Closing Bell - Closing Bell Overtime 8/19/22

Episode Date: August 19, 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. In a few minutes, we'll hear from top market technician Katie Stockton, the key market level she's watching, plus her take on whether Apple will remain a leader. But we begin with our talk of the tape, a test of the tape. All three major averages selling off today with growth stocks taking the brunt of the pain. With today's losses, the S&P and Nasdaq snapped their longest weekly win streaks of the year. So was this week's drop just a routine pullback or the beginning of something bigger? Let's get right to our overtime panel. Peter Cicchini is director of research at Exxonic Capital. Sean Cruz is head trading

strategist at TD Ameritrade. And joining me here at Post 9, Neil Dutta. He is head of economics at Renaissance Macro Research. Hello to you all. Peter, I'd love to start with you here on the market sort of field position. I feel like a couple of weeks ago, a couple of months ago rather, the market was washed out enough, oversold, that both bulls and bears said, we've got to bounce here. Two months later, great rally, retake more than half the losses. I feel as if both bulls and bears from this point of view would say probably need to pull back or rest a

little bit. Where would you be looking for the market to head from here in terms of its next decisive move? Is the rally kind of run its course or is it just pausing? I think it's run its course. You know, since late last year, we were calling for a late 2022 recession and a sell the rally kind of market. In mid-June, the rally seemed to us to be likely because positioning was just so light across asset classes. Breadth on the S&P 500 was extremely low. Less than 20% of stocks on the S&P were above their 50-day moving average. The Fed was at peak hawkishness, and sentiment was just horrendous. So now that we've gotten this rally and the S&P down is down something year-to-date around 10 to 12 percent, that

doesn't make a lot of sense within the context of the headwinds that we face going forward into the end of the year. We have a Fed that is constrained by both the zero bound and the prospects of inflation. And the minutes were very clear that the Fed is going to be very slow to pivot back to a dovish stance, for example, the way it did in 2019. And that's something investors have become very used to. And I just don't think it's going to happen this time. Neil, one way of, I guess, trying to read the market's mind and say what's been going on with this risk rally we've seen is we were consumed with the prospect for stagflation and a very remote possibility of a soft landing. And on both the inflation fronts and on the growth fronts, it seems like things became a little bit less scary, I guess, with the data that we got. And now markets have

adjusted to that. Does that make sense to you or are we being too optimistic in markets? Well, I mean, I think the markets were right to rally off of that information. Right. So what did we learn? I mean, strong jobs growth. It looks like we're having a pretty healthy back to school shopping season. The inflation numbers are coming having a pretty healthy back-to-school shopping season. The inflation numbers are coming in a bit better. I think we'll see more evidence of that next week. And, you know, the markets are kind of willing this pivot trade, you know, into the universe. So I think there's some reason for it. Now, the question is, if you think those three things will continue, then stay long. If you don't believe that, then take the other side of the

trade. And I happen to think that, you know, I mean, growth is not collapsing, but growth is slowing. Things like the housing market, the housing market's in recession. Global growth is weak. Capital spending intentions are coming down. I think the market is, in my view, conflating cyclical improvement in inflation, but sort of ignoring the fact that structural inflation is getting worse. So things like wages are running well above productivity, shelter costs, obviously. And as the previous speaker mentioned, the Fed is not unlikely to pivot, in my view. I mean, pivoting to cuts and pivoting to a pause are two different things. They are two different things.

But do you think that now, look, if we look at how the bond market is pricing things, yes, the curve looks like they're projecting out potential cuts. That can happen because it was just a pivot that says we did it, mission accomplished, or it could be a pivot in response to a severe weakening of the economy, or a pivot could just be let's just back off and wait and see how things go from here. Well, I think the problem is, is that pivoting right now with inflation where it is and financial conditions having eased, that risks the more inflation later. And, you know, Powell understands.

