Closing Bell - Closing Bell Overtime 8/12/22

Episode Date: August 12, 2022

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

Welcome to Overtime. I'm Mike Santoli in for Scott Wapner. You just heard the bells, but we're just getting started. And we begin with our talk of the tape. So did this week mark a turning point for the Bulls? Stocks handing in another weekly gain with the S&P and Nasdaq now on their longest win streaks of the year. This comes after a double dose of encouraging inflation data and fresh signs of a strengthening consumer, with consumer sentiment rising to a three-month high. So did this week confirm that the bottom is in? Let's ask Cameron Dawson, New Edge Wealth Chief Investment Officer. Cameron, great to see you.

I have to say, this is the kind of market that sort of punishes caution. If you've been a little bit apprehensive, if you've been defensive, it's kind of challenging, I suppose, to watch it happen and decide. Do you participate or do you fade it? Yeah, I mean, the big question is if we chase this rally, do we add new capital to work today? And we think that the answer to that is no. Now, we do think that we could continue to see the rally in the very near term. We see things like momentum and breadth be a lot better this time around compared to the other rallies we've had year to date. We've also seen better performance out of cyclical risk on sectors.

For example, small caps have been outperforming really since May. But then the question is, where do you go from here? And that's where we think that there's a challenge with valuation. We're already trading at nearly 19 times earnings. That's where we peaked in valuation back in early 2018, early 2020. So we think valuation effectively puts a ceiling on this rally. I guess if you say perhaps it's going to get tougher from here to add on further upside, do you think that the market has shown you enough to say that June was likely the low?

Well, I think that those momentum and breadth indicators really do create the probability or lessen the probability that we make a new low or retest those lows. Because we've seen good breadth in this rally, that means that a lot of names are participating in the rally. When you see breadth statistics like that, it is supportive that we could advance from here or that at least we won't retest. It reminds me, in that respect, of coming off of the December 2018 bottom, where, of course, you had, for a moment, it was down 20%. It was a more brief sell-off, but there was that so-called breath thrust off the low.

And, by the way, the market also did not have much in the way of valuation support going forward at that time either. So I just wonder if we can say that not so much that it's all clear, but that it's now time to assume that the low is in and dip should be bought. Well, the big difference between today and 18 or the lows we saw in 20 or even 16 is that we had real Fed pivots those times. And not Fed pivots that it was, oh, we're going to tighten less or slower. It was Fed pivots where you actually saw liquidity start to get more abundant in the market. So you saw measures like money supply growth start to reaccelerate. And what that did is that supported valuations moving higher. But the Fed has been very vocal, even with this rally since the July meeting,

that they're not inclined to cut rates early in 2023. So we struggle to see how this is the pivot that actually adds liquidity and supports us moving to much higher valuations. Right. Absolute distinction. We still have the Fed that's vigilant and is seeming like perhaps could be emboldened by what markets have done to do a little bit more, perhaps. Well, certainly, because the Fed has said that they want to see financial conditions tighten. That's how they get control of inflation. You control financial conditions, and that slows the economy down. They've also said that they want to see real yields move higher. And that's what really drove this rally recently. We saw real yields move down significantly from the June high. They fell 70 basis points. That's behind the whole multiple expansion that we've seen.

So that's counter to what the Fed wants. The question is, how much is the Fed going to fight this market? Yes, that is the question. And, you know, in fact, they don't directly target financial conditions, but financial conditions are the tool to do what they want to do. So we'll see how it plays out. The market seems to be enjoying the fact there isn't a Fed meeting in August. We do get the minutes next week. But I do wonder, you know, if you think that upside is going to be difficult from here, the market's then probably giving you an opportunity to either lighten up on things, rotate around, reallocate to areas that maybe haven't participated?

Yeah, you know, that's been a thing that we've been debating. Does it make sense to reengage on some hedges here, right? So the idea is let's take a little bit of chips off the table. Now, a lot of our investors are very long-term investors, tax sensitive. So we're less likely to be moving in and out in very short-term periods. But the other part of this is we've seen quality lags significantly on this upside. This upcycle has been all about beta and less quality names, lower quality junk things. And so that's where we say, OK, we can buy some of these names that have lagged,

and that could be a good opportunity in the near term. I wonder about the earnings picture at this point. Clearly, people were braced for something a lot worse in terms of profit reporting season. And yes, valuation based on the consensus right now is stretched relative to history. Some would argue a lot of that is the mega cap growth stocks that are inflating it. But I wonder if we're at a stage where just the reliability or the plausibility of the earnings forecast can support things for a while. I think that's so important because if we see earnings surprise to the upside, that's what makes valuations a lot less egregious.

