Closing Bell - Closing Bell Overtime: Double down on defense? 7/1/22

Episode Date: July 1, 2022

Stocks ending the day in the green, but investors are still debating if it’s time to take on a defensive posture as we head into the second half of the year. Our all-star panel gives their market take. Plus, Fundstrat’s Tom Lee weighs in on Voyager’s move to freeze customer assets. And, Ally’s Lindsey Bell explains why she thinks a bottom could be sooner than most think.

And welcome to Overtime. I'm Mike Santoli in for Scott Lopner. You just heard the bells and saw the fireworks, but we're just getting started. In just a few minutes, we'll speak with crypto bull Tom Lee, his reaction to that dramatic fire sale in the crypto world, plus late-breaking developments as another crypto lender freezes customer assets. But we begin with our talk of the tape. Is it time to double down on the defensive posture as we kick off the second half of the year? Another dose of weak economic data adding new fears of an economic slowdown. But the main question for investors is whether the market is over anticipating or under appreciating the real degree of weakness ahead. Let's ask Marcy McGregor, Bank of America senior investment strategist, what seems to be the right way to balance all these factors? Marcy, it's great to see you. It was a brutal first half of the year. We're all happy it's over. If I think about it in the near term, July is technically a strong month for markets. History tells us and sentiment is

really bearish. But I think in the medium term, the risk we're actually underappreciating is earnings revisions that need to take place. I think across the street, earnings are still too optimistic. I think they need to come down. That's what I think ultimately stabilizes the market. But big, big picture, we're still believers this is a long term secular bull. So this bear market needs to find its footing on peak inflation and earnings revisions in my view. If it's a if still a secular bull market, I realize that's, you know, it's been kind of the overarching house view for a long time. And we've down 20 percent in six months. That's like a 35 percent annualized rate of decline.

Is that not enough of a reset to feel as if the odds have maybe turned back in favor of trying to to sort of reload on risk? Or is it too early? This volatility continues. Again, I think we need a couple of months of data telling us inflation has peaked and probably some visibility into when the Fed cycle will stop. Until then, I think we have a choppy market. So we're talking to clients about really managing risk, not taking any big tactical swings right now. And we're really on the side of higher quality investments until we get through this period.

And higher quality based on what factors qualify in terms of where you would like to have fresh money put? I think we want to look at free cash flow. We want to look at strong balance sheets and companies and industries that have stronger earnings revisions, I would be balanced between defensives and cyclicals. I still like energy, especially after this reset, but I would have some defensives like health care, especially large pharma. I would also think about sectors like utilities to give me a balance between exposure to higher commodity prices that are likely here to stay and managing risk as we move ahead. Let's bring in Victoria Fernandez, Crossmark Global's chief market strategist, then Scott Cronert, Citi U.S. equity strategist to kind of kick around these same issues. And Scott, this is a big question, given where we are on the calendar, in the earnings cycle,

in terms of the outlook for economic growth whether in fact corporate earnings and maybe downgrades to the profit outlook is the next shoe to drop or has the market's behavior for six months been essentially uh telling you that this is already a far-gone conclusion and maybe we figured it out well, I think they're both good points. I think that the valuation compression we've faced year to date has discounted some expectation for earnings risk ahead. Our view is that the earnings profile for the second half may actually prove more resilient than many are expecting right now. And the bigger earnings issue will be regarding 23 expectations, which probably aligns more closely with when a recession, if it does occur, were to occur. All right.

Victoria, we did obviously have the investors fixate to some degree this morning on that soft ISM, new orders number, as well as employment. The Treasury is rallying very hard. It seemed like a very classic growth scare type dynamic. And yet the S&P 500 on the first day of a new month, we'll see if it carries through, but manages to get a one percent gain. And we're trading at levels on the S&P that honestly were first hit on the downside six weeks ago. Is that just grasping for the idea that we've priced a lot in, or do you think there's some merit to that idea? Yeah, so, Mike, I mean, we don't think that we've seen the bottom yet. I mean, when we look at all the factors to try to determine that, we want to say, OK, have we hit peak yields? We're talking about the

Treasury's really rallying. Well, I mean, we have cyclicals under for me. Defensive you have banks under for me utilities you look at the copper gold ratio all those things tell us. If we should have hit. He ten year yields are peak yields and those are coming down and we've seen that over the last couple

of days. We have to say does that mean we're at a bottom yet and I'm not sure I mean. We haven't seen the big spike it's actually down six percent. And today we look at. Earnings We haven't seen the big spike it's actually down six percent. And today we look at. And earnings expectations Kevin those come in it we're

talking about ISM numbers. Look at the PM eyes to normally we want to see those under fifty and I think the biggest thing that we're looking for. Is that pivot from the Fed. And I don't think we're anywhere close to

that we've got to see. Services. Get hit a little bit the growth in services. I mean, look at real consumption for services we got this week. It was actually up 0.3 percent. So we're seeing the growth come down in goods. We're not seeing it in services. I think that's what we've got to look at.

