Closing Bell - Closing Bell Overtime: Is Buy the Dip Back? 8/16/22

Episode Date: August 16, 2022

Virtus Investments’ Joe Terranova says any pullback could present a big upside opportunity – he makes his case. Plus, Gabriella Santos of JP Morgan Asset Management thinks the market could see another leg lower in the fall. And, the red-hot housing market is showing signs of cracking following a slew of bad data … but UBS thinks this could actually mark a turning point for homebuilders.

You're listening to Closing Bell Overtime in Progress. The market just closed with the Dow posting its fifth straight daily gain, the Nasdaq finishing slightly in the red. President Biden just signed the Inflation Reduction Act into law at the White House. As you just saw, let's get right to Kayla Tausche to wrap that up. Hey, Kayla. Hey, Mike. You're looking at the beginning of President Biden and the administration's aggressive publicity campaign throughout the month of August, where they're going to be hitting the road to talk about the various wins in recent weeks from the passage and now the signature on the Inflation Reduction Act, the CHIPS Act, and the recent inflation data. President Biden, as you just heard,

said that this is a triumph of democracy over special interests. But notably, there are some who stand to benefit in a big way from this bill. Sitting front row, Senator Joe Manchin of West Virginia, who was one of the core negotiators, a critical swing vote for this deal to get across the finish line with all 50 Democratic senators supporting it. And there are a couple specific wins that Manchin will take home to West Virginia. Notably, the White House will not stand in the way of the Mountain Valley pipeline, which carries natural gas across the state of West Virginia to the Northeast. And that's why you're seeing stocks like Equitrans Midstream, which is one of the owners of that pipeline, which has been protracted in legal battles and permitting red

tape for several years. That stock up one and a half percent today, 14 percent this year. And you can see that very recent surge as this deal came together, Mike. So some rubber meeting the road in the corporate sector as the president is set to hit the road to talk about this. All right, Kayla, thank you very much. Yeah, absolutely. The impact of that bill already rippling out into the market. And welcome to Overtime. I'm Mike Santoli in today for Scott Wapner. Let's get right to our talk of the tape. Buy the dip is back. That's the market call from Virtus Investments' Joe Terranova. He says any pullback could present a big upside opportunity. And Joe is with me here at Post 9 to talk more about it. Joe, good to see you. I know

you weren't talking about just an intraday by the dip, but we got one and we also got to sell the rally. Let's break down today just a little bit and where it sort of fits into the context of what we've been seeing this sort of chase up to the highs of the day, up about a half a percent of the S&P before it kind of hit a bit of a wall and pulled back. I think it's been remarkable the journey that we've gone on here from a technical perspective, how perfectly it's worked. Think about early July. We finally nudged above the 50-day moving average. There was skepticism. It's going to fail. No, it raced right towards the 100-day moving average. So we're erasing a lot of the skepticism. We are certainly

rebuilding positions in the growth strategy that were carried at a significant underweight, arguably the biggest underweight since the great financial crisis. And now, perfectly, the S&P 500 tests the 200-day moving average at 43.26. We had Jonathan Krinsky on yesterday on halftime. He mentioned the first time that the S&P challenged the 200-day moving average. When it's sloping down, it tends to fail. Well, Mike, that's exactly what happened. We bumped our head against the ceiling and we fell right back down. 43.25, 28 was the high, right?

So it's basically within a point of that 200-day. But does it tell you anything that it has mostly been the people who pay most attention to the technical mechanics of the market and what that tends to signal going forward are the ones that are most willing to buy into the idea that a low is in, whereas people who, you know, are waiting for the macro to look more friendly or waiting for the Fed to send some signal or waiting for the Fed to send some signal or waiting for the economy to reaccelerate are a little more hesitant to do so. So you've been doing this just as long as me. And generally, when you react and don't think in the market, you're more successful when you take away the emotion in your decision process. So a lot of the buying is coming right

now from non-discretionary funds that are following technicals. They're rules based. So a lot of the buying is coming right now from non-discretionary funds that are following technicals. They're rules based. So they're not thinking through, well, is inflation going to have another step back higher? Is the federal reserve going to have to be a little aggressive? How deep is the recession? They're just basically following along with what the market is dictating and they're entering the market accordingly. So I think, look, at the very least, if we stall here, okay, this was a market for the first half of the year that was all about sell the rips. I think we've reversed that now. I think now we go back to buy the dips.

