Closing Bell - Closing Bell Overtime 9/19/22

Episode Date: September 19, 2022

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

All right, Sarah, thanks very much. Welcome, everybody, for a little bit of time. I'm Scott Wapner. You just heard the bells. We're just getting started here from Post 9 at the New York Stock Exchange. In just a little bit, I'll speak to one investor who says he's found a big opportunity in this volatile market. You'll find out exactly where. We begin, though, with our talk of the tape, whether stocks are setting up for a big rally into and out of this week's Fed meeting. Was today the start of that? Sounds crazy given how negative everyone seems to be these days. Well, one well-known CNBC contributor says it could in fact be the case and the signal could be in the bond market. He is Josh Brown.

He is the co-founder of Ritholtz Wealth Management and he is on the phone. Josh, thank you so much for calling in. It was at about 225 or so where you sent me an email that sent the following. Blow off top for short-term yield, treasury yields, the two-year failing at 4%, VIX barely budging higher, 10-year calling BS on the two-year. It's saying, quote, unquote, the Fed ain't getting to 425 this year. This smells like a rip your face off rally brewing into after the f o m c uh... what led you to believe that this was about to happen

obviously but i found out i was just watching the red failed to confirm like if if we were going to have a rate to continue to shoot straight up that should have been accompanied by a lot more stock market volatility and what we were seeing like that care has been working all year uh... as being coincident with each other and the next just couldn't get excited today then you see the two-year yields

kind of flirting with three ninety six three ninety seven not really pushing through at all the reason in the world to push through it didn't happen and the ten-year get stopped at about three and a, which doesn't mean it's going to get stopped there forever. But 3.5 is highly significant on the 10-year Treasury. That was the high back in 2018 when the bond market basically told Trump his trade war wasn't working. That was an important level when the Fed pivoted in the fall of twenty eighteen and that was where the ten-year treasury got to this june which is when the market hit its low

so these levels are really like you don't have to believe in that but about other people do that they're important to watch so when the next failed to really get going today and you started seeing like the the the large cap tech names bottoming out, et cetera, you just look at this setup. This guy's going to come in on Wednesday, tell you what you already know he's going to say. Everyone is expecting hawkishness.

Everyone is expecting 75 or 100 basis points. You're getting saying 100 basis points. If he delivers that, the narrative is going to change to, OK, great. So another 25 in November, another 25 in December, probably good. Once that narrative is seized upon, people are not long enough. And I think you can have a face ripper. The other point is, I guess this makes the point that maybe the Fed can't be as aggressive as it sounds as though it will be or some expect it to be. And that's why the bond market is reacting in some respects to what you just said.

And then the stock market follows in turn. And by the way, I was waiting for us to settle out to see if we could actually close at thirty nine hundred on the S&P. We're at three thousand eight nine nine point nine nine. I saw just for a moment there we did make it to 39, and we're still settling out. So we're like right at a technical level that a lot are watching. But in some respects, is that what this is about? The Fed is just not going to be able to be as aggressive as Jay Powell certainly sounds like he will be welcome i don't even think the first set of rate hikes

uh... actually worked their way through the economy yet but the early indications are that demand is crashing you look at you look at home builder sentiment you look at existing home sales you look at any anything to do with housing it's which but heading into almost free fall at this point in time. And part of it is seasonal, I understand, but that's a really, really big and important chunk of the market. You listen to what semiconductor companies are telling you about double ordering and gluts.

You look at shipping costs are falling through the floor. You look at gasoline, like all of the things that we were screaming bloody murder about, and rightfully so, in January, February, March, April, they are now directionally doing exactly what the Fed needs them to do. Whether or not the Fed did it is not the point, right? The point is where they're going. So I don't know. Look, the market doesn't believe that the Fed is getting to four and a quarter. That might be what the dot plot says on Wednesday, you know, at the conclusion of this meeting. The market just doesn't believe it, doesn't believe they'll need to or doesn't believe they can get there without already causing a recession, which would cause rates to start

falling. So that inversion, it should be on everyone's screen. That is the thing right now. So I'm not telling you the economy is bad. I'm not saying any of that. I'm saying right now the setup is that it would be very hard for the Fed to shock us to the downside. Got you. I appreciate you calling in. I know you're jammed up and I so much appreciate that. We can continue the conversation on the halftime report tomorrow when Josh Brown joins us. But let's ask another top market watcher what he thinks about all of this. Adam Parker, he's the CEO and founder of Trivariant Research. He is here with me at Post 9. What do you make of this? What do you make of this turnaround today and what Josh was talking about, too?