So some of this priced in, but I think there's more to go to the downside. Scott, I mean, on some very kind of broad top down level, it certainly makes sense to sort of stay in a bit of a cautious stance. Right. I mean, just like last year, you could just say, hey, it's a bull market. You know, dips are to be bought. Liquidity conditions are very generous. The profit cycle is your friend. Don't overthink it. Don't overthinking it. This year means don't fight the Fed. Don't fight the tape. All rallies are to be sold. At some point, though, that sort of works itself through. And we're at a point where there's some kind of reason to think there's an inflection. What would you be looking for to say that maybe that scenario of resilience in the in the second half of the year is going to basically be persuasive? So I think there's two ways that we're thinking about it.

The first is, OK, let's think about what the summer has ahead for us, right? We've got a July Fed meeting and expectations now are for roughly 75 basis points, maybe another 50 basis points in the September meeting. We've got Q2 earnings in front of us. And again, as we're discussing here, you know, we're thinking the earnings will be a little bit more resilient. You have to expect there's going to be some C-suite cautionary commentary regarding the outlook. So the setup over the summer months is so that we've got some wood to chop. But on the other side of that is you kind of hit the Labor Day timeframe and start

looking at that, you know, that race into year end. It's conceivable that you at that point have more signs of economic weakening some signs of the fed perhaps taking a pause which the bond market is beginning to show some evidence of and the combination of that with what we're suggesting is still a pretty decent earnings picture may not be as robust as we think it it wasn't the start of the year but still going to be up let's call it miss single digits all of that begins to set up for a change in the narrative in terms of what's ahead of you versus what is increasingly being priced in. So again, the setup here is, okay, we've got some issues ahead of us with the summer months, but then we think as we turn the corner and head

towards year end, there could actually be some more light at the end of the tunnel. And, Victoria, you mentioned you were on alert for yields peaking out as maybe one of those boxes to check off. How would you think about bonds right now and what they offer? On the one hand, you've rebuilt some yield cushion in their investment grade bonds above four and a half percent. If you look at the index, maybe that's not so terrible as you play defense. On the other hand, credit spreads widening out a little bit, maybe telling you that there's some concern about macro challenges right ahead. So is it a buyer's market yet for bonds? So you're asking someone that's a fixed income portfolio manager, so I'm a little biased here, Mike. We've actually been extending our duration and our fixed income portfolios because we do think we probably hit. Or at least

are close to hitting the peak. And it yields right now so we extended that duration. Had a little bit I do think you have to watch credit spreads but we're roughly now about a hundred fifty basis points. On ten year credit spreads. We

would start to get concerned when we see those around two hundred we're not there yet so we still think there's a little bit of see those around 200. We're not there yet. So we still think there's a little bit of room to go. So we're not super cheap right now, but we're getting there and we're starting to buy bonds at discounts. We haven't bought bonds at discounts for a very long time. So we think there's some opportunity there. I think you also need to be very careful of European spreads that could kind of fall over into the U.S. pretty

quickly. So we want to watch those peripheral spreads and what the ECB is doing about that. Marcy, I think one of the more worrisome interpretations of what's gone on this week, and now in aggregate, it wasn't that terrible, right? The S&P was down 2 percent. We were up 6 percent the week before. As I said, it's still a chop fest, but it's not really rushing to new lows. But one of the, I think, maybe worrisome interpretations of what Jay Powell had to say was that a recession is almost part of the plan. And the bond market has started to price itself. You look at the forward kind of yield expectations on the federal funds rate that, in fact, we are

going to sort of tighten and then almost implicitly tighten too much and then have to take some of it back next year. It's a tough ride to sign up for from this point out. Do you think that that's the best guess of how it's going to go? I think the Fed's still looking after what I would call a bumpy landing, right? The right amount of policy to tame inflation isn't going to taste very good. But I think they're getting some of their miscommunication out of the way, like indication they could have paused in September. The Fed hiking cycle is nowhere near done, even though we've seen slowdown in growth.

