Closing Bell - Closing Bell Overtime 8/5/22

Episode Date: August 5, 2022

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

All right, Sarah, thank you very much. Welcome, everybody, to Overtime. I'm Scott Wapner on this Friday. You just heard the bells. We are just getting started right here at Post 9 at the New York Stock Exchange. In just a little bit, I'll speak to Canter's Eric Johnston on whether it is time to throw in the towel on his call for a collapse in stocks. We begin, though, with our talk of the tape, whether a soft landing really is possible, and if so, if it's investors who should pivot to a more positive view on the markets in the months ahead. Let's ask Courtney Garcia, Payne Capital Management Senior Wealth Advisor and a CNBC contributor right here with me at Post 9. It is good to see you. So, all right, three straight weeks up for the S&P and the Nasdaq. Are you starting to think that a soft landing is a real possibility? Well, especially when we got such a strong jobs number like we just got, I do think that's becoming more and more of a realistic possibility, right? Because I think

the idea has been that it's been as good news as bad news idea, where good news on the economy has been bad news for the stock markets. Yet we got this really positive news showing that labor is continuing to be really tight here. Yet the stock market's actually a pretty muted response to this, which I think is just showing the idea that, yes, we might be able to bring down inflation and not be forced to recession because we have a strong labor force, which is great news. Yeah, I mean, what is it? Tom Lee came on with me earlier today and said the market's, quote unquote, benign reaction to the hot number is telling to him. It sort of speaks to the story that you're telling here. The market, you would have thought, would have every reason to go down, which it did, but it didn't stay down. That's his key. Yeah, it opened lower, which I think we all expected to see, but it very quickly by like nine before 10 this morning made up those highs, which I think that's what you're seeing is likely a lot of this negative news has already been priced in.

We've been talking about that so much where the markets are going to always overshoot things. They have priced in so much negativity here and any sort of positive, I think, have a lot more catalyst to run. And that's exactly what we're seeing right now. Yeah, the problem is, even if we do have a soft landing, we're not going to know about it for a long time. And the Fed is still going to be hiking. And those on the other side of your argument would say, there's no way that you're going to be able to hold up in the face of all that tightening.

How do you respond to that? Yeah, and I think what you need to realize is the markets are going to bottom sooner than the economy, right? So even if there is a slowdown of the economy, and this happened right in like March of 2020, the markets bottomed well before the economy did. And so even if we are in a slow down, the question is that the markets already priced that in. So when you're seeing a day like today where we get positive news, a very muted response, I think that's the idea is, are we going to go into recession? Maybe, maybe we're already in one. I'm not at that camp. But even if we are, it's likely going to be muted because of such a strong labor force.

And even then, the markets are probably priced a lot at the end. So if we have a muted recession or no recession at all, the markets are really going to take off. That's Jamie Dimon's point, right? He was speaking to NBC's Boston affiliate in the last 24 hours or so ago, said, I don't think I've ever seen a recession where employment is getting stronger, not weaker. Jobs are plentiful. Wages are going up. People have more money. They're spending more money. They have more money than they had pre-COVID. They're spending 10 percent more than last year, 35 percent more than pre-COVID. That doesn't sound like a recession to me currently.

It sort of goes to your point, throws cold water on the idea that we could already be in a recession if you just added 500,000 jobs. Yeah. And I like that you mentioned Diamond here because he's actually also pointed out how strong the consumer is. And they have, I think, a really good understanding of how the consumer and how their balance sheets look right now. He of the hurricane comment of a few weeks ago, right? We reversed that, right? And I think that's where we're seeing they're continuing to show that consumers are still spending. Labor force is strong. And seeing that they're showing that we're not seeing these high credit card balances, people aren't having these loan debt, not having issues paying back their loans. I think it all goes to show here that we are on a lot more positive footing than people have been fearing.

So I'm looking right now at the 10-year. Let's call it 285, OK? What's the problem if rates continue to go up? Is that the market's biggest near-term issue right now, or does it not matter anymore? Well, I think inflation is the big issue, right? Because that is going to mirror to a certain extent. But what we're seeing is it's not necessarily in the next three months it's happening, but six months from now, are we going to see inflation start to come down? And you are starting to see signs of that. And so if we're starting to see inflation coming down early next year, that would be a really positive thing. It can't stay this high forever. If we continue to see inflation running at 9% a year, at a certain point that becomes unsustainable. But I think the fact that that might come down, that's a really positive