What does the latest run of economic numbers, the earnings from the big retailers, you know, the decline in oil prices, frankly. How does that all fit together in terms of figuring out what the fundamental story is going to be that people will be latching on to and therefore kind of then deciding whether the market's gone too far or not? So first, let's address, because you and I talked about this before the show, the price of oil. Everyone's talking about the 200-day moving average for the S&P. How about the 200-day moving average for the S&P. How about the 200-day moving average for the spot price of oil? This is the 10th consecutive close below that moving average, which sits at 95. In

fact, in the last two weeks, we tested $95 twice. Again, bumped our head against the 200-day, fell right back down again. So that certainly is a positive for the consumer. But I just think overall, it's clear the price to pay for combating inflation is an economic contraction. OK, well, how deep is the economic contraction? And a lot of the evidence that we're getting suggests, well, that economic contraction is actually going to be shallow in its nature, which is obviously a good thing for consumers. But we have to have an economic contraction. You have to take the slack out of the economy. I was saying it earlier that the reason that the decline in oil and gasoline

seems like it almost has a multiplier effect in terms of market psychology is that it seems so intricately linked with what the Federal Reserve feels it's going to have to do. Is that is that a safe way to think about things? In other words, the Fed officials, Jay Powell saying gasoline prices feed headline inflation, headline inflation feeds consumer inflation expectations. Those things are the problem. We need them to get down. And now we have gasoline rolling over and oil, as you say. So is it as easy as that? No. And it's certainly not safe. And if you could look at the price of oil and be satisfied that we've combated an inflation, no, that's the wrong way. I think the thesis has to fall back on the consumer is resilient.

Corporations are resilient. Corporations clearly in the last quarter, they lowered guidance significantly. In fact, it was the first quarter since April of 2020 in which S&P companies actually lowered guidance more than they actually raised the guidance. So lower expectation. It has to come from corporate and consumer balance sheet strength. That's the optimism, not because you believe that the price of oil means that the Federal Reserve is going to pivot. Yeah, obviously, it certainly refreshes the consumer, no doubt, in part. The reactions to Walmart and Home Depot numbers today up, you know, four or five percent.

Obviously, they were under some pressure from their highs. Not to say that it's some kind of an all-clear, but does it seem as if they're navigating through OK and the market has that right? There's a lag effect, as you know, for what's going on right now, raising the cost of capital. And I think the retail industry will be most challenged in particular as you move to the holiday shopping season as we come out of back to school. But it's interesting. We were just watching President Biden signing the Inflation Reduction Act. And the first thing that came to mind for me was Walmart, $3 billion worth of shares bought back in the prior quarter. That's the highest amount in the last decade. So, Mike, how much of a pull forward are we going to see? How much of a catalyst are buyback intentions that were going to occur, let's say, in Q1 of 2023?

Well, let's get ahead of that January 1st enactment of the search charge and let's buy back here in the remainder of 2022. I think that's possibly a catalyst. Yeah, there's no doubt that, you know, I talked to the desk and the buyback activity has come back. I'm not sure 1 percent taxes is kind of a huge swing factor, but it's certainly an excuse to do it now versus waiting, I guess, into next year. Let's bring in CNBC contributor Bryn Talkington of Requisite Capital Management and Eugene Profit of Profit Investments to sort of round out this debate a little bit. Bryn, you know, I wonder if we if we imagine that the market did not go down to those lows from January to June and the market went from early January forty eight hundred on the S&P to where it is right now. It's about 10 percent down. You might consider ourselves lucky, right? I mean, the Fed did what it did in terms of really getting hawkish and raising rates a lot. You got the 10

year yield ramping, everything that we've seen in terms of a flattening out of profit growth and some struggle with gasoline prices, that would seem to leave us in a pretty favorable spot being just down 10 percent. So with that thought experiment in mind, would you be happy to be selling 10 percent down? Would you say that that's a correction I'd want to buy? I'm just wondering how we can view the spot we're in from a different angle. Yeah, I mean, if only we could just close the doors on those down days and just pretend they didn't exist, we would all be better investors. I think where we are right now, I mean, Joe hit it on on it so so well is we're at that 200 day, right? So that's definitely a crossroads. And you want to see, I mean, if we can break above that, that's clearly incredibly bullish. I will say, though, this market

