Closing Bell - Closing Bell Overtime: Inflation Stock Shock Ahead? 06/09/22

Episode Date: June 9, 2022

Investors are bracing for tomorrow’s all-important CPI number and it could spell further trouble for markets. Trivariate’s Adam Parker gives his prediction. Meantime, JP Morgan Asset Management’s Gabriela Santos is forecasting sunnier skies ahead for markets. She makes her case. Plus, Mike Santoli breaks down the key S&P levels he is watching ahead of tomorrow’s crucial data.

Sarah, thank you so much. Welcome, everybody, to Overtime. I'm Scott Walker. You just heard the bells. We are just getting started with a busy hour. DocuSign earnings, they are imminent as usual. We'll have the numbers and the instant stock reaction the moment that report comes out. I will also be joined in just a little bit by J.P. Morgan's Gabriela Santos on why she thinks we're closer to the end of the selling than the beginning. And it's interesting to get that take on a day like today. And we do begin, though, with our talk of the tape, all that is riding on tomorrow's critical inflation read,

and which could cause a big shock to stocks. A hot read or a cold read? We're going to discuss that. In fact, let's ask Trivariate's Adam Parker. He's with me now live. It's good to see you. Did you call ahead and say you were coming and the stock market sold off again? Yeah, we're doing fine. About noon, we decided I was coming on and then it tanked, right? That seems to be the best signal you and I have in the last two months.

Don't lump me into you. What do you mean? It's only when I'm with you. It's a fragile market. That's the point. Yeah, it is. And I think things are confusing. I'll tell you why. I was looking at about, we look at about 150 macro variables across consumer, industrial, economic activity, financial conditions. Some are extremely good. Some are extremely bad. Most are rolling over but high. So you have some conflicting. I was sort of taking a step back thinking about it this morning. You have this disaster in March of 2020, all the data that anniversary recovery looks good, all the data that anniversaries that rolls over. We're finally kind of two years past the trough. I think the data is starting to normalize a little bit. And

you're able to kind of compare where we are now to 2019. Seems like what was excess, what wasn't. And I think the data are starting to make a little bit more sense to me that things are going to slow a little bit. More than you thought? Come on, you've been more positive than most. I think earnings are still going to grow. So that's clear to me. I think you'll probably have 5% earnings growth this year. But I think the data on jobs are deteriorating. There's no question in the last two or three weeks more companies are talking about less hiring and firing. And I think the fact that the S&P estimates for 2022 are higher now than they were on January 1st, despite rising oil and rising commodities, puts more risk to the numbers that are in there.

Right. So I think you're going to see more down revisions in Q4 than I would have thought a month ago. This is a prove-it-to-me market now, right? Yeah. Prove it to me that inflation has really peaked. Prove it to me that earnings aren't going to fall out of bed. Yeah? I think that's right, and I think July earnings is obviously going to be the moment where we see,

do you get rewarded for beating? Do you get punished for missing? Where are we in that cocktail? And obviously some of the big companies that have done okay in revenue and missed on earnings, the market punishes. I don't think you want to beat on revenue and miss on margins. I actually think you're better off missing on revenue and beating on margins because then people think you kind of can handle the cost front. Got some pricing power and things like that. I'm glad I have you here. And it's fortuitous, frankly, because I'm looking at a headline here. AMD is holding its analyst day. You know, as we speak, you're a former chip analyst. AMD is saying, let's throw up the stock. Let's also see it,

guys, if we could on an intraday basis, because this news came out just before the close. We see a quote unquote down PC market this year. Right. So Intel was already talking down its business in the last couple of days. Now you've got AMD. What do you make of it? I mean, chips are the quintessential cyclical part of tech. I think there's a huge difference between chip makers that have perishable inventory and those that don't. Meaning if you make too many microprocessors, AMD, Intel, or graphics chips and video, or certainly memory micron, your pricing gets killed and that hurts your profits. But there's a whole other chunk of that business, analog devices, Texas Instruments, those kind of companies where if they make too many, they don't have to cut pricing.

And so I think you'll see a bit of a bifurcation within semis where the quality businesses with pricing power just do much better. So this is the time to own the higher quality businesses with higher margins, not the cyclical, levered ones like AMD and Intel. Which are the better ones to own then right now? And then we'll move on to another topic. I would think the equipment makers like ASML, LAM, K-LAC and the LAC are great businesses. KLA-10 core, LAM Research. Synapses, Cadence, and I think also

