Closing Bell - Closing Bell Overtime: Brutal End to Rollercoaster Week 10/7/22

Episode Date: October 7, 2022

Stocks ending a volatile week in the red – so what should investors do next? Ritholtz Wealth Management’s Josh Brown gives his take. Plus, Charles Schwab’s Liz Ann Sonders reveals her forecast for the rest of the year. And, we break down where investors can find some opportunities amid all of the volatility.

Welcome to Overtime. I'm Mike Santoli, in for Scott Waffner. You just heard the bells, but we are just getting started here at Post 9. In just moments, we'll speak with Schwab's Chief Investment Strategist, Lizanne Saunders, her expert take on today's market drop and what she's recommending to clients moving forward. But we start with our talk of the tape. A brutal end to a rollercoaster week. Stocks selling off in a big way today with all three major averages finishing deep in the red. You see the S&P 500 finishing down 2.8%. Tech, the epicenter of the selling, once again with the NASDAQ falling a full 3.8%. Now, for the week, the S&P 500 did manage to hold on to some of Monday's and Tuesday's sizable gains, finished higher by more than 1%. We saw notable weakness today in the chips following AMD's profit warning.

More trouble in the transports as well on new reports that FedEx plans to lower its volume forecast for FedEx round this holiday season. A couple of bellwether groups there back on the defensive. Joining me now to break down all of this is CNBC contributor Josh Brown of Ritholtz Wealth Management. Josh, plenty to work with here. I think we should start at the spot where, you know, don't fight the Fed, don't fight the tape. You and I talked about both those rules. Both of them are suggesting still maybe make sense to stay cautious, but that works against the idea that aren't we supposed to be in the business of buying markets that are down 25%, at least for the long term? I think the best investors have always understood that you have to be able to keep two opposing thoughts in your head

at once. And the way that translates to portfolio management oftentimes is managing multiple strategies in one portfolio and having the maturity to understand that at some periods of time one strategy is going to look great and another one might look terrible but it's the combination of those two things offsetting each other is how you get to the finish line easier said than done and most people can't do it for themselves that's why there are financial advisors and even many financial advisors struggle with explaining that stuff to clients But if you're in a portfolio right now that's reliant on a single strategy whether it's buy and hold or it's you know

We're a value investor or we're there. So with that It's really really tough to come up with a way to explain why this situation is going well. So the majority of our portfolios rely on multiple return streams, non-correlated strategies, and again, having that humility to not expect everything to be at an all-time high all the time. For sure. And, you know, it's such a tricky thing to explain here to anybody who doesn't follow this, you know, tick by tick to say unemployment fell to three and a half percent. We created more jobs than we expected last month. And Wall Street hated it. And Wall Street hated it not because it's been afraid of a recession, but it's afraid that the Fed has more work to do to perhaps engineer the recession that they're at least suggesting they think is going to be necessary to get inflation under control.

The market keeps kind of trying to over anticipate this moment where we're getting to the end of what the Fed needs to do. Presumably, we are closer than we were. But how do you think about that equation, Fed targeting a lagging indicator such as inflation in making monetary policy? I was talking to one of the smartest people I know yesterday, Nick Colas, who I know you know well. And, you know, the main thing to keep in mind here is we have never had an inflation spike that was cured by anything other than a recession. Not all recessions have been caused by inflation, of course, but any time we've had a 5% plus spike in inflation of any duration, the answer has been a recession. And I said this on

the air, and I'm brawling with people, and nobody wants to hear it, and I know it gets repetitive, but we have 11 instances of that. So you want to roll the dice? You want to say this is the one that goes differently? I don't think that anyone should be doing that. So it's not fun to be bearish. It's not fun to be negative or pessimistic. Other than if you understand that the carnage of today is planting the seeds of expected returns tomorrow. And as markets fall, two things should,

everyone should be reminded of two things about bear markets. The first thing is they end all the time, every single one of them. The second thing, more interestingly, is that as stocks fall, expected returns go up. So the money that you're putting into the market today, it's the most uncomfortable investment that you could make, 401k or otherwise. Any contribution you're making, you literally feel like you're throwing money into a wood chipper. You're not. You just might have to be patient before you see that pay off. But there's never been a market like this that wasn't viable. The real question is,

what can you live with? Are you investing the right amount of money based on your own risk tolerance and your own financial situation? If you're not over-investing and you're not using leverage and you don't have ludicrous expectations about overnight gains and you're investing in a diversified portfolio, it could suck for another six months. It's entirely feasible. But that's not why we're doing this. We're not doing this so that we can have a party in March based on what the returns are from October. If that's what you're doing, you're playing a different game than most Americans trying to save for retirement. Right.