Well, I mean, look, Josh is a better market watcher than me. You know, I do research. I'm a research nerd, right? So we don't really make the one-week calls. And so I'll defer to him. He's got a good one-week wrap. But you could speak to the broader issue of, you know, what Powell's likely to do this week, whether it's going to soothe or upset the market, whether it's going to be a shock,

or if he tells us what we already think we know. The reason I answer that way is because what happens over the next week is different. Ultimately, they're going to be wrong, and inflation's going to be stubborn. I know that. Well, you don't know that. I do know that, because the CPI is 32% owner's equivalent rent, and rents continue to be pressured higher. Why? Because if you think

about housing as a two-by-two grid, Scott, right? High home prices, low home prices, high borrowing costs, low borrowing costs. Which quadrant are we in? High borrowing costs, high home prices. We haven't had a lot of transactions yet, and so if you're a new buyer, you're a young guy, right? You're going to say, you know what? I'm going to rent for a year or two because I've got to either have the 30-year fix come down or home prices have to come down. So there's actually, I just was at a conference two weeks ago, everyone is saying they're still taking almost 1% per month pricing. So the CPI is going to remain elevated for a long time. If it just started to get flat today, man, it would still take 11, 12 times raising 1% a month. It's just going to have

a lot of upward pressure. So how's the Fed going to raise rates? I don't know what these guys are going to do. They were buying billions of dollars in mortgage-backed securities. I know you keep saying that every time you're on. They have no idea. So the point is they have no idea. What difference does it make? So they made a mistake before. Does that mean that they have no credibility for here to perpetuity? It means they're going to keep raising rates so they control inflation much more than they have. Inflation has been stubborn in other spots besides just housing, but it has been in housing. So I think they're going to continue to be hawkish. Maybe they won't be incrementally hawkish this week. That's possible. And you could get a little relief

rally. What I find hard in any medium to long-term view is what makes them more dovish is earnings come down, right? So if I think about the stock market as the price to earnings times the earnings equals the price, I have to be sustainably bullish because the P is going to expand because they get dovish. At the same time, my view of earnings is really declining. What if earnings don't come down as much as you think they will? I wrote about this this week. I think I sent it to you overnight. I think what I'm starting to sort of warm to is the fact that this decline in earnings won't be short. It could maybe last into 2024.

So investors who build models to predict earnings and revenues for stocks, they think out six, 12 months and say what could be worth. If everyone I know has 2024 earnings above 2023, what if that's wrong? What if the consumer has been stubborn but starts to slowly unfold here over 6, 12, 18 months? Because we see a little bit of wage decline into next year as there's more firings. And we see a little bit of firing and unemployment rise next year. And the Fed starts saying, all right, it's working. I think what Josh said I agree with is it's not like they started in March and we've seen the full impact of it now. It's going to take multiple quarters. So I think that'll be interesting to see.

Maybe the consumer will slow into 2023 and 2024, and all of a sudden my assumptions in every one of my models that every analyst has in the street is the numbers are way, way too high to justify the valuations. If it takes that long of a runway to get to that point. So sure, we could get around in the next week. Of course we could. No, forget about the next week. I mean, let's talk about the next handful of months. Right. If it's going to take that long in your mind for the consumer to start to really roll over, for earnings to start to come way down, what happens in the interim?

That's a long runway of time. I honestly think your 3,900, as you said, I give you a... Yeah, we're like right there. Right. I think we're plus or minus 70% here over the next three, four months. It's hard for me to get out of that range. I think when you get to the upper end of the range, you're going to worry about quantitative tightening, a hawkish Fed, and earnings that have to come down.

When we get to the bottom, you could say positioning and sentiment. The one thing that I might have disagreed with Josh on, and I largely agree with him because, you know, I think we look at a lot of the same metrics, but I would say that I don't think people are as positioned anywhere near as negative as the redder. You and I have been talking about for a while, look, everyone knows earnings are too high, everyone's kind of negative.

But if you really look at hedge fund exposures or retail flows, people, the banner's negative, but people aren't really positioned that negatively. So I don't know how much of an influx positive flow argument we could get over multiple months. It could be a couple weeks, but I don't think it'll be a massive inflow argument. There are some who suggest that bonds are now the best game in town. Yeah. Right? I mean, that's what Gundlach told me last week.

If you really want to go for it, and you should, this is his words, my advice is to sell stocks and buy opportunistic bonds. It was brutal to be a bond investor for the past several years. Now it's actually the place to be. I think we've talked about it. I like the two-year bond. I mean, if you're managing a portfolio or you're looking at your own assets, are you sure you get almost 4% now on the two-year for the next two years? You're sure you're going to beat that? You put

some money in, you get 3.9% a year for the next two years? I think that's a lot more compelling than it was 6, 12, 18 months ago. There must be a layup then, because everybody's talking about the two-year being the best place to be right now. Is it really that easy? I just think it's guaranteed by the U.S. government. So, yeah, from that standpoint, it's easy. I think what people are maybe talking about, two things. One, the sustained impact of an inverted yield curve, meaning that two years above the five is above the ten. Historically, that is a mixed cocktail for equities.

