Closing Bell - Closing Bell Overtime: Dismal Year for Stocks 12/30/22

Episode Date: December 30, 2022

The 2022 trading year is officially in the books. After one of the worst performances on record for stocks, where do we go from here? Professor Jeremy Siegel of the Wharton School gives his expert market opinion. Plus, NewEdge’s Cameron Dawson is calling 2022 “the year the bubble died.” She explains and gives her forecast for next year. And, Mike Santoli’s Last Word of the year! He tells us why stocks’ disappointing performance could actually be a good thing for investors.

All right, Mike, 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 as we mark the end of a long and hard year for your money. In just a little bit, I'll speak to Cameron Dawson of New Edge Wealth, who's been on the right side of this market all year long. So I'll ask her what's likely to happen now as we welcome in 2023. That is our talk of the tape, of course, after one of the worst performances on record for stocks. Where do we go from here? Let's ask someone who's watched and navigated up and down markets for decades,

Professor Jeremy Siegel of the Wharton School. Professor, welcome. Happy New Year. Happy New Year. Let's hope the new year is better, Scott. I think it will be. Tell me why you think so. Well, I've never seen so much bearishness.

There's never been a time when, what, you know, 60% of economists forecast a recession. And when everyone's on one side, I get very wary. I think there might be some really surprises next year. Let me tell you, 2022 was marked by very good job growth and very poor GDP growth and very poor productivity growth. Firms were hoarding workers because they were, they couldn't get them. I think we may see the opposite next year. I think we might see actually the job market loosen up dramatically, even job losses. But the GDP grows much faster than most people think. And we have a chance if the Fed pivots to really avoid a recession and have a good year for profits

because if productivity comes back, Scott, that puts downward pressure on prices. It puts upward pressure on margins. And, you know, everyone who says, oh, my goodness, these 2023 estimates are way too high, might be surprised that many of them might turn out to be what profits are going to be. Well, I listened to everything you just said, and it all makes reasonable sense, I'm sure, to some who are trying to be as bullish as you obviously are yourself. But the four words that we need to discuss further, if the Fed pivots, those are the four words you used within what you just said,

because most people don't think, Professor, they're going to. And that seems to be the whole ballgame, that the people who think that stocks are going to do better than many others keep talking about the Fed pivoting, where the Fed seems to be explicit in not only are they not done in the hiking, but they're going to keep rates up before they do anything for longer than people think. How do you respond to that? I would respond to that, Scott, because I was with you a year ago, a little more than a year ago now, the September 2021 meeting where they said, oh, we're not raising rates in 2022. They were very, very firm on that. You know, inflation was transient and it would be a mistake to raise rates. You know, why should everyone believe the Fed when, in fact,

the Fed has not done anything that they told us that they were going to do over the last 18 months? Now, I think when this data comes in, I mean, we take a look. I mean, we talk so much about what's going on in prices. I think the Fed is finally getting into that. Its housing indicator is way lagged, and that house prices are actually going down. And once you put in actual house prices in those inflation numbers, as I said two months ago, really inflation disappears. I think that's going to get through to the Fed. I think more people are going to be talking about it. And let me say, there's 200,000 expected gain in January. I mean,

I'm not a prognosticator. If you get a job loss or jump an unemployment rate to 6.8, 6.9, I mean, 3.8, 3.9, you're going to get a different tone from the Fed. They're going to get calls and saying, you know what? The last market that you're worried about, which is the labor market, is finally loosening up. And that is the last reason that they have to stay as tight as they are. And I think that message is going to get through. Let's just be real here. I mean, you don't trust the Fed. You don't believe the Fed. You don't trust the Fed because of the mistakes that they made in the past. You think they're incapable of following through on what they say now? I am very disappointed in the Fed.

