Closing Bell - Closing Bell Overtime: Gut Check on the Recent Rally 11/16/22

Episode Date: November 16, 2022

Is the environment for stocks getting better or worse? Have stocks rallied too much for comfort? Ritholtz Wealth Management’s Josh Brown weighs in. Plus, top-ranked chip analyst Stacy Rasgon gives his instant reaction to Nvidia’s earnings report. And, should investors be more worried about the bond market’s message? Market expert Mike Santoli explains.

All right, Sarah, thank you very much. Welcome to Overtime, everybody. I'm Scott Wapner. You just heard the bells. We're just getting started. And boy, do we have a big hour ahead. NVIDIA and Cisco earnings, they are imminent. We're going to have both reports, as we always do, the analysis, the stock moves as soon as everything hits. They are critical reads right now as the state of the tech trade, chip demand, enterprise spend, all being questioned. We begin, though, with our talk of the tape. The environment for stocks, is it getting better or worse? Have stocks rallied too much for comfort? Let's ask Josh Brown.

He's Ritholtz Wealth Management's co-founder and CEO, NVIDIA shareholder as well. How big is this going to be in overtime, Josh? For NVIDIA, the stakes for this particular stock? I'm thinking NVIDIA, tech, chips, maybe the whole thing, given where we've gone. Well, yeah, this is a big one. NVIDIA is a big market cap. It's an important component in the Semi Index and the NASDAQ 100.

And what they have to say, I think, reverberates outward just in terms of overall demand for technology products, for enterprise services, etc. So people are going to pay close attention. The data center segment in particular, I think, has the most spillover effect, good or bad, for the overall tech trade. And then a little bit more idiosyncratically for NVIDIA itself, I think we're really going to want to hear more about the repercussions of having to sell a different chip in China. We think the losses are in the hundreds of millions for having to make that shift based on what the government said. That's all near-term stuff that could move the stock up or down. But demand, just across the board, is really going to be the story.

And Nvidia is up huge off its low. So I think the stock really has a lot to prove if it wants to stay near these levels. This is a name that is, I think, 45% off of its low, which is a really big move. Granted, it was down big, but that's a big rally. Not to mention the fact that that rally is in a month. The stock's up 44% over the past month. It's so emblematic of tech in general.

Huge rally of late, but still way down from the 52-week highs. This one's down 53%, but as we said, the move over a month is ginormous. We have seen more lost market cap in this year than we saw during the dot-com implosion of 2000 to 2002. Like, this is up there with one of the biggest sell-offs of all time. Just, you're talking about hundreds of billions of dollars in market cap for names like NVIDIA, and then the bigger names, you're talking about, in the case of Amazon and almost in Alphabet before the recent rally, a trillion dollars a piece like that is not a normal market environment. And then you've got all of the other things that

are causing emotional volatility, like new Twitter. You've got the whole crypto sideshow going on. I've had to Google words today that I've never even heard before. Do you know what a polycule is? Apparently, this is something that is important to understanding what's happening with FTX and the related blowups. It's like a sex cult for weird nerds in the Bahamas. I don't even understand half the things that I'm reading. And when you look at the volatility of large cap respected technology names and the way that they've been trading, both to the downside and the upside, you just have to take a step back and ask yourself, do I really believe the fundamentals of these companies is shifting to this degree? Or am I really looking at the result of just an incredible year and emotions that are at the boiling point?

And obviously the answer is the latter. And your job as an investor is to not lose your head with the crowd. So I think that's the that's what you have to do. Earnings notwithstanding. Are we feeling better right now about the overall move because we've rallied so much off the lows and we've gotten some good inflation prints over the last week? Or are we feeling bad because we've gone so far? Maybe it's unjustified to some degree. The Fed talk is still hawkish as ever. What do you think?

Look, every time you see a situation like we saw with Target today, you say to yourself, okay, the reality of the financial conditions being tightened is now hitting the consumer finally. And you hear about trade downs and you hear about people shopping in Wal-Mart who maybe six months ago were Whole Foods customers. Like when you hear that stuff, you say, OK, finally, this stuff is happening. And maybe that means it's you know, it's it's it's anecdotes. It's not data. But maybe

that means we're getting closer to the end of the cycle. The problem with that kind of thinking, even if you're right, even if December is 50 basis points or 75 and then that's pretty much the tail end of it, we still haven't had the effects of that tightening fully work their way through the system. We don't know how bad things are going to get. And I know Santoli was talking in the last block about how odd it would be for stocks to bottom before a recession, right? Like historically, they bottom somewhere in the early innings, maybe at the halfway point. They very rarely will bottom before it even happens. So that's the thing that you really have to keep in the back of your mind so that a 40% rally in semiconductors, for example, doesn't make you think, OK, the worst is over. The other thing that we have to mention, the degree to which the yield curve is now inverted, it's a pretzel. The 7- to 10-year Treasury, the intermediate-term bond, having dropped 55 basis points in recent weeks and looking at now the two year, the one year, not even budging.

