Closing Bell - Closing Bell Overtime 8/29/22

Episode Date: August 29, 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.

Sir, thanks very much. Welcome, everybody, to Overtime. I'm Scott Wapner. You just heard the bells. We're just getting started in just a little bit. I'll speak with Canter's Eric Johnston, who's gotten even more bearish in recent weeks. Is that caution warranted or just too negative? We will ask him and debate his conservative call. We begin, though, with our talk of the tape, the road for stocks now that Jackson Hole is history and whether the lows of mid-June are likely now to be revisited or avoided. Let's ask Trivariates' Adam Parker. He is with me right here on set. It's good to see you. Thanks for coming in here.

Yeah, thanks for having me. So the Post-PAL playbook in your mind is what? You know, it's a little bit what we talked about last week, right? Not going to be surprised if they're hawkish. CPI is going to stay high. And estimates for next year are way too high. So, look, we got a rally that was positioning and sentiment, but I don't think the fundamental supporters we talked about last week, and I wouldn't be surprised if, you know, risk-reward was skewed to the negative

over the next few months. I don't know about June lows. I know you like to nail me down on that. It's tough to call, but I think risk-reward is not great right now with estimates that are way too high. So I want to get your reaction to something that Neil Kashkari said, Minneapolis Fed president, because I feel like this is telling on not only where we are, but where we might be going. He

said the following in an interview today. I was actually happy to see how Chair Powell's speech was received. People now understand the seriousness of our commitment to getting inflation back down to two percent. Do you think people truly appreciate what's coming down the pike from the Fed or no? I don't know. I mean, this says no. Yeah. I don't know because these guys were buying billions of dollars of mortgage-backed securities when the housing market was on fire and every MSA. So I don't know what the Fed's going to do. What I do know is CPI is going to stay high because owner's equivalent rent is a third of CPI. And people can't afford to buy houses right now, so they're renting.

And it's propping up rents. Talk to anybody you have on the show who rents out properties for a living. They're going to tell you we're taking 1% per month price increases. So the point of that, Scott, is it's going to be sticky. CPI is going to stay high. It's going to take a while to roll over. And if the Fed's reacting to that CPI, yeah, they're going to stay hawkish longer than people think. Well, I hear Kashkari and I say, I hear in my ear, don't fight the Fed. Yeah. Right. Isn't that what he's saying?

He's saying fight the fact that we are serious in our commitment to getting inflation back down to two percent. Now, the question is all timing, right? I mean, they were comfortable running way below two percent for a decade, and as long as they had us believing deflation wasn't the issue. So the question is, can they run above 2% for a few years as long as we believe inflation's rolling over? Then maybe markets can be okay. And I think people believe that a little bit in the rally because they thought, oh, CPI print wasn't as bad, earnings were a little bit better, maybe there's a fundamental reason to get a little more excited. And that was sort of the support for the narrative. He took aim at that, too.

He said, I certainly was not excited to see the stock market rallying after our last committee meeting, because I know how committed we are to getting inflation down. Right. And I somehow think the markets were misunderstanding that. And that goes back to where we started in the first place. Yeah. If you, I mean, there's still a belief that the Fed's not going to be able to fully do what they say because the economy is going to weaken too much

and they're going to have to pivot. Kaskari essentially says don't believe the hype. Yeah, I wouldn't fight what he's saying. I agree with that notion. I think they will remain hawkish. And I think the CPI has got a long way to go. Now, whether they can crush the economy to get 2% CPI next year is a different debate.

I think they'll start seeing the edge come off of things that were supply-driven from COVID, semiconductors and stuff we've already seen, production catch-up. And if you look at NVIDIA and Micron and other guys who've reported. So some of that was COVID-induced supply side. But I think inflation can't get to 2% unless the economy is way, way slower. And as we've talked about, nominal GDP of eight could come down a lot further. So I think that when I look at the stock market, obviously I focus on estimates and stocks and how to outperform. I see estimates as way too high, particularly for consumer areas where the numbers are still double digit earnings growth next year. And that's what's got to come lower.

That's your guy, Mike Wilson's point of view, right? He's still like, you could take, throw anything you want at me. It all comes down to earnings and earnings estimates are still too high. And the numbers are wrong. Look, the numbers that the street is going on now are wrong. They're way too, they're way too high. I do think everyone knows that. I think the question is, can earnings actually grow next year or not? The sell side numbers for next year are $243 in earnings for the S&P 500. I think the real number will be closer to 215, right? So the question is, what do I pay for the 215? Do I believe 215 is a trough that can grow from there? And so you can get fits and starts at market rallies, but the market looks like to me, it's about 19 times actual earnings, not the 16 and a half, 17 times that are in the

