Closing Bell - Closing Bell Overtime: Breaking Down The Post Labor Day Sprint; Goldman Makes The Case For AI Fundamentals 9/5/23

Episode Date: September 5, 2023

Description: Stocks ended mostly lower to kick off the post-Labor Day sprint to the finish. GenTrust’s Mimi Duff and Clearbridge’s Jeffrey Schulze break down the market action. Earnings from Asana, Gitlab and Zscaler. Deepwater’s Gene Munster talks top-down view of investing in AI, and weighs in on a new Goldman Sachs note declaring “AI is not a Bubble.” DataTrek Research’s Nick Colas on the bull case for gold right now. Janus Henderson Investors CEO Ali Dibadj on the fourth quarter playbook.

There's a scorecard on Wall Street. Lots of red, but winners stay late. Welcome to Closing Bell Overtime. I'm John Fort. Morgan Brennan is off today. Ahead on today's show, a quarter trillion dollars worth of advice. We will talk to the CEO of investment firm Janus Henderson, which has more than $250 billion under management, about the outlook for the U.S. and global markets as we head into the fall. Plus, we are awaiting earnings this hour from three names in the enterprise software space, Asana, GitLab, and Zscaler. We will bring you those numbers as soon as they hit. We're also awaiting commentary this hour from Netflix co-CEO Greg Peters at the Communicopia conference in San Francisco. From Goldman Sachs, as the media industry grapples with strikes and

carriage fights, we begin with our market panel as the Dow and S&P 500 close at the lows of the day. NASDAQ in the red, but not at the lows of the day. Joining us now is GenTrust Managing Director Mimi Duff and ClearBridge Investments Chief Investment Strategist Jeff Schultze. Guys, welcome. Mimi, you think the risk at this point, as we're on the other side of Labor Day, is in being overweight equities and leaning too much into stocks. Meaning what? What should we what should the people playing at home expect to happen? And maybe how should they be positioned for it? Yes. So as you mentioned, we're underweight equities here.

September is broadly a weak seasonal month. And we feel that the thus, year to date, the earnings expectations have beaten, but the bar right now is extraordinarily high to keep carrying that out. And on the rates side, these higher interest rates that were clearly in restrictive territory, and we think as times goes by, some of that cost of funds being higher will trickle through into the real economy. And Jeff, that's just pressure, right, on the economy, on markets coming from. I mean, you saw the 10 year up today as well. So the 10 year yield, how much cash should people be raising here or how much should they expect equity upside?

How do you balance those balance risk in this environment? Well, I think last week you clearly saw that bad news was good news as the labor market was becoming more balanced. You started to see a little bit of a weakening there that we haven't seen in quite some time. Today, you actually got fit with the reality that the Fed is going to have higher for longer policy. This is why the 10-year Treasury is up and the two-year Treasury is up. They've taken a cut out of next year's rate expectations. And I think that we may be in this situation as the labor market continues to soften from here, that investors are going to cheer that development over the course of the next month or two. But I

think as we get to November, I think bad news ends up being bad news when it comes to the economy, because we think although the soft landing was going to be the first destination as labor markets have started to soften, we think that the Fed isn't going to be pivoting anytime soon. With no new fiscal stimulus on the horizon. We think this will ultimately end up in a hard landing scenario. So all the markets can hang in there. How soon are we going to get bad news? You mentioned November. That's when you start to get a sense of holiday and pre-holiday sales in those first e-commerce numbers, you know, maybe even a sense of where inventories are. So given how stretched the consumer has been,

delinquencies, the credit position, high credit card debt, is it going to be a Merry Christmas? I don't think it will be. Yes, you had a really strong retail sales print, but there are signs of cracks in the foundation underneath. The San Francisco Fed came out with a release here recently that suggested that all of the excess savings is up this quarter for the consumer. You have the resumption of student loan repayments. Gasoline prices are up 20% here year to date. You're seeing a rise of delinquencies in credit cards, autos, other credit. And this is an environment with a really strong labor market. So when you put that mosaic together, coupled with the fact that revolving credit was down for the first time since 2021,

this last month, because of record high interest rates and tightening of lending standards, we think that there's some signs that the consumer, although holding in there now, is not going to be there once we get closer to the holiday season. That all makes sense. But Mimi, this is part of that same narrative that was supposed to make all of 2023 bad for stocks. And here we are in September, and it's been pretty good for people who were long equities. So when you look at both the consumer situation overall and you look at financials, what do you do with that? Yeah, so to your point, it's been a great year already for equities. We came into the year squarely neutral, to be fair. And to the other guest's point, all those things are true.

