Closing Bell - Closing Bell Overtime: Big Bear Makes a Big Aboutface 10/3/22

Episode Date: October 3, 2022

It was a big rally day … just as one of the Street’s biggest bears has had a change of heart. Cantor’s Eric Johnston has previously called for a steep drop in stocks but now he is changing his tone and turning bullish. He makes his case for the first time right in Overtime. Plus, NewEdge’s Cameron Dawson is weighing in on whether investors can trust the market bounce. And, Requiste’s Bryn Talkington breaks down the energy trade.

All right, Carl, thank you very much, and welcome, everybody, to Overtime. I'm Scott Wapney. You just heard the bells. We are just getting started from here at Post 9 at the New York Stock Exchange. In just a little bit, I'll speak with top-ranked retail analyst Matthew Boss on the stocks most at risk as inventories bloat and margins fall. We begin, though, with our talk of the tape. Today's huge rally and a most unlikely believer in an even bigger bounce. Cantor Fitzgerald's Eric Johnston, who's been among the most negative market watchers around,

calling multiple times as recently as 10 days ago for an even steeper drop in stocks. Now, an apparent change of heart. And he is here, as you can see, next to me on Post 9 to talk about this. Welcome back. Thanks for having me. I saw this and I was like, what? Because I want you to listen to you and I want our viewers to as well. Just 10 days ago, September 22nd. Listen.

You know, our conviction at this level is as high as it was when we were a thousand points higher when we were bearish at the beginning of the year, bearish at 4,300, and now at 3,780. If you ask me, based on this current information, where the S&P would be, I would tell you that we should be much lower. I'm very surprised that we have not sold off as yet, but I think it's coming. If you wait six months, I don't think you're going to be in your best-case scenario. I think you're going to be where we are right now. And what I think is the base- case scenario is that we're much lower.

The higher the market goes, the more aggressive the Fed is going to be. And the same token, the lower the market goes, the less aggressive they're going to be. But the bottom line is that it's a lose-lose situation. If we go higher, the Fed gets more aggressive. If we go lower, then obviously we're going lower and it's not going to be profitable to own stocks. All right. I feel like I should ask for your ID. I mean, are you the same guy? How does that guy who said all of that now say that you have turned tactically bullish for a three-month trade?

So we're very bullish and our conviction is very high. And so what has changed? So we look at the market very unemotionally, and we check our views every single day based on the information that's out there. And what we're seeing right now is the following. Inflation, real time, is falling sharply. And I can run through all the different aspects of inflation, but every single data point in inflation is falling month over month.

Which it has been. Yes. Now it's continued with rents and with now homes are finally, home prices are finally, you know, running over, turning over. We think the Fed's last hike is going to be December 14th. And the reason why is part of the contagion that we've seen in the last week since I came on last time, I think is one of the three components that's going to lead to the Fed having their last hike beyond December 14th. So we're a mere two months away from this Fed hike cycle being over.

And then the capitulation indicators have all shown up in the last 10 days, where you had the VIX hit 34. You've had the VIX hit 34, you've had the VIX curve invert, you've had the RSI go well below 30, and a number of others that all suggest that we are going to have a sharp bounce. Okay, let me take those one by one, if I may. Sure. Last time you were on, you said, and I quote, the Fed stopping is not a reason to buy equities. Now part of your bullish thesis is on the Fed stopping.

Square those two points. Sure. So the market, there's sort of the medium term and there's the short term. When this market gets a whiff that the Fed is almost done, the first reaction is that we are going to have a sharp rally. Even though in the long term, we're going to have to live with four and a half percent Fed funds rate or 4.25% Fed funds rate for an amount of time that overall is going to put a damper on the economy. But the first thing that the market's going to do is it's going to rally on that. And one of the things that I look back on is there's been four times when the CPI has gone above 6%. When it starts to fall, markets V-bottom every time. It happened in 1970, 1975, 1980, 1990, and these were V-bottoms. So the market is going to smell

inflation is done, Fed is done, and the first reaction is going to be market rallies. You said capitulation is not close, right, when you were on last. We're only 70 points below that. The VIX was 34. I mean, it's not like we, that's not capitulation, right? You know that. I mean, 70 points from September 22nd when you were last on. Now we've reached capitulation? Yes. So here's capitulation. Ten-year yields hitting 4%. The British pound hitting one spot, 0.4. MBS spreads going to 85 basis points. And retail selling big in the month of September. And so as much as I thought the low in this market for this year was going to be lower than where we closed on Friday.