sell side number. So I think the numbers have to come lower. I'm not saying that the market's going to collapse. I think the stocks you want to avoid are the ones that have a big hockey stick in the estimates for next year and have above average multiples because they could see that old double whammy of lower multiples and lower estimates. What do you think is in the market now in terms of what it expects from the Fed and how slow it thinks the economy may get? Is a lot in or not enough? At least in stock prices. Forget earnings, but stock prices. So I think the multiples assume that, you know, and you can look at this in the bond market. I think the equity guys I talk to all day are a little bit different. I think they mostly think the Fed will act a few more times and then pause,

maybe even have to sort of, you know, totally put the foot on the brake by the second half of next year. I think that's what most equity investors think. I think they think earnings are too high, but there's things I can own. And so they think the risk rewards may be flattish for the market. That's a general case. I don't think most investors are saying I'm positioned for a downturn from here. At least the people I talk to, which are mostly CIOs and portfolio managers of big funds.

What about technology? I'm looking at the Nasdaq's down. The biggest loser today was down a touch more than 1%. I had Glenn Kacher of Light Street on halftime today, asked him what the current environment feels like to him. He called it a chance to buy some stocks that are down a lot. Listen. This seems like an incredible buying opportunity for our industry. And so we're incredibly positive and we like the portfolio that we have built to come out of the current

environment that we're in right now. We're kind of bouncing along the bottom here and expect that ultimately when investors decide to come back and take position more positions in this sector that we're in the right stocks that are going to benefit greatest from from that uh from that re-rating we think about that he's a notable tech investor he's got a lot of software stocks uh other tech related things in his book yeah it's tech okay to own here what i would say is of the 24 industries in the market, gig industries, the most macro today is semiconductors. The second most macro is software. So maybe people are bottom-up stock pickers in software, and they've had success doing

that in the last decade. But today, macro signals describe software performance more than ever. And so maybe more than he realizes, that call is a macro call. It's one that rates are not going to rise very much. It's one where the Fed is going to get dovish from here. That's what's in the price because those stocks, that industry is trading on perception about interest rates. So I don't agree with that call. If it's a multi-year call, then sure, you know, we'll have some, you know, cyclicality with an upward slope. Well, of course, it's of course, it's a multi-year call. But that doesn't mean that you still can't get into some of these stocks at a more even re-rated price.

Yeah. My view is the risk would be skewed to the negative for businesses that, you know, don't generate a ton of cash flow today. All right. Let's bring in or expand the conversation and bring in CNBC contributor Shannon Sikosha of SVB, a private and Malcolm Etheridge of CIC Wealth. It's good to have you both with us. Let's weigh in on this. So, Shannon, is Kacher right? Is now a great buying opportunity for his industry, which is tech or is AP Adam Parker correct? Well, you know, I hate to argue with Adam at any time, but I am going to argue with him a bit here. I think that it depends on the type of tech. I actually don't disagree with what Adam just said right at the end of his comment in terms of companies that aren't generating a lot of cash flow here.

I completely agree. and buy a bunch of technology companies or you know even tech adjacent I'm health care I communication services any of those industries where you're relying on the fact that you have five to ten years in the future I love you know double-digit I revenue growth but you're not generating a lot of cash and or profitability right now the thing I would say Scott is I'm doing a lot of work right now looking at enterprise spending, reading calls, reading reports, reading surveys. And major enterprises, not small and medium-sized businesses, but large enterprises are not seeing a decline in enterprise spending right now. So I think if you're interested in tech, you really need to look at where are those customers coming from and what is the likelihood that they're not going to continue to order.

That technology is what you need to be focused on now. I wouldn't be taking a flyer on anything that's not profitable or, as Adam said, throwing off a ton of free cash flow in this environment. Now, the retort to that, I suppose, could be, well, as the Fed chairman told you, a lot of what they've done to this point and will continue to do takes a long time to get through the system. Shannon's right. There has not been a big drop off in enterprise spending at all. And CFOs, CEOs who come on the network from major technology firms have said as much. Yeah, she didn't say anything I disagree with, actually. You know, I think it's all about what kind of tech. If you're trying to beat the S&P 500 on the long side, right, you still have to own 25 percent of your portfolio in tech, right? If you're a little bit underweight,

it's in the low 20s. So I can be way overweight energy and still own way less energy than I do tech. And you're going to want to own some tech names. But I think what the key is going to be, do they generate cash flow? They have above GDP growth, or is a ton of the value in the terminal value? The problem is, Scott, 43% of all software companies that do $500 million or more in revenue lose money. All right, now you and I might not be the smartest guys in the world, but if we started a software company, we're making money with $500 million in revenue, signing in blood. So I think those are businesses I want to avoid, whereas the ones that maybe Shannon and I are talking you know, above average growth, pretty good cash flow characteristics and probably have been reset meaningfully this year. So we're probably in agreement. Okay. Malcolm. Yep.