And, you know, we are seeing, as we talked about in the last hour, a lot of the things, you know, these things go in waves. There's a sequence to how bear markets unfold. And part of it eventually is the stuff that people thought could keep them out of trouble starts to feel like it's getting into trouble, whether it's the big Nasdaq bellwethers or whether it's the stuff that's supposed to be, you know, kind of safe. So that seems to be like it's coming around. And even on a more fundamental basis, I mean, FedEx, it's a quirky situation. The stock was really hit tremendously hard

before we got these reports today of an incremental warning. It ended up down 0.5% today, right? So it's a dynamic system. Some stuff's been priced in, maybe not all of it. And I guess the question is, do you want to just sort of wait until it's more comfortable or do you want to brace for, listen, the overshoots happen on the downside in a bear market typically? Yeah. So I think you want to stick, if you have

a strategy or a multitude of strategies in a portfolio, two, three, four different things, what you don't want to do here is start to violate the rules based on your gut instinct. So the tactical strategy that we manage for clients is technical. It's trying to be long in uptrends. In neutral trends, it's trying not to chop itself up and churn itself up. And in downtrends, it's just out.

As badly as I want to say, this is it. This is where we buy them. That's not how it works. That's not the rules. But I do think a barbell approach, Michael, is probably the best approach for most investors. By barbell, I mean, try to find places to go that have held up the best, because that's probably where the fresh capital is going to be chasing returns and coming in if and when this turns around. But then also buy some of the hardest hit stuff you can find because that's where the opportunities could be greatest. So if you're doing that, then you're not betting on just strength or just catching falling knives. You're being rational and I think you're putting yourself in a position to benefit from a multitude of scenarios.

So really quickly, what's working? The ITA is something that I own, bought it earlier this year. It's one of the few things I own that's working well. It's defense stocks. Look at those stocks today. Some of them are actually green. This is an area that is the second best performing after energy this year almost nobody is talking about any of these names and there's so much geopolitical

stuff going on right now these stocks remain bid i like that approach i'm in ieo which is energy also then on the weak side i bought semiconductors recently i wish I waited till today. But like that's an area that there's been so much pain there already. Right. That I think if and when there is a turn of the market, there is going to be a lot of money made there. So doing that barbell approach is probably better than trying to buy a lottery ticket or like hit the jackpot on one specific trade. Yeah. Who knows? The defense stocks being up today could be a hint to at least one of the sources of anxiety that we have going on in the markets here on top of everything else, which is who knows what's going on with the war. Let's bring in CNBC contributor Shannon Sikosha of SVB Private and Joanne Feeney, partner at Advisors Capital Management,

broadening out the discussion. Shannon, daylight today, I guess you're kind of looking at exactly what's getting hit hardest, what's not, what seems in tune with the fundamentals, what doesn't. Did you find anything either alarming or attractive? I wouldn't say alarming. I would agree with Josh. I think that there's been this trend, and we've seen this actually, Mike, through a number of the last several data points, where there is this growing enthusiasm, more confidence that the Fed will find a reason to pause or to pivot ahead of that four and a half rate expectation they put out in the dot plot.

And when that doesn't happen, then I think those areas that people have flooded into over the course of those five or six days prior to, those are the ones that really sell off. So I'm not surprised to see the weakness here. I think the challenge here is where do you find that potential value or where do you find that port in the storm? Because if you look at traditional defensives like utilities and consumer staples, certainly seems like there's reasonable pressure on those stocks from a cost perspective. And then you think about the flip side, you look at something like health care, both defensive

and innovative and disruptive. And so I think that now kind of positioning for the next year or so, I agree with Josh, we're looking at from a long term basis. But there are some places that using these sell offs in some of these individual names could be an opportunity. I would just be hesitant to throw all of the tech out at this point, because again, I still think we're going back to that lower growth environment. And I think you need to be in companies that can grow their earnings with free cash flow and low debt levels, because I feel like that's where the market is going to come to in the middle of next year. Joanne, you know, there's this reflex reaction we got in the market today, which is pretty predictable if we were going to get a very good jobs number and unemployment

