Closing Bell - Closing Bell Overtime: Fed Weighing Rate Hike, Risk of Recession, & A Rally That Might Be On The Horizon 06/13/22

Episode Date: June 13, 2022

A fast-paced look at the after-hours moves and late-breaking news live from the New York Stock Exchange. Closing Bell Overtime drills down into stocks and sectors, interviews some of the world’s most influential investors and gets you ready for the next day’s action.

All right, Sarah, thanks so much. Welcome, everybody, to Overtime. I'm Scott Wapney. You just heard the bells. We're just getting started right here at Post 9. In just a few minutes, I'll speak to Charles Schwab's stock star, Lizanne Saunders, on where this bear market might be going next after another rough and tumble session. Oracle earnings, they're imminent. The numbers and the reaction when those hit as we get another good read on the state of corporate spending. We do begin, though, with our talk of the tape, this relentless route for your money and whether there are any signs it is nearing an end. Cantor's Eric Johnson is with me here live at Post 9.

We're going to get to him in just a moment. I'm glad you're here with me, but I do want to get to the big story of this late day, and that is the Wall Street Journal scoop. About an hour ago that the Fed is considering a 75 basis point rate hike this week. Let's bring in the reporter who broke that story. Nick Timoros of the Wall Street Journal is with me now. Thank you so very much for being with me. This was, in fact, a market moving story. Tell me more.

Well, thanks for having me, Scott. You know, it looked a week ago like the debate at this meeting was going to be about, you know, whether Chair Powell would signal 50 basis points for September versus 25. Obviously, the inflation data on Friday, the University of Michigan expectations report, the New York Fed had an inflation expectations report this morning. Those were negative. Those were not what the Fed wanted to see. And so now you do have a debate this week about whether it's going to be 50 or 75 basis points. And we just reported that, you know, 75 basis points looks like a more likely and more live option than it did just a couple of days ago because of that inflation data.

It's interesting. You know, I respect the reporting process so much, so I'm not going to ask you, obviously, about sourcing and things like that. However, headlines like this don't come out by accident. Does it tell you that the prospect is moving the ball forward enough that it's probable. Can we make that assertion at this point, that that is the way that the Fed is leaning based on the reporting that you have? Look, the meeting starts tomorrow.

They'll have two days of debate to hash this out. And it's unusual to see big changes in the outlook this close to a meeting. We haven't had that in quite some time. And so, yeah, it makes it more difficult to see what the Fed is going to do. But I think the inflation expectations data, you know, they've said that they would be guided by that data, that that's important to them. Because once you begin to see expectations losing their anchor, you know, it requires much more aggressive action. So that creates an argument for front-loading that maybe might not have been there before. Yeah, I'm wondering if you could also speak to

what you think this means, given your knowledge of the Fed and the decisions that have been made thus far about its credibility, that it has all but set the stage for 50 basis points. It has telegraphed it as well as any Fed could ever do so. And here we are a day before the meeting starts. We have this new reporting here that 75 basis points could in fact be probable at this point. And whether you think it comes off as panicky by the Fed that they may make this move. You know, I'll leave panicky for other people to speculate on. But if you look at what happened on Friday, you know, part of the Fed's credibility is about getting the market to understand how they

are going to react to data. And so when you see the kind of sell off you had in the bond market and the market beginning to price in 75, certainly for July and somewhat for June, you know, that's the market trying to understand the Fed's reaction function. And I think one of the considerations at this meeting has to be, well, if it looks like 75 is something that people would want to do in July, does it make more sense to do it in June? I think that's part of, you know, one of the options that is up for debate here. Yeah. I appreciate it very much.

Thanks for coming on. Congrats on the scoop. It certainly was a talker late in the day and it moved the market. The bond market, the way that yield shot up was just astounding to watch. Nick, we'll talk to you soon. Nick Timoros, Wall Street Journal. Eric Johnson is with me right here. Your reaction to this?

As I said, these things don't just drop out of the sky by accident. Exactly. So the two things we know about the Fed is, number one, the market has been leading the Fed this entire way. And the market has been pointing more towards 75. The second thing we know about the Fed is that they don't like to surprise the market. So the last we heard it was going to be 50 basis points. This article today tells me it's going to be 75. This was their way of sort of telling the market before Wednesday that it's going to be 75.

And so I think that that lines up. And I think the question from there is really around their commentary, right, around what does their forward guidance look like. And I think that keeping everything else equal, equity markets rather pull forward the rate hikes rather than extend it over a longer period of time. You're expecting a more hawkish message on Wednesday, aren't you? Yes. Yeah, I think they're going to indicate they're no longer

going to back themselves into a corner saying we're going to do a specific hike the next meeting. So my guess is they'll keep it wide open. And I don't think they'll limit themselves to 75 basis points. They're going to want to really keep everything open, all their options open. So the bond market has obviously been screaming at the Fed, do more, right? Now maybe they're finally getting the message. What does that mean then for where stocks go from here if the markets perceive the Fed to finally be listening for a lack of a better description? Yeah, I think there's no easy way or good way out of this.