sign. When you say unsustainable, I'm thinking about is the tech trade, is the rally there unsustainable if interest rates continue to go up, right? If they push higher from here, does that hurt a trade that has worked especially well? NASDAQ, I said, three straight weeks of gains. Bespoke had a tweet a couple hours ago. NASDAQ's been on an intraday tear lately over the last 25 trading days. That's five weeks. 13 days have seen intraday gains of 1% plus. You don't see that type of intraday strength often. Can that hold up? I'm glad you bring this up because I do think this is something people aren't necessarily focusing on. It's short term. Your tech trade is doing really well. But longer term, even if inflation is peaking, I don't think it's going to come down to the rates it was. It's more of a moderation. In which case, if we see inflation at

higher rates than it has been, some of your commodity related assets, your inflation hedges are probably going to continue to outperform your tech trade, your large growth, your long term bond funds. So yeah, I would not. We do own that category, but it's not something I'm over waiting right now. It's not something I'm throwing money at because I think that that trend is going to continue here. You still like things like energy, which have come down? I mean, the thought was maybe they've come down because money's come out and it's helped fuel the tech trade. Is that all of a sudden going to reverse itself? I think, if anything, the fact that energy has come down is more of an opportunity to get back into that, because I think that trend is

likely going to continue. You have these huge supply and demand constraints with energy that aren't going away. You even saw Exxon when they came out with their earnings. They said that this issue with supply and demand is not going to be fixed for probably a couple of years and we'll have some of these elevated prices. So yes, I think that's actually still a really strong trade. The fact it's come down is more of an entry point. You still like materials, industrials too? Even cyclicals like industrials in this sort of an environment? I guess playing on the soft landing idea. I do. You can't have a hard landing like industrials, can you?

Right, that's the idea. Are we going to get a hard or a soft landing? I'm much more of the mindset that we can get a soft landing here. So, yes, you are going to want those cyclicals. You're going to want those industrials in there. Make sure you're well diversified, that being said. But, yes, I think those are good opportunities. All right, let's expand the conversation now.

Bring in CNBC contributors Bryn Talkington of Requisite Capital Management and Greg Branch of Veritas Financial Group. I don't know. The market seems to be trying to rain on your parade, Greg. You've been really negative. I mean, maybe it's starting to sniff out a soft landing. Are you? I don't think so. And I would respectfully disagree with my colleague that the market is not pricing in. We didn't overprice negative information. I think in July, June, sorry, we were probably appropriately pricing in the information. And I think that once Jerome Powell gave the green light to put risk back on, that's what the market did. I've said this to you before, Scott. I think he made a mistake, and I think his colleagues have been trying to walk that back ever since, culminating

with James Bullard on our very channel last week saying that he'd like to see the Fed's funds rate at 4%, and he'd like to front load that. The market is certainly not discounting that at this point. And so, no, I don't think that we'll manage a soft landing. The history has shown that we never typically do. And I think that while the manage a soft landing. The history has shown that we never typically do. And I think that while the duration and depth of this reception might not be what we're used to, given the strong labor market, you can decouple the incident of a recession from a strong labor market. You can actually have both, even though we totally don't. You want to respond?

Yeah, I mean, I have to respectfully disagree here, but I think just the fact that we're having such a strong labor market, I think it's hard to say that we're going to have a hard landing here. And anything's possible, right? I mean, I do think it's too early to say that we're out of the woods yet, that we don't necessarily have another leg down. But I'm definitely in the mindset that we have a good possibility of having a better second half of the year here than we did our first. I think you want to make sure you're positioned as such. Yeah. So, Gregory, I mean, even, you know, Diamond, as we just referenced, the hurricane man comes back today or yesterday when he's when he

made these comments speaking about how strong the labor market is, suggesting you can't have a recession with the labor market this strong in the way that consumers can continue to spend. How do you respond to that? Right. I'm going to respond to that in two ways. Let's talk about the consumer first. Yes, the consumer is still spending. That is decelerating. We saw growth in travel entertainment spending go from 30 percent in May and June to about half of that in July. But they're also levering up to do that, Scott. And so we had record credit card applications when it's becoming historically expensive to do that. And so we had record credit card applications when it's becoming historically expensive to do that. And so we are still spending, but that bill is going to need to be paid. It's a

little too early to talk about the losses at this point. I think that will season throughout the year. But at the end of the day, we're seeing that across the socioeconomic spectrum. You know, when those banks reported, they were talking about historically strong loan growth in their private wealth divisions. And so, yes, we're spending, but we're taking out debt to do it. Now, let's talk about the other side of that, about the corporations. Yes, I will admit this earnings quarter turned out to be stronger than I expected. You know, 77 percent of the S&P beat their earnings on the top line. That's typically 66 percent, about 70 percent. Sorry, 77 percent on the bottom line, 70 percent on the top line is typically in the mid-60s. But all of them almost universally warned about intensifying challenges, if not with their supply chain,

and certainly with inflation and deteriorating consumer demand. That was a constant refrain. I think we will continue to see that. And in terms of decoupling that labor market, remember, it's the absence of labor earnings that determines the depth and duration of a recession. Typically, that's the unemployed population that's contributing to that. Now we're all contributing to that because real wage growth has declined by 4 percent. We're all facing that hyperinflation. So that's where the weakness that powers the depth and duration of the receptions. OK, so so let me bring in Bryn, if I may. Is it time, Bryn, for this half half empty view to do a 180 and think that the market may be now time for half full?