Texas Instruments and ADI. Those are your winners. So let me ask you this. Let's look ahead now to the big event tomorrow. Made bigger now, perhaps, by this move into the close, which was ugly. Bigger move tomorrow for stocks comes from an upside or downside surprise? Which one is it, do you think? I think downside, right? I mean, you know, I think if people start thinking inflation's rolling over,

that the Fed action has started to work a little bit, that they see some of that in the data, I think the market interprets that as a positive. As you and I have talked about, I don't think anything directionally hawkish is going to be good for the price-to-earnings ratio for the S&P. So if we get something where people say, all right, the Fed did some work, maybe they're not going to do 50 bps four more times in a row, maybe they'll chill a little because things are slowing,

that probably is better for the multiple in the medium term. Isn't part of this, you know, once again realizing just what's happening around the world, rates are going up, right? You've got another reminder of that globally today, as other central banks are acting in the same manner, most of them, not all, in the same manner as our Fed, and yields are rising, right? Two years back up, three years settled over 3%. You know, if we work back towards that 325, what's that going to mean

for stocks? I don't know. For me personally, I think the S&P long-term algorithm is something like 6% to 8% total return. That's the earnings plus buyback plus dividend. So I have an exaggerated sense of self-worth. I think I could beat that by owning stocks. So let's say I think I can get 8% to 10%. So the 10-year yield needs to be way more than 3 for me to start shifting all my money into it. I don't know if it's 5 or 6 or something way more. So I still think there's lots of opportunities to buy stuff, but I get the 10-year review point. And I think the main thing I'd be focusing on in July earnings that's underappreciated and not being talked about is the labor force for the corporates. Is it U.S. or non-U.S.?

Because one thing that's strange to me, but I get it, I guess, is all the wage pressures in the U.S., all the absenteeism, all the people not showing up for the union contracted rate, it's in the U.S. If you have employees in Mexico or Poland or Vietnam, I think you can handle this wage issue much better, and you may hold up in earnings better than people think in July and in your guidance. You feel like in your gut we're getting closer to the end of this bounce? Yeah, I do. You do? I only think that because, well, to the end of this bounce? I do. You do? I only think that because, well, to the downturn or to the quick rally from the bottom? To the

rally from the bottom. We're up like 10%. Yeah. I'd say, look, I looked at the last 100 years of S&P daily returns, and what we looked at was all the downturns of 10% or more. There's been 25 of them in the last 100 years. Only seven of them of the 30% or more. And all of those were real. We obviously remember sort of three. You and I are the exact same age as we've talked about. There's been three in our real lifetime, right? TMT, financial crisis and COVID that were 30 or more.

All of them were real impairment and real fear to the outlook. I really just don't see this on the peak to trough getting in that zone. So I think kind of something in the 15 to 30 makes more sense to me from the highs to the lows. I already told you not to lump me in with you. You're better looking, so I figure it's fine. We can say that. Let's mention DocuSign, everyone. You see it on your screen.

Earnings are out. I said they were going to be imminent, and they are. And here they are. They're down 13% is the stock. Do we have Frank Holland yet ready to rock and roll on this, gang? All right. Frank's going through this report, I promise. He'll come up in just a second to give you their particulars there. It's going to come down probably to the guidance more than anything else. You could say this was the quintessential, at least one of them in the group of a stay-at-home name. However, I don't know. I'm out and about and still doing my thing,

and I still get DocuSign. So I don't know really what bucket you want to put this kind of a stock in. I do know that it's down tremendously already year to date. It's down more than 40-some-odd percent, and you're going to make it 50-plus percent now with this decline. So Frank will be around in just a moment. But yet another reminder, right? Another reminder. We think, per your question, we think this fits into the work-from-home bucket. We have our own basket of stocks. We look at the correlation of every name to work-from-home stocks, DocuSign and Netflix and Pella. There's a bunch of them that fit in there, and we think generally these things are going

to see decelerated trends going forward. This one in particular, which, again, I'm not a fundamental analyst, but I'd say I personally don't see the technology mode, right? On my business, Trivaric Research, we're in the Microsoft Carrizo. We use them for everything, from Teams to Excel to Azure for compute and storage. So if they decide to put a DocuSign button on, why would you ever use DocuSign? So some of these businesses, I just don't understand the technological moat, and I think that's why ultimately they'll be impaired in the long term.

Let's go to Frank Holland. He is ready now. Frank, I see an EPS miss, a top line beat though. Yeah, absolutely. Beat on revenue, miss on EPS. EPS at 36, 30, excuse me, 38 cents. It's about eight cents below the estimates. The real story here is that EPS missed because the rest of this report is really solid. It's a beat on estimates for both billings, operating margin, all the other key metrics here. The guidance also looking for the next quarter. That's pretty much in line with estimates. Full year guidance also pretty much in line with estimates, but a miss on EPS. We're still looking through here to see what factors caused that miss. But again, a beat on the top line,

a miss on the bottom line. EPS, eight cents below estimates. Shares down 14% right now. We'll have more later on if you need it. Back to you. Looks like the REV guidance basically in line. No EPS, $0.08 below estimates. Shares down 14% right now. We'll have more later on if you need it. Back to you. Looks like the REV guidance basically in line. No EPS guidance given either. I mean, it's just hard to make a projection. I was just going to say. Thank you, Frank, by the way.