I looked, you know, I was looking at all the different data points and I said, you know what, a lot of the, a lot has been thrown at this market, ran through all the stuff that we just talked about. And the result is I don't think we go any lower this year. So that's where we, that's where we stand. You, you had contended that there was better competition for stocks some 10 days ago, whether it was bonds or money markets, which finally offered an opportunity to investors that they hadn't for the better part of at least the last decade or so. That's changed? So I think that trend is going to be here,

where money is going to, big picture, be on the margin flowing into money markets. And that's part of what we saw when there was selling in September. However, I think right now we have a 10% move, maybe greater, between now and the end of the year. 10% in the S&P. In the S&P 500. We went bullish this morning, so we've gotten a couple percent already. But I think we have that kind of move, and that kind of one-quarter move certainly dwarfs what you can get in money market funds.

But I'm not backing away from that longer-term trend, which I do think will exist, which over time I think money will move out of equities, a portion of it out of equities and into money market funds. You made a point that, you know, you essentially expect earnings to collapse, right? The last time you were on again. I mean, I feel like my questions are all sort of repetitive, but I don't know how else to do it. I mean, you said this 10 days ago, and today it's like a 180 across the entire board. What about earnings? So I don't think I ever said they were going to collapse. Well, no, that's my word, and that's fair.

But you made the point that they were going to fall sharply. Because of the kind of environment that we're in, a Fed hiking as sharply and dramatically as they were, earnings were going to fall sharply as a result. Yes. So I think if we fast forward nine months from now, we're going to say, oh, wow, earnings came down a lot. But it's going to be a process. And the earnings for the October reporting season, estimates will come down. But the bar is very low. Estimates have been reduced by 10 percent for this quarter just in the last three or four

weeks. So that in writing, the estimates are coming down. And then mentally, people are now much more consensus is that numbers are going to be below what we see in print. So, you know, part of it is, look, we, as you know, we first got bearish at 4,700. We're 1,100 points lower. The multiple in the S&P 500, which we think should have been lower, has dropped eight multiple points. That's a lot in nine months. And we believe that ultimately we are going to have a very sharp three-month rally, and we want to call it. And that's what we're doing. Now, let's not forget, right, the last time we were negative and you turned tactically bullish,

that lasted about the time that I could, like, have a ham sandwich and a soda. Yes. I mean, really. It didn't last very long. Yes. Does this have more conviction behind it than that one did? So, A, it has more conviction. B, you know, what I start off by saying is we look at things very unemotional.

If we think that we've made a call that then turns out we want to cut losses and get on the right side, and that's what we did then. As you know, a lot of our tactical calls over the last couple years have been mostly right, and our broad calls have been very right. This call, I would say, to be very clear, is very high conviction. I feel very strongly that we are going to see this rally because everything is lining up across the board. What part of the market is going to rally the most, do you think? What's going to carry this conviction that you have?

So I think it's going to be cyclicals and the ones that have gotten hit the hardest on concern about the economy. Because ultimately, the economy is not going to fall off a cliff. And I think growth is going to be very poor and it's going to be declining, but it's not going to fall off a cliff because we have an unemployment rate of 3.8 percent. We have consumer credit that's a very low, the consumer's not levered really at all if you look at it relative to net worth. Very low. And nominal GDP is 9%. So I don't expect things to fall off a cliff.

And so as a result, if in the short term people think Fed's done, inflation is coming in, the economy is slowing, but it's not falling off a cliff. I need to buy cyclicals. A lot of these cyclicals are down very sharply. What are you talking about, like chips? Everything from gaming to chips to short-cycle industrials to chemical companies. Anything that is leveraged to GDP and the consumer that has been hit hard on the thesis that we are going to go into a deep recession due to the Fed. At the expense of what? How does mega cap tech work or does it not because you favor these other areas, which sound to me like you're not describing the apples and

the alphabets and Amazons and Microsofts? So I think part of it will be, you know, defensives, I think, will come under further pressure. Big tech is a tricky one. You know, expectations have come down a lot for Google, for example. So I think Google will probably miss numbers. They will not be great, but the stock could trade up. A name like Apple, I'm more negative on. So, you know, tech is, big cap tech is a little bit more mixed. I can't say I have a strong view there. But let me stop you for a second. You're more negative on Apple, but you're calling for a massive rally. So, you know, tech is big cap tech is a little bit more mixed. I can't say I have a strong view there. But let me stop you for a second. You're more negative on Apple, but you're calling for a massive rally. So the biggest stock in the market doesn't matter to that. So I think I think I think it matters. And one of the things, again, today versus 10 days ago, you've had Apple finally get hit as people start to get nervous about their numbers. That finally