Now's not the time to be underweight fixed income for that reason. So we are seeing a glut of issuance on the corporate side. That's typical in September. And we would use these coming months to make sure that you're not underweight fixed income in case we do see an economy that slides. That duration should help offset any weakness in equities. So what specifically should investors get into on the fixed income side? So we like broadly, we like diversified portfolios, but we also like exposure to front end tips with break evens in the one and a half to two percent. We think that gives you a lot of optionality with year over year inflation running in the low three percent. It just is, it's really price for perfection. And we see inflation being a bit stickier.

Jeff, to close things out, you like defensive names and you like energy. So energy has been doing pretty well. It's pretty strong today. Do you still like it? I do. I think defensive looked a lot, very attractive, especially since the fact that they've gotten a lot cheaper over the last couple of quarters with this move into more cyclical areas of the marketplace. And if a recession does indeed happen, I think defensives are going to play that role and help protect your portfolio on a relative basis.

But I do think energy will do well in this environment. OPEC extended, I mean, Saudi Arabia extended their cuts through the end of the year. You have a very tight supply situation there. You don't see meaningful investment anywhere. A lot of discipline with U.S. shale producers. And if China does do a larger stimulus package, and it may take them a couple of months to ultimately bring out the bazooka, that could be a reason that energy prices move higher and energy stocks do well along with it. OK, we'll look out for that. Jeff Schulze from Clearbridge, Mimi Dove from Gentrust. Thank you. Thank you. We turn now to two of today's biggest winners, Airbnb and Blackstone,

both jumping on news that they will join the S&P 500 on September 18th as part of that index's quarterly rebalance. CNBC senior markets commentator Michael Santoli joins us now with his take. Mike, too much excitement? Well, look, it's a predictable response, John, and probably should be on some level because, of course, you're going to have to have a big percentage of these companies' available share float bought by index funds over a relatively short period of time. That said, studies have shown that once the stocks are in the S&P 500, they tend to underperform for a period. So in other words, they kind of give back that pop that they get upon announcement.

Now, for Blackstone, what you see right here is just kind of catching up to the S&P on a one-year basis with this move today. It's been long expected that it would be in line to be included. For a long time, it was be in line to be included. For a long time, it was kind of an odd corporate structure. It was a partnership that didn't allow it entry. Now it's $130 billion, very profitable company. It's going to go in there. Airbnb was definitely on the list of candidates, $90 billion market cap. It's got enough of a record of profitability. It's going in. That might be overexcited, a 7% move in one day based

on that news. Now, take a look at the S&P 500 relative to what's called the extended market index. It's essentially everything in the S&P 1500 outside the S&P 500. So it starts with company number 501 and goes all the way down to most of the stocks in the market. It's been persistently underperforming and also somewhat interestingly kind of trading at or below the February 2nd level. Now, this is all small caps, plus a lot of very large companies that just have not yet been included in the S&P 500. In fact, Airbnb and Blackstone were two of the three biggest components of this extended

market index. Uber is another very big one. So it actually ends up acting as a pretty neat proxy for risk appetite or speculative interest in the markets because it's generally big, unprofitable companies plus small companies. And that did really well into the top of that mania in early 2021, been lagging ever since, John. Mike, if I'm reading that chart, that second chart correctly, the extended is underperforming. But really, that underperformance opened up almost entirely in the spring. Yes.

What should I make of that? SVB went down and the regional banking mini crisis sort of was tightened financial conditions and created a little more of outperformance among the self-financing, strong balance sheet, big growth companies of the Nasdaq. That's one of the big elements of it. And small caps have been kind of hamstrung and tied to the performance of financial stocks in general. So probably accounts for a lot of that gap. All right. Mike Santoli, thank you. Zscaler earnings are out. High expectations and it is moving higher. Sima Modi has the numbers. Seema. And that's thanks to a nice beat here on its bottom line, John. 64 cents adjusted for Z Scaler in the fourth quarter, well above the estimate of 49 cents. Sales at $455 million, which also came in well above analysts' expectations, thanks to a nice double-digit

growth that it is seeing in billings. CEO Jay Chaudhry says that in the last two years, we've doubled our annual recurring revenue, surpassing the $2 billion milestone. He adds that with cybersecurity a high priority, IT executives are modernizing their legacy network security with the company's architecture. You'll see shares up about 4%. And this comes as the stock is already up about 45% year to date. Guidance is

also strong. That's been a one point of discussion for analysts ahead of today's report, John, just with the macroeconomic environment, with competitors emerging in the cybersecurity space, whether guidance would hold up. Not only did it hold up, it came in better than expected. Back to you. Seema, thanks. Yeah. And this is a name that had sort of sold off at one point at the beginning of the year because people thought because people thought maybe their prices are too high. But Jay came on overtime and said, we've got something people need. It appears so. Well, let's find out more about that tomorrow when the CEO, Zscaler CEO Jay Chaudhry, is going to join us here in overtime. Now, when we come back, it's shaping up to be a pivotal week for AI news. We're going

to tell you why and discuss whether or not AI stocks are in a bubble when we're joined by longtime tech watcher Gene Munster. And later, we will talk to the CEO of Janus Henderson, which has more than a quarter trillion dollars under management, about new comments from Fed Governor Waller on inflation and rates. Overtime is back in two. Welcome back. Asana and GitLab earnings are out. They're both moving. Seema Modi has the numbers. Again, Seema. And to companies that have a lens on the AI space, let's start with Asana, John. A smaller than expected loss for the quarter.