But if we look at earnings for this year, they're expected to grow 11 percent. Next year, they're expected to grow another 8 percent. So a deceleration. Now, if you look under the surface, some key cyclical sectors like consumer discretionary, 17 percent growth this year. The market has it marked down. 17% growth this year. The market has it marked down for 30% growth next year. So that's not pricing in a dire scenario. And so usually when we have a recession and we have a weak economic period, earnings get cut so much

that you can pay a lot for those earnings because you know that they're going to reaccelerate. That's not really the case because estimates are still pretty high. Right. Estimates are high. And frankly, we're at peak earnings because earnings have not turned down. So it is a high multiple on peak earnings, if nothing else. Let's bring in Dan Greenhouse of Solus Alternative Asset Management and Malcolm Etheridge of CIC Wealth to kind of broaden out the conversation. Dan, give your assessment on this move back toward risk assets. It's not just been, yes, it's been lower quality stocks led. Tech has had a revival. Overall yields have come in a little bit off the highs.

But boy, credit spreads have come tight. And it just seems as if there's been a greater maybe assurance out there among investors that the softer landing scenario seems a little bit more possible. Yeah, I listen. And what's affecting credit is roughly the same as what's affecting equity in the sense that, as you mentioned, earnings season was, for lack of a better word, better than expected. And obviously, the CPI coming off the highs was encouraging. And some of the disinflation, if you will, that appears to be in the pipeline as evidenced by the PPI. All of that's working to benefit the credit market as it is the equity market. But, you know, you and I were going back and forth on Twitter about this earlier today. The scale of the rally, particularly in equity, over 40 trading days, such a short period of time, is the type of rally that we have rarely seen in recent market history. And it

really underscores the velocity and the force of this rally. It's the bottom in 2009. It's the rally after long-term capital management. Granted, many of these other instances that saw similar moves were themselves bottoms. And that would lend credence to the idea that perhaps this one is, or at least historically would suggest that this one was a bottom. But again, to underscore the degree of force, you really don't see many of these in, call it, the last 60 years. It's really quite an impressive rally. Right. And the question, Malcolm, is do you look at those facts and say, well, this is the market essentially signaling that, first of all, people got too negative, did not have enough exposure to this market. And there's been a chase. If I look at the action today, just intraday in the S&P 500.

Yes, it's a summer Friday. Yeah, sure. Overall volumes are not great. But it looked like the machines just locked in and said, buy and buy more. And it went up at a 45 degree angle all day. So I don't know how much more that type of dynamic might have to run. Yeah, Mike, I was just as excited as anybody else as an investor, right, to see green on the screen. And I think the markets are behaving as if it's a bit of a foregone conclusion that we've reached peak inflation from just one good print. Right. So I was just as happy as anybody else to see the CPI number for July come in lower than expected. But I say let's wait and see at least three consecutive months of falling prices before we declare, you know, mission accomplished and rush back in like you guys are talking about, almost to the point of irrational exuberance. Right. We have higher

job growth than expected by almost double. We have wages up by 5 percent or so for July. What happens if come September Powell decides that wages and wages and job growth are enough for him to continue to intervene and even at a 75 basis point hike each time? Right. That would send the markets into a tailspin all over again. And the likelihood of that happening is definitely not a non-zero number. And so I'm just loathe to get too far over our skis just yet saying, you know, you don't want to miss out. Clearly, the rally is happening and everybody back in the pool. I would just jump in real quick. Yeah, Malcolm, just like in defense of the market. And mind you, I agree with a bunch of what you said, but in defense of the market, market participants are not going to wait for three CPI reports to confirm their assessment.

They're going to move at the first moment or even the hint of the first moment, and that's what's happening now. So viewed that way, I understand what the market is doing here. Well, there's no doubt. And the market, look, sometimes it's sniffing something out, and sometimes it's moving perhaps on the chance that it's the real turn and it overshoots in one direction or not. And Cameron, if we're just looking right above the levels we closed out in the S&P 500. Yeah, we've cleared that, you know, hurdle that said we've got more than half the total losses back in the S&P 500.