fell. And utilities was the last sector standing. That finally fell. And so could Apple have more downside? I think so. But most of the sort of the gap taking the froth out of it has now has now happened. OK, let's broaden the conversation out. Let's welcome a couple more guests. Greg Brantz, Veritas Financial Group, Bryn Talkington of Requisite Capital Management. It's great to have everybody here. Bryn, you heard this call, this reversal by Eric Johnson. What do you make of it? Do you agree with it? Well, there's a lot to peel back there. So I'm glad to see. I mean, I think I appreciate people being pragmatic as investors and unemotional. So what I do think about the Fed, and it has been

very dangerous for people to call for a Fed pivot, because that was the summer rally that went away when, you know, after Jackson Hole, the Fed clearly didn't pivot. CPI is still going to come out hot. So, the real inflation numbers that we all look at that the Fed isn't seeming to look like are clearly coming down. I do, you know, Lael Brainard came out this weekend or in the Wall Street Journal, you know, talking about it does take time for these Fed rate hikes to work their way through the economy. And I do think what happened in the UK last week is really important. So I think that the probability that they don't do a 75 and maybe do 50 is better than it was two weeks ago. But I would be cautious about trying to prognosticate what the Fed isn't is or isn't going to do, because I do think they're going to be

data dependent. I do think, though, that you have to remember. Go ahead. No, no. You finish your thought, please. Well, I was going to say, I think that although the S&P and NASDAQ have not retraced and done a full round trip to February of 2020, the Dow, financials, industrials, communications, and real estate, those sectors have all done a full round trip and are back at February 2020 or lower. And so outside of Apple and a few other names, the market has sold off so hard beneath the surface. So I do think the ingredients today were here for a very, very oversold market. OK, so Greg Branch, I mean, you you have you've been like the Darth Vader of this market. I mean, you've been negative more than most people I know. And by the way, you've been correct. Now, you heard Eric lay out his case as to why he thinks this market is about to turn in a big way for the remainder of the year.

The bottom's in. Do you agree? I don't. I had much more affinity for the Eric of 10 days ago. And so here's where I disagree with Eric. I think at least the way he articulated it to us today. He implies inflation being over and the Fed being done somewhat simultaneously. And I'm not sure that that's how it's going to occur. I think he also implies, and I probably agree with him here, that there are two more rake heights in store this year. I'm not sure that the current market is discounting that, particularly when we see a rally as we did today. It is reminiscent, as Bryn said, of the summer rallies that I was cautiously warning everyone that this is a sentiment driven rally. We have nothing in the data. Recall, Scott,

we were talking three months ago about how the Fed wasn't going to raise rates at all anymore. So it is somewhat of a fool's errand to try and project what the Fed's going to do apart from what they told us they were going to do. And they told us they want a Fed funds rate of 4.25%, which implies another 100 basis points of raise likely this year. I don't know if in Eric's analysis, he accounted for QT, which we're really in the very beginning stages of. Yes, the estimates for the third quarter came down pretty significantly for the S&P. They were actually down 6.6% in the quarter, which is about three times the monthly, the average we've seen over the last five years. But Q4 is still really high at 58 bucks down from 60.

Admittedly, there's probably 10 or 15% of that there. And recall that we'll be focusing on 2023 earnings in a month or two. And as I'm starting to figure out what my target is, I don't think it's going to be much higher than what I stated for 2022. I just don't see this. So I'll let Eric respond to that. Right. I mean, QT just kind of getting going and getting bigger. More hikes are coming. Right. Even if December is the last, you still got to get through November and December on what some say has already been enough. So how do you answer that? So if we're right that December is the last hike, then it won't matter.

The market discounts more than two months, you know, in advance. So when they're hiking in November and the market thinks they've got one more left, the market's going to rally. Unless something breaks in the interim because they don't stop, because they've've already done too much as some people suggest yeah so that's possible i mean the reason why i think very strongly that they are going to stop is because of the contagion effects that we've gotten over the last you know a couple weeks um that's now going to scare them a little bit right because they want to slow down the economy they don't want things to go haywire the second point is that there has been, they talked about pain. There's been a lot of net worth destruction.