is going to go down. And it seems to restart the clock on, you know, people expecting the Fed to turn more benign. But there's going to be another revisionist story, probably already has started, which is, look, wage growth decelerated. The leading indicators of inflation continue to look like it should break down from here. You know, oil's lower than it was six months ago. All these other things that should feed in, which means it's maybe a when and not an if

that we get toward the end. Of when the Fed itself is necessarily going to seem like. It's very hostile is there is there a reason to be. Pinning hopes on that kind of a scenario or do you not want to go down that road. You

know you know Mike I think what you just described actually describes a lot of the behavior we've seen in the market this eagerness to jump in this eagerness to put money to work there's an awful lot of cash on the sidelines and so we see these hopes develop that the Fed might you know lay off the gas here sooner than some expect then you get a lot of money piling into these risk on strategies because

you know as has been discussed these are the companies the ones that have been beaten up the most the ones with secular growth drivers they're the ones that are going to recover the most when this thing turns. In terms of forecasting what the fed is going to do I think we all need to be a little bit humble. Because the fed is going to be watching the data very carefully. Not just looking at historical data. They're also looking at current data they're out there talking to businesses they're doing on the ground research. Trying to get that signal of whether they've done enough. To reduce demand. To take some of the pressure off of inflation. But we are going to get some

more positive inflation numbers going forward as some of those transitory effects of the pandemic do play out, like used cars and new cars, for example. In a practical sense, in terms of, you know, action points, Joanne, would you be looking at things like, well, you're getting paid to kind of sit on the sidelines to some degree, whether it is in relatively short-term investment-grade debt or something else. Does that feel as if that's something

that's attractive right now, or is that going to be the trap that says, I turned away from stocks just as they were getting to be a better value? Yeah, I don't think it's really advisable to completely shift your exposure to equities and debt at this point if you

needed to be heavily exposed to fixed income. Great you're enjoying some of the benefits as yields rise now. But you know with the market pulling back as much as it has clearly investors waiting. To see you know when the so called bottom

might arrive there's a lot of money on the sidelines it's going to come back to work in equities. Always hard time this markets are you is. You know if you have the right allocation you know a year ago two three years ago you don't change that here. In fact the expected returns in equities is now higher. Than it was you know before this sell off. So that gives you actually pretty good outlook into equities and if we are entering a recession. And broadly things slow down.

Then you know some of those big secular growth drivers whether it's cloud computing and data centers. Or wireless or some of the changes in robotics and health care. Those offer some really good opportunities even as they

might continue to be volatile over the next six or so months. Good attractive on entry points here. Shannon, the warnings that we've gotten so far on guidance for the current quarter, for the next one, is it leading you to sort of stress test what you own or what you might think about owning in terms of the near-term earnings expectations? It's incredibly popular to assume that estimates are still too high, even as they've been coming down to some degree for this quarter and next. We just don't

exactly know where they're more reasonable, I guess. Yeah, I think they're re-rating on the estimates for next year. I mean, we could sit around a table of 25 of us, Mike, and come up with different numbers. I think you make a great point, though. So this shift from goods to services spending, that has accelerated significantly because now the pie is smaller from a discretionary income perspective. So even some of that good spending that you may have maintained against a different backdrop, that's falling off faster as you're prioritizing that services spend. So I would say what we're most concerned about is, you know, if consumers are buying fewer things, where does that result? And you saw the AMD warning today, you know, is really around PCs. I mean, I think we all have been saying that, that that was likely to come down a little bit.

And that's not where the value in that company is in terms of the other two businesses are much stronger from a growth perspective. So if you're if I'm looking at my portfolio and I'm saying if a U.S. consumer and global consumers in general are buying fewer things, where do I want to be positioned? Consumer discretionary, certainly not. And then whether it's the transports, whether it's FedEx. And then thinking about where will they continue to spend if they are in something like Costco, where that's a different type of model for a business, that's still going to capture consumer spending, but in a different way than this goods to services rotation that we're seeing today. Josh, I know you've heard all the talk.