We are now so inverted. And historically, you could debate, does it cause a recession or does it predict? It doesn't matter. Every time this happens, we end up with a recession. So you could say, all right, but stocks are pricing in a recession. I'm not so sure. I'm not so sure. Fifteen times forward for the S&P. I'm not so sure that fully prices it in. So it's not a fun place to be. It's where we are. I think we've done a lot of work to the downside this year, but I don't think it's over. I know you're on a roll, but let me just jump in. Cisco, as you see, is popping. The earnings are out. We're going through it. That is the first of the two major reports here in overtime. Stocks up about 5 percent.

Christina Parts Nevelos is going to be along with NVIDIA. Frank Holland's going to be along with Cisco in just a minute. He's going through it. But you can see the street seems to like what it's seeing right now. Interesting. I'm looking at the outlook. Doesn't look all that fantastic. But maybe the near term was a little bit better than expected. For a stock that's down 30% year to date, maybe you get some easing of supply chain issues, data center demand obviously is going to be key. And then you did have some decent revenue numbers from some of the peers in the group.

So some were looking for some optimism heading into that. We're going to get that in just a second. But Josh, back to you. I mean, do you think certain things in this market are just simply too frothy? I remember you talking about the chips in general yesterday on the halftime report, suggesting that you wouldn't go in here given the move that we've seen. It doesn't suggest in any way that it can keep up the stamina, the momentum? No. Of the 18 semiconductors in the S&P 500, and we're including semi-equipment and semi-materials, NVIDIA has had the fourth highest bounce off of the low. The only better bounces were in LAM, KLA, and on semiconductor, which is the best name of the group this year.

But every semi is now back above its 50-day moving average. Only four out of 18, however, are above the 200. So like if we're thinking in terms of an intermediate term trend now being bullish, well, the components aren't. We're not quite there. Now, could they get there? Could people start changing their tune, myself included, and saying, wait a minute, maybe we have discounted the worst and these stocks are now back in bull mode. All right. I'll accept that as being me being wrong or being late.

But right now, the mood of this market is not trying to get ahead of things like that. It's waiting for that confirmation to get bullish. Let me just interrupt you for a second and forgive me for doing it. But let me get to Frank Holland because he's had a chance to look at this and tell us exactly what is causing this stock to move the magnitude in which it is. Frank. Hey there, Scott. Cisco reporting a beat on revenue and a beat on EPS. EPS about 20 cents above estimates.

Also strong forward guidance for the next quarter. We're also digging a little bit deeper in this report right now. They did miss on overall margin. The estimates for margin for this quarter, for gross margin, they were about 2% below that. That might speak to some of the supply chain issues. The Cisco was flagged in recent quarters. They mentioned last quarter they were redesigning hundreds of different products and also sourcing different components due to the China lockdowns due to COVID. So that's certainly something to watch, something we're listening for on the earnings call that comes up

at 430. But again, a beat on revenue and a beat on EPS. EPS 20 cents above estimates, but the margin performance was under estimates, but still strong for guidance. So far, we have not seen them flag anything about the dollar. They flagged a few quarters ago about a stronger dollar being a headwind. Haven't seen that in the report, but again, going to listen to it on the call and shares of Cisco up after those beats. Back over to the call, too, Frank, I would assume. I mean, on this easing supply chain issue, remember the last quarter at minimum, Chuck Robbins was on this network talking about what's taking place in China and the issues that a lot of big tech companies are facing. There was some expectation that maybe get a little ease on that. Was your

reporting suggestive of that very fact? Well, you know, we're not seeing that right now in this initial earnings release. Of course, on the call, we're expecting them to give more color. But when you look at the miss on margin, that kind of may speak to the fact that they're still dealing with some supply chain issues. Last quarter, they also missed on margin due to supply chain issues. Another issue that we haven't seen in this report yet, again, we wanted to get these numbers to you right away, was the backlog. They had a record backlog last quarter with remaining performing obligation RPO above, I believe, $31 billion. The question is, have they been able to ease that backlog and actually deliver products to customers, even though they have to redesign and source different components? Yeah, I'm looking at a Q2 guide right now, which looks pretty good to your point.