has been so resilient, you know, as we're coming to a close on earnings, you know, earnings are going to beat by, I think, a median of about 7%. So to your point, this market has been strong. Earnings have still been strong. But, and there's a big but the fed balance sheet hasn't budged i mean and i just looked before the show in march it was around 8.4 trillion it's still around 8.4 trillion and so to me the one one aspect that gives me a great deal of pause in this market is the fed and the market moving forward gives the Fed cover to continue to raise rates. And also we have QT starting in just a matter of weeks. Because you have to remember, there has never been, and this could be a first, there has never been a time when the Fed has stopped tightening cycle when CPI is

above Fed funds. And so whether CPI is at eight and a half, eight, seven, it's still really far away. So I think that investors just saying all clear signal, I think you should still expect a lot more volatility. Eugene, clearly that's something that has to be on investors' minds, the idea that there is a lagged effect of the tightening that's already happened. And for sure, the balance sheet is going to start to shrink at an accelerated rate before too long. Also, I've been pointing out, you know, the 10-year Treasury yield is back above 2.8 percent. This stock market hasn't done all that well absorbing a, let's say, 3 percent 10-year Treasury yield. Not to say that's the be-all, but it's something to keep in mind. So how would

you be approaching the levels we're at right now relative to where the economy is situated? As a fundamental investor um it's been very important to stick to your knitting and basically close your doors on those down days and believe in your valuation analysis and i think that goes um counter to um technical analysis which basically says buy the dips at this point in time i think you can buy the dips however um if we look at earnings from a fundamental standpoint one the 4p is still elevated um as brent said um we probably are still going a little bit higher in interest rates and most importantly to me um yes the consumer has been strong but if you look at earnings like walmart or home depot um the revenue is higher

because they've been able to pass on the price increases to consumers. However, consumers are beginning to trade down in products and margins are getting a little bit squelched. So while I'm very happy that we're only down 10% to your previous question, this market environment, but I still think that we're being very optimistic and investors are trying very hard to anticipate an all clear and beat the Fed to the punch and assume that interest rate increases are going to stop and we're going to have a very soft landing. I think that's the biggest risk that the consumer is strong, but may slow down. Sure. Now, I mean, the market has been known to get impatient about trying to anticipate a turn at times, Eugene. But I guess on a practical basis, what does that mean that you would therefore take this 17, 18 percent rally as a chance to rotate away, reduce exposure, maybe

pick something more defensive or is just about setting expectations? Well, I think it's sticking to your expectations and your philosophy and discipline. I mean, case in point, FUBU TV was 35 at its high over the last 52 weeks. It's up 76 percent in the month, up 44 percent, you know, basically today. We'd love to have the mean stock today. However, you would still be down quite a bit unless you were smart enough to get out at 35 and get back in at two. And I think that a lot of interest in FUBU comes as a result of Walmart talking about its streaming business with Walmart Plus, what happened with Disney. So I think you can take this environment and stick to larger companies that are executing very well throughout the time period. You don't have to try to whipsaw yourself back and forth unless you are a daily trader, right? If you're a long-term

investor with the discipline that you can stick to, I think you're safer staying the course and basically letting the Fed do its work and not get overly optimistic on days that look like today. Bryn, clearly there has been a little bit of a reawakening of risk appetites that's made its way into these kind of racier corners of the market. Do you take that as either a signal that, OK, this is good, you know, you need some speculative energy in the market, or is it a sign that people are making the same mistakes over again? Probably both. I mean, you saw that when the tech bubble burst back in 2000 to 2002, you saw really a huge year in the early parts of 2002 with the NASDAQ outperforming everything else because it was down 70 to 80 percent. And so I think it's

actually replaying that same playbook. And I own Roblox, so I'm happy to see that, you know, that reflation of those stocks. But there will be a point, there will be a point where the market's going to say, show me the money, show me your earnings, show me your growth. And so I do think investors just piling into those names thinking you're going to get an April 2020 to December. I think they're going to be, you know, sorely mistaken because I still think with these higher rates, these stocks are going to have a cap on the rate of change they can have in the short term. So I think since we've had this recovery, the macro or the headlines really haven't punched back at all. I think you're going to get your first punch back and you're going to understand the strength of this market from

natural gas. Natural gas has not printed above $10 since 2008. My gut is telling me natural gas is going to print above $10 very soon. The market's going to have to understand, absorb that, and react accordingly to that. And I began this by saying I think the buy-the-dip mentality is back. I'm standing firm on that. I believe that. But there are going to be moments where the macro punches back. And watch natural gas.