We haven't seen the labor market cool. And actually, that's one of the biggest indicators I'm looking at to see that the Fed's having an impact. So I think it's not necessarily about what we look for a recession or not. But what does it look like? Is it mild? Which would be our view, even though we do not have a recession as our base case? And how much do corporate profits come down ultimately when this cycle ends? And it's our view, again, that that would be milder than we've seen in past downturns. So that's why we're not overly pessimistic right now. But I stayed any talk of Fed pausing because the that's a long way to go in this inflation battle.

Yeah, I mean, Scott, to those points about maybe what the character of any stall or maybe downturn in the economy would be like, Atlanta Fed GDP now the real time rate is below minus 2 percent for the second quarter. Obviously, that's a concern. But we do have nominal growth still high because of inflation. We do have household debt service is in a very comfortable place, actually, in aggregate. So that's not something that usually is the case before a bad recession. And then just the, I guess, corporate balance sheet is also not necessarily the source of any major stress at this point. So we were good in the stock market with, you know, the market kind of wobbling around the flat line of real growth for 10 years after the global financial crisis. Now we might be wobbling when we also have inflation and some nominal growth.

Does that change the picture? I think it certainly does. But I think you also have to look at sort of inside the S&P 500. So let's take industrials as an example. It's only a 7% weight within the S&P 500. Classically economic sensitive. So, yes, ought to be exposed to some of the discussion that we're having around economic slowing. The consumer discretionary sector, a little bit bigger, but, you know but the weight is really 50% in three companies.

So what you have to be, I think, attentive to as we're assessing broader economic impacts is that there will certainly be pockets where you feel a very direct macro influence on earnings, but it may not be as broad as many expect. And so therein, like I said, sort of lies our case, which is upside between now and the end of the year. That can be a function of the fear going into this circumstance which we're all discussing you know daily um and what may actually end up being proven out in terms of sort of corporate fundamental resilience as the c-suites adjust to set activities so again it's it's a tricky one and i guess what i would fall back on just to kind of sum it is that let's just let's just stay aware of how the sector set up looks going into this period and be aware of the various sensitivities that are unfolding within the market that may may may not make the aggregate impact look quite as severe as many would think. And just to drill into that point a bit. So essentially what I think you're saying is the index, because of the weightings, you know, in terms of maybe more predictable, durable profit margin type companies in mega cap growth or elsewhere, makes the index a little bit more

defensive or at least able to withstand some of these macro pressures better than previous iterations of the S&P 500? Yeah, I'll give you an example. So recently in our sector work, we upgraded software from an underweight, which we've had on since last November, to a market weight. We took semis down to an underweight. Well, if you think of the previous discussion you're having and where you want to be on the duration curve within the fixed income markets,

you can think of equities the same way. And so what's unfolded so far this year as a function of rising rates, particularly real rates going from negative to positive back in the very start of the year, is that you've seen very significant valuation compression in the longer duration parts of the equity markets. Software would be an example of that. So what ends up happening if you begin to get a little bit more confidence that you can see some light at the end of the Fed tunnel, there's a little bit more relief on the rate expectation side,

then essentially what happens is that growth becomes defensive, if you will, where the market can begin to look at the secular growth aspects of said industry group or sector as a function of where interest rates are taking you as a means of navigating the more traditional economic activity that we seem to kind of get really accustomed to focusing on. Yeah, you have to obviously look below the surface a bit. Scott, Victoria, Marcy, thanks very much. Appreciate the time today. Thank you. All right, let's get to our Twitter question of the day.

We want to know which of this year's Dow duds looks most attractive right now. Disney, Nike, Salesforce, or Home Depot all down between 30 and 40 percent in the first half. Head to at CNBC Overtime on Twitter, cast your vote, and we'll bring you the results at the end of the show. Up next, we're tracking dramatic new developments in the crypto world. Another crypto lender freezing customer assets. Those details, plus instant reaction from crypto bull Tom Lee on Overtime Returns.

