Closing Bell - Closing Bell Overtime 12/16/22

Episode Date: December 16, 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, Sarah, thank you very much, and welcome everybody to Overtime. I'm Scott Walkney. You just heard the bells. We are just getting started for Post 9 here at the New York Stock Exchange. In just a little bit, Vantage Rock's Avery Sheffield will tell us why she thinks this week marked a significant shift for the markets, plus a new trade idea from Guggenheim's Scott Minard. We'll tell you what he is suggesting today as stocks get wrecked following the Fed. We begin, though, of course, with our talk of the tape, the battle between

what the Fed is saying and what the bond market is doing. The two are at odds. The big question is who will be right? It's only your money hanging in the balance. Let's ask New Edge Wealth's chief investment officer, Cameron Dawson, here with me at Post 9. It's good to see you. Welcome back. That does seem to be the preeminent story, right, this tension. That's what Rich Clarida last hour called it. You've got hawkish Fed speak. The outlook is hawkish. Mary Daly far away from goal.

Williams possible. We'll have to hike higher than forecast. And yet yields are falling for the most part. Yeah, it's really peculiar because the bond market has very much gotten ahead of the Fed. The bond market is pricing in cuts into the back half of next year, despite the Fed members all saying, don't count on it. Inflation is still too high. We haven't seen evidence that inflation is falling fast enough in the areas that matter. Things like core services, ex-shelter still running at 6%. So the bond market pricing in those cuts seems to be similar to this summer, where we saw something also happen where the bond market started pricing in cuts into the beginning of next year,

and the end result was that it was caught flat-footed, and that's when we saw yields start to rise again. So who do you think wins this battle? Clara suggested that, in his words, the market's going to have to come up to the Fed, not the other way around. Do you see it that way? I think the answer is that, yes, the market will have to come up to the Fed because inflation is the new wild card here. If this was 2018, when inflation was benign, the situation was that the Fed could step in and support markets. but the end result now is that with inflation being so high, they have to push back against this pricing. Maybe the bond market, and Clare does point also, was that maybe the bond market thinks

the Fed won't have to be as aggressive because inflation is in fact coming down rather than the other way around, which would be that it just doesn't think the Fed's going to be able to do what it wants because the economy is weakening too much well I think it all depends on the path of the labor market because at this point right now we're seeing no sign that the labor market is weakening enough to have the feds step in and support markets but there's something important to remember with the two-year the two-year now is sitting at four point two percent go, how can

you square that with a Fed funds rate at 5% of what they're projecting for 2023? Well, because the two-year is at about 4.2%, that's about where the Fed is for 2024 dot plot. And so that's what that is already starting to price in. Well, Michael Hartnett of Bank of America today said that you're not going to get a bottom in the market until the labor market cracks. And I mean, the implication in that is that that's going to take a while. Yeah. Right. It's so strong, as you say, it's such a lagging indicator until it actually does crack. You can't even declare that the bear market is over and that we can even start a new bull market. That's suggestive of some significant pain still in the cards.

And significant time that could still be in the cards. If we go back to pre-Great Financial Crisis, the Fed started raising rates in 2004. Unemployment didn't start ticking up until 2008. Now, it doesn't have to take that long this time around, but if we think about the labor market being the driver of consumption, consumption being the driver of growth, growth being the driver of consumption, consumption being the driver of growth, growth being the driver of earnings, then it's likely we don't get that earnings recession until we see the labor market start to really weaken. You think we're going to retest the lows, if not break through them? Yes.

Yes, I do think we will. Now, it might not happen immediately. It could happen sometime in the first quarter. But I do think that given the fact that we were just trading at 18.6 times earlier this week, this is not a cheap market. And estimates still are rather high. So if they start to reflect what could be a weaker economic scenario and we get a valuation that's more consistent with where yields are today, that would point to lower markets. I mentioned at the very top of the program that Guggenheim's Scott Minard is suggesting a trade for all of this, in which he says, and I'll show everybody the tweet, which came down not too long ago today, latest New York Empire manufacturing, retail sales, Philly Fed Index, industrial production,

all confirm Fed tightening is slowing the economy. Resistance at 4,100 on the S&P shows the downtrend in equities firmly in place, opportunity to reduce equity exposure or establish a short position. You guys are in sync, I think. Yeah, we've been talking about this discipline around the 200-day moving average, and that's about where his 4,100 is, which is that when you trade up close to that 200-day, when you're in a bear market, you want to be reducing risk, reducing exposure. But when you get oversold versus the 200-day, like we were in June or in October, that's when you don't press your shorts. And so I think having that discipline around the trend line, around that 200-day is very, very crucial as we navigate

the market. So when some would suggest, well, if bond yields are coming down, that's actually pretty good for stocks, not if they're coming down for the wrong reason, which is probably what I would guess you would say because of the concerns about going into a recession. Exactly, because if bond yields are falling because we are pricing in imminent rate cuts where the Fed is having to respond to much weaker growth, it means that we have a big earnings hole

that we haven't priced in yet. And that's similar to what happened in 2018. We saw a rally in bonds at the end of the year, but equities did poorly because bond yields were falling for the wrong reason. Yeah. Let's bring in our panel. John Mowry of NFJ Investment Group is with us today

and CNBC contributor Bryn Talkington of Requisite Capital Management. It's great having you both with us today and CNBC contributor Bryn Talkington of Requisite Capital Management. It's great having you both with us. Mr. Mowry, the bulls have been absorbing a lot of body blows. Yes. How are you still standing? Well, it's a little bit gloomy outside. There's a lot of rain.

