Closing Bell - Closing Bell Overtime: Inside Risk-Reward 9/9/22

Episode Date: September 9, 2022

Is the risk-reward for stocks improving despite some bearish commentary from Scott Minerd? Charles Schwab’s Liz Ann Sonders gives her take. Plus, top technician Mark Newton breaks down the charts and reveals the sectors he is betting on as we head into the end of the year. And, Bank of America’s Marci McGregor reveals her recession playbook.

All right, sir. Thanks very much. Welcome, everybody, to this Friday edition of Overtime. I'm Scott Walkman. You just heard the bells. We are just getting started here for Post 9 at the New York Stock Exchange. And in just a little bit, I'll speak to Fundstrat's technical ace, Mark Newton, on whether this latest rally can keep going into next week, even as another critical read on inflation looms especially large. We begin now with our talk of the tape, the risk-reward on stocks. Is it improving just as one big-name investor calls for a coming crash? Let's ask Lizanne Saunders. She's chief investment strategist for Charles Schwab.

It's good to see you. Thanks for being with me. Up 4% on the week. Why are we rallying? Are we in tune with the Fed? Are we trying to get ahead of a CPI report we think is going to be pretty good? I don't know if it's sort of front running any kind of whisper number on the CPI. I mean, the leading indicators have suggested that there should continue to be downward

pressure on CPI, certainly at the headline level, because of what's happened with energy prices. I think the rub might be that the core change will be a bit stickier just because of the shelter components, which probably still have a little ways to go before they start to turn down. I think the market these days, also short term, has a lot to do with just technical conditions being hit. You get oversold, as we did at the recent lows, and you get a bit of a relief rally, and you see it in sentiment indicators in the very short term as well. So I think it's too soon to tell whether this rally is healthier or longer-lasting than the one that went from mid-June to mid-August.

At this point, it looks more technical than anything else. So it sounds like you don't put much stock into it. Pardon the pun. Well, again, I think it's too soon to tell. It's been a few days. It's the nature of of the kind of volatility, not not measured by the VIX, but just some of these reversion trades that happen over the course of a number of days or a number of weeks. I think the CPI report is important and we'll see whether it moves the needle in terms of expectations for 75 or 50. Much discussion about the Tim Rose article in the Wall Street Journal pointing to 75, but that's obviously in advance of the next CPI report. So, you know, Powell was pretty firm again yesterday saying our job is not done yet.

Brannard was maybe a little bit more dovish by mentioning that there is a risk of overtightening. So there's that back and forth right now that's interesting happening between the two most senior people at the Fed. Not that they're on opposing ends of the spectrum. It was just a subtle difference in their messages. Sure. So you mentioned the potential for a more sticky, I think was the word you used on the core. BlackRock's Rick Reeder tweeted a few moments ago. I want to get your reaction to this. In our view, the risk of a persistence to core inflation is quite real due to structural tailwinds

stemming from strong wage gains and elevated shelter inflation. Ultimately, we think the Fed should get to a terminal funds rate of between 375 and 4, but then should pause and watch, allowing for, quote, long and variable lags to work their way through the economy. What do you make of what Reeder says? It sounds like in part you agree with what he's saying, but what about fully his prediction of what he thinks may happen? Yeah, I think that that's probably a pretty accurate assessment of what we're likely to see. I think what Powell tried to emphasize at Jackson Hole, I think, without saying it explicitly, is that there is a difference between a pause and a pivot. I think that the basis for the mid-June start to the rally was on this notion of a pivot and pricing in sooner rather than later rate cuts. I think the only conditions that would give a green light for

the Fed to initiate rate cuts so soon after such an aggressive hiking cycle would be a more dire economic scenario or more deterioration in the labor market than what I think is built into the cards. But I think a pause at some point, maybe not right after the September meeting. Yeah, you know, we do think that the Fed is going to be able to just kind of take a breather. But that's very different than a quick shift to rate cuts. What if the CPI does, in fact, show really large improvements? We know it's been taking place in fuel and many other parts of the inflation curve, if you want to term it that, some more than others,

obviously. But what if there's real improvement next week? Does that change the paradigm for how you would view stocks from here? I think it's a better backdrop for stocks. It's not necessarily a green light for the Fed to quickly move to pause mode. As long as you see a still fairly tight labor market and strong gains there, not to mention the fact that Powell and pretty much everybody on the Fed has talked about there needing to be a series of lower lows, not just two months following a peak with still elevated levels. I think if the labor market had already deteriorated and we were seeing a retreat in inflation over the course of several months, that might be a more near-term green light. But I don't think the Fed wants to