That was widely watched. But about one percent up from here is 200 day average of the S&P 500, that was widely watched. But about 1% up from here is 200-day average of the S&P. It's still sloping lower. It's the May highs. It's a lot of, you know, highly trafficked areas that we probably are going to have to see the market prove itself through. Yeah, I mean, that is some pretty formidable resistance. And I think we really still come back to valuations because if we think behind this move and maybe growth stocks is a really good one to use an example, because that's what's most tied to interest rates. So interest rates move significantly lower off of the June Fed meeting. And that provided a 20 percent boost to growth valuations over the last couple of months.

And that's led to growth valuations now being at 26 times. That's above the peak back in pre-COVID. And so we think that it's really hard for growth stocks to move much higher from there. And at the same time, real interest rates have actually quietly started to rise again. So you're seeing this divergence right as we're hitting resistance. And so it's going to be a big battleground for the market to push through those levels and continue to climb higher. Dan, since you're, you know, advocate for the market here, the market's kind of collective wisdom, at least right now. I wonder what your interpretation is of the setup with the yield curve. You know, the two year note yield stubbornly high relative to 10-year. We know

that's not some kind of magic recession signal, but it does tell you the market's saying Fed's kind of almost done with this current tightening campaign, and maybe inflation has been tamed or we expect it to be. So kind of, you know, the hard way is the recession happens and the Fed has to back off. The easy way is that soft landing and that sort of immaculate tightening campaign that we saw in 1994-95. Do you have a particular read on what the bond market is saying at that level? Yeah, I think everyone I talk to thinks that the bond market is telling you there's going to be a recession. I mean, you've got a yield curve at negative 41.5 basis points, excuse me, right now. I'd have to double check, but I'm pretty sure that's

a larger inversion than anything we saw in the 2004-2006 period. You have to go back to 2000 or so. And I think pretty clearly people are telling you that Fed policy is going to have a result. And I think this is, again, always the difference between market participants trading today and people with a slightly longer time horizon is the market's getting excited now, the deflation appears to have bottomed, and earnings season wasn't as bad as perhaps thought. Fine. But still, by the time this is done, you're going to have 400 basis points of Fed hikes or so. That takes time to work its way through the system. Even as Cameron mentioned earlier, financial conditions, excuse me, are going to start impacting the economy now. There is a part of this that takes a little time to flow through. And I think that's what the yield curve is clearly telling you. Malcolm, you know, the cyclical stocks, as Cameron mentioned earlier,

have revived a little bit. There seems to be a message out there that the economy, if nothing else, can muddle through for a while and maybe can withstand this phase of Fed tightening. If you were to think that that was mistaken, that that conclusion the market is coming to is wrong, it would seem like there'd be some opportunities to sell some things and maybe get defensive. Is that the mode that you might be in right now? I don't know that I would say defensive. I think to the point that Dan made before, that's why it's important to have a bit of a longer time horizon and stay invested, right? Because the split data that's emerging right here, you talk about the yield curve. That may mean that we actually do end up with a bit of a soft landing toward the end of the year here and, you know, manage to avoid a more painful recession. But it's important to stay disciplined and stay invested and avoid the temptation to call

peak anything because there's more markers right now pointing to wait and see than there are pointing to all clear in my, you know, in my opinion. But the two things that matter most when we talk about inflation are food and shelter. And then the same July data that we're so excited about, we saw rent prices, most people's largest expense, which also accounts for a third of CPI, increased by 0.7 percent from the prior month. And then also food prices were up at levels we hadn't seen since 1979. That's not nothing. for folks to stay invested through all of this because we really have no idea what the market's going to hang on to as its leading indicator since the market is forward looking, as you guys have pointed out, and just kind of muddle through and see where we make it to at the end of the year.

You know, Cameron, obviously the energy story has been almost the whole ballgame this year in a way. I mean, gasoline prices ramp up. The Fed has to chase it, gets very hawkish. Now gasoline prices down whatever, 50-something days in a row. And so it would seem to me that the move in crude matters to some degree. It's now in a bit of a downtrend, kind of sticky in the 90s, at least WTI crude right now. What would your expectation be for it or even just energy stocks, which have had their own pretty sharp correction? Yeah, it's energy prices that really were all the swing factors in the inflation data that we saw, because that's what drove the slowdown in the month over month inflation. It was a 60 basis

point contributor in June, was a 40 basis point drag in July. So that's really important. And we think we're tied at the hip with those gasoline and oil prices. Now, gasoline futures have been quietly marching higher in recent days. They've actually been up 10% in the past few days. We'll have to watch that very closely. But on oil, you know, we're pricing in a lot of this risk of recession into oil prices. As we saw with the PMI data that came out earlier in the month, weak PMIs, you saw oil sell off very sharply. So it's the question of do we start to see this weaker demand show up? We're hearing still a lot of very tight supply within the oil