Last weekend was rife with talk of some kind of major financial stress event was going to hit, and that was going to be something climactic. Maybe we're not quite back there. Maybe it seemed like that was premature. But this idea, Scott Miner talking about that the Fed seems like only it will only be deterred by some kind of financial mishap. Does it does it pay to kind of incorporate that into your outlook to to to anticipate it or to just be aware that that these things have often followed Fed tightening cycles? I think it's reasonable to just like keep reminding ourselves that these types of bear markets don't end without a crescendo. There's going to be a spike in the VIX somewhere north of 40. Like every time you buy the S&P with a VIX at 31, 32, 33 this year, short term, you've been rewarded. The market has had a bounce. Unfortunately, that bounce has

always led to lower lows like what we're experiencing today. But it's undeniable. The bounce happens. A lot of that is software driven, whatever. One time it's not going to work. One time you'll see VIX 34, unfortunately, and then all of a sudden it'll be 38. And that will be a new high in volatility for this cycle. And that's when things get real. And, you know, it rarely stops. So that sounds terrifying, right? And I will stipulate that. But that's how you get to the low. I mean, that's really it. We could talk about, listen, we could talk about earnings.

And we know in recessions, you know, earnings tend to fall double digits, 20%, not 5%. So we're probably not done doing the work there. We know that valuations eventually will get to the low end of the range. Mid-teens is probably more appropriate than 18, 19. We know that that takes time, but it happens. So I really would say we're going to have that moment. I don't know when it is. I don't know what the headline will be that triggers it.

We just haven't had it yet. Yeah, certainly one path to the low, one that many should be bracing for, even if it's not the only one. Josh, Shannon, Joanne, great to speak with you. Thank you very much. Let's get to our Twitter question of the day. We want to know which of these transport stocks is your best bet over the next year? FedEx, UPS, XPO Logistics, or J.B. Hunt? Head to at CNBC Overtime on Twitter to vote. We will share the results later in this hour. We're just getting started here in overtime. Up next, Schwab's Lizanne Saunders, her take on today's big sell-off and what she's forecasting for the rest of this year. And later, rethinking one of Wall Street's hottest trades, one big

money manager says the gains may be in for this red hot sector. All that and more ahead. We're live from the New York Stock Exchange Overtime. We'll be right back. We are back in overtime. Stocks selling off to close out this volatile week after the September jobs report seemed to diminish the market's hope of a Fed policy pivot. Joining us now, Lizanne Saunders, chief investment strategist at Charles Schwab. And Lizanne, it's great to check in with you here. You know, repeatedly, the market has tried to get ahead of this moment when perhaps the Fed is kind of nearing what it needs to do at the end of that process. It keeps getting knocked back from that trade.

How should investors be thinking about the interplay of what the markets want and need, what the Fed said it's going to do, and what are the key indicators we have to be watchful for when it's finally rational to expect this process to be done. Yeah, what I think is irrational about expectations around a pivot is the desire for instant gratification on that front, especially if by pivot you mean going from aggressive rate hikes to rate cuts. That was the narrative in mid-June. That made no sense to us because simply inflation peaking and starting to come down was not going to be the green light for the Fed to not just stop raising rates but cut rates. So I think there are a lot of steps in this process from where we are now to what would be

defined as a pivot. And probably the first step is a series of data points that supports the idea that they can not pivot to rate cuts, but actually maybe telegraph a less aggressive stance, telegraphing 50 or 25 instead of 75. And then you would get the actual move by the Fed with maybe a milder hike akin to what the RBA just did, then get to the point where they're in pause mode, then see what happens with inflation, the recession, and then at some point they consider rate cuts. But there's a lot of steps between now and a pivot to rate cuts. And I think we have to get out of the mode of wanting that instant gratification, that one number is going to be that signal. Right. So therefore, next week's CPI report, of course, that would be one of those numbers that we might anticipate in that direction, but may not be sufficient.