Four cents adjusted versus the estimate of an 11 cent loss. Revenue came in above expectations, but shares are down about 3.6%. This is a software tool developer that is a bit of an AI play, but clearly still some questions about whether those AI benefits are paying off. Let's pivot the discussion to GitLab. That stock is moving in overtime up over 5% here, delivering a one cent profit. Analysts were expecting an adjusted loss of three cents adjusted. Sales came in at 140 million, which topped Wall Street expectations of 130 million. Guidance looks good. And it's worth noting that CEO Sid Sabranji said recently that he thinks the company is positioned as a leading AI powered company. And that seems to be something the stock

is responding to as well, with the stock up about 5% here, John. More details as we get them. All right. Yeah, those stocks are all over the place after hours, Seema. Thanks. Now that we're on the other side of Labor Day, get ready to put those white pants away, but also get ready for a flood of companies making artificial intelligence-related announcements. We're going to be here on Overtime helping you figure out which ones will make a difference to company fundamentals and the stocks over time, which ones won't. It's an important distinction because there's a difference between a company that has an AI play, just about all of them are going to claim to, and a company that is an AI

play. Here's Martin Schroeder, CEO of Kindrel, the IT services firm spun out from IBM. He told me companies are still in the early stages of figuring out how to apply AI to their businesses. Our customers are thinking about generative AI, and they're trying to figure out if I'm really going to get value out of generative AI, I have to get to the systems of record data, the real data that is sort of the heart of my business. Kindrel, can you help me architect that data in a way that I know it's secure and it's resilient? Can you bring in your network and edge experts so I can get more of that data into my or out of my infrastructure, et cetera? So there's a role for us to play with our customer base in helping them with the generative AI story.

And there's obviously a role to help us help them make their systems run better. Who has a real AI story? Well, Arm, the chip company that's on an IPO roadshow now, is going to try to position itself as an AI play. And Salesforce is going to make AI the centerpiece of its Dreamforce conference next week. C3 AI, all about AI, reports earnings tomorrow. We're going to have to dig through and find out. Sticking with AI right now, Goldman Sachs out with a new note today, why AI is not a bubble, making the case that valuations aren't stretched like previous bubbles,

saying tech leadership should continue in the market based on real productivity gains from AI and strong fundamentals. Joining us now is Gene Munster, Deepwater Asset Management Managing Partner. Gene, good to see you. But OK, AI might not be a bubble, but every company that's claiming to be an AI play isn't. So there might be little bubbles, right, here and there. Yeah, I think that's important context is really separating the substance from the hype when it comes to AI. And I just want to really just quickly hit the focus of that Goldman report. It was extensive, 37 pages. We run similar numbers and the market is very different today relative to AI versus 23 years ago with dot-com. The two years previous to the dot-com peak, the NASDAQ was up 110%. The past two years, the NASDAQ is down 8%. We are not in an AI bubble. The reason why it's topical is of NVIDIA that's

garnered a lot of the attention, but also every company at Deepwater, we invest in private companies and public companies. Every is probably a stretch, but most companies that we talk to somehow have AI in their first slide. And so that's what this is all about, is really cutting through the noise. And I would just put this piece out there is that the unfortunate, not very exciting piece of investing in AI is the big tech companies are really providing value and substance that will ultimately drive greater profits, substance to consumers. And so even though that's not flashy, it's companies like Meta with what they're doing with tools with developers, it's Google and search, it's companies like Adobe with their creative suite, Apple with their spatial computing.

But there's also other levels. There are also other companies that are less focused on by investors that we think will be true AI companies. But beware as an investor. Don't just simply invest because companies say they're an AI company. And we've seen it before with Metaverse, with crypto and blockchain. Every couple of years, there's something that everybody feels like they've got to put in their first slide. They've got to mention in their earnings presentation as something that they are a good investment for this. But they're not always.