I mean, he said this at the press conference. The risks are two-sided, but where does he care more about? He doesn't care more about overtightening. He cares more about not doing enough. And I think that's the way you have to think about it. Sean, in terms of the market mechanics here, there's a lot of people that are willing to give the benefit of the doubt just to the fact that you have seen this burst of demand for stocks. People are underinvested, had to chase it higher. Where does that take us now after we've had a little bit of a run? Maybe seasonal effects get a little bit

less friendly from here. And obviously, you did lose a little bit of that upward momentum this week. Yeah, I think the big thing was the worst case scenario probably got pulled off the table. And I think that was what breathed a little bit of life into these markets and sort of got the ball rolling in terms of this upside rally. I think now the market is responding to maybe they got a little bit too optimistic, not just in terms of what their expectations or base case is for the outlook in the economy, but also with what they expected from the Fed. And to Neil's point, I think it's really great to point out, the Fed hiking and then stopping and maintaining the level,

to me, that's mission accomplished. The Fed having to actually stop, pivot, and go out and cut, that means they went too far, and they're really starting to have a sizable impact on growth. But I do think the market this week, it showed that they were getting a little bit too out over their skis in terms of what they expected from the Fed. And you've seen a slow, steady march higher in rates. And I think that is what is reflecting that the market is maybe starting to give a little bit more credence to

the Fed being hawkish for a little bit longer than what was being priced in over the past month. You know, it seems, though, Sean, we've been living with the same set of challenges and issues and likely policy responses for a while now. All right. So let's call it since the end of of last year. And I just wonder if there has to be something new. There has to be a little bit of of something from a bolt from the blue or a severe worsening of what we've already thought was taken care of. Are there areas, Sean, that you think that something like that is likely to come from? Yeah, I think it will be a matter of, in the coming weeks, really what the market starts to expect out of the Fed at that September meeting. We might get a lot of those expectations being formed next week,

as we hear from Jay Powell and a lot of other headlines, I'm sure will come out of the Jackson Hole meeting. But I think the big difference here is although we've seen this slowdown out of a lot of this economic activity, it hasn't really translated into some sort of an earnings type of a recession. So I think that's a big difference maker is as long as earnings can be expected to tread water, maintain or even eke out a decent amount of growth, that to me would be a good reason why the market is not necessarily responding to some of the data coming in, because it hasn't really shown up in earnings just yet to the extent that we're seeing it show up in maybe some of the overall economic data. But if that starts to evolve and you do get the sense

that maybe we are going to get a significant impact to earnings moving forward, I think that would be maybe the catalyst for a significant flush out lower out of the markets. Peter, things on the credit side have improved in the last couple of months in terms of, you know, corporate credit spreads, things like that. That's been part of the financial condition loosening. And you would think the backdrop isn't that terrible for corporate credit, just in the sense of nominal growth is high, interest coverage looks OK in aggregate anyway. Does that give you any sense that there's a cushion underneath equities for that reason, or is that a miscalculation? Yeah, you know, I think there are a couple of layers of that

onion to peel back. And I think the first is for both equities and credit, and then I'll address your question very directly, is that the Fed risks a whipsaw here, not unlike 2019. It needs to be communicating a very tough stance on inflation. The risk of overstepping is great here. I think the economy is going to slow quickly and I think inflation is going to turn very quickly in non-energy And in fact, that's the tough part because energy prices in Europe are going to pull the whole energy complex higher while growth and demand actually Begins to crack here in the US as far as credit markets go Nearing 600 basis points for high-yield credit in mid-June

was implying something like a 6% forward, one-year forward default rate. And our view was that that was just a little bit too far too fast. That said, it is starting to show up in earnings and profits. Guidance for both large caps and small caps has actually been very poor. And interest coverage for the bottom quartile, especially in the high yield universe, is now very low and below one times. So I do think we're going to start to see default rates pick up. And I think we're going to see credit spreads widen into what I do believe, continue to believe, and have for some time will be a recession in late 2022, early 2023. And during that type of an economic environment, you see credit spreads for high yield corporates, you know, approaching,

you know, 10 percent. Yeah. And then we're nowhere near that right now. Neil, you wanted to sort of have some nuance in that inflation. I think the issue is that recession that he's talking about probably wouldn't be deep enough to increase the unemployment rate enough to turn inflation around that quickly. I mean, remember, inflation is a process, particularly outside of commodities. You look at housing inventory, it's paired to the bone. Prices are still running firm. If you're a landlord, are you going to start cutting rents with the underlying value of the asset going up? And that is an important story. And right now, what does the drop in gas prices mean? What does the drop in used car prices mean? That's effectively a tax cut given what's going on in the labor

market. So people are doing what? They're taking those savings and spending it elsewhere, driving up the prices for those goods and services. You look at some of the weekly credit card data, Mike. Yeah. It's running double digits. Companies don't need to be cutting prices that aggressively in that kind of a consumption environment. So I think the risk isn't so much that the economy is going to collapse. It's more of this sort of slow bleed, not slowing enough, meaning the Fed has to do

more. So that suggests what ultimately, in other words, is it just that incrementally the Fed has to do more. So that suggests what ultimately, in other words, is it just that incrementally the Fed is going to have to keep on the inflation case and the economy will slow enough or they'll have to do some real damage to demand? Exactly. I mean, the economy is not going into a recession on its own. The Fed is basically telling you that's what is probably required in order to bring inflation down to 2%. Sorry, Peter? That's what is probably required in order to bring inflation down to 2%. No, that's not right.

