Closing Bell - Closing Bell Overtime: Guggenheim’s Scott Minerd on Recession Timeline 5/18/22

Episode Date: May 18, 2022

Stocks close near session lows. Scott Minerd from Guggenheim Partners explains why a recession is more likely in 2023 than 2022. Plus, Larry Cordisco from the Osterweis Growth & Income Fund makes the bullish case for tech. And, Michael Santoli takes a closer look at the day’s sell-off in his “Last Word.”

Welcome to Overtime, everybody. I'm Scott Wapner. You just heard the bells. We, of course, right here, Post 9, just getting started. In just a little bit, I'll be joined by Halftime's Josh Brown, Trivariate's Adam Parker, on this very brutal day in the markets and what, of course, it means to your money. We do begin, though, with our talk of the tape. It is the sell-off in stocks, really set in motion by Target's terrible earnings and what they could mean for big businesses everywhere. Did that report stop the bear market bounce before it even really got started? Let's ask Scott Minard. He is the global CIO for Guggenheim Partners. He is with us today by phone in a CNBC exclusive.

Thank you so much, Scott, for being with us. My first question to you would be your initial reaction to this sell-off today. You know, Scott, I'm a little bit taken back with it because, you know, I thought we were in the midst of a bear market bounce, and we know those can be pretty vicious to the upside. But, you know, it is continuing the narrative that, you know, I believe is unfolding, which is that given the aggressive posture of the Federal Reserve, you know, we're going to be meaningfully lower this year in stocks before we find a bottom because the Fed has made it clear that they do not have a put on the stock market.

Well, they may have a put on the bond market, which hasn't given it a reason to re-engage the put, I suppose. Look, you have a new note out today, and it's the impetus for us to have you on, where you discuss a possible collision, that collision being between the cooling economy and a very aggressive Fed tightening, as you just said. Trying to avoid this collision really is the ultimate goal, can we? I don't think so. And I'll tell you why. I really believe that the Fed thinks that the neutral rate is much higher than it is. And of course, the neutral rate is the perfect nirvana short-term rate. And if you look at the research we've done, we would expect the neutral rate to be coming down pretty aggressively over the course of the summer. By the time we get to

the mid part of the year, maybe into the third quarter, you would think that the appropriate policy rate would be somewhere in the area of one and three quarter percent. You know, Scott, they've made it clear to us that we're going to be at one and three quarter percent by July. I mean, I think a 50 basis point hike has been advertised for the next two meetings. And they believe that the neutral rate is somewhere higher. So I think at that point, the Fed will be in overkill. The weakness in the economy will dominate. And we could be setting ourselves up for a season of pain here,

especially going into September and October. This sounds to me like you think the Fed at this point is more aggressive than you initially thought it might be. And I say that because I remember our last conversation, Scott, in which you painted a picture in which you have almost a two-year runway here before you go to recession. And stocks could go up in the first year of that runway until it gets real, until the Fed really steps on the gas and you have a recession come closer, and then obviously all bets are off. Has that view changed? It has, absolutely. You've got a great memory. I hand it to you. I mean, look, I'm a great believer that you have to let the data tell you what's happening. And I had the opportunity to go to the central bank conference at the Hoover Institution a week ago Friday. And it was really interesting to hear the central bankers talking about how concerned they are about inflation,

how high they think the neutral rate is, or how high they'll have to raise rates to get inflation under control. And at the same time, not reflecting any concern whatsoever for the stock market. Remember that it was just, you know, six months ago or so that the Fed was telling us that rates were going to, you know, stay close to the zero bound for a protracted period of time. The aggressive pivot on the part of the Fed at least caught me by surprise. And, you know, I think that given that they don't sense that there is a real level of panic in the market

until we get something that is threatening to financial stability, they seem quite comfortable to watch the stock market go down as long as, in their mind, it's an orderly decline. And I suppose at this point you still think that it is an orderly decline. Do you think it's going to remain such? I think, you know, look, I think in the near term it will. I mean, you see the VIX, I mean, we're, you know, at 31, we've been higher than this at other times this year. I mean, we're not really seeing wholesale panic. You know, it does, you know, there is always the event that comes out of the dark at us, you know, the exogenous shock, you know, whether that's a collapse of a major hedge fund or,

you know, maybe a crisis in the emerging markets. And that's impossible to predict. So, you know, I think the decline will be orderly. I think we'll have a grind lower, just like we did back in 2000 and 2001, where the NASDAQ lost 75% over the course of about two to three years. But I think by the time we get to the second half of the year, the Fed may wake up to the fact, or the market may wake up to the fact, that the Fed is being way too restrictive. And rather than taking, you know, what I would, my advice on policy, which is, look, let's repeat the 1940s, stop expanding the balance sheet, hold the balance sheet stable, and let the market slowly, you know, the inflation, that is, slowly burn itself out,

