Closing Bell - Closing Bell Overtime 1/24/23

Episode Date: January 24, 2023

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 Wapner. You just heard the bells. We are just getting started from post-night here at the New York Stock Exchange. And, man, do we have a big hour ahead. A little bit later, we've got a new market call from Fundstrat's top technician, Mark Newton. You've got to see where he now says stocks can go from here.

We begin, though, with our talk of the tape. Two imminent and important earnings reports about to hit. Texas Instruments, any second now. And, of course, the biggie, Microsoft, just shortly after that. Both providing critical reads on the state of the tech and the broader economy. Our reporters standing by on both will have the numbers. The stock moves as soon as they happen. We also have Joe Terranova here on set with me because he owns both of those stocks.

It's good to see you here. This is the moment here. And you do own both. What are your thoughts? Well, I think this is a stress test. This is a stress test for the rally so far in January. And I think for Texas Instruments, it's really going to validate if the move in the semi industry is warranted. SMH is up 16 percent year to date. So far, year to date. There's a lot of money been

flowing over there to start the year. Quite candidly, I'm focused on Texas Instruments. I own it because I wanted the lower beta exposure. I believe in the recovery that we're seeing in the semi-industry, but I don't think that what's blossoming in the semi-industry is going to really look a lot like the last couple of years. So I wanted to have a little bit of conservative exposure. But I think Texas Instrument validating the move in the semis is going to be critical here. So I'm just going to let you both are out, by the way. Microsoft and Texas Instruments are out and Microsoft even a few minutes before we expected it to be.

And our reporters are going through that. And we're going to have them jump on and give you everything you need to know there. But talk to me about Microsoft, what your expectations were going in. From what I see now, Azure and other cloud services revenue was up 31%. The number that I have was the street was looking for 36.8.

We already knew that Azure revenue revenue growth was slowing. But if that in fact is the real number. What does that make you think about that this stock from here forth as you own it and you made it one of your stock summit picks for us on on halftime okay you have to

listen. I acknowledge that the Azure growth is what has been driving the stock. In the last several years but let's see the totality. Of this earnings report let's understand I don't have that in front of But let's see the totality of this earnings report. Let's understand I don't have that in front of me. Let's understand that we've set a very low expectation for Microsoft this afternoon, Scott. I think that has to be understood. You have a fundamentally very strong company that we've marked down dramatically the expectations on

what this company is going to deliver today in this earnings report so let's keep that in mind but don't you have to I guess you decide sort of what multiple you're willing to pay now for Microsoft if a key part of their business and the reason you were willing to pay a higher multiple over the last few years is actually slowing to the degree that it that it may appear to be overall three-year annualized revenue growth on the company, 16 percent, 10 percent revenue growth in the last quarter. Again, acknowledging revenue growth is slow. I mean, overall revenue growth was expected, and we're waiting on that as well.

Overall revenue growth was expected a little less than 3 percent, which would be the slowest since the second quarter of 2016. Steve Kovach, our reporter on the case, he's ready to join us now. Tell us exactly what he sees. Steve? Yeah, here we go, Scott. So we got EPS as a beat here, $2.32 adjusted versus the $2.29 expected. Revenue, a very slight miss, $52.75 billion versus the $52.94 the street was looking for. And Azure cloud growth, as you know, this is what we always look for. Investors are always curious about 31% growth versus the 30.8% per estimates. That's just barely

a beat there on Azure growth, but that growth is slowing quite a bit, Scott. So you hit the key number there. It was 30.8 was the estimate, and that's probably why the stock was rising. But that, Joe, is the biggest number that we were looking out for, right? Because it is all about the growth in the cloud. We know that the PC business across the industry is bad. So you knew that that part of Microsoft's business was going to be slowing. It really comes down to a question of Azure. So it's 31 versus 30.8.