Sorry, Peter? I was just going to say, I actually disagree with that, because the economy can go into recession on its own. It's not just the Fed that can push an economy into recession, because we've never seen inflation like this since the 1970s. In fact, one of the reasons why the Fed fears inflation so much is because inflation is something that can really push economies into recession reasons why the Fed fears inflation so much is because inflation is something that can really push economies into a recession. And the Fed was extremely late here. So unfortunately, we're in a position now where both inflation is going to push us into the

recession as well as financial conditioning tightening. And I agree with you, Neil, 100% that there's a lot of stickiness to inflation here and things like OER and rents. And in fact, that's actually one of the reasons at Exxonic why we love multifamily so much and have all year, because affordability in the U.S. for housing is absolutely horrendous. And defensive cash flowing plays like multifamily and their related assets make a heck of a lot of sense to us, especially relative to equity markets, which just to us are not the place to be right now. You know, just to dial us back farther in time, I mean, everyone wants to talk about the soft landing in the 90s. That is, by the way, when the Fed started cutting rates just a few months

after it finished hiking them. And it's the one kind of perfect example of this being orchestrated in a very different environment in many respects. But what about the, you know, kind of post-war type scenario in the 40s? I've seen this as well. Huge spike because of pent up demand, supply issues, massive demand for housing and goods all at once. And inflation did crash. The market didn't do great. The stock market went sideways for like three years. You finally did get a recession, but it wasn't really a classic recession where all of a sudden, you know, right as soon as the Fed got a little tighter, we fell into it. So to what degree, Neil, do you point to some of the extraordinary dynamics of the post-pandemic economy as something that are wild cards? Well, to me, the most interesting similarity between this period and that one is just the notion of labor hoarding, right?

I mean, so, you know, if you go back to the labor contracts of the 40s and 50s, I mean, there was this sort of implicit contract between workers and their employers. Most of the weakness in the economy was through hours and productivity, not the loss of headcount. And that could be happening right now as well. I mean, people get their hours cut. You know, as an example, there's not as much outright firing yet. And that weighs on productivity. But what does that mean? That's inherently inflationary, right? So that actually, I think, means that equilibrium rates ultimately still have to be higher.

Sean, just to bring it back to a degree to kind of the market dynamics right now in terms of the sort of risk appetite you're seeing out there, we saw this flurry of enthusiasm that went back into some of the aggressive, you know, meme stocks and some of the non-profitable companies. That's coming back a little bit. What are you seeing in the way of flow? Does it look like that's a dynamic that can restart again? or was that just a little bit of an echo? I think that might have been a little bit of an echo, more of a flash in the pan. What we really saw was a lot more interest in going in and taking small bites, or maybe in some cases, but larger bites of these names that were really getting beat up.

Think of like Apple got down to 130. Some of the financials also got down pretty well off of those highs. I think now you're going to start seeing a little bit more of a defensive type of a posture, but you're still gonna have to be selected within those defensive sectors. And I do think healthcare is one area

where you might see investors start to go. And there's a lot that can go into what we mean by healthcare. I think some of the healthcare technology companies might become an interesting area. You have the pharmaceuticals sitting still down towards some of those lows. United Healthcare, some of the insurers are sitting right at highs. But some of those healthcare technology companies are sort of sitting in the middle and could become interesting buyout targets in some cases. So I think you might start seeing some opportunistic buy-in

on an individual name basis within healthcare. Yeah, always a sector where there's sort of two ways to win, blend of growth and value. We'll see how that one goes. Guys, I appreciate the time today. Thank you, Peter, Sean, Neil. Catch you again soon. Let's get to our Twitter question of the day.