4.5 to 6.5 percent revenue growth in the next fiscal year. 4.1 was the estimate, so it's very much in line with what you're telling us here and perhaps why the stock's looking as good as it is, at least at these moments. Frank, we'll see you again, I'm sure, with the headlines that you continue to go through there. But Cisco shares are up 5 percent. You know, Josh, the fact of the matter is, I mean, enterprise has held up pretty well through all of this. If supply chain is easing, if the China story is subsiding, at least the issues that were existent there,

that's a pretty good scenario for some of these companies. Sure, and of course it's case by case, but the supply chain is easing just in time for the demand to dip. So it's like, you know, pick your poison. In the case of Cisco, the stock went into earnings tonight at 14.5 times forward earnings. The median PE ratio for Cisco over the last five years is 17. So it's trading at a 36% or so discount to its recent

PE ratio. And this is a company that the best you could expect is 4% revenue growth year over year. And in a so-so year, it's 2%. It really grows at the rate of global GDP. But they're delivering. So I would regard this particular name as defensive tech. And maybe that's why the bid that it's catching after hours will persist into the session tomorrow. But we'll see. I don't think that you have to be terribly worried about this story. We'll get back to sort of use your language. We'll get back to offensive tech really in a matter of moments when NVIDIA drops.

And we're anticipatory of that any moment now. So we'll keep our eyes there. By the way, Chuck Robbins, the Cisco CEO on Mad with Jim tonight. So you hear directly from him. He's going to talk to the analyst community. Obviously, he's going to talk to Jim directly at six o'clock Eastern on Mad Money. Let's expand the conversation, bring in Emily Rowland of John Hancock Investment Management, Peter Cicchini of Axonic Capital. It's good to have you both with us. Emily, what do you think is riding now on this NVIDIA report, just given where we have rallied from, not only in tech, but the chips and maybe the whole thing? Yeah, there's quite a bit rally riding on Nvidia earnings. You know, we've seen this pull forward of repricing, of more optimism around some of the the chip stocks here. But look,

these are highly, highly cyclical names. They are names that we would not suggest overweighting into a global economic slowdown. We think, again, the time is right to start leaning in, possibly in 2023 when a new cycle is starting, when we start to see that more resounding bounce in economic growth. But this is a time that you might want to own tech, but be really, really thoughtful about where we do it. We prefer areas in hardware and software, companies that have great balance sheets, good margins. We would stay away from the highly cyclical areas and higher beta stocks. Do you think some of these things are too frothy? I mean, do you think the market at large

is too frothy? Would you use strength to take some profits? We do. I mean, we've seen this massive re-rating, a short squeeze play out across the market. We've seen a 10% bounce in a very short amount of time here, and it's all in multiple expansion. The forward PE on the S&P 500 has gone from 15 times at the start of the quarter to 17 times today. Not only are stocks not cheap, they're not priced for a recession right now. So we would be looking to trim into strength, especially in these more speculative areas, look to income producing assets as the place to be right now

and start chipping away at quality stocks, which have underperformed the broad market, not something that you would expect into a recession. Peter, are you a seller or a buyer? Turning into a seller here, was a buyer and bid mid-October. Breadth was just horrible. Sentiment was horrible.

Breadth was at, you know, two and a half, three standard deviations below its norm. And so, you know, from a sentiment standpoint, it didn't make sense certainly to be short risk. But, you know, when you look at the interest rate paradigm and how it's shifted and how it's changed, it's very difficult to get bullish. I mean, we're now on the other side of a 40 year secular downtrend in rates, which is now which is now basically over a bull market for bonds. When we look at equities and you look at long term returns and equities, let's call it 8% over time, and we look at the senior part of the cap stack in structured products, and we can get 7% or 8% there just because of the move in rates and money good paper, certainly doesn't make an awful lot of sense to own equities as a general matter here. Are there pockets of value in equities?

Perhaps. But as echoing what Jot said a little earlier, monetary policy works with long and variable lags and we haven't seen that second phase of the driver for risk off. We've seen the rate shock, that's affected multiples, but we haven't seen the impact on cash flows and that cash flow impact is going to drive higher defaults. And so we'll look to be buyers when we see default rates moving higher, when we see corporate credit spreads, let's call it CDX high yield closer to seven, eight hundred. That will indicate that sort of the bottom may be just about it. OK, so it sounds like you've got a lot of time to wait before you're going to take advantage of

things that you like in the market. I also noted from your own notes, you say and make sure this is correct, not expecting crypto damage to be contained. What does that mean? Well, it's interesting. I was just I was kind of going through it. And I remember the GFC pretty well. And the subprime market was about $1.3 trillion at the time, and there was much talk that that would be contained because it was such a small sliver of a much larger, maybe a tenth of the broader mortgage market. Funny enough, crypto market cap, Bitcoin market cap at its top was about $1.3 trillion. And the leverage is hidden in crypto. It's at the retail level. It's now at regional

banks. There are regional banks who have converted their balance sheets from commercial lenders to crypto lenders. And so I think we've yet to uncover the full extent of the deleveraging that needs to come from crypto. And there's, by the way, a ton of crossover between owners of crypto and owners of the largest large cap tech companies. So that has yet to play out. What do you suggest? Are you suggesting some sort of crisis event? I'm trying to get to the bottom of of what you're alluding to by, you know, I'm not smart enough. Yeah, sorry, I didn't interrupt you, Scott, but I'm not smart enough to predict the next crisis. My point is that is what's that? It sounds like you are.

