Closing Bell - Closing Bell Overtime: Is Momentum Building? 1/10/23

Episode Date: January 10, 2023

Can stocks keep this momentum going and build on the January gains as CPI looms later in the week? Joe Terranova of Virtus Investment Partners gives his take. Plus, three top stocks to play the China re-opening. And, Doubleline’s Jeffrey Gundlach holding his first webcast of the year. Market expert Mike Santoli gives his instant reaction to the biggest headlines.

Sir, thank you very much. Welcome everybody to Overtime. I'm Scott Wapner. You just heard the bells. We are just getting started for post nine here at the New York Stock Exchange. In just a little bit, we are going to get the latest from Jeffrey Gundlach's first major webcast of 2023. We'll find out what the bond king thinks of the state of the markets as the new year gets underway. We're going to bring you the headlines once the event begins. That's less than 15 minutes away as well. We begin, though, with our talk of the tape, whether stocks can keep this momentum going and build on the January gains as another critical inflation read looms large later in the week, just a couple of days away. Let's ask Joe Terranova, Virtus Investment Partners chief market strategist and CNBC contributor. He is right here at Post 9. Are we starting to snip out a good CPI print on Thursday? Is that what this is feeling like? I think we've got the potential based on where positioning is. And I think positioning has been overtly bearish. You've got two notes that you could touch upon. There's a Bank of America note that suggested there was over 1. four billion worth of equity sold by hedge funds, retail and institutional.

That's the largest outflow since November. And let's remember, generally, retail is a buyer in the first week of January. To see them as a seller, I think it's just indicative of the overall environment. People have been so negative to your people of your point. People have been so negative. And look, I believe that earnings really are the ultimate catalyst for the market. Again, a great note from the desk of Goldman Sachs. You've got 32 percent of the S&P 500 in which those companies have seen a downward revision to two year profit estimates. That 32 percent, you only see a figure like that in 2008 and 2020 over the last 25 years. So the pessimism is absolutely in place. What about what's been rallying, right? NASDAQ, the outperformer again today, a lot of the laggards last year are the early year leaders

this year. Is there a tell in there? I think it's I'm calling it the revenge of diversification. And I think what it signals is the trepidation that investors have in their risk assumption. They don't want to step out and concentrate back towards growth or hyper growth or the technology or mega cap names. Look, you've got China up 11 percent. You have the emerging markets up 7 percent. You've had several fund managers come on your program and suggest that the opportunities in fixed income so far year to date, that's actually the right play. High yield is up close to 3%. Investment grade is up 2%. So risk is there. The assumption is there. But it's just targeting

unfamiliar places relative to the last couple of years and just look at sectors, financials, materials, strong so far year to date. But are we to really believe that the moment the market starts to sniff out a Fed pause, that money's not going to go right back to tech, to mega caps and to growth? I think you have to get past earnings. And I believe that, and listen, this is somewhat controversial and I think I'm in the minority here, but I think Fed policy is priced in. I told you last week, the bond market is telling you, the bond market won already. The bond market is signaling, yes, there's a slowdown in the services side of the economy. There's a housing market that's clearly

in recession. And the Federal Reserve, if they get to 5%, they are going to create an environment in the economy that's going to be unwelcomed. But guess what? Risk assets in 22, they priced that in already, Scott. They had that hard landing. So I think earnings ultimately are the pure catalyst for 2023, in particular for mega caps and technology. So even if a decline happens from here, I want you to listen to what Paul Tudor Jones said on Squawk Box this morning about his expectations about where the market could go. We'll kick that on the other side. Here's PTJ. It'll require something negative to happen to create the stock market to go down meaningfully. He will have to either inflation would have to be too high or to have to over tighten to create something, some major economic contraction to make the market go down.

Absent that, the market's going to stay, the stock market's going to stay strong. He, of course, referring, as Paul Tudor Jones was, to Jay Powell, stock market will stay strong, barring something, you know, unforeseen maybe that happens if the Fed totally blows it, which, by the way, he doesn't expect them to do either. Yeah, well, I think Paul knows a lot about fear and greed throughout his very successful trading and investment career. He's utilized identifying when fear and greed is present in the market. And has there been a time where fear has been so present as where we are in the early stages of 2023? So I think there has to be something more.

