Closing Bell - Closing Bell Overtime: Bullard’s Big Buzzkill 11/17/22

Episode Date: November 17, 2022

The fed’s Bullard says rates might need to go a lot higher than many expect. So, what could that mean for your money and where could stocks go from here? Trivariate’s Adam Parker gives his take. Plus, Tony Pasquariello breaks down Goldman’s market playbook. And, more drama at Meta. Shareholder Stephanie Link weighs in on what’s at stake for the company.

All right, Sarah, thank you very much, and welcome everybody to Overtime. I'm Scott Wapner. You just heard the bells. We're just getting started from Post 9 here at the New York Stock Exchange. Big earnings on tap as well today. Applied Materials, Palo Alto, Gap about to hit. Our experts, of course, are standing by with all you need to know, and we'll see very much how these stocks move in overtime. We do begin with our talk of the day.

Bullards buzzkill for the Bulls. That's what we're calling it. The central bank's resident bomb dropper saying rates might need to go a lot higher than many of you expect stocks initially sinking on that statement tried to fight their way back did a pretty good job by the close as a matter of fact so what does it all mean for your money and where this rally might go from here let's ask adam parker he is trivariate's ceo and founder with me on set what did you make of it's good to see you by the way what did you make of what Bullard said? You know I'm not surprised that they're going to stay hawkish, right? 7%?

That's like uber hawkish. Super duper hawkish. Listen, I don't know. You know, they have to stay hawkish, and they're going to stay hawkish for a while. And, you know, I think what's really interesting is you see what the market's going to do when they actually get dovish. You saw the huge move late last week, positioning, sentiment, et cetera. But I think everyone knows they're going to stay hawkish. And so there's a short term I need to participate, but a medium term,

I don't really believe that they've handled all they're going to handle when it comes to inflation. But is the short term even justified? Is positioning more bullish justified right now or not? I don't think so. I think you've got some positives and negatives. As we talked about, I still don't know here at 39.50 if the next 10% move in the market's up or down. I think I've got some ideas to outperform in either way. And that's mostly what I've been focusing on with people. But honestly, how can anyone say that we have declining earnings, probably an eroding backdrop? I've got a quantitative tightening. I've got a hawkish Fed that I think has got to stay hawkish to really stamp out inflation. I've got some weird stuff happening in financial conditions, crypto, missiles.

I mean, I've got a lot of things I'm a little bit worried about. So it doesn't feel like a great time to take risks for me. So the rallies days are numbered. It sounds like you're painting a scenario in which this doesn't last that very long. I think most people I talk to think it's a bit of a triple-breaking putt. Yeah, maybe we get a little more positioning rally on this dovish stuff, but then we're facing a medium-term sort of pretty big guide downs in January. Things are slowing.

You're starting to see some squishiness in the consumer and other areas. On the other side of that, maybe we can be okay. So I think everyone's playing that triple breaking putt sort of outlook. My own personal opinion is 4% earnings expectations of the consensus for next year, that's probably a little bit too high. And I've got to focus either on cheap single goals that can earn their way through that and prove the balance sheet or things that can grow through it and try to outperform. We're looking at applied materials right now.

It's one of the stocks that has earnings here in overtime, and you obviously see the move higher in a space that has done extraordinarily well of late. Look, this one was up 40% in a month, in one month. Right. But the stock's up right now. We're going through the numbers and our reporter is going to come on and give you the details exactly what the story is here. It looks to me like a beat, at least on the bottom line. And we'll get the specifics coming up. But how about this space,

which a lot of people think is too frothy now? Yeah, I think the stocks really got hurt in the middle of the year, went down a lot. People know China could be a problem, demand's a problem. On the other hand, there's probably seven or eight companies, and AMAT's one of them, the world can't function without. You need these guys in the medium and long term. And so I think you can be, you have that sort of long-term bullish, short-term word about an inventory correction issue.

And some of them, you know, you saw it with LAM a couple weeks ago. They guided down the stock, went up 10% because people feel like, all right, maybe there's more estimable, you know, achievable estimates now. And I kind of like the story in the long term. You think the worst of the concerns in this space is over? I mean, you used to be a chip analyst. I like to remind people that every time you have, you know, a specific insight into this particular industry. I think one more down revision after this one's probably the base case. Then you have sort of better setup for the second half of next year. And people trade the stocks three to six months in advance of that. So you're getting kind of

close to that. Our reporter is good on this now. Steve Kovac, what do we see here? You can see shares going up here, Scott. It's a beat on the top and bottom lines and pretty strong guidance here, too. So let's go through the numbers. EPS coming in at $2.03 versus $1.73 adjusted expected. Revenue also a beat, $6.75 billion versus $6.45 billion expected. And guidance, it's a big range here for EPS, $1.75 up to $2.11 versus the $1.83 adjusted looking for from the street. And revenue also above expectations for the Key One Guide, $6.7 billion at the midpoint of the revenue expectations versus $6.45 billion expected. So beat across the board and really strong guidance for applied materials here, Scott. All right. Good stuff, Steve Kovach. Thank you. Talk to you again in a few. Are you surprised, though, at, you know, even the fact that the stock's up near two and a half percent after it was up 40 percent in a month?