I think that there is a better way. So I think that, yes, the market will like pulling the hikes forward, but it's overall going to be very problematic for equity markets how this is going to play out. We think that the sell-off has more time and has a lot more in price in terms of going to the downside. How much more? How much more? I mean, because again, to put into context for people who don't see you every day, somebody who is negative, big picture, made a big call that stocks are going to have a huge rally, backed off of it a few days later. We had a big rally. Now here we are. We set new intraday lows today and we're wondering how low we're going to go again. So it's a little bit of context into the kind of conversations that we've

had of late and the kind of calls that you've made. So we look at the equity risk premium as our valuation metric. We think it's super important. If you look at each of the sell-offs in the year 2008, 2018, 2020, the equity risk premium has moved up by anywhere from 200 to 500 basis points. So far during the sell-off, it's actually moved down, meaning stocks have gotten more expensive relative to where rates are. And the reason why is because we've had this massive backup in rates. If you look at credit markets, credit markets are the widest they've been since May of 2020. May of 2020, the equity risk premium was 100 basis points higher. If you talk to a lot of people in industry, they're talking about the recession risk premium was 100 basis points higher. If you talk to a lot of people in industry,

they're talking about the recession risk being very high. I think they're very high. Everyone thinks they're very high. That is not being reflected in the equity risk premium, despite the fact that we've had this sell-off. And so you can see numbers in the low 3,000s for sure. And that's not crazy at all based on where the equity risk premium should go. The other thing I would say is that one of the things that we're seeing is that as markets go lower, it has a self-fulfilling effect. This is clearly impacting the economy right now, right? Growth is slowing, inventories are moving higher, and the sell-off is sort of happening real time as we speak. And so as you go to lower prices, the growth outlook and the

earnings outlook are both going to get worse. So you can't just take a snapshot today and say, where's it going to go? What is the snapshot going to look like, the picture? And not only could valuations move lower, but so could earnings and the overall growth outlook. Let me bounce once again for just two seconds. Just bear with me. I want to note to everybody, Oracle earnings around the stock is having a nice move here in overtime, up nearly 9%. This was another good read, especially at this particular time on the corporate spend overall. But not only for this company in general, just the competition that it's been facing from those pure play cloud players and things like database and all of that. We'll have more coming up in a moment to our reporters going through that report. But I don't want this conversation to get lost on us in the moment here, too.

The other thing that you have pointed to in your notes today, the positioning of the individual investor who was so all in and has yet to be so all out. Is that a fair way to characterize your message? And when that money comes out, that's that shoe that sort of drops to take you to where you think we may go? Exactly right. I mean, you look over the last year since the year, two years since the pandemic, they've added over one trillion dollars to equities and they've only had one month recently of outflows, and that was minus $40 billion. So the individual investor has not even begun to sell. And that's one of the reasons why I think this has more time and a lot more depth to it. If you think about what's gone on with the money supply and around the Fed and where real yields have been,

we were in this environment where real yields were negative. They were negative 100 to 200 basis points, which encourages risk-taking. That has now turned positive. Real yields are now positive. It just, that discourages risk-taking. We've seen the money supply. M2 money supply went down for the first time since 2010, right? And QT is just starting right now. So everything that was inflating over the last two years, and it took two, two and a half years to inflate, fiscal spending, monetary spending, is all going in reverse. And it's really, we're in the beginning stages of it.

You worry about, speaking of, because you're talking, you're making me think of what's happening in crypto. Sure. You worry about, speaking of, because you're talking, you're making me think of what's happening in crypto. Sure. You worry about spillover effects from what we're seeing in crypto? I mean, how can you have an asset class get decimated by 50 percent, essentially, and have no spillover anywhere? I think it does. I think certainly it hits confidence. When you think about the actual money loss, the capitalization right now of crypto is about a trillion dollars. So it was, you know, two, two and a half trillion dollars. So that's, you know, that's a global, global number in terms of ownership.