kind of declare victory too soon, given their emphasis on this being a process, not simply a look back at a peak, either at the headline or the core level. So, yeah, beneficial for the equity market, but doesn't necessarily change the near term trajectory for the Fed. I guess the question is, and maybe it's too soon to answer, as you said, as to whether the risk reward has improved for investors. I spoke with Scott Minard of Guggenheim yesterday, who suggested decidedly that it has not. I want you to listen to what he said predicting a 20% decline in stocks by mid-October. Here's Minard. If it just appears that people are ignoring the macro backdrop, monetary policy backdrop, which would basically indicate that the bear market is intact

and given where seasonals are and how far out of line we are historically with where the PE is, we should see, I think, a really sharp adjustment in prices very fast. How would you react to that? I agree. I think that the risks is still or the balance is still toward the risk side, not the reward side. There's opportunities that come with some of these trading rallies, but I don't think we're out of the woods yet. I think the market may have priced in a decent amount, if not all of what we've already seen, which is the spike in inflation, the move to tighter monetary policy, maybe even some version of a mild recession. But what I think is still yet to come is the potential of weakening in the labor market, somewhat engineered by the Fed,

because they've said they want to see that. They want to help bring that about in order to keep inflation down on a more sustainable basis. And I also think the weakness in earnings is still ahead. We've seen a rolling over in second half of the year estimates, as well as into the beginning of 2023. But I think there's more to go on the downside there. That doesn't mean there's not going to be opportunities that come from some of these risk rallies, relief rallies, counter trend rallies, whatever you want to use term you want to use. Sure. But I mean, it's one thing to not be out of the woods. It's another thing to have trees falling on you. I mean, that's essentially what Minard is suggesting could happen over the next

four or five weeks. Do you see things as, you know, with the potential to be as dramatic as a 20 percent decline? Look, you know, Scott, as you know, I don't try to play the precise market timing game. I'm honest in that I don't have any better ability to do that than anybody else does. But maybe more importantly, I don't think that's the key to success for investors. That's what we're most firm about. Picking tops and bottoms and timing them to a matter of weeks shouldn't matter. We're all going to be right sometimes. We're all going to be wrong sometimes. But that should not be the basis for investment decision making, at least not for our client base, which are individual investors that should be disciplined. So would it surprise me to see a

retest of the June lows, given all the risks that we talked about? No, but I wouldn't suggest that especially individual investors make any major shifts in portfolio with a four to five week time horizon based on my, Scott, anybody else's perspective on what the market is going to do. I just think that that's really important because, and I know your role on the show is to get people to sort of, you know, put a stake in the ground. I continue to think that this is a risky market environment, whether or not it's 20 percent in the next four to five weeks. Honestly, I don't know. Yeah. I mean, I think in part of what we discussed yesterday was this notion that if in fact it happens and forget the 20 percent number. But let's just say a decline of major magnitude, a crash is essentially what what he is predicting.

You get a credit event as a run on experience of that. And then that in it in and of itself brings the Fed back into the game and causes what I think he termed, if I remember correctly, a soft pivot. Does that sound reasonable to you, if things were to get as dire as that number notwithstanding? So that sort of brings back the question about, is there a Fed put? I think there isn't just simply based on a percent decline in the equity market. But to the part of your question about a credit event, I think in particular in this environment, that's likely to be sort of the first kind of canary or warning shot across the bow, something that you see in the credit markets, which have been fairly tame so far. If it then actually leads to disruption in the

financial system, then yes, I think the Fed could step back in. The Fed has been really clear, and Powell's been saying this all the way back to 2018, that there's an important distinction between financial market volatility and financial system instability. Financial market volatility in and of itself is not going to cause a Fed pivot, not going to reinstitute the Fed put. But if it ends up being an infection that starts to threaten financial system stability, that's a different story. And that's something that could certainly brew within the credit markets. Hasn't yet, but that is a risk. The other thing that's really interesting for investors, I think, Lizanne, to try and figure out or game out is you can think that we're going to eventually

have a recession, but you can also think that that recession is not going to be for a year from now, maybe even more. So it in some cases changes the dynamic of how one should look at the market between now and that that period of time that you can have a different market than you will a year from now. We just don't really know. And thus, people have to make sort of intricate and difficult, maybe nonive, indecisive investment decisions as a result of that? I'm not sure if a recession is ultimately declared that it might not come until next year versus this year is necessarily a better backdrop for the market. In many ways, it would be better if the recession was already underway or was here in short order versus pushing it out. It's just