Well, I think this conversation with with Courtney and Greg really sums up what we're seeing this year because I don't think I've ever seen in a really long time this bifurcation of people that are really bearish versus those that are, we'll say, glass half full, right? Besides the folks that think we're going to go to 5,000. And I just think that investors are going to continue, Scott, to be frustrated this year because you have to remember, my thesis is the range of outcomes that can occur is incredibly wide this year because of all the reasons that Courtney and Greg just walked through. Because if you go back and look at probabilities and if you're investing based on pure probabilities, since 1913, the Fed has only

engineered a soft landing around 10% of the time. And then we've had oil shocks. We have so much debt that's been printed. You know, all of the things. We have high inflation. You would think that we would have a hard landing. But I would say we're in these unchartered waters. And so I think that a lot of people that are bullish are anchoring that inflation comes down meaningfully and stays lower. My problem with that is, you know, being in the energy field down here in Texas,

is that, you know, energy's had, you know, a pretty meaningful sell-off. But in the next third quarter and fourth quarter, we're going to have the SPR stop. And then what happens with the Russian sanctions? So if all of a sudden energy starts being meaningfully higher, then inflation isn't going to be lower. And so I think as an investor, I wouldn't anchor either way. I think you still have to be defensive in your positionings. I mean, that's why we have a lot of covered calls, because I don't think we're going to get this V-shaped recovery. Because you know what? Go back, look the past 15 years. What has been in every single V-shaped recovery? What's been the one ingredient? The Fed. The Fed has been doing QE. Now they're doing QT. And so I think it's going to be kind of in the middle of the two. I don't think it's going to be extreme either way. But I do think

investors need to settle in for more of like an L-shaped recovery versus this V that I'm hearing from a lot of the bulls. So, Courtney, you know, people say, well, the Fed has never pulled off a feat like this. When they raise rates like this, they can never pull off a soft landing. Their track record's terrible. So why should we believe that they can now? I would suggest they have never raised rates to the degree they are now with an economy

and job market as strong as it is now. And maybe that's why this time, in fact, is different, that the inflationary pressures were put on, the majority of which were put on by the pandemic. Many of them are rolling over, obviously not rent, wages, some other things, but you catch my drift of where I'm trying to go with that. Maybe this time's different. Yeah, that's what I have to point out is we've never been in this situation. We've had such a strong labor force, right? We've never really gone into a recession when you have the kind of job growth that we're adding right now. So I do think that, yes, this time very much could be different and we could get there.

I think Bryn does bring up a really interesting point here where this is different than we've seen before. And there are a wide range of outcomes to her point. And that is where you could see things really differentiating. Like I do think that maybe your tech trade isn't the place you want to be right now. You could continue to see your industrials. You could continue to see your energy perform really well. So none of the markets in total are going to benefit from this. And you want to make sure that you're strategically placed accordingly.

Hey, Greg, have you entertained the idea that this time might be different because of all of the reasons that we just suggested? Like, I get the fact that the Fed is going to raise rates the more than it has in some 40 years. But the economy and the job market is super duper strong. So there's a really sizable cushion for the Fed to work with. And they know that. And Jay Powell has said as much. No, I don't disagree. I've long said that this time is going to be different. The first way it's going to be different is we're going to have a recession with a relatively strong job market. And so, you know, that that's entirely different. And it's why we have folks dismissing the possibility that we're in one now or that there'll be one of deeper depth and duration. Now, look, do I think that we'll have the on average 30 percent decline in S&P 500 earnings that we typically have on average in the last five

recessions? Probably not. I think that the strong job market will, to some degree, save us from that type of debt. But, you know, the consumer spending will be the key and we'll need to see how much that deteriorates and how much the extra leverage is going to cost us in the way of decreased sentiment and decreased purchasing power, et cetera. So we'll have to watch it play out. OK, Bryn, I mean, even a bear, a near term bear, I think it's fair to call Greg, suggests that earnings were better than even he thought. Tom Lee, as I referenced him earlier in a conversation earlier today, suggested, yeah, earnings expectations may need to come down. OK, but maybe they just need to come down to like two hundred and forty dollars.