And so when you look even through big tech companies, it's great that a lot of them, they caught on with the web and then with cloud and now with AI. But how much is it going to be able to really move their fundamentals given their size? What's the size of company that's likely to have the biggest impact from AI if it's indeed the real deal? Just looking at the largest tech companies, there is a clear beneficiary in my view and clear winner in terms of size and the scope that AI can impact their business and that's Google and the reason why Google hasn't had the same bid that other companies like Nvidia have had and Microsoft at one point is because this transition going from mobile to AI first and that obviously brings up some bad memories for investors back when the desktop to mobile transition was hand-wringing for them.

So we're going through a similar transition here, but this checks all the boxes. Google does when it comes to investing in AI, searches just over half of their business. That's going to be profoundly impacted by AI all the way through to YouTube and some of how creators will create content, how recommendations will be into their other bets. I think that opens up such an important point, and this is a moment I've been waiting for because for a long time we've been talking about cloud merely in terms of market share, like AWS is the biggest, who's second, who's third, when really in the long term it partly matters who's going to make the most profit and have the biggest moats around the data and cloud advantage that they have.

And AI appears to be a key piece of that puzzle. Who's going to be able to really generate the right case studies and outcomes from AI out of all of that cloud infrastructure, right? That's exactly right. There's, of course, three players. Again, my money would be on Google in this case with Google Cloud. We've heard a lot from Azure. Haven't heard as much from AWS. They've obviously talked about the AI impact, but think of that as the infrastructure, this miracle of demand surge that NVIDIA's had is fueling these hyperscalers like Google Cloud. I think they're going to be best positioned. Why I believe that,

even though we haven't seen it in their models today, I think that they have been investing in development for more years than if you put all the other big tech companies combined together. And that ultimately, I think, is going to yield some exciting products for developers to build AI on top of. And I think Google Cloud is going to be a beneficiary. And that kind of checks the final box when it comes to Google and their exposure to AI. It's across the board. All right. We'll see who gains more wallet share and who gains more profit share as AI continues to take off. Gene Munster, thank you. Thank you. We've got some breaking news now on Enbridge. Pippa Stevens has it. Pippa. Hey, John. Well, Enbridge announcing just now a strategic acquisition of three U.S.-based utilities, which would create the largest natural gas utility franchise in North America.

That agreement, those acquisitions are with Dominion Energy. And the company is it's an aggregate purchase price here of 14 billion dollars. That's a mix of 9.4 billion in cash consideration and 4.6 billion of assumed debt. Enbridge said that these three acquisitions will double the scale of the company's gas utility business in the U.S. That stock down 5% here in extended trading. John? Big move. All right. Pippa, thank you.

Meanwhile, AeroEnvironment earnings are out. The drone defense contractor moving higher after beating on both lines, including a huge beat on earnings per share, which nearly quadrupled estimates at a dollar per share versus expectations of 26 cents. Revenue came in at $152 million versus the $129 million the street was modeling. Full year earnings guidance, though, was in line on the higher end, though below estimates on the lower end of the projected range. You can see the stock there up almost 5%. The company's CEO is going to break down the numbers tomorrow right here on Overtime. Coming up, gold prices have gone essentially nowhere this quarter. But we'll speak with a market expert who says now might be the time to buy.

We will hear that bull case next. And Netflix's co-CEO is speaking right now at Goldman Sachs Communicopia Plus Tech Conference in San Francisco. We will bring you the highlights when Overtime returns. Welcome back. Netflix co-CEO Greg Peters speaking right now at the Goldman Sachs Communicopia Conference in San Francisco. Our Julia Borsten joins us now with the highlights. Julia, I forgot that Greg Peters was the co-CEO. Well, he hasn't been co-CEO for very long. There's certainly a lot of attention on his

fellow co-CEO, Ted Sarandos. But Greg Peters saying just now that the transition into the role has been relatively seamless because he's worked with Sarandos for so long. He started off talking about how they see such a huge opportunity in streaming, noting that they still win less than 10 percent of the hours on TV and the majority of hours still happen on linear. So they see a lot of opportunity to bring viewers over to streaming. He commented on the competitive landscape. He said he believes their competitors realize how hard it is to build a successful and profitable streaming business. He said he thinks they have a, quote, durable competitive advantage and they have a lot of experience and expertise in how to speak to and connect with fans,

whether it's the product experience or on how to collect payments. On that note of collecting payments, Peter is saying they've had a very deliberate approach to the rollout of paid sharing. That's the crackdown on password sharing and that it is seeming to be working. Now, in terms of advertising, he was speaking about this as a really long term opportunity, said they can have a really successful advertising business over the long term. And it fits into their broader interest in having a widespread of price offerings. So ads let them bring prices down at the lower end. But he also said they want to broaden that price range at the upper end and have more offerings for super fans as well. So in terms of that ad business, which is obviously relatively new for them, he said they're working on more options for advertisers,