There has to be a shock that has not been priced into the market for the market, not only to retreat and go back to the lows below thirty five hundred, but to to break below those lows and sustain there. I think the general view is, Scott, even if we go down to the lows and I have no idea if you're going down to those lows again, but even if you go down there, wow, that's a if you get there you can have a quick v-shaped recovery and that's what capitulation looks like something exogenous has to happen for the market to go down below there and stay there i mean you'd have to have the economy ostensibly go off a cliff and the consumer has been surprising to some in how resilient they've been.

Jeffries today, quote, a Goldilocks scenario might be unfolding for the U.S. consumer, falling inflation but steady employment conditions. Right. That's why some say, well, don't tell me we've already had a recession or we're in a recession because the labor market would suggest anything but that you may have had a recession in risk prices and stocks, but you haven't had a recession in risk prices and stocks, but you haven't had a recession in the economy and the consumer is strong enough where you might not. Good. I'm glad that's happened because I've said this all along. Main Street had a better 22 than Wall Street did. And that's a good thing. And in 23, because of that, maybe Wall Street benefits from the strength

of Main Street in an odd way. So the labor market is very strong. The consumer is resilient. The spending is there. There's a lot of pent up desire to go out and have travel, leisure, entertainment in the wake of. Does that mean that we have we have underestimated the ability of the stock market, Joe, to have a better first half of the year at minimum than many are expecting? Yes, I think so. I believe the second half of the stock market, Joe, to have a better first half of the year at minimum than many are expecting? Yes, I think so. I believe the second half of the year personally is where I have more concern for the challenges that risk assets might have. I think based on the embedded pessimism that we have right now, the opportunities in place for the first half of the year to be a heck of a lot

better than what the expectation is. I mean, bespoke today asks the question, do first impressions matter in the stock market? The median rest of year return after a first week gain of more than 1% has been 13.9% compared to 5.6% in all other years since 53. Who knows if that plays out? But nonetheless, I mean, history is on your side if you get out of the gates in a positive way. Let's bring in now Alicia Levine of BNY Mellon Wealth Management, Malcolm Etheridge of CIC. Well, it's good to have everybody with us today. Alicia, what do you think about where we might be going from here? So we do see the end of the year higher than where we started the year, but we think it's

going to be bumpy. And I agree with Joe in that the rate risk is already in the market and already in the multiples. What's not really there is the recession risk and the earnings recession risk. So even if you float along at the zero, you kind of skirt the real recession. There's still the earnings recession risk out there and you could still have earnings down 10 to 15 percent. I don't think the market's going to take it very well from here. It does look like the economy leaves 2022 stronger than all the strategists out there were expecting to a stronger first half. But that does leave the second half as complicated. So we think mid-year is really where this all comes together. Malcolm, you made a more positive turn in your own mind

heading into the end of 22, into this new year. Where are you at this moment? Yeah, so I actually am in alignment with the thought process around the first half of the year being sort of where the recovery starts to begin and then the second half being a little tougher and maybe it evens out to be a little flat. But I think for maybe a different reason, at least a different reason than what I'm hearing so far, the reason for us is because we see a lot more weakness in the housing market than is being projected

or being reported right now as far as home sales declining and values, property values declining. And we think that's going to come to a head in the second half of this year, which will ultimately bleed into Main Street, as Joe T. was just talking about. Because if you just think about what the Fed's focus is with moving man with moving interest rates, it's really about making us feel a little bit less prosperous than we did when we started getting the rampant inflation that got us here. The first thing you attack is people's home values. And I think that's going to show up in the second half of this year that starts to bring down a lot of the optimism that builds up in the first half. Alicia, do you think

risks are skewed now to the downside or to the upside? I mean, if in a sense you think that earnings are at risk, OK, that would suggest they're skewed to the downside. But if the market's already down a lot and the Fed is closer to the end than the beginning, do we have a balance out? So by the end of the year, we think we're higher. It is what happens in between. We think the range can be huge this year, partially because of the negative positioning coming in. I don't think CPI is going to be the great party that the market seems to think it is, because we've already rallied right into expectations that it's going to come in lower than expectations. It's not going to be the inflation story so much

this year. It's really happening on the margins and earnings for equities. And that is still not being priced. And we've seen what happens when companies miss. Stocks are down 10 to 15 percent on it. So that's not really there yet. So on the earning side, risk is still to the downside. I think on the multiple question, if we don't get a severe recession or even a mild recession, then I think the multiple is more or less baked in here. You can hang here at a 16 to 17 times. It's the earnings number that you have to worry about. So that's due to the downside. You know, Joe, what's going to happen on Thursday, if the CPI comes in better than expected, cooler than anticipated. Everybody's going to feel great.