They don't need to fully fall apart like the sky is falling. Folks are calling for. And maybe this earnings season was proof of that. Are you entertaining that idea? Yeah, I mean, I think earnings have been extremely strong and that's where it's hard to get too bearish because the employment numbers are fine right now, right? But I can go back and show you tons of recession where employment was really low at the beginning. So I'm going to throw that one out. But earnings are really strong and resilient. And I think we saw that. And although companies are guiding lower, if inflation is coming down, I would say net-net that's a positive. And so that's where I don't

think we're going to have earnings go from a 230 to a 200. With what we have today, unless there's some shock to the system, that really doesn't make sense. And that's why I'm much more in the camp that we're kind of going to grind it out. And the Fed is firmly in the driver's seat. We're all going to have like panic attacks over every single number over the next few months because I don't think we are going to get a handle on inflation. And I am not in the camp that inflation is going to go from nine to three anytime soon. And that's just still well above where the Fed wants us to be. So I think there's still going to be volatility.

I wouldn't get too bearish or bullish, by the way. I would just settle in and have a portfolio that can be more evergreen than anchored on one way or the other. And right, Greg, I mean, inflation doesn't have to go from nine to three overnight. As long as there's a credible roadmap to getting there, the market will start sniffing out that the Fed is getting towards its target. Maybe they can get there sooner than later, given the rollover that we've seen in gas prices, which has been a principal issue for the Fed to become as hawkish as they did. Yeah, look, I agree with that. We need to see that progress is being made for the market to derive some comfort. We don't see that yet. And, you know, I was in the camp that we might see that in June as we started to move from those 2 and 3 percent inflation numbers in early 2021 to 4s and 5s in the middle of 2021.

And I thought that the base effect would help the Fed out a bit. And I think that they were betting on that as well. And so I think that when they saw a 9.1 and probably a number not meaningfully below that next week, to be honest with you, Scott, they were counting on that base effect working in there to their advantage. It hasn't yet. You're right. We don't need to see 3 percent. As Bryn said, I don't think we will. I think we'll exit this year closer to 6% than anything else. And, you know, they have some heavy lifting to do. And I think that James Bullard has been the most vocal about what that lifting is so as not to catch the market by surprise.

But I don't think the market is discounting anything like what James Bullard is thinking for September. Yeah. I hear you. Bryn, before I let you go, the one area that you would bet on more than any other right now is what? Companies with high free cash flow yields, right? That's going to give you health care. It's going to give you some energy. It's going to give you a little bit of tech. And so I would do screens for a free cash flow, high free cash flow yields. All right. You guys have a great weekend. I enjoyed the conversation as always.

Bryn talking and joining us there, Greg Branch, and of course, Courtney Garcia right here on set with me. Let's get to our Twitter question of the day. Now, we want to know, given today's red hot jobs report, what will the Fed do at its next meeting in September? 50 basis points. Could it be 75? Could it even be 100? Head to at CNBC Overtime, cast your vote. We'll have the results coming up later on in the show. Up next, Capital Wealth Planning's Kevin Simpson is making some big moves in the market this week. He's adding to some key positions and he's going to tell you about those next. And later, new lows ahead. Cantor's Eric Johnston doubling down on his bear call for this market. We'll ask him why when overtime returns. We're back at overtime. The S&P and Nasdaq notching their third straight positive week in a row. OK, one five star money manager making some

big moves in his portfolio as the market grinds higher. Let's bring in Kevin Simpson, capital wealth planning founder and CEO. It's good to see you again. I remember from your last appearance, you were pretty cautious still on the markets. Are you changing your tune at all? I think you have to a little bit, Scott. You know, I'm not afraid to admit when I'm wrong. It's like, OK, it's the everything is weird economy. You know, I think in a lot of ways, the economy is somewhat akin to the coronavirus where it just keeps mutating. And like Derek Thompson said in The Atlantic last week, it's weird. And maybe the jobs report today shouldn't have surprised us. It did surprise me,

and I'm sure it surprised the Fed. I can only imagine that on Tuesday they were patting themselves on the back when the JOLTS report came out, weak and albeit irrelevant, but it was showing that job openings were slowing a little bit. Then they had the punch in the face blockbuster jobs report that came out today. And I know some of the creations. Well, what does it what does it mean to you that the market was able to hold up in the face of, you know, good news, a hot jobs report, a good jobs report being bad news because it was going to embolden the Fed to have to, you know, be higher for longer. Well, the S&P and Nasdaq, as I just said, finished their third straight week up. Yeah, the incongruity is baffling. I was on the show as recently as Tuesday claiming that we were in a recession.