I said on your show and throughout that they started tightening way, way too late. I think they're loosening too late. I didn't even think the last increase was, you know, called for given the trends that I see. But it finally got through to them that they had to fight inflation. And I think it's finally going to get through to them. And it's a happier message that they can accept that most of their battle is going to be behind us. The pressure is going to be when we see the job market loosen up. I wish it didn't have to wait that long because I think, honestly, if they stay, you know,

if the Fed funds rate goes towards 5% by the middle of this year, you know, I have to be less bullish. But don't you think it's going to go there? And you just said yourself, I wish I didn't have to wait that long. It's going to, the job market is still strong. It's going to take a while to get to the point longer than I think the Fed has, has realized it's going to take a lot longer to soften up to the degree where they would loosen up their stance, wouldn't it? It,, you know, the Fed has said that, you know, it understands the lags in monetary policy. It understands that most of the tightening effect, and your guess that was just on, and, you know, I've talked about this, we've had seven months of decline of the money

supply, an unprecedented squeeze of liquidity since World War II. It takes time for that to work through the system. If they actually wait until they actually see, oh my goodness, we have an unemployment rate problem, they have waited too long. Just because, you know, this is, you know, the same thing happened on the inflation side. They waited until they were sure the inflation wasn't transient in order to start tightening. And yeah, could they make that mistake on the other side and say, well, I have to wait until the job market falls apart until I finally say, OK, I can afford to loosen. And listen, the economy is like a super tanker. It doesn't turn on a dime. They could say, all right, we'll loosen rates 25,

50 basis points. Uh-uh. You've got that tightening in the system. It's going to affect it for another six, nine months. You know, that's the message that has to get through. I know I've been criticized in Fed. They got the inflation message way too late. You know, maybe I'm too optimistic that they're going to get the other message too late. But I know, maybe I'm too optimistic that they're going to get the other message too late. But I think I think, again, if they look around, they should see how much progress we have made towards inflation. Let me let me ask you this. I'm wondering what you make of the wide dispersion of targets for the end of next year. I mean, you have a range that you don't ordinarily see.

Anything from close to 4,800 to as low as 3,300. There it is, the wide range of expectations for what Wall Street's targets are. What makes sense to you? You must have a number in mind relative to where we ended up this year with a 19% decline for the S&P 500, only skirting a 20 percent decline for the S&P 500, only skirting a 20 percent decline in the final moments of the trade today. Yeah. And we did, of course, exceed 20 percent during

the year, which does technically put it in a recession. You know, my my projection is is a 15 percent increase. And believe it or not, I think we might get it. Everyone says, yeah, the first half is going to be rough and volatile. Again, being contrary, I think the first half might be the increase that surprises people. Because the market is very, very forward-looking. And they're going to say the Fed is eventually going to get on one side. They're eventually going to get it on the other side. And, you know, I've got to look ahead. I can't look behind. You know, it's very interesting. We haven't, you know, we haven't

seen a lot of even the CEOs. They say, oh, it might be a rough year. But we haven't seen them really lower a lot of their projections on profits. Now, I'm not saying it's going to be 240. It might be 220 or 210 instead. But more important than the profits is lowering the interest rate. And, you know, I really think we're going to get one point. We're going to see the Fed funds rate instead of going to five by the end of next year. And I'm way out of consensus here, Scott. So, you know, it'll be easy a year from now to chop my head off if I'm wrong. I think we might see a two to three percent Fed funds rate by the end of the year. I think they're going to say, wow, we've really tiled that inflation.

I'm now a little worried about the unemployment and the buildup of that. And, you know, the normal Fed funds rate, they say, is two and a half, you know, for that two percent inflation. I actually think it's between one and a half and two. And I think they're going to get down toward that by the end of the year. It's not going to be near five. If you go through, if you go through the year, the biggest reason, almost the entire reason for the bear market is what happened to interest rates. I mean, the 10-year tips, which is what I follow, the inflation corrected rate, went from minus one and a half to plus one and a half. That's one of the sharpest increases in the discount rate that we have ever experienced. And if that discount rate goes down, I don't care if there's even some softness in the profits.

You're going to see a rise. You're going to see some rise in stock prices if that discount rate goes down. Professor, I want you to stand by with me now. I want to bring in some CNBC contributors to expand this conversation because I feel like we're going to have a really good debate right now. Victoria Green of G Squared Private Wealth is with us, along with Bryn Talkington of Requisite Capital Management. Victoria, I begin with you. Fifteen percent for stocks in 2023, says the professor. Your response to that is what i'm kind of more in the consensus on the back half of the year i think if it if things are getting so bad that the fed is going to cut to one one and a quarter it's going to be very hard for stocks to rally in that environment because you're

talking a rapid hike as we had this year you're talking almost a rapid deflation and yeah core goods inflation is coming down but if you look at some of the pressures yes we're seeing inflation come down. We haven't really seen the labor market budge yet. We started to see the housing market soften. And yes, we are aware of the lag. I just don't think the Fed is going to move fast enough. And we've seen Powell again and again pound the table saying we don't want this to be