Cloud revenue for Q2 comes in a little bit better, 27.1 versus 26.75 is the estimate. Is there resiliency in these earnings? Obviously, based on the stock being higher, there is resiliency. Does it validate overall the move that we're seeing in technology? I think you have to have other companies bring forth their earnings here in the coming days. But specific to Microsoft, understand, here's the conflict you have. You have poor momentum. You have a technical picture in which the stock down 29 percent through the course of 2022, really underperforming the NasdaQ so far year to date. You've got the clash of what's negative momentum

with resiliency and fundamentals. And the determination that you would have to make and myself is which one will win out over the coming. Is this about expectations being set extraordinarily low without question coming into the number? So it doesn't take much. As Kovac was saying, it's not like you skyrocketed over the bar in terms of the Azure number that the street was at. I mean, you barely got over that hurdle. Look, I think it goes back to 2023, 3,200 S&P calls, 4,800 S&P calls, balance emotionally somewhere in the middle and understand don't get too high, don't get too low. Look to generate alpha opportunities and get paid to wait. No, no. You know, this is an example of that. You know, the biggest problem may be no matter what

what you say. And look, we have to wait for the call. OK. And the call's at 530. So we have a little bit of time to wait on that. But Nadella, the CEO himself, told you what he told you. Don't buy our stock. We've got another two years of pain ahead of us for the sector. He did not say don't buy our stock. He didn't say don't buy my stock. But for all intents and purposes, he said, don't buy my stock. It's going to be another two years of pain. He did what a CEO should do in this environment. He guided to a very challenged environment. He's still investing in the business with the open AI investment. So he's making the investment there. He's doing what a CEO should be doing in this environment.

And you've got the stock right now sitting at 253. Investors can make the decision. You know, if you know what I mean, the valuation isn't warranted, sell out of it right here. Take advantage of the rally after the close. Well, what is the appropriate multiple? The street's going to have to decide. And let's not forget that Microsoft, year to date, as the rest of tech has been rallying, it hasn't. It has not. It's done nothing. But there, in fact, lies the challenge where you've got negative momentum. You've got poor technical conditions for the stock. It's a conflict between fundamentals and technicals. What about Texas Instruments? We turn our attention back to that. I mean, it is important. You've got the personal computing side

that it sells into, the industrial economy. That's why it's important. Now, maybe it doesn't carry as much bellwether weight as it once did, but it's still important to somebody like you who owns the stock. No, I disagree. I actually think that Texas Instruments is as much bellwether weight as it once did, but it's still important to somebody like you who owns the stock. No, I disagree. I actually think that Texas Instruments is an important bellwether because of the move that we're seeing in the 70s. And the semis are the 2020 transports. That's what they are. They're so relevant to not only the domestic, but the global economy. Also, let's understand something. Texas Instruments has 90% international revenue exposure. What has the value of the U.S. dollar done since late September?

It's gone down. Oh, and it's gone down by about 12%. That's going to have a positive impact on a lot of multinational companies. I think that's, in fact, what investors should be thinking about having that type of exposure. Yeah, there's Texan right there. They report 213 a share. The estimate that we have was 198. You got a revenue beat as well, but it's going to come down to what the guidance was. There was some expectation on the street that they would guide below consensus. So we'll try and figure out

exactly what the story is there. The stock is not doing all that much. But as you've said, and some are suggesting that right now, semis are a lead for the broader market, that what was double or triple ordering isn't so much of an issue at this point. You went from a shortage to a glut of chips. How do we factor that into how we think about this space right now, given the money that's gone in there, by the way, to start the year? So I think the worst case scenario for the summies has been priced in in 2022. I think, see, I don't view the economic outlook in the binary sense. I've said all along hard landing happened in risk assets already. You've priced in so much negative news into stocks already. Tell me what else is going to be

needed to be priced in to return stocks to the lows in 2022. Recession. I don't think. OK, but a recession, an economic recession has already been priced into stocks. No, it hasn't, according to J.P. Morgan's Marko Kolanovic. Okay, so I respectfully disagree. I believe that a recession— That's what he put out yesterday at this very hour. I believe an economic recession has already been priced into stocks. A significant earnings recession, that has not been priced into stocks.

Are we seeing an indication of an earnings recession in these numbers after the close? Doesn't look like it to me. I'm not wildly bullish. I don't believe in the 4,800 calls. I just think that you have to be balanced to understand that you're marking time. The market can move on either side of 4,000 and you could find opportunities to generate alpha. How is a recession priced into the market if we're 15% off of the 52-week low for stocks? We're only down 13 and a third percent. Scott, the stock market is not the economy. I'll say it over and over again. What did D.R. Horton do today?

