Closing Bell - Closing Bell Overtime: Behind Stocks’ Recent Resiliency 06/02/22

Episode Date: June 2, 2022

Stocks continued to bounce in today’s session, despite hawkish Fed speak … but how long can the resiliency really last? Hightower’s Stephanie Link gives her expert take. Plus, instant analysis to Lululemon and Crowdstrike earnings results. And, Mike Santoli with his “Last Word” on what the market is “wishing and waiting” for ahead of tomorrow’s key jobs data.

Sarah, thanks so much. Welcome, everybody, to Overtime. I'm Scott Wapner. You just heard the bells. We're just getting started right here, and we are packed today. Earnings from Lulu and RH and CrowdStrike dropping any moment now. We will also speak to StarTech analyst Dan Ives on the Microsoft Guide down to see what it really means to your money. Right now, though, we begin it, resiliency of the stock market, which not only brushed aside hawkish comments from Jay Powell's co-pilot today, but that buzzkill from Microsoft. So what does that say about the state of this bounce? Let's ask Stephanie Link, Hightower's chief investment strategist and portfolio manager, of course, a member of the Halftime Investment Committee as well. I mean, you had a number of reasons why you could have gone down today and initially you did. But I don't know, is the resiliency the right word to use? I don't know about that. For right this moment? I don't know. Maybe for today, right? I mean, it felt good today. That's

the kind of market we're in. That's the kind of market we're in. That's the kind of environment that we are in. We have a lot of unknowns out there. We've talked about them, inflation and the Fed and war and China. Is it reopening? Is it not? All of these things. So I think as a result, we're in this trading range. And I think it's going to be choppy until September, Scott, right? Until we get clarity on what the Fed is going to do. Quite frankly, I'm looking at the economic data and I'm thinking they could go 50, 50, 50 in September. Well, Brainerd was, I mean, look, the moment that Brainerd told Sarah today that, you know, it's not like you do 50 and then you do 50 and then September, we're done. In fact, she said the opposite was likely the case or could be the case. The market didn't

like that because the market sold off on those comments. Then I used the word resiliency. Look, and fine, if it's just for today, it's for today. The market didn't stay down. Yeah. The market didn't stay down, which is interesting to me. Yeah, it held its gains, right, which has been the opposite of what we've been seeing as of late. When the markets rallied, they sell into it. But I just don't think we're out of the woods just yet. Oh, no. I mean, that unit labor cost number was appalling at 12.6 percent, right? And the productivity number, even equally as abysmal, down 7.3 percent. So the Fed is going to have to continue to be much more hawkish, I think.

And so to rally today, especially long-dated assets or long-duration assets, I think that's pushing it a little bit. But I want to get back to the economy, because it's not all terrible. It's not all gloom and doom. We know the consumer is a little rocky right now. I'll give you that. And that's 70 percent of the economy. But do you look, the ISM manufacturing numbers were actually very good. They're expanding 24 consecutive months. Chicago PMI was good. I know, but the economy is slowing. It is, but it's not. And it's going to continue to slow. But you're telling me you're far away from the hurricane camp? Recession. You're still on the beach with the umbrella and everything, and the sun's still good?

No, the sun's not still good. It's partly cloudy. How's that? Or partly sunny. I'll give you the glass. Partly sunny. See, you always spin it that way. But I try, right?

I mean, I'm looking for opportunities, right? And I have found some opportunities. I have been adding to some positions. Freeport-McMoran, for example, I added to. Estee Lauder is a brand-new position. What was interesting about today, Scott, is you had the reopen names actually work and outperform. And I do think that is because China is reopening and people might feel a little bit better about global demand. It's not all perfect. Europe is definitely slowing. We are slowing, but I don't see us

in a recession. All right. So we got earnings coming up, as I mentioned to all of you from CrowdStrike and RH and Lulu. And we're on the lookout for that. We're going to get the instant reports and the stock moves for certain. But Microsoft, because we didn't talk about that yet. No. Really. What do you make of it? It was explained away as, oh, it's just FX. It's nothing fundamentally changing about Microsoft.

Now, look, anybody can spin anything they want to try and tell the story they want to tell. The fact of the matter is, is it was Microsoft, and they did guide lower, even if it was just a few pennies either way in the range. And they're very consistent with Salesforce, right? We learned that as well. And I think you're going to hear from a lot of other companies. 40% of the S&P 500 companies have revenues overseas, outside of the U.S. So they're not alone. So I think you're going to hear more and more. And I think they can explain it in a way, as long as the fundamentals of the story don't change, as long as cloud doesn't change, right? Enterprise doesn't change.

And enterprise, quite frankly, we've gotten some great data points as of late from NVIDIA, from Zscaler, Salesforce. Right, Salesforce. So a lot of companies are saying some good things. But you don't look at Microsoft and say, OK, FX is a problem for every multinational. And you look through your book of stocks and you say, OK, that one could be at risk. And then that one could be at risk. Are you thinking about that now after Microsoft? I do.