including the opportunity to put their ads on the top 10 shows and also to make ads feel like they're more part of the content, sort of like branded content. I thought that was interesting. So we're going to continue to keep monitoring. I still haven't heard any commentary on the strike. I suspect that will be a question. So we'll be monitoring and we'll come back to you with more. John? I was thinking, Julia, speaking of collecting payments,

there's some actors and writers who would like to collect some payments from Netflix, but that maybe we'll hear about later. Julia, thank you. And now on a programming note, we've got a big interview coming up on overtime from the Communicopia Plus Tech Conference. Do not miss David Faber's exclusive conversation with Goldman Sachs CEO David Solomon. That's 4.15 p.m. Eastern on Thursday. Now, Netflix saw a nice rally on the back half of August, and so did the rest of the market. But our next guest says you might want to reduce your exposure to equities and consider gold.

Joining us now is Nick Colas of Data Trek Research. Nick, welcome. Why in 2023 would I buy gold when there's Bitcoin, Nick? Why isn't Bitcoin the new gold? Yeah, that's a great question. The basic thesis behind gold is there's a new buyer in town, and that's central banks outside the U.S. You know, gold demand's pretty stable over the long term. Jewelry demand, investment demand, they grow at 1% to 2% a year just alongside the population growth. But over the last three years, central banks around

the world, China, Russia, Turkey, others, have been buying a lot of gold. They want to keep some dollar exposure, gold's price in dollars, but they want something that basically can't be confiscated or taken away, like a gold in a vault. So we've seen central bank demand grow by 20 percent over the last three years. And over the next decade, they're going to keep buying. So we have a new buyer in town, stable supply, otherwise stable demand. It's a pretty good trade. All right. And I guess unless you're doing ransomware, you're not as excited about stock piling Bitcoin. I think you're saying about 5% of investor portfolios, perhaps 3% to 5% should be in gold. Now, if I don't have that set up in my structure already, would you argue I should take that perhaps from my international equities allocation or from somewhere else?

Because you compare how gold has performed to international stocks. Yes, it's fascinating. If you look at gold over the last 10 years, it's up 4.8%. Obviously, no dividend, just 4.8% compounded annual gains. Emerging markets only up 3%, China only up 3.1%. So yes, the right place to think about reallocating equities is not from the U.S. The S&P is the best index in the world. U.S. stocks are doing great and will continue to do so, I think. But E.M. in particular, China in particular, much more tough trade. And gold's

outperformed over the last 10 years. I think it will continue to do so. So given how gold has performed over the last several years and given where yields are right now, why even go there? Why not just go with fixed income and shift any allocation? So many investors are way overweight equities. Shouldn't they take care of that first and lean into some fixed income before gold? You know, I think, unfortunately, you have to go walk and chew gum as an investor. You got to think about the whole trade, the whole portfolio. So on the portfolio side, on the bond side, definitely short term, anywhere out to two years, treasuries, other fixed income looks great here to us. Longer term, definitely not. Real yields can still rise. And then on the equity side, the point behind gold is also lack of correlation. You know,

gold is very uncorrelated to stocks. So in the classic portfolio setup, you got to think about correlations and low correlations as well. And gold fits that bill. Ah, good point. Nick Colas, thank you. Thank you. Let's get a CNBC News update now with Pippa Stevens. Pippa? While former Proud Boys chairman Enrique Tarrio is inside a D.C. courtroom awaiting his sentencing, Tarrio was convicted of seditious conspiracy for his actions relating to the January 6th attack on the Capitol. Federal prosecutors are seeking a 33-year sentence.

The judge has sentenced Tarrio's co-defendants to lower sentences ranging from 10 to 18 years. The White House reported that North Korean leader Kim Jong-un may meet with Russian President Vladimir Putin to discuss arms sales to support Moscow's war in Ukraine. Arms sales discussions started in July. A National Security Council spokesperson said that Kim Jong-un expects these discussions to include leader-level diplomatic engagement. A spokesperson for the Kremlin did not confirm the reports. And hip-hop star Jay-Z will host a charity blackjack party with a 007 theme to raise money for his criminal justice reform initiative, Reform Alliance. This is according to a New York Post article. The star-studded event is expected

to include Beyonce, Kim Kardashian and Travis Scott and set to feature a $1 million pot. John, back to you. On that, because that's a movie in and of itself. Just, Stevens, thank you. Energy leading the S&P 500 sectors today as oil prices jump on Saudi production cuts. Up next, Mike Santoli's back with a look at why energy is re-emerging as a leadership group when Overtime returns. Welcome back. Energy prices jumped today after Saudi Arabia extended its voluntary oil production cut of a million barrels a day until the end of the year. That move making energy today's top sector. It's also the top sector this quarter. Let's bring back Michael Santoli for his take on the sector's leadership. Mike.