If you look at, it's not just stocks. If you look at a typical bond portfolio, right, so if someone's opening up their 60-40 statement of bonds versus equities, they're going to fall off their chair. There's been a lot of pain that's gone on there, including people that are retired and that have bond funds. And then the third point is inflation, real-time inflation. I'm not talking about CPI. Real-time inflation is falling, and it's not just commodities. It's container prices for shipping are plummeting. Rents, you go to Zillow, they're down month over month. Home prices, down month over month. Used car prices, down month over month. It's literally across the board, every single metric. So you could say, oh, the Fed is just not smart and they're just going to look at CPI. I doubt it.

They're going to see, just like we are, that real time, not only is inflation coming down, but the month over month numbers are actually negative right now. Yeah, I mean, they don't sound, though, like they're talking that way. I mean, even again today, Bryn, the Fed speak has been tough. It's been hawkish. Now, Eric raises a good point, which I've been wondering about myself and I'm sure everybody has, too. What's taking place over in Europe, if there's a spillover effect or at least the fear of one, could you get a Fed that's more cautious than they otherwise would be because they're more worried than they would have been some three, four weeks ago. Well, right. So if something actually breaks, the markets will go lower before the Fed pivots. So that's not anything that we wish for. I do think through, and it's important,

and I'd be curious to get Eric's opinion, is there's never, like never, ever been the Fed stop a tightening cycle before Fed funds were above CPI, above. And so when you look at the month over month data from the Cleveland Fed that just came out last week, they're projecting month over month CPI for the next read in October to be up 0.3. And so just we all get it's old data, but nonetheless, they've never done that. So I'm skeptical that this will be the first time in history that they've stopped the tightening cycle before Fed funds were above that number. Yeah, I think we're coming off of a 0% Fed funds rate, which is highly unusual in history. So we can't, I'm not sure there's really a precedent for that. And then not to mention the fact that in two months, when you have the Fed funds rate of four, four and a quarter percent, the month over month readings are going to be annualizing at in CP.

Even CPI will be well below four percent. And then again, the real world will be negative. So I don't think they're going to have a problem doing that. Greg, maybe you're too negative. You know, maybe there was reason to be decidedly negative when you were ahead of others anticipating what was going to happen. But maybe Eric's going to be right. Maybe the hikes are going to end sooner rather than later. And the market's going to sniff that out well before they say, well, hey, we're at the finish line. And now's the time to get ahead of that rather than behind it. Well, look, I'm going to challenge one of the assumptions he made, which is that the market always properly discounts everything months in advance.

We certainly didn't see that in July, where it was all but certain that the Fed was going to raise rates, but we were having these daily debates over a Fed pivot. So I don't actually agree that the market always properly discounts everything or sees everything coming. We'll get closer as that reality sets in in November. But yes, Scott, there's three places I could be wrong. I think either any of these three things triggers a change, a test of resolve, a change in sentiment at the Fed level, which would obviously provide some headwind for yields, which would make it

safe to go back in the waters again. If Eric's right and we see a 50 basis points, 100 basis points decline in core across the two measures, then that'll give the market pause for a risk off. At the end of the day, I think that the Fed could arguably say, hey, we've met our mandate and there's no need to go any further than this. Short of that happening, we need met our mandate and there's no need to go any further than this. Short of that happening, we need two other things to happen. We either need unemployment to creep back up towards 5 percent to test that result, or we need to actually see a significant contraction in the economy. We haven't actually seen that yet. I don't know if anyone would call 1.6 percent followed by 90 basis points significant.

We all have our hair on fire about it, but it hasn't actually happened yet. So Bryn, what do you think you'd be buying when the time actually came that you felt comfortable to do so? Great question. So I still think energy is punching above its weight. It's a volatile asset class. So I like energy. I still like healthcare. Healthcare can work in both recessionary times as well as growth. I'm less comfortable with mega cap tech. I just still think it's expensive and it's over-earned over the last 10 years. I also like companies with strong free cashflow,

which does bring you back to materials, some industrials, energy, and healthcare. So those would be like my four sectors that I would wanna be in if we're having, if we are going to have a rally that Eric thinks will unfold. Okay. We're going to leave it there. Bryn, thank you. Greg, my thanks to you as well. I know we'll talk to both of you soon. Eric Johnston, if history is any suggestion, I think we'll be talking to you again soon as well. That's Eric Johnston from Canterford's Jail coming on with a very big call, and I appreciate you discussing it here with me