It made an all-time high. What is the housing market doing? The housing market is contracting. Go try and sell your home. You can't do that. You can't sell a home right now. The transacted. Didn't those stocks already take a hit? Maybe that that area is troughing. No, those stocks have been remarkably resilient. The home builders throughout the second half of 2022 into 2023. OK, we'll continue the conversation. Let the second half of 2022 into 2023. OK, we'll continue the conversation. Let's bring in CNBC contributors now. Shannon Sikosha, SVB Private and Victoria Green of G Squared Private. Well,

Shannon, you got Microsoft. What's your read here? Yeah, I think you're really not all that impressed with 30.8% Azure growth. I mean, if you look at, Scott, what we're thinking about in terms of, you know, the growth driver for Microsoft is absolutely here. But point me to other areas within technology that are continuing to show this type of growth. I agree with a lot of what Joe said. said, I think that one of the things we need to think about Microsoft is that all of these opportunities to be able to add to this stock over the next year for longer term growth are going to be incredibly beneficial for investors. I go back to the point where, where do I want to have exposure to when we see a lower growth environment later this year, companies that can derive both top line and bottom line growth on their own. And Microsoft is showing that with the investments they've made in the cloud,

they are going to continue to be a huge player in that. We could go from 6% to 3% in enterprise spend this year, Scott. This is still going to be a beneficiary, even of that lower spend. I mean, I'm not suggesting or saying the opposite of whether the Azure revenue growth is impressive or not. To me, that's irrelevant. It's the mere fact that, Shan, it's undeniable, at least, that revenue growth in that critical area of the company is slowing from the growth rate that it had in the past, when it had a much more premium multiple to it. So the multiple has re-rated. We're trying to decide as an investing community whether the multiple is re-rated enough

for the future growth rate of that critical part of the business. You as an investor and holder of the stock are the one who has to decide that. Well, at 24 times, Scott, we've seen the multiple compressed significantly. I mean, we're a little bit still above premium in terms of that multiple over the stock market that we've seen over the last five to 10 years. But again, I still think that there's an opportunity to pay a premium for growth. The other thing to think about is you're talking about growth on a much broader base. Fifty one percent of revenues is what Microsoft is generating from cloud.

So obviously that's going to slow. But that doesn't mean that it's not beneficial and meaningful to the bottom line. So you're right. Whether it's 22 times or 24 times, the market's going to decide that. I feel like 24 times is appropriate. Or 27 where it is now, right? Correct. I mean, again, this is, you know, on either side of that, whether it's, you know, the multiple that you want to pay today or the multiple that you want to pay in the future. What I think is an important point, though, Scott, is that a lot of people are talking about that their technology companies do not deserve a premium multiple over the rest of the market. And I disagree with that emphatically because of their ability to generate their own growth. I don't think they're, you know, necessarily suggesting they don't deserve a premium multiple.

It's the degree to which the premium is put into the valuation. Victoria, so you've had these two important earnings reports come out. What's the degree to which the premium is put into the valuation. Victoria, so you've had these two important earnings reports come out. What's your take? So I think for Microsoft, it's going to be about the magnitude of deceleration in Azure and how they guide. I mean, their CEO came out last week saying we're going to have to learn to do more with less and that even the customers that they're helping integrate on Azure, they're having to tell them they're not having as many opportunities to cross-sell, to have more penetration in there.

So I think Microsoft is warning us going forward, we may see further deceleration from the 30s to the 20s. And again, in a 27-point handle, I think you have to take that into consideration. Yes, you're getting a lift

from the dollar, but that's more than counteracted by the slowdown, especially in PCs. I think we had, it's estimated we had the slowest growth in PCs since it's been measured.

So I think you have to take that into consideration. Texas Instruments is interesting for me because they held up so well last year. A lot of that's because they're only about 25% in the PC business and about 62% in industrial and automotive. The question for Texas Instruments, they held up well because most STEMIs were at least 50% exposed to consumers.

They were about only 25%. Now they're overexposed to industrials. If we see this industrial slowdown, is that going to cause a slowdown more than anticipated in Texas Instruments, as well as they're going through a change of leadership? Now, he's an insider. He's been there 24 years.

But anytime you have a new CEO, you have to wonder what that's going to do to the company direction. I think, as Joe pointed out, both of these stocks are leading indicators for their specific market areas. But this January rally has been all about Beto. The worse you were last year, the better you've done. You've seen that in Microsoft not performing after kind of outperforming its peers last year. For me, this is also a referendum. Is this rally real or is it not? And we're hitting all of those resistances. For me, this is a make or break week next week because we are either going to push

above that 4,100. We're going to see the NASDAQ push above this downtrend line that's held it down or we're going to see it break below. And so we're going to have to wait. All right. Throw up shares of Amazon if you could as well, because we're seeing that they're higher, too, on the back of this Microsoft number by about 3 percent in overtime. Some relief here, right? Because you've got to worry about AWS growth, too. The cloud across the entire universe. Yeah. Seeing the cloud doing better, that's clearly benefiting Amazon. But overall, I feel better about Texas Instruments. And by the way, Texas Instruments