the uncertainty factor and the unlikely sort of unlikelihood of a significant move back up in economic growth that then you get the rollover into recession. I think more likely if a recession is not until a year from now would be still a pretty slow growth kind of environment. I think the more likely scenario, and maybe you could even bill it as the best case scenario, is not so much soft landing versus recession, but maybe a rolling recession. And that's not really a common concept. But given that we already had negative GDP in the first half of the year, we've got pockets of the economy, not least being the good side of the economy, the stay at home kind of segments of the year. We've got pockets of the economy, not least being the good side of the economy, the stay-at-home kind of segments of the economy, some of the consumer discretionary areas,

very clearly in recession. But it's offset by the strength we're seeing in other areas, not least being services, the unique nature of the pandemic and keeping the labor market more afloat than might otherwise be the case. So that's a distinct possibility, much like we had a rolling bear market last year, an environment where the indexes were healthy because of the weight of the big cap names keeping at the index level. That has reversed this year. We could have a situation where a recession happens on a rolling basis, maybe confounding the NBER that has to date it and declare it because it's not as clean and simple this time, which it never is. But I think the nature of the pandemic suggests that this could happen on a rotational basis. You make a good point. Let's broad the

conversation if we can. Bring in CNBC contributors Courtney Garcia of Payne Capital Management and our own Bryn Talkington, of course, of Requisite Capital Management, a member of the Halftime Investment Committee as well. Liz Ant still with us, too. So, Court, we're back above where we were, I guess it was a couple of Fridays ago, the Jackson Hole low, if you want to call it that. What does that mean? And where do you think we are going from here? Yeah, what I think is really positive to see right now is the markets are reacting well, despite the fact that the Fed is coming out with pretty strong language, right? I mean, they're saying that they need to act forthrightly, they need to act strongly, yet the markets are doing well, meaning they've likely already priced in the fact that 75 basis

point rate hike is likely going to happen later this month. And they're starting to look beyond that. And I think what is positive was they are continuing to see signs that inflation is coming down. This very well could be one of those cases, just like last year, where everyone knew inflation was coming. The Fed was behind the eight ball. Now inflation is starting to come down. The Fed may be behind the eight ball again. And you just want to make sure that you're investing properly there. Yeah. Bryn, what about this minored call that we got yesterday for essentially a crash in stocks over the next handful of weeks? Yeah, those are always risky things. It reminds me a little bit of the great Elaine Garzarelli.

Those predictions come often, but they're not usually correct. I think that to get the case for Scott, who's obviously a great investor, something would have to change. Because right now, I think next week, CPI, let's just assume it comes down, right? Shelter's going to be higher, food's probably going to be higher, but energy, autos, et cetera, probably come down. And so you get a slight move there. The market is not ignoring the Fed. The market continues to price in the Fed hawkishness every single day. And so I think for Scott's narrative and his thesis to come true, you would have to have an exogenous event enter the market. An exogenous event in the definition is like not predictable. So I'm going to put that to the side for a second

because I just don't think you can predict what would happen to create that. I will say where what's been interesting for both the NASDAQ and the S&P, the NASDAQ and the S&P continue to make higher lows. And so, you know, the other day when Joe went into the queues, I mean, the queues I looked today, they really don't have a lot of resistance until about 12,600. And we've got about another 25 points on the S&P until we get to that 4,100. But I think looking at technicals, the market's actually trading very orderly and digesting this information. So I think if we get a good read next week, and that's what the market's expecting, I think this rally actually could continue through next week. I wonder, Lizanne, if you need that exogenous event that Bryn speaks of or if

simply you need a reality check. That's what Minard would say in that the price is wrong. Earnings are absurd at these levels, given where inflation is, and thus the valuation makes no sense. And once that gets back in balance, that's when stocks are going to go down to get you back into some sort of reasonable balance of where earnings are going to go and what the multiple on the market should be. Yeah. And the rub with the multiple analysis right now is that we've been in an environment for two years where regardless of whether the market was doing well or not doing well, as is the case with the first half of this year, you had the denominator in the PE equation moving higher. Now that it's just started to roll over and I think has more to go on the downside,

so all else equal, not that it's ever the case that all else is equal from a price perspective, you've now got the denominator putting upward pressure on multiples in an environment where, yes, maybe inflation has peaked and started to come down. But where we are in terms of inflation right now, historically, that has supported an average multiple down in the 12 range. Now, that doesn't mean that in and of itself is an immediate reason for a move from an 18 multiple to a 12 multiple. But if we get a sense that inflation is staying a bit stickier on the high side, maybe with more color in the next CPI report,