and the market stabilize, they've taken a much more aggressive posture. They're saying, nope, we're going to shrink the balance sheet, we're going to raise rates, and we're going to crush inflation. And that's the formula for, you know, a market accident. And I think they play this game long enough, and we will end up there. The obvious, you know, the big story today is Target and what that company not only delivered but what the ceo brian cornell said and i'm wondering whether you think that report today

scares the fed in any way or if it emboldens it and tells jay powell this is exactly why we have to be as aggressive as we are maybe more aggressive than people like scott minard thought we would be because inflation is such a scourge, what it's doing to these companies. They don't have pricing power anymore. Their margins are getting crushed, and they're going to continue to do so until we do what we need to do. I think that watching what happened with Target

is exactly the kind of thing that the Fed wants to have happen, and that is, you know, they've basically indicated they want financial conditions to tighten. You know, a company like Target, you know, feeling cost pressure, having its margins pressured, you know, this is the kind of thing you get when you tighten financial conditions. You know, what was interesting to me, Scott, in that report is the evidence that we're seeing of demand destruction. And that is that, you know, consumers are moving away from discretionary goods because, you know, things like food and gasoline are taking a bigger and bigger part of the pie of their consumable income. And, you know, as that happens, the destruction for

discretionary purchases, activities are going to come under pressure. And, you know, that's the thing that typically happens, you know, in a classic business cycle, which eventually leads to not only a slowdown, but recession. And also, you know, it may be a surprisingly precipitous decline in inflation. Interesting. As you talk about earnings, Scott, bear with me just a second. I want to just let everybody know that Cisco's earnings are out here in the overtime session, and the shares are down quite substantially on the numbers, down a little more than 11 percent. We're going to have some color on that coming up, but just to keep everybody in business here

on what exactly is happening in overtime, Cisco reports the EPS beats, revenues did miss. I don't have any color for you. Our reporters, of course, do, and will join us momentarily with the story behind the move in that stock. But, Scott Minard, back with you. From the note that you just put out a short time before you came on the air with me,

and since we're talking about the prospects of recession, you say you think we'll have one, quote, as early as the second half of next year. So you're not looking for a rapid deterioration in economic conditions to put us into recession in calendar 22? No, I don't think so, Scott. I mean, if we do have a recession in calendar 22, you know, it possibly could happen as a result of a precipitous decline in asset prices. But, you know, I do believe if that moment arrives, like the stock market crash of 87, that the Fed will aggressively pivot in order to maintain stability.

And I think that would forestall the recession. But, you know, right now what's happening is to counter the demand destruction, we're seeing consumers tapping their credit cards. You know, we're seeing equity withdrawal from homes and mortgage equity withdrawal. I mean, people are believing these price increases are temporary. And to the extent that they have liquidity, they have savings, they have a capacity to borrow money. And they have lots of savings. They have lots of capacity to take on debt. I think that that's going to keep the economy going, you know, forward. But, you know, in some ways, you can think of it as living on fumes. You can only spend savings and borrow so long before that capacity

runs out. But I do think that'll keep the expansion going this year. What I find peculiar is that even your view on financial conditions becoming tighter, the Fed becoming more aggressive, you think that rates are in the process of, if not having, topped out? That's interesting. You know, I think so, because I think that, look, one thing is, I mean, if you look at high quality corporate bonds, you look at high quality municipal debt, you know, we're seeing rates, you know, four and a half to five and a half percent. I mean, these are rates of income that people haven't seen in years. And so I think there's a natural desire to rebalance toward more income, especially in retirement accounts. And the other thing is that

the longer the Fed keeps telegraphing its aggressive stance, the more people are buying into the idea that inflation is under control. Matter of fact, in some measures, inflationary expectations for the future are beginning to fall. And you can actually see it in forward rates where after 2023, we start to see forward rates telling us that short-term rates will fall. So I believe that the market is smart enough to realize that the Fed is choking off the expansion, that we've never had a recession, or we've never had inflation fall by more than two percentage points without having a recession

ever since the 1930s. So if the Fed's going to bring CPI down from 8.4% to something closer to 2 or 3, they're going to eventually induce a recession. And I think the market's smart enough to see that. And they realize that with the reshaping of the yield curve, the flattening, and I think ultimately the inversion that we will see that the Fed is in overkill. Is it a mere coincidence that this note comes out today, Scott, and we're having this conversation as we are 24 hours after the Fed chair himself made what are very hawkish comments to The Wall Street Journal yesterday, about as hawkish as you could ever hear a Fed chair be. Well, I got to tell you, Scott, you know, I don't believe in coincidence, but it wasn't planned this way. The research that you see in the note, I mean, that took us, you know, a while to compile.