It's an interesting move. I could easily see a sell on the news on something like this. But in fact, at least at this moment, you never know how things shake out. It's not doing that. Yeah, a little little better than people thought. And business that the world needs long term. I think people are going to buy that right now. They're looking for reasons to buy good companies. And if the fundamentals aren't falling off a cliff, maybe they feel better about it. Well, Palo Alto's out, too. Can we see that one? Because that is a favored stock among many. Now, that stock is down less than the market on the year, but it hasn't participated in the most recent rally that we've experienced, too. We're going through that one as well.

And you can see the stock's volatile, obviously, after hours here in overtime. But it's reacting negatively. So we'll have to get inside that one and see. What about tech in general? Where does it stand here in your mind? It's funny. Palo Alto is an interesting one. Our work shows it's among the most crowded stocks for bottom-up stock pickers. People have high conviction because they like

security. They feel like the budget's not going to get cut there. Analysts come on and they call it like Dan Ives calls it a table pounder, loves the name. And we have a proprietary way of looking at high conviction. Do people have more than 3% or more of their long AUM in a name? Palo Alto's consistently been one. So if it disappoints, you could see some selling just because we know it's so crowded. Generally in tech, you know, I'm of the mindset that, you know, we're around market weight in the S&P index. I'm really worried about the things where inventory is built, select equipment, select hardware, the commodity semis. You saw a little with NVIDIA. They still have to clear some stuff out in data centers.

So you don't like the growth trade. I mean, let's just be honest, right? I think it's got to be quality growth. What is that? Some of the semis we talked about. You know, I think some of those... Two stocks instead of applied materials and land. Paysapsis, LAM, K-LAC, AMAT, those kind of businesses.

I think you can find some, you know, I would call it, you know, fintech. You know, maybe you like Visa or PayPal. Things that are going to grow through a slowly eroding economy. You didn't say any of the mega caps. I think the mega caps to me are risk management, not alpha. You can't tell me, hey, I know something about Microsoft that nobody else does. I can explain 84% of its returns from some macro factors. So I need some allocation to that 20% of the index so I don't take huge risk.

Do you still consider those to be defensive? I just think if you're trying to beat the S&P and they're 20% of the S&P, you can't own none. That'd be crazy risk management. You've got to own some of them so you're close to market weight. And I can tell you from investors I talk to, the one people want to believe the most is Amazon because they think that they have more of the CapEx behind them. They can start to monetize some of the investment. If they show a little bit of progress on the margin front, you know, it could be parabolically higher. So that's the one people want to believe the story in the most of the of the big ones. All right. So we're going to hear from Frank Holland in just a moment. He's

following Palo Alto Network Sports. We still got Gap, by the way. William Sonoma, much debated space in retail. Some have, some have not. You got inventory issues and we'll find out everything going on there. Now, let's bring in CNBC contributor Stephanie Link of Hightower Advisors, Lauren Goodwin of New York Life Investments. Ladies, it's good to see you. Lauren, I'll begin with you. You're sitting right here with us. What about you and this rally? Did Bullard just give us a reality check today of why it's not going to last much longer or not? Yeah. Yes, I think that's the case. Look, as you said, as the economy slows, and it's going to continue to slow because the Fed is still active, that is when we're going to see the earnings downward revisions, still some volatility in the equity space to come. However, I would switch on the fixed income side of the story because we are starting to see a little bit of stability, despite what Bullard said, on where the terminal rate is likely to cap out.

And that makes fixed income increasingly interesting, especially when inflation is high. That carry is starting to look really attractive. High yield wasn't that great today. I know it's a space you like, though. What about it, though? I do. High yield, from my perspective, is less about the economic cycle and more about the structural benefits in the asset class over the past couple of years. Many high yield issuers, first of all, really took advantage of the Fed policies to extend their

maturity walls, to build up their balance sheets. And a lot of the middling quality or lower quality segment of the high yield space has moved into the private markets, moved into the leveraged loan space. And so this is a completely different asset class than it was a decade ago. Really interesting, high quality, high yield. All right. Our Frank Holland's good on Palo Alto. Frankie, what do you see here? Well, hey there, Scott. Shares of Palo Alto now in the positive. They dipped after the initial result, even though the company reported inline revenues and a pretty strong beat on EPS. EPS more than 10 cents above estimates. Also, pretty strong forward guidance when it comes to earnings. The revenue guidance was inline. The earnings guidance, however, was strong when it comes to EPS. Looking deeper into the number,

the billings were inline with estimate. Free cash flow was above estimates. So just looking deeper into numbers, why the stock dipped initially. Again, right now, a beat, excuse me, revenues that were in line, a strong beat on EPS, 10 cents above estimates, shares of Palo Alto Networks now up 2%. We're going to continue to dig in these numbers, Scott. All right, good stuff. I'll hear from you again. So, Stephanie Link, I mean, look, you take NVIDIA yesterday, which some characterized as good enough. You take these, some of the others we've gotten.