in overtime. All right. Let's get to our Twitter question of the day. We want to know what is the best bet for the rest of the year? Stocks, bonds or cash? Maybe it depends on what you think about Eric Johnson's call. You can head to at CNBC overtime on Twitter to cast your vote. We're going to share the results coming up later on in this hour. We are following some big news in the crypto world, as you may have heard. The Treasury Department's Financial Stability Oversight Committee just out with a new warning saying crypto assets could pose a, quote, risk to the stability of the U.S. financial system if their interconnection with the traditional financial system or

overall scale were to grow without appropriate regulation. Our Kate Rooney was discussing this late in the last hour, is back with us. Kate, it's an alarming headline that any sort of regulator would be warning about anything being a potential risk to the, quote, stability of the U.S. financial system. Why this and why now? So, Scott, great point. It is a little jarring to see that from a U.S. regulator. It does follow, though, questions out of the White House. So the president had an executive order really asking the individual government agencies to go out and do their homework and talk about the risk and how to regulate these things. So this was FSOC. And they talked, of course, about financial stability.

That's really their role here. They pointed out a few different things. This was a meeting that wrapped about an hour ago. So Secretary of the Treasury Janet Yellen was convening the meeting. They talked a lot about some of the risks out there and the idea that it has grown significantly. This asset class has gotten more systemic and more important. And you're seeing more of an overlap with traditional finance and Wall Street and crypto. That is where some of the risk lies. They did say, though, at this point, it's not the it's not a massive risk. They said it is getting bigger. The risk is that they don't regulate this or that they don't enforce existing regulation. So they said, yes, it is a risk, but there's still time to regulate.

They did stop short of endorsing any specific legislation, but called out something called stable coins. So those are the cryptocurrencies pegged to the price of the dollar. And anything that is backed by traditional assets in a bank account, that's something that they really focused on here. And it seems like regulators are paying especially close attention to. There was a big project that failed earlier this year that called itself a stablecoin, was backed by nothing, was really backed by Bitcoin and failed in a very high profile public way. So that is also likely a

reason they're paying more attention here. There's been pressure to regulate and pressure to crack down as you've seen a lot of individual investors get hit here by either those stablecoin projects or some of the high-yielding projects that really ended up being a disaster and have now filed for bankruptcy. Yeah, Kate, I appreciate it. Really interesting story with a juicy headline, obviously. That's Kate Rooney with the latest there. Let's bring in Jay Clayton. He's the former SEC chair, CNBC contributor. He joins us on the phone. I so much appreciate, Jay, you being with me.

What do you make of this headline in and of itself that this group, FSOC, warns that crypto assets could, quote, pose risks to the stability of the U.S. financial system? Well, I think Kate did a very nice job of summarizing that they were responding to a White House request for an outline, an assessment of potential risks. And we have seen some of those risks, you know, come to fruition in the last six months, particularly around excess leverage and liquidity transformation and the like. But Kate was right that, you know, they very much or identifying uh... uh... your potential for that request not not a full that address that they see at the moment

sure of course what what would you do if you were still sitting in the chair as the head of of the s e c what would the regulations look like uh... if any but frankly around crypto assets well let me tell you that i think that it's very good that the FSOC is getting together. Crypto assets or digital assets span the jurisdiction of many groups. And what we're seeing is them getting in the room and saying, you know, where is this in your arena? Where is that in my arena? Where do we need additional guidance or legislation? That, I think, is the first step.

In terms of what I say would be low-hanging fruit, bringing this technology into our traditional financial system, I do think a good first step is regulation around stable coins. As you pointed out, we've had some things labeled stable coins that are anything but. You might want to call them unstable coins. But if you're going to have a digital asset that is truly pegged to the dollar, let's have some regulation around that. It's very prescriptive as to what's not a security and what is truly stable. I think that's a very good first step.

I'm going to make that the last word and a good one at that. Jay, I so much appreciate your time. Thank you. Thank you. All right. That's Jay Clayton. He's the former SEC chairman, of course, a CNBC contributor on that developing story in which we're just getting started here in OT. Up next, the retail rally, retail stocks surging in today's session. Top ranked analyst Matthew Boss is standing by to break down that big move for life in the New York Stock Exchange post nine overtime. Back after this.