The worst thing in the two-by-two grid, beat on revenue, beat on margins, beat, miss, et cetera. The worst you can do for a tech stock is beat on revenue and miss on margins. You just saw that. So our distribution of outcomes of our work shows that's typically been a bad stock when you miss on margins. Let me ask you this. So before we invite some others into the conversation, you have said repeatedly, look, the environment's tricky, it's confusing, but it's still decent enough to pick stocks if you know where to look. You're long energy and materials in health care.

You want to avoid industrials, capital goods, machineries, region long energy and materials in health care. You want to avoid industrials, capital goods, machineries, regionals, and staples. Yeah. Our general sense is this game is about relative estimate achievability. Maybe everything's too high, but where are they 5% too high versus where are they 40% too high? Because that's how you're going to relatively outperform. The part that looks the most optimistic to me are industrials. Why? We all know industrial activity is slowing. You've seen it in the transportation data. Yet, these sell-side analysts have a hockey stick of accelerating estimates all the way through this year and next year for machinery and capital goods. So to me, that's really below

average estimate achievability in that space. At the same time, energy and materials companies, they just can't help make more money when the underlying commodities rise. And the industrials generally have to receive some of their higher prices as input costs. So I really like that long kind of energy metal short industrials trade. I think the stables is more of expensive. It's gotten too expensive, too much money. Everybody's playing them, right? Yeah.

Let's broaden the conversation, if we could, with Hightower Chief Investment Strategist and Halftime Investment Committee member Stephanie Link and G-Squared Private wealth chief investment officer, Victoria Green. Ladies, it's great to add you to this conversation. Steph, you first. Ugly finish. How does it now set up for what is a Super Bowl-like event for investors tomorrow? Well, there's so much to digest today alone, right?

The market started off in a bad mood because of the ECB. Hawkish commentary. The Atlanta Fed GDP number for second quarter is now at 0.9. That was at 2.1 just a month ago. And then, of course, the CPI tomorrow. And I know that the CPI number is important, whether it's better or worse. It's going to be high, Scott. It's not going down materially anytime soon. And I do not think that the Fed can actually get the inflation down to a 2% or 3% level anytime soon.

And so that's going to be an overhang on the market. If you look at the components of CPI, it's really important to see. Energy is 8.3% of CPI. And energy is now at levels we've not seen since 2008. China is also reopening. And so you're going to see better demand. Shelter is 32.5% of CPI. We know home prices are high. They're going to stay elevated, and rents follow home prices.

And then, of course, medical, 8.4% of CPI. The Fed can't do anything about any of these things, in my opinion, without really causing a massive recession. So I still say 50-50-50 is what they're going to have to do. We now have to watch the ECB, and they're behind the curve. And so there's a lot to grapple with at this point. No wonder why the market has been in this sloppy trading ranges and the multiples have contracted. Now I feel like, Steph, you're incrementally more negative than you've been, because this sounds a little bit different and maybe somewhat nuanced to the Stephanie Link who I've been speaking to of late.

Yeah, no, there's no question about it. I mean, it's hard not to be a little bit more negative. Now, look, the market is down a lot and I'm appreciative of that. I'm respectful of that. I am selling some stuff and I'm still buying some stuff. So I'm just trying to stay balanced. I have much more cash than I have because I just don't see the catalyst to get us going higher anytime soon with all of these uncertainties in the way. Do I think that there's another 10, 15 percent downside from here? I don't really know, Scott. I mean, 15 times is the long term average multiple for the S&P 500. We're at a little under 17 times forward. So could we go down? Certainly. Could

we bounce higher? Yes. But we have to get a little bit more certainty in the equation. And until we do, you're going to see a trading range. Going to be interesting if tomorrow is a positive number perceived to be positive. And then there's a victorious sell on the news event because the market just doesn't feel so good. And you don't think the bottom's in? No, no, I don't. I think this was more of a dead cat or bear bounce that we've seen here. It's been nice to get some stability in the back end of May. I know we're all holding our breath tomorrow, but I think any human that lived, eat, breathe, filled up with gas or shopped at a grocery store during May is going to think the CPI is going to be at least 0.8 percent higher and at least 8.3%. I don't see, I mean, maybe did we have peak

in March? Possibly, but peak and plateau. I don't think that's going down anywhere soon. And even if we get it down a little bit, I think you're leaving this year at a six handle, not a two handle. The only way the Fed gets this under control is to go to a recession. That's the only way we've seen a commodity spike in. You know, I always say the four most dangerous words to investors is this time it's different. It's never different. We've been in this market before and it doesn't end well. And I would ask you, name one time the Fed has actually navigated this type of market correctly. And I know we're saying small oil recession, big oil recession.