I guess we're going to have to wait a little bit longer for earnings to substantially deteriorate because they don't really seem to be to this point. Well, yeah, I think you're right. I think that the earnings guide will be more, the downward revisions will be more in the first quarter, second quarter kind of thing. Right now, these stocks are still down quite a bit year to date. So maybe these are relief rallies. I mean, everybody knew applied materials numbers because they pre-announced when they talked about China restrictions hurting them $400 million in the

next two quarters. At that time, they pre-announced numbers. So we kind of knew it was going to be ugly. We also know that wafer fab equipment spend has been coming down dramatically from the 90 to 100 billion range over the next two years to 70 to 75 billion so you have to hear what they have to say about that but i think the expectations are pretty draconian and the stock's pretty cheap 14.8 times now on palo alto stock's not cheap 39 times for it forward essence but if you could do a 22 percent billings number in line people were thinking it was whispers that they were going to do less than that. And they did mid 30s last quarter. So we expected a decel, got the decel, wasn't any worse than expected. So maybe you have a pop. I still like the cybersecurity space. You know, I'm involved in Fortinet. But overall, overall numbers, they are not coming down as much now. They're going to come down in the first half of next year.

AP, your thesis is kind of built on the fact that earnings are going to deteriorate rather dramatically into next year. Yeah, we've got 4% growth now, $232 of the S&P numbers for next year. Lower than where they were? They were $252 in June, so they're coming down nicely. I think that the real issue, and we keep talking about it, is this isn't going to be a v-shaped like the prior cycles i don't think it's going to be economically v-shaped and i don't think the earnings are going to be bb ship

there's some we've been a we have an expert next was in the economy but like next year the auto star probably be up you know the economy slowing you can't show that historically what happened you have some weird stuff in industrial gm raise our guidance today that you have some research that you know he's of the industrials where they couldn't sell what the that was demanded earlier, so it's going to be a little bit prolonged. So I think earnings continue to erode lower,

and I think they don't necessarily snap back in 2024 that much. And I think that's why now you have to price stuff and say, can they earn more in 2024 than they had now, and is it cheap and reasonable? The good news is there's a lot of stocks that trade below 15 times earnings that could be reasonably attractive. And you're seeing some private guys come in, Blackstone with Amerson, KKR with Vodafone. They're telling you the public markets might be a little cheaper than the private markets. So that does help and create a little, you know, kind of ability to pick some stocks here as well.

How much, Lauren, are stocks really in jeopardy here over the next, I don't know, couple months? Let's give that time frame for people. All right. I think that the third quarter earnings that we're seeing roll out. Let's give that timeframe for people. All right. I think that the third quarter earnings that we're seeing roll out now are a real transition point for equities. And I do think that we see some jeopardy ahead. I mean, look, you're seeing top line still strong, but bottom line increasingly under

pressure and growth starting to slow. That growth is going to continue to slow, especially, in fact, over the next couple of months. So then the question is, how do you find resilience against the higher costs that we're seeing, against the volatility that we're seeing? And I think quality, which you've spoken to a lot, is one really important way. The other is, where are the stories that are going to structurally benefit from this once in 100 years, I hope, pandemic that we've been living through. And so the structural growth

stories are where we're looking to as well. You've got to stay invested when inflation is this high. Steph, what's the most frothy area of the stock market right now? I still think defensives are very expensive. That's staples, utilities, REITs. I just think that paying 23, 25, 26 times forward estimates, while I understand those estimates might be more steady and stable, that's still quite high. And so I still prefer the cyclicals. I think technology is absolutely in no man's land after the 10 percent rally it's had. So I think you want to be very, very selective there.

Listen, I just wanted to get back to one thing in terms of kind of what the Fed is doing and why I think the first half of the year we're going to see the earnings revisions instead of between now and the end of the year. We know housing is rolling over hard. We got an architectural billings index yesterday for the month of October that went into contraction for the first time in 21 months. That's important because it's a leading indicator for construction and just in general activity. So we've got to really work. We have to really watch this stuff. And that's one of the reasons

these two reasons, big time, along with higher rates are reasons the numbers are going to have to come down. But I don't think they're coming down into the first. Speaking of building and housing, you told us to buy the home builders, what, a couple of weeks ago? Yeah, and then we got rid of it this past weekend. Yeah, the shortest trade of my career, two-week trade. Why so fast? Stocks went up a ton, and I think the earnings are going to collapse in January when they report. I think they finished the working process.

So it's funny. I recommended them for two weeks, and I think I got lucky. But I guess I'd rather be right for the wrong reasons than wrong for the right reasons. We wrote a note Sunday saying, look, it's two weeks, but they got a lot of outperformance. And I just think they're going to get on the call in January and say cancellation rates have been massive. I mean, I just saw today, I think I swear that the stat was like

mortgage rates dropped the most since 81, something like that. They're down to six and a half. I mean, it's significant nonetheless. At least they're trending back in the right direction if it's lasting. The cancellation rates for the builders are going to be massive in Q1. And so I think it's one of those weird things where the earnings might surprise. It's that triple-breaking putt again. I think the earnings might surprise people how bad they are.