It really had to do with a question I brought up to my research staff, which is, you know, everybody's looking at these year over year numbers, but what's happening with the rate of change or what in calculus we would call the second derivative. And that is the instantaneous rate of change. And something that's not in the note, but here's an interesting fact. You know, on a year over year basis, M2, the broad definition of money, has grown by 6%. But over the last three months, M2 is down by 3%. So the rate of quick, rapid tightening that's occurring is not so evident when you just look at the economic and financial statistics on the face of it. And that was the point that I brought up, and that's what resulted in this piece,

which shows that at the rate we're moving right now, we're going to get into restrictive policy much faster than we think, and much faster, candidly, I think, than what Chairman Powell thinks. Before I let you go, Square and PayPal, which you've said you own personally with me before, and you said it with Sarah, too, I believe, the last time you were on. Given your view, have you sold out of those positions, Scott? No, no. You know, one thing, Scott, I always tell people, you fundamentally have to think, you know,

are you a trader or are you an investor? You know, given my view on behavioral finance and, you know, are you a trader or are you an investor? You know, given my view on behavioral finance and, you know, you should be investing for a horizon of like five years. You know, I believe in those stories as much today as I did then, and I haven't seen any real fundamental news that would change my opinion. I can't thank you enough for sharing your views today with us and our viewers, Scott. We'll talk to you again soon. Great to talk to you, Scott. Thank you. All right. You as well. That's Guggenheim. Scott Minard joining us there exclusively here after what was a very, very painful day in the stock market today. Let's get to our Twitter question of the day. And it's a simple one. We're asking

you, will stocks make a new low in the next two months? You can head to at CNBC overtime, cast your vote. We will do what we always do. We'll bring you those results later on in the show. I mentioned to you Cisco's numbers were out, and the number that matters most to many of you is the stock price, which was decreasing as we were talking. Frank Holland has the details for us. Frank, what do you see for us? Hey, Scott. Cisco shares still kind of in free fall right now, down about 14 percent, miss on the top line, beat on the bottom line, but just by a penny. CEO Chuck Robbins saying in the release, COVID lockdowns in China and the war in Ukraine impacted earnings. They say they lost about 1% of revenues from Russia when they decided to stop sales there. Looking a little bit more closely at the number, European sales down by 6%,

Asian sales down by 6% as well year over year. But the really real, the big story here is very weak guidance. Cisco guiding 1% to 5% revenue decline for Q4. The street wanted more than 5% growth in the quarter, gross margin in line. A couple other highlights. Chuck Robbins really emphasizes that there's a lot of growth in the business, but you have to look at this guidance for the next quarter. Again, revenue guidance for a one to 5% decline on revenue for Q4 compared to the street, looking for more than 5% growth. You can see right now the stock continues to fall down more than 14%. And tomorrow, CEO Chuck Robbins will be on Squawk on the Street to talk much more about this print. You got to remember, Cisco and its networking systems have about a third of the global market.

A lot to talk about and what this means for IT spending globally. Again, Chuck Robbins on Squawk on the Street tomorrow. Back over to you, Chuck. Yeah. All right, Frank, I appreciate that. We'll look forward very much to that interview. That's Frank Holland with the latest there. We're just getting started right here in overtime. Up next, we have much more on today's sell-off.

The Dow falling more than 1,100 points. So where can you find safety? Josh Brown, Adam Parker standing by with some protection plays coming up. And later, we are finding opportunity in this pullback, at least trying to. One big money manager makes the case for one of the beaten up tech names. Stay with us. Overtime is back in two minutes. We are back in the OT. Another brutally tough day for stocks, as you know by now. Does it mean that short-lived rally is the end of the bounce?

Let's ask Trivariates, Adam Parker, Halftime's Josh Brown, both with us. It's good to have you both with us. I'll ask you first, Adam, because you're sitting right here. They need to put your picture, by the way, outside and not let you in, because every time you show up, the market has tanked. You and I are not good chemistry on the market lately. Don't rope me into it.

It's only when I'm here. When I stay away from you, the market was ripping. Let me ask you this. What's your first take on this day, which Jim Cramer says, quote, this has to be one of the worst days I can recall in years. And I've been around the block. That's what he tweeted just before three o'clock. Yeah, I think what you hit on is correct, that I think the Walmart news yesterday, the Target news today, those you're looking at 600 billion in combined revenues. So these companies are a proxy for behaviors that translate to other companies. And I think that, in my opinion, was the catalyst for the big leg down today. But, I mean, Minard, as you just heard, right, he has changed his view.

He certainly is more bearish than he was. Are you? Because you've been one of those who have been hanging on to a bullish leg. Yeah, no, look, I thought short-term we'd have a bit of a bear you know bear market rally but you know honestly um i just don't see the logic that the fed creates a recession but then doesn't have to cut rates when there's a recession so if i've been taking the tech that there's as you know they're smart guys they get good information and uh ladies and And, yeah, guys was a, you know. I understand.