No, no. I'm simply pointing out that that deleveraging in crypto is potentially a systemic risk that I don't think has been fully appreciated. That was the point of my note. You know, SBF, Sam Bagman Freed, by the way, continues to tweet. That's another story in and of itself. He says, Josh, they got, quote, overconfident and careless, thought leverage was five billion. Peter was just talking about leverage in the crypto universe. He thought the leverage was five billion. It was actually 13. So we only missed by eight billion. Close, but, you know, not not so much.

You've been writing a lot to too, about this story, Josh. Yeah, he's gaslighting everyone. This has nothing to do with leverage. I mean, leverage is part of the issue. But he did a 25-tweet storm and never once addressed whether or not customer deposits were funneled to his hedge fund. Just answer that. Just have one comment on that. All this other all this other stuff is is like it's just muddying the conversation. What people want to know is I understand why he's not saying it. What people want to know is, did you literally take customer deposits and send it to a hedge fund or to cover hours capital. What about Peter's greater point of, you know, more dramatic run-on effects or contagion? My word, not his, but he's certainly alluding to something of the like. I think it's a good point. I don't know that the typical investor in the markets has a large enough position in, I'm talking about retail now,

has a large enough position in crypto where it will spill over into how they're investing the rest of their money. But then you start to think about some of the institutions that have begun embracing crypto to varying degrees. But like even JP Morgan has guys trading this stuff. And I'm sure they were on a leash given what Jamie Dimon has said publicly. But

there are probably no financial institutions that don't have some activities in the crypto market, let alone exposure, let alone customers with exposure who they may have lent money to. So I think he makes a point. We don't know the extent to which this has infected the traditional side of finance. But I guess the only good thing that you can say is the rate at which this stuff is unraveling. We're probably going to find out pretty quickly. Well, I don't think you I don't think this is Bear Stearns blew up in March of 07 in in March of 08. And Lehman didn't happen until September. I don't think this is Bear Stearns blew up in March of 07 in in in March of 08. And Lehman didn't happen until September. I don't think this is going to take that long. But his point, too, which I want

you to opine on as well, is the idea of the crossover effect between the holders of crypto from the retail universe, the same people who had been holding on to some of the mega cap tech stocks. The implication being, if you need to de-risk. He's talking about hedge funds. I'm sorry. Yeah. Peter, correct me if I'm wrong. I think you're referring to like the Tiger Cubs and some of the more aggressive hedge funds that have built a diversified portfolio of illiquid venture backed startups, some of which are in crypto, cryptocurrencies itself, as well as FANG stocks and high beta tech.

That's what you're talking about? Yes, that's primarily my point. I think there's also a crossover with retail, but Josh, you know that market better than I. I was primarily talking about the institutional market and the crossover there, yes. But nonetheless, the implication is that as you further de-risk whatever exposure you have to crypto, you have to write it down and all of that. If you had crossover into some of the more popular mega cap tech stocks, you are perhaps going to see

more selling of those names as people are trying to suggest that, well, maybe they've come down enough, maybe the bottom's in in those areas, Peter, right? Yeah, no, no. For certain. The issue is that when an asset class, whatever it is, is traded with using a lot of leverage, when there's a liquidity call, people have to sell other stuff. And it could certainly be mega cap tech if, in fact, this crossover exists to the extent that many of the sell-side shops whose research I read believe it does. And moreover, you know, one of the things that emboldened people to take a lot of risk, just from a sentiment standpoint, was the fact that, you know, they own Bitcoin at $5,000 and it was at $60,000. And unfortunately, there's really no way to point to what the value of Bitcoin is. As Josh said earlier, he's been learning new terminology.

And well, you know, why is because all that stuff been made up and there's no collateral value. There's no cash flow behind it. There's no historical value. At least you could make that argument for gold, that there's historical precedent for gold having value. But Bitcoin is something of a fiction that's emblematic of a market that had unlimited funding from multiple central banks with negative rates in Europe and just an oversupply of capital. And that's unwinding. Let me let you know just off the bat. I know everybody can see it. Hang on, Josh. Let me just update NVIDIA here, which you obviously can tell that the earnings are out. The stock's moving as such. It's up about three percent. We're calling it at this moment.