We're back and it's time for a CNBC News Update with Shepard Smith. Hi, Shep. Hi, Scott. From the news on CNBC, here's what's happening. President Biden touring Puerto Rico this afternoon, promising to deliver help for victims of Hurricane Fiona that hit there two weeks ago. He announced $60 million in additional funding to shore up levees and flood walls and for a new flood warning system. The president is scheduled to visit Florida on Wednesday, where search and rescue efforts are still underway. According to numbers collected by NBC News, Hurricane Ian has claimed at least 100 lives so far, a number expected to climb. Opening statements today in the trial of the Oath Keepers founder, Stuart Rhodes, and four other

members of the far-right extremist group. They're charged with seditious conspiracy, accused of plotting to stop the peaceful transfer of power during the January 6th insurrection at the Capitol. Rhodes and his co-defendants have pleaded not guilty. Tonight, we are live in southwest Florida on the aftermath of Ian, plus Ukraine makes some big gains on Russian forces, and the new report that finds systemic abuse in women's soccer. All tonight on the news, right after Jim Cramer, 7 Eastern, CNBC. Scott, back to you. I appreciate that, Shep. Thank you. That's Shepard Smith. Retail stocks

rallying today. The XRT ETF jumping nearly two and a half percent. Joining us now to break down the big move and to look ahead is J.P. Morgan's top ranked retail analyst, Matthew Boss. Welcome to Overtime. It's great to have you on. Thanks for having me, Scott. You know, after Nike reported, I think the big concern became bloated inventories and shrinking margins in this environment. Overblown across the board or should we really be worried going into earnings season and, you know, just sort of where we are? So twofold story. The bloated inventory and the inventory actions Nike needs to take is a result of the sector they operate in and the in-transit inventory. I think the much bigger takeout was doubled street revenues in the first quarter, spoke to no softening in demand in

September. And they're actually talking about 20 percent constant currency revenue growth for this quarter. And that's all after doubling their expectation last quarter. So to me, the big takeaway out of Nike was if you have relevant inventory in the right category, the consumer is still there. And I would actually make the argument more than there. If if if you're in a sector that has a total addressable market that's at least as great as before the pandemic. Wow. So if you're one of the haves rather than have nots, demand trumps margins at the current time. Yeah, because I think the issue that that Nike has is this in transit inventory that was tied to the supply chain issues that started with the pandemic in the footwear category. As Nike said it, look, we sell Air Force Ones

to get enough inventory over here in time. We would have had to enlist the entire U.S. Air Force and it still might not have moved the needle. So I think these inventory issues are transitory. I think the top line is really the storyline that came out of Nike that has implications more across the sector. That's a dangerous word to use, Matthew Boss. I'm sure you would agree with that using the T word. Hasn't worked out well for some others. Who else has it then? Who else has what Nike has that can buck the trend? Yeah, I think what you're really looking for is casual as the multi-year trend coming out of this on the brand side, meaning Lululemon, I think, is operating at a very high level.

The handbag and accessories companies, Tapestry and Capri, also two names that I think are mispriced from a valuation perspective. But then I think secondarily, it's value and convenience. We had a piece out today talking about a survey. The low-income consumer is under the greatest amount of pressure, but that's why value and convenience becomes that much more important. So to me, it's dollar stores and off-pricers, dollar general, dollar tree. That's where I think five below, as well as TJ Maxx, Burlington, and Ross stores,

all opportunities for a consumer that's gravitating to value and looking for the most convenient opportunity. That's, I think, the other side of the playbook as we move to 2023. So you're undoubtedly describing an environment in which specialty retailers, specialty retail outperforms department stores? Yeah, I think it's more value convenient. So off-pricers as well as dollar stores on the defense playbook. And by the way, this was the playbook that we've seen in periods of other consumer disruptions. But then I think there's opportunity now, given the dislocations from evaluation, larger picture on discretionary, to pick up some of the top brands. And that's why I'm pointing out the Nikes of the world, the Tapestries and the Capris. I mean, these are

trading seven turns below pre-pandemic multiples for companies that I think across the board are the most scaled and have the most pricing power. And one of the other takeaways from our survey today on the consumer, they're unwilling to move away from the quality brand. So I think they're being more discerning with their dollars, but they will save and spend on the quality, best-in-class brands. All right, good stuff. We'll leave it there. Matthew, thank you.

That's Matthew Boss, J.P. Morgan, again, the top-ranked retail analyst on Wall Street. Up next, more on today's big rally on the street. The Dow handing in its best day since November of 2020. So is this the beginning of an even bigger breakout, as Eric Johnston suggested at the top of our program? We will ask Cameron Dawson of New Edge Wealth. She joins us right here post-night next.