Who do you think about? Technology. They're the most exposed, right? And then staples and then materials. So all three of those are actually at risk. But again, if the fundamentals of the story are good, you could exclude the FX. I think you can move along. The problem with Microsoft, Scott, is that 28 times forward estimates.

Now, I know it's come down from 38 times, so I'll give you that, but it's still expensive. So there's other places in technology that you can certainly be picking at. Now, I don't know about you. I'm looking forward very much so to RH, the earnings. Why? Because do you remember what Gary Friedman, the CEO, said a couple of months ago the last time when everybody sort of laughed at him when he said it? He said the following, and I think all of you remember this,

and that's why I'm paying such close attention now. I don't think anybody really understands how high prices are going to go everywhere, in restaurants and cars and everything. He said, I wouldn't call it happy days right now. I'd call it pensive days. Be ready. In my 22 years here, I wouldn't call it happy days right now. I'd call it pensive days. Be ready. In my 22 years here, I've never been more excited. I've also never been more uncertain. People snickered after that. No, I know. They're like, what's he talking about? Everything seems pretty good. Now, after Jamie Dimon talks hurricane, now

I want to hear what he has to say. He's got a good view of a more affluent customer. He gets a lot of stuff from China. So there's supply chains and everything else. And that's why I think this report takes on more importance than perhaps it otherwise might. It absolutely does. And high end is hung in there much better than the middle income consumer. Hold your thought for a second. Lulu's out.

Kate Rooney has it. Hi, Kate. Hey, Scott. Lulu Lemon with a beat in the first quarter. Guidance is also looking stronger than expected and overcoming those higher costs with strong demand and strong sales in the first quarter. Let's start with the bottom line. EPS was a beat by 5 cents. That was $1.48.

Revenue also a beat coming in at $1.6 billion, better than expected. It looks like revenue in North America grew slightly faster. That was up 32% in North America versus 29% internationally. Gross margins were a bit below estimates at 53.9%. ComStore sales up 28%. It looks like operating margins were a bit light as well. But second quarter revenue and EPS looking stronger than expected, as well as that full year guidance at the mid-range on revenue better than expected. Same here with EPS. Scott, back to you.

All right. That sounds good. We'll be back to you with RH. I know. Kate Rooney, thank you very much. Your favorite word, margins. Now, I know the stock is reacting. It is your favorite word.

It is my favorite word. At least when it comes to earnings. Stock's reacting positively's a beat on the on the top and the bottom but at some point you have to focus on margins pricing power what your costs are elevated because of inflation supply chains and everything else how much you can charge for your goods even if you have as i said more affluent customers you're at the higher end of the spectrum people are willing to pay up more perhaps than they would be at the other ends of retail. What's your take quickly? These have, this company has pricing power, though,

and some of the other companies that have disappointed on margins don't, right? I think Walmart and Target are actually going to start lowering prices and be more promotional as a result of their margin pressure. So I think the stock, the setup was fine, down 21% into the print. And they just had an analyst day, by the way, in April, April 20th, where they reiterated long-term algorithm targets. And 15% CAGR in terms of total revenue. I think that's when the stock ripped. Yeah, it did.

It did. But it's down a lot, right? So this is one I would love to get. You know, I really would. You've always been a Nike person over Lulu, but you've said Nike's too expensive of late, right? It is. Well, it is. They both are very expensive. So, you know, I'm so I'm opting for something like Starbucks, different animal,

but same kind of compounder over the long term. That's down 39 percent. All right. You just stay with me. And we're still waiting, as I said, on CrowdStrike and RH. We'll have those for you as soon as they break. We have a supersized panel for you today, too. Let's bring in Greg Branch of Veritas, Jason Snipe of Odyssey, and Wedbush's Dan Ives. You know, I was going to go to Dan first on Microsoft, but frankly, you know, Jason, give me the quick read here on Lulu, what it says to you about the customer since that report just came out and we're going through it and looking at a stock that looks pretty good right now. Yeah, Scott, I mean, I like the print here, obviously a Revbeat, EPSB. They've been really consistent.

I think they've beaten 18 in the last 20 quarters or 21 quarters now. But this is a read-through on the higher-end consumer, as Steph mentioned. I think that is what's really important to pay attention to. You know, it's been kind of a foggy picture of retail, and a lot of the retail names have been under pressure. But companies like Lulu that have a consistent consumer base, this is a good play for them. This is a good print for them, and it just shows you the power, pricing power, you know, in situations like this and as they move through the quarter. So I like the print, and I think there's an opportunity here.