That could be the first one. Natural gas, 938. Henry Hub today, obviously not too far from 10. So, you know, I guess you can go against that Mike Tyson rule and say that, you know, you can have a plan. Right. And anticipate getting punched in the face when it happens. All right, guys. Thanks very much, Joe, Brandon, Eugene.

Appreciate it. Talk to you all again soon. Let's get to our Twitter question of the day. We want to know what to call this comeback. Are we in a new bill market or a bear market bounce? Head to at CNBC Overtime on Twitter, vote, and we'll bring you the results at the end of the show. Up next, did the market just clear a major hurdle? This spokes Paul Hickey says something just happened to stocks that hasn't happened in 13 years. What it is and why it could be another green light for the rally. Overtime is back in two minutes. We're back in overtime.

The Dow posting gains for a fifth straight day, thanks in part to strong results from Walmart and with the retailer's earnings officially in the books. Our next guest says the market just handed in its best performance during a reporting season in 13 years. Joining us now is Bespoke Investments co-founder Paul Hickey. Paul, so I guess we're calling Walmart kind of the unofficial end of earnings season. It's basically all the companies have already reported for the second quarter at this point. What's the relevant significance of this market of a best stock performance season during reporting season in this span, except to say that obviously expectations and fears maybe got too low. Right. So I think, Mike, you hit the nail on the head. Coming into earnings season,

if you remember, I think we talked about it on Closing Bell at one point in early July, talking about how analyst sentiment had become extremely negative heading into this reporting period. The pace of negative revisions outnumbering the positive revisions by levels you don't see too often. And what happened, the bar was set very low, and we rallied about 10% this earnings season. The best earnings season going back to 2008 was second quarter reporting period 2009. And when you look at other periods where you've even rallied 5% during earnings season, the question becomes, have we borrowed from the future? When you look back, that historically hasn't necessarily been the case. Returns from the end of earnings season, so from around when Walmart reports to the end of the quarter, have actually been slightly better than average versus all other earnings seasons for the rest of the quarter, and the same consistency as

positive returns. So instead of borrowing from the future, I think we're getting payback from, say, the loan we gave in June coming into earnings season when the market just, you know, plummeted on concerns that this was going to be an earnings disaster. And when we sort of reached peak Fed panic over inflation with that now infamous Michigan confidence report and the CPI report for the month of May that was reported in June. So I think it's a good sign that the companies came in and did much better than anybody was expecting. And so from a fundamental perspective, that's positive, because in June, we were expecting earnings estimates to come way lower.

And what we've seen is that it hasn't had been nearly as bad as people thought. You know, if you go back, OK, so this was 2009 is the last time you had this similar dynamic. We were coming out of a massive collapse in overall earnings and, you know, an awful deep recession, prolonged bear market that was really much more severe. And so, therefore, it's understandable that, you know, the fundamentals analysts would have been a little bit slow to catch up to where earnings were headed. I wonder if it's similar now. I mean, what are we seeing in terms of the revisions to the next couple of quarters to suggest that the good performance we saw around earnings season now is not essentially, you know, just, you know, a little bit of relief ahead of

ultimately what we're going to have to face, which is a tougher spot for earnings. Well, so again, you know, I'm not trying to make the comparison and say this is going to be a repeat of coming out of the financial crisis and market performance from that perspective. But just looking from the, that's the only, I'm just saying that's the best we've had since then. But what you've seen is everyone was expecting weakness and these estimates were going to come down, but analysts haven't had to rein in things as much as people thought they would. So that's a positive on a fundamental basis. And then just looking at the overall market performance, we've seen a very sharp reversal