the stop start of the 1980s. We are committed to this. And I understand they lied to us about transitory and that they got that wrong. But I think there may overreact and overcreate just to give the Fed credibility. And you have that disconnect in the Fed funds rate. You have four and a half at year end versus the five, five and a quarter is kind of what the Fed is signaling. I tend to think we're still in a little bit of the Fed's not here to rescue the stock

market. The Fed is only here about inflation and liquidity and market stability and labor. So I don't think the Fed cares that the market declines a little bit further. I think they really want to put their stamp down on inflation and they're most likely going to overshoot it, which is why we think hard landing. So I just don't see stocks rallying in that environment. Certainly as soon as Powell starts to cut rates, typically then you start to see the market rally once the rate hikes cut in. But if you start to chart out when does the market rally, it's typically not until the first hike, the first cut. So Bryn, the professor says 15 percent for

stocks. Victoria says no way that can happen in the environment that we're in and what's coming from the Fed still. What say you? So these are complicated times. And I think that looking at an end point of what's going to happen on 12-31 of 2023 is like not even in my universe because there is such a wide range of outcomes. I totally agree. I really listen to everything Professor Siegel ever says because he's just been so spot on about the Fed being late. The Fed has whiffed it. How else are we only going to have one 75 basis point rate hike? And so I do think the Fed doesn't have much credibility. When I look at things pragmatically, I look at inflation. We had in April, May and June, inflation prints month over month over one percent. The last three months, it's been point one, point four and point four.

Inflation is coming down. OK, so it is coming down. This is not the 70s. Half of our, like most of our economy in the 70s was unionized, just like the whole job market was very different. And so my perspective is we have a wide range of outcomes this year. And so I don't think investors should anchor on a 3,300 a 4800. I think they need to prepare their portfolio for that wide range of outcomes and not be stuck to say, I'm going to go all growth, all value and expect this to come, because that's what really got people blindsided this year is not only did their bonds do terrible down 12 to 13 percent, but their equities were down 20 to 30. So I love what Professor Siegel is saying,

and I agree with him about the Fed. And once again, I think that we could have the first three months, I think, are a continuation of what's happening now. The market doesn't care that it's January 4th or 5th. I think you get a continuation. We need to see the Fed say, we're going to stop and wait. And that may be a pivot. That may be a pause. But if you stop and wait, Scott, then people can start to do, hey, let's do a discounted cash flow model out of four and a half percent of four, four seventy five. But if the Fed does pause like after February, I do think that would be positive for the market. Professor, is that simply enough for stocks to go higher, a pause or does it have to be the pivot that you talk about, a true pivot? And by that, of course, I mean actually cutting rates, pausing alone, but keeping rates at whenever they pause

and keeping the terminal rate at an elevated level for a long period of time doesn't necessarily do anything positive for stocks. Well, first of all, I think the market on February 1st thinks of a 25 basis point increase. So a pause would be a pivot at this particular point. A pause would be a pivot. Now we've got another month of data, job market data. And by the way, there has been some softening of the job market. Job rate growth is nowhere as fast now as it was at the beginning of the year. Jobless claims have remained low, but continuing jobless claims, which is also an important indicator, have really been creeping up over the last three, four months. We hear about potential layoffs. I think a lot of firms are delaying layoffs because they still fear,

can I get the workers? Once they see a little bit of a labor market out there that they can get the workers and a little bit of demand softening out there, you may see a really rapid shift in that labor market. And again, one thing that's important, you know, oftentimes recessions come off of booms. This year we had a half a percent growth in GDP. It wasn't a boom. So, you know, and the Fed is only predicting a half a percent next year, and people think it's going to be minus one and minus two. But oftentimes, you know, when you go into recession, it's off of a boom. This year was not a boom.

In fact, this year is different. Professor, come on. You've done this long enough. You understand the power of the Fed. You don't. No one ever wants to fight it on the way up. And then suddenly you're trying to fight it on the way down. It doesn't really matter that we didn't have a boom in the economy.

So we can't have a recession. They the economy so we can't have are a recession there almost trying to put us on the doorstep of a recession we may have a mistake all over it's okay so you know i mean i i mean but i think that's a good balance victoria go ahead but go up a lot of time i mean you yeah but that if we have a recession Go ahead, Professor. Who wants to talk? You.