and continued downward move in earnings, that means that the multiple problem becomes, I think, a little more front and center. Right. Court, I wonder if you can weigh in on that, too. Right. This two headed problem. The valuation is wrong and then the earnings are too optimistic and those are going to get revised lower and the multiple is going to come down. You know, I think, too, when you're looking at this, this is going to happen in different sectors of the markets. I think a lot of your high duration assets or your long duration assets are very well likely going to continue to get punished because I think Lizanne had a really good point though. Even with inflation coming down, it is still higher than it has been over the last decade. And so we are going to be in this period where you want to be in the assets

that are continuing to do well, even if inflation is higher, even if growth is slower. So I think you're going to see multiples come down in different areas of the economy. Like we've even seen when jobs are getting cut, that tends to be in your technology sectors, whereas in your travel industry, they can't hire enough people. I think the same kind of idea is going to happen with your valuations. It's going to come down on those higher valuation companies. There's still a lot of other sectors here that I think could actually continue to do well in this area. Perfect segue for the last word for you, Bryn. Those areas, as you see them, are what that you want to be in right now? Well, I still want to be in energy, right?

So obviously, and on earnings, energy is about 10 percent of earnings this year for the S&P. So definitely punching above its weight. I think you want to be in health care. I think like Garpy, you know, Garpy type tech. And once again, I'm still a big fan. I think volatility is going to be high. So educate yourself about covered calls because I think that offers really great income while this volatility and while this bear market is upon us. Ladies, it's been a pleasure. Enjoy the weekend. We'll see all of you soon. That's Lizanne Saunders, Courtney Garcia with

us, Bryn Talkington. Of course, my thanks to all of you. Let's get to our Twitter question of the day. Now, we want to know which of these sectors will perform best over the remainder of the year. Is it tech? Is it Brins Energy? Is it health care, which has done quite well? You can head to at CNBC Overtime on Twitter. Place your vote. We'll share the results before we get out of here for the weekend. Up next, we're betting on a near-term bounce, or are we? Star technician Mark Newton breaking down the charts and naming which sectors he is banking on heading into the next few weeks. We're live from Post 9 at the New York Stock Exchange. OT's right back. Utilities and financials, two of the top performing sectors this week.

And our next guest says both sectors are good plays for your money heading into the fall. Joining us now, Mark Newton, Fundstrat Global Head of Technical Strategy. It's good to see you. On the market itself first, what do the charts tell you? Where are we going from here? Well, Scott, my thinking is that we can still trend higher into the middle part of next week. And there is a good likelihood that we stall out and begin a correction. And so the back half of September, I do expect to be down. Markets likely bottom out in the month of October and should trend higher through the seasonally bullish 4Q period. How far down do you think we go? The minored down, the Scott minored down of 20 percent by mid-October from here or what?

It's really, really difficult to put 20% on a pullback. My thinking is we will likely undercut this week's lows, but we should not get down under June lows for the year. You have to remember that sentiment right now is really as bearish as we've seen since June. And we still have a lot of investment managers that have been caught completely off sides. And everybody's talking the same playbook, that earnings revisions have to come down and people are on the sidelines. And so, you know, yes, there is some opportunity in some defensive sectors. But my thinking is it's going to be very difficult to pull back to new lows right away. But why are we going to go down next week towards the end of the week? What's the catalyst there? Well, I don't know if it's a fundamental catalyst. My thinking is, you know, CPI might come out better than expected. That could provide a little bit of a boost. And there's a blackout period.

So the Fed really can't discuss that until the meeting. I'm looking at cycles. And, you know, the middle part of the month has been very important over the last five out of six months. Markets peaked in mid-August. They bottomed in mid-July. They bottomed in mid-June. They bottomed also in mid, you know,arch and May. So there's been an incredible amount of timing towards the middle part of the month. And some of the composites that I use actually trend lower starting next week into early October. So while I'm bullish this week, and yes, we are in an era of heightened volatility, markets can go up sharply for now. And my thinking is they can drop. But my thinking is it's probably going to be 10 percent. And it's very difficult to put a real number on the extent of what the pullback

should be. But that will ultimately end up as being a buying opportunity in October. Midterm election years, that tends to be the best part of the year with inflation starting to come down, as Tom Lee and others have commented on. You know, gas prices have fallen 30 percent in three months. That's not being reflected in CPI data. So on, you know, gas prices have fallen 30 percent in three months. That's not being reflected in CPI data. So we are going to see gas prices falling down, which actually might create a more contentious midterm election. And this wall of worry likely should fuel market gains between October and the end of the year. You talk about tech a lot. What's the importance, if any, of financials and health care outperforming at tech's expense?