in breadth. We had practically no stocks in the S&P 500 above their 50-day moving average in June. Today it's up to 90%. So when you look at periods where you've seen an accumulative AD line for the S&P 500 is at a new high. S&P still is about 10% below its high. So that's a divergence, but that's a positive divergence, what we call. And when you have 90% of stocks above their 50-day moving average, when you first get to that level, forward returns over the next three and 12 months

have been, there's been about 20 periods since 1990 where it's happened. Forward returns have been positive 90%, over 90% of the time. And what's unique about this period, and again, it comes back to 2009. And I hate to make that comparison because, you know, I don't think it's going to be that type of performance and nearly that strong. But you have 90 percent of stocks above their 50 day moving average. You have less than half of stocks above their 200 day moving average. So going back to 1990, you've seen that happen in April 2009, October 2011, and May 2020. All of those following, returns following all of those periods were quick. And what the comparison is, you had a very sharp drop and you had a very quick recovery. You had sort of that V recovery. And in those prior times, the market did very well. And so we think the market can do

maybe not necessarily very well, but somewhat well and better than a lot of the alternatives and better than what a lot of people are expecting. Every time the market goes up, we see another note come out from a firm saying, don't trust the rally or the easy money has been made. But, you know, Bill, today, every day we see, you know, buying on strength likely over the last two weeks. Yeah, no doubt about it. Feels like some similar rhythms. The 2011 examples is quite interesting because, boy, sentiment got real despondent at that low as well as it did recently. We'll see how it plays out from here, Paul. Appreciate it. Thanks a lot. All right. Thanks for talking. All right. Up next, are we out of the woods? We're weighing the big risk to the rally as stocks grind higher. JPMorgan Asset

Management's Gabriela Santos joins us with her take after the break. Overtime will be right back. Welcome back to Overtime. Time for a CN news update with kayla tausche hi again kayla hi mike here's what's happening at this hour within the last hour president joe biden signing the democrats landmark climate change and health care bill the legislation includes the most substantial federal investment in history to fight climate change some 375 billion dollars over a decade and it will also help an estimated 13 million Americans pay for health care insurance. The U.S. government announcing water cuts to states that rely on the Colorado River as drought and climate

change leave less water flowing through the river and depleting reservoirs. The Colorado River provides water to 40 million people across seven states and Mexico. And jury selection is now set to begin on Thursday as InfoWars host Alex Jones faces another decision on how much he needs to pay some of the parents of schoolchildren murdered 10 years ago in Newtown, Connecticut for falsely claiming the massacre was a hoax. A judge cleared the way by ruling the case should proceed even though Jones' company has filed for bankruptcy. A jury in Texas recently awarded the parents $49 million. Tonight on the news, Trump Organization CFO Allen Weisselberg is expected to plead guilty as soon as Thursday over tax fraud. We'll have the latest. That's at 7 p.m. Eastern when I fill in for Shep.

I will see you there, Mike. Back to you. Yes, see you there, Kayla. Thank you. The major averages were covering more than 50 percent of the losses from their 52 week highs from January into June. But J.P. Morgan Asset Management's Gabriela Santos thinks the markets could still see another leg lower in the fall. She joins us now on SAC. Gabriela, good to see you. Hey, good to see you. What makes you maybe a little bit uncomfortable with saying that we can say that things are all clear at this point? So I think it's two things. The first is if you think about the first leg of this rally, it seems to be a lot more driven by technicals due to the huge fall that we saw in real yields from mid-June, where we were nearly at 0.9% to early August, where we fell to as low as 0.1%. So I think it's too low

at the moment. And real yields are set to increase further in the fall, which could pressure growth stocks once again and stem some of the systematic buying that we've been seeing from some short covering. I think also the macro story that's recently taken hold as well and led to some more broad based gains in the market. I think it's way, way, way too early to be having any kind of conviction that we truly know the shape of inflation going into the fall next year or that we know how the Fed will react to that inflation shape. We are inherently uncertain whenever you're looking ahead and trying to, you know, foresee the next chapter of how the fundamentals develop. You'll hear some people in the market say that's why you want to look at the market's inherent wisdom in its technical behavior and say, look,

the wisdom of crowd says that when the market is rebounded in this particular way, usually it has meant that it's sniffing something out about improvement or maybe the higher possibility of a soft landing. Would you say that that's not the case, that you can sort of discount the possibility it's a low, or we just have to be open-minded about it? I think we should be open-minded about it. Whether we actually retest the lows that we had reached previously, I think that's more up for debate because we do have some interesting momentum