Yeah. I would just add to that a little bit of a caveat to what Shannon's saying in the sense that if we're now at a place where we're concerned about enterprise contracts becoming a bit of a problem, it kind of makes the case for why mega cap tech is the safer place to be in the tech trade or the least dirty sock in the hamper, if you will, simply because the larger companies like a Microsoft, a Google, for example, they've also got federal contracts that buffer some of these downturns in the market and that enterprise spending that ebbs and flows a little bit depending on where the markets are, where federal contracts are for, you know, five years, decades long sometimes, and they don't really have a lot of wavering in there. So you've been fairly cautious, Malcolm, in our last conversations. I mean, I think you were on

the day that Tom Lee was on with us, and you kind of called him out right to his face. Are you still cautious? I'm curious as to what you make of what Kashkari says. Just to rekindle that for people who who may have missed that or you didn't hear it yourself. He was happy to see how Chair Powell's speech was received. He says, quote, People now understand the seriousness of our commitment to getting inflation back down to two percent. This is a guy who is known as one of the most dovish people on the Fed, sounding like he's got like five hawk suits on. Yeah, I wouldn't be surprised to suddenly hear that two percent number waiver and start to turn into three, maybe three ish. Maybe it's got a four handle. We'll see when we get there. I wouldn't be surprised to see the Fed move off that 2% number and not too far in the future they

start to get those flyers out there. But I do agree it's a little bit curious why the market is reacting the way it is to Powell's remarks, considering what he said was precisely what you expect to hear a Fed chair say during a period of high inflation, right? There were no real surprises in his delivery, nor the words he said. So the expectation that so-called peak inflation will immediately and obviously mean the Fed takes its foot off the gas is probably misguided, right? Each Fed governor and Jerome Powell alike has mentioned a series of downward moves in CPI is what they're looking for before making any adjustments to their outlook.

So it's more realistic that they overdo it than they take the risk of declaring mission accomplished. And simply because we have one or two months where inflation looks favorable, we say, oh, it might be cooling. And, you know, they're going the other direction. It's not like what Powell said. Chairman Powell said Shannon on Friday was so new and different. It was the starkness of how he put it. And he channeled Volcker. He mentioned him by name. It was a reminder to everybody who's trying to paint a different narrative about the Fed of how resolute they are going to be. When you are a Fed chairman and you talk explicitly about pain being felt by households and businesses, I don't know how much more direct you can be. And that's kind of the point that Steve

Leisman made from Jackson Hole on Friday. Like, what more evidence do you need? Yeah, but to Steve's credit, he would have said that the last two pressers as well. You know, he has been nothing but clear. And I think Powell, what he realized is that he's actually been a very good communicator. People may take issue with the Fed's lack of action last year and, you know, the fact that they were not anticipating additional supply chain restrictions, especially out of China. But with the intent of his speech to be, let me just clarify, the fact that he used as few words as possible, I think was pointing to some of this nuance that's been applied in the prior two press conferences.

And again, I think Joe said this a lot on the show, and we talked about it. You know, if you were expecting that September, October pivot, they really didn't give you any reason to expect that. And I think this was an important point as we move into the September meeting. I think Powell's comments on Friday were particularly important. If you think about the 75 basis point camp, Scott, you know that I don't care whether it's 50 or 75. I know we're going to get to three and a half by the end of the year, but I think it was important for him to say it concisely and effectively and efficiently so that there could be very little nuance applied to this afterwards. I think he definitely nailed his intent. Yeah,

there was no nuance, that's for sure. And did I hear you say earlier, Shannon, that you did not necessarily like health care here? Because I'm staring at some notes from Adam Parker, who suggests that health care could be the new market leader. So I know I heard you right. And Adam Parker, did you hear that too? I did. You know, we like health care. I think there could be some new leadership in the market going forward. You know, I focus on stocks, so I'm not really sure where the Fed ends up and all that language.

What I do know is that when I break down the health healthcare sector and compare it as sort of a portfolio manager mindset, that a lot of it just looks like better estimate achievability or more compelling valuation or better risk reward. So take three areas, biotech versus software. They're both speculative, but biotech I think is a lot better risk reward. So if you're a hedge fund and you can run market neutral and you want some hyper growth risk on exposure, I'd rather own biotech than software. If you're looking at services, consumer services just had their best growth they've ever had. They're over-earning because of COVID and the COVID recovery. I'd rather own healthcare services. Some of them be good like HMOs, but some haven't, right? Because I think that'll be above the GDP growth and pretty solid. And then if I look at like more defensive stuff,

staples look crazy expensive to me, whereas I'd rather own, say, pharmaceuticals. Some more dividend, probably steadier growth. So I can find as a PM sort of I don't have to make a massive growth bet or value bet. I can kind of work my way around. So I think a lot of health care looks pretty attractive. That doesn't mean I love all the health care suppliers or tools or whatever. No, believe me, I'm looking at like at least a dozen short names that you have on your list out of the health care universe, too. But Shannon, I mean, that sounded to me like a thoughtful and well-articulated reason on a number of fronts about why health care works. Yeah, and I would say, Scott, to be clear, I like certain parts of health care.