We are following dramatic new developments in the crypto world. Major crypto broker Voyager Digital freezing customer assets. It is suspending all trading, deposits and withdrawals. Voyager's announcement comes amid a raft of margin calls and defaults across the sector. In separate news, FTX has signed a deal to buy BlockFi for up to $240 million, rescuing that troubled lender as well. Let's bring in crypto bullying fund strat co-founder Tom Lee. Tom, it's great to see you. And let's just start, you know, with crypto and where it's situated. Obviously, the price declines in Bitcoin and other coins have precipitated the shock to the system. We have a little bit of a, you know, kind of the

asset liability mismatch type stuff and essentially liquidity issues around the ecosystem. What does it mean, do you think, for the asset class to go through something like this at this point? This is a really important moment for the industry. It's the equivalent of a large deleveraging episode where folks have discovered that some of the programming codes don't really secure collateral properly and decentralized finance is coming into question. So I think there's a lot of reasons this is an important moment for the industry and it's a painful lesson for investors. I think that one of the big takeaways I'd have is that, without question, when it comes to handling money, technology and code is not the only important factor. Some sort of structure on regulations and accounting and identifying collateral and counterparties is important. And I think these are the sort of the developments that need to be added to the next set of projects and blockchains. So those are obviously this is going to iterate and you're going to try to figure it out on the technology side.

What about for those people who really were just viewing it principally as an asset class, as something to own, whether it's because of momentum or because they were big believers in the digital gold attributes or anything like that. Can it come back from this, I guess, is the big question. Yeah, I think it's going to come back. Bitcoin's actually held up, I think, tremendously well. As you know, Bitcoin was twenty2,500 just three years ago. And even though it's down from its highs, it's actually still around $20,000 and near some pretty important support levels. But also, you know, the Bitcoin blockchain, for instance, has functioned pretty well. It hasn't actually had any sort of knock-on effects except for price

adjusting. But, you know, Bitcoin security, there hasn't been any hacks. It's still processing a lot of transactions and moving a lot of value. And so I think it's showing that parts of the crypto system work really well. But a lot of these sort of cutting-edge innovative projects and, you know, attempts to offer yield and leverage and allowing what customers and investors thought was excess return turned out to be a phantom we're borrowing from the future. And I think that's really the lesson here. But to me, you know, the core sort of the core pieces like Ethereum and Bitcoin have actually held up really well. Now, obviously, the declines in crypto prices has come along with and is whatever is somehow interacting with the

general flight from risk that we've seen in equities in other parts of the financial markets. Where do we sit with that now, Tom? I mean, we're down, as we've been talking about, 21 percent in the first half of the year. It's been pretty precipitous and actually a pretty strong downtrend to this point. We've been kind of trying to navigate between the stubborn inflation on one side, the potential for economic growth to give way on the other. And investors seem like they're actually not confident that we can steer clear of any of that. What do you think is happening here for the next half of the year? Well, that's a great question, Michael. I mean, the first half of this year has been really treacherous and tough because, you know, the markets have been dealing

with inflation, which has essentially been eradicated from the U.S. for almost two generations. And the Feds responded very aggressively. And it's it's really been there essentially a prime directive. But I think as we're exiting first half, I think it's there is evidence that some of this inflation that's looked to be persistent really is either a bullwhip effect, you know, of how supply chains move and also supply chain glitches themselves and some war effects. And as those start to mitigate, the second half is going to really be a story about how quickly inflation cools. But as I look at the second half, I just think the risk reward is so much stronger. Stocks have derated.

And if you look at futures pricing, the market has really changed its mind the last few weeks about how much wood the Fed has to do, wood to chop, because the bond market itself not only tightened dramatically in the first half, but now is starting to think the Fed might be much further along in terms of reaching sort of neutral and maybe an easing cycle. And so, you know, from an investor perspective, as you know, when the Fed really begins to slow, it's not about the earnings that people are going to focus on. It's really the fact that if the Fed starts to go to neutral, multiples expand again. So I think the risk reward is very good for stocks. And I think in crypto, it's going to be the same story. I mean, basically, you know, crypto can't rise in a period when the Fed is raising rates. Another way of, I guess,

describing that sort of that sequence of logic in terms of inflation peaking and what the Fed might do is the market is bracing for what will perhaps look like a mistake by the Fed, whether it's happened already or they're going to just kind of push it too far with another couple of rate hikes this year. And I guess is there a risk of of kind of getting too far ahead of that process, even though, as you say, stocks are a lot less expensive and certainly sentiment and positioning is much more defensive than it was a few months ago. That's right, Michael. You know, the Fed has a very tricky problem it has to deal with because it has to eradicate not only sort of posted inflation,

but as they mentioned even this week, the Fed at Sintra, Powell said at Sintra, is that they don't want to de-anchor inflation expectations. And it's, I think, primarily speaking to households. And so it's important for inflation to improve in a way. But I think one of the things that's changed in the last few weeks is that there's a lot of evidence that what we perceived as sort of sticky inflation or what's been structural really turned out to be supply chain glitch driven. And I think that in the second half of this year, if it turns out that is indeed the case and we start to see disinflation and food prices fall and inventory of a lot of goods become high and see if discounts, that's not an inflationary environment.