We want to know which of these companies reporting results next week looks most attractive. Zoom, Peloton, Salesforce or NVIDIA? Head to at CNBC Overtime to vote. We're bringing the results later in the show. Up next, key market levels to watch where stocks could be headed after the S&P snaps four weeks of gains. Fairleads' Katie Stockton tells us what she's seeing in the charts. We're live from the New York Stock Exchange Overtime, back in two minutes. We're back in Overtime. The S&P just snapped a four-week winning streak, and one top technician warns there could be even more downside ahead. Let's bring in Katie Stockton, founder and managing partner of Fairlead Strategies.

Katie, good to see you. Good to see you, too. So give us your assessment here of both, I guess, the rebound, whether it was convincing in any respects longer term, and then what you might expect shorter term tactically. Well, certainly it has seen short-term momentum to the upside, excuse me. And the breath has been very strong as well. And yet now we have a little downtick in our short-term gauges. And that is really like a chink in the armor of the market because the downtrend, in my opinion, still does have a hold

from a long-term perspective. And that breath thrust that so many people have been talking about, that is something that is positive long- term typically for the market. But this is a little bit of a different market. You know, it's not a corrective phase. It's a bear market cycle. And that's something that requires a bit more time, a bit more work, like a process, not an event to really get that bottom put in place. So I think we could see a good retracement here. So there's like a little more of a burden of proof that, in fact, there's a recovery process underway. So in terms of potential give back of this rally, if we need to surrender to the short term downside momentum, where does it take us? Let's say on the Nasdaq. I mean, do you think it unwinds the whole rally or not?

I think there's good chance of that. And I don't think it necessarily needs to happen super quickly. But I say that because that negative long-term momentum still does have a hold. And then with that loss of short-term momentum within that context, it's just harder to sustain or hold onto these gains. Now, we could see higher lows established versus June, but the way things set up, they do look very vulnerable to a breakdown.

Maybe that's later in Q4. We suspect that the bear market cycle might last even into the first half of next year. So we're bracing for more downside. If we were to see the S&P 500 take out about 3815 support, the next support level is around 3500. So we start to talk about more significant downside at that point. Yeah, which I mean, I guess we're sort of popularly discussed downside targets when we were near the lows. So that's been hovering down there for a while, I guess.

Apple's an interesting case that has had such outperformance. It hasn't really moved with the rest of even like the Fang Group or NASDAQ 100. It's sort of its own animal here. How is it set up? Is it stretched or does that tell you that, in fact, it has these kind of leadership qualities that can continue? I mean, visually, it's stretched. It hasn't seen the same downtick in momentum that we've seen now for the NASDAQ 100 index. I think there's risk that that happens within the next one to two weeks. So that's something that we're bracing for. Apple has exhibited upside leadership during the relief rally, and that's actually pretty normal.

It seems to be one of the first stocks that folks are very comfortable going back to as a long-term app performer. So we're looking at the ratios of Apple to the S&P 500, and we're starting to see some signs of exhaustion there per the DeMarc indicators. And that would suggest that the pullback at least comes in relative terms, meaning that Apple is not really going to be the source of upside leadership that it was. And that removal from the market could be a problem. Yeah. Seven and a half percent of the S&P almost at the highs recently. So clearly has a lot of sway. Treasury yields have picked back up. The dollar has picked back up from the recent declines. Oil still seems a little bit stuck down in this ninety dollar barrel range. WTI. Is that a new downtrend or is it gathering itself for another run higher? You know, I think it's a corrective phase that's maturing. If you look at the action in the energy stocks, they seem to be anticipating crude oil coming out of this corrective phase.

There is some good support in the mid 80s per barrel. There's also some signs of downside exhaustion near that support. So we think that we'll see crude oil resume its long-term uptrend, and that should continue to benefit the energy sector. And yet we think that there's risk that there's lower highs. I don't know if you want to call that a risk, but a lower high wouldn't be terribly surprising based on the long-term momentum that's having fallen off a little bit there.

Right, so the highs would have been above 120, and so maybe it kind of finishes somewhere in between or something like that. Got it. So in this context, what is relative strength that looks like it can sustain within the market at this point? Well, looking for relative performance on the sector level, we can really highlight defensives. So consumer staples, utilities to a lesser degree, maybe real estate. And also, I mean, for me, it's all about energy still in terms of the relative performance. So that's kind of the outlier in that regard. And that is obviously related to the commodity prices. We have some spots of strength, say precious metals, pharmaceuticals, other more defensive sort

of pockets within those sectors. But I think that's where you'd want to hide or really just simply reduce exposure and plan on revisiting lower. Right. And if the defensive groups are going to work, does it imply that anything about where yields are headed or what just on an outright basis does the field position look like for bonds? You know, it's sideways to me. So I think it's really a neutral takeaway as it pertains to treasury yields. The uptrend in yields has taken pause, certainly. And that pause was natural based on how fast and furiously they'd risen. So we're looking for more of the same in the next couple of months. And that's based on our indicators, nothing more. And then, of course, for the uptrend to resume, because it's usually right to assume that the prevailing trend will remain intact.