from, for example, systematic strategies that can still provide some limit to the downside. But I think we should be a bit humble about the macro story just because we've been all so wrong on the inflation narrative and so wrong on reading the Fed's reaction function to that inflation. So if we remember back in 2020, it was all about playing the letters game about the recession, what kind of shape would the recession, the recovery have. Now it's about playing the letters game for inflation. What shape is it going to have? Is it going to be a V or an upside down kind of square root? And how will the Fed react to that? It can really stay higher for longer, which would be a shock to the market narrative.

So assuming an investor, you know, did not fully exit the market at the lows and they've kind of had a bit of a comeback, some relief in their portfolio, if you think that maybe growth stocks are going to be the area that struggle a little bit if real yields go up more, what do you do in terms of repositioning at this level? So I think for us, the story is not to sell here. I think the story is just that it's too early to buy into this narrative and to buy into adding risk more broadly, whether it's overweighting stocks is still too early or overweighting things like high yield versus

investment grade, also too early to make that move until we get more clarity in the fall about what's happening with inflation and rates next year by the Fed as well. So for us, it's about hanging tight if the positioning is already neutral. If not, then we would be making sure that we have some of those duration hedges, quality fixed income, quality factor overlay for equities, some more defensive sectors like health care to navigate a tricky fall before we really set us up for a much, much better next few years ahead. Would you say that soft landing as a general potential outcome is a long shot at this point? Or do you feel as if that's that's something that we can can perhaps start to believe in?

I think it's a 50, 50 percent chance, whether we have a soft landing characterized by below-trend growth, but still very modest rise in the unemployment rate, or whether we end up having more of a hard landing where we actually see recessionary contraction and growth, as well as a bigger rise in unemployment. So I think it's still 50-50 chance, and it'll very much depend on the path of inflation. We'll be looking at shelter costs, wage growth, and the Fed's reaction to it and what that means for rates next year as well, and earnings expectations as well, of course, which certainly are still way too high for next year.

Well, I was going to ask about that. We thought that was the case in the second quarter. You think this is just going to be a delayed effect, that we have to have some reckoning on corporate earnings? So it's been good that earnings expectations have come down somewhat. They've come down three percentage points really over the past couple of months, which is a welcome start to the process. But if you consider earnings expectations for next year still at 8 percent, we really struggle to get there. If you just have a soft landing, to us, that gets you to flat earnings growth. Never mind if you have a hard landing, then you could see that on average earnings contraction of 10%, excluding the global financial crisis. And one thing about this bill that passed today, the increase in the minimum

tax to 15%, that also shaves off about three percentage points for earnings next year. Very good. Good to know. We have to throw it all into the mix. Gabriella, great to see you. Thank you to see you, Mike. All right. Up next, housing stocks have taken a beating this year, but our next guest says the bottom is in for the builders. He'll make his case ahead. And don't forget, you can catch us on the go by following the Closing Bell podcast on your favorite podcast app. Overtime, we'll be right back. Welcome back to Overtime. The red hot housing market showing fresh signs of cracking. Housing

starts plunging 9.6 percent last month. That is well above the expected two and a half percent drop. Builder confidence also falling to its lowest level in more than a year. But UBS says the latest round of data could mark a turning point for the home building stocks. Joining us now is the firm's is UBS's senior U.S. home building analyst, John Lovallo. John, good to speak with you and catch up with you on this. Clearly, everyone wants to be a bit, you know, of a counterpuncher and say that, you know, some of the bad news is already priced in. What makes you think that might be the case for the homebuilders here? Well, thanks for having me, Mike. And let me let me frame the way we're thinking about it, at least. So the National