There's a lot of rain in the NYSE. I think that it's important to contextualize the current market environment historically. If you look at the yield curve, it is deeply inverted. It's the most inverted since the late 70s and early 80s. And if you look at the previous inversions before that, in 2019, in 2007, and in 2000, all three of those instances were times you wanted to step away from equities. But the big difference, Scott, was that valuations were high and inflation was low. Now you're in a situation much more similar to where we were in the late 70s, early 80s, where valuations are much lower. Even though earnings are coming off, price-to-book multiples are quite attractive and inflation is high. And if you stepped in, Scott, in the late 1970s and added to equities, over the next two years, the S&P was up

50%. Over the next 10 years, it was up 400%. And that's also with that little thing that happened in 1987 in October. So it was a great time. It was a generational buying opportunity to step in when the storm clouds were brewing. Why do we think that valuations, the multiples come down enough? Well, if you look at historical context, typically you see earnings come off before the market bottoms. This is classic. We see this over and over and over again where you see revisions go down. I think the key indicator, again, is looking at the price to book multiples when you have earnings coming off. A lot's already been discounted.

There's a lot of bad news. There's a reason that Merck's trading at historically high valuations. There's a reason that utilities are at high valuations. Nobody wants cyclicals. They've thrown them out. These are opportunities for investors that have a longer- term perspective, in my opinion, to step in. So we're seeing very interesting dividend yields and very interesting price to books. And I would argue that when there is more yield, there's less risk. There's more dividend yield and there's more bond yields available today for investors that step in.

So Bryn, do you want to take the other side of what is clearly a bullish outlook from John. Yeah. So about the rally comparing the late 70s and 80s to today, the one big difference is in 1981, 1980, the PE multiple for the S&P was 8, not 18. And so I just think you have a totally different set of circumstances today from evaluation. I think to Cameron's point, you have an 18P. Right now, stocks aren't cheap. I also think that I really believe in the economic cycle. And we are late stage economic cycle. And what comes after that? Contraction or recession. And when you're in those time periods, what does well? Healthcare, consumer staples, and utilities. Really what's worked this year as we've been late stage,

what don't you want to own or be underway are, you know, financials, industrials, and tech. And so I just think we are going through this process of an economic cycle. And as it relates to are we going to go into a contraction or recession, every single recession over the history of the United States has been preceded by either an oil shock, Fed tightening, or an inverted yield curve. We've had all three this year. And so I just think probabilistically, we are going to continue to be late stage slowdown. And we as investors, you know, we're invested. It's a relative gain. You have to lose less, and you have to have other ingredients

outside of capital appreciation. You need to have dividends. You need to have covered calls, other strategies that are going to get clients returns out of just the FANG stocks, the big tech stocks that have been all capital appreciation in the last 10 years. So, you know, bull markets are more fun than bear markets,

but that's where we are. Yeah. You're not making the argument that stocks are cheap. Well, I think that you have to think about it in the context of interest rates. So interest rates have a gravitational pull on valuation. Back in the late 1970s and 80s, we had rates at 15%. We don't have rates there today. So I think that when you strip out some of the earnings revisions and again, look at other metrics, you can't just look at P.E. ratios. That can be deceiving. I mean, P.E. ratios are very low for energy. Price-to-book multiples are higher than when oil was at 150. So I don't think you can look at P.E. ratios solely as an indicator of where there's value in the market. And I would argue that given the level of rates and given the retraction in the price-to-book multiples

and the relative dividend yield opportunities, that is a real opportunity for long-term investors. I do think valuations are cheap. When valuations were much higher, okay, at the end of 19, if you looked at those other metrics, everyone said, hey, or in a 20, excuse me, that was a time to be stepping away from the market. So I have a hard time with the market was very cheap at the end of 20 when everyone was bullish, and now it's even more expensive at the end of 2022. But some would make the argument, Cameron, that this is, as Steve Weiss did today on the Halftime Report, for example,

this is an easy market in his mind to understand. Don't fight the Fed. Just like it was easy on the other side, now it's black and white right in front of your face. Yeah, and I think that if we compared today's multiple to the prior peaks in the last cycle when interest rates were very low we're actually now back bumping up against those multiples that we saw at the beginning of 2018 and at the beginning of 2020 and as we bump up against that that's going to be a ceiling on this market and we think that there is still downside for valuations and even the cyclical parts of the market industrials are trading above their pre-pandemic peaks at 19 times earnings, with PMIs hovering around 50.