But that's certainly, certainly painful. And I think it also just hurts confidence, especially when some of these coins break and you hear about some of the losses out there. You lose confidence in the system. And then you start to, your mind starts to wander around, what else do I own that could have that type of move? And that's how it sort of can spread throughout the capital markets. So let's broaden the conversation. You stay with me as well. Let's bring in New Edge Wealth's Rob Seachin, Crossmarks, Victoria Fernandez. It's

great to have you both with us. Victoria, I go to you first, and I want to really zero in on this scoop at the end of the day by the Journal that 75 basis points could very well happen on Wednesday. What do you think of that report? What do you think it means? Yeah, so obviously we saw the short end of the curve really move up on that news, but I have to tell you, I know Eric was saying he thinks that means we're going to get that 75 move this week. I'm not sure we do. You know how the Fed likes to telegraph what they're going to do, and they like it to be

out there. And the last mention they said of 75 basis points is that it wasn't even part of the conversation. So obviously we want to hear from them. Yes, they discussed 75. I think it sets it up for July that that's a done deal of 75. And then you look at September and I don't think there's a number associated with September, but it will be higher than 25 that they talked about

before. So I think they're setting it up for the rest of the year. I do think though for this meeting, they want to stay with the message that they have been telegraphing. They'll stay at 50 basis points. I know when you look at Fed futures, just since Thursday, they've gone up 70 basis points. So the market, I think, could handle it. But I think it comes back to what you were saying a minute ago about the credibility of the Fed. And they want to stick with the message they've put out there for now. Unless you think that what happened late in the day today was a new message that the Fed wanted to have out there. And if they now don't go 75, maybe it further damages their credibility, not to mention the fact that maybe the conversation that you are talking about changed dramatically with that CPI shocker on Friday. Isn't that isn't that possible, Victoria?

It's absolutely possible. I just don't think it's likely. I don't think it's probable for 75 basis points to make that quick jump. Yes, CPI was higher. We actually didn't see the market move as much on CPI as we did the University of Michigan numbers, those longer term expectations. That's where I think we're going to see the Fed really focus. Those longer-term inflation expectations are not going to be anchored as much anymore. That may be what changes their minds. But again, I think they're going to give us at least a one-month leeway to prepare for that. So I'm going to stick with doing 50 at this meeting.

I could be wrong, but I think they're telegraphing for July, not for June. Rob, Desperate Times call for desperate measures. How do you read it? I tend to agree with Victoria. I think it would be a huge shot to the Fed's credibility if they did it this week. I think they set the table for perhaps a more aggressive move in July. Listen, September is definitely something that now looks a lot different today than it did a few weeks ago. And so there's been kind of a huge death in this hope trade based on the Fed pivoting early. I mean, that data was pretty significantly worse than I think markets were anticipating, not worse than we thought it could be. But I think the Fed has to be engaged, stay engaged. And I think that

means kind of a negative prognosis for markets, as Eric said. They can't win either way, Eric, can they? Right. If they do 50, bond market says you're clueless, continues to push the envelope. If they go 75, market says now you're panicky. You have no cred, as Victoria was just making the argument. Am I right or overplaying that? I think that's fair. I mean, their credibility is, you know, questionable right now, I think, in the market's eyes to begin with. I do feel confident they will go 75 based on this Wall Street Journal report, you know, today.

I think this is their way of signaling. Feels that way. Yeah, it does. But, you know, it's really going to be, there's really no great out for them, you know, where people are going to walk away from this meeting and feel good. The best thing will be that will be over, you know, and there could be a spin for 24 hours that people may be like. But it's really, I think, over, you know, beyond 24 hours. I don't see anything positive coming out of this meeting. Victoria, what's so interesting is your headline you came with today before we had this news was that you think a rebound's coming.

Yeah, I think we were kind of setting ourselves up for that before we saw the news today because, look, I think there's still some headwinds to inflation that can work themselves through over the summer. And if that happens, which means yields will start to calm down a little bit, then that's going to be supportive of the equity market. I mean, let's look at inventory to sales ratio. That's moving higher. We look at supply, both domestically and importing. That's doing better. Real incomes are still somewhat supportive there for the consumer. And if we have profits and margins coming down a little bit for corporations, that means wages are going to stop the climb they've seen. That'll moderate. That moderates inflation. That moderates yield.

So we thought maybe with some positive growth components maybe over the next few months, and that doesn't mean growth is going to be super strong, but maybe better than expectations, that we could see a little bit of a rally. Again, we think there's going to be tremendous volatility for the rest of the year, but could see a little bit of a rally over the next couple of months if we get inflation under control. I mean, Rob, we seemingly went from a place where we're like the economy is really strong to holy you know what, we're having an imminent recession. And I just wonder if you look at some of the most recent earnings reports, I'll even use Oracle today. Now, I don't have all the color in front of me in terms of what they reported, but if it was so bad and the outlook was so dreadful, the stock wouldn't be up 9%. And it was a top and bottom beat. And we'll get to the color, of course, on that. But the world

doesn't seem to be as bad as some would suggest that it is. And I also go to the Lloyd Blankfein thing, a tweet of a week or so ago at this point was kind of like, yeah, if I was running a big corporation like a Jamie Dimon, he didn't use his name, but I will, because that feels to me like he was alluding to the hurricane comments. I'd be preparing for the worst, too. But cool it on all of the the crazy talk. We're starting from a high place. Well, listen, I think investors have to do exactly what some of these corporations are doing, and that's prepare their portfolios for volatility, for downside volatility, because, frankly, things have to get worse before they get better.