However, if you have these types of back to back strong jobs numbers, it's impossible to make the claim that we're in a broad market recession. I went back, Scott, to 1928 and I couldn't find an instance in which we had in excess of 300,000 job creations while simultaneously being in the U.S. economic recession. So I think it's I think it's changed a little bit. I think I've got to pivot a little. And the only way I can dissect it is to give the analogy that there's two different socioeconomic classes. The lower income folks are they're experiencing the high inflation, the rising prices, the higher rates. And it feels like a recession. Higher economic families and

households, you know, they can weather some of these rising prices. And so far, it's still life and business as usual. That's what makes it crazy. So what does that what does that mean in terms of what you're doing, these moves that we teased that you are doing this week? What are the most significant ones that you've made? Well, you know, when you have a good, strong month like we did in July, you know, I have to follow the markets strong month like we did in July, you know, I have to follow the markets and take what the market gives me. So we had Apple called away on Friday. And you and I have talked for the past few months about some of these very tight covered

calls that we've been selling on Apple. And sometimes when you write covered calls, stocks get called away. So we we were able to take some profits there. You never lose money taking a profit. It's not a stock that we have any negative feelings on. But this was the seventh time, Scott, that we've had the stock called were still in a recession. So Cheerios, excellent dividend household company, that made sense. And then seeing everything that's going on geopolitically, I think having a defense manufacturer in the portfolio makes sense. And lucky Martin fits the bills for all of the stocks and checkboxes that we look for for our stocks, not the least of which is that it's increased its dividend by 9% for each of the past five years on average. So one subtraction, a couple

additions, and we've been writing covered calls into this strength. I know volatility is not where we'd like to see it, but we're able to take advantage of what the market gives us. It's active management. And we've been trading a heck of a lot over the past week. What a difference a few days make. I mean, do you feel a little FOMO of your own, given how you've been surprised by this market? And overall, that's been one of the thoughts in the narrative about why this rally actually has more legs. Well, you know, I'm an equity manager, so I'm always hoping I'm wrong. But I always trade like I'm a terrified bear expecting the worst. And it's always great when you're wrong and markets go up and have the kind of performance that they did in July.

But the key is, as opposed to just indexing or closet indexing, is you've got to make some adjustments when that happens. It's just like we talked about recently with the energy trade. You know, we were writing calls on Chevron and we actually trimmed half of the marathon petroleum position and then energy came down about 22 percent. We were out of marathon, still have half of it, but we were out of half at around 95, 100, 105. If you watch the stock got back down into the 80s, we were able to put much of that position back on. And today we're sitting here with a 97 and a half covered call on Marathon. So I won't be surprised if we own Apple again in the next few weeks or the next few months. But I think you have to take what the market gives you and you have to admit if you've got the if you're wrong, say you're wrong. That's where I wanted to steer you. I mean,

since you just mentioned Apple again, are you inclined to buy into this move or sell out of it because it's come so far so fast, right? I mean, this was a week in which, and I'm looking at it right now as I'm going to ask you this question, where we were talking about Apple getting back to, you know, $266. I mean, it's been a significant move for a stock like that. I mean, I'm sorry, $166. It's at $165. It's just below that now, $165 and change. I was thinking about the move that Microsoft has also had back north of 275, 280. So we're still holding Microsoft. We wrote a call there. We're still holding Cisco, maybe not in the same camp as Apple. But with this Apple move, we took the profit. We banked it. We've got some cash. We've got some dry powder. As I

mentioned, we've had it called six times before this in the past 10 years. Four of those instances, Scott, we were able to get back in at substantially lower prices. So I love the stock, but maybe it's a little ahead of its skis right now. I know the earnings were awesome, but I still have to think that the Chinese supply line could possibly affect them. They're talking about even potentially discounting some of their products in the Chinese market. I mean, when was the last time you ever heard of Apple discounting anything of their products in the Chinese market. I mean, when was the last time you ever heard of Apple discounting anything? So we love the company. I just think the price might be a little bit higher than I'm willing to pay at this point.

Hey, Kev, it's good having you as always. I'll talk to you soon. That's Kevin Simpson, Capital Wealth Planning, joining us today on this Friday. Up next, doubling down on the bear case. Candor's Eric Johnston says don't believe the bounce, why he is calling now for new lows by this fall. He joins us when Overtime returns. We're back in Overtime. It's time for a CNBC News Update now with Tyler Matheson. Hey, Ty. Scott, thank you very much. Good afternoon, everybody. And here's what's happening at this hour. The White House urging all sides to remain calm following today's Israeli airstrikes in Gaza that killed a senior militant and several other people. But a National Security Council spokesman adding the U.S. firmly believes Israel has the right to protect itself. The driver of the SUV that drove through a Native American parade in New Mexico on Thursday

has been charged with drunk driving after his blood alcohol level was found to be three times the legal limit. The crash left 15 people hurt, among them two police officers. No fatalities were reported, thankfully. And in New York City, volunteers helped a group of Central and South American migrants find shelter after they arrived by bus from Texas. That states Governor Greg Abbott announced today it is sending people from its border with Mexico to New York to, quote, receive the abundance of city services and housing that

Mayor Eric Adams has boasted about. And tonight on the news, President Biden touting the latest jobs report. Hear the latest on the numbers, what Biden touting the latest jobs report. Here are the latest on the numbers, what it means for the economy and you. That's tonight at 7 p.m. I'll be there. Hope you will be. Scott, back to you. All right. We look forward to that, Tyler. Thank you, Tyler Matheson. The S&P 500 up almost 13 percent from the mid-June lows. Our next guest, though, says don't believe the bounce. We could be hitting new lows by the fall, he says. Joining us now is that man, Eric Johnston, Kenner Fitzgerald, head of equity derivatives and cross asset. Welcome back. So you're not believing this is anything more than just a run of the mill bear bounce.