You can go West Wing and call it a bagel. Doesn't matter. It's going to happen. You asking me or you asking Adam Parker to my left? agar recession, you can go West Wing and call it a bagel. Doesn't matter. It's going to happen. You asking me or you asking Adam Parker to my left? Because he's the one trying to make an argument that things aren't as bad as everybody suggests that they are. Well, I think there's a big difference between the S&P 500 earnings and the GDP. I think the Fed's executed this three out of the 12 times in the last half century. So the odds are certainly skewed against them doing it well. Part of what my logic has been, and some

people disagree and some people don't, but I think it's a healthy debate, is will the Fed recognize exactly Stephanie's point, that they can't really control cutting rising prices in certain areas, wheat, semiconductors, and other things born out of the shortages from COVID. And if they realize that, maybe they tread a little bit less aggressively on the hiking path. Or are they just going to give up? Well, I think they don't have to do 50 every meeting. I think there's a happy meeting between giving up and doing 50 every meeting, letting it be data-dependent, treading. I mean, I'm not saying these guys are money and they're going to nail it. I just think if they end up raising a ton this year, causing recession, cutting in Q4 2023,

that it'll be a field day of incompetence that we'll be talking about at the, you know, when you and I are down here at the end of 23. So I think they're better off moving a little bit more slowly than the most hawkish people currently believe. And I think generally they're pretty smart people with good access to information and they'll ultimately get there. But we'll see. So, Steph, you alluded to what you're selling.

You're selling Stanley Black & Decker, which is interesting to me. That says I'm worried about the economy. McDonald's, very interesting that you're selling. And then Match and Walgreens. Yeah, yeah. So, well, McDonald's was hard for me because I've made a lot of money with it. But I think in this kind of an environment, you have to take profits. So that's really what I did. In terms of Stanley Black and Decker, they get hit every which way from the inflation situation.

And I just don't see that inflation situation easing anytime soon. And plus, their CEO just left. He resigned early. So the CFO is taking over. It's not going to be a disaster. But I just think there's a lot of uncertainty with that name, unfortunately. Walgreens Alliance Boots, I love the health care strategy, but I'm worried about the front end of the store. And I'm worried about promotions coming from Target and eating into Walgreens and even

CVS, the front end. And then Match is just, I wanted to reduce the beta. It's a very high beta name. They're doing all the right things. But I just found other stocks that I like better. Target, Estee Lauder, Deere. And then I have a new name, Nextera. So just trying to clean up what I have and just focus on quality. Yeah. Victoria, sounds to me looking at your list like you like energy, energy, energy and energy and nothing else. Well, i think you missed one i do like energy so look you know when we look at that uh it's the best place to be we know this commodity spike isn't going to last forever but this time it is a little bit how the producers have reacted so you'll see our list is heavily weighted to the us emp producers your devon energy is our number one

pick we love the fact that they just made an acquisition. All cash, $855 million. Great acreage in the Balkans. And look, even if oil prices come down, which we really hope they do, because over $100 a barrel is really not sustainable. You're talking about a 12% to 14% yield we're getting from these companies. They are pushing cash to their shareholders in a period where it's so uncertain. I really like stocks that are shareholder friendly. And the energy sector specifically has made it a point if you read any of their earnings releases

almost on the front page of their investor presentations are shareholder friendly capital discipline a strong balance sheets they're trying to make up for a decade where investors didn't make money by being extremely nice to them now so you you're seeing any of these guys, Devon, EOG, Diamondback, Pioneer, they're all pushing back with the variable dividends and share buybacks, and their break-evens are extremely low. They're less hedged than they are. So even if we see oil come down to 80, you're still talking about a 10 to 12% yield on a lot of these stocks, and I think it's a great place to hide. I understand the long-term trends. I'm not saying this is a decade-long play.

But in a market like this with so much uncertainty, I love the fact we're getting cash back with dividends. And I think, honestly, we're not going to see the energy market rebalance. Yeah, we've got Iran out there. You've got 100 million floating crude for them. But I think that's going to be very difficult for us to push that through. And even OPEC is having some problems meeting their supply guidance. And so we still see a shortage. And regardless, let's say we get more oil barrels.

The refining capacity was at 94.2% last week. We can't refine any more crude. So we are a little constrained about how much this market can actually increase to meet demand. Right. Last word, quick to you. I mean, energy is the most favored sector from everybody. I just wonder if that says something. It was nice to be the choir, not the preacher, but I would only say it back to her. Look, it could be a 10-year call for me.

It could be. It could be. I think a lot of people think the terminal value of oil is zero, and I think if you look at the installed base of vehicles at 16% EV and hybrid, it's probably 15 years from now where oil demand peaks. So I'll probably want to buy most of the dips in the next decade. All right. Good stuff.

It's great having you. Good to see you always. That's Adam Parker. Victoria, thank you so much. And Stephanie, my thanks to you. I'll see you soon on Halftime. I'm sure that's Stephanie Link. All right.

Let's get to our Twitter question of the day now. We want to know how will the market react to tomorrow's CPI number? Will it rally? Will it sell off? Will it be flat? Wouldn't that be something? Head to at CNBC Overtime on Twitter. Cast your vote.

We'll bring you the results at the end of our show today. We do have more from that AMD analyst day. Steve Kovach has the details for us. Steve? Yeah, Scott, just a couple more headlines coming out of this on their margin expectations in the coming years. AMD saying they expect gross margin of over 57 percent and operating margin in the mid 30 percent range in the coming years. That's on top of the other headline we got earlier that you mentioned. They see a down PC market this year. A lot of reasons for that supply chain issues in China and so forth. This is still going on. So I'll keep you updated, Scott.