All right, welcome back. Stocks rallied today to start off the new quarter of trading with the S&P closing up more than 2.5%. My next guest says, don't be fooled by that bounce. We could be hitting new bear market lows in the coming months. Joining me here post nine is Cameron Dawson, New Edge Wealth chief investment officer. You're raining on the parade of this move today and on Eric Johnson's big call at the top of the show. Well, look, we think it can continue because we were so oversold. Positioning was so very short, sentiment so very bearish that we were primed for a bounce. And if we think about how big this bounce could go, about 6% up gets us to 3,900.

That's kind of the first line of resistance we get in this rally. But it's important to remember that as we move in the later stages of bear markets, we typically see greater magnitudes of rallies and then sell-offs, which means that if we go back up to that 200-day moving average, still downward sloping, still a downtrend, that's another 14% from here. That's all very possible given how short positioning was going into this. Okay. So what if I'm going to go through some of the points that he made as to why he made what is a extraordinarily dramatic turn, let's say, in 10 days.

Inflation has peaked. It's coming way down. Okay. The Fed's going to be done in December. And the VIX at 34. I mean, that's enough in terms of measures of capitulation that he needs to see and reasons to grow increasingly more bullish now. Do you agree with any of those? I think all of those are very good points. But the

one thing that is missing is the discussion about earnings and the direction of earnings growth going into 2023, because what we can see based on leading indicators, whether we're looking at housing or PMIs, that earnings should slow materially going into next year. At the same time, we still have really big dollar headwinds that really will put downward pressure on earnings. So we're still looking at about 7% growth for next year. If we are flat, this market is just about average in valuation. If we end up having a recession where we are seeing earnings growth down about 10%, kind of average recession, not too deep, that would be that we're trading at 18 and a half times today. So that really is the challenge as we look into 2023.

But we can't forget that in the near term, we do have good seasonality and we have the benefit of the fact that everybody got so short. What if the economy doesn't fall off a cliff like some people think it will? What if the dollar weakens because the Fed is closer to the end and the beginning and they signal as much? And there is that, you know, there's geopolitical risk. There's there's some worry about spillover from Europe and some of the things that regulators and policy, I should say, policymakers, both fiscal and monetary, have done? What about those factors? Yeah, the biggest bull case here is that inflation comes down without the Fed having to kill things, meaning without the Fed having to engineer a significant rise in unemployment.

What if it already is? Well, so we can see that goods inflation already is coming down. It's moderated from 20 percent growth to start this year down to just 8 percent today. But what's happening is services inflation still remains elevated. And the Fed looks at sticky CPI. That's what's important to them in determining when they can let their foot off the gas in this in this tightening cycle. That sticky CPI has not rolled over and it remains at 40 year highs. So the Fed will be watching the employment data in order to determine if they actually can pause, which we'll see on Friday if they get an early glimmer of that. I mean, Eric's point was that, you know, the CPI is so backward looking that if

you look at real-time inflation data, it's rolling over really hard just about everywhere, including where the most sticky parts of it have been, like rents, right, which have been, you know, a third of CPI. That's the place you need to look the most. And in his thought, the Fed's smart enough to look there. Well, the challenge with just looking at rents, and yes, they are rolling over and they do lead the shelter components of the CPI by about 12 months. The Fed knows that there is that lag in the CPI by about 12 months. The Fed knows that there is that lag in the CPI data. The difference is the Fed knows that it contributed to housing inflation. So how eager will they be to cut rates to potentially cause a reuptake in housing price inflation if

you see mortgage rates come down and a new bid into housing prices. I think that was one of the messages from Jackson Hole, which was we realized that we contributed to this and this is why we're going to keep rates higher for longer. Well, let's just say the pivot is not necessarily cutting rates. The pivot can be enough of just saying we're done for a while. That's enough of a pivot off of what the current policy is. That would have perhaps different impact. I think that it's not just about the destination that we get to. It's how long we stay there. Because if you think about LIBOR rates today, they've gone from 0.2 percent last year to 4.8 percent today.

If you're a small or medium sized business based on floating rate and borrowing on floating rates, you've seen your funding costs go up significantly. If they stay there, that's where the real impact to the economy is. So we do think actually cutting will be important to see the lack of pressure on the real economy. Part of your notes today say there's nowhere to hide. No areas of defensive nature in the market you should hide out in right now. So if not there, what? So when we saw the sell-off in utilities and staples last week, that was really interesting because that can be the early signs of being in the last stages of a bear market, meaning that in the early stages of a bear market, everybody goes into safety trades like utilities and staples.