And every person on the Fed is going to come out and say we still have to be resilient. And it's just another print going in the right direction. I still see rates higher for longer, blah, blah, blah, blah, blah. I can already hear it. If that happens, what happens? What's remarkable to me is how many people are basing their investment and their trading decisions on what's going to happen on Thursday. Look, if you're in the market in the short term,

what are you going to be blessed with on Thursday? You're going to get elevated volatility. That's the friend for a short-term momentum trader. But go back and think about the CPI report in the month of December. CPI report came out better than feared. The market explodes higher, goes up to 4,100, reverses intraday, game over over the month of December. We go straight down from there. So it's not the CPI, Scott.

It's all about, to your point, the Federal Reserve. And I keep making this point, the Federal Reserve. And I keep making this point that the bond market won. In my view, the bond market has won. And I think, well, you don't know yet. I mean, one of the confirming signals is the Fed could buck the bond market and that would be potentially disastrous. That goes to the great mistake. Well, they go and they they they make an even greater mistake than they made in September of 2021. It's basically what you're saying, because they just keep pushing. They keep pushing. Right. Regardless of what the bond market is telling it. Right. Well, the bond market, but also the commodity market. You can't dismiss what's going on in the commodity market. Natural gas down 20 percent. The price of oil down 8 percent. Gasoline down 5 percent, agriculture names, whether it's wheat or corn, down 7 or 8

percent. And then on the other side of that, precious metals higher. What's that signaling? That's signaling the deflationary element in the economy. So I think, listen, if the Fed wants to make that mistake and make another series of mistakes, OK, they write their own history. Malcolm, I mean, you know, a lot might be priced in. I don't know that a tone-deaf and clueless Fed is priced in. I mean, that's been part of the story this week, if not longer than that. Data going in the right direction for an alleged data-dependent Fed. Why are they talking so hawkish if the data is working in everyone's favor? Well, as I said, the Fed's whole goal here is just to help make us feel a little bit less prosperous because the recessionary psychology that sets in says,

if I'm not on Zillow anymore looking at what my house is worth and thinking maybe I should go ahead and sell too because my neighbor just sold for 10% more than what it was worth, you know, a few months ago, then maybe that helps to make people focus a little bit less on spending money and feeling a little bit less prosperous. I think the Fed has to continue to say the things that lead us to believe that they're going to stay with their foot on the gas this way, even though realistically they know that underneath the surface it's going to take a few months for all those rate hikes to actually flush out of the system.

And that's where we're starting to land now. So they can't change their tough talk because they have to worry that folks will start to spend money a little bit more rampantly as they did before. But they can also plan on paper to start to at least talk about pausing, if not cutting at some point next year. I don't think we're going to get that cut that folks in the pivot party, as I heard it termed, are hoping for. But I do think that we might end up with a little bit of a cut next year once the Fed realizes that they hung in there a little bit too long and went too far. Yeah. And by the way, and a reminder to Alicia, we don't have a Fed meeting

for another, you know, three weeks, four weeks, almost. That's right. And this is the Fed, by the way, that is studying the 1970s mistake of cutting suits too soon as inflation came down and wound up with a 12 percent inflation rate. So, you know, you know, they don't want to bite off their nose to spite their face just by saying, you know, trying to correct their own credibility and, you know, wreck everything in the process just so they can feel better about making a mistake the first time, though. But that's what they've chosen to do, right? I mean, what we've heard so far is that the Fed's willing to risk the recession because that's the lesser of two evils than letting inflation escape, you know, after this kind of tightening cycle.