The Fed is the most important actor in the room. And until they pivot and this liquidity paradigm changes, I think investors have to be defensive in their orientation. And that means they have to buy stocks that are resilient. So you have the optionality for when markets recover. They're resilient from an earnings quality standpoint. They're reasonable from a valuation standpoint. They're resourceful from a capital deployment standpoint. And if you can own through this time in equities that are like that, that are actually performing, you're going to do better than selling and trying to reenter. We still think, Scott, that there's good ways to go on the downside.

You know, fair value is probably somewhere in the $3,500 range. That's where we would get interested anyway. You could certainly see markets overshoot and go lower than that to where Eric's talking about. But at that point in time, we're going to be more aggressive about about getting in getting invested, especially if we see data that indicates that the Fed can maybe change the the aggressiveness of their approach. You allude the last point to you, Eric, of this self-fulfilling prophecy, right? You talk yourself into a recession, not only from a corporate standpoint, which others, by the way, I think it was Frank Slootman of Snowflake referenced that last week when they reported, and then he spoke after, like, if you talk about it so much, then you'll put us into one. And the consumer feels like we might be in a recession, even though we're not,

because they're tired of paying what they're paying at the gas pump, at the grocery store, and seemingly everywhere else. Absolutely. I mean, you have consumer confidence has hit a historic low. CEO confidence is falling very rapidly. And when you see stock prices fall, you know, management makes decisions around cutting costs, and it all becomes a self-fulfilling proposition. So I think that the growth outlook for the economy is going to continue to get worse because there's just too many factors right now that are, you know, moving against it. And one of those is asset prices.

But it really goes beyond that in terms of consumer confidence and inventories that are surging, demand falling, and inflation still out there. And then I think that's going to translate into earnings. I think it's going to be a very weak earnings season, in particular around guidance. And we could see negative pre-announcements. We already have seen some. And we have seen some. And I think that they will continue. Because one last point is just that the supply chain actually, you know, the fact that the supply chain was where it was actually helped company margins. And so as the supply chain eases, margins will likely revert to where they were closer to 2019. And that's not what is currently in analyst estimates.

So that's more risk to the downside. I appreciate you being here. And thank you for your patience at the top, too, while we had to react to some of that news there. Thanks for having me. That's Eric Johnston of Canter joining us there. Rob, Victoria, I'll see you both soon as well. My thanks to you, too. Let's get more on Oracle's quarter now.

Christina Partsenevelos has those details. Christina? Scott, tech needed pretty much a win today. So will this report stop the bleeding? Earnings per share beat at $1.54. Non-gap revenue, $11.84 billion. What we're seeing for this latest quarter, though, Q4 revenue increasing 10%, and this is in constant currency.

What is driving this business? Cloud applications. This is an important transition for the company. Cloud applications like NetSuite and Fusion. Oracle's CEO saying that the company saw a major increase specifically in demand infrastructure cloud biz. So that was up 39% year over year. And like you mentioned, Scott, just maybe about a few minutes ago, it's important to talk about the cloud given the increase in newer providers like Snowflake, MongoDB, Databricks. MongoDB just posted their

latest earnings and they saw sales climb 57% year over year. So clearly, these are competitors that are entering the space. Oracle still coming out strong, and we don't have the guidance, because I know you mentioned that, but it's not in the report. It might be in the earnings call, which is coming up at 5 p.m. Eastern time. Quick note, too, operating margins were down ever so slightly for this latest quarter, year over year. All right. I appreciate it, Christina. Thank you. That's Christina Parsonevelos with the latest on Oracle. In today's halftime overtime, the crypto crashes. Bitcoin sinks to its lowest level since December of 2020. The ripple effect's being felt across the entire crypto ecosystem. Let's bring in Requisite Capital Management's Bryn Talkington.

