Revenues, though, coming in at light at 1.52 billion. The street was looking for $1.598 billion. And currency does look to be the big drag here. The company also taking down full-year guidance. They're now looking for full-year earnings range of $144 to $149. The street had it at $154 adjusted. If you look at the revenue, it did grow 1% year over year, all things included.

And then if you strip out currency, the effect of that strong dollar revenue would have been up 7%. There was a 4 cent negative drag on EPS as well from the currency. Europe was down 19%, but X currency would have been down just 9%. Asia, up 36% in revenues, but X currency would have been up 53 percent. So significant drag here. Gross margin also coming in a little light at 56.9 percent. The street was looking for 57.3 percent. It does look like that direct-to-consumer business was slightly stronger, up 2 percent year-over-year compared to the wholesale business. Those revenues up 1 percent year-over-year. Shares of Levi's are lower here in the after hours by about three percent. Mike,

back over to you. All right, Courtney, thank you very much. You know, Steph, at first, plus here's another decent test of just exactly what the market had already been prepared for in the sense that it has been a weak stock, right? It's down 40 plus percent off the highs. Looks pretty cheap if you believe the earnings. And it still came in a little bit soft, and the market backs off a bit. Not a real big surprise, though, because we got negative data points on denim throughout the quarter, from Poles, from Chicos, from American Eagle. There has been a shift from non-dressy denim to more polished, the more polished look. And the inventories are for more non-dressy versus polished look. So

there's a mixed shift happening. The summer was warmer than expected. We heard about promotions throughout the quarter. We knew about currency. We just didn't know how bad it was going to be. I actually think Levi's is, they're positioned better than their competition. 65% of their business is men's and they are still staying non-trustee of the traditional on and so i can't times earnings with a three percent yield already down thirty six percent great management team by the way to i'd like to hear

yeah no no polish on on most men on my own and i can see that uh... i'm an expert on policy most men. I'm willing to concede that. I'm an expert at unpolishing. Keith, I want to drill into a little bit of this idea that for the next six to 12 months, playing defense seems like it's going to continue to make sense. What goes into that assessment in terms of where the Fed's going to be, whether in fact we're going to be dealing with a recession either already or soon and where monetary policy is? Yeah, well, the first thing is, I mean, we've had these supersized rate hikes that, in our view, isn't fully factored into the economy yet because the economy is actually holding up somewhat better than I think a lot of people expected. But we think the probabilities of recession move much

higher as we move into 2023. And it's not just the Fed. We have the most aggressive global monetary tightening policy we've seen in about 40 years. And a lot of discussion about a Fed pivot. Well, if the Fed pivots, that's fine. That's going to probably energize a short term rally. We would be selling into that because, as you mentioned earlier, you know, the Fed pivoted in 2007 and you can go back to 2000 as well. And that didn't prevent a bear market to happen. And we think the economic data, if you just keep it simple, will likely be lower or weaker six months from now.

And then going back to some of the earnings numbers we're talking about, you know, the earnings estimates going forward, at best you'll be a flag. We think there's downsides. So you kind of apply a multiple to that macro backdrop and say the upside is somewhat, you know, limited, even if you, you know, don't go into recession. So from our perspective, the risk reward is just not compelling at these levels. If we had a deeper pullback, you know, maybe that would change. But

at this point, we don't think it's compelling. Yeah. Arguably, yeah, we'd be, you know, on balance relatively lucky if we did bottom at the current valuations and with a 25 percent drop. We'll have to see how that goes, guys. Thanks, everybody. Adam, Steph, Keith. Great to talk to you all. It's time now for a CNBC News update with Shepard Smith. Hi, Shep. Hi, Mike. Joining Team Shiny Jeans. Here's what's happening. President Biden announcing an executive order to pardon every American convicted on federal charges of simple possession of marijuana. The White House says it's about 6,500 people, and the president says he wants governors to take similar action. Mr. Biden also asking

federal authorities to review how marijuana is classified as a drug. Strangely, it has the same classification as heroin and LSD. Closing arguments today in the latest defamation trial against Alex Jones. He's already been found guilty. The jury will decide how much in damages Jones must pay to the families and an FBI agent who sued him for repeatedly claiming that the Sandy Hook massacre was a hoax. Alex Jones says he's boycotting the trial. And the January 6th committee is confirming to NBC News now it will hold its next and likely last public hearing one week from today, 1 p.m. Eastern time.