My bad. All right. If we have a recession, you know, so would profits go down 20 percent? Doesn't mean the stock market should go down 20 percent. Just because profits will for one year go down 20 percent, the market should be forward. In the worst case scenario, The Fed doesn't get it. They stay tight too long. OK, then I'm not going to go for 15 percent. But I think that the market is almost discounting nearly a worst case scenario right now, because, you know, when you take a look at where it's positioned compared to where it could be going, and by the way, I don't believe, people say 16 times earnings, 17 times earnings, that's not the right multiple to put on, even if we get a recession, and then to put on, let's say, $200.

In fact, you should put over 20 PE on a recession level of earnings. If you go back through history, and I have, and ask what's the right multiple to put on a recession level of earnings. So suppose earnings go to 200. That's 20% below what's expected right now, a recession level. Really, you should be 20, 21 times a recession level of earnings, because history has shown us invariably you bounce back and you would be way, way, way behind the ball by waiting until, you know, the market is forward looking. You can't wait till the sky is blue before you say, oh yeah, those profits are now going to be up, I'll buy. They're going to be, the price is going to be up way before the profits respond to that recession. So even if you have a recession, I think it's discounted.

Now let's let Victoria get in. Victoria, please. And I apologize for that. I'm sorry. I got excited about it. I do think when we were talking about boom and bust, one thing that got missed is that we had the boom of the Fed balance sheet. That was the boom. It wasn't GDP boom, but it brought the markets up because you had this expansion of liquidity and a massive expansion of monetary, the money supply, as well as the Fed balance sheet. And this decline has had this corresponding runoff that you've seen from the balance sheet. So I think when we talk boom, it's less GDP boom. And what really drove the markets off those COVID lows was the expansion of the balance sheet. So this bust that we're having is a different bust, but it's the same type of us. It's just a bust of

liquidity and busting of the Fed balance sheet and running off this liquidity. And I just see that so hard for the markets to rally and that you cannot ignore the correlation between when the markets started rolling over and when the Fed balance sheet started trimming it off. And $95 billion, I think they're committed to that. So when I look at that and I say, can the market run if the Fed is tightening, even if they hold now, they don't do another hike next year, but they continue to run off the balance sheet, continue to remove liquidity. Money supply continues to drop. I think that's such a hard liquidity environment for stocks to actually rally in. And I think the whole mantra of don't fight the Fed

is very, very palpable right now. All right, Bryn, give me give me your last word. I've been saying since November of last year, don't fight the Fed. I think this Victoria is spot on that we have to wait to see what happens. But once again, a lot can happen in a year. So my last my last my last phrase is I think next year is going to be volatile and we could start off bad, but end up less bad, less worse. Okay. All right. Bryn, Victoria, happy new year to you. I look forward to many more conversations on the other side. Professor, I want you to stick. I got one more question for you, for just you. I'm curious, Professor, what you think when you look at what's

happened to Tesla this year. And I don't think we've talked about it at all in the many, many conversations that we've had throughout the year. But you have studied personalities on Wall Street for decades. You have seen stocks blow up for decades. What do you make of it? Stocks that sport the price earnings ratio of Tesla, and both my sons own a Tesla. They're admirers of Elon Musk, and he's an idol to many, and he's accomplished a tremendous amount. But Warren Buffett said, fall in love with the price of a stock. Don't fall in love with the company. The problem with Tesla was always the price of a stock, don't fall in love with the company. The problem with Tesla was always the price. And I think that's the bottom line.

I mean, you know, I remember I'm old enough to remember when everyone fell in love with Polaroid in 1975 and send it up to 95 times earnings. Well, I don't think Tesla is going to have the same fate as Polaroid, but every stock that was sent up over 50 times earnings performed extremely poorly in the future. It's the price. It's not the company that causes investors problems. I knew you'd have an interesting take on that. Professor, you'd be well. Again, my thanks to you for all of the time that you've given us throughout this year in overtime. We'll see you soon. Thank you very much, Scott. Happy New Year to you and all. All right. And you. That's Professor Jeremy Siegel, of course. Let's get to our Twitter question of the day. We want to know where will the S&P end next year? Higher than 4000 or lower than 4000? You can head to at CNBC Overtime on Twitter to vote. We'll share those results coming up a little bit later in the hour.