Both. And, you know, smart people, great access to information, well-educated. But, you know, if they end up cutting rates in the second half of 2023 because they caused too steep a recession, I retract all those positive comments that I made and just conclude they're just so unaware of how things work that they're academics. In other words, like, if they were going to cause such a severe recession that they then have to cut rates because they've caused too steep a recession, I will lose all respect for what they've done. And I think they're causing, I continue to believe they will not raise rates

at the rate they're currently indicating. But what they do then doesn't really have anything to do with what they do now, and the market is anticipating what may happen because what they are doing now. That's what matters most. Sure, and I think the market's certainly anticipatory right i mean we're nasdaq's down 30 means that some of the individual names down 50 60 70 not that the starting point was was was cheap but i think clearly the market's anticipatory of earnings decline i can tell you what i've been what i've been working on before you let josh you know go ahead he's more articulate so you gotta give me a quick shot is you know, what clients have been asking me is, which of the cyclicals are so

beaten down that even a 30 or 40 percent earnings decline might be in the price? Because you're looking at home builders at four times earnings, where trends are pretty good, or metals, or energy, some of these things are still super cheap. As you know, a week or two ago, I started thinking semiconductors were a pretty good risk reward. So I think there's things to buy in cyclicals that they're so cheap that even with a 30, 40 percent earnings decline, there's still a discount to the S&P. So I think some names look good. And the other side, on the growth side, I still think it's too early to go in those names just because there's not enough that have positive free cash flow and margin expansion. I may take a little issue with your home builder trends being, quote-unquote,

still pretty good, but that's neither here nor there because I want to get... No, I mean the earnings estimates, even if they come in half, you get, you know, companies at two, three, four times earnings in a market that's at 17, 18. So if they're at eight or nine times normalize, does that seem reasonable? That's what I mean. I think it's still okay. Yeah. Downtown. How do you see it after an ugly day today? I really haven't changed my view. I feel like there's a lot of pontification going on amongst economists and people trying to make sense of what does the Fed think, what does the consumer think. The shortcut to all of that is price action. Only price pays. indicators and try to deconstruct a speech given by a Fed governor and, you know, maybe slaughter

a goat and study the entrails. But in the end, prices is truth. Doesn't mean it's right, but it's truth. It's where we are. And I think if you had a risk management situation in place, regardless of what it was, that risk management situation has triggered long before we got to today so i know there are people who do this very successfully with options that's not me but i know it works there are people who do this very well with technicals and etfs that's what we do um but you're you're not gonna if you have any kind of uh tactical asset allocation or any kind of risk management in place, you didn't stumble in today like, oh, my God, what happened to Costco?

You understood that conditions had changed almost a 180 from what we were talking about last summer. So if that's where you are now, then the real question is, OK, great. I got half the equation right. I took some risk off. Phenomenal. Now what? When is the big buying opportunity? When is the moment where I get rewarded for having done that? I don't think we're there yet. I really don't. I still think there's a ton of complacency. I know there's a lot of fear about stagflation, et cetera, but I don't think people have actually taken steps in their portfolios. I think they're just talking. They're not doing. Today is the first day where I would have said, OK, you're waiting on capitulation. This is the foothills of capitulation. We're almost there. This is what it looks like when people really

just say, you know what? I don't care what stocks I own. Just sell some of them. We're coming close. But unfortunately, it's early enough in the process that I still think there's more to go. I mean, there have been a lot of stocks, to use your analogy, that have come rolling down the mountain pretty hard. I mean, Santoli had what I thought was a pretty interesting tweet earlier, digging to look for a pony, fewer than 300 NASDAQ new 52-week lows. There were 1,375 a week ago with the NASDAQ composite at roughly the same level. You know, in other words, I mean, that shows you there's been so much damage done. Does that give you any sort of feel that we could be closer to the end of the worst. The problem is that the entire way down, starting in January, there have been superlatives like that, or should I say anti-superlatives like that, where we've cited these huge declines in confidence

and Bolbert survey and number of stocks below their 50. Right, but you said price matters. So at some point, prices get depressed and crushed enough. Maybe they're not there yet. Of course, that's a cogent view. But maybe we're getting closer when I read you something like that. One of the things, Judge, one of the things that I think is going to come out of this that's a good thing is that at a certain point, you get what's called a negative wealth shock. And I'm in the camp that the stock market and home prices are like the only things that matter. And they determine what consumer spending is going to be. I don't think

people spend more or spend less based on anything other than how wealthy they feel at the margin. So like 70 or 80 percent of the economy is just people buying, you know, the ingredients they need to put their kids lunchbox together and get them on the bus and then driving to work. Like that's the the main part of the economy at the margin, though. What makes somebody buy a boat? What makes somebody buy a second home? What makes somebody hire a personal trainer? What makes somebody trade up from a barbershop to a hairdresser? It's their stock portfolio and it's the value of their home if they own one. And unfortunately, both of those two things remained elevated for a really long time and put us in a position where the supply issues that have nothing to do with Powell, the supply issues that Powell can't affect