Scott, yeah, thanks for having me. That's exactly right. You know, right now, if you look back at prior bear markets, these type of rallies are very common. When we went bearish in the beginning of this year, we talked about how within this bear trend, there are going to be rallies. We are going to try to call these bear market rallies. This one we did not. But, you know, these are very common. A lot of the buying or a lot of the reasons why we've seen this rally is that you're seeing systematic funds, CTAs and others, buy tens of billions of dollars worth of stock based on their models, based on price, et cetera. And then earnings season was better than feared.

It was the worst since the pandemic, but it was clearly better than feared and it was better than we expected. So that's what all kind of caused this rally. But our view and our conviction is completely unchanged. And actually, it's gotten higher just based on the fact of price. One of the things that I think it's fair to address is what is the bull case or rosy scenario for the market? And I think that the rosiest scenario that I can talk to and speak about is the fact that earnings estimates are exactly right. So what we see in print is exactly right. It will not be impacted by any of the demand destruction or any of the raising rates, et cetera. And number two, that the earnings multiple will be 18 times. And if that happens, we go to 42.50 in the S&P. And to argue that we are going to trade higher than 18 times

goes against everything in history. The last 30 years, we've only traded above then during the internet bubble and during the post-COVID crisis when the 10-year was 50 basis points, the Fed funds rate was zero. So that, I think, is the rosy scenario. We have a soft landing, go to 42.50, up 2 to 3 percent from here. And then our scenario, which I can get into, is much lower for a whole host of reasons that we've been discussing. Why is the soft landing so far-fetched to you at this point, if we're starting from such a higher level than perhaps we otherwise might have been? Why is it so hard to believe? I give you history, but maybe history is not the best read in this case.

Well, actually, what I would say is that I do think a soft landing is unlikely. But I guess my point is that if it does happen, that means that the earnings estimates that we see are probably approximately accurate, maybe slightly too high. And you're already at 17 and a half, 18 times earnings with the Fed funds rate going to three and a half or four percent, quantitative tightening happening at one point one trillion a year and inflation at a 40 year high. So that, to me, does not warrant an above average multiple. No, I know. But but inflation is not it. I'm trying to think of the right word. I mean, it's not normal. Right. We're coming out of a pandemic. It's pandemic

fueled inflation by and large. And a large quadrant of that is rolling over. I mean, it's undeniable. I know that rents are high and I know that wages are high and the labor market is still tight. But a lot of the other more critical parts of inflation are rolling over. I mean, it's happening right in front of us. And a lot of it was fueled by the pandemic. I hate to use I mean, I don't want to use the word transitory, but maybe it's not as long lasting as the bears would like to believe it is. Sure. I think that's I, I think it's a fair

point. I actually agree that inflation has peaked and it's going to come down, but it's going to come down in this very slow way. But here's the important point. Corporate earnings benefited from the higher inflation, right? Corporate earnings have surged while inflation has surged. And so it's been a big positive for corporate earnings. We looked back and we put this in a presentation recently at all the times over the last 50 years that we've seen a spike in inflation. When inflation then drops, earnings fall. And just like this time, we've seen earnings surge based on inflation. So, yes, as inflation comes off over the next six to nine months, eventually the Fed will be able to get off the brakes. But corporate earnings,

we think in that scenario, come down. Just like they were helped on the way up, they're going to get hurt on the way down. The second thing that I would say is that I do think, like I said, that inflation has peaked and it will come down, but it's going to come down in a pretty slow way because, you know, you saw in today's report, earnings are still 9, 10 percent a year and rents are still up 9 percent a year. So those two factors alone are not that accounts for a big part of the inflation outlook. I know, but gasoline, like things like gasoline are not coming down in a slow way. I mean, I think we're talking like 50 straight days that gas prices have been down. That's been a critical part of the story of the supply chains are easing. Other commodities have have rolled over significantly, too. I mean, look, if everybody can argue either side of

whatever point of view they want to take, the ones who say that inflation is going to be higher for longer can point to the obvious areas and those who say it's going to come down quicker can point to their obvious areas. But just to take the counter argument to you, maybe the other side to your argument is the correct one. So, you know, let's say that the inflation comes down sharply, which, again, over the next six to nine months, I think it's going to. It's not going to get there next month or two months or three months. The Fed funds rate is still going to have to go higher because what we've seen is that if the Fed gives any wiggle room at all, asset prices are going to get a rally, and that's going to reignite inflation. So they have to do this to really squash inflation.