Yep, I appreciate it. And I know you will. That's Steve Kovac with the latest for us. Thank you. Up next, and all clear for stocks, even after today, investors weighing some big recession risks. However, our next guest is forecasting sunnier skies ahead. J.P. Morgan's Gabriela Santos makes her case next. First, though, we're all over the big headlines coming out of the 2022 Iris Zone Conference.

It is underway virtually right now. We're going to tell you where the street heavyweights are making their next big bets when overtime returns all right welcome back to overtime happening right now wall street heavyweights are revealing their best ideas at this year's Soane Conference. Our own Leslie Picker monitoring all of that action joins us now with the highlights. Les? Hey, Scott. Yeah, I want to share with you a quote from Snowflake CEO Frank Slootman, who is currently engaged in a fireside chat with D1's Dan Sondheim during the Soane Conference. When asked about concerns about the macro picture, Slootman said, quote,

the real risk of the amped up talk about the macro falling apart is that it's going to be self-induced. In other words, people are going to start hitting the brake just because they're anxious, which is a really dumb reason. He said, in tech, you're seeing this already. So to summarize his take, it's that the C-suite is being too reactionary to the negative macro headlines, and that could create a self-fulfilling prophecy that becomes more damaging to the economy than would otherwise be necessary. To that end, there actually has been a pretty lack of consensus on the macro among today's speakers. FTX's Sam Bankman-Fried said earlier today that he thinks, quote,

the real change this year is not increased inflation, it's decreased expectations of future inflation. But Greenlight's David Einhorn had a different take. He's of the belief that inflation's not going anywhere and cast doubt on the Fed's ability to hike rates high enough to get the job done. So he is recommending that investors buy gold. Interestingly, though, the two stock picks today were both in the tech space. Mala Gankar of SorgCap Partners chose ServiceNow, a cloud computing company, and Lauren Taylor-Wolfe pitched Wex Inc., a fintech payments provider. Scott, you can see both of those are down in after-hours trading. Back over to you. You've got a big hitter in a little more than 30 minutes, too, right? Stan Druckenmiller, he never disappoints. And I'm curious to what he's going to say,

Leslie, about the Fed. Very interested to hear what he has to say about that. Yeah, always a good person to comment on the macro. He's, of course, seen a few cycles in his day. So definitely we'll pay close attention to the macro and we'll be sure to bring you the highlights. Yeah, look forward to it. Leslie, thank you. That's Leslie Picker. Up next, JPMorgan Asset Management's Gabriela Santos joins us live. Why she thinks we're closer to the end of the selling than the beginning.

That big interview when overtime returns. Welcome back to Overtime. It's time for a CNBC News Update with Shepard Smith. Hi, Shep. Hi, Scott. From the news on CNBC, here's what's happening. Michigan prosecutors charging a Grand Rapids police officer with second-degree murder. Back in April, Officer Christopher Scher, who was white, pulled over Patrick Leoya, who was black. After a struggle, body cam and other video shows

the two struggling, with Officer Scher ultimately shooting Leoya in the back of the head. A major warning from the head of the United Nations nuclear watchdog. Iran is pulling 27 surveillance cameras from its nuclear sites. The head of the agency says that move could be a fatal blow to reviving the 2015 nuclear deal. And the Pentagon is rolling back restrictions on service members who are HIV positive. They can now deploy overseas and serve in leadership positions. The restrictions had been in place since the 1980s. Under the rules, the Pentagon can no longer discharge or separate those troops solely because of their HIV positive

status. Tonight, more arrests connected to the January 6th insurrection and full coverage of tonight's primetime hearings on the news right after Jim Cramer, 7 Eastern. Then in primetime, we'll air the congressional hearing in its entirety right here on CNBC. Scott, back to you. Okay, Shep, thank you. That's Shepard Smith. We'll see you then. Our next guest says we are closer to the end of the sell-off than the beginning. J.P. Morgan Asset Management's Gabriela Santos is here with me at Post 9. It's great to see you. Thanks for being here. So great to be here, Scott. Yeah, be here in person after all this time. Let's talk about your headline after today. Closer to the end than the beginning?

Well, I mean, I think we've been at this for over five months now, this correction both in stocks and bonds. We've had multiples already contract over 20 percent, going from one standard deviation expensive to now fair value. And we've also got bond yields trading much closer to the top of the 10-year ranges. Now, it doesn't mean it's over. We do actually still expect a bit of a rocky summer here over the next few months while we get a little bit more clarity on inflation, on rates, on the economy. But we do think we're much better set up for a better end of the year and years ahead. Okay, so the multiple has contracted. Earnings, though, have not.