Well, not sufficient, especially given that not just Powell, but but others on the Fed have said, maybe in slightly different language, but a series of lower lows, months' worth of lower lows, something that gets closer to their target. And I think now, us included, a lot of folks have been doing the calculations because of how the math works with base effects, what month-over-month average change would look like, and when that brings inflation, at least in the case of CPI, down to below a three-handle. And all of those trajectories are into 2023. So, yes, if we saw both headline and core show a decline, that's a step along the way. But one month or an additional month beyond what we got with the peak and headline is not going to be enough, I think, to to make the Fed see a green light. I know you've made the point in the past that historically when the Fed feels forced to actually ease after it's been tightening, that often is not because things are good and the market doesn't respond necessarily very well immediately on that. It's almost as if we should hope for moderation in what the Fed's doing and not some kind of, you know, financial or economic problem that forces them to cut soon. Right. Aside from an easing in inflation, plus maybe a bit more weakness in the labor market, which we didn't see today, a near-term green light for the Fed

to have to step in and consider rate cuts, to your point, Mike, would likely be serious financial system instability or something actually breaking. And I'm not sure that's what you want to wish for at this point. Even if it's a bit more of an elongated process, I think a process of inflation coming down, some tightness in the labor market coming out of the stats, even if it means a move to pause mode is a little bit later, not sooner, I think that's a better environment for the market than a crisis situation that causes the Fed to have to do a 180 in short order. Yeah, exactly. A good example of be careful what you wish for. Lizanne, thank you very much. Appreciate you calling in. My pleasure. Have a good weekend.

All right. You as well. Lyft shares falling more than 8% today following a big downgrade at RBC. And now the company's responding to that downgrade. Deirdre Bosa has the details. Hi, Deidre. Hey, Mike. Yeah, that's right. Lyft shares are just bleeding in today's session. Part of the bigger big gig economy, which has seen quite the sell-off this year. Remember that these are largely unprofitable names, with the exception of an Airbnb, which has held up better. You mentioned Lyft, though. Shares were down as much as 10%. This is really the second downgrade that we've seen from Wall Street in just a few weeks.

It comes from RBC, and they highlighted the competitive environment, saying that Uber appears to be doing better on structural terms in terms of that driver's supply. So Lyft did respond, and they said that the sample size RBC used for the survey was small. They disagree with their conclusions. And they say that service levels in our marketplace are competitive. They said a few things around driver supply, but just in the context of how it's improved from those pre-pandemic levels, which shouldn't be too surprising.

Should also note, though, while all gig economy names are having a tough time in this market environment, Lyft's losses this year are almost double that of Uber. So Uber is holding up a little bit better. A few weeks ago, it was UBS also that highlighted the case for Uber over Lyft. We'll hear from them and we'll see the results of how the third quarter went in just a few weeks. Back over to you. Oh, sure. Well, Dee, thank you very much. Appreciate it. Up next, forecasting the Fed. Stocks sinking as today's jobs report raises more questions about what's next for the economy and what the Fed might do about it. We'll break it all down with Evercore ISI's Krishna Guha when Overtime returns.

Welcome back to Overtime. Time for a CNBC News update with Shepard Smith. Hello, Shep. Hi, Mike. From the news on CNBC, here's what's happening. The USS Ronald Reagan aircraft carrier strike group launching a new round of drills with South Korean warships today. These drills come one day after North Korea fired ballistic missiles into the Sea of Japan and flew fighter jets close to South Korea's border. The Uvalde school district suspended its entire police force today. The move comes amid outrage from victims' families after a force hired a former state trooper who was under investigation for her actions the day of the massacre. They fired her just yesterday.

And the Nobel Peace Prize this year goes to human rights activists from Russia, Ukraine, and Belarus. The Nobel Committee saying the two groups and one activist represent civil society in their home countries and that they've made outstanding efforts to document the abuse of power, war crimes, and human rights abuses. Tonight, President Biden's warning about Russia and battlefield nukes, plus Steve Leisman on today's jobs report,

and New Orleans' controversial plan to deal with a cop shortage on the news, right after Jim Cramer, 7 Eastern, CNBC. Mike, back to you. All right, Jeff, thank you very much. Today's jobs report, raising more questions about the Fed's ongoing inflation fight and the impact on the U.S. economy, with raised market expectations now for future interest rate hikes, sending stocks lower today. Now joining us is Krishna Guha to talk about all this Evercore ISI vice chairman. Krishna, the market clearly took the indications of a tight labor market. There's another drop in the unemployment rate as solidifying the likelihood that in early November we're going to get another three quarter percentage point hike.