We're just getting started, though, here in overtime. Up next, the year the bubble died. That's how New Edge's Cameron Dawson is characterizing the year that was.

She'll join us next with how she's navigating new potential risks. And later, consumer stocks got slammed this year, the sector down 38% in 2022.

Now we have a top portfolio manager with the stocks he's betting we'll see serious gains in the new year. We're live from the New York Stock Exchange over time. Back right after this. The Major Average is locking in their worst yearly performance since 2008, the S&P falling just about 20%. But despite this year's weakness, our next guest believes that valuations are still at risk. Joining me now, Cameron Dawson, New Edge Wealth Chief Investment Officer. It's nice to see you again. Happy New Year to you. Happy New Year. You've been on the right side of this market since we started having these conversations.

You just heard the professor say we could have a 15% gain in stocks next year. Believable in your mind? I think that that's asking for a lot. If we rally 15% from here, that would get us to just over 4,300. At 4,300, and on his earnings estimates, he talked about 220, 210, it would mean that we're trading at 20 times earnings. Which he said is justified if you're going to have a recessionary environment. Yes, but a recessionary environment usually involves earnings going down 30, 40 percent,

really big washouts in earnings where it's such pent up demand. But a slight decline in earnings, 220 is flat. So at flat earnings, you don't put a big multiple on that, mostly in the environment where you still have a Fed that's keeping rates very high. All roads lead to the Fed. Yes, obviously. And I'm not sure if you heard what he said about projecting a pivot at some point that they're not going to be able to do what they say that they're going to do. He went even further. OK, I want you to listen to what Professor Siegel said about where rates are going to go. We'll talk on the other side. I think we might see a two to three percent Fed funds rate by the end of the year.

I think they're going to say, wow, we've really tiled that inflation. I'm now a little worried about the unemployment and the buildup of that. And, you know, the normal Fed funds rate, they say, is 2.5%. You know, for that 2% inflation, I actually think it's between 1.5% and 2%. And I think they're going to get down toward that by the end of the year. It's not going to be near five. That's provocative, to say the least. 300 basis points of cuts, and let's assume that they're going to get to five percent in the first couple of months of next year, would be unprecedented given how much they say they

are worried about inflation. Powell has said one phrase over and over again. It's that history warns against cutting too soon. And in a world where employment, they still say, is too tight, and even in their SEP projection, they have employment going from 3.7 percent this year to 4.6 percent next year. That means that they're still comfortable with employment going up by 100 basis points. So in that world where you would have to see employment be far worse than that 4.6 percent to get them cutting 300 basis points. Now, you know what Powell has said over and over and over again? If the professor was here,

he'd say he said inflation was going to be transitory and they turned out to be wrong. So I don't believe what they say now. And I don't believe that they're going to be able to go as high as they say. And ultimately, they're not. And that's why stocks can have a better year than people think. Well, I think that we have to be careful in trying to bet on that too soon. And I think that's been the lesson in the back half of 2022, is that you kept having these failed pivot rallies in these hopes of a pivot. And if you traded based on that and bought stocks thinking that the Fed was going to back away from its word, just like it did back last year and was wrong on inflation, now it's going to be wrong on the other

side. You got caught flat footed. And so I think as investors, we have to be as data dependent as the Fed is full stop. And until the data is supportive of a pivot, we should not be betting on one. What would turn you more positive? Is it a legitimate pivot, an actual beginning of cutting interest rates? What's that moment where you change your disposition about the market? I think that it's when data starts getting bad enough that you start seeing cracks under the surface that really does support the Fed doing something different. But I think it's important to note that data still remains really strong. And maybe that is a reason why you're seeing some better stock action within the cyclicals right now, because they are pricing in the fact that data isn't rolling over.

We're not going into an imminent recession next quarter. And so that probably could provide a lift to certain parts of the market. But then, of course, it's the matter of time to see the weakness eventually emerge as we stay in this very tighter for longer environment. When some say there still exists a, quote unquote unquote generational opportunity in fixed income, you say what? Well, I think that if it was a generational opportunity a couple of weeks ago, again, you got caught flat footed. As data comes in better than expected, we've seen upward pressure on yields. So I think if you are a buyer who can lock in juicy yields in these high single digits ranges, great. That actually is very supportive for portfolios.