It's still expensive at 32 times forward, but it's a nice print here. Yeah, we're going to get crowd in just, actually, I think we have it now. Frank Holland has that for me. Frank? Absolutely, Scott. I do have it right now. Shares of CrowdStrike actually down right now, about 3.5%. We're actually looking into these numbers, trying to figure out exactly what's causing that after a beat on the top line, a beat on the bottom line. EPS actually 8 cents above estimates. Guidance for the quarter as well for the full year, strong and above estimates as well. Operating margin even three percent better than estimates. Cash from operation better from estimates as well. Still digging through these numbers, but again, shares of CrowdStrike down three percent after a beat on the top and the

bottom line and very strong guidance. Back over to you. All right, Frank, I appreciate that. You let us know when you have more. Their crowd always beats, right? They'd be like, this is like the 13th out of 13th time that they report and they beat. Now it's all the other stuff that matters. And this was a $300 stock, by the way. So it's obviously been cut down. Cyber's hot. You like, what is it, Fortnite instead? Why? Well, it's trading at 13 times price to sales, which I hate that metric, but it is what it is. This is trading at 27 times, right? So it's much more expensive. But security is where you want to be. The total addressable market is huge.

And so you just pick the name that you like the best, the companies that can execute. Fortinet has done a very good job in terms of execution and changing their product cycle story. Greg Branch, it's good to have you back with us. What do you think about CrowdStrike? As I said, I mean, them beating is not the biggest story in the world because they usually do.

They have delivered. And like you also intimated, for whatever reason, this sector has struggled to find a floor despite having some of the strongest visible secular tailwinds in the entire technology space. I mean, let's think about this for a second. As we move to corporate digitization, we're still probably in the mid to early innings of that. As we shift it to more remote work, as the corporate and government circles have had a greater awareness of the ever-increasing threats on a daily basis, we need a cloud-native layer of protection. We're going to need that in increasing amounts. And so there's a lot of runway for this sector. There's a lot of runway for CrowdStrike in particular, always delivering with a beat on the top and the bottom line.

It's like the Linkster likes Fortnite better. Dan Ives always tells me that Palo Alto's the table pounder, not CrowdStrike. Why? Look, I mean, Palo, to me, that's the best way to play what we're seeing in cloud security, along with

Zscaler, and I think that's a re-rating play what we're seeing in cloud security along with Zscaler. And I think that's a re-rating name, continues to be one I think is underappreciated by the street. And I think what we're seeing, just like Stephanie's talking, Fortinet, we see it in CrowdStrike, see it in Zscaler, you'll see it at RSA next week. Cybersecurity, pillar of strength in this market, and in my opinion, it's an oversold sector. What about Microsoft? Let me just steer you in that direction as we wait on RH. You basically tweeted today, this is my word, not yours, that it was a nothing burger. Why so? Because I view FX, the New York City cab driver, knows that there's FX issues. So when they talk about FX, just like Salesforce, and also importantly,

if they were seeing any softness, they would have cited it in that EK. They did not. The knee-jerk reaction down 3%, 4% in this jittery market. I get it. It was an overreaction. I continue to view this as when the street already knows this. Moving forward, I view Microsoft on the cloud store. We are not seeing any cracks in the armor, just like Salesforce, just like we saw in Zscaler, as well as Palo Alto.

We're going to get to RH in just a moment because I see that it's out. Our Kate Rooney is going through that as we speak. I do see a beat, though, on the top and the bottom. Mike, can we throw that up, guys, and see what it's doing in the OT? I see also an additional $2 billion share buyback for RH. The issue, of course, is going to be the guidance. There's the stock. It's down a touch as the company looks at revenues. Kay Rooney, I'm going to you now. Revenues declining 1% to 3% versus up 5%. So that's a big difference there versus the actual versus the estimate. What else

do you see? Yes, Scott, so you mentioned the guidance. That's what looks to be weighing on the stock here. They're talking about full-year revenue guidance and growth of net revenue between 0% and 2%. 6% was the expectation. They talk about softening demand and some of the trends in Russia. I want to read you a quote here. It says, despite our record financial performance in the quarter, we have experienced softening demand trends,

which began the time of the Russian invasion of Ukraine and have further slowed during the market disruption over the past several months. It wasn't beat otherwise for the first quarter and that $2 billion buyback, but it seems like the guidance here is really what's weighing on shares after hours. Back to you. I guess we have to wait for the call to get the good stuff from the CEO. Right. Because, I mean, I reference what Gary Friedman said the last time. I wonder, Kate, given their guidance, if he's going to have similar comments to make or if he's going to temper them in any way.

It does seem like that's what we're waiting for here. The commentary on that, the demand and what they're seeing as far as supply chain. It looked like they did outperform in the first quarter and it looks like EPS was a beat by more than $2. So it'll be interesting to see kind of what accounted for the Q1 beat, why they're seeing demand looking so soft in some of the commentary. But we'll get that at the end of the hour here, it looks like. Yeah. All right. You pop back on if you have anything else. That's Kate Rooney.