Christina Partsenevelos is going through that. She's going to join us momentarily. Looks to me, at least on the surface here, that you had a miss on the bottom line. Revenues look to be a beat, though, on the top line, and she'll have a better grasp of exactly what they reported. And most importantly, I think, in this environment, what, in fact, the guidance is after the company

did give a weak outlook in August. Let me just reiterate what the stock has done of late and then give you the bigger picture view, because both are especially relevant to the larger conversation. The stock is up 44 percent over the past month alone. It's still down more than 50 percent from its 52 week high. It speaks to the destruction of some of those higher flying tech stocks and then this incredible rebound that we've seen just over the last month as the market, you know, maybe put in a bottom in mid-October, as some are still trying to figure out if that, in fact, is the case.

Gaming, data center, those are the key areas. You get a look into China as well. You did get the Micron warning today, which maybe sent a shutter through some parts of the chip space. But maybe this is not the same story there. Christina is ready now, I'm told. Christina, what do you see? Okay, so let's talk about the fact that they did beat on revenue at $5.93 billion. Earnings came in, definitely a miss, $0.11 miss per share.

We're talking about Q4 guidance, though. Revenue was roughly in line at $6 billion, give or take. It was a little bit lower, but let's call it in line. Gross margins, adjusted gross margins for the fourth quarter came in at 66%, which is stronger than what the street was anticipating. One of the numbers that I was just looking for right now came in for data center revenue. So remember we talked about that earlier today. Will data center revenue offset weakness in gaming as well as mining? So data center revenue came in at $3.83 billion. The street was expecting $3.72 billion. So that's definitely some strength over there.

Management, quote, thus far in just the note we're seeing from the CEO of NVIDIA, saying that they are going through and correcting inventory levels and paving the way for new products, much like we've heard before in the past. And so, yeah, those are the initial numbers that I'm seeing just now at this moment. Pop back on with us when you have a chance to look through a little bit further, hear anything else, let us know. Josh Brown, I go to you again. All right. So data center revenue is pretty strong. Good, you know, reasonably good margins. Maybe not the, you know, fall out of bed story that some were, you know, I guess, worrying about. Yeah, but it comes back to the bigger issue, which is that NVIDIA was expected to have 120% plus earnings per share growth this year over last year, but only 30% expected for next year. So what do you pay for a company that has leading edge technology

and is poised to dominate many of their end markets for a decade to come, purely based on patents and a lot of the stuff that they've put into place, but is selling at a multiple of 42 currently? Like, are you willing to pay that premium thinking that even if growth slows down next year in the out year, it could re-accelerate as some of these technologies

start coming back online after an adjustment? Like, you have to answer that question for yourself. That's not for everyone. So I'm a long-term investor here and I am willing to stick it out. And I've been through multiple 50% drawdowns in this stock, not just one this year. It's it's a feature of owning a high growth company. All right. So that's where I am. But for a lot of people, it's too expensive still, even given how much it's come down. And the growth next year that's being expected is not going to be enough for them. So that's why it's a market. Appreciate it, everybody. Josh, of course. Thank you. Emily, Peter, thank you as well. We'll

see you soon. Let's get to our Twitter question of the day. We want to know, is the worst over for the chip trade? You can head to at CNBC Overtime. Cast your vote. We will share those results, as we always do, a little bit later on in the show. But we're not going anywhere. We're just getting started right here in Overtime. Up next, one of Barron's top-ranked wealth managers breaking out his playbook. Morgan Stanley's Chris Toomey back with us. Find out how he is navigating the uncertainty. And later, we've got much more, of course, on NVIDIA's results.

We've got instant reaction from the leading chip analyst, Stacey Raskin, will be with us momentarily. Stick around. We're back in two. We're back in overtime. Stocks pulling back today with all three major averages finishing in the red.

My next guest was just ranked one of Barron's top private wealth managers. He says stay defensive. He is Chris Toomey, Morgan Stanley Private Wealth, joining us once again. So you're as cautious as you have been or are you easing up a little bit? No, we remain cautious. I mean, I think from our standpoint, the last time we were here, we were a little concerned about how oversold the market was. We got one, what I would say, better than expected print with regards to CPI and PPI. And that was the trigger. Right. So it was it wasn't necessarily a good print. It was better than what the market was expected. And now we know how offsides the market was. Right. So in our estimation, we thought about two hundred and fifty billion dollars had to be

bought to get back on side. And if you look at it, about 20, the highest shorted names were up about 25 percent over two days. So that's kind of the market resetting after being so oversold. And now I think we've gotten through the earnings period. We're starting to look into next year. Are you still raising cash on rallies as much as you were or is that sort of dwindling down? It's kind of dwindling down. I mean, from our standpoint, we're pretty much in a defensive position with regards to equities. I think the area that we're probably raising cash from now is probably in our non-traditional parts of the portfolio. So we've done really well in real estate over the last two or three years. You know, if you look at the yields there, they're not as attractive as they once were.