markets, meaning that inventories remain light and that there's really not a lot of wiggle room for oil producers to increase production. So what that could mean is that we're very susceptible to a shock, meaning a geopolitical event or a hurricane, for example, and that could send prices higher. Yeah, we are in that season. It's been very benign so far, but we'll see if it lasts. And Dan, if we're looking ahead and saying what could be the next thing that we fixate on or the next maybe incremental mover in the markets, I mean, we do have Fed minutes next week, but I just wonder how much fresh information is going to be in there when since that meeting that the minutes were taken from every Fed speaker is out there saying,

folks, nothing's changed. We're still tightening. We're not thinking about easing back. And so therefore, you know, expect more in September. Is there anything you're looking for into next week, which is an options expiration week that would give us a sign of whether, you know, this rally like this rally this week was just sort of like a mission accomplished. We got there or if it's going to continue on. Yeah. Listen, Barkin spoke today and you had Evans and Kashkari the other day. We've gotten plenty of updated information that that and correctly to the extent that they should be talking at all, which is a separate a separate discussion we should have saying that that one meeting, I'm sorry,

one good CPI report is insufficient to alter course. So no, I don't think the minutes necessarily provide any updated information. Much more relevant for markets is going to be the retail earnings next week. You've got Walmart, Target, Home Depot, TJX, and Ross stores. And so up and down the consumer spectrum, you're going to get some updated insight into how the consumer is doing. And I think that's going to matter much more for the market and then subsequently Jackson Hole, if it matters at all. Yeah. Jackson Hole the following week. We'll be talking plenty about retail and the consumer. For now, thanks very much to Cameron, Dan, Malcolm. Great conversation. Appreciate it. Let's now get to our Twitter question of the day.

We want to know what will be the biggest catalyst for stocks next week. Retail earnings, the Fed with a bunch of Fed speakers and minutes on Wednesday, or housing data or something else. Head to at CNBC Overtime to vote. We'll bring you the results later in the hour. We're just getting started here in overtime. Up next, the slowdown, lowdown, smartphone sales stalling in China, what it could mean for Apple investors. And later, get your shopping list ready.

We're gearing up for a big week of retail earnings. We've got your setup when overtime returns. We are back in overtime. Apple handing in a big week with a three and a half percent gain. It's now up 25 percent since mid-June. There could be some trouble lurking overseas. Steve Kovac has the details. Hi, Steve. Hey, Mike. Yeah, demand for smartphones in China, which is the biggest market for them in the world, falling 14 percent in the second quarter. That's according to research firm IDC. Now, the reason for that drop, those COVID lockdowns in the spring kept people from getting out and shopping,

and lockdowns didn't ease up until June. That was the end of the quarter. Reuters also reporting today there were concerns the smartphone market in China has saturated, kind of like we've seen in the United States. Echoes what we've heard from Foxconn earlier this week. That's the company that assembles smartphones for companies like Apple. That company warning of waning demand in smartphones as well. Now, for Apple, it's a different story. Overall sales were down just 1% year over year in China. That's despite those lockdowns and inflation pressure. And CEO Tim Cook sounding optimistic when he was reporting earnings a couple of weeks ago, saying Apple will continue to grow this quarter despite a, quote, cocktail of headwinds. And Apple shares recovering over the last 90 days, like you mentioned, up about 20 percent.

And now it's only down 3 percent year to date. Meanwhile, Bloomberg reporting yesterday, Apple planning to keep production of the new iPhone model expected next month in line with last year's model. And Apple suppliers also seeing a lift. Skyworks, Corning, Broadcom and Corvo, just to name a few, all up double digit percentage report points over the past month. This tells the story of a bifurcated market. High end consumer is still willing to spend, but the rest are pulling back on things like smartphones after two years of a pandemic boom in electronic sales, Mike.

Seems like a pretty familiar theme, Steve. Stick around. Let's bring in King Lip. He is chief strategist at Baker Avenue Asset Management, and Apple is among his firm's top holding. Now, King, I have to say, if there's any concern about production levels and demand in China or anything around Apple, it certainly doesn't seem evident in the stock. We talked about the performance recently. I was just looking at, you know, its relative valuation to the S&P 500 is pretty much at a high post-2010. It's 7.3% weighting now in the S&P 500. That's a record high. Seems like people are pretty comfortable owning it here. I mean, any reason you have to either think that a lot of the good news is priced in or is there still, you know, runway for the stock?