They have to be, even as inflation is coming down to 8 to 7 to 6 to 5 to 4, that doesn't mean that they can stop when their target is 2, and knowing that when they do say we're going to stop, we're going to pivot, et cetera, that commodities will rally in that scenario and stocks will rally from whatever that level is, you know, at the time. So it's a very tricky scenario where they're going to have to continue for the next six months, even if inflation comes down. Maybe, maybe. And they've said they won't have to, but they won't have to do 75 basis points at every meeting. And they may not have to do 50 either. I think they need to, I think they need to elongate the process. So, you know, them going to 4% as an example at the next meeting, which I'm not suggesting they're going to, and then saying we're done

doesn't help their cause. So I think they will drag it out because they do need to drag it out in order to really crush inflation. Look, inflation, ultimately, there are parts of it, commodities related, that can fluctuate. But ultimately, what you see in the CPI is that it is fairly broad based. And as the Fed has said, they need to reduce demand. That's how you ultimately squash inflation. And the amount of demand destruction is questionable. Right. That could be argued. Is it going to be a little is going to be a lot. OK. But the bottom line is where the market is right now, 41 50 is pricing in that all is rosy in the world because the current multiple on these earnings is actually above the 10-year average despite all this. So it's not pricing in any sort of

destruction. And so we feel like right now the risk-reward in being long, we think, is extraordinarily poor, especially within equities where there's always tail risks out there that we can talk about. So in order to take on those tail risks, you have to have upside. And I think the rosiest scenario out there suggests that there will be very little upside in the S&P from these levels. We got to go. I appreciate it, as always. Eric, thanks. Yeah, me as well. That's Eric Johnson joining us from Canada. We'll have much more on today's blowout employment report tonight in the CNBC special inside jobs. You can catch it 6 p.m. Eastern time. Up next, the big week for Coinbase. That stock surging nearly 50 percent as it gears up for its earnings on Tuesday.

We have a shareholder standing by with your setup into that print. All right. In today's halftime overtime, a big week for Bryn Talkington and two of her holdings. Coinbase surging more than 40 percent on the back of its partnership with BlackRock and Roblox shares, gaining nearly 15 percent ahead of its earnings report next week. Bryn, back with us for our halftime overtime segment. So how are you feeling about Coinbase? I mean, I know a lot of the jump had to do with the BlackRock announcement, but how much has really changed for the story going forward? I think also the CFTC potentially looking over Bitcoin and Ethereum was also where it started. And then the BlackRock obviously came in. You know, Scott, what we're going to be looking for with earnings are the expenses, right? As of last quarter, I looked just a second ago,

they had around 4,900 employees. And remember, Brian had these ambitions to have 6,000 employees. They cut that back. So you really want to see what they're doing to manage expenses. And my question is, were they able to cut expenses faster than revenue was falling? Because obviously this year has been just awful for crypto in general. And so it's nice to see the move this last week. But I really think that expenses is going to set it up for either a continuation of higher lows or if they're expensive, seem out of line, which I don't think they will be. I think it could be some tough sledding last week. And so I actually sold some calls yesterday heading into the print next week. See, I totally understand how you look at things that way and you look at the fundamentals of this

business and, you know, the way they deploy their capital, how much money they're spending. I just feel like this story begins and ends with crypto prices. If crypto prices go up and more money comes into the market, Coinbase is probably going to do well. And if crypto continues to, you know, be in its wintertime and Coinbase is not going to do well. Yeah, you can't you can't dismiss that. I totally agree. I think what's important, though, is, you know, we've had the equivalent this year, Scott, in the crypto market of the tech bubble bursting, long-term capital management, Bernie Madoff. It's just been terrible in the space across the board. And so what happens is companies like Coinbase actually, I think, are getting stronger because you see a lot of the weaker exchanges I don't think will survive. And so I think, you know, you know, Brian Armstrong and his team are trying to build the foundation where they are. They are the gateway to go into whether it's NFTs, crypto,

what have you. But right now you're spot on. If crypto continues to stay weak, I don't see how Coinbase revenue growth grows meaningfully because they still make the majority of their money today on transactions. But I know we're going to hear more about their staking, which is going to be a very potentially a creative revenue model longer term. Let me get you on Roblox real quick. Tuesday as well. The stock moves bananas lately, right? Up 60 percent in three months, 20 percent in one month. Well, so what do I do with that? Right. More than that, actually. Yeah. So since May 10th, the stock hit 21. It's close to 50 right now. It's had just a massive move. So here's what I think. They come out with monthly metrics. I just looked at their May metrics on their website. They had increased daily active users,