And isn't that the other part of the story that is super important? Super important. And I do think that we'll still see earnings expectations move a little bit lower, especially as we've been hearing more and more about some margin pressure. Only a little bit lower? A bit lower in terms of expectations, which are now looking for 10% earnings growth this year and next year. That seems entirely elevated. We still think we can do high single digits, but it would be actually really welcome to

see earnings expectations move lower. That would be a much better setup for a sustainable rebound in the market. Disconcerting, isn't it, that analysts have yet to take down the numbers on earnings? What are we waiting for? What are we waiting for? Seriously, it seems so obvious to everybody, but the people who actually have to take out the pencils and slash the numbers. So it seems like the analysts are much more gravitating towards still a very positive message from corporate CEOs and CFOs, while investors are looking at some of the leading indicators for inflation, for rates, for the economy,

and saying, well, I do think we need a lower multiple to price in those risks of lower earnings. And we've largely done that. Now, it's too early to wholesale go back into risk, but it's also too late to sell. So much better, actually, to focus on the road ahead. If we're closer to the end of the selling than the beginning, you need the CPI tomorrow to really blow the doors off positively, don't you? I still think tomorrow is just too early. And that's why we still expect a bit of a jittery summer before a better fall end of the year. That's because you need a string of downside surprises and decelerating inflation to wouldn't really make a trend yet.

And I do think that's why you actually have more upside risk to inflation, downside risk to inflation for tomorrow, which is why you're seeing today some investors take some risk off the table. But if we do get that deceleration over the months ahead, that would be a really nice all clear. There's still interesting signals in tomorrow's CPI. Don't get me wrong. Much more for a sector read through into which companies are able to pass on costs and which aren't. So I'm really curious about this next question. How does a senior level strategist at J.P. Morgan formulate your opinion without having it colored at all by the big, big, big boss talking about hurricanes coming? Do you disagree with Mr. Diamond's view on where we are and may be heading into?

We don't disagree, actually. I think the market has been responding to a lot of storm clouds that have been building for the better part of the last five months. And that's why we've seen such a massive multiple contraction, is the market looking ahead, seeing the possibility of a thunderstorm or a hurricane, and pricing that in way in advance. And of course, the market will bottom way before we get any of those actual storm clouds clear. You just need some of those early indicators. So look for things like wage growth, for example, as a leading indicator for inflation and look for a bottoming in the manufacturing PMI as for when we can get more visibility on the storm clouds lifting for the

economy. What presents the best opportunity right now, do you think, stocks or bonds? And if it is in fixed income, where? So it's actually interesting. For the first time in years, we're actually a bit more excited for fixed income. We've been really downbeat for years on it. You and everybody else, right? Us and everyone else. But now there is an alternative.

Fixed income's back. That's kind of exciting. So we see opportunity to add duration for the just-in-case hurricane. That's important to do. There's more upside risk to core bond returns. If the 10-year falls 1%, for example, you can get double-digit returns on a 10-year. And also opportunity in high yields, where you have yields of 7%. That's equity equity like returns with much lower volatility. And lastly, if I said better value right now or less risk, maybe is the better way to put it. U.S. equities, emerging markets or China?

Where? Frankly, I think you do a barbell. The U.S. defensive. It's always super, super core part of the portfolio. And it's cheaper than it than it's been a long time. But barbell that with China. I mean, tactically, it's ADRs for the moment as you get some more regulatory status quo. But for the longer term, it's really a share. And that sounds so dicey, right? These ADRs, I mean, could be up 50 percent right as we're

having this conversation. And by we wake up tomorrow morning, they're down 40 percent. I mean, China is not for the faint of heart. You've got to know what you're getting. You're getting double the volatility of U.S. equities. But we still think you can get double the total return over a longer time horizon. You just need to know the kind of volatility you get and own the right stuff. Thanks so much for being here. Thank you. Really nice to speak with you here. It's Gabriel Santos of J you get and own the right stuff. Thanks so much for being here. Thank you.

Really nice to speak with you here. It's Gabriel Santos of J.P. Morgan Asset Management. Still ahead, a key cloud pick for your portfolio. One money manager sees some serious upside for a struggling stock. We reveal it in our two-minute drill. But first, Kay Rooney is tracking the biggest movers in the OT for us today. Hi, Kay. Hey, Scott.

After the break, another retail stock that misses. It's also laying off more employees amid this downturn. Plus, a cold winter resort stock with some hot earnings will bring you all of that and what's moving in the overtime after this break. Let's show you DocuSign shares again. They are sinking in overtime, now down almost 20 percent. That's the lows of the post earnings report here. Kate Rooney has more overtime movers for us. Kate. Hey, Scott. First up, we are watching Vail Resorts, ticker MTN. Shares popping in the overtime. They're up more than 7 percent at this point after better than expected earnings. We also got an updated financial outlook and the company announcing a dollar 91.91 quarterly dividend.

Next up, Stitch Fix shares sinking after a scoop by CNBC.com, the company laying off 15% of salaried positions, mostly in corporate roles and styling leadership positions. Stitch Fix confirming that reporting by our own Lauren Thomas on its earnings call today. Q3 revenue was in line with estimates, but we also saw Q4 revenue guidance looking weaker than expected. And finally, Illumina down almost 5%. Wow, almost 5%, about 4% at this point.