was my stock summit pit, as well as Microsoft. Microsoft, I acknowledge the technicals are broken there. So there is some cautiousness and concern on my part. But where we are right now on January 20, what are we, 23rd, 24th? I don't even know the date. But where we are, I just think we're in a better place than we were six months ago, just through the passage of time, just through the acknowledgement on the part of corporate executives of a very difficult climate for both enterprise and consumers. I think we're in a better place. We're not in the best place, but we're in a better place. You know who's going to come on here in a little while and say that we're not, in fact, we're in a worsening place, is Mike Wilson of Morgan Stanley. He's going to say that.

So Mike is going to have to present the evidence as to what else is not priced into the market. He's going to say the deterioration that's still to come in earnings is not priced in to the market. And there's been a sentiment change for the better in the face of undeniably weaker economic data. That's what he's going to say. An earnings recession, Scott, is the biggest risk in 2023 for the further deterioration in risk assets. I do not see in either financial earnings or the earnings that have been out this evening that type of

indication yet. Hey, Shan, is tech, to play on Joe's point for a moment, is tech in a better place than it was six months ago from a fundamental standpoint? Do you glean anything from that, from Microsoft, and if not, you know, from Texas Instruments as well? Well, I think that one of the things you want to think about is what is that expectation for enterprise spend to fall and what is the broader term, you know, economic growth expectation. Scott, we're certainly in a better place in that we're later on in the rate hiking cycle. And you just look at that from a valuation perspective. I think if we are not nearly as bad as expected in terms of companies not investing in technology. And for those of us

who have been investing in tech stocks, that's been the story. We think that enterprise spend is going to hold up better than expected this year. And so I think at this juncture, between these two earnings reports, I feel a lot better about the second half of the year, and in particular, how CEOs are feeling about the necessity of investing in technology when they need to continue to improve their productivity and efficiency. I know, but you're talking as if you've been consistently adding to big tech all along the way. And in fact, Shannon, if my memory serves me well, it's been the opposite, right? You've been lightening up. I think last time we checked, aren't you underweight technology?

We're slightly underweight to technology from a slight overweight at 2020. But what we've been doing is that we've been trimming some of these larger cap tech companies, and we've been adding Cisco, Oracle, IBM. I would hardly say that we're negative on the potential for enterprise spend. We're just looking at creating the appropriate valuation in our portfolio to the question you asked me. What is the right valuation for these companies? It's certainly compressing. So let's go a little bit better. Let's go a little bit lower on the valuation, but still have more diversified exposure as we move into the back half of the year. Ad spend is still my number one concern in this space, Scott. And so what we've done is we've been lightening up in particular on companies that have exposure to that. And I'm sure that's going to be a topic of conversation

in the show today. So, Victoria, then, do we focus, and I'm talking about, to answer Joe's question, to have us try and answer whether tech is, in fact, in a better place than it was, let's just, for argument's sake, in the sake of this conversation, is it in a better place than it was? Let's just, for argument's sake and the sake of this conversation, is it in a better place than it was six months ago? Do we focus on the fact that Microsoft just recorded its slowest sales growth in more than six years? Or do we focus on the resiliency of the cloud business? Enterprise seems to be holding up

because this is not the last you're going to hear from these big tech earnings reports about slowing revenue growth across the board, right? They clocked 2%, all right? That's the slowest rate they've had since the second quarter of 2016. Yeah, and I think your expected earnings from the tech sector are expected to be negative this year. And I think you need to listen to what the CEOs are saying. They're saying we're going to have to do more with less. Software is extremely economically sensitive. So if we have a slowdown, which we all anticipate, how are these going to grow revenues? I know expectations are lower, but like you said, they're not clearing a large bar. They're stumbling over a hurdle.