We really saw this major reversal of a downtrend in 10-year treasury yields for one this year. Yeah. And if inequities, if you see the bear phase potentially playing out into the first half of next year, is there a way to map out what ultimate downside is? I mean, how is this going to look relative to past bear markets that we've had? Yeah, I mean, we have that 3,500 support level as a secondary support, but based on the Fibonacci retracements that we track, and that's in part where that 3,815 is coming from, 3,200 would really become the targeted Fibonacci retracement level in our work. Now, we give more weight typically to the indicators than we do to levels, support levels as sort of targeted, you know, ways to gauge risk. So we won't really know until we get there, of course. That's sort of unfortunate. But, you know, we do think that it will culminate in more of a basing phase,

that process, as opposed to a V bottom, just based on the nature of past bear market cycles, 2008, 2000 to 2002. Yes, when they've been pretty prolonged. So 3,200, I guess, ballpark, that'd be about a one-third of the highs, right? 4,800 we saw. It would be pretty painful, I think, is the message there. So a 33% drop from the highs and pretty significant downfall. Yeah, and I think really no stock would be left unturned by that kind of decline. Even the defensive sectors would probably see some real consolidation with that. So it leads us to look at other asset classes. Yeah. Well, got to stay mindful of the possibilities. Katie, thank you. Appreciate it. Of course. Coming by. Up next, we're counting down to Jackson Hole.

What is at stake for your money and the market? Quadratic Capital's Nancy Davis joins us with her big money set up when Overtime returns. Welcome back to Overtime. Time for a CNBC News update with Eamon Jabbers. Hi, Eamon. Hey there, Mike. The U.S. for the first time saying it will give Ukraine Eagle surveillance drones, mine-resistant vehicles, and anti-armor rounds to help Ukrainian forces regain territory and mount a counteroffensive against Russian invaders. The package will cost $775 million, bringing the total U.S. military aid to Ukraine to about $10.6 billion since the beginning of the Biden administration. Disbarred South Carolina attorney Alex Murdaugh, already accused of killing his wife and son, was indicted on new multiple money laundering and computer crime charges. A grand jury indicted him on nine criminal counts, three for money laundering,

two for computer crimes, and four counts of obtaining a signature or property by false pretenses. Serena Williams is preparing for her last U.S. Open before retirement, and tickets to see the tennis legend play are in high demand. StubHub, the popular ticket site, said it's seen a 40 percent jump in sales since Williams' announcement. And tonight, I'm anchoring the news. Vanessa Bryant testifies about the moment she learned about leaked photos of her husband Kobe's death. We'll have the latest on her lawsuit at 7 p.m. Eastern. Back over to you, Mike. Eamon, thank you very much. We are less than a week away from the Fed's annual economic policy summit in Jackson Hole.

Central bankers from around the world will meet to discuss interest rates and high inflation. But our next guest believes the Fed's credibility is still in question when it comes to fighting inflation. Nancy Davis is the founder and CIO of Quadrata Capital and joins us now. Nancy, good to see you. Great to see you, Mike. You know, it's interesting. The Fed has been conveying the idea that the job against inflation is not done. They're reminding investors that they still plan on being fairly aggressive in tightening. They don't foresee a turnabout to cutting rates next year. And yet the market is saying, actually, Fed, we think maybe you're almost finished with the job.