were exacerbated by excess demand. You need the stock market to do this. You need home prices to follow suit and come down in order to take the demand problem off of the existing supply problem and create this moment where people calm down. That process is not a week. It's not two weeks. It takes months and months and months. I hear you. I appreciate your view. And it goes back to, you know, the Josh several months ago made the point that the Fed, in fact, is your friend, even though you don't think it is,

because it's going to do exactly what he just described that it's going to do. And it's going to crush the craziness and bring everything back to some sort of equilibrium. You said he was articulate. The tape don't lie. Yeah. What do you got left? Because I got to go. The last point. No, I generally agree with his view. I mean, look, what I do for a living is do a lot of outsourced risk management for hedge funds and asset managers. So I spent a lot of time thinking about risks. And I think, you know, if you had a bet on that you were going to buy growth stocks and short, you know, stuff that's anticorrelated, you just got crushed. And that would be a silly bet to be making.

So I agree with him on the risk front. This was all well signaled. I think in terms of what was incremental, it's just the magnitude that you're seeing from big consumer companies that I think caused a little real fear today. I promise you the next time we have a big update, I'm going to call you up and I'm going to make you feel better. I can't wait to see you then. Adam Parker, Trivariate. Josh Brown, I know I'll see you soon as well. See you, Josh. For certain. It's time for a CNBC News Update now with Shepard Smith. Hey, Shep. Hey, Scott. From the news on CNBC, here's what's happening. The American flag flying once again atop the U.S. embassy in

Kiev. The Secretary of State Antony Blinken announcing today that the embassy is officially resuming operations in the Ukrainian capital. It closed three months ago as the Russian invasion began. One of the former Minneapolis cops charged with murder in the George Floyd case, pleading guilty today to second degree manslaughter. Thomas Lane is his name, originally charged with aiding and abetting second degree murder. With this new plea, the original one will be dismissed. Lane already has been convicted in federal court of violating George Floyd's civil rights. And a historic deal for equal pay in sports. U.S. soccer striking a new deal with national teams

that guarantees men and women players in soccer are paid the same. World Cup prize money will be pooled and then equally split. Tonight, the latest on today's incredible market sell-off, a guilty plea in the first war crimes trial in Ukraine, and Jay Leno takes us along for a ride in Ford's new F-150 Lightning on the news right after Jim Cramer, 7 Eastern, CNBC. Scott, back to you. All right, Shep, I appreciate it. Thank you. That's Shepard Smith. Up next, we're trading the tech rack. Microsoft plunging more than four and a half percent today. That doesn't happen very often. So our next guest has it as his biggest holding. So we'll find out how he's navigating that pull

back. And later, we are charting the sell off. One top technician who works with Tom Lee lays out the next key level you need to watch following the drop. Overtime's back right after this. Welcome back. Big tech slam today with the Nasdaq falling more than 4 percent. It's worst day since that massive sell-off earlier this month. Microsoft among the mega cap meltdown. Our Steve Kovach with a closer look at a stock that has fallen dramatically in recent weeks. Steve. Yeah, Scott. And it was another brutal day for Microsoft

down over four percent and off 24 percent for the year. Last fall, Microsoft was well on its way to a three trillion dollar market cap. And now it's under two trillion dollars. And just this week, the company announced raises for many employees, which is seen as both a remedy for inflation and a way to keep employees happy as these shares get decimated. Still, analysts see Microsoft as easily holding firm in any sort of upcoming recession. They overwhelmingly have a buy rating on the stock with an average price target of $363. And cloud is still the key component investors have been watching. And even though cloud growth is flat, it's still growing by double-digit percentage points, and that's going to continue for the foreseeable future, and we'll soon see Microsoft's pricing power, rather, at play

when prices go up for office customers this summer. And despite fears companies will cut back on spending, CEO Satya Nadella remains optimistic Microsoft stands to benefit, saying on last month's earnings call, companies aren't cutting IT budgets. But gaming is the real area to look at. While Microsoft may have said its historic Activision purchase is a metaverse play, it's really about getting a growing gaming company at a discount. This is going to be Microsoft's biggest acquisition ever and a sign Nadella and company want to dominate in a world where about half the population plays video games. Scott. All right, Steve, I appreciate that.

Steve Kovac, let's bring in Larry Cordisco now, the co-lead portfolio manager of the Osterweiss Growth and Income Fund. Microsoft, the top holding within that fund. Larry, it's good to see you. What do you make of what's happened to these names, especially Microsoft, which, as we said, is your largest holding? Yeah, it's actually our second largest. Google's our largest, but, boy, they're pretty close. So you're in the ballpark there, Scott. Pain all the way around, Larry, sorry to say.