We haven't seen that in ages. However, credit spreads for high yield are about 450 basis points. For investment grade, they're about 220 basis points. You are not being aggressively compensated for credit risk. It doesn't mean that yields in 8, nine percent still aren't great. But I think that you have to pick your spots carefully. All right. All right. We'll talk to you many more times, I'm sure, in 2023. Happy New Year. Happy New Year, Scott. That's Cameron Dawson joining us here in overtime. It's time for a CNBC News Update with Seema Modi. Hi, Seema.

Hey, Scott. Here's what's happening at this hour. Pennsylvania law enforcement has arrested a suspect in the killings of four Idaho students. Brian Christopher Koberger is being held for extradition to Idaho on a warrant of first-degree murder. The four students were stabbed to death at a home near the University of Idaho on November 13th. U.S. hospitals are admitting fewer people for the flu and RSV while COVID hospitalizations are on the rise. Flu rates still remain high and infectious disease experts anticipate a rebound after the New Year's. And the UK is instituting new COVID rules for travelers from China starting next Thursday. Visitors will now need to show a negative COVID test less than 48 hours old before entering the country.

With information scarce on the increasing spread of COVID in China, several countries have imposed COVID testing requirements for passengers arriving from the country. They include the United States, France, Italy and India. Scott, Happy New Year. Back to you. All right. And you as well, Seema. Thank you. That's Seema Modi. All right. Up next, your 2023 retail playbook. One top portfolio manager giving his forecast for that sector. Three names as well, he thinks, are best positioned to

see big gains. Plus the Dow, S&P and Nasdaq all down big for the year. However, Mike Santoli says this could be a good thing for investors. He explains in his final last word of 2022. Overtime is right back. We're back in overtime. Take a look at the consumer discretionary sector, finishing the year 37 percent lower. My next guest says while the momentum could continue into the new year, there are a few bright spots in that sector. Let's bring in John San Marco of Neuberger Berman. He is managing the firm's next generation connected consumer ETF. Welcome. It's nice to talk to you today. It is one of the biggest questions, I think, heading into the new year. And as you progress into it, how the consumer is going to hold up,

it's certainly relative to the stocks you manage. How would you answer that question? Yeah, thanks, Scott. Great to see you again. We are braced for a rough start to 2023 because the challenges that plagued the second half of 2022, they don't go away overnight. The good news is we do get to anniversary things like the spike in gas prices and the spike in food inflation and the rapid increase in interest rates. But that's not really till we get to the middle of the year or so. But the data that we track do point us to a handful of retail ideas that we think can perform quite well in spite of those environmental pressures. Yeah, because I'm sure some people are listening to the conversation thinking like, man, I don't want to buy any of

these stocks. I don't care what the prospects seem to be for individual names. Is it hard to make the case as we worry about a recession and all of these lingering and lagging effects of what the Fed has already done, the impact that it's ultimately going to have on the consumer at some point? You've got to believe that, that these stocks are going to be hard to come by. It's a fair question. We think there are a couple bright spots that can kind of outshine some of those headwinds. Retailers offering great value that can benefit from trade down is an obvious one. Dollar Tree is a name there that actually benefits from some consumer distress. It's the largest position in our portfolio. And that thesis there really

just starts with a new management team that literally wrote the playbook on how to turn around a dollar store banner. And we just think there are quite a bit of self-help opportunities, the biggest of which is changing their approach to pricing. And our data show that it's already working. The business is already turning. So we're in, despite the environment, that's a name where, you know, where we think absolute returns could shine. But I guess your bottom line is, at least in part, from the TJX and, you know, Dollar Tree, is that you think it's a discount retail world for the foreseeable future. Discount, for sure, is one area we're leaning into in retail. On the other end of the spectrum, it would be the very high-end consumer tends to be a bit more resilient to macro choppiness. So we own some luxury names like Montclair or Farfetch.

But I would say discount feels the safest, if you will. It feels kind of the highest probability, if you will, it feels kind of the highest probability, because we're already seeing it in the data that the middle income consumers are behaving more like low income consumers and really looking, searching for great value. John, be well. Happy New Year. We'll see you on the other side. Happy New Year, Scott. Hopefully brings better things in this market. That's John San Marco, Neuberger Berman. Up next, changing lanes. One halftime committee member. Man, you cannot wait to see this trade. I'm just going to leave it there. Bryn Talkington is back.