They're barely beating very low expectations. The CEOs are worried. Yes, they're tightening belts. Yes, they're doing job cuts. They didn't get rewarded for their job cut though. Amazon and Microsoft were the two companies that announced job cuts and did not see their stock rise the next day. Everybody else, they did job cuts and they saw a nice pop in their stock. Neither two of those companies did. And I think that's the worry on the hyper-fast cloud growth they've seen that has been sustaining these revenue growths at above-average speeds that made us want to pay these multiples for these stocks. And if we're coming back down to earth, yes, 30% is great, but not in consideration of a 27 times handle. And for AWS, we saw a really big miss last quarter. How bad is it going to be this quarter? I think we have to take into consideration people aren't spending more money yet. They're out of money. They're spending on credit cards. Their savings is lower. We're seeing companies

warn repeatedly again and again. We are worried about what is coming down the pipeline. I just don't think tech is in a better place. Maybe, maybe because it fell off so much, it became a value stock. But even then, ad revenues may come under pressure. So I think you look at the sector and I know I'm blending a little bit communications and technology, but your mega caps, I think you look at the sector and say, are they priced in for a recession? No. Can they sustain it if their earnings continue to slow? No. Why am I paying 27 times for a slowing stock? Right. And maybe the big investment that they're making in AI is going to is going to offset some of the weakness that they're going to see in the in the cloud

growth as you get through this economic transition that we're going through. Give me the last word before I bounce on here. Look, I think in going back to Victoria's comments and Mike's going to sit down with you, if the market does go to $3,500 and it's based on an earnings recession, I acknowledge an earnings recession can take the market lower. I still think at that point, Mike and other people would tell you that there's a tremendous valuation opportunity. And when I say the market's in a better place than it was six months ago for technology, it's because valuations have contracted so significantly. OK, thank you for being here. I think you're going to be around a little bit later, too.

Shan, Victoria, thank you so much. It's good having you guys here on this big day of breaking earnings news. Let's get to our Twitter question of the day. We want to know, so how do you feel now about the rest of big tech following Microsoft's report? More or less bullish? Head to at CNBC Overtime on Twitter. Place your vote. We're going to share those results a little bit later on in the hour. We are just getting started, though, here in Overtime. Up next, breaking down that bear case, the aforementioned Mike Wilson of Morgan Stanley. He joins us next.

We're back in overtime. Another check on shares of Microsoft and Texas Instruments. Well, Microsoft is up near 4 percent. Texas Instruments trying to figure out which way it wants to go here as both give critical reads on the tech trade, which has gotten off to a pretty good start this year. Our next guest, though, says the good times could be coming to an end. Let's bring in Mike Wilson. He is the CIO and chief U.S. equity strategist at Morgan Stanley. Welcome back. It's been a minute. It's good to see you.

Yeah, good to see you, Scott. How are you? I'm good, thanks. I hope you heard our conversation, mine with Joe Terranova a short time ago, where he suggested that the market is in a better place. We are in a better place, is what he said. I said you were going to take issue with that. Is that true? Yeah, look, I think some businesses are in a better place because they've taken the medicine and they're set up for tougher times. As Joe rightly pointed out, good CEOs are acknowledging that. That's what they should be doing. However, those tougher times we think are going to get a lot tougher. And what we're talking about specifically is margin and profitability. So we're seeing it in the numbers. I mean, this has been our call, as you know, for the last nine months.

So I would say nine months ago, that call was up for question. It's unequivocal now, Scott. I mean, you talk about it on your program all Scott. I mean, you talk about it on your program all day. I mean, the operating leverage is going in the wrong direction. I mean, Texas Instruments is another good example where the operating profit missed on a margin basis and also on a dollar basis. And we're seeing that all across the economy today with Union Pacific specifically cited that. They talked about operational inefficiency. It's a theme we've had all year. And we think that theme is only about halfway baked. And it's all wrapped around this idea around inflation, which is confusing, right? We haven't had inflation like this in any of our careers,

really. And so what's happening is inflation now is coming down, but costs are sticky. And it's the opposite of what we saw in 2021. And we just think that people are underestimating the magnitude of this negative operating leverage cycle, which is made worse by inflation coming down faster than expected. Hasn't the market already adjusted, though, to all that you just suggest is still to hit it? I mean, we absorbed a pretty good body blow on the fact of what the Fed was embarking on and the impact that all of that hiking would have. Yeah, look, I mean, I think the market has absolutely digested the Fed. And we talked about that back in October. That's why we went tactically bullish, as you know, when we were trading at thirty five hundred and we were trading at 15 times earnings. We felt like