And we've already seen it with a lot of the industrial metals and even energy commodities. Yeah, no, there's no doubt about that. You know, we've gone a pretty far distance on this process. We just don't know if we're quite there yet. Tom, we'll talk to you again soon. Thanks very much. Thanks, Michael. All right. We're going to have much more on the recent crypto plunge in the CNBC special Crypto Night in America. That is tonight at 6 p.m. Eastern Time. Now, take a look at shares of U.S. brokerage Callen. They're jumping in overtime as Canada's Toronto Dominion is set to explore a takeover of the firm, according to Bloomberg.

We're reaching out to both companies for comment. And we should note Callen's market cap is about $660 million. The share is up about 16% here in the after hours. Up next, it's been a tough year for tech. The XLK ETF down nearly 30% since the start of 2022. So what's ahead for this trade? We'll break down your second half tech playbook after the break. And don't forget, you can catch us on the go by following the Closing Bell podcast on your favorite podcast app. Overtime will be right back. Welcome back to Overtime. Time for a CNBC News update with Eamon Javers.

Hey, Eamon. Hey there, Mike. Here's what's happening at this hour. The Pentagon is releasing details today on the new $820 million weapons package going to Ukraine. It will include two surface-to-air missile systems, four additional counter artillery radars, and up to 150,000 rounds of artillery ammunition. Since Russia invaded in late February, the U.S. has provided almost $7 billion of military assistance to Ukraine. U.S. travelers and airlines could be heading toward a tough July 4th weekend. Bad news for everybody hitting the road. The passenger count is expected to approach pre-pandemic levels, even as carriers continue to struggle with

inadequate staffing. So far today, FlightAware reports nearly 2,600 delays and almost 400 cancellations for flights within, into, or out of the United States. And for the first time in two years, Saudi Arabia is allowing foreign travelers to come to Mecca for the annual Hajj pilgrimage. Today, thousands of Muslims started to arrive. The total will be capped at one million people. That's less than half of pre-pandemic levels. Now, tonight on the news, I'll be sitting in for Shepard Smith. We'll be looking at how companies that take political stands may be missing out on talented employees who don't share their views. Mike, back over to you.

Eamon, thank you very much. Micron selling off today after that weak guidance bombshell in last night's earnings report. The move weighing on the broader semiconductor space as well. And our next guest thinks we could see even more pain before things bottom out. Joining us now on the phone is Jeffries U.S. tech sector specialist Jairus Weisfeld, Jared Weisfeld. Excuse me, Jared. We did see a relatively, I guess, muted response from Micron itself in terms of the shares today, down less than 3% after that pretty jarring warning. But yeah, but there was definitely an echo throughout the sector. Obviously, we're down 40 percent or so from the highs in the

semiconductor index. Where are we in the process of reckoning with this downturn? Yeah, thanks for having me on, Mike. So, so I agree. All things considering, when you put things in perspective, Micron got it August quarter revenues 21 percent below the street, EPS almost 40 percent below the street. And despite that, I thought the stock reaction today was actually pretty impressive, all things considering, down about just three percent, despite that negative revision. To your point, it was certainly felt across the entire semispace today. You had some of Micron's main suppliers within the semiconductor capital equipment space, such as Lam Research, down multiples of that, down seven percent plus.

But listen, at the end of the day, you've listen at the end of the day you've got a weakening pc market you've got a weakening smartphone market so micron is feeling that right now from a demand standpoint but this is how bottoms are formed right micron is taking down capex it's going to benefit the future supply demand picture and micron is trading at forward book value so it's not a very expensive stock so So many headwinds, but I do agree the stock reaction was quite encouraging. And now I guess it's also a little bit treacherous to figure out exactly when the cycle is bottoming out. It's actually only relatively recently that you had a lot of people concede that, in fact, we were in, you know, a standard cycle in semiconductors. There was this storyline out there that basically it was secular grower. The world is digital now.