So it's clear that they're willing to risk it and so therefore likely to go too far. They're already at 5% if you factor in. Hang on, Malcolm, I'll come to you in just two seconds. They're already at 5% if you factor in quantitative tightening. They didn't get enough done in 22. They only did $400 billion. They're going to do over a trillion in 23. Take that, add that upon the four and a quarter where we sit currently. They're well above 5 percent. Malcolm, you're good. yet, if you just consider not that long ago that 2019 cut that we got that wasn't quite warranted based on the math, that isn't so far out into history that I'm willing to believe

that this tough talk is actually what he means when it starts to get a little thick and he's starting to get commentary on a daily basis from more and more of his Fed governors who are saying, I don't know why we're still tightening, I don't know why we're staying hawkish. We'll see if he has the medal to withstand that type of conversation. But I'm not sold just yet. Alicia, what happens if last year's losers continue to be this year's winners, right? At what point do we look ourselves in the mirror and say, uh-oh, maybe my positioning is off sides. Maybe it's not what I thought it was

going to be. Look, it's a great question because most accounts are positioned defensively and that will will hurt. And we know markets do that. Right. So everyone takes one side of the trade and get hurt. I personally believe this is just a reversion to the mean. It's picking off what really sold off last year. The what's working right now are still high multiple low earners with earnings revisions to the downside. That, to me, tells me this may work for the next few weeks, but it's not going to be the story for this year. Joe, what do you think about that? I think you buy small caps as insurance based on what Alicia is saying. If you're too defensive and you think you're on the

wrong footing for 23, it's small caps that are going to generate that extra alpha for you. Even if you think we're heading into a downturn, small caps are OK. If you're heading into the down, we're heading into a slower economy. We know that we're in. No, we're in a slower economy. I get you there. But what if we're heading into an even slower one? So small caps may be hard to convince me to do if I think they're going to get hit worse first. In a perverse way, if you see that type of economic environment, that means the end is here. Right. Generally, that's when small caps begin to telegraph the future and perform well. And the discount in valuation in small caps compared to large is at the greatest ever.

So just from valuation, relatively very, very cheap. Malcolm, wrap it up for me. Give me 20 seconds on positioning here. Yeah, I think the rotation from growth to value has already begun. I see folks already starting to shift out of that trade. And I would say the value folks need to hang in there a little bit longer and give it time to run its course. All right. We'll leave it there. Appreciate everybody today. Alicia, Malcolm, Joe T., thanks for being here. Let's get to our Twitter question of the day. We want to know how will the S&P 500 finish January? We got a long way to go. It's early. Will we have a gain or a loss? You can head to at CNBC Overtime to vote. We'll share those results coming up a little bit later on in the hour. We're just getting started

here in overtime. Up next, trading China. One top money manager says bet on these three stocks as that country starts to reopen. We're going to bring you the names just ahead. Got that Gundlach webcast just started, too. We're live from the New York Stock Exchange today. OT is back in two. All right, we're back in overtime. China's been on a tear since that country signaled plans to relax its zero covid policy. And our next guest says the reopening could be a big win for a few names in her portfolio. Let's bring in Ankur Crawford, portfolio manager and executive VP at Alger. Welcome back and happy new year to you.

Happy new year. So you're a believer in this reopen. I put reopen in quotes because, I mean, you haven't been able to really believe in it. I think we're already seeing it. I think there was a lot of false starts as we went through 2022. But now it's done. If you look at the statistics and some of the high frequency data in China, it's showing you that they are reopening.

So there's no going back. There's no going back. And that's kind of the view. Look, I asked Dr. Scott Gottlieb about that too, the very issue of if he's a believer in it, to which he suggested, it's kind of too late to turn back now. Yeah, I agree.

And even socially, they told you how they felt about it socially. And I think President Xi has made his decision. Some have made the call that emerging markets, because of this very reason, are going to outperform the U.S. this year. Are you a believer in that? Well, I do think that when China starts to roll, it does pull along Japan and the EM markets, which are relatively depressed relative to the U.S. market. But there are companies that have exposure to all of those markets in the U.S. markets. So there are a lot of multinational companies that will get the benefit of those other nations opening up.