After announcing the departure of its chief financial officer, effective July 8th, the company's chief strategy and corporate development officer will serve as the interim CFO while the company looks for a permanent replacement. Scott, back to you. All right. That's Kate Rooney. Thanks so much.

Up next, betting on the banks. A halftime committee member doubling down now on one financial stock. But is it really the best play right now for your portfolio? We debate that in today's Halftime Overtime. We're back right after this. Here's a tip for your money, your future. For investors, navigating inflation requires having a well-diversified portfolio with growth and value stocks to help boost total returns, along with interest from cash and bonds.

Dividend-paying stocks that pay a consistent dividend also can help weather market volatility. A dividend is a portion of a company's earnings that are paid out as a reward to shareholders, often by companies that have strong, predictable cash flow. So even as stock prices slide, holdings that pay a steady dividend may offer some stability. For CNBC, I'm Sharon Epperson. Today's halftime overtime doubling down on Wells Fargo. Rob Seachin adding to a position he started just over three weeks ago as he gets even more bullish on the big bank. It's done well since then. And at nine times this year's earnings, 1.1 times book, 25 percent operating margins.

We think it's one of the highest quality diversified banks. It's going to continue to benefit from loan growth, rising net interest margins and good cost management. Well, let's bring in two of our halftime traders to debate this. Hightower Stephanie Link is back with us. We're also joined by Jim Labenthal, Serity Partners chief equity strategist. Steph, you do not get to go first because this is too much of a loaded question for you since you own Wells Fargo. Jim Labenthal, you don't, and I want you to tell Steph why you don't. Well, I like Wells Fargo and I like the sector, but I see better value in other names.

Citigroup in particular, I heard Rob Seachin talk about the multiple of book value, and frankly, Citigroup could double inin talk about the multiple of book value. And frankly, Citigroup could double in value and be comparable on a book value, price to book value basis to Wells Fargo. And Goldman Sachs trades at a very similar price to book value as Wells Fargo. But I like the quality of the franchise at Goldman Sachs better. So those are two examples of, within the space, names I like better. But I completely agree with what Rob was saying about higher net interest margins, higher cash flows. He didn't mention it, but also buying back shares.

I think this is the space to be unless you see a deep recession coming, which I don't. Steph, Jim's just trying to be nice. He doesn't like Wells Fargo. If he did, he would own it. I know, Jim. He just doesn't like to pick a fight with anybody. But seriously, right. I mean, if you think that we're having a slowdown, which we are, if you think that we could go into recession, which we might, you could easily see interest rates go down regardless of what the Fed's doing. That would be bad for net interest margins. Loan growth slows because of

what's happening in the economy. They write an awful lot of mortgages. That market market feels like it's falling apart right before our eyes. Yeah, OK, so but Wells Fargo trades at one point one times book. And, you know, I hear what Jim is saying about Citigroup, but I have been burned on that name for years, absolute years. I feel like Citi is a value trap. I do not think that Wells is because I think there's a special situation story here. It's a restructuring story, right? It's not a new CEO anymore. He's been there for over two years, but he is making changes. Costs are coming in much better than expected. And net interest income, yes, if rates go down, net interest income will certainly fall, but it's still going to be from a much more elevated level. We've gone from the 10-year at the beginning of this year from 151 to today at 305.

That is huge in terms of operating leverage potential for net interest income and net interest margins. So I feel like it's a restructuring story first and foremost, and they're going to be able to get fixed a lot of their businesses. We don't even have approval of the asset cap yet. Wait till that happens. And I don't know when that's going to happen, but I do think it will happen. And that will be positive for the company. And then the macro factors, we're just going to have to watch and see. These companies are much more strict in terms of their lending standards. They're much more capitalized because the government has made them be so. And that's a good thing. And yeah, mortgages, that's not going to be a bright spot.

But these companies have already called it out. Jim, Steph called the love of your bank stock life a value trap. That's what she said about Citi, Jim. If we're going to debate something, it's that anybody is calling Citi Group the love of anybody's life. But look, I get the point. This stock is definitely a show-me stock. I have to say, I have not understood why Wells Fargo has traded as well as it has relative to Citi Group for all the stuff that it's been going through. And I understand the new CEO, he's not new anymore, has done a good job. But, man, they've been laboring under the same weights of regulators that Citigroup has.

I think, though, beyond the debate between Citi and Wells Fargo, one has to ask, looking at these horrible charts, like, what's going on with the sector? And this is simply the fears of credit losses in a recession, because all of these charts look terrible. They all look awful. And for that, I would say you've got everybody from Jamie Dimon to Brian Moynihan, CEOs of JP Morgan and Bank of America, respectively, saying the consumer is in great shape. Corporate balance sheets are in great shape. So I'm really not sure why we're so worried about credit losses in the banking sector. All right. Well, we'll make that the last word. You guys are both good sports. I'll see you soon.