Jason Snipe, let me go back to you. Just let's spin it overall market. Right here we are with the number of reasons you could have pointed to today to go lower. In fact, we did not. We fought our way back and we pretty much, I think, closed around the highs of the day. Does this rally have much more to it? What do you think? Yeah, so I, you know, when I look at Brainerd's comments earlier today, and, you know, just kind of the autopilot discussion that a lot of folks are having today, you know, my thoughts were on, in my view, really, when what she said was, you know, June, July, yes, we're hiking, but they, data dependency, and I'm sure folks get tired of hearing that, but data dependency is going to be important to them.

They're going to watch us very closely, watch the markets, watch the street, watch what's happening in the economy. I think all of that is going to be very important to the Fed as they look to make decisions in September, right? I don't think there was a clear-cut decision on, hey, in September, we're going to shoot to move. But I think the data dependency conversation has been important. That's what really resonated with me. And obviously, the economy is slowing. If you're looking at auto numbers, if you're looking at ISM numbers, payroll numbers, all slightly softer than

they were last month. But I think those are also important pieces. And the Fed is watching that closely as well. So let's see how the market and the street and the economy handles this on their own. And obviously, QT started yesterday. So that will get underway. And all this is a confluence of a bunch of things for us to kind of make a decision on how we move forward in the second half of this year. But let's be clear, Jason, and I know better than most because you are on the halftime show, you're a member of the committee as well. and you've been fairly negative and cautious lately. Do you remain so, or are you coming around to the idea that, you know what, maybe we did put in a bottom for a while. Maybe we can pull this off.

Maybe stocks can move higher. What do you think? Yeah, so obviously I'm weighing all the concerns and all the headwinds in the economy. I do think the second half will be stronger than the first. I do think that, you know, as I look at the S&P trading at 16 times earning versus where it was early in the year 20 plus. Yes, there are some names that have become far more valuable, far more attractive today than they were six months ago. And I think that's how I'm looking at the economy now and looking to add to positions that I think are trading at a far more fair value than they were, you know, a quarter or two ago. So that's how I'm looking at the market.

I do think there's obviously obstacles and challenges that we need to work through that's going to present more volatility. But I do think the market is far more attractive today from a pricing perspective than it was, like I said, a couple of quarters ago. Yeah. Now, interesting looking to add rather rather than looking to subtract, which I think I recall you saying you were looking to do. And Greg, you've been fairly negative, too. You thought maybe we could get a bounce.

But over the longer period of time, you were about as negative as anybody who's come on over time. Has your position changed at all? It has not. And I'm going to repackage that argument I made to you a month ago. I do think that the bear market rally can continue throughout June. We'll likely get very soft job numbers. We'll get that easement that the street is looking for down to the 300 and change level based on what we saw from ADP today. But more importantly, what I think will happen is we're running up on a year ago compare of 5% on CPI. And with a compare that high, I would be surprised if the CPI number didn't have a six or a seven in front of it. And

I think that that will be enough to put people's minds at ease and get them back into a buying state of mind. But on the other side of June, I do think that the downward revisions that we're going to face, that some of these warnings and negative surprises that we're going to face are going to get people refocused on some of these macro issues that aren't necessarily going away. Dan Ives, you heard Stephanie Link say, when I said, when you're looking down your portfolio,

what are you most concerned about? And the first thing she said was tech. You keep saying that tech's a buy, that these stocks have come down so much and dare anybody suggest otherwise, or you call them a hater. But are these not enough issues to at least be concerned about for whatever the guide down reason is? I don't care whether it's FX. I don't care whether it's fundamental. The fact is reduced earnings are reduced earnings. I understand. But I believe you've got to view it as a have and have nots in tech. The consumer-oriented, I'm not going to compare a Snap to a Rocker Gibraltar stock like a Z-Scale or a CrowdStrike.

I view it as enterprise, it's cloud, cybersecurity. Valuations to me are, I believe, have overcorrected on the downside. And right now, we're not seeing in the cracks in the armor, just like NVIDIA to Palo to Salesforce, that I'll call the haters, we're expecting. And I think that's important, as this all plays out in the second half. You call them the haters. At least you're consistent. Dan Ives, I appreciate it.

I know you rearranged something to be with me on the phone here, and I'm greatly appreciative of that. Greg, Jason, I'll see you soon. You got a quick last word before I let you go? Yeah, I'm always looking for fundamental ideas, right? And we've had a lot of opportunities. So I think you just got to get your pencil sharpened. And I have a little extra cash on the sidelines. So on these really big down days, you have to take the opportunity to buy.

All right. We'll make that a tease because you are coming back with a new buy. So Steph will be back in just a little bit with a hidden tech play that she is buying right now. Let's get to our Twitter question of the day. Now, we want to know, with the Nasdaq up more than two and a half percent today, what is the best tech play right now? Is it the cloud, chips, cybersecurity or other? You can head to at CNBC overtime on Twitter. Please vote. And we will bring you the results later on in our show. Up next, can stocks avoid the June swoon after all of May's wild market swings? Fund Strats Mark Newton thinks, well, I'm not going to tell you what he thinks. I'm going to let it hang out there for a couple of minutes.