The panel postponed last week's scheduled hearing because of Hurricane Ian. Tonight, tensions mount over North Korea's continuing missile tests, another bombshell drops in the Herschel Walker Senate campaign drama, and matchmaking with a new dating app for conservatives on the news. Right after Jim Cramer, 7 Eastern CNBC. Matt or shiny Mike, where are you? Matt, usually Matt. Yeah, I like not to joke too much. I feel you. Appreciate it, Shep. Up next, doubling down on the bear case. PIMCO's Erin Brown cautioning against buying the bounce, plus the one sector where she's sounding the alarm. She makes her case after the break.

Overtime will be right back. The major averages finishing lower on the day, but still on pace for their first positive week in the past three. And the recent bounce has brought out the bulls. Take a listen to some of the commentary on overtime just this week. So the market is going to smell. Inflation is done. Fed is done.

And the first reaction is going to be market rallies. I don't think you have to worry about a recession until the second half of 23. So there is room for a rally as you go into the early part of next year. A weak dollar could help risk assets come back the rest of this year and maybe even further into next year. Our next guest says don't buy this bounce. She's sounding the alarm that the market is still too optimistic about a soft landing. Joining us now is Aaron Brown, portfolio manager at PIMCO. Aaron, good to see you.

And it's great to have you here, especially on a day when it really does seem like there's a lot of offsetting currents you can observe in the markets right now in terms of Fed expectations, decent economic numbers, the market a little wobbly. Why do you think it's not the case that, look, we've had the median decline that you usually get in the S&P for a mild recession, and it's not time to start expecting things to improve a bit? So I think the market broadly is expecting that we're going to have a weak GDP over the next year. But what's interesting is when you look at earnings estimates, they still haven't derated. We've certainly seen the P.E. multiples come down back to sort of normalized levels of what you would expect going into a recession. But the earnings haven't changed at all. In fact, the S&P 500 still, consensus is still looking for about up 7.5%, 8% next year. Our forward-looking models are calling for it to be about down 9% next year. And there's risk to the downside from there.

And so there's this real dichotomy between what the economists are saying and what, you know, bottoms-up consensus analysts are saying. And I think there's where the problem lies. The other problem is that margin expectations are still looking for margin expansion, which is, you know, absolutely crazy next year. So I still think that there's room for downside from here. Our target is I'd probably start to nibble or at least stop selling at thirty four hundred and probably start to nibble at around thirty two fifty. But that's, you know, 10 to 15 percent downside from current levels. Sure. And you think industrials in particular or that part of the market and the economy are vulnerable here particularly? That's one of the places that I think is most vulnerable. You saw a lot of pain from the consumer discretionary names in the first and the second quarter, but you're just now starting to see CapEx expansion plans be pulled back.

You're starting to see factories be shut down because they have to be idle because gas and energy costs are too expensive. I think that's where you're going to start to see the pain, but we're just at the starting point of that now. You'll see a little bit of it into the end of this year, but I think the fourth quarter earnings, which are going to come out in January of next year, that's where you're going to see a little bit of kitchen sinking, but you should start to set up your positions now to prepare for that event. Prepare for the recognition that things are not good or prepare for the rebound? No, prepare for the recognition that things aren't good. So essentially get defensive here.

Right, get defensive here. You're starting to see it, absolutely. And you started to see some of the names start to cut back. You saw it more recently with U.S. Steel. You've seen it again you know, again with, you know, some of the auto names as well. But there's a lot more pain to be felt. And when you look at the shippers and you look at the transports, what you're seeing in terms of contract negotiations, that's a very big tell. Yeah. Interesting. So, yeah, margin expectations

probably need a reality check in that case. Aaron, got to run. Thank you very much. Appreciate you coming by. Coming up, key levels to watch. Top technician Jonathan Krinsky is charting the market where he sees stocks headed from here. Plus, another check on shares of AMD falling after cutting revenue guidance. Top chip analyst Stacey Raskin joins us next. We are back in overtime. Another check on shares of AMD. They are lower now by about three point eight percent after the company cut third quarter revenue guidance. Chipmaker now sees revenues coming in at five point six billion dollars. That is down from the six point seven billion previously expected. Joining us now is Bernstein chip analyst Stacey Raskin.