I disagree with Adam. I don't like biotech. And so that's really what I was talking about earlier or, you know, very high-priced life sciences companies. I love the HMOs. We have had significantly increased exposure in services and instruments, right? You know, with procedures ticking up. I own Stryker. You know, I think there are opportunities. I want to stay away from those on-the-edge life sciences, very high valuation, low profitability businesses, even though they're in the health care sector. Malcolm, your favorite area in the market for somebody who said to our producers today, and I quote, I don't really love anything right here

in this market. So even given that caveat, what do you think is best? And if it is the best or cleanest sock in a dirty hamper, what is it? Yeah, you know, it's going to be tough for me to move away from the tech trade. I firmly believe that tech has been justified in a way, considering earlier this year when we hit the the the lows and tipped into a bear market. All of a sudden it became the conversation of maybe this is that rotation finally away from the tech trade and into something like a health care that's more likely to have greater earnings potential. And then where do we find ourselves when it's time to recover from that bear market, if not led by tech once again, by names like an Apple and a Google and Microsoft to own 25 percent

of the S&P's real estate. Right. So I just think it's really tough to move away from that tech trade right now in a market where everything, whether it's a positive day or a negative day, is being led around by the same five or six, you know, mega cap tech names. It's really tough to let that one go. Last comment from you. I'm thinking energy, and I just want to get your opinion of it because you've loved it. Yeah. And I'm seeing, you know, crude's approaching 100 again. Yeah, we like health care. We like energy and metals. Just 30 seconds on Shannon's comment. You know, I don't know if we disagree. I don't want to own the crazy stuff. So I pitch it as neutral to hyper growth. If I'm short, crazy software,

I'm long, crazy biotech because I think the risk reward is better. Within biotech, you guys talked about on your program a couple of weeks ago, lots of companies have negative enterprise value, meaning they have more cash than the whole stock's worth. We did some work. It's in today's note. It's in Shannon's inbox. You know, they actually underperform subsequently. So I think you can own the biotech with positive EV and some better growth trajectory. So there's ways around it. We're obviously focused on risk management at Trivariate.

So obviously, it's not a crazy, let's go crazy biotech call. It's more, hopefully, what you said, thoughtful. OK. Thank you for that. It was. I thought it was. Check the inbox, Shannon. We'll discuss later. You get back to AP. All right. Connect you guys. Malcolm, it Okay. Thank you for that. It was. I thought it was. Check the inbox, Shan. We'll discuss later.

You get back to AP. All right. Connect you guys. Malcolm, it's great having you as well. Shannon, you too. I'll see you soon. AP, thanks for being here. Thanks for having me.

All right. Let's get to our Twitter question of the day now. We want to know which of these tech stocks swept up in the recent sell-off looks most attractive right here. Is it NVIDIA or Google or Apple or Microsoft? You can head to at CNBC Overtime on Twitter to vote. We will share the results later on in the show. Up next, extremely bearish with high conviction. That is the big headline today from Cantor's Eric Johnston.

He sees even more pain ahead for stocks. We're going to press him on that call. Overtime's back in two minutes. Welcome back to Overtime. Stocks are likely in for more pain ahead as we head into September and beyond. That is the big call today from Cantor Fitzgerald's Eric Johnston, who joins us now. And for those who are familiar, it's good to see you again. Now, this is nothing new. You, aside from a brief moment in time where you were looking for a rally in the market, have been decidedly negative for at least a few months, if not longer. But why what I want to feel like is tripling down now, extremely bearish with high conviction. Why? Scott, good to see you.

And yeah, we've been bearish since January, early in January when the S&P was at 4700. So the reason why our conviction is so high right now is for a few different reasons number one is we need to listen to what the Fed is telling us I thought Friday's speech was exactly what it needed to do and I think was very important the person that holds the keys to the castle is telling us that growth will be below trend for a sustained period, households will feel pain, businesses will feel pain, and that this is going to be an unemployment rate is going to rise. That environment is not good at all without stating the obvious for equities. So then the question is, okay, is it priced in already? And not only is it not priced in but valuations of actually are

actually well above trend because of the move in interest rates we have a Fed funds rate that's going to go very shortly to a 15-year high the two-year yield is a 15-year high and yet if you look at the multiple multiples trading at 17 times earnings the 20-year average is 15. We hit 14 in 2018. So valuations are on the higher side. And the final point I would make is that from an estimate perspective, you might say, oh, have earnings bottomed,

and it is what he is saying already price into estimates. It's the exact opposite. Our earnings are at well above trend and are towards the end of the cycle. And even whether you think that there's a lot of downside to earnings, which I do, even if you don't think that, there's certainly no upside. I think we can all agree with that. And so the dynamics in the market are just not friendly right now. And finally, the sentiment and positioning is no longer a headwind for our view. And that's really important. Okay. So the pushback on your view, I frankly find difficult.