You know, I think Apple has been one of those names just has been so resilient despite the macroeconomic uncertainties. I think a lot of people were sort of written off China, if you will, for the quarter. But they came in actually better than forecasted. I don't think we're quite out of the woods yet for Apple with regards to China. But the reality is that Apple is viewed, as you said earlier, as a premium product. So that's something that Chinese consumers ascribe to. So we think it's a stock where you can play both defense and offense, which is the reason why it's one of our top holdings at our firm. Yeah, it absolutely seems like it has that status for a lot of investors, just the stability of it, the buyback and all the rest. I do wonder, though, I mean, we're good ways, I guess, from the next model cycle.

They seem to have smoothed out that whole kind of upgrade, you know, cycle every couple of years. But is there anything that you'd be on alert for, King, that says that maybe it's going to have a hiccup soon? Well, I think one thing we're looking at is, you know, the wearables business wasn't particularly strong, you know, in the recent quarter. The Mac business and the iPad business was also sort of below expectations. That's something that I think we'll continue to monitor. A lot of that was due to supply chain issues, which we think will start to get better in the second half of the year. But we're still looking for a catalyst, especially for the services business, which

honestly wasn't particularly great as well in terms of meeting forecasts. So those are the two main things that would sort of keep us up at night in terms of wanting to see more growth driven there. Steve, you know, as much as there is a little bit of a perhaps mixed signals about about China demand, it seems in general, given all the difficulties so many companies have had with China supply chain stuff and the chip pipeline and everything else, that Apple to date seems to have sidestepped those again. Yeah, they did it, Mike. That was something I asked Tim Cook about when they reported earnings a couple of weeks ago. And I was like, how did you do this? And he really credited the team on the ground. Now, they really prioritize the iPhone production over other things.

That's why the Mac was so weak. And in fact, they said on the call that they couldn't make enough Macs to even really test what the demand even is. So it's hurting the Mac business by prioritizing the more profitable iPhone a little bit. But that's that's what they need to do, especially where, believe it or not, about six weeks out from a new iPhone. That's amazing. Yeah. And well, I guess, you know, the fact that they think that there's more Mac demand than they're serving is interesting, given the PCs are kind of in a hangover phase right now elsewhere, elsewhere in tech. Are there things that that feel like they're less well recognized in terms of in terms of the virtues virtues of them and better opportunities than a stock like Apple, which has outperformed so much right now? Sure. You know, I think, you know, in terms of one of the high beta growth games that have really been hurt in the past year is a name like Zoom, which, you know, definitely is not as high quality as Apple.

But we do think the stock is starting to bottom out here. The company is profitable, has great profit margins. It's about $5.7 billion in cash with very little debt, $1.5 billion free cash flow. So I think as the market sort of solidifies and finds its footing, if you will, names like Zoom will start to get back some investor demand. Yeah, that's interesting. It looks like a lot of those pandemic favorite stocks where you had the crash and now it's totally kind of rebuilding off that lower base.

We'll see how it goes from here. King, great to talk to you. Thank you very much. And thanks, Steve. Thanks. All right. Up next, the case for a pause of the bold call from one money manager as we count down to the next Fed decision. And just a reminder, you can catch us on the go by following the Closing Bell podcast on your favorite podcast app.

Overtime. We'll be right back. Welcome back to Overtime. Time for a CNBC News update with Bertha Coombs. Hi, Bertha. Hey, Mike. Here's what's happening. With no objection from former President Donald Trump, the search warrant and inventory of items taken by FBI agents from Mar-a-Lago have been unsealed at the government's request. On that list, 11 sets of classified documents, including some marked top secret. One said was also marked as sensitive compartment compartmented information, which is closely guarded material that is only supposed tax, health and climate bill already approved by the Senate, delivering a major win for Democrats and President Joe Biden less than three months before the midterm elections. And actress Anne Heche has been declared brain dead.

But family and friends are confirming her heart is still beating after a fiery crash last week. Heche remains on life support so that she can have her organs donated. And tonight on the news, an exclusive look inside the Space Command Joint Operations Center. That's coming up at 7 p.m. Eastern. Back over to you, Mike. Bertha, thanks very much. While the S&P 500 notching its longest weekly win streak of the year on the heels of better than expected inflation data and consumer sentiment. Luthor Group's Jim Paulson believes that more good news on the inflation front could return animal spirits to Wall Street and to Main Street. He joins us now. Jim, good to see you.