From your perspective, does it change the longer term view of the ultimate destination of the Fed? And what does it do to this idea that we're monitoring all the indicators for when the Fed might be able to take its foot off the brake a bit. Yeah. So, look, I think the market is right broadly to think that with this labor market report, with this amount of momentum in hiring and a fall in unemployment, the ship has probably sailed on 75 basis points for November. Does this mean that rates need to go higher than the four and a half, four and three quarters rate where the Fed has penciled in already. I don't think there's anything obvious here that pushes that way. Now, on the one hand, we're sure we still have this stronger for longer dynamic in terms of hiring. On the other side, though, very welcome developments in wages with the average hourly

earnings coming in at 0.3. When you look forward a year, 18 months, two years, and you're asking where's inflation going to be there, the wage data is really central. And it's central and therefore slightly more encouraging, I take it. I mean, there was a lot of talk in reacting to today's numbers and saying, look, as you say, wages sort of moderated a bit, even with unemployment at three and a half. It seems like there's not that direct linkage between the absolute level of unemployment or labor force participation, for that matter, and the trajectory of wage growth. Therefore, maybe the Fed doesn't have to get unemployment up to whatever it is, 4.4, 4.5 percent that the

consensus seemed to think was necessary, correct, to restrain inflation? So I think the case the Fed has actually really been making for a while, right, is that the excess in the labor market isn't well captured in the unemployment rate. It's really more in that ratio of the vacancies to unemployed. And you'll recall that we had that good jolt data the other day that suggested that while that ratio is still high, it's coming down as firms reduce their overbidding for workers. That is still giving us a pathway here where things could work out OK. But, and it's a big but, as long as the momentum in the labor market is this strong and there isn't a decisive break cooler in inflation, the Fed is going to keep

jamming rates higher. I worry that they're stuck in a hamster wheel here of doing 75s until the spot data gives them a good reason not to. That's running the risk that they end up overdoing. Well, for sure. I mean, obviously they are aware and they talk all the time about how, you know, monetary policy operates with with lags with this extra rate hike we get in November. We're going to be for four percentage points of hikes in less than a year. I mean, it's obviously going to be a pretty dramatic effort here. Do you think that investors are correct to fear that they will inadvertently over-tighten? Or do you think that they believe they don't have a choice aside from really knocking the economy off course by constricting demand? So I think there is a real risk of overtightening there. And it's not just

about the rate that you're targeting, four and a half, four and three quarters, plus, remember, three trillion of QT, almost all of which still has to work its way through the pipelines. It's, in a sense, for me, more about how quickly you're running. You're running so fast in terms of taking rates higher that you're outrunning your ability to learn from the data because monetary policy affects the economy with a timeline. If inflation expectations were moving up, you wouldn't have a choice. But inflation expectations have actually been moving down some. So the Fed does have a choice. I would prefer that they were moving more slowly at this point. Ships sailed

for November. But look out for a really important debate at that November meeting about how to message that they do expect to slow in December. Yeah, that's just three and a half weeks away. You know, with this hike, presuming we get that magnitude of a hike, it seems as if it will cause the three month versus 10year Treasury curve to invert. That's, as many have pointed out, sort of been a relatively reliable signal of recession. Do we put stock in that? I think you have to put some weight on that, yes. Now, look, I prefer not to take like a really mechanical approach to a mild inversion equals automatic recession. Mild not inversion equals no recession. That seems too simplistic.

I also think that in the current situation, we want to compare real yield curves adjusted for expected inflation as well as nominal yield cuts. So the picture is a little more complex than that simple metric would suggest. But no question, recession risk, hard landing risk has been rising, is rising. It's not going to be easy to deliver a path for the economy that doesn't have a recession in 2020. Yeah, absolutely. Seems like it's a pretty narrow lane there. Krishna, thank you very much. Great to speak with you. Anytime. All right. Up next, searching for safety, stocks selling off to end the week. So where should investors look for big opportunities? We'll discuss that after the break. And don't forget, you can catch us on the go by following the Closing Bell podcast on your favorite podcast app. Overtime, we'll be right back. Welcome back to Overtime. Stocks getting

whack today, the S&P losing nearly 3%. Healthcare has been one of the few places investors have been seeking safety. Our next guest says that trade might be getting too crowded. Joining us now is Peter Krause, Aperture Investors, Chairman and CEO. Peter, good to have you. Nice to see you, Mike. Certainly want to get to health care, what seems to look like it might be a decent risk reward and not. But it may be big picture. I'm curious. I mean, we're almost, I guess we're more than nine months into the year, more than three quarters into this year.