that was actually a decent pitch. It worked. Liquidity was better at that point, too. But now we're at 17.6 times earnings against Scott. And now the numbers are actually going to finally come down in a way that we didn't think would happen in Q4, which it didn't. But now we think that's happening. So we would argue against what Joe was saying. We think the market's in a worse shape because the equity risk premium is lower today, which means the market's not worried about risk. It's still focused on the Fed, which it should be because the Fed's not going to be cutting rates anytime soon. Remember, rates are lower. We already had the multiple expansion from that. So unless you think rates are going to drop here precipitously because we don't have a recession, that seems unlikely, then it's hard to argue for higher multiples to offset any earnings degradation. Would you admit that the

economy is stronger at this point in the hiking cycle than you thought it would be? Oh, I mean, that is actually a very good question, Scott. I mean, a year ago, as you know, we were talking about the Fed was going to have to go harder. If you had told me the Fed would be able to raise 450 basis points on their way to 500, and we wouldn't already be seeing, you know, labor cycle, a more dramatic labor cycle, hard landing, you know, I'd be surprised. So yes, I have been surprised at the resilience, but that just speaks to the incredible savings that was built up. You know, the stimulus has lasted longer than perhaps we thought it could, but the Fed has, you know, the Fed has recognized that, right? And so they've

gone harder and they've gone higher than anybody expected over a year ago. And that's going to have lasting impact into 2023. But doesn't it speak also to the great place that we were in and the size of the cushion is a lot bigger than you and others suggested it might be? Yeah, but that's played out now, right? So now the earnings are going to start to roll over because we believe that the consumer now is going to show signs of weakening, which we did. We saw retail sales softer in December. We saw the services indices, the key ones that we focus on that are suggesting the consumer is starting to fade, not a collapse, but not spending at those rates that they have been, which have been keeping the economy stronger than what I would have guessed.

The other idea is that the Fed is going to awaken to everything that you are suggesting, and that's going to cause them not only to pause, but perhaps to pivot. And there are hopes being, you know, hinged on that, that that's going to turn the cycle back positive. Yeah, so we acknowledge that. I mean, we probably were early to suggest that the Fed would do 25 in this next meeting next week and then pause. That's been our house call for a while. And it's one of the reasons we got more constructive in October, because we said the market's going to price that, rates are going to come down. But now we've done that, Scott. So you don't get that trade twice. Now, if you told me that you thought the market

believed that the Fed was going to cut rates 50, maybe 100 basis points sooner rather than later, that's not in the market. And I would agree with you that that would potentially cause the market to go higher or at least be able to offset the earnings degradation that we see. But we just don't see that in the cards. This Fed has been very adamant. They plan to go at least another 25, maybe a little bit more, and then hold it. And I don't see why we're going to try to second guess that right now. This Fed has a job to do. Maybe they were late to start, but they're on it now and they're going to finish the job. Do you feel like China reopening is a net positive for the global economy or is it bring even more inflationary concerns that you might have? Yeah, I mean, it's a tough kind of, you know, sort of juxtaposition that we're in, right, is that

you're kind of rooting for China to recover from a growth standpoint, but then you worry that maybe that has a negative impact on inflation, meaning commodity prices in particular shoot up, and then the Fed can't really even pause. We're more in the camp of this stimulus that we're talking about in China is going to be more consumption driven, probably more services driven. There might be a little bit of pickup in travel, which could lead to some energy, extra energy consumption. But I don't think it's going to create an inflationary problem. I think the big surprise, and that's a big surprise, but I think the surprise could be that the recovery that we're going to see in China is real. I think the zero

COVID policy is here to stay. That's a really good thing. And they're going to be able to reopen. But the progress is going to be slow in terms of consumption because the consumer and the consumer confidence in that region has been pretty shattered over the last couple of years. So it's going to be slow. And we don't think that that's going to be able to offset, you know, the earnings recession that we see. I just feel like, you know, the more positive case is adding a few more elements to it that may not have existed, you know, whether it's and Microsoft tells us, you know, I know it's tougher and Satya Nadella has warned of that. But enterprise across the board is actually holding up pretty well.

And, you know, sure, you can cite retail sales were disappointing. But there are many in the consumer facing business, you know, perspective who would suggest that the consumer is holding up well also. And then I would say, yeah, and the dollar is weakening, too. All things that, you know, we may not have thought were going to be the case to this point. Absolutely. So I'd say the three big positives, or maybe there's four, would be the China reopening, which is for real. Number two, the really surprising fall in gas prices in Europe, which, you know, partly is due to weather, but, you know, a nice tail in Europe, which partly is due to weather, but a nice tailwind. And that's been helpful to keep Europe from going into a worse situation,

for sure. And the weaker dollar, it's a relevant one. The problem with the dollar is it usually works with a pretty good lag. So it's still a headwind today, given where the dollar was a year ago. That's the way it tends to work. I think it's going to be part of the recovery story. And that's going to be why 2024 could end up being a much better earning story than what people are projecting even today. And we're probably out of consensus on the bullish side. One thing I'll give you, Scott, is we've been in a bear market now for quite a while. We've had a lot of price damage. Everybody's sort of aware of what's going on. Everybody sort of has the same rhetoric. And now we're just trying to figure out, is the pitch fat enough to really put a lot of capital risk? We would argue no, given some of the metrics I said earlier.