It's good to see you, Bryn, and you do have exposure throughout this space. Coinbase, Grayscale, Grayscale Ethereum Trust, PayPal, if you want to put that in the basket, too. What are you feeling right now about crypto? Well, it's not a great feeling today or really all year. But to start with Coinbase, I think it's really important. You know, the two reasons that we really bought into Coinbase, number one is Brian Armstrong. But number two is, number two is Coinbase is a publicly traded stock regulated by the SEC. So you get that exposure to crypto,

but with the rigor of not only the public markets and the SEC. I think what's happening now is you have a real crisis in confidence that's really about the plumbing of some of these companies. And as we've talked about, really, this started earlier last month with Terra Luna and that just like incredible obliteration of $60

billion over three days. And I think that as some of these other exchanges have halted temporarily, people just have a lack of confidence in that plumbing. That is the first thing that needs to come back, that people know they have that confidence. And so, you know, I'm really hopeful that the Loomis-Gillibrand bill that they proposed actually continues to get steam. We'll clearly have iterations. Because I know when you talk to the Brian Armstrongs of the world, the people at Grayscale, everybody wants smart regulation. And you just have nothing right now. And so in times like this, where there's a huge risk off in tech in general, and then on top of this, you have these

plumbing issues. I think it's like a lack of confidence where you're continuing to see, you know, this sell off and this downward pressure across blockchain and crypto. What do you do with Coinbase here? I'm looking at it down nearly 12 percent today. It's downright awful to look at if you're a holder of it. So you are. What do you do? Yeah, we're holding it, you know, so we haven't added to the position yet. I really wanted to see after the Terra Luna, you know, blow up. I really think that was a big black eye. I wanted to see the market settle out. And you just really still haven't seen that settling of the plumbing.

So we're going to wait for that because clearly Coinbase will be a derivative of how crypto trades. But I will say, as these other exchanges that are not publicly traded, as people feel less confidence with those, over time, people are going to continue to gravitate to Coinbase because they do have that rigor of the SEC and it's a publicly traded company. So I think long term Coinbase gets stronger from all of this. But in the short term, it's painful. And it's like it's a $50 stock that's gotten cut by like two thirds in under six months. I mean, Bitcoin in general, as I look at it here at, you know, 23, 23, five. Do you have in your mind a level that you think it could trade down to? You must be thinking of and maybe fearing is the better word of where you think it can go as this reset happens across certainly the most speculative assets in the market.

Yeah, well, I mean, if you're an investor in any risky asset, hope and fear can't be part of your investment thesis. I think you have to be more pragmatic and stoic. Technically, the first thing I'm looking at is that 21,000. And, you know, if it's true that MicroStrategy will have a margin call at 21,000, that's clearly something that you have to take into account for if that would happen. But second, I think 19,000 has some good support. Underneath that, it's closer to 16,000. So I think a lot depends on if we get there. But you have to size this right. And that's where investors, I think, who have been way over allocated to crypto have really

had a big rude awakening, kind of like how 20 years ago people over allocated to the internet. And as that came down, once again, the internet didn't go away. But sure, those prices came down 80 or 90%. It feels very reminiscent of that, that it's going to be for tough days. But ultimately, the technology is nascent, it's growing. And I think you have, you know, big investors like Abby Johnson from Fidelity, you know, coming out, continuing to build out their exposure there. That's really positive for the asset class long term. OK, I appreciate your time, Bryn. Thanks so much. I'll see you on the half. That's Bryn Talkington joining us today. Let's get to our Twitter

question of the day. Plays right into this conversation because we want to know how low do you think Bitcoin will go before it bottoms out? 20,000, 15, 10? Could it be below? You can head to at CNBC Overtime on Twitter, cast your vote. We'll bring you those results at the end of our show today. Coming up next, panic is never a good investment strategy. That is the message today from Schwab's Lizanne Saunders. She joins us next with how she is navigating all of this volatility. Big sell off today when Overtime returns. Welcome back to Overtime. It's time for a CNBC News update now with Shepard Smith. Hi, Shep.

Hi, Scott. Thanks from the news on CNBC. Here's what's happening. The Supreme Court making it much more difficult for migrants to challenge immigration policies in court. In an eight to one decision released today, the majority said immigrants have no right under federal law to a bail hearing. The ruling could impact thousands of migrants facing long backlogs in courts. The Ohio Governor Mike DeWine signing a bill into law today that lowers the training requirements for armed teachers and school staff. Previously, it required more than 700 hours of initial training to carry a gun on campus. Now just 24 hours with eight hours of follow-up each training year. And Yellowstone is now closed to visitors. The National Park Service closed every entrance today because of heavy flooding, rock slides and mud slides. Some roads washed out, others covered in rock and mud. And with more rain in the forecast, the Park Service says it doesn't want to run the risk of people getting stranded in there.

Tonight, analysis of the market sell-off, a recap of today's January 6th hearing, and a history-making climb of Mount Everest on the news, right after Jim Cramer, 7 Eastern, CNBC. Scott, back to you. I appreciate that, Shep. Thank you, Shepard Smith. We'll see you then. Another ugly day on Wall Street.