Stacey, how much of this is really out of the blue, a shock, or how much of it is what the market's been handicapping? Well, it's all PCs. They're missing PCs by a billion dollars. Like, PCs are coming in, their client business is coming in 50 percent lower than their guides. Everything else kind of looks like it's holding in okay. Data center looks all right. Gaming looks all right. Embedded looks all right. It's almost all PCs here. Everybody knows PCs are very weak and they've been getting weaker. And so I think that has been a question. We've seen this from other folks. We've seen Intel who took numbers down last quarter and has already been talking them down again this quarter. Intel's coming in low. We saw NVIDIA like in some of their things be weak. Anybody exposed to that market is weak.

So we knew it was going to be bad. The question was just how bad. I would argue that this is probably worse for AMD than most people were thinking it could be. But at the same time, if everything else which is everything else is why you're owning the stock anyways, if that's holding in OK and now we've got this kind of clearing event where they're literally cutting the client business in half sequentially. That might help to put a bottom in on things. But that's where we are right now. Certainly, I do think that this was a bigger cut, though, than I think people were expecting. Yeah. And to your point, I mean, it's clearly not the main driver of the valuation of AMD, even if it's a big revenue number.

Previously, you know, I recall speaking with you, whether it's about NVIDIA or one of these other names, where the street just looks for that moment where it seems like the new projected earnings level seems realistic and you can build from there. Have we reached that point yet? Well, we'll see where things come in. They did not guide. By the way, they've been giving a full year guidance before. So you get back into Q4. They did not update that guidance. We don't actually know what Q4 looks like. I would hazard a guess that things are still in flux, especially in that PC market. So they're probably still trying to figure out where things are going. And then we'll see where numbers end up next year. But I mean, you can make some pretty

dire assumptions for where things are going to go. And you can get to an earnings number probably for AMD where the multiple would still be pretty attractive even on where it's trading right now, like in the mid-60s. The street right now, I think for next year, is high fours, maybe up to $5. Even if that number turned out to be four, even if it turned out to be $3.50, on a trough kind of level for earnings, it's not a bad thing, especially if you can now hopefully make the bet that the bottom is in.

And by the way, there's lots of names across the street that trade like this where we've all been waiting to see the bottom get put in. Usually when it happens, they tend to work. Go look at Micron or something like that, for example. Yeah, exactly. Yep. Stacey, appreciate you jumping on. Thank you. Yeah. Oh, you bet. Anytime.

All right. Up next, another down day on Wall Street, but the action isn't over. We're tracking the biggest movers in overtime. Seema Modi standing by with what's moving. Hey, Seema. Mike, a significant move in cannabis stocks after a big announcement from President Biden. We will unveil the key movers and also talk about what it means for the industry. We're back in two. We're tracking the biggest movers in overtime. Seema Modi has them.

What do you have, Seema? Hey, my cannabis stocks moving in overtime after President Biden said he would pardon federal offenders for simple pot possession. Biden will also review marijuana status as a Schedule 1 controlled substance. Tilray is higher in the OT. Kronos and Aurora, though, are both lower at this point. Aurora down about 1.5 percent. Dow Jones reporting that the conglomerate Griffin Multinational is reviewing a range of strategic alternatives to maximize shareholder value,

including a potential sale. The company said it will have an update on the process by the end of November. And you can see the stock is up over 3 percent here in the OT. Michael, send it back to you. All right, Simon, thanks very much. Up next, the key market levels every investor needs to watch. Top technician Jonathan Korinsky is breaking down his forecast for stocks. Overtime, we'll be right back. Let's get the results of our Twitter question. We asked, will the Fed pivot by the end of the World Series? Well, 74% of you said no, which matches basically what all Fed officials have been telling us. By the way, that would be sometime in November.

The major averages all finishing the day lower, giving back more of the gains from that sharp two-day rally to start the week. And the technicals are signaling some more potential downside from these levels. Joining us now is Jonathan Krinsky, chief market technician at BTIG. Jonathan, great to have you here. I mean, let's dial it back a little bit. You did expect the S&P would break those prior June lows. They did that. We got this snapback rally. What's your read on the sustainability or the vulnerability of this rally? Yeah, so I think, you know, first, if we're just looking purely at the S&P 500 in a vacuum, we tagged the 200-week moving average to the penny essentially on Friday. That was around $35.90.