It's a different type of dynamic. Are there any parts of semis where that sort of still holds up? For sure. If you look at the culprit of what happened last night from a Micron standpoint, PCs and smartphones really were where the main problems were. PCs are expected to decline 10% year on year versus flattish at the beginning of the year. Smartphones are now expected to decline mid-single digits versus prior expectations of up mid-single digits. So all of the consumer exposures really were the issues were cloud, networking, automotive, industrial. Those actually showed relative resilience.

So we're still seeing relative strength from a cloud perspective, from an enterprise spend perspective. And I think that's certainly what's to look forward to in terms of the resilience of the market. You know, to your point, there's a lot of structural goodness within semis. This is a much better industry than it was 15 years ago. But at the end of the day, it's going to be closely tied to global PMIs, which are decelerating. Financial conditions are tightening. Recession fears are mounting. So the cyclical right now is certainly trumping the secular. end of the day, it's going to be closely tied to global PMIs, which are decelerating. Financial conditions are tightening. Recession fears are mounting. So the cyclical right now is certainly trumping the secular. Yeah, I mean, obviously, it's massive volumes and tight product cycles,

all the rest of it. It's still true. The China reopening, such as it is so far, is that mostly about a supply, you know, supply getting back online? Or is there a demand piece of that that some people are going to latch on to with regard to semis as well? Yeah, that's a great point. We've had the semi-supply chain, which has been impacted from a lot of the lockdowns that have been occurring in Shanghai, in China over the last three plus months, given the zero COVID policy. And now that we're reopening, it's certainly going to help on the supply side. But on the demand side, we're starting to see some signs of life. Specifically, China is offering subsidies on multiple different types of smartphones, and smartphone supply-demand balance finally looks like it's perhaps inflecting. So not only is it a benefit in terms of a lot of

the suppliers now able to actually run their networks, given that the economy is reopening, but you're certainly starting to see some demand signals that are starting to inflect on the margin, given that reopening as well. Absolutely. All right. Have to monitor all that. Jared, thanks very much for jumping on with us. Thank you so much. All right. We're going to hear from Micron CEO next week on Squawk on the Street. Be sure to catch that interview on Tuesday at 9.30 a.m. Eastern Time. Now, chips are just one part of the pain in the tech trade. And our next guest says things are about to get even uglier for the entire tech space in the back half of the year. Joining us now is Gene Munster, Loop Ventures managing partner.

Hey, Gene. Hi, Mike. I guess for a lot of folks, the notion of tech being somewhat cyclical or even acutely cyclical, depending on where you are, is something of a revelation, given that the last flash recession we had was actually great for the tech fundamentals. What are you most on alert for here in the way of challenges from the macro to tech? Well, just the psychology around management teams is what I'm most on alert for is it's true. These companies do have a secular or do have the ability to power through slow times. If you go back and look at what happened with Google during 2011, the growth rate went from search from 25 percent down to 10 percent. Apple during that same period was comfortably beating estimates and just was coming in line. So they are affected.

And I think the most prudent approach here, as we think about going into the June earnings, is to be patient and be ready. I think ultimately is that these companies are going to show some signs of that softness. And I mentioned at the top of my remarks about the psychology around this in management teams is they're hearing all this too. And there's a simple credibility factor that is in play here. If these companies, if their businesses are doing well, I take Apple, for example, I think that their June quarter is going to be solid. I think that their marks as they start thinking about September are optimistic. But I would think that they're going to be in line with probably a lot of companies, pretty much every company, and have some sort of cautionary tone when they start to frame in September.

And the reason why I think that that can cause a pullback in some of these stocks is that tech investors by nature are optimistic. There's just this sense that we're three months away from things springing back. And some of that needs to get extracted from the psychology of investors, myself included. And so I would just kind of bring it together and think about this quarter, the June quarter, and the September outlook in particular. I think we're going to come close to marking the bottom. I know that's a difficult role to predict.