This is not a cheap market. You want to counter that? Going back to World War II, it has only occurred three times where you had consecutive down years in the market. So historically, looking back at those previous downturns, you were rewarded by stepping in. So I would argue that historically, looking at the valuations, you were rewarded by stepping in. So I would argue that historically, looking at the valuations, looking at the dislocation in the market, I mean, Scott, we see some of the REITs trading at the biggest discounts going back to 18. Why are the REITs cheap? Because the Fed's turning off capital. That makes sense. This is a great time to step into those. Those relative utilities have the widest spread we've seen in many cases going

back a decade. Stocks are down tremendously. You have some stocks down 50%, 60%. Peak to trough, the S&P is down 25%. That is material if you look back historically at those previous corrections, and we saw the same thing in the 80s. I know, but the reason they're down as much as they are, and in some cases even more, is because valuations were into the insanity level on some of these stocks that had no earnings. They were, and That's why Facebook's down 75%. It had a much more insane valuation, so it got clobbered even more. If you look at

what's going on in China, I'll pivot for a minute. China was getting very attractive. The K-Web index is now beating the S&P year to date. Those valuations got very retracted, and there were lots of storm clouds there, too. And we're seeing a lot of positives come out of China. So I would argue you'll see a similar situation in the U.S. around a lot of pessimism in technology, industrials, financials. Who wants to buy banks when the yield curve's inverted? That's a great time to buy banks, actually, if they have strong reserves, if they have provisioning, and if they have other divisions that aren't just tied to interest rate sensitivity. Bryn, John thinks that energy is too expensive here. Health care is a favored part of the market. Pharma, John says, is too expensive as well.

Do you take the other side of that, too? I do. I mean, I think when you look at the free cash flow yields, I mean, I hear what he's saying on Price to Book. But if you look at free cash flow yields within the energy names, you have, I think, on the XLE around a 9% or 10% free cash flow yield. They are volatile, though. And so it's like, if we are going into a slowdown, energy will be susceptible to the trader saying, we're going to go into a slowdown. And so I would really promote putting covered calls against the energy names as we continue to slow, because that's going to be a trade that especially the

algorithms look to do. But I just think that I agree with John, like, there are going to be great opportunities. I just think that's later on. And I just think we're continuing to slow down. The Fed is going to screw this up. They're going to overtighten. They do it every time. And then that will be the opportunity, I think, to take more risk, but at lower multiples for some of these growthier, more cyclical names. You're shaking your head, John. Yes, you agree with the Fed overdoing it. But yet you want people to buy stocks today? Why not wait until they do overdo it? I'd rather be approximately right than precisely wrong.

And again, stepping in when you see these volatile entry points presents the opportunity. I love the idea of getting dividend yield. I love the idea of getting covered call income. I want growing dividends. I think it's a great way to protect and get cash flow while you're waiting. But if you're too patient, you may miss these big days. I mean, we saw how much the market was up just a month ago. And let's not forget, the market's up quarter to date. We have a big quarter going, even with the last couple of days that we've had that have been tough. We're on our way to having that evaporate, though.

Well, we'll see. There's a lot of trade. You still think that we have room for an end-of-year rally? And if so, why? I think that it's completely conceivable that we have an end-of-year rally. Tell me why. Well, when I say end-of-year rally, let me contextualize that. I think for the- Well, we've got 10 days left. Well, we had a big rally a few months ago in November, huge rally in November off of a better inflation print. That is still in the cards. Inflation is coming down. M2 has rolled over hard. All the indicators are that inflation is coming down. Rents have peaked. Those are coming down. So all those things are good. Energy prices have rolled over. Oil is only up, you know,

7%, 8% for the year. It's not even up that much anymore. So I would argue that when you look at those key indicators, M2, inputs, rent, all those things have rolled over. If we continue to see inflation roll over, the market's going to cheer. And the long bond is telling the Fed that they're wrong, I think. The Fed is pumping the tires on the front end of the curve and they're saying, we're going to push this up. But the long bond's saying they're wrong. It's so inverted that we're back to the 70s situation. Why did we give up, though, 800 points on the CPI,

which was a good CPI? Doesn't that counter your view of how the market is reading the information that it's being given? Well, the market did not like the direction of the Fed. They were not pleased with that. They think that the terminal rate could be a little bit higher. But the market went down. Remember, there was a huge pop on the CPI. That was before the Fed. There was a huge pop. That's true. I would argue that a lot of that had been discounted with the previous inflation print when the market rallied tremendously. That was one of the biggest standard deviation moves we've seen in the market historically. So a lot of that got priced. But again, if you step back, inflation is rolling over. Bond yields are high.