One of the areas, obviously, you know, top of the list, casinos, because of Macau. And, you know, those stocks have had fits and starts. They've looked good. Then they look bad because you just don't know where the policy is going to progress to. Las Vegas Sands, one of your names. That's right. And and look, the thesis is quite simple. We have the blueprint of what the consumer does from when the U.S. reopened and from when the rest of the world reopened. That blueprint applied to China tells us that LVS in 2023 is significantly under-earning. In 2024 and even in 2025, you see earnings growth that excels the 2019 growth rates. What about economies that are open but economies that are still slowing?

And a consumer, if you're talking about, you know, visitors to Macau, mostly from, you know, I would assume from that part of the world rather than from obviously the United States. So how do you think about that issue? Look, I think that the main impulse on LDS is the big, the mass market in China coming and visiting the casinos. On average, the Chinese consumer, we expect, will spend 30 to 40 percent more per visitation

as they come to Macau on this kind of revenge travel. And, you know, so I don't think it matters that there's some countries that are open and some countries that are reopening. It's all about China. I'm thinking another LV in your portfolio. That's LVMH. Yes. So we've talked about LV before. And LV is a bit of an all-weather stock, and in part because it really is accessing

the highest-end consumer. So the Chinese consumer, for example, has been basically shut down in China, hasn't been able to travel. Usually what they do is they go to Europe, where it's a lot cheaper to buy LV and Christian Dior and all of the brands. And they buy it there and they bring it back to China. They haven't been able to do that. Given where the euro is relative to the yuan, it's 30% cheaper to buy these goods in Europe. We expect that as soon as they possibly can,

they're flying to Paris. Buying the plane tickets. And they're buying LV. That makes sense. Transdime is another one. TDG. Yeah. So TDG is not exactly the sexiest of companies. They make seatbelts for planes, little things for your tray tables, spark plugs for a plane. So all the innards of a plane. However, what is fantastic about this business is 80 percent of their business is sole sourced. They have immense amount of pricing power and 30 percent of their business used to be Asia-Pac, which is currently depressed. They guided 2023 to mid-teens type growth without

the impact of a China reopen. So it sets up for Transdyn to have, you know, an interesting 2023 and 2024. Before I let you go, your thought on the U.S. market right now is what? I mean, everybody's obviously cautious. Yes. That's the underlying narrative around everything. And you have been because of Fed policy. What about now? Look, I think one of the things that surprised me in 2022 has been the resilience of the consumer. And, you know, had you asked me a year ago, I would have thought that the consumer would run out of steam sometime in the summer of 22. Would have rolled over by now. That's right. And now we're looking at the mid 2023 is when the consumer is going to run out

of steam. And so if the consumer has more legs, this has been a highly anticipated recession. Companies are preemptively starting to roll back expenses and, you know, cut and lay off their workers. So if we are, in fact, a little bit better on the top line, it will come through on margins. And so the strategists have put out these 180, 190 S&P targets, you know, for earnings. One has to wonder if there's in fact a little bit of upside. And now it's not that, you know, you should be way bullish, but at the same time, it might not be as bad as people think. Are you starting to question your own thesis around the market as a result of that? I think what you have to question is when it happens. So if this happens, the Fed will have to continue to raise or it won't pause or it won't pivot in the timing that people expect

or investors. Right. So it may last through 2023 and 2024 is when you really start to see the impact. Appreciate you being here. We'll see you soon. Great. Thank you. That's Ankur Crawford joining us once again. Up next, Microsoft reportedly making a big bet on AI, what the potential $10 billion deal could mean for investors. Plus, we've got breaking news on Wells Fargo. It is just crossing the tape. That lender is making a big move away from housing.

Big details on that coming up next. We have breaking news on Wells Fargo and Overtime. The bank, which used to be the number one mortgage lender in the U.S., is stepping back from the housing market in a very big way. CNBC.com's Hugh Sohn just broke that story. He joins us more. Hugh, what can you tell us here? Hey, Scott, good to be with you. So first of all, the thing you have to know about Wells Fargo is this was their pride and joy, the U.S. mortgage business. This was the generator of a lot of their profits over the years. And as recently as 2019, they were the biggest mortgage lender in the country. So what they're saying now today is, you know, instead of

going for everybody they could and really up to a 40 or 50 percent market share, which was their previous aspiration under previous leadership, they're saying we're only going to sell mortgages if you're an existing customer or if you happen to reside in a minority neighborhood. And so that's the first thing to know. The second thing to know is there is a business called Correspondent Lending Business. That's where essentially they provide the capital to other firms that sell mortgages under other names. And this is a major pipeline for their business. They're essentially shuttering that business, which accounted for 40 percent of their mortgage volume as recently as the third quarter.