He's going to make his case. Remember, he's Tom Lee's technician. He's going to tell you what he thinks about those lows. Are they in? We'll find out. All right, we're back in overtime. It's certainly the most pressing question in the market today. Are the lows in or are our stocks still poised to head a lot lower as fears over Fed tightening only intensify? Let's ask Martin Newton. He is Fundstrat's global head of technical strategy. Back with us. Nice to see you again. Your big headline today is, quote, Increasingly, I am of the opinion that lows could be in for the year at the very least. Why do you think that?

Well, Scott, there's two important reasons. One is that the S&P, the Dow, and the transports have actually regained prior levels that were broken. So structurally, the markets are looking more sound on a short-term basis. The second is that technology has come back with a vengeance, and that is very important, of course, to the market, with tech being at 28%. So we're seeing now leadership out of not only the consumer rebounding, but also now technology is rapidly starting to come back. So those are two big bullish things.

Of course, as you know, you know, my toolkit includes quite a few different, you know, areas and methodologies, including Elliott Wave and Gann. And so, you know, a lot of the cycles suggest that, you know, late June is important. My thinking is how this all will proceed is really a rally into the Fed meeting. And then we probably back off a little bit into late June. But my thinking is it's right to be long and simply use any dip to buy between now and the next month. Wow. Rather than any pop to sell. I mean, because I can't find that many people who agree with you. Right. I mean, everybody's gotten so negative and maybe that's a sign in and of itself of a contrarian way to look at things. I don't know. But you know what I'm

saying. It's people expected a bounce. Are we being fooled into thinking it can actually be something more? You know, I started to see a real sea change really about a week ago when people went from buying dips into now a lot more people started to project down to thirty five hundred in the S&P. And that was a big change. And so, yes, sentiment has been bearish for a while. We didn't really see the proper evidence of capitulation that I was hoping for, meaning VIX backwardation or inequity put the call above one. We did see a pretty critical piece of evidence back on May the 20th when we bought them, was that we saw a huge overbalance of selling. We saw trend readings up above 3.5. For those that don't understand, that just means there's been a lot of downside selling that happened literally right at the lows. And so

normally, that gives you a little bit of evidence that we're getting very close to capitulation. So I've been encouraged with the sector activity in the last couple of weeks. And the prices have moved up enough that I think we likely have bottomed. And I'll be using any pullback into late June to really add to longs. You know, Tom has built his case largely on the back of inflation peaking, right? He cites that every time he puts out a bullish note. Forgive the background noise. They're setting up for something here at Stock Exchange. Brainerd, though, wasn't willing to go anywhere close to that today. She needs to see a more

consistent release of reports before she's willing to say it's peaked. Is Tom putting the cart before the horse? I don't believe so, Scott, only because my own inflation cycles show inflation waning towards the latter part of this year. Over the next few years, it should be going steadily lower. I think as the Fed catches wind of this, that they will end up pivoting. I think that, you know, naturally we could see signs of energy pulling back a little bit. That'll be helpful towards inflation. Tom already mentioned, you know, that we see signs of layoffs in May have hit the highest level since 2020.

So the Fed is achieving what it wanted to accomplish. You know, tightening the economy is actually causing, you know, jobs to start to recede. And we're seeing an increasing layoffs. Those are all helpful to the inflation picture, in my view. All right. Mark Newton making his case right here in overtime. I'll talk to you again soon. Thanks for being on today.

Take care. All right. Up next, raising the red flag. Our next guest says investors need to beware of the reasonable valuations traps. He makes his case after the break. Overtime's back after this. All right. Welcome back. It's time for a CNBC News Update with Kelly Evans. Hi, Kel. Hi, Scott. Hi, everybody. Here is your CNBC News Update at this hour. A New York appeals court has upheld Harvey Weinstein's rape conviction. The 70-year-old disgraced movie mogul is being jailed in California where he was extradited last year. Weinstein is serving a 23-year sentence and is awaiting trial on charges he assaulted five women in L.A.

and Beverly Hills between 2004 and 2013. And officials in Tulsa, Oklahoma, holding a news conference today to discuss yesterday's mass shooting inside a hospital complex. The Tulsa police chief saying the gunman was targeting a surgeon he blamed for ongoing pain. And all three hospital employees, including the surgeon and one patient, were killed with an AR-15 style rifle and handgun. The House Judiciary Committee meeting today to mark up the Protecting Our Kids Act concerning tighter gun control laws. Meanwhile, in the Senate, a bipartisan group is working on a compromise that will attract enough Republican support to pass a new gun safety law. Tune into the news tonight at 7 p.m. Eastern.