And then it's not 08. They'll clear out. You still need structures. We'll get another bite at the apple there. I agree with Stephanie too broadly. I mean, we're pretty aligned. I mean, I think these staples and utes are the most frothy part of the market and really don't make sense when yields are where they are here.

I'm hearing as well that I think Gap and Williams-Sonoma are both out too, going in opposite directions as you see. Sima Modi's going through this, but you do have Gap up six. You have Williams-Sonoma down eight. Obviously, different product mixes and apparel for, has been a really tough place to be. Do you want to be in any apparel names? Are they on your super list? We pitched a short idea recently I did at an event just where the inventory is high.

I continue to think that the consumer is going to slow and that businesses that have rising inventory will disappoint. And there's just some businesses that, for whatever reason, trade at high multiples for a sustained period, and people are willing to tolerate it. One I would highlight is like Lululemon. Like, why do they have to trade where they trade? They have high inventory, and they can't clear it all.

Aren't they like a premium brand, though? Premium brands have been doing better than others, right? Isn't that fair? Some. Some we'll see. I mean, maybe, you know, maybe... I mean, LVMH. Yeah, LVMH, you're right. But I think, you know, I would worry when my inventory goes up 80% year over year

and my sales go up 20 into a holiday season that by all experts' accounts isn't going to be great. What's overly frothy to you? Are defensives as frothy as Stephanie Lee suggested? Is it time to get out of the builders? I mean, what are you looking at that says, okay, this is one area I'm most concerned about now? One of the things that we're using a little bit differently in our framework is trying to think about the durable themes across sectors. So where are we going to see, even if, for example, utilities, we expect to come under pressure, where are we going to see outperformance? Infrastructure, because we mentioned utilities,

is one of the areas that I think is particularly interesting. It's communication, it's digital infrastructure, it's in some cases traditional energy. It can think outside the box a little bit about where within these sectors that are expensive it's worth playing. And that's one of the areas in which we have high conviction. You know, Steph, we started out this conversation by suggesting that, you know, Bullard gave us a body blow earlier today. And then I'm kind of thinking, who cares what he says anyway? I mean, we got CPI and PPI were good reports.

You're going to get another report before his last voting meeting, by the way. His last vote for 22 comes at the December meeting, which is the day after the decision is the day after the next CPI report. The data is going to dictate what the Fed does. Not Bullard, not not what they say. Watch what they do. That's going to be most important. Well, I would agree with you, but we didn't just get Bullard today and he said a minimum of the Fed funds at five five and a quarter and maybe seven percent is appropriate which is just jaw-dropping um but it's also you know Waller had said well it's not one CPI print does not a trend make Jefferson's talking about where we have to fight inflation versus price

stability I mean these are really jaw-boning stability means a really jawboning no. Your job and their job voting but it you know what they're behind the curve and now. Who knows if they're going to stop right that's number one number two inflation on an absolute basis is still quite high. The seven point

seven percent C. P. I. is nothing to cheer about an eight percent P. P. I. is nothing. To be excited about your own year numbers and wages are the stickiest part and they're still at six point one percent. According to the

unit labor costs figures. So inflation is still high and they can't stop and start and then lose the confidence. That they will lose. From investors and from around the world so. To me I get it the data is slowing I just mentioned two

data points I'm worried about that too. Of the offset to that. is initial claims and jobs continue to be strong. And that's giving them the cover to be this hawkish at this point in time. I'm not saying it's right. I'm just saying this is how I'm rationalizing it. And this is why the market needs shopping. We got a big move in GAAP. It's up 11 percent. Sima Modi, what's in this report? Hey, Scott. Well, earnings of 71 cents, not comparable, but revenue was a beat at $4.04 billion versus the estimate of $3.8 billion. It did see an impairment charge of $53 million tied to Yeezy Gap. That is a Kanye West brand that they shut down following his anti-Semitic remarks.

Pricing pressure and increased promotional activity, of course, has been a concern for this company. But in the press release, the company's interim CEO, Bob Martin, he really talks about how they're sharpening their focus on execution to optimize profitability and cash flow and bringing more rigor to our operations and balancing our assortments in response to what our customers are telling us. And he says they are seeing early signs of improvement. For the third quarter, they did end inventory 3.04 billion. That was up 12% year over year, Scott. And just looking at comp sales, better than expected overall. It was up 1% for the third quarter. Estimate was for it to come down by 3.2%.. Banana Republic up 10 percent. Old Navy down 1 percent. That was still

better than the estimate of it falling 7.3 percent. Back to you, Scott. OK, I appreciate that. Seema, thank you very much. We'll get back to the retail story in just a moment. But we do have news to bring you now in overtime, a leadership change at Visa. Al Kelly, the CEO, is becoming the executive chairman of the board. He is stepping down as CEO. That is just announced by that company, who also announces that Ryan McInerney, the president of Visa, will become CEO. He's been president since 2013. Mr. Kelly has been the CEO since 2016 when he took over, you all may recall, for Charlie Scharf. So he is going to now become and transition into the executive chairman of the board as Visa makes a change there.