I mean, it's conventional wisdom. Fed titans don't fight the Fed. The Fed has told you explicitly what it's going to do. And for the non-believers, Powell whacked you upside the head on Friday just to make sure you were getting the message. Kashkari, as I read earlier in the show today, underscores that. I'm not sure if you heard his comment or not, but he basically said he was happy to see what happened after the Powell remarks, because it gets everybody awakened to the view that they are going to be resolute in getting all of this taken care of. So I hear you, but I want you

to hear Tom Lee, because there is pushback, not from many, but from some, including him. Listen. There's, I think, a misconception that just because the Fed is raising rates, markets have to fall. It really depends on how much is priced into market expectations already. If you look at the rates markets, it's already priced in the Fed being pretty aggressive into year end and actually even staying pretty tight throughout 2023. That speaks to your point of what you're trying to say, but how do you respond to Tom Lee? He's no dummy and he's not the only one with that view. Sure. So I think from the rates market perspective, I think it's mostly priced in. But it's not priced into the equity markets.

And I think the point that you were also making in the beginning of that comment is, isn't this known? Well, I think if you look at positioning and you look at the individual's allocation to equities, the individual is still close to historic highs. Okay. So the individual investor has not sold at all. And we know over the last two years, they've added somewhere between one and a half and $2 trillion to equities. They still have not sold at all. Institutions, their positioning has, you know, has come down. But I think that's where a lot of the supply can come going forward. And I would just ask, when you think about where we were post the pandemic, we traded at 22 times earnings. That's when the Fed funds rate was zero. We were buying 4 trillion of assets.

The 10-year was 50 basis points, and we were on trough earnings. Now we're at 17 times. And so where is the upside to that when the 10-year has gone up sixfold, the two-year is up tenfold, and we're starting quantitative tightening and we're towards peak earnings. So I just don't see from a risk reward perspective, the reward is incredibly limited. And the risk, if I can just walk through some numbers, because I think to say, I think we're going to the low 3000s, as I've told you, if we trade at 15 times earnings, which is the average multiple from the last 20 years, and you assume that next year's earnings go down by 5%, which based on what Powell is saying on Friday, doesn't seem, and where earnings are,

doesn't seem that heroic. That's $3,200 on the S&P. So we have numbers to back up why we think that can happen. I'm sure you do. I'm sure you do. And then others would have numbers, too. You know, technically speaking, that suggests when you get more than 50% back from what you lost, you typically don't go back. So, I mean, I get it. There are numbers and there are points of view on both sides. It sounds to me like you need for your for your thesis to to work even more so. You need the 10 year yield to start going up a fair amount and you need retail to start moving out in a fair amount as well. And unless that happens, you might not get what you think is going to occur. So I would comment on the 10-year yield.

So the Fed funds rate is likely going to 3.75 to 4% minimum. And so if you look back at where the 10-year yield has traded relative to the Fed funds rate, in the last 40 years, it has not been more than 1% below the Fed funds rate. And so if you, right now the market's price again, essentially a 4% peak rate, it's gonna be very difficult for the 10 year yield to go below 3% on a sustainable basis.

And then clearly on the upside, it could run away to the upside with quantitative tightening getting to 95 billion in September. And I would also say that the short-term dynamics for the next month are not great because the September seasonality is very negative. Quantitative tightening is going to 95 billion next month

from where it is right now, which is 45 billion. The ECB is going to be continuing to tighten and is actually going to accelerate. We're going to get that data in a couple of weeks. And then lastly, I would just say we're going to have investor conferences. Corporations are going to speak at all sorts of conferences in September. And that's where we'll be two and a half months into the quarter. We could see some negative pre-announcements based on some of the recent data. All right. We'll see. I mean, because, again, there's another perspective on that, too, from Chris Harvey of Wells, who thinks that that's going to be the last great trade of the year.

But we'll see. We'll have you back. We'll discuss. I appreciate your time, as always, and I really enjoyed the conversation. Eric Johnson joining us from Canter. Up next, a big call on the financial star analyst Mike Mayo says the banks are recession ready and earnings will be better than feared. He'll make that case straight ahead and later a stealth way to play the big boom in natural gas prices. We're going to break it down in today's two minute drill. O.T. is right back. Welcome back. It's time for a CNBC News update with Shepard Smith. Hi, Shep. Hi, Scott. From the news on CNBC, here's what's happening.