However, if we don't get a more meaningful drawdown in the next three or four months, meaning by April, we will probably back off our call and just kind of throw it as basically saying we're not going to get that fat pitch. And that's all we're going to get because we're still in a world of somewhat of financial repression. that, you know, bonds are not a great alternative necessarily longer term and stocks are kind of the only game in town in a higher inflationary environment. We're not willing to make that call today because we think the risk reward is out of whack, unlike it was, you know, back in October. I hope we speak several times over the next three to four months and we'll see what happens. Mike, I always appreciate the time and a good day to have you on. We'll see you soon.

That's Morgan Stanley's Mike Wilson joining us. Another quick check on shares of Microsoft and Texas Instruments. Those are the big earnings reports of overtime. Tech's looking more positive than it was a few moments ago. It's up a third of one percent. There's Microsoft hanging on to a near four percent gain. We got your read through for the rest of tech. A slew of big names are still yet to report in the days ahead. Got you set up when overtime returns. We're back in overtime. The lows are in. That is the big headline today from top technician Mark Newton of Fundstrat. He says stocks could be setting up for a big

breakout in the coming weeks. Joins us now. All right. This is a big call you're making. Forty five hundred is your year end S&P target. Talk to me and more importantly, talk to our viewers. Tell them why. Well, markets have actually improved quite a bit in the last few months, Scott. It's just that technology's influence has really disguised this rally. And so it's almost an opposite situation of 2021, when the broader market was starting to roll over and tech was holding us up. Now we've seen sectors like industrials, discretionary, communication services, financials, energy, all those sectors have shown very good strength off the lows. And tech slowly but surely is now starting to join

suit. So if anything, our own indices look more negative than they really should be. On an equal-weighted basis, we've already seen breakouts of the broader equal-weighted indices. And now I think tech is also starting to join suit and break out. So the combination of a better equity market at a time when we have this sea of pessimism, you know, last week's B of A noted that, you know, investor sentiment, investor allocation to U.S. stocks is at the lowest level in almost 20 years. Portfolio managers have very low allocation to U.S. stocks. So sentiment is still very negative. The stock market clearly is working better than many people think. And we're in actually one of the most bullish quarters of any of the 16 that make up the presidential cycle. Of all 16 quarters, this is the number one in pre-election years.

Stocks tend to do better than any other quarter. So I think we have to go with the trend here and think that things are actually starting to work and do well. People are negative because this is just a bear market bounce. That's what they say, right? Margins are going to get hit. Earnings are going to follow and stock prices are going to go down. People just don't want to believe that. Right. I just had that conversation with Mike Wilson. That's what he suggests. Well, there's a couple of things that have changed. And one is that we've seen pretty good evidence of the U.S. dollar and also treasury yields really rolling over sharply. And so that does provide a pretty meaningful tailwind to U.S. equities and risk assets in general. You know, the most of the

world has been rallying at a time when the U.S. has underperformed in the last three months. We've seen EM, Europe, China's golden dry. They're all up 10 to 15 or more percent. Now U.S. is finally starting to show some evidence. We saw semiconductors break out yesterday. Microsoft is up 4 percent. That's going to help the case even more heading into tomorrow. This is certainly a pivotal time, but I would argue that tech is finally starting to kick into gear, and that should help the first quarter be a lot more positive than many people are prepared for. And you don't think it's just a reversion to the mean or a head fake. You actually believe in the bounce that tech has had, particularly higher beta tech?