The curve is inverted. Price-to-book multiples are at the lowest level we've seen in a decade for many areas. I mean, homebuilders, Scott, for example, you know, D.R. Horton is up 50 percent in the last six months. I mean, that's incredible. And it's like, who wants homebuilders? Why would you want homebuilders when the 30-year mortgage is at 7 percent? So I would argue that simpicles are much more attractive than defensive staples, energy, utilities. They're pricey. Everyone knows it.

The reason we're talking about these areas that are cheap is because they're cheap, and people are scared to step in. All right. Cameron has absorbed all of this, and I'll give you the last word. I mean, here he is, sitting right here to your left. I'm bullish. It makes a market. This is what makes a market, and I think this is one of the things that makes bear markets so difficult is because there is this time factor.

It feels like death by a thousand cuts. We have not cut estimates enough to reflect a slower economy. We have not deflated multiples enough to reflect the lack of liquidity in this market. And we have periods where you get relief that you can get a breath, but we think that once you hit resistance,

that when you have to be very, very careful, because the risk is like you've seen in the last three days that you roll over and you continue the downtrend. All right. We're going to leave it there. Ladies and gentlemen, thank you very much. Bryn, we'll see you soon. John and Cameron, I appreciate the conversation right here at Post 9 with us today. Let's get to today's Twitter question.

We want to know, who had the best call on overtime this week? Double lines Jeffrey Gundlach saying there's a 75% chance of a recession. Was it MBF's Mark Fisher calling a bottom in energy? Or Wedbush analyst Dan Ives seeing 20% upside for tech in the new year? Or Cantor's Eric Johnston

saying the S&P 500 will trade in the low 3,000s in the first half of 2023? You can head to at CNBC Overtime on Twitter. Cast your vote. We'll share those results a little bit later on in the hour. We do have a news alert now on Credit Suisse. Kayla Tausche has those details for us. Kayla. Scott, the FDIC, which regulates deposit-taking banks,

just announcing the results of its review of the plans for 71 domestic and international banks for their living wills. Remember, these are the instructions to wind down a bank if it were to fail a la Lehman Brothers in 2008. And it found issues with two specific banks, first BNP Paribas and Credit Suisse. With Credit Suisse, it found two specific deficiencies, one related to corporate governance and a second related to cash flow forecasting. The FDIC has instructed Credit Suisse to resubmit its living will by next year. It wants to see the governance issues worked out by May and it wants to see the cash flow forecasting issues worked out by July 2024. So the FDIC is sending two banks back to the drawing board.

Scott. All right, Kayla, thank you. That's Kayla Toshi. We're just getting things started here in overtime. Up next, a quote, significant turning point for the market. That's what Vantage Roxabie Sheffield is calling this week on Wall Street. She joins us next to explain right here and later. Schwab's Kevin Gordon is laying out the Schwab game plan for 2023, where he sees the biggest opportunity for your money in the new year. Don't go anywhere. Overtime live from the New York Stock Exchange is back in just two minutes. We're back at overtime, a significant turning point for the markets. That is what our next guest says happened this week. Joining me here post nine, Avery Sheffield, Vantage Rock co-founder

and CIO. It's good to see you again. Welcome back. Great to see you. What is the significant turning point? Yes, well, I mean, I think it's the combination of the market's reaction to the CPI and Powell's press conference and, of course, the Fed decision. So what was really interesting is in both cases, the market was really trying to rally, right? Right after the CPI print rockets up and then fades throughout the day. Like, that's a very different reaction than we saw in November, where there was massive follow through for multiple days. Then during Powell's press conference, it was fascinating to see that every time he said something

that could possibly be interpreted as dovish, even if it's potentially disgusting, bringing up the interest, bringing, changing the interest rate target in 2025, the market starts to rally. But it just couldn't hold. And so I think kind of more from a technical, from a market sentiment standpoint, that those are very important inflection points that suggest more downside risk ahead. What degree of downside, right? If you can't, if you're trying to get something going, you get a good report, as you said,

can't rally, give it all back. Well, you could rally, but you gave it all back. And now you continue to get this hawkish Fed speak, and yet the bond market doesn't really want to listen to it. Right. It doesn't want to listen to it. And I think the reason it doesn't want to listen to it is because fundamentals are weakening. And Powell acknowledged that, right? Everyone's seen that.