increased hours engagement, and increased revenues. I think this also, though, they also spend a lot of money, Scott, to get those revenues. And I think how PayPal got a good bump because they were able to decrease expenses. A company like Roblox, which does not have an E, has to come in line and decrease those expenses. But also, I think a little sneak, a little sneaker could come in as Stranger Things. They got a huge halo effect last year in the third quarter because of Squid Games. Stranger Things is much more in their demographic, and I think that could be an upside surprise. We are going to see. Have a great weekend. We'll see you on the other side. That's Bryn Talkington joining us today in

Halftime Overtime. We are wrapping up a very busy week on Wall Street. Your Rapid Recap is next. Wrapping up a busy week here on Wall Street,'s get to contessa brewer now with your rapid recap hi contessa hi there scott energy is the worst performing sector this week down six percent rent crude hits its lowest level since 2020 wti touching its lowest level since february worries over recession and a pullback in demand hitting hard despite tight supply and OPEC's agreement to raise production by a measly 100,000 barrels. Results from gaming operators this week. DraftKings today announced better than expected results, growth in revenue, monthly users, and how much those monthly users spend. It raised its guidance and said it would lose less than anticipated with its

marketing and promotional spend. The street liked it. Stock up 10 percent today, more than 30 percent on the week. Competitors MGM and Caesars also up on the week, but driven more by over the top performance in Las Vegas. Oh, Sin City, the big exclamation mark. But we've seen other indications that the American consumer is still willing to spend on travel and leisure despite high prices. TripAdvisor up 26 percent this week. And look at the cruise names. Norwegian up 9 percent. Carnival up 8 percent.

American Airlines up 7.5 percent. Let's go spend it up while we've got a few weeks of summer left, Scott. Absolutely. That we will do. Contessa Brewer, thanks so much. Up next is Santoli's last word. We're back in two minutes. Take a look at the market here. The Dow finishing higher by some 76 points. Strong jobs report was supposed to be bad for stock. Somebody forgot to tell the stock market.

Well, I mean, the market did open lower. It did claw its way back, though. NASDAQ and S&P 500 up now for three straight weeks. We'll talk about it with Santoli next for his last word. We're back in overtime to the results now of our Twitter question. We asked, given today's red hot jobs report, what will the Fed do at its next meeting in September? Most of you saying a 75 basis point hike, 53 percent of the vote there. Let's get to Mike Santoli now for his last word. I feel like this was a week that the Fed said, hey, over here, remember me? Remember me, Mary Daly? Hey, we want to hike Bullard, Mester. And the market guys like, yeah, whatever. The market more or less shrugged it off, although today's jobs report kind of justifies that stance that you don't want to necessarily get into that mode of over anticipating that moment when the Fed calls off the rate hiking campaign. Real fascinating, though, where the market has ended up right at this kind of threshold of is it just another one of these bear market bounces, relatively textbook in that case,

or can it build upon it to something more? You know, what Eric Johnson was just talking about, very plausible. I almost think that's the base case, that you can't give this market credit for being out of the woods. I think that's totally fair. However, to me, that's a better explanation for why the market's kind of capped as opposed to why it has to have some big new down leg to fresh lows, because, you know, the mid-June lows were pretty washed out. We did get a pretty good valuation adjustment at those levels. And the market cares much more about

earnings being plausible and earnings kind of having visibility to them, as opposed to the market being outright cheap when it bottoms. One final point on the overall S&P 500 valuation. He mentioned getting up toward 18 times forward earnings again. That is true, but it's still very skewed by the huge small group of stocks at the top of the index. The equal weighted S&P is under 16 times. And in fact, it's well below its average valuation over the last 10 years. So maybe there's opportunity within the market, even if the S&P as a whole is capped.

Do we, and by we, I mean the market, do we believe that there's more staying power if you can get above 4,200 on the S&P 500? There's a case to be made for that. What confirms the legitimacy, if you want to use that word, of this move? You know that there's a camp that says you get back more than half the decline, which would be a little over 4230. And somehow that gives the market the benefit of the doubt again in terms of not going back to the new lows. You probably get a chase at that level because there is still, you know, a kind of a defensive stance among a lot of the quant systematic trend following type funds. Some of that that's been dealt with with the buying recently, but not all of it. I still feel like you're getting a little bit of a chase now.

It started, yeah. That there's some retail coming in, some institutional chase. And some of the lower-quality stocks flying again. Yeah, so, you know, the sap's rising. All right, good stuff. Have a great weekend. All right, you too. That's Mike Santoli with his last word.

We'll see you next week. That does it for us. Fast Money's now.