That can't be viewed as a positive sign. I wouldn't think so. Or is it? Tech is performing very well today. My only point there is that these sectors have been able to come together to really buoy the market at a time when tech has been underperforming. So it's a positive to see, you know, financials and healthcare, that's 25% of the broader market. And those are up over 3.5% this week. So when you see a broad-based rally in industrials, discretionary, healthcare,

you know, financials, great, great groups. And on any down draft, my thinking is, you know, these groups can come together and probably cushion the market to not decline as violently as what, you know, everybody is expecting. What about and lastly, the idea that you put forward, I don't know, seven, 10 days ago that Apple held the key for the whole market at those levels? It hasn't really done all that much. I mean, it's 157. So it's a couple of dollars ahead of when you put that thought out.

How do I square that today? Apple remains incredibly resilient compared to most of technology. It's still quite attractive technically, and it's one that I definitely would want to own on any weakness into October. So, you know, Apple and most of tech hardware have acted much better than the entire semiconductor sector as well as software. Tech hardware is where you want to position. And my belief is that Apple, along with Microsoft, will be ones to definitely buy on any weakness over the next four or five weeks. We'll talk to you soon. Enjoy the weekend. That's Mark Newton of Fundstrat. Scott, likewise. You too. Technical analyst. Yep. All right. Take care.

Up next, your recession playbook. Bank of America is forecasting a big downturn to kick off 2023. Investment strategist Marcy McGregor joins us after the break with her approach to trading the potential pullback. Over time, we'll be right back. Time for a CNBC News Update now with Shepard Smith. Hi, Shep. Hi, Scott. From the news on CNBC, here's what's happening now. King Charles III giving his first address as monarch today, promising to honor Queen Elizabeth's lifelong devotion to her people. Queen Elizabeth was a life well lived, a promise with destiny kept,

and she is mourned most deeply in her passing. That promise of lifelong service I renew to all today. The New King also announcing Prince William will assume his title of Prince of Wales and his wife Kate will become the Princess of Wales, the title last held by Princess Di. New York Governor Kathy Hochul issuing a state of emergency in response to a growing polio outbreak. The order allows certain health care workers to give the polio vaccine and requires providers to send their immunization data to state health officials. The first U.S. polio case in nearly a decade diagnosed in July.

Then last month, health officials said they found polio in the wastewater in New York City and four counties in the metro area. Tonight, Wilfred Frost live in London with the latest on King Charles' plan for the monarchy, plus a landmark case in the state of Ohio. It's forcing one college to pay tens of millions of dollars for defaming a local small business. On the news, 7 Eastern, CNBC. Scott, back to you. All right, we'll see you then. Shepard Smith, thank you very much. Bank of America out today with a revised recession call.

The bank pushing its forecast for a mild recession from late 22 to the first half of 2023, saying, quote, the economy has retained more underlying momentum than anticipated. Joining me now, Bank of America's Marcy McGregor. Marcy, it's good to see you. So what does this mean for the markets in your in your view? Well, I think it's really likely that we're going to see a Fed that gives us another large rate hike next in a couple of weeks. The market is expecting 75 basis points. The Fed didn't use any of this window before the blackout period to push back on that. So I think the Fed right now is acutely aware that the biggest mistake they could make is the stop and go strategy of the 1970s. So the Fed's going to march ahead.

I don't think we're paying enough attention to QT, which is projected to be at four times the pace that we saw in 2017 and 2018. But you have a labor market that's really holding up. So when given the choice of a little economic pain or bringing inflation down, I think the Fed's going to choose to bring inflation down. And I think that raises the risk of a recession when we look towards the first half of next year. You can't be optimistic stocks under that environment. I don't see how you could. Right. Well, the bulls would point to sentiment right now. It's extremely bearish. I think that's what's given us this rally this week. But I think once I look right past what's in front of our face, we need to see earnings estimates come down for 2023. That process has just started.