Association of Homebuilders Sentiment Index hit a contractionary level yesterday. It was down for the eighth consecutive month. That's the worst stretch since 2007 during the global financial crisis. Google new home searches were down 10% in July versus the prior eight Julys. Single family housing starts for July fell below 1 million for the first time since June 2020. And new home sales in July are likely to be worse than the 590 that we saw in June. So you take all this and you couple it with builders citing green shoots of demand stabilization, the National Association of Home Builders saying that settling rates will support demand in the coming months, and the stocks are going up on bad news. Couple that all together and it feels like we're approaching the bottom here. It's interesting because, you know, over the course of the downturn that we've seen here,

there was a little bit of a revisionist idea that took hold that said, actually, there is no broad scale housing shortage in this country. And actually, if the if the you know, the homes that are under construction get completed and we have mortgage rates at this level, you know, you know, this is not necessarily a situation where we have years of future pent up demand. Is that part of the premise of your call, either, you know, pro or con? Yeah, I mean, look, I think we've done our own analysis and would suggest that there's three to four million units of pent up demand. And we've

looked at this from several different ways. I think that, look, if you look back to when the financial crisis happened to today, there was just not enough homes built and demand now because of the millennials coming through the pike and just this generational trend that's occurring. We're just in a tight spot where there's just not enough homes out there for the need. Is there any magic level where the sensitivity of demand kind of gets a little bit tougher when it comes to mortgage rates at this point? We already, you know, we tested some of the highs of multi-year highs in mortgage rates. It certainly brought things to a bit of a halt, but it's moderated since. Yeah, so it's a really good question. I think that we have to consider the buyer that's in

the market today. It's really the first time entry level buyer. That's a-based buyer that, look, if things get tight and they can't afford it, they're likely to move a little further away from city centers. They're likely to buy a smaller footprint. And oh, by the way, there's this huge immigration trend that's happening in the U.S., and we're in the midst of the largest generational wealth transfer in the history of the U.S. So you put all those factors together and there's so many levers that can be pulled by the first time buyer that I'm not sure that there's a magic rate that kind of cuts off demand. Which builders are your favorites at this point in terms of being able to capitalize on the on the trends? So I think that the builders to your earlier point have been hit pretty hard. Right. So I think you can go with the biggest and the best. That's D.R. Horton, ticker DHI, biggest builder by volume, very consistent as executor and really consistent.

Sorry. And really focused on the right part of the market, which is that first time entry level. Lennar is our second favorite, second biggest builder by volume. You also have the optionality from the spin that they're conducting of some non-core assets. So I think that that's pretty attractive as well. Yeah, we're talking about a couple of stocks that are trading, what, five times forecast earnings or something like that. What gets you past that that maxim that says, look, don't buy cyclical stocks at depressed BEs because it means the earnings are probably in question looking ahead? Well, that's one way to think about it. The other way to think about it is, hey, you know what? These stocks are pricing in such a draconian scenario that what is likely to happen is far less bad, right? And so I think that all the bad news is

sort of in the stocks. And I think that we're in a position now that even a little bit of good news is going to translate into big moves in the stocks potentially. Estimates have come down quite a bit. I think that they're probably reasonably set for 2023. I mean, we have earnings down about 10 percent net income, I should say. We have earnings relatively flat just given share buybacks because these builders are going to generate a tremendous amount of cash. But it feels to us like there's been a reset in expectations and probably too far of a reset in expectations where some good news here could go a long way. All right. Yeah, definitely some appetite for some of the more cyclical names. Home Depot CFO, I think today said they didn't really see a lot of an impact from from weakness in the in the housing market just yet.

So maybe some glimmers there. John, appreciate the time today. Thank you. Thanks for having me. All right. Up next,. John, appreciate the time today. Thank you. Thanks for having me. All right, up next, we're all over the biggest movers in overtime. Seema Modi standing by with all that action. Hi, Seema. Mike, coming up, a big buy call on a major tech stock. We will tell you all about it when Overtime returns.

We're tracking the biggest movers in overtime. Seema Modi is here with that. What's moving, Seema? Hey, Mike, let's start with an earnings mover. Lab, instrument manufacturer, Agilent Technologies, reporting better than expected revenue and earnings, raising its full-year outlook. CEO says orders continue to outpace revenue,

stock up more than 5% right here in overtime. Number two on our radar, investor Carl Icahn boosting his stake in Southwest Gas to 8.7%. This is a utility provider that is based in Nevada, provides natural gas to California, Arizona, among other states. Icahn's stake had been 7.6% as of the June 3rd filing. That stock up about 14% year-to-date. Natural gas futures were up more than 7% in today's session. And shares of Apple initiated by Credit Suisse minutes ago right here in the overtime, labeling the tech giant a top pick with an outperform rating, a $201 price target, which is much higher than the average sell-side target of $181. Stock is up fractionally over time, but the market bellwether up 15% over the past month

and just 5% away from its all-time high. Mike? Yeah, it's been remarkably resilient as one of the mega caps holding this market up, Seema. Thank you very much. Up next, a chip on the cheap. One money manager is betting on this semi stock during the sector's recent downturn. That and other top picks for your portfolio in our two minute drill. And coming up on Fast Money, former Toys R Us CEO Jerry Storch breaking down today's retail earnings. What he's expecting from the big names reporting this week.