And then we've got a situation where pricing is a little bit higher than we would like. And on the flip side of that, we're seeing some real opportunities in traditional fixed income. So we're starting to roll some of that money into traditional fixed income. I mean, the House view at Morgan Stanley is even from the, you know, the most negative around, at least from Mike Wilson, is that you have some legs here. Potentially, you could get to forty one hundred, if not beyond, which is the top of his range. And as I'm saying that, it sounds like you you don't necessarily agree. No, I mean, I think you could see it. I think we're at a really tricky part of the cycle right now where we've moved from focusing purely on the Fed to really starting to focus in on the effects of the Fed. So I think if you look at our view, I think the real focus now into 2023 is going to be on earnings. And

earnings right now are way too high. So if you look at... They're still too high, even though they've come down a bunch for next year. No, and they're going to come down even more. So as we get into the end of the year, you'll see strategists and economists starting to ratchet down their numbers so they don't look as bad as they were. And in that situation, what you're going to see is people coming to the realization that next year is going to be really tough. Well, that's his view, too. It's like, OK, you could get a nice move between now and the end of the year, I mean, you could do the 4,100, as I said. Maybe you overshoot that a bit, but you get a real reality check next year when earnings slap you in the face and you realize they do have to come down further. But you're not even playing for the short game? Not really. I mean, look, we have some active exposure.

We've got some exposure to hedge funds that are going to be a little bit more tactical. But from our standpoint, the risk is really to the downside, and the pain is going to be even more so than the market's pricing in right now. So it's not really worth the risk to try and time this perfectly. So what about what about crypto? I'm curious as to sort of what the you know, the the private wealth world has done with it for their clients. Did you put any of your clients in it? If so, how much would you? What's the deal? No, I think from our standpoint, you know, look, crypto is obviously something we've paid attention to. We've got clients that are actively involved in it. But it's not necessarily something that we've recommended or had a view on.

Ironically, every time I've gotten the urge to look more into crypto, it's sold off dramatically. So I was going to read over the summer up on crypto. We saw the huge flush out. And then I got a book at a conference and I started reading on it and we just had FTX go under. So the more I read into it, the more the market seems to not like it. Do you have any concerns sort of, you know, like the ones we heard early in the show? I'm not sure you heard of about a broader market event as a result. Yeah, look, I think that's a real concern. I think when you see these types of moves, whether it's crypto or with regards to rates,

I think the real concern is what the second derivative effect is. Right. So you saw a situation. I think London's a particularly good example where, you know, you had rates gapping out and then you had a real problem within UK pensions. Right. And so I think that's something that we're always very concerned about. And to your earlier point, maybe the S&P 500 goes up to 4,100, but there's a lot of things that we're concerned about that we don't think are necessarily priced into the market. So you can't be positive at all until the Fed eventually makes its pivot.

How are you going to know when earnings bottom? I mean, how are you going to know? I think it's going to depend on price, right? So I think what's going to happen is you're going to see a situation where we're already seeing consumer savings drying up. We've seen consumer debt starting to pile up, particularly within credit card debt, which is very, very expensive right now. There's concerns with regards to housing.

The Dallas Fed just came out and said they're assuming a potential for 20 percent pullback in housing prices. So all that's going to affect the consumer. And I think what you're going to start to see as we start talking about fourth quarter earnings, you're going to start to see, as we talked about, what's the guidance going forward, what's the guidance going on into 2023. And I think particularly around the holiday season, where you see a tremendous amount of consumer spending, and to Josh's earlier point, we're at a situation where the supply chain has opened up, you've got more and more goods coming in, but demand is starting to come down. And that's going to have a real effect to earnings.

And I think the question is, is when do companies start capitulating with regards to guidance, which is going to start to pull earnings down? All right. Thanks for coming in. Thanks for having me here. We'll see you at the Stock Exchange, I think, next time. Chris Toomey, Morgan Stanley Private Wealth. Bertha Coombs has a news update for us. Bertha? Hey, Scott. Here's what's happening at this hour.

Title 42, the order that has kept millions of migrants out of the U.S. while they seek asylum, will remain in effect for another five weeks. Title 42 was struck down yesterday by a judge, and it's giving that judge is giving the Biden administration until December 21st to plan an orderly transition. Meantime, Mitch McConnell has won reelection as Republican leader in the Senate. He easily beat back a challenge from Florida Senator Rick Scott. After his victory, McConnell said he won't be supporting any specific Republican presidential candidate in 2024.