It just seems like a big payback reset type of year, right? The Fed catching up on a lot of deferred maintenance on inflation, valuations coming back into line, rebuilding of a yield cushion in the bond market. I mean, just what are your top line thoughts on what an investor ought to be doing with all that? Well, that's a really good point. I'm glad you sort of laid it out that way. The Fed has been absolutely crystal clear. I think investors tend to forget. They are saying with no ambiguity that we're going to fight inflation. And if you look at the history of fighting inflation, it doesn't happen overnight. It takes time. And it doesn't happen that the inflation figures are actually going to moderate that fast either. So you have to expect the Fed is going to stay at that game.

They're going to continue to raise rates. They're probably not going to go that much further than what the market expects, but they're not going to pivot and come down anytime soon. So we've seen the valuation contraction, which you referred to. Now we're looking for where the earnings go, and we're going to see weak third quarter earnings. We're going to see probably weak fourth quarter earnings. And now the market's not really looking at third quarter and fourth quarter. The market's really looking at where are trough earnings and when do I see the opportunity to buy. So look, will the market go down another 10 percent or 15 percent or not? Who knows? That's an impossible thing to really guess at.

But now is the time when you're going to start to see investors differentiate. And I do think that equities, while they look scary right now, are probably pretty interesting. Credit? Credit's got another leg to go, in my judgment. You think so? Yeah, because I think that corporations are going to see their earnings slow. They're going to see revenues slow. And they're going to see interest rates rise pretty substantially.

And if you're refinancing, that's going to be a shock. And even if you're not refinancing and you have to refinance, let's say, two years out, you're going to run over a really difficult time period when covenants are going to be perhaps a breach and you're perhaps going to have to deal with the bank. So I think the credit hasn't yet seen the tough time. Yeah, it moves a bit slower, as we know, and maybe more shoes to drop there. Now, in that kind of environment, just to get back to sort of where within the market looks interesting or not, health care is a popular place to say, well, it's a blend of growth and value and it's not as

cyclical in terms of the underlying businesses. But why would you think that's not a place to take some shelter? Well, look, when the market goes through these kinds of changes, money moves around in the bathtub, so to speak. And, you know, the part of the bathtub that it's occupying right now are the less risky, more stable areas. And so they get crowded that, you know, and the uncrowded spots are the places that people sold from. So as I said, I think you're going to see earnings moderate or go down in the third and fourth quarter. But if you're looking at consumer areas, industrial areas, you're going to see that earnings effect and you've seen the multiple contractions, but that's where the value is probably going to be.

Energy is the other popular one because it's where the estimates keep going up and it seems like you have the wind at your back. And even on a relative performance level, it's going to probably get money continuing to chase it. Yeah, I do think energy is a little bit different because you've got a significant geopolitical overlay. But energy is up 20 plus percent, maybe on an average is up more in certain segments. And the market's down 30. That's a 55, 60 percent spread. That's huge.

Not going to see that anymore. So it isn't necessarily going to collapse because I don't think the geopolitical environment is going to allow that to happen. But I don't think you're going to see the kind of returns that you got the last 18 months. Yeah, it's certainly a fair argument. Peter, great to see you. Thank you. Good to see you. Thank you. All right. Well to see you. Thank you.

All right. Well, up next, we are capping off a volatile week for your money. Steve Kovach standing by with a roundup of all the key moves. Hi, Steve. Hey there. Yes, market had an ugly day today on the back of that hotter than unexpected unemployment numbers. But still lots of green on the board for the full week from energy to big tech. Some glimmers of optimism we'll break it all down for you when closing bell overtime returns after this we're back in overtime stock seeing some wild swings this week let's get to steve kovac he has a rapid recap hey mike yeah it was a brutal drop that we saw today but guess what major averages

they remain positive for the first time in three weeks. That's thanks to those big rallies we saw Monday and Tuesday. Let's break it down. S&P up 1.5 percent. Dow up just shy of 2 percent. And Nasdaq squeaking by up less than a percent despite falling nearly 4 percent today. WTI gaining 16.5 percent for the week after OPEC Plus announced its production cut earlier this week. That's its best week since March of this year.