Some of the documents that the FBI removed from Mar-a-Lago may contain attorney client privileged information. That from the Justice Department today in a Florida court filing. The judge who requested the information deciding whether to approve a request by former President Trump to appoint a third party special master to review some of those seized documents. A hearing now set for Thursday. At least 10 people are dead and more than 100 others injured in Baghdad after the influential cleric Muqtada al-Sadr said today he's leaving politics. After his announcement, hundreds of his supporters breached the barriers at the Green Zone.

Iraqi security fired on them, a nationwide curfew now in effect in Iraq. And NASA's Artemis 1 rocket mission scrubbed for launch today at Kennedy Space Center in Florida. The uncrewed test mission around the moon hit with a number of engine and fueling problems during the countdown, the next possible launch Friday. Tonight, Ukraine launches a long-awaited counteroffensive against Russians on Ukrainian soil, plus a new kind of scam costing people millions. And we're live at the U.S. Open as Serena Williams makes her final run in flushing on the news, right after Jim Cramer, 7 Eastern, CNBC. Scott, back to you. All right, Shep. Thank you. We'll see you then. Shepard Smith. Financials under pressure this year, down 14 percent as a

group. However, our next guest is seeing big upside for the banks. He says they're recession ready and earnings will be better than expected. Joining me now as Wells Fargo Securities, Mike Mayo. Thank you for coming in. It's nice to see your first trip back here in quite a while, right? My first trip back here since pre-pandemic. All right. Well, it's good to have you now. So banks are recession ready. That's great. It's like I'm ready for a thunderstorm. I have my umbrella that doesn't make me want to run out and play golf. Why should I buy the bank stocks just because they're recession ready? Well, first of all, what do you think of when you think of banks and recession? What's the first thing that comes to mind? Like know you can probably say, like, what, global financial crisis?

Exactly. Bingo. You got the answer right. And that's what a lot of investors and money managers think of. They think recession, banks, global financial crisis, sell them all, forget it. They're going to blow up. Well, the regulators stepped in after the global financial crisis and de-risked banks materially. And we try to sum up, we have a multitude of numbers, hundreds, thousands of numbers, but it all comes down to three numbers.

And we see banks having improved the level of their loan losses by one-fifth, the level of their leverage by one-third, and the level of their liquidity by one-half. So we're talking about better losses, leverage, and liquidity. That's as clear as day. OK, so the banks are in great shape. Great. I mean, that and, you know, whatever will give me a ham sandwich. Why does that make the stock prices go up? Well, you've had how many strategists you have, macro thinkers, big picture economic economists

types have you had on your show in the last year? Probably more than you had in the prior decade combined. I mean, yes, you're right. When the banks report earnings, it's good. And they've outperformed by 200 basis points versus the market since they reported second quarter earnings. And then you get all the big picture macro thinkers saying, look out for the recession. Well, if there might be a recession, that's fine. But here's a big takeaway. And this was the result of months of research on our part. Banks should grow earnings during the next recession. I will repeat that because that's an important conclusion. Banks will grow earnings through the next recession. Now, I'm not I'm not talking about a hard landing.

I'm talking about a run of the mill recession because the de-risking should mean lower losses for the banks. A lot of the most risky loans are not in the banking industry anymore. And the other factor is a tailwind, a half-a-century tailwind from the growth in traditional banking revenues, Main Street banking revenues. So you get this growth in what's called net interest income or Main Street banking combined with lower losses. And you're going to see bank stocks grow earnings in a recession so long as it's not a hard landing. OK, let me make sure I'm clear on what we're talking about here, because when you go out of your way to say Main Street banks, I don't think of the big banks that you cover down on Wall Street. I think of more regional banks that you are alluding to or implying that they can do well during a recession. Am I right or am I off on some island somewhere? Well, look, the Federal Reserve stepped in for all large banks.

You have what's known as the Fed stress test. And I'm usually on your show around that time, you know, once a year. And so the Fed is looking over the shoulder of the banks and penalizing the banks the minute they have, you know, higher risk loans. Every year they're penalized and that's forced them to de-risk. So but we just keep our theme Main Street banking tailwinds, Wall Street banking headwinds. But in terms of resiliency, the entire industry has gotten better. But you're right. Main Street banking, that's more, you know, our favorite is still Bank of America. They have a lot of Main Street Banking. They're America's Main Street Bank. And they have one of the strongest tailwinds from higher interest rates and loan growth and this de-risking benefit on the loan loss. But you still have buy ratings on, don't you still have buy ratings on the J.P. Morgan's and Morgan Stanley's and Goldman or at least on Morgan Stanley and Goldman Sachs.