The way I'm going to go into this presidential primary season is to stay out of it. I don't have a dog in that fight. I think it's going to be a highly contested nomination fight with other candidates entering. Anytime the Senate has taken an important step to protect same-sex marriage, a bill codifying federal protections has cleared its first procedural vote on the Senate floor. Twelve Republicans joined all of the Democrats to advance the legislation. The bill has been delayed for months by bipartisan negotiations to ensure its passage. Back to you, Scott. OK, Bertha Coombs, thank you very much. Up

next, more reaction to NVIDIA's quarter with Bernstein's Stacey Raskin. We're back in OT after this. All right, let's get another check going. NVIDIA shares are higher after reporting their results just moments ago. The conference call kicking off in under 30 minutes. Joining us now, Bernstein chip analyst, Stacey Raskin. It's good to see you and it's great to have you to react here. What is your initial read? Yeah, it's not bad.

So this was always going to be kind of a messy quarter. The gaming industry is in the middle of an inventory flush and their data center business was potentially going to be impacted by some of the China export restrictions that were put in. Within all of that, their revenues actually came in above their prior guidance, even with the China issues. It looks like they've been able to replace those potentially impacted products in China with other things. So the data center numbers were pretty good. The gaming numbers

were quite good. Gross margins a little more than a little low in the quarter. They were low, but there's an inventory charge that does not seem to be carrying through into the guidance. So the guidance was pretty solid relative to expectations. I'm kind of in line with consensus on revenue, but I think buy side expectations were lower. Very strong gross margins. Good OpEx. Looks okay. Did I just hear you correctly? You characterize gaming as pretty good.

Relatively. I'm sorry? Relatively. Oh, cool. Well, relatively. I mean, I was going to ask you about this. I'm looking at revenues down 51% from a year ago and down 23% from the prior quarter. That's relatively good?

Yeah. What would it also be? The expectations were even worse so yes it's it's always a better degree okay um it's pretty for example i my numbers we were at about 1.3 1.35 for gaming and so they beat our numbers pretty handily oh i got you yeah on the absolute basis they're still bad i mean clearly but i mean they're they're under shipping in the midst of a pretty significant inventory correction. I'm glad you put it into perspective because I had my numbers. I'm like, what? Anyhow, is it is it possible for you to say right in the here and now that the worst is in that the worst is behind this company? I don't know yet. I mean, it does seem like hopefully numbers have hit a bottom. Like I said, the gaming numbers are pretty good. I think one of the big questions into the guide next quarter is going to be the sequentials by business line.

The guide for the total revenues were kind of flattish into Q4. So the big question is, like, is anything growing? Is gaming growing? Is data center growing? Like, all of us being equal, I think you'd rather have data center growth sequentially into Q4 versus gaming. So that would be one of the key questions on the call, I think. Yeah. But overall, the numbers relative to expectations look okay.

Yeah, we suggest it. I mean, the stock has just been a monster over the last month. Stacey, I appreciate it. Yeah, you bet. Yeah, that's Stacey Raskin joining us with the instant reaction. Up next, the retail wreck.

That sector is sinking on the back of targets, disappointing results. So how should you trade that space? We debate that in today's Halftime Overtime. All right, in today's Halftime Overtime, missing the mark. Retail stocks selling off today on the back of disappointing earnings

and guidance from Target. And according to SoFi's Liz Young, the retail sector setting up for more underperformance into year end. As we get into December, I would expect there to be a slowdown in spending, particularly in discretionary items. And I don't think that retail is going to look great by the end of the year. All right, that's Liz Young. Now let's bring in Steve Weiss of

Short Hills Capital. Do you agree with Liz? You have a different take. No, no, I agree with Liz. I think that you're seeing some softness. Retail sales numbers side this morning for good numbers, driven largely by inflation, by price. Target's sort of a special situation, though. You know, that's the third quarter in a row they missed. And you wonder, you know, I know it's not that simple, why they don't give themselves some room versus you take Walmart, which has been executing. So I think you got to be careful as to where you are in the sector. You don't have to own apparel. You don't have to own like multi-product companies like a Target if you don't want to own Walmart.

Home Depot is their cheap. You can own some apparel, can't you? You just have to be super selective. I mean, I'm thinking of like a TJX, for example. I mean, there are companies that have managed better and maybe are in more of a sweet spot. I mean, I don't know. But that stock's done quite well, even in the face of some other carnage. Yeah, it has. And TJX theoretically should do well in an environment where people trade down, where they get more inventory, better pricing. However, I don't think any stocks are reflecting what's going to ultimately be the end of the road for the consumer.