But that's really not reflected in the valuations of many companies out there. There are certain areas, especially in cyclicals, like as John was saying, potentially in areas like REITs, where in home builders, where we're already reflecting really tough times ahead, but there are a lot of areas in the market where multiples are still very high, but fundamentals are weakening, and that's why we think that there's, and that's where we think that there's much more risk to the downside. Where are the multiples still the highest,

where you feel like there's the most risk? Yes. So, look, as like Chris Senec and others were saying earlier today, healthcare, staples, like utilities, like those are more expensive. But I don't know that that's where the greatest risk is. I think those would probably be maybe underperformers or like kind of more middling. But really where I think you still still see very high multiples and a lot of risk is more in the growthy areas. Companies that are trading at very high multiples with high growth expectations ahead. Yeah. I mean, technology

stocks, which seem, you know, the eye of the storm epicenter, whatever you want to call it, seem to have the most risk to what the Fed is talking about. Absolutely. I mean, we talk about it as underappreciated cyclicality, right? Because many tech stocks have had such a long run of success and done so well through COVID. People think that that's likely to continue ahead. But, you know, we're much more cautious because we are seeing signs in many tech companies that they are more cyclical than anticipated because they've gotten to a level of scale where the cyclical dynamics are really coming into play. Are there areas of the market where you do think there's opportunity that you'd be willing to now?

I mean, it's so hard, I think, for people to get their arms around the idea of, because you sound, you know, obviously bigger picture negative, right? But that there are areas that you would actually buy stocks within? Yes, yes. I mean, that's where I think where there's a lot of downside priced in. So it's less expensive areas of the market where there's a lot of negativity because maybe these companies have struggled even before COVID. And so people think, oh, if you have a cyclical downturn and the companies struggle before COVID, things are going to be even worse. So areas of such as retail that we've discussed before, that's one area where you have a lot of pessimism priced in. You have

multiples, mid-single digits, low double digits, mid-single digits for companies that people think are going away that we don't think are going away, low double digits for high quality companies that we think are much more like staples that people think are going to have very cyclical, significant cyclical pressure. I mean, I'm just thinking about, you know, if the Fed does what it says and, you know, over in Europe, they're obviously going to continue to raise rates. That's going to have implications here. You don't think all of that is going to drive stocks significantly lower? I mean, do you think we're going to go retest the lows? I do think for the market as a whole, there's a very decent chance that we test the flows and that we blow through them.

But see, then, even though things that you like today are likely to get cheaper down the road, no? They could get somewhat cheaper, but I think the amount cheaper that they get will be much less than other areas. I mean, we run a long short portfolio. To be quite honest, we're running a bit net short. So we have protection to go through those ebbs and flows. But I do think there's also long-term value in a lot of these companies that are very inexpensive. And that if you're able to have the stomach to go through some modulation and add on the way down, because you never know when the bottom is going to come in, they could present really good long-term buying opportunities.

Wow, but you are net short. We are net short. And what causes you to tilt the balance there? Right. So it's just the preponderance of companies that are still very expensive, especially in these growthy areas of the market, including tech, well above the recent lows. Maybe they've come off significantly from the COVID highs, but growth has decelerated quite significantly. Some of them might even be back to 2019 levels, but growth, again, is very low, and they were pricing in a lot of optimism back at that point in time. So really what would shift

us to be more net positive is the combination of the level of pessimism that's priced into the stocks that we like, combined with some signs and glimmers of hope that the bottom might be closer. All right. You keep us up to date on how you're positioned. I appreciate the conversation. That's Avery Sheffield of Vantage Rock joining us here. Up next, your 2023 playbook from Charles Schwab's Kevin Gordon, where he sees the biggest upside opportunities for your portfolio in the new year and maybe some downside risks, too.

Overtime's right back. We're back. It's time for a CNBC News update with Kayla Tausche. Hi, Kayla. Hi, Scott. Here's what's happening at this hour. Ukrainian President Zelensky warning that Russia has enough missiles for several massive attacks like this morning's. Ukraine's military chief said Russia's fired 76 missiles and 60 of those were intercepted but enough got through to black out Ukraine's second largest city and one missile struck an apartment building in central Ukraine killing three and injuring at least 13 more. The House Ways and Means Committee will meet on Tuesday to discuss the Trump tax returns in its possession. The panel could vote to release some of the documents just days before Republicans take

control of the House. In the last two weeks, the committee's chairman said it was too early to say whether any of the tax returns would be made public. And forecasters say another Arctic blast will bring frigid temperatures to much of the country. The Washington Post says it could be some of the coldest late December weather in decades for central and eastern states. Next week, some areas expected to get temps as low as 30 degrees below normal. Bundle up, Scott. Back to you.

Yikes. Hope that's not around here. Kayla, thank you. That's Kayla Tausche. Stocks pulling back again today to close out a losing week on Wall Street. My next guest says growing recession fears could drive the market even lower. Joining me now, post-9, Kevin Gordon. He's Charles Schwab's senior investment research manager. I mean, it's nice to see you again. I've had, like, really bullish on today, really bearish on today.