As you know by now, stocks plunging across the board, while Treasury yields surged, especially late in the day. Joining us now on the phone, Lizanne Saunders, Charles Schwab, Chief Investment Strategist. Good to have you with us, Lizanne. Welcome back to Overtime. And your reaction to this late day story that we could very well see 75 basis points on Wednesday? I mean, even before the late day story, there was chatter about it throughout the day, not so much on Friday in the immediate aftermath of the CPI report, but it kind of got some traction today.

If you look at various functions that show what market is expecting, as of midday today, we were sort of at 50-50 whether they would do 50 or 75. It's not the MO of the Fed in the very recent era to not telegraph something like this, but we're in very unique times. So neither decision tomorrow, 50 or 75, frankly, would surprise me. Well, what would it mean to the market, though? Let's just say, right, market's expecting 50. If it got 75, what would happen? That's a really good question. I mean, the honest answer is I don't know. I think there's probably

participants that are gunning for 75 to sort of take the medicine and get it over more quickly. But I think the surprise factor would be unsettling. So I think it depends on your perspective. Again, it does go a bit off script for the Fed to do that. And so I think it probably leans toward the more unsettling end of the spectrum. Yeah, I mean, we got a good gut punch on Friday, and it's sort of got another uppercut today. Are we going over on our back here in the market? Or what do you think this tells us this couple of days leading into a Fed meeting?

You see where rates have gone. How does it make you feel about the environment overall? So I think we have yet to head into what may be the third, let's hope final, phase of this bear market, with the first phase being a reflection of the Fed moving toward tighter monetary policy, tightening financial conditions, and that goes back to the latter part of last year. And then phase two, I think, was accurately reflecting the slowdown we've already seen in the economy with a contraction in Q1 and, you know, barely stall speed in Q2 based on estimates. I'm not sure yet we have had the phase that reflects the weakness likely to come in profits and profit margins. I also think what's important as it relates to the Fed meeting is not just what they do, 50 or 75, but obviously the commentary from Powell

and whether he continues to sort of support the idea that a recession may be what is necessary in order to break the back of this inflation problem and probably address more directly that they actively need to weaken the labor market. And I think they're going to be pressed for more specificity on that front. You and the Schwab folks obviously have decades' worth of experience in speaking directly to the individual investor. So I guess at a time where the 60-40 portfolio has kind of been turned on its head, or at least it feels like it hasn't delivered for you what you hoped it would, given the upset in the market, what does the right balance look like to you today?

What would you tell people? So I think there's obviously more specificity that can occur from an asset allocation standpoint, even for smaller individual investors than just a standard 60-40 mix. And even if you are talking about the 60-40 mix, there's strategies that can be employed both on the 60 side and equities on the 40 side, active strategies on the fixed income side, actually how you structure the fixed income portion relative to duration and laddering. So I think sometimes the analysis is a bit too simplistic when the ability to take a more sophisticated approach to asset allocation, not to mention other asset classes in the mix, commodities or real estate.

And yes, everything has gotten hurt. But I think there's a reason that active is having one of the best years in relative terms because the playing field is not as biased toward passive over active. And there's active strategies that can be employed both on the equity side and on the fixed income side. I got you. I know you made special time for us. I'm grateful for your time today, Lizanne. Thank you. My pleasure. Thanks, Scott. All right. We'll see

you soon. That's Lizanne Saunders, Charles Schwab joining us up next. Weighing the risks, one market pro just upped his odds of a recession yet again. His timeline and what's got him so worried now? He's Ed Yardeni. He joins us when Overtime comes right back. We're back in overtime with a news alert just in to J.P. Morgan now seeing a 75 basis point move by the Fed at this week's meeting. Let's bring in Ed Yardeni of Yardeni Research. All right, Ed, that seems where we're moving. You had the scoop that they're going to do 75 or at least it was, you know, probable or whatever words you want to use. Now you have Barclays, you have Jeffries, now you have JP Morgan. Do you have your Denny? Yeah, absolutely. Yeah, I think they are going to do 75 basis points. I don't think they would have planted that story in The Wall Street Journal unless they intended to do it. And I think that Powell on Wednesday, when he does his press conference, will indicate that there'll be another one coming at the July meeting and maybe another one at the September meeting.

I think it's time for Powell to have his Volcker moment to show that he really is concerned about inflation. And at this point, I think the markets will actually be disappointed if it's only 50 basis points. Well, when you say another one coming in July and another one coming in September, what is one? Is that 75? 75, yeah. I think it'll be three consecutive increases of 75 basis points. You do? Yeah, I do.