Yeah, they're pretty much acting the same these days. Yeah, the thing, obviously, Microsoft started off in all the tech names. They started off with a lot of multiple compression. The stagflation story throughout the economy with rising rates. And we would also argue, you know, driven both by interest rates and risk premiums going up. It's been a real headwind to the sector. And frankly, you can retrospect those names probably got ahead of themselves from a stock price perspective anyways. But the thing we really emphasize and we think about why these are such big holdings for

us is the business durability, both on the revenue side and on the earning side. And what we're seeing in the market today, and Target's a really good example, there are names out there that just don't have as much business durability to them. You can't bank on the earnings quite as much. As great a company as Target is. So this is why Microsoft's a core position for us. As your segment just touched on, the cloud is going to continue to grow at a great rate. They have pricing increases coming. And this is the big point. When you think about these cloud providers, you have to just do the math that they will continue to grow at 20 or 30% for a sustainable period of time. In our view, up to 10 years. And cloud is still only 20% of data center computing. So you're talking about

these businesses that over 10 years could be 10 times larger than they are today. That is a really big factor that investors need to think about when they're selling these stocks. You know, my friend Joe Terranova, you may know from the Halftime Report, sent me a really interesting story that I think plays into this conversation well. And I want your take on it. It's about the $10 billion MTUM momentum ETF that is facing its semi-annual rebalance. And a stock like Microsoft, for example, is one of those cited in this story that's coming out. And value names and energy names are going in. And it just makes me wonder what the run on effect of that is for stocks like Microsoft, Alphabet and some of those other what have been momentum names are shunned from large ETFs and what the impact is. Can you can you think about that at all? Well, we do think I mean, I haven't thought about this momentum ETF so much, but one thing we do think about a lot, and it is a risk with these names, is the weighting they have in the S&P 500 and any

number of passive ETFs. And then this is a good example of a rebalancing and a very sizable ETF that has a specific purpose being momentum-based. Part of me wonders if this is a contrarian signal. I would love to go back and know when these names were added to this ETF. So that's one thing that sort of pops in my mind thinking about this. But if you're an active investor, you look at these opportunities or you look at these changes as opportunities. It does appear that we're in some sort of liquidation cycle, whether it's hedge funds degrossing, or it's retail investors selling their S&P 500 ETF from Vanguard or whatever the vehicle is, there's clearly systematic selling all across the board. There's nowhere to hide in this market.

And so you sit there and say to yourself, well, if I'm an investor and I have a three to five to 10 year horizon for the things I want to own, you know, is, are these dislocations giving me opportunities or, or, you know, is there something I should be really afraid of? Frankly, it is scary, but you have to stay clear headed. You have to think about the long game here. And so when I hear this story about this momentum ETF, you know, moving out of, you know, selling out of Microsoft, I think to myself, you know, maybe we're getting closer to the bottom on this, on the tech wreck, you know, than not. That's the first thought that comes to my mind. It's a fair point to raise. And by the way, we have, it's good to talk to you, Larry, and I know we'll talk to you again soon. I appreciate you being here on a painful day, certainly for you and many other investors who have big holdings in these stocks. I should also let you know that Chris Harvey of Wells Fargo wrote a report about that very story, about the MTUM rebalance. Some of you may be invested in that.

He's coming up, so I'll get to ask him directly, which is great news. All right, still ahead. Then key levels to watch. One top technician is chart ask him directly, which is great news. All right. Still ahead. Then key levels to watch. One top technician is charting where stocks could be heading from here. And Cisco shares plunging in over time after reporting very weak guidance in its earnings report at the top of the hour. That is not the only stock moving in the OT. Christina Partsenevelos is always tracking those for us. Hi, Christina. Yeah. well, based on the latest set of earnings results, pinch consumers might be spending a little less on fancy candles and bath products,

but we're not willing to give up the gaming me time. And the CEO of a big retailer is out. I'll have all of those trends and updates right after this break. We're back in the OT. Let's get right to Christina Parts of Novelos, who's tracking some big action for us. Hi, Christina. I want to start with some breaking news right now on Under Armour and news of this executive shakeup at the retailer.

Under Armour CEO Patrick Frisk stepping down effective June 1st. Colin Brown appointed interim president and CEO. We're going to be hearing from Under Armour founder Kevin Plank tomorrow at 3 p.m. on CNBC. The stock dropping over 2 percent now in the OT. Switching gears, shares of software maker Synopsys surging almost, let's see it, 4 percent after posting a Q2 earnings sales beat with strength across all product groups and geographies. The company is so confident they are saying that they're going to raise their full year targets, quote, substantially, helped by stronger semiconductor and electronics demand. They expect to grow annual revenue 20 percent to pass the five billion dollar mark.