Yeah, John. And first thing I would say is the stock market in general has been warming to this sector even before the commodity prices moved to the higher end of its range. The chart readers really have loved energy, especially those that were left behind and were sort of too cautious on the broad market. They look at this chart of the XLE and basically say this is kind of what a bull market looks like. It's very much challenging those former highs from after the invasion of Ukraine back in 2022.

And seems to have a pretty good setup right here in terms also of the percentage of equity of energy stocks that are also in these uptrends. So far, so good. But take a look to what's gone on with the valuation of the sector. It's actually less challenging than it was back when we were at similar prices in 2022, just because the forward earnings estimates are expected to come in a bit better. It's been a massive earnings decline year over year so far in 2023 for energy. But of course, the market is sniffing out better times. Cash flows seem to be supported by oil and gas prices at current levels. So we'll see if it continues. Ultimately, energy is quite cyclical. If we really do feel as if a slowdown globally is taking hold, it's hard to believe

that oil prices and energy stocks would be immune to it. But that remains to be seen, John. I was going to say, Mike, I mean, how much of this is backward looking in terms of where energy has been and this performance and supply related, since we do expect, many do expect, I should say, slower growth ahead. China's having trouble. How long can these, you know, can the energy trade hold up under those conditions? I mean, consumption right now has been holding up. So in other words, demand has been better than many had thought it would be. Supply in U.S. supply, North American supply is actually just about back to record level. So it's not as if there's no drilling going on here.

But with the voluntary cuts in Saudi Arabia and some argue China is simply buying maybe to stockpile it, maybe not even to to use right away. It seems like we're OK right now in terms of supply demand dynamics. But yes, it's definitely going to be vulnerable if we do see a more pronounced slowdown around the world. I mean, I know usually you see a spike in energy prices often as a precipitating factor of a potential recession. We're not really seeing the danger of that because especially on an income adjusted basis, we're not pushing the limits of energy expense, but we'll see how that goes. All right. Fueling our curiosity with those charts. Michael Santoli, thank you. Up next, the CEO of Janus Henderson Investors, which manages a quarter trillion dollars on his

outlook for the market, whereas clients are putting their money to work right now when overtime comes right back. Last week was, quote, a hell of a good week of data, according to Fed Governor Christopher Waller earlier today on CNBC, who said the data gives the Fed more time to weigh future policy decisions. I don't think one more hike would necessarily throw the economy into a recession if we did feel we needed to do one. But at the same time, like I said, the job market is still pretty strong. I mean, these numbers are still near historic lows at 3.8 percent unemployment. So it's not obvious that we're in real danger of doing a lot of damage to the job market, even if we raise rates one more time.

Waller's comments come as Goldman Sachs cut their recession odds to 15 percent, saying a September hike is off the table. Joining us now is Ali Dabaj. He's the CEO of Janus Henderson, an investment firm with more than $300 billion under management. I said 250 before. It keeps going up. We're trying. We're trying. It's good. So I know you've got a contrarian fund, which piques my interest, because what does it mean to be contrarian in this market? It's doing pretty well, too, up 16 percent. Yeah, look, the contrarian fund is an example of what we do more broadly, Janice Henderson, which is really to understand the stocks that we invest in on the equity side and the securities on the fixed income side or the multi-asset side, multi-strategy side really well.

And so in this marketplace where there's a lot of green and red on the screen, I think you're going to continue to see green and red. It's not all going to be green. It ain't all going to be red either, given the data is out there, is really understanding the haves and have nots within these companies. And that's what Contrarian Fund does. We have a fantastic set of portfolio managers and investors behind that fund. It really looks to pick out what's been undervalued in the marketplaces and really putting some heft behind that on behalf of our clients and our clients' clients, particularly apropos in this environment where there's so much uncertainty, right? Goldman is saying less than 15% chance of recession. Others are saying much higher than that. We won't know until it actually happens, but I do think there's this opportunity to look

at something like a contrarian fund in the world of an uncertain market environment as the right place to go. It seems to me like there's a mix of uncertainty and certainty, right? Because part of what higher interest rates bring you is, well, I can just put my money over there and it'll kind of be good, you know, versus expected inflation. What's the smart thing that Janice Henderson is doing with money when clients are bringing it to you saying, OK, I don't want to do it. You guys, let's let the smart people in the room handle it. What do you do, say, I don't want to do it. You guys, let's let the smart people in the room handle it. What do you do, say, with fixed income in an environment like this where it seems like the smart thing is pretty easy?