I think the Fed just has to get going with it. Look, it's not as though credit conditions haven't already tightened, but the Fed has to follow up and kind of lock it all in and deliver what the markets have been expecting. And I think that's where we're getting all this downside movement in the stock market. Well, we we teased into you today saying that you brought your odds of a recession up. If you think if you think we're going 75 on Wednesday and then 75 in July and 75 in September, what are your odds? One hundred percent. Well, no, that's why I think we are increasing the odds of a recession. The consumer, by the way, is still hanging in there.

They have about a trillion dollars of excess savings from all those checks that were handed out over the past two years. It looks like they're really dipping into those checks and that'll probably keep them going for another six to 12 months. As Jamie Diamond of JP Morgan recently said. So I think that, you know, we clearly are in a bear market as of today. We've been actually in a bear market with the benefit of hindsight since January 3rd, given today's drop of over 20% since then. And I think the outlook is increasing for the risk of a recession. But I'm not at 100 percent. I'm at 45 percent. Ask me again next week. Let's see how these next batch of economic indicators play out. But seriously, I think that there's some of this recession

concerns is being somewhat overstated. But I can't ignore the fact that we may very well talk ourselves into a recession, as you said, Scott. What about in the here and now, Ed? How low do you think this move in the market is going to go? I really don't know. I mean, it's kind of like trying to catch a falling knife here, clearly, but I think it probably has lower to go. I kind of look to see where we were right before the pandemic, and we were around 33, 3400 back then. I guess it's conceivable we go that far back, but that I think would be mostly a valuation issue. I think the, we've, as I've said before, I think we've got a problem with earnings valuation. The P.E. has been too high and now it's kind of going it's probably going to go too low for

for a time here. Does it matter? I mean, what's the determinant factor? Is it where yields go? Because I mean, yeah, the move in yields was absolutely astounding. I still almost have to do a double take when I look at the two-year up 11%. Now, the 10-year was up higher. It's only up 7% now, but you get my idea. Yeah, absolutely. And the yield curve spread between the 10 and the two-year has gone back down again, raising the concerns that the yield curve is forecasting and things are slowing very, very quickly here.

So I think you're right on your focus on yields and interest rates. My thinking there is that this will all come to an end when it's clear that inflation has peaked and that the Fed has done a tightening. And so I think three rate hikes of 75 basis points consecutive up ahead here would do the trick. And I think we are going to see some moderation in the inflation rates. The economy is slowing in some areas, particularly in consumption of durable goods. And that's where we had some of our worst inflation. I mean, we could have another inversion in the 210 spread before I say goodbye to you. It's gotten that flat there. I mean, the two years at 335, the 10 years at 337.

And it continues to move as we speak. Not that it is right every single time, but you've never had a recession without an inversion. Well, the yield curve is one of the components of the 10 components of the index of leading economic indicators. And by the way, so is that consumer sentiment number that came out on Friday that was so depressed, the most depressed it's been on record going back to the early 50s. So, yeah, you're definitely seeing more and more indicators, including ones that are leading, that are showing that the economy is slowing quickly. Yeah. I always appreciate your time, Ed. Thank you so much. We'll talk to you soon. My pleasure. That's Ed Yardeni joining us there. Still ahead, we have Santoli's last word. Don't forget about

that. We'll get his expert take on today's big downturn, what it means for investors as we kick off a new trading week. We're back right after this in overtime. Betting on high yield bonds in this environment is not for the faint of heart, but that hasn't stopped the so-called mother of ETFs from doing just that. Joanna Galagos is co-founder of BondBlocks, the architect of more than 175 ETF-related products during her career. The company today ringing the closing bell here at the exchange. And it's nice to see you. Thanks for being here. Yeah, thanks for having me. All of these are fixed income ETFs, right? Yeah, BondBlocks is the only ETF issuer that

is 100% focused on fixed income. So when you talk about moves in fixed income, the move in yields today was astounding, as I've been saying. Why is now the right time when people are going the other way? They're running for the exits. Yeah, the time for BombLux is right now. We actually founded this company based on an idea from March 2020. We're very similar days where you saw markets performing the way they perform today. And our co-founders got together and says we really need to be delivering better tools for institutional investors to manage their risk through thing through markets like this. So this is the exact time for a firm like Bomb Blocks in the products that we have in market.

What about the idea itself of just the direction that yields are going right where they went to today, which was pretty astounding and where they may go now that this report is out that the Fed may go 75 on Wednesday and the language could be more hawkish than perhaps we thought just a few days ago. Yeah. So two ways to look at that. One is what we hear from investors and we've been hearing from them since we launched actually on in February of 2022. We're hearing that investors are reevaluating how they're building risk in their portfolios through fixed income. So one thing to think about is as rates are changing and as markets are shifting, you need more specific exposures to tailor the way you want to manage that going forward. The other way to look at it, obviously, is just we're looking for more granular things. So we're rapidly expanding the product set. We actually registered for an additional eight Treasury products this morning that allow you to get to specific duration targets.