And on top of that, they have a thing called mortgage servicing rights. It's a huge business for them. And in that as well, that they're going to retrench and they're planning on selling what is likely to be billions of dollars worth of MSRs to other players in the industry. Yeah, interesting news. A real interesting shift for Wells Fargo is, as you said, you use the words pride and joy, a big generator of their profits. We'll keep our eyes on the stock and see what happens here. Noticed a little bit of a dip. Houston, thank you very much. Let's talk to a shareholder now. Let's bring in Rob Seachin. He's the co-founder and CEO of New Edge Wealth.

Rob, what's your reaction to this surprising news, I would say? I think it's here. Here's a here's a top mortgage lender stepping back. I think it shows the impact of rising rates and the possible further impact of rising rates, causing them the question if the juice is worth the squeeze. You know, wealth has been a more defensive play for us. So this decision lends itself to that. They've been incredibly focused on the quality of their loan portfolio. So, again, no surprise there. I mean, the moves that this company has been making, Scott, I'm going to channel my inner Mike Mayo here,

have been focused on efficiency and, you know, having a strong capital position and more flexibility. And this is indicative of that as they diversify or seek to diversify their loan book, I think. Do you not have any concerns that they are lightening up in an area that has, as Hugh has said, generated an awful lot of their profits over the years. They're not getting rid of it completely, obviously, but they are scaling it back. Got to have those revenues produced somewhere else. No question, but I never have concerns with risk management, Scott. So I think that's what this is all about, is risk management.

Again, I'm getting the news as you get the news, but it's about risk management. It's about the prospect of diversifying their loan book. And, you know, this is a team that I think has been executing and I think can continue to execute. I'm not as shocked by this as maybe some others. All right. We'll leave it there. Rob, I appreciate you coming to the phone for us, reacting to this news that Hugh Stone of CNBC has broken. That's Rob Seach. In the meantime, Double Line's Jeffrey Gundlach is making some very interesting headlines right now.

He gives his first major webcast of the new year. Christina Parts-Nevillos joins us now. She's been monitoring that. And these headlines are crossing fast and furious, and they're interesting, too. What can you tell us? Yeah, it's interesting that he believes that the Fed will increase rates in come February, but he doesn't believe that the Fed funds rate or the bond market, I should say, will hit five percent. He said just last year because he's going over all of last year, going through details. And he admits so far 2022 was the worst year of my career in

terms of benchmark returns and fixed income. He also said that previously he loved bank loans and now it's his least favorite asset class. And just over the last little while, he has reiterated, too, that he does not believe that we will hit that 5 percent market. He has a lot of emphasis on the bond market and the fact that it's already pricing in a drop in inflation. And the Fed is a little bit slow to see this. But he believes that eventually they're going to realize and not hike as much. So these are the latest headlines. So he's just going through the supplier delivery days right now. So lots of details coming, but I'll have more shortly. Yeah. The bond king, a believer in the bond market. I think it's the major message here, Christina, right? Saying again that the bond market's saying the Fed's not going to be able to get to that 5% terminal rate that some have suggested. I know you'll keep

listening in and let us know what other headlines emerged from Jeffrey Gundlach's first webcast of 2023. Christina Partsinovalos, it's time for a CNBC News Update now with Contessa Brewer. Hey, Contessa. Hey there, Scott. A key former Trump employee has been sentenced to prison time. Former Trump Organization CFO Allen Weisselberg has been sentenced to five months in prison for his role in the company's tax fraud scheme. He got off pretty easy considering he could have faced as many as 15 years in prison, but Weisselberg received a lighter sentence in exchange for his testimony in a separate Trump organization tax fraud case. The chair of the Senate Intelligence Committee is requesting a briefing on the classified

documents discovered in an office used formerly by President Joe Biden. Senator Mark Warner says he expects that briefing as part of his constitutional oversight obligation. And a source tells NBC News President Biden became aware of those classified documents stored in that office only after his lawyers discovered them. And the United States is planning on training Ukrainian soldiers on Patriot air defense systems. That training for about 100 Ukrainian service members will be on American soil. It will take several months to take place totally. And the Ukrainian leaders have requested Patriot systems so that they can shoot down Russian missiles. This is a story we'll continue