Liquidity is being withdrawn. Like I said, the Fed's going to keep marching. Eight and a half percent CPI is way too high. So I'm cautious. We've kind of shifted from being on guard recently to even a bit more defensive. So I'm cautious. I think this reset is going to take several months into next year before we can really resume that long term secular bull market, which I do believe that we're still in. But I think volatility is going to be the story of this fall. Sounds like you're painting a scenario where it's not, you know, go big and go home for the Fed. It's go big and never leave, or at least don't leave for the foreseeable future. And higher for longer has been one of the principal risks

for the markets, hasn't it? I totally agree. And I think that the Fed is going to stay higher for longer. We think that you might get a pause at the beginning of next year. And as soon as the market smiffs out any pivot, they're going to find some relief in that. But I don't think you see a full Fed pivot with cuts until the latter part of 2023. The Fed has to be absolutely convinced that inflation is coming down. It doesn't have to be at their 2 percent target, of course, because it's a lagging indicator. But you need to see inflation coming down. And for that trend to really be in front of the Fed's face, I think for them to even consider a pause or pivot right now. We've seen a little bit of softness in the labor market. Without meaningful weakness, the Fed keeps

marching. So I agree it's going to be rates higher for longer from the Fed. They just want to avoid those mistakes of the 1970s. You know, we've been talking really since yesterday's program. So the better part of 24 hours now about a call by Guggenheim's Scott Minard, who said he was looking for a 20 percent drop in stocks by mid-October. He's tweeting again as we're having this conversation. And he says, and I quote, connecting current equity market valuations, inflation, the macro and monetary backdrop and weak seasonals, it suggests a 20 percent drop in stocks. How would you react to to all of those things that he says leading to what he predicts is going to be a sharp decline? From what I see right now, I think when I look at the earnings side of the picture,

it's going to be a mild drawdown in corporate earnings, too. We're forecasting about an 8 percent decline next year for EPS. And that's because, you know, free cash flow, a strong consumer and even a pretty strong labor market is going to keep the corporate side pretty fairly balanced. So I don't know that I agree with such a strong pullback, especially since the market is still down year to date. We retraced a lot of those gains from the summer already in the past few weeks. So I think it's more likely that we're in a range bound market. The number I'm watching is 3573. That's what tells me we're still in this long-term secular

bull market. So as long as we hold above that, we're still long-term positive. But I think you can see us trapped in this range again until you get two factors. Earnings estimates meaningfully revise lower. I just think they're too optimistic for next year and a Fed that starts considering a pause, you know, if it's way too soon to continue to expect a pivot. But I think those two factors is what would cause the markets to stabilize and get back to that long-term trend. So I think it's more about being stuck in a range for some time. But earnings revisions aren't going to be like ripping a Band-Aid off. I think it's going to take, you know, most of fourth quarter and into next year as companies issue more guidance for those estimates to come down. I find it interesting that you in this

environment, which you think is, you know, not going to be great. You like value over growth. Is that principally because of what you said about the Fed, how hawkish and resolute they're going to be that elevates rates and thus longer duration assets go lower? Yeah, so I think where we are right now is exactly that. I think especially those high flying growth stocks are going to continue to come under pressure. I still like energy. I know it's wobbled recently, but I think that's an opportunity. When you saw that disconnect between energy stocks and the actual commodity in recent trading sessions. That tells me that investors are looking at the fundamentals of energy stocks, the free cash flow,

the dividend yield, and the valuation story. So I think we have an opportunity still in energy stocks and then more defensive areas like utilities and even healthcare. Large pharma, again, dividend-paying companies, I think is a good place to wait out some of this volatility. So while we're not kind of going to one side of the boat, I still want some exposure to higher quality growth names. I think it's going to be value that leads us through this volatility. I got you, Marcy. Thank you so much. That's Marcy McGregor joining us today. Up next, the bull case for chips. Semi stocks snapping back this week. But should you believe the hype and the bounce? We'll discuss with top chip analyst Stacey Raskin after the break.

Semiconductor stocks bouncing back this week. The ETF that tracks that space posting its best week since July. But the group is still down nearly 30 percent on the year, largely on concerns of slowing demand. So let's bring in Bernstein's Stacey Raskin. He's back with us. Good to see you again. I mean, I guess the big question I'd have is why would I want to buy any cyclical tech, highly cyclical tech in the here and now? I don't know that you do. I mean, you're right. I mean, like some of these have had a good week, I guess, but they're still down, oh, 10 percent over the last month. They're down 30 percent for the year, much worse than the overall market.