And two, and Josh talked about this a little bit with semiconductors, I think it's important to look at inventory levels right now and understand, are we really going to have too much product out here into the fourth quarter? And I think that's of note. So Scott Minard was on earlier today in the exchange and suggested there was a once-in-a-lifetime opportunity. And by the way, he's negative on stocks, right? He thinks we're going to go down 20% between now and October. Once-in-a-lifetime opportunity and highly lever by the way, he's negative on stocks, right? He thinks we're going to go down 20% between now and October. Once in a lifetime opportunity and highly levered unicorns, he said. Time to bet selectively on high yield.

Great companies with nonsensical capital structures. At least 30 to 50 such stocks on the market. Now, he was not going to reveal the specific names. Sort of suggested that we all should know exactly what they are. What are highly levered unicorns in your mind right now? Well, I don't know if, you know, if I look empirically at our database to study the history of returns, I'm not sure we've ever had a period where 30 to 50 stocks have gone up a lot when the market was down 20. So I don't think there's any evidence that you could find that. I suppose what he means is people will be able to isolate securities that will have a lot

of underappreciated growth. I think you need a dovish Fed to get the price to earnings or EV to sales ratios to expand. But do you think there have been, as a result of the environment we're in, asymmetric declines in stocks that don't deserve to have come down as much as they have? Or if they have, it's still worth buying some of them anyway, because they are these unicorns that he describes. I think it all depends on horizon, right? I have a friend who just had a baby the other day, was allocating the 529. And I thought, well, yeah, in an 18 year view, you're sure, you're sure as heck want a lot of growth and ability. You don't want to be negative on tech and healthcare in a long-term view just because you're in a negative moment for six months when

your kid was born, right? So I think it depends on your horizon. If you look out two, three, four years, of course you're going to want some highly, you know, high-quality U.S. growth companies in your portfolio. I think the question is, over the next six months, when the Fed's going to be hawkish, when CPI's going to be high, when the numbers are way too high, that's a trickier risk-reward in my view. All right. Let's bring in Katerina Simonetti of Morgan Stanley Private Wealth Management, a CNBC contributor, Brenda Vangelo of Sandhill Global Advisors. It's great to see both of you.

Katerina, your reaction to this call, if you want to call it that, from Josh Brown, that you could get an interesting move here into and out of the Fed meeting. Well, Scott, there is a lot of risk in this market and not much reward for the upside. And this is a reality. And that's why looking at the equities and leaning defensively, leaning strategically towards the dividend yield and looking at equities that deliver strong cash flow, high dividend yields is so important in this inflationary environment. And we prefer sectors like health care, financials, REITs that historically have been paying a decent amount of income and can serve as inflation hedge. And, you know, Fed is going to do what they are going to

do. There is going to be some type of a lag between the Fed action and the desired outcome. And the question is is are we going to get a recession and how severe it's going to be and based on that we will need to figure out how to proceed but the earnings risk is very significant and market is not taking it as seriously as it needs to be and that's for sure so brenda so katarina says the fed i'm writing it down the fed is going to do what the fed is going to do. Maybe it's not. Maybe it's not going to be able to do what it ultimately thinks it has to do for a variety of reasons. The economy, notwithstanding, is the principal one. Yes, and I think we'll certainly learn a little bit more on Wednesday. but I would say. You know over the last couple of weeks the sentiment has felt a lot like

it did. Back in early to mid June where there's a lot of concern about twenty twenty three earnings and what those might look like. And there's a lot of concern about what the ultimate path of the federal reserve is going to be. But I

think this time around. We're going to have a press conference which is important we didn't have that- after Jackson Hole. And so in that there's typically an opportunity for the fed to reiterate that their data dependent- that they're going

to keep watching what's happening in the broader economy. And take that into consideration and I think that's an important secondary message here. But I agree with Josh in that. I well I hope that we do have a rally I'm not banking on

that- here in the short term. But I do agree that we are closer to the end of this rate hiking cycle. And so if we think about the end of the year's just three months away and it's not very far. From now and I think if the we can

get there in the market then has clarity. On what things look like going forward even if we. Continue to see. Weakness which I think we will in many of these sectors. That were huge can benefit. As the look like going forward even if we continue to see weakness which I think we will in many of these sectors that were huge benefit as the pandemic beneficiaries things like consumer goods housing all of these groups really benefited tremendously over the last few years.

We've had you know just a return to normalcy in terms of trend and in some cases that might mean that there is a year over year decline. But these have also been areas of huge sources of the inflationary pressure that we've been seeing. So this should contribute to helping the inflation problem that we

were. So we might say. That doesn't have to do as much. Yeah unless AP you know we we are setting ourselves up for a fake out like after the Fed meeting the last time. Where there was the prevailing view was that he said we're closer. We're getting closer to the end. Right. And then the CPI came out, was like, oh, maybe not. Right. And the market started to market started to project a much more hawkish outlook, much more than people had expected.