By the way, you should tune in to Squawk on the Street in the morning because both of these gentlemen, Al Kelly and Ryan McInerney, are going to be on Squawk on the Street in the morning. It's funny because in the conversation we were just having, Adam Parker had mentioned Visa as one of the names on your like list. Do you have a comment here about a change? I don't. I just want to try to square all what we're saying together. And the way I think about the world is a year ago, we started getting worried about inflation. It wasn't until March the Fed lifted off. The average stock, the median stock had a

22 times forward earnings then. It's 17 now. If we're two-thirds of the way through, I think you expect another two or three multiple contraction points. That gets us around 14, 15 times. So if earnings are 215 or 220, the market's pretty overvalued still here, and I think you'd be much more excited about buying credit than you would be equities here. That's the framework. And then within that, I've got to find equities that can beat the market. And I don't want to lose sight of that. I get double

for a minute. I get that's the framework in which you got to operate because the Fed's still going to raise rates. Just a postscript, too, on the visa transition announcement. This is all going to be effective February 1st of next year when Mr. Kelly transitions to become the executive chairman of the board. Ryan McInerney, again, the current president, is going to assume the role of CEO. So we'll keep our eyes there. We'll pay attention, of course, to the interview tomorrow morning on Squawk on the Street when both of those gentlemen will appear. Back to this move in Gap, Steph. Gap's not a stock on your list. I mean, I think you have a TJX. Why not Gap? Why not now? I mean, the stock up a lot the last month and clearly they're

figuring something out if it's up 11 percent now. Well, I mean, expectations are really low. The stock's down 31 percent year to date. I'm worried about the low end consumer. Right. I mean, Walmart said a lot of their sales came from the higher end consumer. So did Target. And so did TJ. They always do, by the way. So I'm worried about the low end consumer. I'm worried about the inventory levels. They were up 36% last quarter. And gross margins, I mean, last quarter, gross margins fell 880 basis points year over year.

And we're forecasting for another 400 basis points decline this quarter. I haven't seen the numbers. So maybe the stock is rallying because maybe one of those pieces are a little bit better. But it's still really bad, Scott. There are so many high-quality retailers, consumer stocks that are on sale, that have been consistent, that have good balance sheets and good free cash flow that I'd much rather. By the way, very disappointed in Target. But I'm not going to sell it at 8.8 times EV to sales.

We can talk about that at some other point. Lauren, last word to you on the consumer. Depends what kind of consumer business you're running, I suppose. That's exactly right. And as the consumer, I do expect to come under pressure. It's all about exactly as you're laying out. How do you find the companies that can either weather the volatility or who help you build resilience against inflation in the equity side of your portfolio?

As we've discussed, if that's likely to see continued volatility, how do you create buffers there? And that's an area where we are looking for stocks that can provide reliable cash flow, whether through dividends or just cash flow into their businesses. Good stuff. Great conversation. I enjoyed it. AP, thank you. Lauren, we'll see you back here. Steph, I'll see you a little bit later. We have some meta business to take care of a little bit later on in Halftime Overtime with Stephanie Link.

Let's get to our Twitter question of the day. We want to know which area of the market looks the most frothy right now. We asked our guest. Now we're asking you. Is it semis, industrials, or healthcare? Head to AdCNBC Overtime on Twitter. We'll share the results coming up later on in our show. We're just getting things started in overtime. Up next, Goldman's year end playbook. Tony Pasquarello breaking out his forecast for stocks the rest of 22.

Plus what he sees coming in the new year. We're live from the New York Stock Exchange. OT right back. All right. Stocks pulling back again today on a sharp rise in yields. My next guest says while the market could rally into year end, it may soon be time to sell into that strength. Joining me now, Post 9 Tony Pasquarello, Goldman Sachs. It's good to see you again. Thanks, Scott. Good to be here. So we have a good seasonals, right? That's what people say. Well, it's a great time of year to buy stocks historically, but bad Fed speak. I'm calling it that because it's hawkish and it's obviously not great for stocks. So which wins out? I think it's a fair characterization. The way I would

think about it is separate flows of positioning from fundamentals. Flows of positioning, I think, really pretty healthy right now. Who's buying? Corporates in a big way, hedge funds, and retail. So we see that picture very clearly through our franchise. We can unpack any of that if you'd like. So you're saying that people are adding risk right now? The biggest variable in that equation are corporates.

So we think there's going to be a trillion dollars of stock buybacks this year. That'll be a record. Our activity is running 2x where it was a year ago. That could be $10 billion a day. November and December is the best two-month period of the entire year for stock buybacks. So that's your heavy. Hedge funds chasing a little bit. And retail, still on net, a better buyer. $34 billion into equity mutual funds and ETFs over the past month. So flow fund dynamics, I think, look pretty healthy. Technicals and seasonals, as you say, probably favorable from here to the end of the year. Then you have the fundamental story. Oh, OK.