Her latest trade is a wow. All right. In today's halftime overtime, shifting gears with both Tesla and General Motors shares falling more than 40 percent in 2022, one halftime committee member making a big portfolio move in those names to close out this year. Requisites, Bryn Talkington is back with us. I said this was big. Now, you told me the other day that you were looking at Tesla, that it was starting to get attractive enough, I guess, that you bought it. Talk to me. Yeah, I did. So let me walk you through the trade. I had actually bought GM in October. GM owns about 80% or 80% of Cruise, the autonomous vehicle company. And that's why I bought it. GM

had sold off. I sold calls against it. So I'm pretty much flat on GM. I made money on my calls. But as we discussed on Halftime a couple of times, you know, with Tesla's fall right now, if I look at Tesla, it's sold off so quickly and so violently. Obviously, he stepped in it with Twitter. They're going to fix that. But you have a company that in 2019 had zero earnings. They were losing money. In 2021, they made over $2. This year, they should make over $4. Next year, let's say they do $5, $5.50. We can't look out past that. This company is now growing earnings at 25% a year. Scott, they have so many levers in China, in the US. And so I think Elon is a great inventor, investor.

And so I thought this is a wonderful inventor, investor. And so I thought this is a wonderful opportunity to switch my GM going to Tesla. But as you know, I've been really negative on the NASDAQ. The technicals look awful. And so sticking with my discipline, I bought the stock on Wednesday, but then I sold the April 150 calls and I collected $10 of premium. So that's 8% off like the 120 where I paid for it. So I got an 8% yield for the call for four months and I still have 25% upside. So it's a toehold position, but I'm really excited to own it and do the swap out of GM. Okay.

So somewhere, and I'm not sure where, farmer Jim Labenthal is riding off into the sunset somewhere, and he's probably falling off of his tractor hearing you sell General Motors and buy Tesla because he makes the argument that Tesla is not a tech company. It shouldn't be valued anywhere close to a tech company. It should be valued like a car company, and that's a single-digit valuation. So how do you respond to somebody who would say that, literally, if they were sitting here? So GM and Ford are bar none car companies. That's all they do. Tesla is a car company.

They're a technology company. They're a solar company. They're a semiconductor chip company. They're a battery company. And so this is a company that has a flywheel of all things around the electrification of what's happening globally. They're also entering new markets. So forget what they're creating. They're in China. They're in Europe. They're probably going to build a factory in Mexico. So this is just a company operating

on all cylinders. My issue with Ford and GM is that I think ultimately they're going to be price takers because they really don't make anything. Tesla has so much that they make themselves. I mean, like just take their chips, for example. They stopped using NVIDIA's chips, I think, three years ago. So I think Tesla has the ability to be a price maker versus a price taker. And you don't even care if they're a higher multiple. Yeah, but if the multiple even comes down a little bit from here, it doesn't sound like you care all that much. You don't even care if the multiple even comes down a little bit from here. It doesn't sound like you care all that much. You don't have to get it at the exact right price.

You've hedged your bet somewhat with the options as well. Yeah, the calls. Right, exactly. I want to keep my discipline here because I do think that the first quarter is going to be pretty dicey. And it's part of the NASDAQ. It's part of the S&P. And so if the market continues to go lower, Tesla's vulnerable. But, Scott, they have so many catalysts.

I think you'll have a new CEO in January. You know, Tesla can make so many announcements. That shifts these headlines from a negative to a neutral. And I think that's probably worth $ to 30 dollars just shifting from the negative to the neutral. Well, all right, Bryn, Happy New Year once again. We'll see you on the other side in 2023. That's Bryn talking to you. Coming up, we're wrapping up a wild year on Wall Street. Christina Partsenevelos has our final rapid recap of 2022. Christina. Which energy player surged over 100 percent this year? Why did Estee Lauder shares do so poorly? And what happened to the fight between gold and Bitcoin?

All of those details coming up in your rapid recap right after this break. We're back in OT. Many of you already know by now where the major averages closed out the year, but Christina Partsanovalos has a few good stats you may not have heard just yet. She joins us with her final rapid recap of this year. Christina. Scott, you mean great stats because what a year it is to be a financial news reporter. Inflation, crypto collapse, and a dead IPO market. The list continues, but let's start with the only sector gainer of the year.