And it's going to get a little easier in the coming months. Where do you see that mismatch going and what does it mean, I guess, for markets? Well, the Fed has used their forward guidance to pull these rate hikes effective this year. So right now, the rates market is implying and you can see this in Fed Fund futures, that the Fed is going to hike an additional 110 basis points this year, just 2022 with midterms later this year as well. And then the market is expecting 25 basis points of cuts next year and then even more cuts in 24. So the rates market is saying, yeah, we believe the Fed's going to hike and we think it's

a policy mistake. That's what the rates market is saying. And do you think that that creates any kind of, I suppose, an opening for an investor to at least, you know, bet on an alternative scenario? Because it seems as if when you do have that dislocation between, you know, the stated policy of the Fed and how markets are being priced. In theory, there's either risk or reward in that gap. Yeah, there's actually, I think, a lot of potential reward because inflation expectations in the future are very little over the 2 percent target for the long-term Fed, the long-term inflation. So even though realized inflation has

been at 40-year highs, future inflation expectations are still well under 3%, whether you're looking at break-evens or the yield curve is fully inverted. So there's literally no term premium at all in the bond market. What I mean by that is you can buy a three-month T-bill and get paid more than a 10-year treasury bond right now. The market is definitely priced for this disinflationary environment. And I think even just like the stock market, all markets move off of future expectations. And right now, the interest rate markets, the fixed income markets in the U.S. are saying inflation is going to be very maintained. It's going to be controlled. And that potentially is a good buying opportunity by that future expectations,

which is really just barely over that Fed's two percent long term target. So essentially, you know, inflation protected securities or something as simple as that could could be good. Inflation protected securities, a lot of people aren't focused on them because the tips market, those are Treasury inflation protected securities, sometimes called tips. They were only invented by the U.S. Treasury in 1997. So a lot of people look at commodities, whether it's energy or cyclical stocks or real estate or equities, because they existed in the 1970s. And a lot of people aren't focused on the inflation or the interest rate derivatives markets because they didn't exist back in the 70s. So I think it's a really opportune time for investors

to be thinking outside of that traditional 60-40 portfolio and thinking about ways of adding diversification outside of it, I think especially commodities, because there's been such a big run up and so much volatility in that market. If you look at just sort of the instrument panel for the markets and see where there is or isn't stress, it seems as if the equity market indicators are saying things look relatively stable right now. Things like not just the volatility index, but the way that the VIX futures curve is set up. Credit spreads have been talking about. It seems as if there's a more comfortable moment we're in at the moment.

Do you think that's not going to continue? Does that make sense? No, Mike, you're absolutely right. It's an astute observation that equity volatility and also the vol of volatility is very low. It's 1st. And September is when they're going to be increasing those caps. So QT increasing is probably bullish for fixed income volatility. I think a lot of folks look at equity volatility with the VIX, but that's just one type of volatility. Anything that has an options market has a vol market. And there are lots of different fixed income volatilities out there. Yeah, the the idea that obviously we haven't really seen much happen yet in terms of the Fed's balance sheet being reduced and it's

going to potentially start to speed up in September. It's it's mentioned a lot. It seems like it's on people's minds, but it's not necessarily clear what it's going to mean immediately anyway, in terms of volatility or supply demand for securities, considering that, you know, treasury issuance is down a lot. So is there anything specific that you'd be bracing for with that? Well, I'm really excited for Jackson Hole to see if the Fed is going to talk more about using their balance sheet as a monetary policy tool they've hinted at that they've said it but these caps have been very very uh well absorbed by the market they're not a big deal they're not really moving the market so i'm excited to see if the fed's going to do something

other than hiking policy rates because hiking policy rates hurts the demand side of the equation but there's still too much money out there. And the Fed really needs to pull in and I think get more aggressive with their quantitative tightening. And the Fed has said publicly that they don't intend to hold mortgages inside their balance sheet. And I think that's one important thing that investors should be aware of is any place that you have the ag index, which is core fixed income, about a third of it is exposed to mortgages. And mortgages are short options and short volatility because U.S. homeowners are long the option to prepay whenever they want. So

owners of those financial mortgages like the ag are short fixed income volatility. So it's just really important to know what you own, especially when we go into a quantitative tightening phase. Yeah. And homeowners are not really exercising those options in great numbers because rates are higher. That's one of the reasons that not enough mortgages have rolled off the balance sheet. So it leaves the Fed in that position as it is. We'll see if they decide to do some selling. They haven't said so yet. We'll see next week, Nancy, if that's any clearer from the Fed. Thanks very much for the time. Thank you, Mike. All right. We will have full coverage live from Jackson Hole next week.

Catch it starting Thursday right here on CNBC. Up next, the energy trade. Oil topping $90 a barrel again, and our next guest says this breakout is just getting started. Former Aramco exec Saddad Al-Husseini joins us straight ahead. Just a reminder, you can catch us on the go by following the Closing Bell podcast on your favorite podcast app. Over time, we'll be right back. Energy, one of only three positive sectors this week as oil pops back above $90 a barrel.