And then known for their soaps and candles, that's what I promote in that tease before the break. Retailer Bath and Body Works shares are actually plunging almost four and a half percent right now. Even though there wasn't earnings and revenues beat, there are concerns about the second quarter. The company sees Q2 earnings per share between 60 and 65 cents versus 67 cents. That's the street estimate. And the full year guidance came in a little light, which is why we are seeing this sell off, maybe less me bath time with candles, et cetera. All right. Christina, thank you. Bye. Just a little bit. Christina Partsinello, thank you very much. All right. Up next, sounding the alarm. One technician says we just broke a key level for this critical part of the market. We'll find out what it is, what he says about what it means on where stocks might be heading next as a result. And later, Mike Santoli back with his last word, what he sees coming our way at tomorrow's open overtime.

Right back. It was broad damage in the markets today. All 11 S&P sectors were lower. Take a look at the Dow Transport's index. That economic bellwether down nearly 7 percent, hitting its lowest levels of the year. Good for its worst day since June of 2020. Our next guest focused on that, calls it a big technical breakdown. With us now is the Fundstrat head of technical analysis, Mark Newton. It's good to see you right here at Post 9. That's what you're keying in on today

in what was a pretty painful day? That really is one of the top technical developments, at least for today. When you see an average like the Dow Jones transports, as you discussed, as a bellwether, which has been forming a large consolidation pattern for the last year and now has broken those levels down to the lowest levels since 2020, it generally is a pretty negative development for the market overall. What is your overall view now? And I always try and sort of match this up with, you know, Tom Lee, whom you work with.

Right. And how somebody can be so seemingly bullish when the technicals may tell a different story. Well, let's start there first. I think, look, Tom and I both approach the market with very different methodologies and also different time frames. And so I tend to be much more technically oriented. Tom is looking much more long term. So it's fine that we don't necessarily always agree on a day by day basis. It's really looking at the fact that Tom and I both thought the first half of the year could be under pressure. Treacherous was the word he used, right? Rebounds in the second half of the year. So I stand by that.

I think that we're likely in the eighth inning of this decline. Sentiment, which has been bearish, is starting to get more fearful. I think that's an important step the eighth inning of this decline. Sentiment, which has been bearish, is starting to get more fearful. I think that's an important step of the process. We started out with a few key sectors rolling over. Now we're seeing the generals of technology, Microsoft and Apple, hitting multi-month lows. And now, of course, the transports and energy are showing evidence of finally rolling over. The advanced decline at one point today was almost nine to one down. That's a big move.

And so we're finally seeing some evidence of a little bit of fear creeping into this market. But look, everybody's trying to pick the bottom. And that's the problem. Investors have been really grappling with a market where technology has been wildly out of favor for some time. And we've all gotten to love technology for years and years of outperformance. Right. And now that's ended. I got to, and real quick, Vick's only at 31. I mean, does that tell you eighth inning? Well, look, it's been an orderly decline. It sounds crazy, but we had a nice three-day bounce earlier this week. We saw a bounce in April.

So it hasn't been a panic free-fall decline. I think the Vicks probably needs to get up to 40 before we truly are out of the woods, so to speak. We want to see that capitulation, and we don't seem to be there. I think we're getting close. That seems to be the number of the hour. All right, Mark, I appreciate it. That's Mark Newnan again.

He's the technician with Fundstrat. Up next, a turning point for growth. Wells Fargo's Chris Harvey is out with a big call for your money. Why he thinks it's time to get more positive on one beaten down part of this market. He'll join us next. And coming up on Fast Money, oil and energy not immune to today's sell-off. But is there some relief in sight for the pain at the pump? Overtime back after this. High growth, higher valuation stocks have gotten crushed this year during the sell-off. Our next guest, though, says the bearish thesis is now played out and it is time to get

more positive. Chris Harvey is the head of equity strategy at Wells Fargo. It's good to see you. What an interesting time to put out a note, given that the Nasdaq's gotten beaten up so bad. Why is now the time? He can't hear me. I'm told Chris Harvey can't hear me. Now he's good. Can you hear me, Chris? Yes, I can. Scott, I can hear you now. Things change fast in live television. As I was saying, now is a peculiar time to suggest that the worst is over for high growth. Why is it? Yeah, Scott, it's not so much the worst is over, but we just don't think the risk awards all that great. And we think we're smart. But with with this portfolio down 45 percent, we're not sure how much more we're going to get in the short term. And so a lot of times and we remember 00 and, where you got some fees ripping, short covering, and we just wanted to step out of the way.

Today was probably not the best day. We probably should have waited today. But down 45%, a lot of that good news, a lot of that impairment is already priced into the stock. Well, I mean, it's good to at least be able to acknowledge and for the viewers to see in real time. It's hard to time the market. It's hard to make a call. I mean, you make a call based on conviction, not timing. No, that's absolutely right.

And when it comes to the market, and I think you hit the nail on the head, what we're telling clients is don't time the market. Don't try and call the bottom for the market. Start looking at stocks. Invest in stocks, not the stock market. We're beginning to see a lot of value being uncovered. We didn't believe that at the beginning of the year. We thought you'd get a 10% correction. We got that and more. But there's a lot of indiscriminate selling.