We'll have more on the Tulsa shooting and coverage of President Biden, who is expected to make a primetime address on yesterday's tragic events. I'll see you all then. Scott, back to you. All right, Kel, we'll see you then. That's Kelly Evans. But where are the value traps? That is our next guest's headline. Manish Despanda is head of U.S. equity strategy and global equity derivative

strategy at Barclays with us now. Good to see you. First and foremost, before we get to the thesis that you have, what do you make of the call that we just got from Mark Newton that we might just have seen the bottom for the year in stocks? So I think that is a fair conclusion to some extent. I think, you know, the only reason why equities could rally from here is really this thesis that inflation, you know, is not here to be persistent and it will come back by itself. I think if that plays out, then that's certainly one reason to be optimistic. That would obviously allow the Fed to pause a little bit and that could be positive for risky assets. Wow. I'm frankly surprised, Manisha, you didn't dismiss that out of hand. I was fully expecting you to say that you're taking the other side because the whole point of

your case today is that you don't think valuations have contracted enough. I think those are two separate points, right? So valuations, so the point of the note that we wrote is really that sort of was stemming from a lot of the comments we got from investors saying that investors have reached, you know, sort of fair valuations, and so it's a good buying opportunity. So we are saying that that may be a bit of a trap. And the reason is that, you know, if you think of the pre-COVID valuation as a reference fund, and that's what most investors are doing, that would be a false benchmark to use, because clearly the macro environment is completely different as compared to what we had pre-pandemic. In particular, you have inflation, the Fed is hiking, you have the US-Russia war, you have what's happening in China. So there's a lot of

other things happening. And so we really need to take a step back and say, given these macro conditions, where should fair valuations be? And those are certainly, you know, those based on the way we look at it, inflation is a big component. And so if inflation were to remain persistent, then valuations are not fair at all. However, of course, if... I'm sorry, forgive me. Go ahead. Yeah, exactly. But of course, it all depends on where inflation ends up. And our base case is indeed that it should remain persistent. The Fed is not going to pause in September. But if that proves...

The market is right now, today at least, is banking on the fact that it is not going to be persistent. And so there is a bit of optimism here. But our base case is that that should be faded. Base case is that valuations need to contract by about 10% more. Is that right? Potentially more than that,

given the direct, you know, dependent, I should say, on the direction of inflation? Exactly, yes. So if you think that inflation, where it is right now, what's forecast for the next few years, that proves to be persistent,

then valuation needs to contract by around 10% over the next six, seven months. And quickly, before I let you go, what about technology? Have those valuations contracted enough? So they have, obviously, they rent up a lot and they have also contracted quite a lot. So within technology, I think we need to look at versus, you know, we need to look at certain pockets.

So in particular, we do like FanMax, which has sort of become cash cows now. And secondly, we also like stocks exposed to the cloud infrastructure kind of theme, which we think has legs. So some pockets of technology are attractive, but broadly speaking, not really. It was good speaking with you today. We'll talk to you soon. Manish Deshpande of Barclays joining us here in overtime. Coming up, semis have been slammed in the first half of the year. One money manager, though, betting on a big bounce back for a key name in that sector. That's in our two-minute drill just ahead. But first, we're breaking down, as we always do, all of the big movers in overtime. Christina Partsanovalos is tracking the action for us as always. Hi.

Well, today's theme, a smaller than expected loss for several software firms. And yet another retailer blaming higher labor and freight costs for their earnings miss. I'll have the details in less than three minutes. Stay with us. All right, we're tracking the big movers in the OT. Christina Partsanovalos, of course, doing that as always. Christina? Well, Scott, we're seeing Asana shares right now trending almost about 7% higher. This is the company that provides work management software.

And although it beat on the top and bottom line this quarter, the company sees a bigger than expected loss in the second quarter. And I should correct myself. I meant to say 7% lower. Moving on, another beat from software company PagerDuty, which gets three-fourths of its business from the United States. It posted a smaller than expected loss again with a modest raise for the full year outlook. Shares are up, this time 3.5%, but still up 45% from its 52-week high. Another company posting a smaller-than-expected loss, software firm Okta. Shares right now surging above 16%. The company sees Q2 revenues above estimates along with a smaller-than-expected loss for the second quarter. Same scenario for

its full-year guidance, but the stock is doing a lot worse when you compare it to its 52-week high, down 66%. And then lastly, shares of retailer Zoomies, known for its sneakers and accessories for teens. They posted net sales that dropped almost 21% from a year ago this time. The earnings report highlighting cost issues. The CEO saying they see headwinds from, quote, labor and shipping, logistics costs, as well as a shift in timing of certain marketing and training investments that resulted in us, them, missing our EPS guidance. We should note Zoomies has a market cap that is very small, less than $1 billion,

not very small, but smaller from what we normally cover, about $666 million. Shares are down almost 9%. Scott? All right. Christina, thank you. Christina Partsanovelos with the latest for us there. Up next, Halftime committee member Stephanie Link is back. She is adding to what she calls a hidden tech play. It's a new buy. Interesting one, too. We'll talk about that next. Plus, wishing and waiting. Mike Santoli breaking down what the market seems to be hoping for from tomorrow's jobs report.