They're still down 20 percent year over year. Investors are very worried about the broader economy of inflation, COVID, war. They're worried that all of the strength we've had in the numbers and the fundamentals of the last year was not sustainable. They're worried about overshipment and double ordering and that sort of thing and inventories building. And now we actually are starting to see some signs of cracks. There are some very significant weak points in the industry, particularly around some of the consumer-focused areas, PCs, smartphones, graphics cards, TVs, that sort of thing um they're kind of grasping onto some of the investors are grasping onto some of the other areas that are still holding up auto industrial but i mean they're obviously worried that those will be the next shoes to drop as well so look

i think there's a lot of worry out there right now on the the last week's performance like for the space notwithstanding yeah i mean no it sounds like literally you don't believe the hype at all. You don't believe this bounce. Are you suggesting that it's soon to evaporate? Well, I don't know, but we've been cautious for a while. I mean, I started downgrading stocks in September on some of these worries over shipment and double ordering, even before some of the macro stuff. In hindsight, we probably should have downgraded a few more, as it turns out. But I've been worried about sustainability of demand, increasing evidence, at least to me, that some of the strength we're seeing is not necessarily going into end products, but rather is going into inventories potentially

on the shelf. There's a phenomenon that happens during supply shortages when customers can't get what they want, they order more, right? We've talked about this before. It's a toilet paper situation from a couple of years ago. And now fold on to that like real worries about the macro and covid that is still around and inflation and everything else it causes concern so i'm nervous i've been nervous yes okay i mean let's talk intel uh before i let you go uh thirty one dollars and a half that's where the stock is now you have an underperform on it with a $30 target. They finally break ground today on these Ohio plants. I want you to listen to what Gelsinger, the CEO, Pat Gelsinger, told our own Christina Parts and Novelos today. We can chat on the other side of

that. Sure. This should be the beginning of supply chain rebalancing. You know, it's not just about the fabs, but so many other components of the supply chain. So that's what Gelsinger says. And then Christina tweeted just a few moments ago that the CEO also told her that the two fabs could take three plus years. That essentially pushes back the 25, 2025 deadline. As negative as you are on Intel, how, if I'm in the stock today as an investor, do I need to be thinking about this over the next three to five years? Yeah, so, I mean, I think he even talked about this a little later in that interview, but he's right. You're spending a lot of money for quite a few years with no revenue, right, because it takes time to bring this stuff online.

I think there is still, it's still open for debate whether or not they're actually going to need all of the capacity they're bringing online. And as you may know or your viewers may know, Intel had horrendous earnings a couple of months ago. They took a massive haircut to their numbers. As it turns out, it may not have been enough. Gelsinger was actually at a couple of recent conferences this week, and the transcripts are available, where they're basically suggesting already that even this quarter, as bad as it was, they're probably tracking the low end of guidance. So I think it's questionable for their own business how much capacity they're going to need. Now, clearly, a lot of what they're building for is maybe not even for their own current business. It's for

this foundry business that they're trying to build. They want to build out a business where they'll be making parts for other players. That is still open for debate though. Like how competitive are they going to be, especially when they're having trouble delivering on their own roadmaps, let alone anybody else. How are they going to compete against a TSMC? Is it going to have to be come down to a pricing game?

Can they actually get the business that is required to fill the capacity that they are going to spend three or four years actually sinking into the ground and many billions of dollars. These are all unknowns. I always say like Intel, if you're owning it, like it's a five year story and we are just at the beginning of that transition and it is likely to get worse, potentially far worse before it gets better. So these are all the things that are going to have to be on your mind if you're an investor in the stock today. I think our viewers definitely remember the most recent earnings report, as do I,

which I think you declared you were speechless when it came out. You couldn't even figure out the right description for it. I appreciate your time as always. Stacey, have a good weekend. We'll talk to you soon. I bet you got to. Stacey Raskin joining us. All right. Thanks. Up next, we're wrapping up another busy week on Wall Street. Seema Modi standing by with our rapid recap. Seema. Hey, Scott, stocks climbing back. A risk on rally allowing major indices to see their first weekly gain since mid-August. Even as speculation grows that the Fed could deliver a 75 basis point rate hike at its next meeting,

we will dissect the price action, uncover the biggest movers right after this short break. Scott, it is time for the rapid recap. Major indices breaking a three-week losing streak as yields move slightly lower. All 11 S&P 500 sectors closing the week with gains led by consumer discretionary, which just recorded its best weekly performance since late July, helped in part by weakening oil prices on the back of global growth concerns, the weak trade data we got out of China. Gas prices have now fallen for 87 days, providing some level of relief to Americans

and raising hopes that the next week's read on inflation will show that prices overall are cooling month over month. The Russell 2000, the small cap index outperforming this week as the dollar strengthens. Remember, this is a domestically oriented companies that do benefit when the dollar moves higher. Posting a three week winning streak. That's the Russell 2000 first time since late August. Best performing stocks, though, on the Dow this week. That would be American Express and Salesforce,

both adding nearly 6% this week. Scott? All right, Seema, thank you. Have a good weekend. That's Seema Modi. Up next, our two-minute drill. Why one money manager is looking to a key retail stock for some big returns.