Because I was going to ask you how long the runway is for all of this. I mean, if we're painting a picture, which many are trying to paint, of a five to six week possibility of a move, and then all bets are off because reality smacks you in the head. I think you want to be in position to sell strength in the new year. And I say that because of the fundamental piece, which is on one big picture, what governs the stock market. It's the multiple and it's earnings. So all year, the story has basically been because of the Fed's knockdown drag out fight against inflation. It's been pressure on the multiple. That's the move from twenty five to fifteen. Feeling a little bit better about that, as you say, over the past week or so. Then you look at

the earnings side of the equation. And that's where I think the sentiment has turned. For Q3 earnings, when you take out the energy companies, they were down 5 percent. So very high profile misses at the top of the index. And then very big negative revisions to 23. So in a way, I think you've just swapped one challenge for another. What about what Bullard said today? Are we full? I mean, look, Goldman had added another rate hike to their map just yesterday, right? Hatsias did that. So you guys are still expressing a hawkish view on where you think the Fed is going to be

and how aggressive they're going to remain. How's that factor into everything? So our forecast, 15 December, then three by 25 next year, February, March, May. May was the new one. May's the new one. So you're at 5% come May. That should be the terminal rate. I think for the Fed- Maybe you should tell Bullard that. You know what's interesting about Bullard? He's generally had the right call. He's been aggressive in front foot. Now, he's a short timer, but he's generally been one of the people to follow.

And I think part of what he's saying and part of the challenge for the Fed is they have to keep the pressure on, right? Because if they don't, financial conditions are going to ease. What we saw last week was the third biggest ease in financial conditions in the past 30 years. And so if the Fed wants to get the tiger back in the cage, they can't declare an all clear anytime soon. Okay. So it's kind of we've been saying, well, listen to what they say or pay an all clear anytime soon. Okay. So it's kind of, we've been saying, well, listen to what they say or pay attention to what they do. Not, not so much what they say. Maybe they're not going to be able to get to where Bullard throws out that he thinks they

might have to. Is that plausible? Yes. See a scenario in which they go that high? Well, I don't think they want to, because I think you would introduce the risk of probably breaking more things along the way if you end up at, say, 7 percent. Look, here's the deal with the Fed. They're at three and three quarters. Again, we think they're on their way to five. Headline inflation is still 7.7. Core is still 6.3. They're still missing the mark by 3x. And so they still have work to do. And I think if you're the chairman and it is your legacy, you need to basically keep that pressure on financial conditions. What I feel like I'm hearing you say is they don't want the stock market to go up. They don't want they may not want it to crash, but they don't want it to go up, because in doing that, you loosen financial conditions. You you juice the wealth effect and you ignite all of the stuff that

you're trying to stop. Is that fair? I think it's one of the big variables in the equation. So for us and Bill Dudley, who was on the Yellen Fed, the Bernanke Fed, when he was our chief economist, he built the financial conditions index, which is still a big part of the way I think they look at how to transmit policy. So what is it? It's stocks, it's bonds, it's corporate credit spreads, and the dollar. So when you have a week like last week, where stocks rip, bond yields drop, the dollar gets killed, and credit spreads tighten, it's antithetical to what they need to have happen in the markets. When you say sell the strength, like when that moment comes, what's number one on the list to sell in terms of sectors? Yeah. Well, if we're working from the point that we think the Fed's going to keep the

pressure on, I still think it's those long duration parts of the market that have been under pressure all year long. I think that's right. Even the big ones? Well, you know, again, I think that is a big part of the market. That is a very big part of the market. I do think, again, that was really the reveal in Q3 earnings, wasn't it? That they're just not sustaining what we expected them to sustain. Take a big step back. For 12 years, that was almost the only game in town. A lot of capital went into those names, compounded for all the right reasons, and then you had the surprise.

And so I just think it's kind of a little bit of you're finally starting to work some structural length out of those names. And it could take a while because you could play offense and defense at times in that same area. It's great to see you again. Thanks for being here. Tony Pasquarello, again, Goldman Sachs. He is the global head of hedge fund client coverage. Time for a CNBC News update now with Contessa Brewer. Hey, Contessa. Hey there, Scott. The suspect in the racist shooting at a Buffalo supermarket will plead guilty to some 25 charges, according to an attorney representing victims' families of the 10 people who were killed. The attorney says those pleas may be an attempt to avoid the death penalty. Lawyers for the suspect and prosecutors say they can't comment because of a gag order. WNBA star Brittany Greiner has begun serving her nine-year prison

sentence in a Russian penal colony. Her lawyers say she's trying to stay strong and trying to adapt to this new environment. Bill Gates says his foundation will spend $7 billion in Africa to improve health, gender equality, and farming. The new funding will go out over the next four years. And Scott, get this, a piece of baseball history is up for sale. Aaron Judge's record 60-second home run ball is going up for auction later this month. Bidding will start at $1 million, but the auction house is looking to set a new record by topping the $3.1 million paid for Mark McGuire's 70th home run ball. And CBS News reports that the guy who caught the ball, Scott,

has already been offered $3 million for it, and he turned it down. So he's clearly hoping for something bigger. I think he may get it, too. I mean, the way that collectibles have been going for the past couple years now, the environment's a little bit different. It's crazy. But baseball cards and other stuff has been just crazy, so we'll see. Contessa, thank you.