So we've seen them weaken. We know that 70 percent that live paycheck to paycheck each week are under pressure, cost costs and inflation, that is. And I think that's going to continue. So I think we've seen the best out of retail so far. But it's always a question of where you guide. And if you don't give yourself some fat room to guide, you're going to miss and shareholders are going to be upset. So I'd rather stay in the sidelines than retail. You sold Target at the end of August. What would make you buy it back? Nothing right now. You know, Brian Cornell's got some got some work to do to rehabilitate his reputation as a great retail exec. So I said

missing three quarters in a row shows that you're either way too optimistic versus being realistic, or you just don't have a great grip on your business. I doubt that's true, because he's a smart CEO and you don't go from smart to dumb even in three quarters. But it's a challenging environment for his customer base, and he's too optimistic. So I wouldn't go back into Target. He'd have to get a lot cheaper. The difference between the valuation of that and Walmart isn't sufficient enough to bring me into the stock.

Yeah, tough inventory, that's for sure. Steve, thank you. That's Steve Weiss, Short Hills Capital, joining us. Coming up, we're tracking some big stock movers in overtime. Christina Parts and Nevela standing by, as always, with that for us. Christina. Interested in those fancy speakers? Well, Sonos management thinks so and is upbeat on holiday sales.

And we've got the latest warning from the CFO of Coinbase. And it's looking pretty grim. All of the details next. We're tracking the biggest movers in overtime. Christina Partsenevelos back with that. Christina? Well, let's start with shares of Sonos. Higher in the OT, that's despite weak revenue, down 12% year over year.

There is pretty much thin coverage, so I didn't want to compare for EPS and revenue, but gross margins did shrink with management blaming, quote, the more challenging macro backdrop. The company warning they will remain disciplined, but didn't provide any details on cost cuts. Sonos did name a new CFO, Eddie Lazarus, and a $100 million share buyback program. Shares are up over 3%. Retailer Bath & Body Works topping the street's revenue estimates and posted a big 20 cent per share earnings beat. The stock is reacting, and I say reacting, up 21 percent, double digits in the OT right now. Investors also cheering the upbeat outlook. And finally, Coinbase shares slightly

higher in overtime. The CFO speaking about the FTX situation, saying they've seen a cascading effect within the industry since the collapse, and it will take, quote, a few days or weeks to understand the full contagion of the event. Scott. All right, Christina, thank you. Christina Partsenevelos up next. Should stock investors be more worried about the bond markets message? Mike Santoli explains in his last word. We'll see in a sec. All right, Mike Santoli is here for his last word. I know we teased it as talking about the bond market, but NVIDIA, at least first, your commentary there certainly wasn't a blow up, maybe good enough. Yeah. Yeah. And sometimes when a stock rips into the report, it's not because people are getting too overexcited about it.

Look, I think that its influence on the overall kind of Nasdaq ethos is not what it was a little while ago, but it's a bullet dodge. And I do think this market is still distinguishing itself for being able to absorb even some of the not so great reports and not fall apart. So talk to me about the bond market now. Well, so much attention and justifiably about the Treasury yield curve, how steeply inverted it now is both the the two-year and the three-month yields, well above the 10-year. It got much more dramatic today in terms of that upside-down structure. Now, everyone pointing out, and it's correct, it's saying the market thinks the Fed's at the end of its tightening cycle, nearing the end of it. There is economic risk of recession growing. That's why the long end is going down in yield and up in price.

But the problem is the lags are going down in yield and up in price. But the problem is the lags are pretty significant and they're not consistent. Not only that, the last four times this happened, the market was up. The stock market was up leading into the initial inversion. So what we had this time in July when it first went upside down is the S&P was down 11 percent. When the three month 10 tenure first inverted this year in October. We were down 15 percent. So to me, at least tells you the stock market's not oblivious to this message. We just don't know how it's going to play out. And I think we have to be sensitive to the idea that it's been an unusually compressed cycle and we just don't know exactly how the bond

market is necessarily pricing all the scenarios in this way. What about the idea that at some point all this Fed speak doesn't really matter? The market's going to decide whether a recession is coming or not. As you said, the vote has been cast. Well, you can maybe pull the vote at some point. But at some point, you know, it doesn't really matter what they say. Point to what they've already done. At a certain point, it doesn't matter. And by the way, I'm not saying that the treasuries have completely baked the cake for a

recession very soon. Obviously, as you get further into a cycle, you're going to get to a recession at some point. But I agree with you. At some point, the market says we got it. We heard you. But it doesn't matter as much as how the economic numbers come in. Good stuff. I'll see you tomorrow. That's Mike Santoli with his last word. Look forward to being with you again. Fast money begins right now.