As you get towards the end of a bear, people start throwing in the towel and selling all equities. So it means that we're getting further to the end of this bear. Now, our preference in getting defensiveness is in healthcare because we see it as more of a long-term play, meaning that when we start to see a recovery, healthcare can still participate in the rally versus utilities and staples that tend to give up all of their outperformance as we move back into risk on. All right, we're going to leave it there for this time. Thank you for being here.

That's Cameron Dawson, New Edge, joining us once again at Post 9. Coming up, oil prices popping on talk of OPEC production cuts. But should you be investing in energy or just trading? There's a difference. We'll explain in today's Halftime Overtime. Another check on today's big rally on Wall Street. The Dow gaining 765. The action isn't over, though.

Christina Partinello standing by with some OT movers. Hi, Christina. Well, we've actually got some big succession plans at two major corporations and new Q3 auto sales just released. I'll tell you which companies right after this short break. All right, welcome back. We're tracking the biggest movers in overtime right now. Christina Partsenevalos back with us for that.

Hi, Christina. Let's talk about automakers making some news right now. BMW also announcing its North American sales were up about 3 percent quarter over quarter. And then you got Rivian's Q3 auto figures that came out in line with the company's expectation. And it actually believes it's going to be on track to deliver on the 25,000 annual production guidance it initially promised. And that's why you can see Rivian shares are climbing higher in the OT right now, over two and a half percent higher. There's some other automakers like Ford, GM and Tesla. They're all moving slightly higher in sympathy as well. And then we've got shares of Maravay Life Sciences

moving lower in the OT on news that the drug therapy and vaccine producer is getting a new CEO. William Trey Martin III will succeed Carl Hull as CEO. Martin previously was a senior VP at Denneher. And the maker of potato chips and other salty snacks, Utz Brands, or Utz Brands, also announcing a new CEO today after 27 years with the firm. Dylan Lisette is stepping down as CEO on December 15th

to become executive chairman of the board. He will be replaced by Howard Freeman, who is the current CEO of Post Holdings. Utz Brands also reaffirming its fiscal year 2022 outlook. It was moving and now it's unchanged, but you can see over a six-month range, 2.7% lower. Scott. All right, Christina, thank you.

Good stuff. Up next, more on today's big move in energy. So how should you play the space right now? We debate that in today's Halftime Overtime, and that's coming up next. To the results now of our Twitter question, we asked the best bet for the rest of this year. Stocks, bonds or cash? The winner? Stocks. Decidedly so as well. All right. In today's halftime overtime, the price of oil bouncing back on news of potential OPEC production cuts.

The debate over the energy trade is still in full force with the sector still nearly 20 percent off of its highs. There's no sector in which you could you could present such compelling evidence to be overweight than that energy. You have to trade energy. You can't own it. You can't invest it. And that's been true for the last decade. All right. Well, Requisite Capital's Bryn Talkington is back with us. Let's just let's just take it as traders then with a let's go with a few months timeline, if you will. What do you make of what they had to say? Right. Joe says there's no better place to be, even if it's a trade, as Weiss said. Yeah, well, I mean, Steve can't be an expert in every sector. So I think it's probably best he step aside on this. Here's what he said. He

said it's been a terrible it's been a terrible investment the last 10 years. You can't go back and look at past performance and say this is going to happen the next 10 years. That's the whole point. And so I think in energy you saw today, OPEC is back in the driver's seat. This is an asset class you want to own. And so for the next three months or the next three years. And so, you know, as Joe talked about, there's really compelling arguments. Let me just give you three. The sector of energy has a free cash flow yield of 11. It trades at a forward PE of eight, and it's only 4.3% of the S&P, but it will deliver at least 10% of the earnings. So I think over the next few years, energy can move up 7% or 8% of the S&P, and you can still buy these names, sell calls against them.

I actually wouldn't trade them. I would leave that to Mark Fisher and those commodity experts. Yeah, why did you have to poke the bear, Bryn? Oh, my goodness. You know what the next time on the Halftime Report is going to be like now. Let's get a top pick, if we could, in this short time that we have left. What is your number one pick in the space and why? I'm going to stick with Devin. I think they've had a come to Jesus with themselves the past year and a half. They have a 16 percent free cash flow yield

and eight percent distribution yield. And they're very shareholder friendly. So that would be my top pick in the sector by far. And you can sell calls and get really nice premium instead of trading it. All right. I got you. Energy Transfer, Plains GP Holdings, Viper, the XOP, some of the other holdings. Thank you. We'll see you soon. That's Bryn Talkington joining us in halftime overtime after a very big day on Wall Street. We'll see what tomorrow holds. I will see you back on the desk. Fast Money's now.