Don't go anywhere. More overtime after this. Last call to weigh in on our Twitter question of the day really is the key question in the market right now. We want to know, are we in a new bull market or just a bare bounce? Head to at CNBC overtime on Twitter, vote, and we'll bring you the results after the break. Plus, our two-minute drill of overtime. We'll be right back. Welcome back to Overtime. Let's get the results of our Twitter question.

We asked you, is this a new bull market or a bear market bounce? And, boy, the big winner, bear market bounce, 61 percent of the vote. People not willing to really give the benefit of the doubt to the bulls just yet. Time now for our two minute drill. Joining me is George C., Annandale Capital founder and chairman of George. Let's just start right there. How are you interpreting things here? We got this, you know, 17 percent bounce off the lows, recovered more than half the total losses. A lot of the technical, you know, 17 percent bounce off the lows, recovered more than half the total losses. And a lot of the technical triggers have actually been activated that say that maybe a low is in. But how are you thinking about it?

Yeah. Hi, Mike. I think this is one of those kind of bets that you're better off just watching and getting out a bag of popcorn and enjoying the show. Because if you look at the substance of it, this should be a bear market rally and it heads back down again. There's just not enough substance to back it up. But at the same time, momentum's with the bulls right now. They just keep going up and the market wants to go higher. So that's not really a bet I would care to make myself. I just enjoy watching right now. Yeah. Well, without a doubt, it could always, by definition, break either way. But it probably is reassuring, though, if you're in the market, that there is that level of skepticism out there that's reflected in our poll. Climbing a wall of worry.

And, you know, I think people have been worried about the economy just falling apart. And I think that's been unrealistic. It's too strong. It's going to stay strong. But the problem is the growth rate. How fast are we going to grow going forward? And I think you can make a very credible argument. We're in a stagflation environment. The Fed and the government are declaring victory over inflation really quickly. And if you look at the price of

natural gas today, I don't think inflation is over by a long shot. Well, let's get to some of your picks because you are focused on individual stocks here. What about a play on natural gas? Yeah, I think natural gas is in a secular bull market. I think that the supply-demand dynamics are very, very strong. And U.S. public producers are being very disciplined in putting increased supply on the market. They're really not. And with the LNG problem in Europe and around the rest of the world, too, I think you're going to see a closure between the price of gas overseas and the price of LNG

and then Henry Hub here in the States. You're going to see Henry Hub price continue to be very strong. And probably as more LNG gets shipped overseas, LNG and gas in Europe and other parts of the world come down somewhat. They're going to converge. The delta is just too big. And you like Intero? I like Intero a lot. They've got a 20 percent plus free cash flow yield and they're completely unhedged. Next year, they're paying down debt dramatically. They're buying back a lot of stock. It just the wind is at their back. And I don't think that's going to change anytime soon.

Give the the quick pitch for Qualcomm here at these levels. Qualcomm is a very hated technology stock. People just find reasons to loathe it and dislike it. Apple's been trying to get rid of it for years and can't seem to do it because their technology is better than anything Apple can come up with. It's trading at low double-digit price-per-earnings multiple currently, well below the market multiple, and they've been executing just brilliantly. And they've got lots of new applications for their technology, and they keep beating earnings estimates. And I think they're going to keep growing. And you're buying a cheap stock

with a high margin of safety and a lot of future prospects. It ought to trade over 200. You think it'll trade over 200? Stock is roughly around 150 here. So essentially, you're saying it gets back above the 52 week highs for a semi stock more on the value end of the spectrum. We'll see how that goes. George, appreciate the time today. Thank you, Mike. All right. And that does it for overtime here on a Tuesday. Fast money begins right now.