Yeah, so it's a great question. Look, first off, every client is different, whether it be our retail clients or whether it be our institutional clients. They all have different goals. They all have different objectives. And they're asking us to help them with those objectives, not with a specific time frame, right? They want their objectives.

So we look at that in the compendium of what they ask us to do. Now, within that context, one of the clear things that investors have to do, and typically a mistake among retail investors in particular, is to not diversify. They have to diversify. So you've raised Contrarian as a great example of someplace where they could go. But we do think that, yes, having some short-term money in the marketplace does make sense, too. We have a number of vehicles that are ripe for that, whether it be JAAA, which is our CLO ETF, whether it be JMBS, which is our mortgage-backed security ETF. Those are areas we can do from the short-term perspective and have some money there. But you should also be thinking about the long-term.

There's an enormous opportunity right now which is overlooked in the marketplace in small and mid-cap stocks. Small and mid-cap stocks have been kind of thrown out baby with the bathwater, so to speak. We have an enormous amount of confidence in the opportunities there, great track record for many, many years in picking areas within small and mid-cap stocks among these have-nots that actually are successful. There's short-term pain there, though, because when things get volatile, the small and mid caps get the worst. And the large cap tech stocks have been the safe place to be. So how do you get into small and mid caps in a way that doesn't hurt you too bad? Yeah, look, I think you've seen the pain. I think you've seen

the pain in the small mid cap world right now. In fact, we look statistically over time when the S&P pulls back at this point in the cycle, small and mid cap pulls back even less so. So there's an enormous opportunity there, particularly if you're as mindful as Janice Henderson investors are in picking the has and have not companies within that world. You mentioned technology. There's a couple other places for us, too. We have real expertise in technology. So there, too, you can pick some of the larger ones and there's some safety in there. People can debate. Not my job. Others can debate whether the multiple is too high or too low on NVIDIA and others. But there are clearly good and bad companies in technology which we should invest in. Healthcare is another great example. There are some real defensive names within

healthcare for sure. But I would argue that there's really interesting biotech companies within healthcare that our team has, I think, some of the best track records out there in choosing those companies within an environment where you can focus in on what the companies are doing, as opposed to the uncertainty above that of what the world is doing and the market is doing, what the Fed is doing. You can pick a company that has a good technology that's rolling out, a good pharmaceutical product that's rolling out. That's how you can make money through thick or thin. And to your earlier question, that's what retail investors typically miss out on, is

that diversity across sectors, across categories in picking the haves and have nots. Nick Colas was on with us earlier arguing 5% in gold, right? And I kind of poked him a little bit with, oh, isn't crypto supposed to be the new gold? Should people be putting money into either the old gold or the new gold up to 5%? Yeah, look, I think gold has been a standard for quite some time. And I think there's a little bit more there's a little less risk to that over time. For a Bitcoin perspective, look, it's still a little bit of a speculative bet. Now, if you take digital assets more broadly, there's some that are more speculative than others. So if you want to have an allocation of digital assets, I get having some allocation to the more stable ones like a Bitcoin.

But again, I think you have to look at it from a diversified portfolio perspective. You guys getting into real estate, even like eyeing commercial for when the opportunities arise? So we have a very big REIT franchise in particular. One of our core beliefs around the REIT franchise is that there's a huge discrepancy between the public market valuations and the private market valuations. Public market valuations and REITs right now for the same asset are significantly lower. That's where you want to get in. And so we believe our global REIT franchise, with a strong team, whether it be in Singapore or in London or in Chicago, is really strong at picking out those opportunities within the REIT franchise. But this overall theme of public markets being cheaper than the private markets,

I think will bear well for retailers over time. Ali Levy, having you here on Overtime, especially on set. Thank you, John. Good to see you again. CEO of Janus Henderson. LVMH losing the distinction as Europe's most valuable company. Find out which company is taking on this weighty title when overtime comes right back. Welcome back. Danish pharmaceutical company Novo Nordisk dethroning LVMH as Europe's most valuable company, at least for now. This as Novo Nordisk introduceshroning LVMH as Europe's most valuable company, at least for now. This as Novo Nordisk introduces its popular weight loss drug Wegovi to the U.K. market today. This expansion comes a month after it launched in Germany. Wegovi was first introduced in the U.S. market in June 2021.