Overtime's back after this. All right. We told you about a hidden tech play. Our next guest, Stephanie Link, was buying today and she's back with us. Hightower chief investment strategist, member of the Halftime Investment Committee. And the name is, drumroll. Slumber J. So I have owned Slumber J for a while, but I've been buying on the dips because it is a hidden technology play. These guys make their customers more efficient and more productive, and they have pricing power. So, for example, the time from discovery to production used to take five to eight years. It now takes two. So these guys have size.

They have scale. As I mentioned, pricing power. Their margins are going higher in a very challenging margin environment, Scott, that you call me out on a lot. But they also have international exposure as well as offshore. And I think those are going to be the next legs of growth for oil field services companies. Schlumberger is just the best. I don't call you out on it. I just, I mean, it's like your favorite word.

It is my favorite word. Now, what's notable here is that this is now your largest energy position over Chevron, which you have owned and loved for a while. Forever, yeah. So why does this deserve to be bigger in your book? Because I want more alpha generation, right? I mean, Chevron's great. It's wonderful.

It's still a big position, but it's kind of the boring Chevron. It's a boring oil, right? It has a nice dividend, not a lot of beta. Schlumberger has a lot of juice to it, so you have to be patient. But that's why I've been buying it on weakness, and I don't have to buy or chase into strength. But this says that you're still bullish on energy. I'm doubling the benchmark.

Wow. So it's now 5% of the S&P, by the way, from, like, what, one? I know. So I want to read you something, what Mark Newton, who we interviewed from Fundstrat, was talking about. And he briefly mentioned it in passing, but since you're here, I'll have you react. Russell rebalance could bring about selling in energy as this switches more to growth from value, while technology could also see big imbalance, selling rumor and buying news end of June. I mean, and he's not the only one who's suggesting, by the way, that you could have money

coming out of energy. I feel like I feel like people missed energy and I feel like people didn't believe it and they're not buying into it. Now they're mad. They're angry. I don't know. Look, all I know is I see value where I see. I see value. I see a company that just raised its dividend 40%, and the free cash flows, given where oil prices are, are enormous.

These companies are printing money. So I want to know where the puck is going, right? And I think that earnings are going to be a lot higher, even in six, eight, 12 months from now, maybe even longer. And so I still see value. So even if there's some kind of positive headline or resolution, dare I say, out of Ukraine, and oil goes down hard that day, which is likely to be the case, I think we can creep that. These stocks aren't going to follow? They will. They'll get hit hard and then I'll buy more. Oil was at $80 before the war, Scott, because of the structural

changes that are happening in the energy sector, right? So these companies only need oil to be $40 to make money, to break even. So that's a lot of leverage. All right. Stephanie Link, thanks for sticking around. Thanks for having me. All right. We'll talk to you again soon. Coming up, it's our two-minute drill, why our next guest thinks a massive rally could be on the horizon. That is after the break. And coming up at the top of the hour, stocks shrugging off a big warning sign from Microsoft. As we said, top of our show today, Fast Money, the crew, is going to break down all of that action. Overtime is back after this. It's time now for the two minute drill.

Joining us now is John Mowry, NFJ Investment Group chief investment officer. Is that the tease that I read? Is that is that right? You're looking for a massive rally. We are bullish, Scott. Thanks for having me on. Yeah. Tell me why. So particularly when you

look at the more cyclical areas of the market relative to the more defensive areas. So if you look at utilities and staples relative to technology and consumer discretionary, you've got the widest valuation spreads today going back to March of 20. And I don't think that's gotten enough press. So we are very bullish on more cyclical areas of the market relative to the defensive areas here. So I obviously don't need to go down the whole laundry list of reasons to be worried or negative because they've been regurgitated a lot. But there are many. And how do you reconcile that?

Well, I think you reconcile that with a couple things. The first is you can reconcile it with valuations. So many of the companies that we're seeing are trading at the steepest discounts relative to where they were back in 2016, whether it be Deckers, which is a footwear company that has brands like UGG, Hoka, the running shoe. That company is trading back at 14 times earnings. You haven't seen this company trade there since 2016. And on top of that, they've got a 6% buyback yield. So the management's in there aggressively buying back stock, which we think presents some type of a floor.

And they also are more insulated relative to some of their competitors that might sell through more brick-and-mortar type locations. Stanley Black & Decker is another name on your list. I mean, clearly based on your picks and how you're predisposed to this notion that cyclicals are going to do well, you can't be forecasting a recession or even a more dramatic slowdown, right? Well, it's a great question. You know, if you look at the spread between the three month bond yield and the two year, that spreads the widest since 2004. In 2004, we had rate hikes and the market was very favorable all the way through 2007. So if we do get a recession, I would argue that a lot of this has been discounted by the dislocation. Take Stanley Black and Decker. That's at the eye of the storm.