Sure. All right, that's Contessa Brewer. Up next, the next big we'll see. Contessa, thank you. Sure. All right. That's Contessa Brewer. Up next, the next big opportunity in bonds. New Fleets, Dave Albright. He tells us where he sees real upside for your money right now. OT is coming right back. We are back in overtime.

Rates rallying today on the back of some hawkish Fed talk. And with that move, our next guest is finding real opportunity in fixed income. Joining us now, David Albright. He is the CIO at New Fleet Asset Management. Good to see you again. Hey, Scott. Welcome back. Talked to a lot of people lately, some of the biggest investors in the world about opportunities and credit fixed income. And I want you to listen to what they told us over the past week or so, and we can react on the other side. Listen. The 10-year Treasury is overvalued by about 200 basis points in yield. In other words, it could fall a couple of percent in yield if there's a recession next year, which is kind of what the model seems to be predicting. So that's a pretty interesting way of maybe

making some money. But it allows you also, by owning those securities, it allows you to buy this bombed- out credit market. Lately, I've been buying some of these treasuries and sort of amazing once you get paid for it, right? So you get, we got, we got, oh, you know, you put it in certain areas, we got 5%, so we have that. We especially increased our exposure to high yield and to longer-dated credit investment-grade securities. We continue to be overweight credit. We continue, you know, we're going to hold our existing positions. All right. So the implication is that you've had an almost unprecedented opportunity in fixed income because of what the Fed is doing. You agree? Does it still exist? Absolutely. We still have, you know, right now we have some of the best values we've seen in

fixed income going back to the global financial crisis. IG corporates, you know, yielding 6%, leveraged finance yielding anywhere from 7% to 10%. Emerging markets, high yield emerging markets, 13.5%. And can't forget Muni, Scott. You know, IG munis, taxable equivalent yields in the mid-sixes. And then we have a high yield yielding over 10%. It's funny, you say munis. Let's just focus on that area just for a moment, because it's one of the things I asked Jeffrey Gundlach about when we were last together. Yes, there was a great opportunity.

Not so sure it still exists. That's what he thought. Maybe it's a little rich now. What do you think? Well, you know, munis, the high yield munis space was off as much as 17 percent. Now we're off about 13. IG was off about 13. Now we're off probably nine. I still think there's value there. Underlying fundamentals of the muni market have actually improved. You know, tax collection revenue is up. Your house, you're going to get a reevaluation sticker. So they even have more funds coming in.

$540 billion of stimulus. If you look at the unfunded pension liability states, Connecticut, New York, New Jersey, Illinois, California, they haven't been in better shape in quite some time. Very seasonal market. I would tell you that if you're going to play immunities, probably the next three months is a good time to play them. Not a better entrance. Okay. There's considerable turmoil, I think it's fair to say, and maybe it's an understatement in the mortgage market. You like various parts of credit within the mortgage space. Yeah. How does that all factor in?

Yeah, I mean, the mortgage market's definitely suffered. We've had a backup in rates. We have an extension duration, but we've been very, very high quality in mortgages. We're buying non-agencies, which have outperformed the agency market. Right now, you're getting durations probably four to five years,

but you're getting yields of about 7% for AA assets. So I think it's a good hold in the portfolio, and eventually they'll catch up to the rest of the market. But how do you factor in what a Bullard, for example, says today? You must be gaming out what the Fed's going to do to see if these investments are still going to be good and where the various entry points may exist or where the door may shut. So how do you think about that?

Yeah, I think he's definitely an outlier. Maybe you have to go through an oil shock that we saw in 73 or 79 to get to his term rate of 7%. I mean, there's other variables out there. Energy is actually down today. You know, the two prints we had, CPI and PPI, are not a trend. They're data points. So the Fed wants to remain hawkish. They're going to continue to raise rates. They're tightening financial conditions.

Maybe this latest move was a little bit of a head fake like we saw back in June in the credit market, Scott. So we're up in quality, whether it's high yield, whether it's investment grade, we're in triple Bs, whether it's bank loans, we've gone up in the capital stack. A lot of people said they were going to do that. Now we've been doing it, re-underwrote credits, looked at the impact on a slowing economy, how does inflation impact the companies, and we did that a year ago. Okay. Got in early, ahead of the crowd, as you've been known to do. It's good to talk to you. We're up against it today with time and breaking news and earnings, etc., but it's good to see you.

Thank you very much. All right, that's David Albright joining us right here on set. Up next, a meta mishap, new drama, even more drama around the social media company. We're going to break it down with a shareholder in today's halftime overtime next. In today's halftime overtime, meta's latest mishap. Wall Street Journal reporting today, meta fired a few dozen workers and contractors this year for hijacking user accounts. And while shares have rebounded nearly 20 percent this month, they're still on track for their worst year ever. Hightower Stephanie Link back with us.