to monitor, Scott. All right, Contessa, appreciate that very much. Contessa Brewer, up next, a massive opportunity. That is what star Wedbush analyst Dan Ives is calling this tech stock right there. Why he says it's the best way to play the cloud right now. He'll join us next and tell us. We're back in overtime. Microsoft moving higher today. And my next guest just named that company his top cloud play for 2023,

calling it a quote massive opportunity wed bush's star analyst dan ives joins us now at post nine it's good to have you here to be here all right so here's the here's the situation okay i've got i got two things going on i've got dan ives right the star analyst that we say suggesting that this stock is still underappreciated as an opportunity, that it's an outperform. But then I got the company's CEO himself, Satya Nadella, who a couple of weeks ago said the next two years are going to be tough. So Ives has an outperform. Nadella's got a hold. Why should I listen to Ives and not Nadella? Yeah. And Nadella, obviously, a Hall of Fame CEO, and it's part of our bullish thesis on Microsoft. Because I think right now, we're clearly going to see some deceleration in cloud come off of 50%, 60% growth.

I mean, what's interesting to me in terms of all of our checks over the last week, we're only seeing about 6% to 7% of deals really push or get downsized. And if I look at last quarter, that was 3% to 4%. Overall, this is less than 50% penetrated in terms of the cloud opportunity. And Scott, in my view, this becomes more and more of a cloud play, less of a PC called non-cloud as we go into next year. And I view this as, what I believe going into earnings, is a significant risk-reward hire. The reason, I mean, look, investors have agreed with you. They've said it's a cloud play for Azure by virtue of the fact that they were willing to pay a high premium valuation to the market for this whole time. But now Azure

growth is slowing. So why should I pay anywhere close to a multiple that I was paying before? And now I know the multiples come in, but it's still, you could say, expensive relative to where the market is. Sure, and it's a great debate. I mean, my view is that if this is ultimately Azure growth that we could see above 30% in a low single-digit IT spending environment, for what I believe ultimately is still, if you look at the average Microsoft install base, we're still, call it four of every ten have still significantly moved to the cloud. Most of the opportunity is ahead, not behind. And also, look, this is a company that's going to get

more and more aggressive. Look at OpenAI. Look at more of these aggressive bets. Look at Activision. It's not a company that right now is going into the right lane. No, but I mean, when the CEO himself said what he did, you weren't moved by that at all? Look, Nadella is a tactician, the gold standard, in my opinion. And what I think he's doing, which is important, lay the groundwork for a tougher environment for the next few years. Two years. But in Redmond, in the walls of Redmond, this is not a company that's acting defensive.

So Nadella's talking about that, but ultimately, in terms of the playbook, they're going on the offensive, not just in terms of M&A, but I believe this is a company that, from a cloud perspective, is going to gain more and more share versus Amazon and versus, you know, some of the competitors. What about this, you know, said $10 billion investment that we're talking about? I love it. It's a smart, strategic poker move, because in my opinion, you go back to the late 90s. Look at Gates, biggest regret. Antitrust, obviously an uncertain macro. They ultimately peel back.

Here, you want to go aggressive in what I believe is probably one of the best, most innovative AI technologies out there. They've already invested in it. Take a step back right now. I believe AI, in terms of the best AI play, is Nadella, is Microsoft, is Redmond. So do you think that, and we referenced this some 43 or 44 almost minutes ago, about the laggards of 22 emerging at least at the beginning of 2023 as some of the winners. Do you think that's legit for some of the companies like a Microsoft, Salesforce, for example, losers that are winners right now.

Does that have some kind of staying power? Is that just a mean reversion, short-lived? What's your view? I think it's a great point in terms of the enterprise because I think when it looks at enterprise cloud, that right now is what I believe is going to be a lot more resilient in this IT spending environment. I can tell you, talking to investors every day, especially in 2023, everyone's like, okay, where's the numbers where I could stress test?

Numbers could come down, but a lot's baked into valuation where I believe the growth's going to be. Consumer, digital, some of these other areas, you could definitely have another leg down. That's why I think in terms of what's happened, Microsoft, look at Salesforce and Benioff. Those are two of our top picks.