They have the power tool segments at Home Depot and Lowe's. You know, that's a company that has been hit by supply chain challenges in China. But it's also trading at 11 times earnings, has a nearly 3% dividend yield, and its growth rate outpaces inflation. And again, with the buyback, Scott, they bought back $2 billion in stock already this year, and they've already come out and said they're going to buy back $2 billion more. That equates to buying back 23% of the shares outstanding of Stanley Black & Decker by management. So management's bullish, and that gets us optimistic because they've got a thermometer into the health of the business more than anybody. All right.

Lastly, LAM. LAM Research. Why that one? Semis. So we're bullish on semis at NFJ. A couple things I would say. The semiconductor group has been hit by concerns over China, which is understandable. But if you look at a company like Lam, it's trading at 13 times, whereas a year and a half ago, it was 25 times. 1% dividend yield, 15% dividend growth, and another $5 billion buyback program. And what

gets me particularly excited about semis is when you contrast semis to the more defensive areas. So if you look at Hershey, the chocolate company, that was trading a few weeks ago at 30 times earnings. And that's in a world where everyone says they're worried about high multiple stocks. Lamb Research, which is growing at triple the rate of Hershey, is trading at half the multiple. So if you're going to choose between chocolate chips and semiconductor chips, we'd prefer the semi chips. Speak for yourself.

I was going to go for the chocolate chips, but that's just me. John, I appreciate your time. I'll talk to you soon. All right. All right. That's John Mowry. We'll talk to you soon. Last call to weigh in on our Twitter question, by the way, with the Nasdaq up more than two and a half percent today.

What is the best tech play right now? Cloud? Is it John's favorite sector, the chips, cybersecurity or other? You can head to at CNBC Overtime on Twitter. Vote. We'll bring you the results just after this break. Plus, you know, it's coming up. Santoli's last wordvertime is back in just two minutes. Welcome back to Overtime. To the results of our Twitter question now, with the Nasdaq up more than 2% today, what is the best tech play right now? 21% of you said cloud. Almost 39% said chips.

Almost 27% said cybersecurity. And 13.5% said other. Interesting. All right, let's get to Mike Santoli for his last word. What do you got today? Well, wants and needs ahead of the job market. What is the market really looking for here in terms of the jobs number tomorrow? I don't think the market really needs a lot out of the payroll headline number. Right. The jobs market is pretty much understood to be OK. The claims trend still seems like it's a tight labor market. But would it if you had a wish list, it might be cooling

off of wage growth. It might be labor force participation going up to the market. Seems like it may be slackening just a little bit. Anything, though, that says hot, hot, hot across the board, right, that gets yields racing higher, that gets the two-year up and gets people having to force higher their estimate of what the terminal rate is for the Fed. That's probably the kind of kryptonite. That's the boogeyman. You know, in a sense here. And really, the 10-year yield, if it really races above 3 percent with a lot of, you know, a lot of momentum, gets up to that 3-2 level everyone's been watching, the stock market hasn't really made its peace, you know, a lot of momentum gets up to that 3-2 level. Everyone's been watching.

The stock market hasn't really made its peace, you know, with those levels just yet. So I think that's what we want to be looking out for. But it might not be that huge a market move. Set the doorstep, right? I mean, the way that yields have moved lately, nine basis points is nothing. So it can, you know, it can happen in an instant, obviously, and get to that level. What do you make of today? Again, you know, one of those instances where you had every reason to think that we could go lower. I mean, Brainerd gave you every reason to do that. And maybe in another kind of environment or a different

day, Microsoft would have done that, too. And the fact of the matter is that the market didn't. It initially did, but it fought back. No, I mean, I think the market in the short term has been able to feed off enough accumulated pessimism for the last couple of weeks and build up some calluses to all the talk of, you know, bank CEOs telling you things could be bad. Well, of the earnings downgrades and really earnings season was really tough. Yeah. The net reaction to earnings, good and bad, was not strong. And so we're through it. I think you've probably beaten stuff down enough. There seemed like it was a little bit of a chase today. It felt as if, OK, if the market's not going to buckle, then maybe I don't own enough in the very short term. And so therefore, it seemed a little bit kind of tactically people saying, I don't want this thing to run away from me. And look, we're still in this zone of the market

needing to prove itself out. As I've been saying, everyone who said this is a bear market rally allowed for the fact that it could go up 10, 15 percent from the lows. We're kind of almost at 10 percent from the intraday lows right now. And it's probably within 100 S&P points of being at the doorstep of something more than a bear market bounce. Just writing things down as you're talking, I mean, is it possible that Diamond, Jamie Diamond and the hurricane thing marks like peak bearishness? Or at least the concentration of focus on the risks over the rewards, maybe something like that. And maybe the way we took it and we reacted to it as opposed to treating it as Jamie being prudent and saying we always have to be careful about what lies out there. Well, remember, we had the context of what last week. Right. So that could have led us to a darker place to say, wow, it's changed his opinion that drastically in such a short period of time. But who knows? We'll see what tomorrow brings. Mike Santoli.

We'll see you tomorrow, as I will as well. Right here back on this desk. Fast Money begins now.