Where do you lean? I lean bearish in the near term, bullish if you're extending your time horizon, I think, at least a year out from now. And one of our themes in our outlook, which we just put out a couple of weeks ago, was that a lot of the sentiment conditions that you saw in September, October got at or near extremes that if you were looking out longer, at least a year out, it's suggestive, at least going back in history, that you could see better days for stocks. But that obviously hinges on the Fed being able to sort of check the box on the labor

market side. Now that inflation is in the rear view, I'll say the peak is in the rear view, can't declare victory too soon is what we've learned this week from Powell and other speakers. But if they start to see increased success there, but you also start to get more of the labor market pressure in a form of a higher unemployment rate, wage growth coming down, which isn't happening yet, then we see better days a little bit longer term. But I still think in the near term, you have a lot more volatility driven by probably what will be more of a tightening in financial conditions. You see several more Fed hikes ahead? I mean, it's tough to say how many more. Well, you have to sort of have an idea

in your head if you're going to formulate an idea on where the market could go. That's why I ask. I don't think it goes as much about how many more hikes. I think it's just how much they adjust the terminal rate, if at all, from their most recent expectations. So February, probably, obviously a lock for a hike. I don't know if 50 versus 25 matters as much because I think we have a lot more data to get through before we get to that meeting. What if we have, let's put it this way, what if we have, let's say, several more 50 hikes? What if we have several more 25s?

What happens if we go higher than the terminal rate that they even suggest they're at now? Yeah, I mean, I think there's definitely more of a risk of over-tightening. And there's also a question still right now that we don't have the answer to, is have they already over-tightened from the series of 75 basis point hikes? So I think, yeah, if they go further, it would be for good reason in their point of view, where you would have wage growth that's still too strong, inflation that for some reason isn't coming down at a rate that they want. I think that would definitely be worse for risk assets, and you'd probably push out the time horizon for when we're able to recover. I mean, is it time now to, you know, I guess, invest more

significantly as though we're going to have a recession? Is that how you're thinking as we enter 2023? If you think there's near-term pain before longer-term gain? So we're already in a form of recession. It's rolling through different parts of the economy. And this was really our theme for 2022 and was telegraphed by the market in 21. You had a series of rolling bear markets at the member level, at the industry level that was happening by way of rotation, keeping the index afloat. That is what we saw in the economy in terms of rolling bear markets within the economy itself. So we think that now that you've seen more weakness at the headline index level this year, probably going to see it spill over more into the labor market and corporate earnings. That's where

you haven't seen the recessions yet. But the idea is that with the weakness in housing this year, with the weakness in CEO confidence, consumer confidence, if you get a stabilization in the first half of the year, I don't want to date it just to June, but if that starts to happen in the context of a labor market that does soften, that's probably going to set you up for a better mix for risk assets. But obviously it hinges on the labor market. What do you like in the market now?

In the same breath, what feels too expensive for you here? Well, I know quality has become a cliche these days, but specifically earnings quality, profit margin, protection, but also strength moving forward. You have just a significantly fewer amount of companies that are able to exhibit that quality. Only 30% of the S&P with positive earnings revisions over the past few months. So I think you have to look there, but also now a theme is being able to withstand pricing to exhibit that quality, only 30% of the S&P with positive earnings revisions over the past few months. So I think you have to look there, but also now a theme is being able to withstand pricing

power as top line growth comes down. By virtue of what we saw at the retail sales report this week, nominal growth is starting to slow now. And so any company that can maintain more pricing power, not by expanding margins to a significant degree, but at least holding them and not being able to, being able to withstand higher input costs still, that's where we think you're going to probably find the most, you know, success. I wonder if that pool of ideas is shrinking or getting smaller, right? The idea that you can have profit protection, you know, your words there

in an environment where the economic picture is deteriorating more substantially, it seems like then that pool shrinks and shrinks and shrinks and shrinks, and then you really don't have that much to choose from. Absolutely, especially now when we have the dollar has reversed, but you're still not feeling the actual effects yet in corporate earnings from that strength that we saw earlier this year. Even if it stabilizes at a higher range, that's a different playbook than what we were dealing with a couple of years ago. Then you have the added weakness of a slowing economy being the feature of what the Fed is trying to do.

It's not a bug. They're really wanting to bring aggregate demand back down to meet supply, and they haven't seen that yet. So the more they press on the brake, the harder it gets to find companies that exhibit those qualities. Yeah. All things equal, if you think you go down first and then up, is next year just a flat year in your mind? It could be. But again, I think it really depends on how much wage strength there is. And I'm much more curious now as to what the Fed's reaction function is to wage growth, where they see an acceptable range

coming down to. And the fact that as inflation now starts to roll over, if it does, in fact, roll over swiftly and if we get more reports like we did for November and Nominal spending and strength and income actually stays pretty high I think that widens the gap now and you actually have stronger real activity And I think the Fed would probably be a little bit more nervous for that So if that were the case, then I don't see it as a better year But you know, we're also all flying blind here a little bit to some degree So it's a little bit tough to go out that far But if you do see softer wage growth a little bit of a pull forward in the recession in the labor market, then I think that you probably

have a better second half or maybe final quarter of the year. All right, Kevin, thank you. Thanks, Scott. Appreciate it very much. That's Kevin Gordon, you as well, of Charles Schwab. Up next, the semi-slide chip stocks handing in their worst week since mid-October. Is there more pain there ahead? Is it now time to get into some of those names? We debate that 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 is right back. In today's Halftime Overtime, semi-surge or slump? The semiconductors closing out their worst week in two months with the ETF that tracks that space down 31% this year.