Well, look, I think we have to be probably a little careful and buy stocks with good earnings, good fundamentals, and not look at the most speculative assets out there. But I think that, you know, in general, a lot of these tech stocks are starting to look a lot better. Plenty of things working out there, plenty of stocks hitting new highs. Technology has been under understandable pressure, but it's stabilized. Now we're seeing good movement in Amazon and Microsoft and Apple off the lows. Yes, when those stocks turn from being in downtrends to uptrends, and it'll be very clear to the whole investment public at that time, the rally will likely already be very well underway. So I like positioning now at a time of real pessimism. And when the broader market is working fine, and tech is starting to kick

into gear, and I'm thinking this is going to be a much better year than most people expect. We'll catch you soon. That's the last word. Mark Newton, thank you very much for coming on today. I appreciate that. Coming up, we're tracking some big stock moves in overtime. Seema Modi is standing by for us tonight with that. Seema. Scott, you know, there's so much excitement around China's reopening. We just heard from one company, though, in the overtime that shared that they saw a drop in sales due to rising COVID cases on the ground. We've got the stock and the full story coming up. We're back in two. We're tracking the biggest movers in overtime. Seema Modi back for us tonight with that. Hi, Seema.

Scott, yes, we are. Intuitive surgical beat by two cents, revenue also higher than Wall Street consensus. But the medical device maker did reveal that the resurgence of COVID-19 in China in the fourth quarter negatively impacted procedure volumes in the region. Stock is down 14 percent here in the overtime. Canadian National Railway. Take a look at this stock. Guidance came in light, sending shares down by 4 percent. It now sees 2023 earnings growth in the low to single-digit range due to a softer economic outlook. And finally, Fox's board issuing a statement just moments ago that Rupert Murdoch has withdrawn the proposal to combine Fox and News Corp. Murdoch saying the combination is not optimal for shareholders of the two companies. Fox getting a

bit of a pop right now in the overtime. News Corp is lower by 1.4 percent. Scott. All right, Seema. Thank you, Seema Modi. Still ahead, Santoli's last word, his reaction to Microsoft and Texas Instruments and the big reports he's going to be watching tomorrow. And coming up on Fast Money, stark warning for stocks from J.P. Morgan's Marco Kalanovic. Overtime is back in two minutes. All right, let's get the results now of our Twitter question. We want to know how do you feel now about the rest of big tech following Microsoft's report? The majority of you saying more bullish.

Talk to Santoli about that because his last words next. Mike Santoli here for his last word. The viewers have spoken. Yes. They feel more bullish about tech, should they? I would say Microsoft's numbers are reassuring. You clearly had a little bit of nervousness heading into it, actually, inflecting some of the tape today. So a little bit of relief. I think overall, you'd have to say it's not been the tidiest earnings season. There's been some sloppy reports. Markets absorbed it. I think it's OK.

I don't think expectations were particularly high. No, they were incredibly low. But the company made you believe that they were that low, right? I mean, when the guy, the guy, I'm sorry, I don't mean to be disrespectful. When the CEO, Satya Nadella, Says it's going to be a tough two years. You take him at his word. And it also comes at a time when you don't necessarily have a massive incentive if you're laying people off for putting up amazing numbers. So, yeah, I think there's some static in interpreting exactly what the state of earnings in the economy are given this flow of earnings. I think it's fine, as I keep saying, if the market just kind of hovers during earnings season, that's OK. It does most of its work

outside of earnings season, actually, directionally speaking. So I think, look, things are lining up. I mean, January, unless something really falls apart in the next few days, January is going to be up. Started talking a week and a half ago. I heard what Mark Newton was saying. You don't hear a lot of folks saying, look, this is textbook. October low before midterm election. You had massive capitulation in the bond market. And at that exact moment, yields peaked. The dollar peaked. The Fed hawkishness peaked. What else do you want? Well, what else you want is to make sure the economy holds together. That's what we're waiting to see. I don't think you declare victory, but you basically say, look, from here down to the lows in October is a 12 percent drop.

Something incrementally bad or unexpected has to happen to get this market down 12 percent in a hurry. It's like Newton on one extreme, Wilson on the other. And I would suggest to you this, you know, not a clear picture so far in earnings season is actually a good thing to part of your point. And that you don't want to hold one way, oh, it's a disaster because that would be bad. And you don't want, oh, it's not a clear picture so far in earnings season is actually a good thing to part of your point and that you don't want to hold one way. Oh, it's a disaster because that would be bad. And you don't want to. Oh, it's great. The market go off to the races and right into the Fed. Right. You don't want it's not falling apart all at once. There's not this kind of broad slide.

The issue is, from Wilson's point of view, things could stay like for a long time feeling like it's coming. And that's where the market might get trapped. All right. More big stuff's coming. We'll spend it with you. That's on Mike Santoli. Fast Money is right now.