Seventy five, for example, this week, followed by 50 and then 50 rather than, OK, maybe it's 50, 25, 25. How about this? This view? I mean, I look, we're definitely closer to the end than we were. I mean, I think that's better. Yeah, I got bigger problems. I think what I'm struggling with is, again, I'm supposed to be more bullish when they get dovish. At the same time, it's more obvious the economy is massively declining and earnings are impaired. And so it's hard to just say earnings completely don't matter. All you care about as an investor is do they get directionally dovish or not this week. That's a two-day or three-day algorithm. Where have you been for the last 14 years?

No, no. Fed fund futures have really only mattered for the last six, nine months as we've gotten more. You're telling me at all that earnings next year don't matter and they don't matter. You're not saying that. I'm saying. No, I'm not saying that at all. There's a trade on Thursday or Friday based on this. But if we look out to Q3 earnings and everyone says, you know, things are starting to slow.

We look out in January. Things are slowing material. We're firing. It doesn't matter, you know, what happened. You know, if it's 25 and 25 or 50 and 50. What matters is they've decimated the economy. I think the reason why people, they will get more double eventually is because they finally will have caused a pretty big recession. Do you think they are going to decimate the economy? I think they have no choice. Yeah, I think they will.

So, Katarina Minard, who I referenced earlier, Scott Minard, of course, said that Fed raising rates is going to, quote, end in tears for investors. Do you agree with that? Fed is going to react to the data. The Fed. Say that again. I'm sorry. I couldn't hear you. Federal Reserve is going to react to the data. It's a data-driven Fed. And in my opinion, the rate hikes that we're seeing have already been incorporated into the market. I don't think that we're going to be surprised by anything they're going to do. I think that the real news to watch here are going to be earnings, earnings that have been declining and they're

going to be revised to the negative. And that is what is going to bring that next leg down in the market. And this is something that investors are, if they're not concerned about yet, they should be concerned about. And that's what we need to be preparing for, because things might get a tad bit worse in the equity market before they start getting better. And this is tied directly to the earnings revisions. Once earnings are revised and we can move on to the next bull market, that will be the positive news. But we're not quite there yet. You're advising wealthy clients, Morgan Stanley Private Wealth. Are you advising them to look to fixed income over stocks right now? Well, Scott, fixed income definitely offers safe haven, especially short

term high quality. Corporate debt is looking so much better. And this is a nice relief that there is a place that investors can go. But we encourage them strongly to stay with an equity market, strategically lean on defensive sectors, look at yield, make sure that the asset allocation is appropriate, because the bear market that we're experiencing right now is going to come to the end and we need to be positioned appropriately in order to take advantage of the recovery. And we're not there yet if we're sitting in fixed income, even though we're getting slightly higher yield, which is nice, but the yield is not adequately covering the risk of inflation. Inflation is really high.

So we need to stay invested, but we have to do it in a very smart, strategic way. Last and brief to you, AP. Sure. I think it's hard for equity investors to buy those defensive stocks just because they look really expensive. They're bid up. So I find people are sort of owning them for risk management reasons, not alpha. And really what they're looking for is some underappreciated value thing that could maybe recover in a dream next year. I don't see people as positioned that negatively, you know, and I don't see people wanting to own a lot of the defensive stuff. So we'll see how it fleshes out. But I agree 100 percent that the earnings will come down.

And I don't like the logic of just because everyone knows it. It's just because it's I'm sweating in here because it's hot. Everyone knowing that doesn't make me cold. OK, so everyone knows you're feeling the heat. I'm not sweating at all. I don't know. It's maybe just being with those beautiful glasses that are making me hot. All right. I'll see you. That's Adam Parker. Good to see you. Ladies, thank you as well. That's Katarina and Brenda joining us here. We'll talk to you again soon. Let's get to our Twitter question of the day. We want to know what's the best way to play defense in your portfolio right now. Dividend stocks, bonds or cash or something else.

You can head to at CNBC overtime on Twitter. Cast your vote. We'll share the results later on in our show where we are just getting started, though, in OT. S&P hovering around a key level of support. Our next guest says it could be a sign of more pain to come. And some of the most loved stocks could be the most vulnerable. We'll tell you which ones they are in two minutes. We're live from the New York Stock Exchange. Overtime's right back. The S&P 500 closing today, 3,899.89. Our next guest says the door is now open to retesting the June lows. That's about

a 6% decline from here. Joining us now, Jonathan Krinsky, Chief Market Technician at BTIG. It's good to see you. So you're still holding on 30. I mean, does this count as 3,900? How can it not? We're equivalent about a 0.01 points. Yeah, look, Scott, we look at the weight of the evidence, not just one given price level. We know that $3,900 was tested a couple weeks ago, held, and then we obviously sold off post-CPI last week and closed below for the first time since July on Friday. So, you know, it's not so much that one day, you know, makes or breaks the trend. But I think when you look at how important 3900 was, it's the most amount of volume is traded at that price level over the last three years of any given price level in the S&P 500. And you combine that with some other factors, you know, to us, it does suggest the path of least resistance is probably lower at this point. Did this move today? It was a pretty