And there's a growing debate heading into 2023 whether the sector is fully priced in macro headwinds. Joe Terranova and Steve Weiss on opposite sides of that trade. Listen. Logically, you say to yourself, okay, semis have to reprice lower, but they've already gotten ahead of that. A lot of the semis have already had the estimates lower.

I don't think semis are cheap enough. We see that cars right now, incentives are back, right? That supply chain's gone. We don't know what double ordering is, right? It's still, we haven't gone through that in my view. So I wouldn't buy semis. All right,quisites. Bryn Talkington back with us. She owns NVIDIA. Where do you come down on this debate? Are they cheap enough to buy? They've bottomed or we still have more pain. It sounds like based on what you said at the very top of the program,

your market view, you wouldn't step in here fresh. I think someis are an interesting asset class. I think people act like they're in a homogeneous group, a homogeneous sector. They're not. I think that, you know, do I want to own Intel? No. I think Intel is frozen in time. NVIDIA, which I've owned for a long time, has a 58 multiple. And where, you know, I think Steve and Joe both had good points, but I think that you have to understand PEs are a horrible gauge of predicting future one-year returns. And so I just throw it out. I think it's, you know, garbage. And here's a good example. NVIDIA is down 43% year to date, has a 50 some odd PE. Intel is down 46%. It has a 13 PE. And so I think as an investor, what you want to do in this space is pick individual names and look where you're going to find secular tailwinds. And so I really like companies in the semis that I'm looking at right now on my buy list

to say, hey, which of these companies are going to really focus on the EV of the auto industry? Because I think those are going to be some big winners in that space longer term. So I would leg into those. I haven't bought them yet, but I definitely have a couple on my buy list. I'm just thinking of, you know, if you look at stocks from the mid-October low, the reason why they rallied, the reason why some of these names like an NVIDIA rallied from the October low to the end of November, for example, when NVIDIA was up better than 41%. It was on the idea that inflation was coming down, which we do believe it is, but that it was going to cause the Fed to not be as aggressive as earlier feared. Didn't they just give us a wake-up call on that whole idea to suggest that NVIDIA deserved,

if you want to use that word, to have a 41% gain off the mid-October low? Is that justified? Well, I mean, it happened, right? And so I think that's where these markets will do what they can to, you know, to make people question themselves. I think, though, that within the semis, I think, yeah, they're in that tech space. But where the semis will rally is when the market feels that they've worked off that inventory. And once again, to me, that's very specifically to NVIDIA. I think Intel has its other problems.

But as an outlier, look at On Semiconductor. They have the majority of their revenues from EVs and autos and windmills, and that stock is down 3% year to date. And so as I said at the beginning, this is not a homogeneous asset class. And this is where investors, I think, doing the work can actually find some really good names. I think also on your point about the Fed, the Fed will get this wrong. And I think the think also on your point about the Fed, you know, the Fed will get this wrong. And I think the market, you know, is anticipating that the Fed will get it wrong. And so I do think that you have to go and look at these individual names, Scott, in the semis, because you have to anticipate a different type of narrative one or two years from now. And I think there's some really good names in here, regardless of multiple. Yeah. I mean, Jonathan Krinsky on yesterday, you know, with me here in overtime,

suggesting that semis are especially vulnerable here in part because the kind of rally that they mounted off of the lows, like I suggested from NVIDIA, it's obviously not alone. You know, you said, do you want to buy Intel here? Your answer was no. Intel was up 14 percent from the October low until the end of November. Now, granted, it's given some of that back and a good portion of it in December. But Broadcom up 26 percent over that period. Right. You see what I'm saying? These stocks have come back a lot and investors are wondering whether it's justified or not. I don't know. You know, maybe you scoff at using that word because, as you said, it happened. That doesn't mean that it's not going to go right back to where it was before.

Well, I think that this next, you know, we're going to have earnings come out. And I really think this is going to come down to inventory and guidance. And so, you know, the semis overordered. We had a supply shortage, then all of a sudden we had a glut. And, you know, Jensen Wong has talked about he thinks it'll take a couple quarters. Well, this is now be the second quarter since he's talked about that. So let's see what they say.

And I think then you have the space where certain semis can actually start to do less worse. Because look, Intel's not even sniffing its 200-day moving average, not even close. And video's gone blasted right above it. On never went below it. So that's what's such an interesting asset class here, because I think there's going to be some real winners and losers. And I'll say in general about the market, Scott, bear markets are not fun.