We're going back, or we think we're going back, into a growth market. And we're starting to see some growth opportunities pop up at reasonable prices. So I referenced earlier this story that's going around now about the rebalance of the MTUM ETF. It's the semi-annual rebalance in which you just coincidentally happened to write a report about, which was mentioned in this story. You suggest as much as 75 percent of this ETF could be turned over. There seems to be, you know, it's a switch into value and energy and out of tech and financials. I'm wondering if what we saw in the market is in any way, do you think, some front running by Wall Street trying to get ahead of that rebalance,

or if that portends that we could see some more selling from those growth names like a Microsoft and some of the others like JP Morgan, which this specifically says are coming out and names like J&J, AbbVie and Exxon, for example, are going in. Yeah, Scott, there's a couple of things there. What we've seen over time is that things that are getting taken out do underperform in the 30 days heading into that. And so maybe tech is a little bit heavy because of that. But I think there's a lot of other reasons why tech is heavy. The more important thing, the thing that we kind of focused on, is last year there was a bit of a winner's curse.

Last year, banks went in, and we thought that was going to be a positive, but what happened was banks did it outperform by about 24% going into the rebalance and then underperformed about 13% after. And what's going in right now, we're going to see a lot more defensives go in. And funny enough, not so great news out of Target and Walmart recently. Yeah. So maybe that winner's curse does stick. Yeah, I don't know, right?

The staples of those food stocks, well, they got hammered today. Chris, I appreciate it very much. That's Chris Harvey. Thank you. From Wells Fargo joining us there. To the results of our Twitter question, we did ask you at the top of the show, are stocks going to make a new low in the next couple of months? Nearly 84% of you. From Wells Fargo joining us there. To the results of our Twitter question, we did ask you at the top of the show, are stocks going to make a new low in the next couple of months? Nearly 84 percent of you. Wow. Eighty four said yes. Only 17 said no. You heard,

you know, a bearish turn, if you will, at the top of our show from Scott Minard as well of Guggenheim. We'll see. Mike Santoli is here for his last word. Sentiments bad. Well, it is. And that's been the premise for a while. So I would say that's actually not irrational to say if you go down 2 percent from here, you're at a new low. The odds are going down 2 percent versus anything else. It does sound as though it's it's just becomes more negative by nature. But it does color things. And I mean, you can look at any sentiment measure in terms of surveys and even some of the stuff in terms of asset allocation, positioning, equity exposures. Yes, that part of it is done.

I do think it helps to widen the frame out a little bit. And there's a way of getting outside of today's action and saying what has occurred. Well, today, kind of in the S&P, closed the gap that was opened by that pop on Friday. Right. You got back to this level. There's not been a lot fresh going on except new quadrants of the market were hunted down and kind of got blasted. Right. That would be consumer staples today. So you're continuing to like create this nowhere to hide type of situation down 18 and a half percent. We're still in this zone. People thought we'd kind of get to minus 20. It's not that much of a departure from what we've expected. I will say the three year trailing return in the S&P right now after this drop is over 14 percent total return annualized. Right. When we bottomed in late 2018, we bottomed early 2016. The three year trailing return was more like eight, nine percent a year. So my point is, is often a lot of a give back, even though we're where we were 14 months ago in terms of the

absolute levels. You heard what Minard said, and to me it echoed what you have been saying and even said again today of this extraordinarily narrow path for the Fed to pull this off. And I think those are the words you did use earlier today. That's been, to me, the animating story for the year, which is, yes, we can all see how this could work out for us. A lot of people wanted to cling to the 1994 example of when the Fed perfectly executed this soft landing before we even had a word for it, by the way. That was when we came to the term. But inflation was a lot lower than valuation started at a lower point. It was more of a Fed anticipating a problem and not responding to it. So I do think that's an issue. I still think none of the numbers today told me recession is near.

Right. You're not talking about the top line of consumer spending. You're talking about retailers struggling to try and sort it out. Cornell himself, the CEO of Target, told you that the consumer is still very strong. Yeah. And they may not be the first to see it. And, you know, housing, it's going to have some bumps. But I do still think it's much more about what do we pay for stocks with the Fed resolute and tightening and, you know, with essentially slowing earnings growth at best. Working to the end, obviously, of the show. What do you make of what Mark Newton said? Eighth inning?

Yeah, it sounds. I mean, VIX, again, everybody says VIX 40 is the magic number. Yeah. Not an exact science, obviously. No, of course not. And I actually see that quite a bit, where it's your lot. Most of the way there, if you absolutely need the panicky flush, you don't always get it. A lot of times it's apathy that marks a low. But usually that's after it's been months and months, not just four months straight down like we've had. I mean, we've had, you know, a lot of pain. And maybe today was one of those days you look back on and say, well, okay, that was it. Target was the thing that needed to give you that flush.

We shall see. I appreciate it as always. That's Mike Santoli's last word. I'll see you tomorrow.