stark reversal. Did it surprise you? You know, we're just looking at it. If you look at the trading action the last month or so, you know, we rallied hard into the Jackson Hole event, and then we got rejected firmly to the downside. Then we rallied hard into CPI last week and then got rejected hard to the downside. And, you know, I think it's just a bit of covering ahead of potentially a catalyst on Wednesday being the FOMC. So, you know, look, the market doesn't work in straight lines. It works in trends. And, you know, I think the trend for most time frames is still lower.

But you're going to have these counter trend rallies in between. But what if Powell does what Josh Brown thinks may happen and just doesn't shock us, right? Like, what could he or they possibly say at this point that's going to shock you? Now, 100, they go 100, I think that would be a shock to many because I don't think people really don't expect that that's going to happen. But what's going to surprise us at this point? Yeah, I mean, look, the macro is one element, then you can get into the micro with earnings. Your previous guest was talking about what could happen to earnings. So, you know, all of this goes

into the, you know, into the mix. But I think at the end of the day, when you look at, you know, what the market's doing, what it's telling us, there's just some signals that are not consistent with what we've seen at bear market lows and one of them you know we've talked about this before the vix curve every major market bottom over the last 15 years has not culminated until you've seen a 10 point inversion in the vix curve meaning spot vix is at least 10 points above second month future we haven't seen that at. We haven't even gotten close to that at all this year. And then the second point is, we looked at the S&P on a monthly basis back to 1929, and every major bear market bottom, meaning when you've gone down 20% or more, we have not seen a market bottom until the monthly RSI has gotten below 42, with the exception of the 1987 crash, which wasn't really a bear market. It

was a three-month crash. So we're at about 47 on the monthly RSI now. So there's just a lot of things that suggest that we haven't seen the final low. Short-term trading aside around macro events, to us, that just speaks to the fact that, again, despite the fact that people say they're bearish or have capitulated, history says that we haven't seen that yet. So you must I mean, you're looking at mega cap, right? Microsoft new 52 week low today. Apple's had a nice little move off of its half of its worst levels of last week. Where do mega caps factor into your thinking here? Because they have to

somewhere given the size and ownership. Yeah, I mean, we talked about Apple on your show last few weeks, thinking that still remains vulnerable. If you look at the relative strength of Microsoft and Alphabet in particular, they're breaking to 18 month lows the last couple of the last couple of weeks. And then you look at, you know, sentiment on those, there's still over 90% of sell-side analysts that buy ratings on both of those stocks. So, you know, I think there's still some risk there. And then when you kind of look at, you know, how mega caps have traded and then, you know, typically what happens in bear markets, as bear markets unfold, you see, you know, you start with the smaller cap names rolling over

first. We know that small caps peaked, you know, about 18 months ago. And slowly but surely, we're seeing some of these mega caps roll over. So Google and Microsoft have certainly broken down. Apple, you know, looks vulnerable to us, along with Amazon a bit. And then you look at some of the low volatility names, you know, those defensive bond proxies. Those continue and conversely are showing very good relative strength. And typically you don't see bear market bottoms until the defensive relative strength peak. So, you know, you add it all up and it just smells to us like we're not quite out of the woods yet. OK, I appreciate your time. That's Jonathan Krinsky, BTIG, joining us in overtime.

It's not all doom and gloom out there, though. One investor says there is a big opportunity in one key area of the market. He has a few under the radar ways to play that. He'll tell us next. Welcome back to overtime. It's time for a CNBC News update with Shepard Smith. Hi, Shep. Hey, Scott. From the news on CNBC, here's what's happening. Just into our newsroom, Adnan Syed, the Baltimore man whose murder conviction spawned the Serial podcast, will be a free man today. A Baltimore judge just vacated his conviction in the 1999 killing of his then-girlfriend. Prosecutors said Syed's lawyers filed motions asking for a new trial. The prosecutors citing new evidence. The judge ordered him to be on home confinement until prosecutors make a decision within 30 days to

either drop the charges or try him again. Hurricane Fiona dropping torrential rains in Puerto Rico and now the Dominican Republic. More than a million people in Puerto Rico without power after that storm came ashore on Sunday. The flash flooding intense with the National Hurricane Center saying some areas could get 30 inches of rain by tonight. It's not expected to make landfall in the continental United States. And a powerful 7.6 earthquake rocking the Pacific coast of Mexico this afternoon. No reports of major damage so far, but a tsunami alert is in effect. Tonight, we're live in Puerto Rico with the latest on the storm damage, plus Wilfred Frost live from London on the Queen's funeral.