But ultimately, this is where you make all the money, right? And so this is where you roll up your sleeves, you do the work. And longer term, this is where you make the money, is buying good companies that people are generalizing about the market as a whole. I understand that. But, you know, you also preserve money by not jumping in too soon to what is a potentially even more treacherous market

than we've witnessed at this point. I think we're trying to discuss both sides of that. Bryn, I appreciate it very much. That's Bryn Talkington. All right, still ahead, we're wrapping up an ugly week on Wall Street. Christina Partsenevelos is standing by with your rapid recap. Christina. Yeah, you said ugly. There's a lot of uncertainty about where we can go from here, and the market is clearly

reflecting that. Literally only one sector in the green on the week. Can you guess which one? I'm sure you can. We'll have the answer right after this break. We're wrapping up another big week for your money. Let's get to Christina Partsinovelis now with our rapid recap. Christina. Scott, it wouldn't be 2022 without a bout of volatility into year-end recession debates, sticky wages, the European Central Bank and Bank of England joining the 50 basis points club. Options expiring today. Take your pick of negative catalysts.

The S&P 500 closing below its 50-day moving average, which is a key psychological threshold for technicals. And the same thing happened with the NASDAQ and the Russell 2000 just yesterday. The recession risk concerns pushing up bond prices with the yield on the 10-year declining today. Those move in the opposite directions. All S&P 500 sectors negative with energy. That was the answer to the question before the break. The only sector in the green on the week, also the only sector higher on the year, a 51% year to date. And check out one of the week's worst performers, Tesla. The SEC filings revealing that Elon Musk sold more than $3 billion worth of stock recently. Musk has now sold more than $20 billion in Tesla shares in 2022 alone.

And let's end on a positive note. Meta having the biggest point impact on the Nasdaq 100 today and closed out the week 3% higher. It got an upgrade from analysts at J.P. Morgan. They like the cost-cutting that's going on and expect more discipline to come. Shares are, what, 3% this week, 2.8% today. Scott. All right, good stuff.

Christina, good weekend to you. Thank you. We'll see you on the other side. That's Christina Partsenevela. Still ahead, a big update to a story we brought you yesterday right here in Overtime about Bill Pulte, his fight with a top executive at Pulte Group. Major new developments. The details are next.

Now an update to a story we brought you yesterday here in overtime involving Pulte Group. The company today firing its incoming chief operating officer, Brandon Jones, after an independent investigation determined that Jones had, in fact, violated the company's code of conduct. Former Pulte Group director Bill Pulte filing a lawsuit in recent days and alleging right here yesterday that Jones had orchestrated a smear campaign against him and his family on Twitter. Pulte Group president and CEO Ryan Marshall will assume Mr. Jones's responsibilities on an interim basis. Still ahead, the results of today's Twitter question. Who had the best call in overtime this week?

Not too late to vote. Head to at CBC Overtime on Twitter to weigh in the results when we come back. To the results of our Twitter question, we asked who had the best call on overtime this week. The majority of you saying Dan Ives. He called for a 20 percent upside for tech in 2023. Interesting. Interesting. Interesting. Interesting. All right. Stocks finishing out the week in the red. The Nasdaq seeing the most pain down nearly three percent since Monday. So what is the setup into next week? Let's ask Gunjan Banerjee, Wall Street Journal lead writer for Markets Live and a CNBC contributor. It's good to see you again.

What was your biggest takeaway this week? So I think I'm getting some deja vu from earlier in the year, where every time we see these stock market rallies, investors get excited about a Fed pivot, about inflation. Those hopes are quickly, quickly quashed. And that's what we saw this week, right? The Fed meeting came around, and the Fed said, look, we're not having a pivot next year, and interest rates are going to go much higher than we initially thought. That's bad news for investors. And that's my biggest takeaway from the week. The tension, though, that exists right between the Fed's words and the bond market's moves caught your attention, too. Yeah, I mean, there's just such a big divergence between what investors are seeing in terms of the path of inflation, the path of the economy, the path of rate hikes,

where the market is still not believing the Fed, right? They're encouraged by these past two CPI data releases. Think about the euphoria that we saw after one of those releases with the NASDAQ up 7%. The Fed meeting comes around and, you know, Fed Chair Powell is saying, yes, this was incorporated into our projections, but we still think inflation is going even higher than we thought before for next year. So there is this tension between what the market is seeing and hearing and then what the Fed is saying. We have less than 30 seconds left. The Santa Claus rally hopes hopes now dash. I mean, it's looking dicier and dicier. It feels like Wall Street is pretty pessimistic. And that's putting a lot of emphasis on these data releases, which we have next week.

Right. We have housing data next week, some consumer spending data. I feel like those data releases are gaining increased importance because people are on edge about a recession. Yeah, they certainly are. More Fed speak. Obviously, You have an air pocket until the next Fed meeting, too. Gunjan, thanks so much. That's Gunjan Banerjee, Wall Street Journal, of course, a CNBC contributor as well. Great weekend, everybody. Fast money's now.