There's a lot of analogies brought up to the market bottom in 2018, December of 2018, because we did the same thing. A key difference though by our work was back in December of 2018, you had a VIX curve that was 12 points inverted, meaning spot VIX was 12 points higher than the second month future. And that typically, once you get over 10 points, that puts you in the ballpark of sustainable market bottoms. But the low on Friday, we only saw about a two-point inversion. So we just haven't seen enough of that metric for us to want to call a durable bottom. And then when you look at the macro cross-currents, the key drivers of equities all year continue to be interest rates and the dollar.

And we just don't see enough evidence that those have peaked. I think there was a lot of optimism that rates and the dollar put in a top earlier this week. But then you see what happens the last couple of days, the 10-year back above 380, dollar index back above 112. Inflation break-evens have been up the last four days. So I think it's just premature to say that the macro headwinds have become tailwinds for equities yet. Right. Yeah. No, there's certainly been not an all clear on that front. What do you say to those who are kind of looking at some of the mechanics of the two day rally and saying it was unusually strong breath? We finally got some a real dominant move to the upside in the very short term. Now, of course, there was a lot of that talk also in June, but it was followed by, what, a 17 percent rally over a couple of months.

So does any of that hold up? Yeah, I mean, there was a plethora of data analysis going on over the last couple of days. I think what's notable about these big, you know, breath moves and big moves off the lows, you tend to see them right at the beginning of new bull markets. But you also see them in the middle of bear markets. That's what makes things so difficult to try to identify. And that's why we go back to some of those other metrics. You know, look, I think the back-to-back 90% upside volume days we had Monday and Tuesday, all else equal, that is more of a bullish sign than not.

We looked, I think, August 2011 was kind of the one notable failure in the last 15 years or so where you had that in late August 2011. And then you went on to make new lows about 12% lower. So there have been failures of that. I think, again, one other key big you know, big picture metric we just highlight the monthly RSI in the S&P 500 only got down about 43 as of Friday. In the entire history of the S&P back to 1929, we've never bottomed after a 20 percent drawdown or more unless you've got that monthly RSI below 42. So, again, you could argue we're close enough, but, you know, history says there's enough things that say we're not quite there yet. Yeah, it's really tough. The judgment calls kind of pile on top of each other when you're trying to figure this stuff out. Thanks for walking us

through some of it, Jonathan. Appreciate it. Thank you. All right. We have a news alert on Twitter. Another one. Kate Rooney has the details. Hi, Kate. Hey there, Mike. Yeah, the latest in the Twitter Elon Musk saga here. Elon Musk had asked for a stay in this case. Twitter responding in a letter saying that they are not on the same page. They don't think the judge should issue a stay. I'll review the statement here from Twitter. Twitter opposes the defendant's motion. The obstacle to terminating this litigation is not, as the defendants say, that Twitter is unwilling to take yes for an answer. The obstacle is that the defendants still refuse to accept their contractual obligations for months. It says here defendants have pursued increasingly implausible claims. So some pushback here from Twitter and building on

David Faber's reporting earlier that the company had or that Elon Musk had been looking for a stay. But Twitter here responding and the latest statement from the company in this deal saga. Back to you. So we're seeing the stock kind of hover. It firmed up a little bit just to try to pull it apart a little bit. So Twitter, the plaintiff, essentially saying that, you know, Musk seems to want a way out of his obligations by trying to agree to effectively the same terms. I mean, it seems to be about what financing commitments and things that would otherwise come along with him going through with the original terms. That's right here. And there also is some some other details in here, Mike, that they talk about the threat of further mischief and delay

and the idea that Musk's motion to delay the trial is just a tactic in trying to sort of kick the can down the road. But it does seem to be, I mean, the shares are moving around a little bit here, but the latest in sort of this chess game that these two companies are playing that's still really unfolding here. But it says, yeah, Twitter will not take yes for an answer. Astonishingly, they have insisted on proceedings with this litigation, recklessly putting the deal at risk and gambling with their stockholders' interests. So a lot to dig in here, Mike. We'll bring you the latest as you get more.

Yep, there will be more, Kate. We're sure of that. All right, thanks a lot for breaking it down for us at this stage. Kate Rooney, take a look at how the market did close today. The underperformer was the Dow. The actual the Nasdaq held up better. It was better breath. So the locus of the weakness was in some of the cyclical stocks today. Also, the defensive stocks, utilities, one of the weakest groups, definitely giving way. Talked earlier a little bit about the real estate sector as well.

Small caps, not as bad, down about half a percent as we wait for that jobs number tomorrow. Expected to be a decent one. The market seems to want a softer print. That does it for Overtime Fast Money. Begins right now.