We'll make his case just ahead. And later, don't miss CNBC's special tonight, Crypto Night in America. It's hosted by Brian Sullivan, 6 p.m. Eastern Overtime. It's back right after this. It's time for our two-minute drill now. Joining us, Max Wasserman of Miramar Capital. It's good to see you on this Friday. We've talked so much about the markets this hour. Let's just do some straight stock picking, okay? Let's try and get some ideas to the people. Home Depot is your number one pick. At least it's number one on my list.

Housing markets in big question. Why this one now? Well, if you look at the Home Depot and look at that part of the markets, $900 billion addressable market. There's 130 million houses basically out there. And with about 70% of the homes over 25 years of age, and 50% of those are basically over 40 years. So if you look at the home repair, they're just doing a great job. They're growing big-ticket items at 9%. Year-over-year growth has been 8%.

And if you look at the stock right now, it's down from a high of 420 and it's trading around 300. We like dividend growers. It's a five-year dividend growth rate of 17%, shielding about 2.5%. So if you look at the risk-reward from this price, I'd be cautious in the next month because the Fed's rates are coming up. But we like that part of the market. And it's already down almost 30% for the year. So we think the risk-reward for Home Depot looks very favorable. But you don't think this whole remodel thing was pulled forward dramatically during the pandemic, and now it's tapped out? Well, if we look at from what the company's been telling us, now they're into the different portions of upkeep and repair.

The first part of the house market was basically their stay-at-home more. So people are working on the outdoors, they're doing the painting. But from what they're telling us, 50% of the revenue is coming from the professional side and showing no signs of deacceleration. And even the individuals that do it yourself are still doing a lot of home repairs on the houses, given the fact that they're so underinvested in this market. And the age of the home, you have an average home about 40 years of age, it needs home repair regardless. And the fact is, really, Home Depot is tied to house appreciation, not necessarily new home sales, because only new home sales about forty five percent a year

really everybody stand in their homes and parents we still see that happening but i would be cautious going into the next thirty days but the stock is off thirty percent for the year and at this seventeen times earnings which is about what the markets pain giving you a seventeen percent growing dividend buying back stock we think the risk reward favors it. Clock just hit zero. It means we're out of here. We'll talk to you soon. That's Max Watson joining us in our two-minute drill.

All right. Up next is Santoli's last word when we come back. To the results now of our Twitter question, we asked which of these sectors will perform the best over the remainder of the year. Tech and energy, neck and neck, both got 41 percent of the vote. Thank you for voting. As always, Mike Santoli is here for his last word. I heard you say earlier we've been in a four month trading range, right? And now what are we? We're back today above the two week ago Jackson Hole low. Above the close.

Above the close. And essentially right in the range of that day. So it's a two week high. on May 10th. Right. So four months ago tomorrow, we hit 4068. That's basically where we closed today. So, you know, I think the lesson of that is that, you know, a good deal of the downside work was done in the spring. And we've been kind of slopping around in this range, trying to figure out the basics here. What's interesting is I don't think that the market is ignoring the Fed speak, but we've kind of just got some calluses built up. And the inflation number next week is going to speak louder than whatever has been said. Right. One direction or the other. The market's making an implicit bet that we are on the downslope with inflation and

it's going to buy the Fed some time at some point. Another thing that might be relevant, we've had these mid-month inflections. So you saw the August 16th was the high, June 16th was the low before that. It's somehow linked up with options expiration, which is next week. So it wouldn't be surprising if you got this very strong start to September, gave some of it back. So I think we have this cadence within that overall range that's worth being aware of. The risk, of course, is you get a good CPI, quote unquote, good CPI. And then at the Fed meeting, you get a still hawkish and resolute Fed. Right. You get the 75 basis points and then it's we're not stopping anytime soon. That's right. Of course. And so that's something in, you know, in 12 days that we're going to have to be aware of.

Is that more likely than not at this point? I'm not sure if it's more likely than not because we got a couple of people saying we don't want to over tighten and all the rest of it. But it's it's absolutely the risk out there. And it's not clear exactly how well calibrated it is in the market. Good weekend. You too. We'll see you on the other side. Mike will be back next week, as will I. Look forward to that. Have a great weekend, everybody. Fast money begins now.