And we go inside a private astronaut training program. On the news, right after Jim Cramer, 7 Eastern, CNBC. Scott, back to you. All right, appreciate that, Shep. Thank you. That's Shepard Smith. Health care, the worst sector today, one of two to finish negative. Our next guest, though, says it's one of his favorite places to invest through the downturn with a high potential for deals. Joining us now, JMP security CEO Mark Lehman. Welcome back. It's good to see you here at Post 9. Deals. Wow. I mean, we haven't had any deals. There's no IPOs and near anything.

That's true. But last week, there were 15 deals on Wall Street of consequence, and 10 were life sciences deals. So it has been a drought. Before that, three weeks of no deals. Last week, 10 deals. That's a better backdrop for life sciences. We opening the spigot even more? Or actually, what makes you think that we are? Well, as you know, the market for life sciences actually got ahead of the NASDAQ, so it's been soft for a while. And these companies are six months further away from the market. That means they're six months closer to needing more cash. So there's a little bit of a denial phase that we've been through.

There's now an acceptance phase. And I think between investors and issuers, it's time to put some prints up because they need the capital to get data. Are we specifically talking about the XBI? I know you've highlighted that. Is that the place to be within health care right now? It's a place to look, right? That's going to be weighted towards much higher market cap companies. The smaller companies are the ones that have near-term data and probably have more thirst for capital.

But I often say there's no way to be a pessimist and be a life sciences investor. You have to be optimistic some of these things will happen. And I think you're seeing the deals happen where they're the market clearing price. So you're saying the XBI is better than the IBB? I think it's both are fine. What you want to find is the best companies within them. Life sciences is undervalued right now, given the data flow that we're going to see over the next 12 to 18 months. Okay. I'm glad you glad you said i just want our viewers to understand the difference between the two and y1 may be more attractive than the other at this particular time uh talk some names here krtx uh why do you like that one it's corona therapeutics the the you'll see how much that

stock's up this year they had some unbelievable data and schizophrenia they are going to hit other indications it's a reminder of how much these stocks can move when the news is good. And the news was spectacular a few months back. The stock's going to hit other indications. That'll be good for the stock. Okay. CYTK. Why do you like that one? Cytokinetics plays in the heart failure market. The stock has done exceptionally well over the last few years. Their best competitor got taken out by Bristol-Miles for double the valuation Cytokinetics trades at. So there's an umbrella of market cap there that I love. few years, their best competitor got taken out by Bristol-Miles for double the valuation side of Kinetics Tradesat. So there's an umbrella of market cap there that I love. Confluent CFLT. Another tech stock that has not done particularly well this year, another unicorn playing in a huge

TAM. And I think I'm very optimistic over time that they will garner some of that market cap right now. The stock trades right with the NASDAQ. But in terms of the large cap tech names that we love at J&P, like Snowflake, Confluence right there, large TAM, great management, it's going to execute over time. Well, so you make me think when you use that, you use the word unicorn, as did Scott Minard earlier today, this dislocation, he suggested, of these highly levered unicorns that have come down too much, that are once-in-a-generation opportunities. You subscribe to that? I think no two unicorns are alike, if that's a phrase. You have to pick your spots. A few years ago, we loved a company called Workday that wasn't doing particularly well, that had a large TAM. I think the names that we mentioned here will be

also ones that have a large TAM. You have to be optimistic to play these stocks. You have to be forward-looking. I'm part of a much larger company now. We sold our company to Citizens about a year ago. We were optimistic that they'd be a good partner. They're here in New York this week launching something very specific, the living portrait of New York City. If you're not optimistic, you don't love what's happening, you're not going to play in this market. We are optimistic about this.

I mean, you've got to be realistic, too, don't you? You do, but look, the stock market has had a pretty big fall in the first six months of this year. It's the worst first six months that NASDAQ has ever had. I don't think capital formation and innovation has slowed down at all. In fact, I look at these life sciences companies, they're down half, that 50 percent of the XBI is. I don't think the life sciences CEOs have gotten 50 percent stupider the lastBI is. I don't think the life sciences CEOs have gotten 50% stupider the last 18 months. I think we're going to have huge innovation, and you want to play the bigger names because you're going to have huge end markets.