That would be energy. Every single S&P 500 energy stock is higher year to date with the top three performers. Hess Occidental Marathon all up 80 percent or more this year. And with all that inflation talk, we got to talk about consumer staples down about a little over three percent on the year. Estee Lauder, the biggest lagger on weakness from China. We know Chinese or a lot of people in China usually buy beauty products. They're big buyers, not so much this year. And then Tyson Food isn't too far behind, down almost 30% margin squeeze by higher cattle costs.

And 2022 wasn't a year to go public. The number of U.S. IPOs fell 74 percent and deal proceeds plunged 94 percent. The U.S. IPO market's smallest haul since 2003. I think I may have still been in university then. Lastly, the battle between hedges. Gold performed better than the S&P 500 and digital gold or Bitcoin, which plunged 65 percent this year, Scott. So I know the gold bugs are definitely cheering and uniting. The end. All right. You've been great for us this year.

We really appreciate it every single day. Christina, thank you. Happy New Year to you. Thank you. All right. That's Christina Partsenevel. That's Christina Partsenevel. It's still ahead.

The moment we have all been waiting for. It's Mike Santoli's last word of 2022. Do not go anywhere. We're back right after this. It's the last call to weigh in on our Twitter question, the final one of 2022. We want to know where the S&P will end next year, higher or lower than 4,000. Head to at CNBC Overtime Vote. We'll bring you the results in Santoli's last word of the year next. To the results now of our Twitter question, we asked you, where will the S&P 500 end next year, above or below 4000?

Wow. Almost 65% say higher than 4,000. A little optimism to end the year. Mike Santoli here for his final last word of this year. All right. So a little optimism. We're trying. Yeah, exactly.

I guess I'm going to make my final word of the year gratitude, which probably, you know, before you think I'm starting to, you know, express thanks for all my blessings, it's really gratitude for the down years we've had across asset classes. Now, that's because lower valuations, lower prices are the source of future returns, right? That's how future returns start to go up, return expectations. And what you've done over the course of this year is gotten the broad S&P 500 from a 21 times earnings where you had pretty low expected returns relative to history at that level to like 16 and a half. That's still not cheap. And I think what it's done is all the models will tell you it's rebuilt your expected annual returns toward the historical average. Right. So it's not like it's a wow, this is a generational opportunity to buy. And then bonds, you know, you could buy plain vanilla bond index right now and get five

plus percent yield that at least creates a little bit of a tailwind for return. So, you know, it's not to say it's over. It's not to say that the low is in. It's not to say there's not going to be more pain. It's just that this is how the ebb and flow of the market starts to work in your favor if you are involved when valuations have come in. I want you to react to what Professor Siegel said to us at the very top of our program some 50 minutes ago. Could get 15 percent for stocks. And the Fed funds rate could go down to 2% to 3% next year. Yeah. You know, I wouldn't argue against that being within the realm of possibility. Certainly not the 15%. The interesting thing is I don't think you need the Fed to start radically cutting for things to break right.

And you start to have soft landing vibes in the market. And stocks can rebuild, you know, 15 know 15 gain which still leaves you way short of where we traded 11 months ago right sure sure and that's important to keep in mind i'm glad you make that point right and um i just don't think there's enough time for the inflation to come down fast enough and for and or for the economy to break down convincingly enough to get the fed on that path to start cutting that way. Well, that's right. So it's the one scenario you could see perhaps playing out. The other one is is a matter of you can see it.

But to me, it's like just how bad would things have to get economically for the Fed to get that easy in a hurry? If they assume assume they get to four and a half, five, five percent, let's say that's that's just a lot of if they assume they get to 4.5%, 5%, let's say, that's just a lot of, that's an about face that they would only enter into if you had multiple months of really bad economic numbers and or inflation starts to turn into deflation. I mean, look, there are other people who are optimistic, right? It's a top target like Tom Lee has.

It's Ed Yardeni having a much different and more optimistic view than many others, too. And then the professor who's been with us from the start and has been very critical of the Fed throughout the entire year just doesn't believe they'll be able to do what they say. And the final note is, you always make us think. And since you started out with gratitude, we express ours to you for being with us all year long for your last word. Happy New Year. Enjoy. All of you as well.

See you on the other side. Fast monies now.