Jim and Stephanie joining me here in overtime. Up next, Mike Santoli's last word. The key S&P levels he is watching heading into tomorrow's CPI report and coming up on fast money target boosting its yield. So what other dividend darlings are worth scooping up right now? The fast crew has their picks ready for you and will do that. They will after overtime. It's time now for our two minute drill with us now is Ayako Yoshioka, Wealth Enhancement Group Senior Portfolio Manager. Welcome. It's nice to see you. Thank you so much for having me, Scott. Let's do some stock picking. Number one, Adobe.

Why do you like that stock right now? Sure. Adobe, it's the industry leader in digital content creation. Photoshop, Illustrator, Acrobat, PDF, they're all industry standards. And we like it because the stock's down 40% from its highs. And although it's not dirt cheap, we think it's reasonably priced here for a company that is high quality, strong free cash flow generation, strong balance sheet. We think it's a good company over the long term, especially for a name that can grow revenues by at least 10% over the next several years. Okay. How about DHR, Danaher?

Danaher, another high quality company, this one in the healthcare space. It's a leader in the life science and diagnostics space. The stock's down 20% year to date, really because it's comparing or anniversarying some strong revenue numbers from last year as it was a beneficiary of COVID testing as well as vaccine bioprocessing. We think it's a great company, high quality company that optimizes margins and free cash flow. And it uses that to fund acquisitions. They've done great acquisitions during a time in which, you know, markets tend to be struggling. And, you know, 75% of their revenues are recurring. So we think that's an attractive characteristic in this backdrop. Okay. And finally, the REIT Crown Castle, CCI.

Sure. Crown Castle. It's domestic, mostly in the U.S. It has a nice 3.2 percent dividend yield. The domestic nature really allows it to be sort of insulated from some of the geopolitical tensions we've seen in the world. The company is really tied to the overall expansion of 5G, but more broadly, it's tied to the underlying demand for wireless data and wireless infrastructure. And they've got some great visibility with their customers, which are the carriers such as Verizon and AT&T. And it allows the company to grow its dividend by about 7 to 8 percent for an extended period of time. Ayako, thank you. We'll talk to you soon. Thank you so much.

All right. Up next is Santoli's last word. We're back in just two minutes. Let's get the results now of our Twitter question. We asked, how will the market react to tomorrow's CPI print? Forty seven percent of you saying it will sell off the bulls, though not far behind. Fort 44 percent, saying it's going to rally 9 percent. Flat. Mike Santoli's here with his last word. I'm kind of surprised it was that split, I guess, although I don't know. There hasn't been much conviction either way.

Yeah, because it is almost binary. It's a coin toss because of the setup here. You know, we just descended almost to 4,000 on the S&P, right? Closed just above there. We first got down during this pullback all year. It's been running all year to this level one month ago today. Right. So it's May 9th. Obviously, we just got got lower than that at the lows three weeks ago. But what's higher since then? Well, the two year note yields higher by 20 basis points.

Energy's higher. So the key pressure points on this market have kind of explained why we've kind of rolled over a bit back to these levels. I don't know that it necessarily gives you an edge about tomorrow, but it does suggest that we're still stuck in this thing. We're probably going to be for a while. The bounce was impressive in its way, and I do believe created a little bit of a plausible cushion because of how broad that three-day rally was off the lows. But that only comes into play if you're going to potentially re-approach it, which is down 5% from here. Central banks got real again today. That's the thing.

That's one of the issues. AMD late in the day is probably not going to help sentiment as you trend towards earnings season. I think all of that and just the idea that it's a summer of we're going to be wrestling with mostly the same issues, most likely. The central bank, she mentioned, one would have thought what the ECB conveyed today was already understood and therefore perhaps was in the market. And it wasn't. So I think that's your little test of that right. If you had to pick a word, I looked at your notes. It's heavy, right? The market feels heavy again.

And I wrote that before we really fell out of bed because it really was. We were spending a lot of time at the low end of this range that had been going on for 10 days or so. I don't think it necessarily means, OK, the new down leg has started, because I do think you still got the situation out there where people have generally stepped back from risk. They're not really confidently betting on a return toward the highs, but it's a show-me market, right? I mean, the rally was 9 percent, but it never got close to the levels that bulls and bears alike said would have made the difference between just a reflex bounce and something more. What do you make of the VIX? What did I see it at, 24, 26?

It's showing fatigue with the entire kind of persistence of all these issues. People had become very hedged up to the last three years, three months rather. And they've just backed off. They don't have to buy as much production because they sold out to a fair degree. Also, over the last 10 days, the actual volatility of the market has been incredibly low. So it's not as if you're pricing off of this market and you're going into the summer. Whatever you think about the direction of the market, usually you're not going to bet. What the VIX is, is how jumpy are things going to get in the next 30 days? More or less than they've been right now?

Well, we're all going to be watching tomorrow morning to see what happens and how the market reacts. And we will see. We'll have another chat tomorrow. All right. That does it for us. That's Santoli's last word. CQ, it's all yours.