So we see it as just an opportunity to be using more precise tools, and that's what we know the need is. I want to lean on your market knowledge for a moment. I said of all the products that you've launched in your career and called you the mother of ETS. High yield. How does it look to you right now? Yeah. So I think in high yield, what we're able to see is that it depends on the sector, depends on what market you're looking at.

One of the things we did is we launched sector high yield products and we launched radiance high yield products. And maybe just sticking with sector for a moment. Energy. Energy has had an incredible story in the last six months. If you're an energy firm and you have debt in high yield right now, you've done a lot of restructuring of your debt. You maybe paid off some of those loans because of the revenues that are coming in. So all of a sudden, that high yield energy sector has a very different financial health than it did before. If you look at rates today and you have concerns about covering and supporting loan debt, you know, you need more specific things for you can pivot

and what you're going to put on your portfolio now. The other thing I would say is that what investors are telling us is they do two things. They're trying to tailor their long-term exposures, but they also need something where they can take off individual components of the risk of that exposure or put it on. So for high yield, you know, again, it's the specificity that we know investors need. You guys have already filed for nine more funds, too. So you guys are busy. Thank you for being here. Yeah, thanks so much for having us. It's an exciting day for you guys ringing the bell. I appreciate your time. Thank you. That's Joanna Gallagos of BondBlocks. Up next, Santoli's last Last word. Overtime's back in two minutes. To the results of our Twitter question of the day, we asked how low will Bitcoin fall before bottoming out?

The majority of you saying 10,000. Got a few good write-ins, too, with a few of you saying it's going to zero. OK, 10,000, though, wins. Mike Santoli's here with his last word. What is your last word? I mean, a lot's happened in the last couple hours. I mean, ugly, obviously, is one way to describe it. I think that a few things to pull out of the action today. One is bonds absolutely have to calm down to even talk about stocks getting their footing. The kinds of moves you're seeing in yields and the way that the Fed

expectations are whipping around like somebody dropped the garden hose, that's how accidents happen. And that is the premise for stocks figuring out whether they've gone down far enough. Now, that being said, down 9 percent in three days, tremendously lopsided liquidation type breath. That's probably ultimately to the good. I mean, if you're still sitting there saying, gee, I'd really love to see the washout action, that's what it looks like, okay? It doesn't mean it's up from here, because I know this doesn't sound helpful, but these are conditions from which you bounce or crash, right?

I mean, crashes don't happen from all-time highs when things are rosy. I'm not saying that's going to happen, but I think there's unsettled action. Finally, it's a sell what you can type of thing, right? You saw energy down 5 percent. Staples were no help. By the way, basic materials have not acted very well and commodities, ex-oil, have rolled. So that's an interesting context going into the Fed meeting when, of course, laser focus on top line inflation. So now the conversation tilts to another inversion, like literally a few minutes ago, right. We had another one earlier today. And then this 75 basis point debate, whether the Fed has credibility left, whether it means that

they've panicked if it in fact happens, nothing's obviously in stone or they under move again. I mean, we're we're right in the thick of it. We absolutely are. There's just no way to escape the idea that growth is going to be the victim of the fight against inflation if necessary. Right. That's what's been going on for a while right now. So the market has absolutely been pricing that. I mean, just look at the consumer stocks. Best Buy has a five plus percent dividend yield right now. That only happens if you think the consumer is tapped and nobody's buying TVs for a while. So on the one hand, the market's gotten there. On the other, you know, down 22 percent from an all time high when you're trading really expensive.

You know, it's not some kind of magic level that we've reached to say we figured it all out. So I'm not too concerned about the credibility side of things because it's a fast moving situation. But it is very interesting that they had they didn't want to go into that meeting hands tied for 50 basis points. And now it's 75 or if they really want to surprise you, Mike Froehling at J.P. Morgan saying a non-zero possibility of a full percentage point just because they might want to send that message. In terms of bottoms, you know, the traditionalists, as you alluded to, would say, well, we still don't have the 40 on the VIX. Yeah.

We had all these other metrics, but we're still like 34. I'm not too fixated on 40 on the VIX as somehow a prerequisite. I'm not talking about bottoms either. I'm talking about bounces. I'm talking about reflex bounces because that's the start. And the problem is there's no FOMO on the bounces because they've been so weak and they've failed so low recently. Appreciate it, as always. You're back here tomorrow.

As am I. Fast Money is now.