Our next guest says there's a high probability of higher oil prices returning before the end of the year. Joining us now is Sadat Al-Husseini, founder of Husseini Energy and a former EVP at Saudi Aramco. It's great to have you. Sadat, why do you think that the market is poised to firm up from here? We've obviously seen, you know, a little bit of a demand response in terms of U.S. gasoline. And we've obviously had the United States adding supply, the government, with the SPR. What's going to turn it? Well, good afternoon, Mike. Yeah, there are big changes happening. We're in a new world in the oil industry. Maybe that's not felt so much in the U.S., but internationally there is a lot of turmoil. And the big things that are coming up, one is, of course, the embargo that is being placed on all Russian oil exports. That kicks

in in December. And then after that, in February, there's an embargo on all products as well. And at the same time with that, there is a ban on using all the ships, any ships that are either insured by the OECD or financed that are carrying oil that is Russian origin or products are Russian origin. So what you're going to have is a loss of about three million barrels of oil and 2 million barrels of products coming up. And that's maybe around November it will start. However, before that happens, I'm sure many who are involved in the either physical or financial market will start thinking about taking a position. So if you're in the physical market, you'll be building inventory. And if you're speculating or hedging or looking out for the future opportunities, you'll be

in the paper market. So those are realities. And that's a lot of oil that's going to come out for sure. The Europeans, of course, have a real issue in their economy, and there's no doubt there's a recession there. But China by that time may well have recovered. And China today is consuming about 13 million, 0.3. But by the end of the year, they may well be back at 14.5, which is where they normally

are. So those are all important factors that I think will reverse this soft market and bring it back up to where it was a few months ago. You know, it's interesting because if you look out, I mean, right now, the Brent futures curve, it's sort of prices are slightly below the spot rates at this point. So, you know, they're staying supported, but they're not showing a big premium. And what about the idea that, yes, we have the embargoes coming and yes, there have been restrictions already, but one way or another, Russian oil, Russian products are making their way onto the global market, even if not to those buyers that are going to be enforcing

an embargo? Well, there was a six month period where they could manage. And, you know, the Russians have a huge fleet of VLCCs, so they could manage a lot of their shipping. But starting around the end of this year, those ships will not be usable. In fact, quite a few of them are already at anchor and not working because countries don't want to deal with anything Russian or anything carrying Russian products. So I would not use the past six months as an indication of where we're headed. We have seen demand increase. We have also seen slight supply increase. But look, OPEC is already doing the most it can, another half a million barrels perhaps.

And who else is going to deliver oil? Iran has serious problems in its negotiations. They can't move forward. And you're going to have a lot of switching of gas with oil just because gas is so expensive, what used to be the LNG, but also the pipeline gas. So there'll be demand for oil in that sense. People don't want to use coal if they can get away with the liquid that is less damaging. And incidentally, the Freeport fire in the U.S. took 2 billion cubic feet of gas out of the international markets.

And to top it up, U.S. gas supplies have been flat for almost a year so what's left oil and higher prices yeah i mean and that's in a in a year when there have been essentially zero hurricanes or disruptions of that sort luckily you say that you you would expect all these factors to build back toward oil near the highs we saw a few months ago. At what level do you see there being serious demand destruction globally? Well, you have different markets and they have different tolerance. There's also different levels of subsidy. I would hope that we don't go much higher than 110 or 115 because it's not in the interest of the oil industry. It's certainly not in the interest of OPEC and others.

It destroys demand, as you're saying. And at those levels, people will try to just save, economize, be more efficient with what they have, but at the same time use less energy. So cheaper energy is actually better for the industry. Of course, it has to be affordable and sustainable. But hopefully we won't see it as high as it was. But, you know, there's so many unpredictable events happening. There are, and certainly much higher prices, not comfortable really for anybody, supplier demand side. Siddharth, thank you very much. Appreciate your time today.