Good to see you, Mike. You know, it's one of the oldest maxims on Wall Street. It's one of the best. Investors are told. Investors are told, don't fight the Fed. It feels like the Fed's wanting to fight the market lately, right? I mean, the market's kind of positioning for, you know, maybe the rate hike cycle to wind down and inflation is on the downtrend. And Fed officials really are pushing back against that idea. How do you think that sorts itself out?

Well, I think that the Fed's been behind what's been needed really the whole time in this since post-pandemic here. Most of last year, it was a dove when we needed the hawk. And fortunately, other policies, Mike, were hawkish. The annual growth of the money supply peaked in March of 2021. Fiscal growth as a percent of GDP peaked in March of 2021. The dollar was tightening all of last year. Yields were going up last year. Fortunately, because of those other policies, even though we had a dovish Fed, the economy, real growth and inflation started to slow this year. Without that, we've bailed out the Fed, so to speak, with these other hawkish policies.

Now that growth has really slowed to a crawl in real terms and inflation has clearly rolled over, how fast it's going to come down is still debatable, but it's clearly rolled over. Now the Fed is hawkish as ever. And I really think that the Fed's been behind the curve, is still, and the reality is that the case for additional tightening at this point is starting to lose its gravitas. It just doesn't make a lot of sense. With real growth slowing to 0 to 1 percent and commodity inflation now becoming commodity deflation, with core CPI, PPI, PCE all rolling over in recent months and decelerating a year on year with annual wage inflation rolling over. At the end of the year, wage inflation on a six month basis was 5.6. Now it's 4.3 in the last six months. I just think

by the time we get to the September meeting, claim numbers probably are a little worse. Growth is a little worse. Inflation is a little better. And the case to really tighten much longer is going out the window. You know, Fed officials will look at that. You say the case to tighten much is going out the window. Do you think that means that they really do change their tune that quickly and essentially just do a token raise or none at all? I do. I think they certainly could do 25 basis points or something in the September meeting. That's my guess.

But I think then they'll probably be done. I really think the key thing to remember here is certainly wasn't the Fed raising the funds rate by 25 basis points in March of this year that caused the economy to slow as much as it did in the first half or caused the inflation rate to suddenly roll over. It was these other policies. And here's the fact of those policies. There's a one-year lag roughly between tightening policies and an impact on the economy, Mike. And those policies have only started to ease recently. And so there's still tightening force that's going to push downward pressure on the economy and inflation all the way through the end of the year into early next year. And I would hope that the Fed doesn't just look at the current situation. I hope they look to the

future a little bit and think about what's going to come. And certainly that's what the markets are telling them. Yields across the curve are saying it's time to quit easing. The dollar is starting to ease. Junk spreads are starting to ease. Fiscal growth is starting to ease. The Fed should follow, and I think they will. Well, you say that you hope the Fed focuses on the future. If you hear them talk, they're focusing on the past because one after another, officials keep saying we don't want to repeat the 1970s mistake of starting to get easy just when the economy slows. They feel like that's a trap. Maybe that's what they have to say, no matter what they're going to ultimately do. But you do wonder if they're locked into that idea. You do. But, you know, all of last year, they talked dovish all the way into this year. And

then suddenly they got really hawkish. And they could turn again and I think that's that's the catalyst under this stock market for me is that easing the next easing cycle's already begun and if you're a stock investor do you want to miss another easing cycle I don't think you do markets markets certainly acting like it's uh it's positioning for something like that we'll see how it goes Jim thanks again have a. Have a good weekend. Thanks for having me, Michael. All right. Up next, you're set up in the next week. Retail earnings front and center. The key names that need to be on your radar, they are straight ahead. And later, following the money, what to watch as hedge fund titans start to report their big money moves over time. We'll be right back. A big week ahead for retail with names like Home Depot, Walmart and Target all set to report quarterly results. Joining us now with your setup, Oliver Chen, senior retail analyst at Cowen.

Oliver, good to see you. What themes are you going to be listening for? We've been through the warnings from the big box firms about being caught off guard with too much inventory. Some of that getting worked off. The stocks have bounced, but not back to their highs. So what's most important to focus on? What we're really focused on is this continued trend of inflation. Unfortunately, we think July trends got a little bit worse than June. Also, promotions. Promotions in the marketplace, particularly in apparel, as consumers really shift very rapidly. On the other hand, there are some positives. Unemployment still very low. Consumers looking for value and companies executing well to value too, such as Grocery Outlet and Walmart as well.