No, I mean, look, our favorites here are Bank of America number one and then some regional banks like PNC and U.S. Bancorp. By the way, those two banks have our recession proven. They did great during the global financial crisis and other recessions. But we're over indexed to those Main Street banks, regional banks and especially Bank of America, which is more of a regional bank than they get credit for. OK, it's good to see you. Thank you again for being here. That's Mike Mayo joining us. Wells Fargo Security Day. You can get more market insight and advice from some of the most widely respected and influential investors at our Delivering Alpha Summit. I'll be there this year. It's in person and it is on September 28th in New York City. This is your final week to get early pricing.

You can head to DeliveringAlpha.com or scan the QR code right there on your screen. A great collection of guests always. Up next, doubling down on big tech. One halftime committee member just made this tech titan their single biggest holding. We debate that move in today's halftime overtime. And don't forget, you can catch us on the go by following the Closing Bell podcast on your favorite podcast app. We'll be right back. In today's halftime overtime, the Big Apple, Joe Terranova, saying earlier today he planned to buy even more shares of that stock at the close today, making it the largest company in the S&P.

I mean, it is the largest in the S&P 500 and the largest single stock position in his portfolio. My biggest personal positions besides JOTI, Northrop Grumman, Pioneer Natural Resources, I want Apple to be my biggest position. I will buy Apple on the close today. And then at some point in the future, I will buy the Q's. I'm still a buyer here. I still believe it is not in anyone's best interest to be a seller of equities. All right. That was Jyoti.

And true to his word, he did buy it. He tells us around $161.50. It is, in fact, his largest position. Good move or not? Well, I think one of the things to just caveat here is that I own Apple, but I own it underweight to the market. And we actually trimmed this back in May. There are two things to think about with Apple. One, are we oversaturated for the typical Apple user? We've seen excellent performance, outperformance actually, to the S&P 500 year to date. And that's not uncommon when we're going into a product launch. But there's this huge headwind in the form of China, both on

the production side and on the consumption side. Now, what I would argue is that that could also flip and be a meaningful tailwind for performance if we start to see a huge shift ahead of the National People's Congress in China. Wearables and services are obviously the two growth drivers here. But for me, I'd rather take a step back, be somewhat underweight, still a huge position, even if you're underweight, to the benchmark and see how things unfold in China over the next couple of months. Do you want to be underweight mega cap to the benchmark and see how things unfold in China over the next couple of months. Do you want to be underweight mega cap to the benchmark or is this a specific Apple call because of the challenges that you think they have?

Definitely a specific Apple call. I'm way overweight on mega cap tech. And actually, we were overweight Apple for a long time, Scott. We've trimmed the stock probably three or four times in the last 12 to 15 months. So this wasn't overweight for us for a long time in the portfolio. I think mega cap tech is great. Again, there could be an opportunity to go neutral to overweight and Apple. I just think this China overhang, it's so unpredictable right now what's happening with policy there. I really just don't want to stand in the way of that. Which is your biggest mega cap position? Is it Alphabet? Can't remember. It's still Microsoft. Despite a recent trim, it's still Microsoft. Yep. Which from a valuation perspective is a little bit more attractive. I'm not as valuation conscious as Jim and Jenny are,

for instance, but it is trading at a lower multiple to earnings. All right. I didn't reintroduce you at the top. That's Shannon Sikosha. Obviously, we'll see you again soon. Thanks, Shannon. We are watching some big moves in overtime. Seema Modi is tracking the action for us. Hi, Seema. Scott, Bitcoin moving above a key level in the OT. We are going to break down the move when overtime returns. We're tracking the biggest movers in overtime. Seema Modi doing that for us today. Hi, Seema.

Hey, Scott, we are watching Bitcoin in the OT, the cryptocurrency reclaiming that $20,000 level. The move comes after Bitcoin dropped to a low of $19,526 overnight. That was its lowest level since mid-July. And you may have seen oil today surge up 4%, but did you know it was the first time in a month that WTI traded above its 200-day moving average, a key support level? Brent crude settling above its 50-day for the first time since late June. And Tyson Foods is moving here, seeing a drop in the late trading session on reports that China is halting some meat imports after some pig feet failed to pass inspection. Shares are unchanged right now here in the OT. We're watching that one closely, Scott. All right, Seema. Thank you, Seema Modi. Up next, an under-the-radar way to play natural gas. We're

going to bring you the name in our two-minute drill. And last call to vote in today's Twitter poll. We want to know which of these tech stocks swept up in the recent sell off looks most attractive right here and right now. You can head to at CNBC overtime to weigh in. Is it NVIDIA, Alphabet, Apple or Microsoft? We'll give you the results coming up. Time now for our two minute drill. Joining us now nicole webb wealth enhancement group senior vice president good to see you before we do some stock picking i like to get your view of the market here and now where do you think it's going from here well we think there is going to be a continued trickle through effect of both interest rates and inflation we don't see this forecast