My pleasure. All right, up next, we're wrapping up a busy week on Wall Street. Steve Kovach standing by with our Rapid Recap. Hey, Steve. Yeah, coming up on Rapid Recap, a major average falling after a four-week winning streak, plus Bitcoin dropping again, and we'll show you just how far, and we'll tell you the key earnings reports to watch out for next week. All that when Closing Bell Overtime returns after this. We're wrapping up another busy week on Wall Street. Steve Kovach is here with a rapid recap. Hey, Steve. Hey, Mike. Yeah, major averages down for the week with the S&P 500 breaking its four-week rally, S&P ending the week lower 1%, Dow dipping slightly negative, and the tech-heavy Nasdaq performing worst of all, down more than 2%. Dow components showing

mixed results this week, Cisco up more than 4% for the week, Walmart up over 3%, but Walgreens down nearly 6%. And crypto also having a rough end to the week. Bitcoin down 8% today, trading around $21,000. Others, like Ether, down about 9%. And finally, earnings season, we're not done with it yet. Next week, more earnings are coming from Nvidia, which already gave a negative outlook for the year due to that slowdown in gaming, and Affirm, which is about to face new competition from Apple's Buy Now, Pay Later service, which is expected to launch next month. Plus, we're going to get more insight on the consumer as retailers like Gap and Macy's report their quarterly reports.

Mike? All right. We'll look for all of it, Steve. See you next week. Have a good weekend. And up next, our two-minute drill, an under-the-radar retail play that has one money manager betting on a baby boom. And coming up at the top of the hour, the Fast Money crew is setting the table for another big week of earnings. And later,

don't miss a CNBC special, Battle for the Consumer. That is tonight at 6 p.m. Eastern. Overtime will be right back. Last call to weigh in on our Twitter question. We want to know which of these companies reporting results next week looks most attractive. Zoom, Peloton, Salesforce, NVIDIA. Head to at CNBC Overtime to vote. We'll bring you the results plus our two-minute drill after the break. Welcome back to Overtime.

Let's get the results of our Twitter question. We asked which of these names reporting results next week looks most attractive. Most of you saying NVIDIA with about 57% of the vote. The love dies hard with that growth bellwether. It is time for the two-minute drill. Joining us now is Mark Travis, Intrepid Capital President and CEO. Mark, good to have you with us today. Real quick before we get to your picks, I mean, are you taking comfort in this little rebound we've seen in the market or a pretty significant rebound or are you still suspect of the prospects

for the market here? Well, Mike, as all the previous speakers have said, we've had a nice rebound off the June lows. I'm hopeful as a small cap equity investor, the market's starting to broaden out a little bit and look for things outside of the NASDAQ and the S&P 100, which is really where we've focused. And I think we have a few ideas here for the viewers that make sense in this environment. So I'm- You do a little bit off the radar. Yeah. So let's talk about those picks. Carter's, a retailer, children's and baby clothes.

What do you like about it? Well, it's the dominant clothier for babies. You've got a couple things going on. They've reduced their SKUs and their store count. They're more efficient now. And you've got, obviously, places like Target destocking. But counterposed to that, you've got obviously places like Target destocking. But counterposed to that, you've got kind of a baby boomlet. You also get, like I like to say, paid to wait with a three point six percent dividend, which is, you know, frankly, over two X the S&Ps, which is about 150 basis points.

So that's right. It's defensive characteristics in this environment. An energy play, Civitas Resources, we don't talk about too much. Tell us about it. You know, Mike, it's interesting. It seems like every week people talk about the only sector that's working in a bad week is energy. And we think this business has done a great job. They've got more cash than debt. It's about a $5.5 billion market cap. They pay a special dividend. If you look at their dividend since year end 21, it's gone from $0.46 up to probably $1.40. They're committed to paying out over half their free cash flow. And it's just a defensive energy pick.

They're in the Denver-Julesburg field, north and northwest, northeast of Denver. Gotcha. Now, Valvoline, auto service and parts, actually been a pretty resilient part of the economy and the markets. Talk about this one. Well, Mike, as you know, people have had a hard time getting new cars through the chips, lots of reasons. Inflation in used cars and hard to find new ones means you've got to maintain the old ones. I think the American fleet today is around 11 years, but this business of oil lube and filter basically is growing double digits in their same store sales as well as their store count. And they've divested the more traditional,

well-known lube business, the Saudi Aramco. So we think they'll use that cash to pay down some debt and buy back shares and drive value higher. Although we now have a 1% tax on buybacks. Yes, we do. I don't understand how that makes any sense, but we can talk about that later.

Yeah, we'll talk about that one another time. Unclear if that's going to have a big impact. But Mark, thanks again. Appreciate the time today. All right. That does it for overtime. Fast money begins right now.