Stephanie Link, worst year ever for shares of Meta, down 77 percent, up 19 percent month to date. Now, with this story, what are you thinking? No, I'm not going to change my mind i mean obviously another disappointing announcement but the stock is reflecting a lot of bad news scott down 68 percent and trading at five times even dot i think to put it into perspective um look it is bad press so i'm not going to try and have a spin a positive spin put it put into perspective they've got 76 000. So laying off a couple of dozen, not a big deal from a monetary point of view. And they're also cleaning house at this point, they're going to lay off 13% in total. So they've kind of gotten somewhat of religion in terms of the cost structure on the traditional

business. And I'm trying to look at the traditional business because that's why I owned it. That's why I bought it. I didn't buy it for the metaverse. I bought it for the fundamentals on the traditional business. And we talk about this all the time. They have size and scale in DAUs and MAUs. They actually beat gross margins and EBIT margins last quarter. And reels, in the last six months, reels plays are up 50%. So they're making progress. And so that's what I'm focusing on. I'm trying to focus on fundamentals, ignore the meta. I would love for them to reduce costs. He's not going to do it. It doesn't irk you at all, though, as a as a shareholder who who says I'm focused on

the core when the company has made it clear that they're focused elsewhere, right? I mean, they're not investing in the growth of the core. They're investing in the growth of the new. And they're telling you in not so many words that that's really not going to stop. Well, I don't know if I believe that because Reels is the core and Reels is one of the big parts of the strategy in seeing some sort of turnaround once they can monetize it and i think they will be who knows what happens with tiktok and the regulate and the regulators i don't know but they are spending a ton of money on reels and they have a three billion dollar revenue run rate going on right now in real so i'm encouraged by that in the meantime as i mentioned they still have eyeball in their in the in facebook in blue right at two million

daily active users and three million monthly active users. That's a big deal, Scott. Eventually, advertising is going to come back. I don't know when, but it is. And when it does, they're going to come back to those that have eyeballs, who have an increased time spent, who have new products that people are engaged with.

And I think that is Facebook or Meta at five times EBITDA. We'll leave it there. Stephanie Link, thank you very much. We'll talk to you again soon. Coming up, we're tracking big stock movers in overtime. Steve Kovac is standing by today with that. Steve. Yeah, that's right, Scott. An insider buy from a big bank and two retailers moving in opposite direction. That's next in the OT. Tracking the biggest movers in overtime. Steve kovac doing that for us today steve yeah our first overtime mover scott ross stores the discount department store chain is soaring right now up

double digits after beating the streets estimates on both lines the company giving strong guidance for the current quarter and saying gross and operating margins came in above forecast as well a retailer moving in the other direction though in, in OT, Williams-Sonoma, the stock under serious pressure despite beating estimates for its third quarter and reaffirming its full-year revenue guidance. Investors may be worried about the Q3 gross margin that came in below forecast. And the last one for you, Scott, Bank of America.

The stock up slightly right now. We've got some insider buying chair and CEO Brian Moynihan purchasing nearly 16,000 shares today. The stock is down about 16 percent on the year. Those are the overtime movers, Scott. Send it back over to you. No, I appreciate it, Steve Kovac. Thank you very much. Up next, Santoli's last word. And coming up on Fast Money, the former FDIC chair, Sheila Baer. She weighs in on the FTX collapse. The regulation, she says, is critical in the aftermath. Don't go anywhere. Overtime is right back.

Twitter question. We asked which areas of the market look the most frothy right now. The majority of you saying semis. It's 47 percent. Santoli's last words next. We have a news alert on Amazon. The CEO, Andy Jassy, sending a note to employees just a few moments ago talking about additional layoffs at that company into early 2023. Of course, they just announced recently 10,000 employees would be cut at that company. It's the reality of the downsizing that seems to be going on throughout big tech. Take a look at those shares getting a little bit of a move, but we'll follow that clearly. Mike Santoli is here for his last word.

It is the reality right now of these mega cap technology companies trying to right size themselves for the environment. No doubt about it. I mean, Amazon, 1.6 million employees. I think half of them hired in the last couple of years. And a lot of these big companies are finding themselves no longer having to face this like utter labor scarcity picture that they thought they were in a couple of years ago and feeling as if they're not as productive as they could be in a decelerating revenue environment. So it's going to be an undertow, I think, to employment. Is it going to pad up the margins as quickly as the next couple of quarters? Probably not that much. But it does show you they're in a different mode right now. It's no longer that we have this inevitable growth trajectory.

It's much more about figuring out what makes sense to pay for or not. We're talking about tech, and I wanted to segue to semis off the Twitter poll. The most frothy areas of the market. Now, we didn't make it just so open-ended you can answer whatever you wanted to. We gave choices, but nonetheless, these stocks have run a lot. 47% say those are the most frothy right now. To me, it suggests just how jumpy that group is, that it can cover so much ground in such a long period of time. Industrials, on the other hand, have outperformed the overall market for the last six months.

They look pretty good, but they do it so quietly. And there's kind of no marquee name that's running away from you. And it's not based on, you know, hopes and dreams. It's basically based on what they're able to do right now. So I do think the character of semis has something to do with that. Maybe part of the rally is based on hopes and dreams. So we can talk about that later. That's Mike Santoli. We'll see him tomorrow as I will see all of you. Fast Monies now.