But ultimately, I think this is going to go lower, but set up for a great 2023. It's an interesting point, though, about the the way that the tide can shift on psychology away from kind of growth and and investing and kind of justifying your valuation to sort of, you know, retrenching and reevaluating. Obviously, the private market has had this unwind significantly. You know, there's news today about a new round of fundraising for the fintech company Klarna at radically lower valuation. So these people exist in the same geographic and industry space as the big public companies. What would you most be looking for? Is it things like headcount reductions? Is it essentially just a messaging that says, look, we have to be more careful about spending? And I guess how much of that's already in the

stocks? Well, my experience has been that I always want to think when there's bad news and people have been talking about it, that it's priced in. And I think in reality, it's priced in 10 percent of the time. And so it is rare that when companies have bad news, the stock goes up. Micron today did close down for the record and the overall market was up. I think that I just want to briefly touch on Klarna, that late stage that was around a down round. That is an understatement, but that had just a seismic impact in terms of how investors who do both public and private, that's what Loop does, public and private, we think about this landscape. And just quickly to frame it in, the round was down 85%. That is a similar reduction in value, I guess, or decline as its biggest competitor, which would be a firm

down 89% from its highs. And if you're curious, in 2021, there were 500 unicorns that were minted that brought the overall unicorn number in the U.S. to about 750. I suspect that we're going to exit 2022 with less than 200. I think we'll have less unicorns than what we entered in 2021. And to answer your question in terms of headcount, I think that's going to be one of the themes you're going to start to hear from the venture community. You've seen Elon Musk and Mark Zuckerberg kind of playing to that theme. And I think most of it is actually just about frustration that they have had about worker productivity over the last couple of years. And they're kind of, I think, using a little bit of the recession fear as a backstop to

justifying to be more of a hardliner on a headcount. But we're going to hear a lot about headcount reductions in the next three weeks. At some point, yeah, it would seem that that's going to probably spread as everybody doesn't any longer think they have to hoard bodies, workers. But when it comes to the potential mop up phase, I mean, all the markdowns on private companies, you still do have the big guys there. Maybe arguably the big public companies can't do much in the way of M&A and be opportunistic about it the way they had in prior cycles. I've been shocked that we haven't seen more M&A. I was predicting three months ago that by early summer we'd start to see an uptick in that. And I think it probably is, my guess is some of those gears were in motion.

And I think some of them came to a pause because these companies are asking bigger questions about how they are going to weather this unknown storm over the next six to 12 months. So this is just a golden opportunity. I think especially when we look at some of the pullback and some of these emerging themes, companies that are empowering where the world is going, that these big companies need to participate in that. I think about, you know, for example, Apple and potentially what they could do around the car and potential acquisitions they could be making now with all these SPACs that are down 90%. They probably are going to wait till they essentially go out of business and buy them at less than asset value.

But I am surprised that we haven't seen more M&A activity. And I think that speaks to what's going to be a cautionary tone when we start to hear commentary around the September quarter. Yeah, and maybe a little part of it is the regulatory overhang. We'll have to see, Gene. Maybe we'll have you back for that September bottom that you think might be developing there once we get through some of the bad news. I appreciate it, Gene Munster. Up next, the staggering stats from Wall Street's big week. Christina Partsenevelis is standing by with a rapid recap. Christina. Yeah, we know it was a tough week, so I'll have some weekly winners,

including one company that went public the same year as the first solo transatlantic flight. Do you know what year that was? Tune in for the answer after this break. Let's get back to Christina Parsonevelis for our rapid recap. Christina. Thank you, Mike. Well, we managed to eke out some green across the board by the end of the day, but it still didn't cut it.

All indices posted weekly losses. And given the increasing talk of recession, investors seem to have pivoted into defensive plays, which is why staples, utilities, healthcare, and energy were the only sectors in the green this week. I want to talk about week-to-date winners, though. Utilities, healthcare and energy were the only sectors in the green this week. I want to talk about week-to-date winners, though. You've got UnitedHealth, Travelers, Coca-Cola and McDonald's,

whereas companies like Nike and Salesforce dropped 9.5% or more this week. Nike specifically on its earnings report and a slowdown. On the NASDAQ 100, the biggest laggards were all chip makers like LAM, Applied Material. AMD down 15% on the week. Many a part of the cyclical pivot that you talked about, Mike, earlier or falling in tandem with Micron's earnings after its grim Q4 outlook. I want to talk about gold for a second. It fell today to settle just above $1,800, its third straight weekly loss, while the so-called digital gold, Bitcoin, is up today but down 8% on the week after posting its worst month on record. And the positives, some big 52-week winners. Humana trading at an all-time high, dating back to its IPO back in 1968 when it used

to be called Extendicare. But General Mills came out on top, trading at an all-time high we haven't seen since Charles Lindbergh was the first solo pilot to fly across the Atlantic back in 1927, Mike. I knew it was the 20s. I knew it was the late 20s. I did not know it was 1927, so that was a good one. Thanks very much. Did you know, though, today is a special day, and I need to point it out for those Canadians watching. It is Canada Day. There you go. Oh, Canada Day, of course. July 1st.