All right. We'll see you soon. Mark, thank you. That's Mark Lehman joining us today. We are tracking all the action in the OT. Christina Parts and Novelos is at the NASDAQ with what's coming up. Christina? The crowds have spoken, and this time they have approved a deal for software firm Zendesk. And Ford is out with a pre-announcement. High inventory and inflation are definitely a concern. More details on Zendesk and Ford and much more after this break. We're tracking the biggest movers in overtime. Christina Partsenevelos doing that for us once again. Hi, Christina. Hi, Scott. So shareholders have voted and the majority want software firm Zendesk

to be acquired by both Hellman & Friedman and Premier, Premier, sorry, for $77.50 per share in cash. That's a buck below today's close of $76.55. Zendesk, for those that don't know, make customer service software and the company has pretty much struggled to keep business momentum going. The takeover transaction by Hellman and Permira is expected to close in Q4 of this year. Shares were moving, now they're flat. And shares of Ford moving in the OT after it reaffirmed its full year 2022 adjusted earnings before interest and taxes. Shares are down over 5.5% right now, and that's because of a supply shortage on parts as well as inflation that will run $1 billion higher than previously expected for its third quarter. Ford believes now that roughly about 40,000 to 45,000 mostly

trucks and SUVs will remain in their inventory because of missing parts and will be sold off in Q4. Earnings, keep in mind, are out on October 26. So again, shares are down 5.5% right now. And speaking of pre-announcements, Cognex, which makes systems to help improve automated manufacturing, announced it has increased its Q3 revenue guidance to about $195 million to $205 million. So that's higher than previously listed. The company says they were much quicker at fulfilling customer orders, and that's why they increased it. Analyst Day tomorrow, September 20th. Shares are up in the opposite direction of Ford, five and a half percent higher. Scott. All right, Christina, thank you so much for that. Still ahead, the dividend playbook with treasury yields rising. Are dividend stocks worth buying? That is the debate in Halftime Overtime.

It's next. In today's Halftime Overtime, yields of dreams. The recent rise in interest rates has left nearly 85 percent of stocks in the S&P 500 yielding less than the two-year Treasury. But despite this newfound competition from bonds, Joe Terranova is still finding attractive opportunities in dividend stocks. Both personally, I own and in the JOTI ETF, Blackstone, AbbVie and Merck. These are three names, strong dividend yields, reasonable valuation, mid-teens. So these are three instances where I think you could look away from the competition in a two year, right, that you're getting from bonds and say, OK, I'll own these companies. All right, joining us now, Douglas C. Lane managing partner,

Surat Sethi. Surat, I thought yields up, dividend stocks go down, no? Not all the time. I mean, Jyoti's right there. I think you've got to look at stocks that also increase dividends over time. So, for example, Merck does to his point. But, you know, stocks like we like, like J&J, J&J has increased its dividend over 30 percent in the last five years. Now that's ahead of inflation. Same with Coca-Cola. Those companies that are pricing power, you want them to raise their dividends in line, if not ahead of inflation. Those companies that are just holding dividends straight, some of kind of the utilities and some of the telecom, those are the ones that are going to get hit hard because that's where people will move the assets away from common equities into bonds because you can get that steady dividend on the bond side.

Do you think it's harder to sell investors on a strategy of dividends, though, in this current environment? We read you one of the stats, fewer than 16 percent of the S&P yielding greater than the two year. It's fewer than 20 percent yielding greater than the 10 year. That according to Strategas, is it a harder sell as a money manager with clients who are looking for some, you know, level of safety, if you want to put it there? It is a harder sell because equities have volatility and people have seen, especially through COVID, those stocks that had dividends actually went down worse than the market. But I think a good combination of good dividend producing stocks that are dividend grows, I call them growth and income, along with now you can buy bonds and you are going to get and you've seen it. You're getting

four and a half, five percent yields on corporate bonds that are three to five years out. We haven't seen that, Scott, in over five years. So I think it's a combination, but it is definitely a harder sell, especially for those investors who are scared of volatility. And dividend stocks have been volatile just as much as the rest of the market. Hey, Sir, before I let you run, I'm looking at this news on Ford that crossed a little while ago, and we could throw the stock up in overtime because it was taking a pretty good hit. They say the effect of parts shortages on their third quarter performance is going to be a little more dramatic than they expected. They did reaffirm their full year adjusted EBIT guidance. But nonetheless, they say inflation related supplier costs during the third quarter will run about a billion dollars higher than originally expected.

If Ford is saying that, wouldn't you imagine that GM would have some of the same issues? I do. I don't think this is going to be isolated. I think you're going to see this through the auto supplies. But you also saw it last week. GE said the same thing. So I think you're coming into an earnings season, which we've been expecting, where companies are going to start talking down, maybe kitchen sinking it, saying, hey, we have higher costs. Supply chains are really hard. We're not getting the products we need. Even though shipping times are shorter, it's just the products aren't there with semiconductors, other things. So we're going to see it. Good thing that they actually kept their earnings guidance. But the question,

Scott, what is going to be next year? If you're going to keep it this year, are you pulling in from next year just to keep this year? And I think the market's probably going to speak and say, hey, we don't believe you because you've also got a demand issue going on. At what point does the consumer say it's too high to finance or I have enough what I need and it's a slowdown? So I think this is something indicative of what we're going to see in the next three to four weeks of earnings. All right. I appreciate it. Appreciate your help on the dividend story and on this news, which is moving and causing Ford shares to decline by about six percent in overtime. Sarat Sethi, thank you very much. Semi stocks have been slammed this year.