where we're at the forefront of the beginnings of an easing cycle. We think that's a ways out and that the Fed is going to continue its vicious attempt to slow inflation and hopefully bring prices back down to a manageable place before we go into a profits recession. Do you feel we're at risk of going back to the lows or have we come too far to go back quite that far? You know, I think there's still such a demand in this inflationary environment for the yield we're seeing from the flexibility and the nimbleness of balance sheets of strong corporations. We're seeing a lot of flows into aristocratic stock positions. So it's a little bit of a self-fulfilling prophecy at this moment in time. So perhaps not those lows, but we

do think that we are going to see continued adjusted expectations on a go-forward basis, and that we may very well push ourselves back into a problem territory. But all of that said, lots of buy opportunities beneath the market surface right now as well. Let's talk about some of those. Nike is number one on your list, at least on my list from you. I think, you know, obviously there are economic challenges that come into play here and certainly China. So why now? Yeah, I think a lot of that, the backdrop of the economic environment we're in has already been priced down. I mean, if you look at the share price year to date, we're trading now at 108 roughly. When we think about their business momentum, brands like Jordan, Converse, and then also the thing that excites me the most about Nike is that they not only have a full

price purchase model, but also they've already adopted a 40% of their businesses done through e-commerce, which excites us and kind of that forward movement. So we think that this backdrop is already priced in and we think they have the potential both in innovation and e-commerce to prevail the retail landscape going forward. Healthcare is popular among a lot of people these days for obvious reasons. Merck is on your list. Yeah, I think it's a completely underappreciated 120-year-old company. And when you look at it trading at 12 times forward earnings with a 3% dividend, yeah, it's had a great year so far. But we think that a lot of that is from the

defensive posturing. We also think from a free cash flow perspective that they can actually weather the storm of going off patent with their namesake drug. And we think their innovation pipeline is strong. So again, we like where they are and we think it's a great long-term hold for investors with a decent purchase price today. And quickly, Ferguson, why that way? Oh, I love it. It's our outside of the box growth on sale pick. This leading distributor has a lot of potential and it's under the radar for most investors as they just de-merge from their European operations. Their free cash flow, their balance sheet liquidity, even if there is an economic downturn over and above what we've seen in the

contraction in housing, we're seeing 60% of their sales actually in maintenance and repair. So we think that they won't behave as cyclically as others in this landscape. And in terms of tailwinds, we actually think that there is just simply an underdevelopment of single family homes. And so we think it's a great value purchase today. All right. We'll talk to you soon. Nicole, thanks. That's Nicole Webb joining us here in overtime. Up next, it's Santoli's last word. Let's get the results of our Twitter question now. The majority of you saying Alphabet is looking the most attractive right here out of interesting list of stocks, Microsoft, Apple, Google and NVIDIA. In fact, it is Google that wins with NVIDIA coming in second. Mike Santoli is here for his last word.

I feel like there are a lot of people on the same side of the boat, that boat being captained by your guy, Eric Johnson. Did you hear the comments from him? Yes, I did. And look, it's worked. The framework seems to make sense. It seems to be in tune. Don't fight. The Fed is so ingrained that why would you necessarily decide to go against that? I've been saying, as you know, that the June low seems plausible as a substantial low. It might it should be defensible. I'm very conscious, though, and I've said this all along, that if that were it, we would have gotten off relatively easy. Right. Six months, 24 percent downside after some great years. The three, five and 10 year trailing return of the S&P 500,

13 percent annualized for all those periods. The market doesn't owe you anything. It doesn't mean it has to go down more. The point is it wasn't some kind of great mega cleanse. It was just a reset, perhaps within a longer-term bull market. It's the time thing that sticks in most people's craws, not being long enough. I mean, going down 24% or whatever went down is not insignificant. It just happened fast for typical bear markets. It did. You know, going down 24 percent or whatever went down is not insignificant. Right. It just happened fast.

It happened fast. For typical bear markets. It did. Now, there's precedent for that. You know, there's some of these kind of cyclical bear markets that are like that. I think it's that, plus the valuations never got rock bottom. We only got down to 15 times earnings. That doesn't feel like it.

Also, we're in mid-tightening phase, right? And I think a lot of this, we got used to the Fed being in one position for years. Forever. Zero. And now we think it's going to be tightening forever. It's probably not. A lot of times they feather the brake and get off it. You've said that you still need it to be something really significant to go back and reach the low. It feels that way, yeah.

But, you know, things have turned pretty quick this year. You know, within a month's time, the whole story can go upside down. Good stuff. I appreciate it. It's good to see you here. Hopefully we'll see you at the Stock Exchange tomorrow for your last word. It does it for us. Best money begins right now.