In particular, we do like Target's valuation at 14 times PE, Walmart's at 20 times, and you get a nice free cash flow yield as well. It's about 10% at Target. So the valuation at Target to us looks quite attractive. Other bright spots, Mike, we like the handbag sector. Tapestry is reporting next week. They're seeing pricing gains in handbags as well. And we like beauty. Later in the month, Ulta reports beauty has been a very good topic as consumers continue to invest in their face and skincare and cosmetics and go out again. So these rapid shifts in the consumer promotions are things we're thinking about. And these cross currents, positives and negatives with respect to the consumer's health. You say that you

think that inflation got a little bit worse in July. Now in what respect would that be just in terms of the you know the stress on demand and stores ability to to handle it or another way? Yeah consumers are really feeling the pinch of gas prices being higher. Therefore as we look at a lot of our analysis in July, traffic has been weaker, as well as consumers, particularly at the lower end, under 50,000 household income, spending less. So there's still a problem with inflation, and year over year, inflation is still fairly high. That has weighed in on consumers needing promotions to really want to buy apparel and there's been a major shift. You know it's all about swimwear and suitcases and a lot less about

sweatpants. That rapid shift has really impacted retailers ability to move quickly and promotions have been required. You mentioned that Target seems attractive here. What about Walmart after the big warning? It seemed similar if a little bit delayed and the stock has really not recouped much of the losses. How is that one set up? Well, Walmart is about 56% grocery. That's a stable business and they will not be undersold. Walmart also prepared itself to promote specifically items in general merchandise and apparel and other categories. Walmart's also a very, very good executor in terms of curbside pickup. So we are encouraged in terms of progress they made and they've taken markdowns very quickly as well as Target. That being said, we have outperformed ratings on both.

Target's valuation at 14 times versus Walmart at 20. It's a little bit more attractive in our view, but they're both really great franchises for the long term for sure. Yeah, Walmart, of course, categorizes consumer staples. It seems to get that bit of a premium on that basis. And in terms of higher end, you mentioned some of the names in terms of luxury. Do you think we've sidestepped the decline in the stock market and housing values coming off the boil? It's not really impacted consumers at the higher end? Well, we're more selective in luxury. In particular, Mike, we like certain brands like Louis Vuitton as well as Canada Goose. Canada Goose had a great print this week.

They are able to get price increases to the consumer. And that's a product that's around $1,000. And LVMH has a great franchise globally as well as Sephora. What we would do is really put your eggs in with great top brands, which are still getting pricing leverage. The warning spot in luxury goods continues to be Asia and China, with lockdowns there and unpredictability. However, that's pretty well known, and it's in the numbers. The bright spot has been Europe, as tourism has really fueled Europe. And then the wealthy client will digest price increases for the right brands. Brands matter for innovation and pricing

leverage. And with a weaker euro, probably that helped as well. Oliver, thanks very much. Appreciate it. Happy Friday. Great being here with you, Mike. All right, up next, we're breaking down the big week on Wall Street. Christina Partsenevelos is standing by with your rapid recap. Christina. We'll look at what drove growth names higher this week and which sector is the only one in the red on the month. Much, much more coming right up. We are wrapping up a big week on Wall Street. Let's get to Christina Partsenevelis with your rapid recap.

Hey, Christina. Hey, Mike. Expectations at the market has seen the worst of inflation, prompted a lot of hedge fund guys and traders to cover their short positions, further adding to the rally that we saw this week. All S&P 500 sectors ended in the green this week, with energy the only laggard on the month so far. The S&P and the Nasdaq both closing above 3% higher this week,

with the Dow almost, just almost at that level. Those lower inflation expectations also a driver for growth names. So you saw semiconductors the leader for today, helping offset some of this week's losses and bringing the SOX ETF back into positive territory this week, up 3% today alone. And then you got chipmaker Global Foundries hit its best week since March and OnSemi is trading at an all-time high since its IPO back in May 2000. Another theme this week,

the $750 billion healthcare, energy, and climate bill that helped drive EV and alternative energy names higher like Plug Power and ChargePoint. EV maker Rivian closed in the red today, down ever so slightly, but hit its fourth weekly gain. It's longest since going public. Mike, back with you. Have a great weekend. You as well. Thank you, Christina. Thanks. Up next, breaking down the big bets. We're following the money as hedge fund titans start to report their big money moves. And coming up on Fast Money, Cathie Wood's ARK Innovation ETF surging over 17 percent in the past month. Can the climb continue? Technician Carter Worth is charting

the levels to watch on that one. Overtime is back after this. Welcome back to Overtime. We're starting to learn more about the big moves, big money made in the second quarter. Leslie Picker following the money for us. Hey, Les. Hey, Mike. Yeah, these are some of the non-procrastinators. A few filings dropping a short while ago ahead of the deadline. Starboard, Soros, and Ballapost each disclosing their holdings for Q2.