It closed above $92 a barrel, while Brent topped $98 a barrel. Energy overall having a strong week as well. It was the top-performing sector, and four out of the five top stocks in the S&P were energy companies. APA Corp up 24 percent, Marathon Oil up 23 percent, Halliburton also up 23 percent, and Devon Energy up 19 percent. Over on tech, mega cap names like Apple, Microsoft, Google, and Amazon all stand above water. Apple fell about 8 percent last week, but was up a bit more than 1% this week and is now trading at $140 a share. Microsoft and Amazon each up about 1%, but it was Alphabet outperforming the group, up 3% after Google

announced its new smartphone and watch lineup for the holidays. That's your Rapid Recap, Mike. Back to you. All right, Steve, thanks very much. Have a good weekend. Up next, major midterm mega donor, fresh CNBC reporting on the big money bankroll from Citadel's Ken Griffin as we close in on the November election. We will have the details just ahead. Last call to weigh in on our Twitter question. We ask which of these transport stocks is the best bet over the next year? FedEx, UPS, XPO Logistics or J.B. Hunt? Head to at CNBC Overtime, vote, and we'll bring you the results after the break. Overtime, we'll be right back. Welcome back to Overtime.

Let's get the results of our Twitter question. We asked you which of these transport stocks is your best bet over the next year. And 35 percent more than any of the others said UPS, which has held up better than FedEx so far this year. Now, new reporting from CNBC dot com political finance reporter Brian Schwartz, revealing Citadel founder Ken Griffin is pumping tens of millions of dollars into Republican campaigns this midterm cycle. Scott Wapner asked Griffin about his political allies at last week's Delivering Alpha conference. Listen to what he said. The reports are that you are a big supporter of Governor DeSantis in your new home base of Florida.

You were ear to ear smile before we came in here, telling me how much you love being down in Miami. Reports of your backing of DeSantis, true? Well, I've been a supporter of DeSantis for years. There's nothing newsworthy, and I'm a big supporter of DeSantis. And living in Florida, you see the impact of his policies. It is a state that is prospering. Children in our school are being educated and

not indoctrinated, which is really great to see as a father of three children. The focus from the mayor of Miami on managing crime, I mean, we just didn't have that in Chicago. Let's bring in the author of that story, CNBC.com political finance reporter, Brian Schwartz. Brian, good to chat with you about this. I mean, the answer that Griffin gave just there suggests that his priorities are not strictly lower taxes or any of the traditional kind of money and business related concerns that you might expect from a hedge fund manager. You're right. One of the policy issues he's taken up with the governor of Illinois, a Democrat, Governor Pritzker, has been related directly to crime. That's what he's been saying

publicly. And that's partially the reason why he's been pumping so much money into these midterms. You know, he's very kind of like a principal donor. There are certain policies that he follows. That's where the $100 million comes from much of that to be clear has gone toward republicans this cycle it's 50 million uh two federal candidates another 50 million over 50 million really two uh state candidates and most of that cash has gone to republicans so you're right uh you know he kind of picks and chooses his spots policy-wise. Crime is definitely one of the things he publicly talks about as a topic that he focuses on. And, again, that's a theme that has played, that topic and others have played in these midterms so far.

Place his donations, the volume of them, in context of others out there. I mean, $100 million is a lot of money. How does it compare with some of the other major donors on either side of the aisle? Sure. So the records really indicate that really for the first time, it suggests that Ken Griffin is in the top three of individual donors this cycle. The only two that are ahead of him right now are Richard Uline, who's a shipping magnate. He's given north of 53 million. And George Soros, who we all know very well, somebody who's a big, big Democratic donor, he's given this cycle over 128 million, again, pretty much entirely, if not entirely, to Democrats. And so Ken Griffin is right below those two. And why does that

matter? Well, really, at the end, and we mentioned this in story at CBC dot com, is that, you know, Republicans have been looking for someone to step in for a person like David Koch, who passed away some time ago. Sheldon Adelson, another big GOP donor who also has passed away, fill in shoes like that. And many people, including the leadership of the Republican Party, have pointed to Ken Griffin as that person who could do that. Brian, great piece. Appreciate you talking about it with us. Thanks very much. Thank you. All right. You can read Brian's full reporting at CNBC.com. Tough day. S&P down 2.8 percent. Good news on Main Street. Bad news on Wall Street, at least for today, although for the week, S&P did manage to be up a percent and a half.

That's about all. So it's up from its low of the year. Bond market closed on Monday. Keep that in mind. That does it for Overtime Fast Money begins right now.