One money manager, though, sees a buying opportunity in one chip name. He's going to reveal that one next in our two minute drill. It's time now for our two minute drill. Let's bring in Noah Hammond, CEO of Advisor Shares. It's good to have you with us. Let's let's talk for two minutes. Texas Instruments, your number one pick today in a space that is highly questionable right now. I think you would agree. I would agree. But if you're going to be long stocks, you want to be long a stock where there's some demand. So we're really focused in on buyback as we get to the volatility. And as you know, Texas Instruments announced a 15 billion dollar buyback that was on top of an eight billion dollar buyback. So their

numbers have been strong. Their margins are good. 30 percent range. They've seen some weakness in the personal electronics space, but growth in the auto and the industrial space. So for the stocks that you're thinking about buying in this fall to market or that you're holding already, you want to buy where there's demand. And so that's nice demand for Texas Instruments. Man, you're living dangerously. Number two pick is Paramount Global. I know you've seen that stock recently. Yep. And it's the same thing. Demand. And I use the phrase diamond hands for this. Right. We haven't heard that in a long time because I know things have gone quiet in the crypto space. But you have Warren Buffett, who bought sixty eight point nine is the number I had. Million shares in Q1. Another nine point five million shares in Q2. He's not likely selling them anytime soon.

We all know what type of an investor he is. On top of that, they have their own buyback going on. So if you're going to be long stocks again, be long where there's demand. OK. Credit Acceptance Corporation, CACC. They're a subprime auto lender and you are short. We are short. And so this is a little bit of a ripple effect, I guess, maybe from the pandemic, right? We saw auto sales go up like crazy during that time frame. You couldn't even find a used car. You were getting amazing prices for your used car. And we've already seen the domino start to fall a little bit, right?

With CarMax and Carvana, you know, have had their troubles over the last year. And that was really more of a demand trouble, right? Coming out of it. And now what's next is probably people who maybe have overextended themselves a little bit, especially in an increasing interest rate environment. Right. You guys have just been talking about that. It's going to be challenging. And so we see them struggling and they struggled quite a bit this year. But they're trading at multiples if you compare them to an ally. Ally trades at about one time sales, whereas credit acceptance corp is trading at three time sales. So we see them struggling for a little while longer. Appreciate the time.

Noah, thank you. Thank you. I'm joining us in our two minute drill. Excuse me. Up next is Santoli's last word. We're right back. All right. Welcome back to Overtime. The results of our Twitter question. We asked you, what is the best way to play defense in your portfolio? Right now, 42%. I said, good old cash. Interesting.

Mike Santoli is here for his last word. Do you want to respond to that? Do you want to respond to Josh at the top of our program today? Kind of interested in Josh's take. I don't disagree in broad terms with this idea that we have the makings for something like that. I'm not sure I would look at today's action and say, OK, we got the triggers. They fired and now we have one of these rallies. It basically is the June bottom replay.

In other words, a spike peak in the two-year yield. You actually had a much more aggressive surge in the two-year yield, went steeply higher in mid-June. You were right at a Fed meeting, June 15th, 16th. That was also coinciding with the lows for stocks. And in general, you got very oversold conditions firing. My thought has been since the August highs, the mid-August highs, was that you wouldn't have to get as low as you did in the S&P in June to get similar types of oversold technical readings. That's starting to develop things like took call ratios. More broadly speaking, I don't think the VIX is much of a signal at these levels, even if it didn't go up much, because the index itself, the S&P, was not doing a heck of a lot.

So in those environments, it seems to me it's just kind of going sideways. But otherwise, it's fine. Look, we only got back today one-seventh of what the S&P lost last week. So you don't want to make too much of just kind of this mechanical action. But I see the inputs to that kind of a call. And look, I mean, he emailed me at 2-28. Yeah, exactly. Before it even started.

I get it. Which I thought was interesting in and of itself. Now, Adam Parker raises the point. There's still this this hope, if not for a pivot, that the Fed is not going to be able to do what it wants to do. And he's like, well, how is that bullish? Because if that if that happens, it means the economy is rolled over so hard. Yeah. And that's positive for stocks. So you have that, too, without a doubt. And I think one of the frustrating things is there isn't the makings of a of a clinching argument either on either the recession or no recession side in the next few weeks. All you can hope for, perhaps, is this idea that the terminal rate for short term rates is in sight after this Fed hike, presumably on Wednesday. And then you can work from there in terms of whether the overall economy can be resilient against that.

If Powell says, sorry, I think we could get unemployment up to 6% and still be hiking rates, I mean, obviously that's not going to be taken well. Yeah. No argument equals trading range. Thank you. All right. That's Mike Santoli. We'll see you tomorrow for your last word. I'll see everybody back here at the desk as well. Fast Money begins now.