It's also available in Norway and Denmark. For more, let's bring in CNBC's pharmaceuticals reporter, Angelica Peebles. Angelica, formerly with us at CNBC.com, now back with us on air. Great to see you. So Novo Nordisk has had quite a year. It's only doubled just in the past 12 months. Is this a new phase? Is it going to hold on here, perhaps? First, it's great to be back, John, and nice to see you. And this is definitely just the beginning for Novo Nordisk. The weight loss drugs are only starting to take off, as you said, just launching in the UK this week. And that's only, you know, its latest market. They are only in the US, a few other countries in Europe. And there's so much demand for these products that they really just can't make enough fat. They can't make it fast enough. And even in the UK, they're limiting the launch to make sure that they can meet the demand. How should we think about this over the long term, though? Because

Eli Lilly has got Manjaro that's expected to be available sort of in this space as well. And now, I mean, everybody's clamoring. Between the regulatory issues and the competition that's going to come into the market, does there need to be more to the pipeline of a company like Novo Nordisk to justify where it is right now? Well, they can't make enough to meet the demand. And even with two products, people are saying that that might not even be enough. They really, there's just so much demand. So many people with overweight and obesity in the U.S. and around the world, that even though there are more companies also working on this,

that it might not be a winner-takes-all market at first. It might be anyone who can get in this space will succeed. There are different methods of taking these weight loss drugs, injection versus not. Some are different methods of taking these weight loss drugs, injection versus not. Some are more convenient than others. You get a sense from talking to people how much of an impact that's expected to have on adoption, how much companies are going to be able to charge, and therefore eventually what the stock valuations might be. There's certainly excitement for oral drugs, but right now people are just excited to get injections,

even if it's not the most convenient thing in the world, a weekly injection at least at something. All right. Angelica Peebles, great to have you back. Thank you. And we have another news alert now on Netflix. For that, we go back to Julia Boorstin. Julia. Well, John, Greg Peters not commenting on the strike. The interviewer saying he wasn't going to ask about it directly. They asked more broadly about the competitive landscape. But Peters did comment on the opportunity in games, saying they're excited about the performance they've gotten in mobile games so far.

He said every month engagement goes up. But he said they have aspirations to go beyond mobile games. And they kicked off their cloud streaming initiative, which he described as more technically challenging, more challenging than streaming film and TV. And he said they do have to prove that they could do this in an economic way. Again, focus on profitability. That's the new focus here, John. He said it is a work in progress, but they think long term there is a lot of opportunity in games. Julia, I think it's a little weird that he didn't talk about the strike, given what we just got from warner brothers discovery and i wasn't it barry diller or somebody saying that uh that netflix should be kind of split off from the rest of the industry as they negotiate this thing yeah

barry diller was suggesting that because netflix was sort of the source of the problem as the force driving the streaming uh the growth and streaming that they should negotiate separately, I think would be challenging from a sort of AMPTP standpoint, the organization that is doing this negotiation for Netflix to split off. But I was surprised that they didn't have a comment about it. The conversation indicated that the interviewer had agreed not to ask about it, or maybe Greg Peters had said, I cannot comment on it because negotiations are ongoing. But certainly a lot of volatility in the landscape right now. And Netflix does have a bit of an advantage when it comes to the strike because they can release content whenever they want. They also have more international content. They're not as tied to

that fall TV schedule that we're all accustomed to. Well, Julia, we know you would have asked him about it. Julia Borsten, thank you. Of course. Up next, a look at what could move the market tomorrow, including a key report from the Fed. We'll be right back. Welcome back. Another busy day tomorrow here on Overtime. We're going to get a read on the economy when the Fed releases its beige book. We are just two weeks away from the FOMC's next meeting, plus earnings from American Eagle, ChargePoint, GameStop, and C3AI, among the names we're watching. And speaking of C3AI, CEO and co-founder Tom Siebel is going to join us tomorrow, right here on Overtime, after the release, before the call, in an exclusive interview. Meantime, Mike Santoli is back with us. Mike, what are you most looking forward to tomorrow?

Well, all of that, and certainly the Beige Book gives you a good glimpse at how the Fed staff, all the different Fed districts, are characterizing the current state of the economy. But also the ISM services numbers should be out tomorrow. That's another one of these little barometers of exactly how the biggest part of the consumption economy might be doing. The bond market kind of holds the cards at the moment. You've had a 10-year yield popping above four and a quarter again. It sort of, you know, maybe agitated that raw nerve that equity markets have had about whether

the economy can handle yields at these levels. Is that kind of a lot of movement in the bond market that we've seen over the past couple of weeks? I mean, you know, it's pretty jumpy. Yeah, it is. In fact, especially in the wake of the jobs number on Friday. I mean, the yield crashed down below 410 and then bounced back up again. Bond market volatility was much more severe last year when the Fed was a much faster moving target, so to speak. But yes, it's been a little bit off balance here because I do think it's not just so much about what the Fed's going to do. Now it's about can the economy handle it? Is inflation truly under control? All the big market and economy

based factors that are driving things. Mike, thanks. Mike Santoli will do it tomorrow. Speaking of jump, you got to mention Zscaler, which popped after earnings results is now about flat after hours. For now, that'll do it for overtime.