There you go. A happy one. What's left of it. All right. And, you know, take Monday off and celebrate. Thanks. Appreciate it, Christine. Thanks very much.

All right, up next, the big buyout slowdown, private equity deal-making drying up this year, why it matters and what it could mean for your money. Overtime, we'll be right back. We have a news alert on Exxon. Seema Modi has the details. Hey, Seema. Hey, Mike. We are watching shares of Exxon here. Our new SEC filing shows the company is signaling earnings from its oil and gas output will rise between $2.5 billion to $3.3 billion in the second quarter. So anticipating a potential sequential rise as we watch oil gases, of course, move higher in the past three months. Stock slightly higher right now. Mike, back to you.

Yeah, pretty good run off the morning lows too, Seema. We knew it was good for them, and now we know just how good. Thank you very much. Private equity dealmaking hitting a dry spell in the first half of the year, and it is leading to losses for public market investors. Leslie Picker is here with more. Hey, Leslie. Hey, Mike.

We've seen buyout volume cut in half this year thanks to an onslaught of macro factors. During the first half of the year, there were a little more than 2,000 deals signed, according to Prequin. That's less than half, the 4,700 from the same period in 2021. This is part of the reason why we've seen sizable declines in the publicly traded private equity firms, especially those with more traditional buyout exposure as opposed to other alternative asset classes like credit and real estate. And overall jitters surrounding less deal activity will likely play a role in bank earnings in a few weeks as PE has become an increasingly large part of the overall M&A environment.

Several banks have shared guidance that they expect a large drop-off in investment banking revenue for Q2. Exits, too, have become more challenging, with the IPO market effectively shut in addition to a relatively chilled market for outright sales. Industry experts, though, always optimistic, say that eventually valuations will stabilize, and the value-oriented buyout shops are hoping they do at these lower levels. And they have plenty of capital to deploy with $975 billion worth of dry powder in the U.S. alone, that figure according to PwC. Mike. Yeah, a trillion dollars in dry powder. They always point to it. No spark just now. Leslie, thank you very much. Up next, bracing for a bottom where one

strategist sees stocks heading for the rest of the year. She'll make her case in our two minute drill. Let's get the results of our Twitter poll. We asked which of these Dow duds looks most attractive. Well, the majority majority of you voting said Nike or plurality, I guess, said 43 percent. Nike was the runaway winner there. Up next, our two minute drill. Overtime, we'll be right back. It is time now for our two minute drill. Lindsey Bell is allies, chief markets and Money Strategist and a CNBC contributor. Lindsay, boy, we've been in a fog of bad news. People really turning their attention to the possibility of recession. Market, though, bounced 1% into the new half.

What does that tell you? Well, it was kind of a weird day. We were back and forth all day and then, like you said, bounced into the close. Interesting, though, going into a long weekend and the market ends up, right? So I think that the investors are still just grappling with the significant amount of uncertainty that we have regarding economic growth and Fed policy. So we're in a wait and see mode and we're eagerly awaiting earnings season to gain any clues where we go from here. We absolutely are. Expectations, though, whether it's for earnings or just general for market returns, have been beaten down pretty far. Everyone says don't try to pick a bottom,

don't try to time it. What's your best guess, though, in terms of where we are in this process of trying to reset market valuations? Yeah, I mean, look, if you look at valuations, we're 40 percent almost off of the high from a P.E. basis. Also, the S&P 500 is down 20 percent going into the second half of the year. That's a pretty big pullback. Most recessions declined just over 30 percent. So if you haven't gotten out at this point, I think this is a point actually where you can start to look for entry points, especially as I think this is going to be a quarter where the worst of the bad news is shaken out. And I think there could be opportunity further into the third quarter and especially into the end of the year once we get past midterm elections.

Yeah, that would, I guess, fit with a lot of the historical patterns. It seems like don't be surprised if we're still volatile through the late summer and into the fall, but then maybe we get some relief after the midterms. Lindsey, great to speak with you. Happy Fourth. Thanks for coming on. That does it now for Overtime. Fast Money begins right now.