Starboard settling in, selling about half its stake in Huntsman during the quarter. The firm, if you recall, lost a proxy battle there toward the end of Q1. It also pared back more than 80% of its stake in Kohl's. Soros paring back its exposure to Rivian during the quarter as well. We also saw Baupost trimming its stakes in Alphabet and Meta by about 30% and cutting its Intel holding in half. Now, the deadline for those disclosures is actually Monday evening, and that's when we should see the bulk of 13F filings appear. These showcase the long positions held by fund managers on June 30th, the last day of the quarter.

And they'll provide some insight into how professional managers capped off the worst first half for stocks in half a century. And whether they were poised to capitalize on the rebound that ensued in the subsequent six weeks. The first quarter saw a lot of managers rotate out of tech. We can probably expect to see the same in 2Q just based on what the market did during that time. But I think the real question is going to be how were people positioned in the six weeks that followed? Well, absolutely. I mean, you mentioned only net selling so far of those ones that we're highlighting. And it really fits with

what we knew, right? The market bottomed as of now on June 16th. So essentially right at toward the end of the quarter. And we almost know that by definition, hedge fund exposures were really low. And it probably seems like they were not necessarily in place to capture what we've seen so far this month. And it's been a pretty tough year, of course, as you know, for hedge fund returns. Yeah, you bring up a really good point. That was also emblematic of the first quarter where we saw a lot of net selling as well. Just portfolio managers disposing of a lot of growth names during the quarter, just kind of shoring up their portfolios in advance of this changing macro environment. But not as many big bets, big buys. And it appears, at least on the three filings that we've studied so far, that it could be a continuation of that this quarter.

Yeah, for sure. And while the market has felt this week like folks had to kind of wade back in and chase to get their exposures back up, Leslie, thank you very much. Have a great weekend. Thank you. You too. All right. Up next, our two-minute drill. Overtime, we'll be right back. Welcome back to Overtime.

Let's get the results of our Twitter question. We asked, what will be the main catalyst for stocks next week? Most of you saying the Fed with 41% of the vote. We do get the Fed minutes coming out. Retail earnings were close behind, though, at 39%. Time for our two-minute drill. Joining us now is Noah Hammond, advisor shares CEO. Noah, it's great to great to check in with you. Just before we get to a couple of your picks, you're more inclined to to take on more risk or shed some after this ramp

in the markets. I think for now, still take on more risk. But I think to your point in the Twitter poll, I'm definitely keeping an eye on what the Fed does. I'm less concerned about rising interest rates, but more about their balance sheet and the liquidity that drives in the market. So I'll definitely be watching that closely. All right. And in terms of where to go in the markets, your pick does also operate in a luxury space. Talk about LVMH right now. Absolutely. So you just had Oliver on from Cowan. I agree with a lot of his points. the environment that we are in. Brands can price, you know, the recession or inflation isn't really felt by the wealthy quite so much. So between alcohol, between luxury brands, this is one of those large companies, profitable, has pricing flexibility. It's an easy one to keep

in your portfolio in this environment. All right. There was some talk that in China, the secondhand sales of luxury goods is off, but that probably is now well understood. Do you want to get to OLED, universal display, which is a short idea? Why? It is. That's a short position in our hedge ETF. And it's short because right now about 40 plus percent of their business comes from Samsung. And Samsung just recently bought an emerging startup OLED manufacturer named Sonora. And so they're the ones that are actually building those flexible OLED screens for their new smartphones. And so we look at that as being a real challenge for them. They're trading at about nine times, almost close to 10 times sales right now. We would see that depending on how the relationship goes, when we could see that declining over time,

this company could easily be trading at two to three times sales that would push it more in the $40 price range. So this is a stock that's already 40% off its highs. You feel like the market hasn't quite woken up to the implications? Right, absolutely. And it'll take some time. You know, the relationship doesn't turn off probably in a second. But you can if you see that those sales and the relationship changing, given that acquisition of Samsung, a lot more pressure probably ahead for for OLED, OLED for sure. All right. Yeah. OLED was up about three percent today, but flat on the week. Noah, great to check in with you. Thanks very much. Thank you, Michael. All right. And that does it for overtime. Have a great weekend. Fast Monday begins right now.