I believe risk-reward compelling here. I mean, Tom Lee yesterday, I think it was yesterday, told me sitting where you are that he thinks FANG could be up 50% this year. 50, 5-0. Now, I nearly fell out of my chair. Is that something on your radar, too? Like, are we going to have a big bounce back for FANG? I think it's going to be a massive bounce back. And we talk about tech stocks overall up 20 percent and big tech up above that because it's my view that fundamentals are going to hold up better than being baked in.

Whisper numbers are right now 10 to 15 percent below the street. And you look if you look at overall tech, I believe right now it's as under-owned as I've seen tech going back to 2009 and maybe 2002. You better hope earnings are going to be decent, not just the numbers, which probably will be. But the commentary, what if the commentary is dour like Nadella was? Yeah, so I think you've got to put it in almost bracket. If it's just downright disaster, horrific, okay, that's not baked into all these names.

They cut guidance 15%, 20%. But right now, you start to have some sort of modest expectations with some darkening. And obviously FX continues to play an issue. Then I believe we sit here in early to mid-February being like big tech bounds 15 percent through earnings. Why? Numbers weren't even that great in terms of guidance. Better than feared. And that's really, in our opinion, the setup here.

We'll see. Dan Ives, thank you. Thanks for having me. All right, this is Dan Ives of Wedbush joining us right here. Let's get back to Christina Partsenevelis now. We do have more headlines from Jeffrey Gundlach, that webcast today. What do we see? Well, Scott, he's talking about predictions for the recession,

which he believes is going to be in the next few months. And he's saying that unemployment, the unemployment rate, is the last man standing. And he says they, so I'm assuming that means the Fed, they look at this, quote, phony job jolts number, talk about job openings, so they cheer that on. But he believes that once the unemployment rate, which we know is 3.5% for December, once that crosses the 12-month moving average,

then that is going to be a strong indicator for a recession. And he believes that will happen in the next few months. So that's the latest that we're seeing right now. All right. Thank you once again. And we'll continue to listen in. Jeffrey Gundlach, we're excited to tell you again, he'll be with us for all of the Fed days of 2023. So we're going to continue that tradition. You'll hear from him and get his first read on what the Fed has done and what the Fed chair has said.

Up next, your OT movers. Overtime is right back. We're tracking the biggest movers in overtime. Christina Parts of Novelos is here with that. Christina. Let's start with shares of Tesla right now moving lower in the OT. The company reportedly applying for a massive 700 million dollar expansion of its gigafactory in Austin, Texas. And this is in a filing with the Texas State Department. So the expansion would be an additional 1.4 million square feet of space. And that's why the share price now is down half a percent. We're also watching Franchise Group, the parent company of retailer Vitamin Shop, which is reportedly considering going private,

according to the Wall Street Journal. Management could pay anywhere between 30 and 35 bucks per share. The journal is also reporting Franchise Group is possibly considering a deal to buy furniture chain cons. Those shares right now moving higher in overtime. You can see almost 9% higher. And finally, let's talk about shares of ProKidney. That would be the ticker that you're seeing on your screen, P-R-O-K. Those are up almost four-tenths of a percent right now. And that is the company that's publishing early data from a clinical trial of its cell therapy program called React, an executive with the company saying the data demonstrates its React therapy delays the need

for dialysis in patients with late stage four diabetic kidney disease. And you can see shares did initially jump and now, yeah, again, four-t 4.10%, 7%. Scott. All right, Christina, thank you again. This is Christina Partsenevelos. Up next, the answer to our Twitter question and Santoli's last word. A last call to weigh in on our Twitter question. We want to know how the S&P 500 will finish the month of January with a gain or a loss. You can head to at CNBC Overtime to vote. We're going to bring you those results and Santoli's last word next. To the results of our Twitter question now, we asked how the S&P 500 will finish the month of January. The majority of you saying with a gain.

Started out with one. See if we can hold it. Mike Santoli's here for his last word. 2% in the green after six trading days. Yeah. So, OK. So maybe we're sniffing out. CPI is going to be good.

Gun lock headlines. I want your reaction to them. This sort of in a nutshell. Fed's not in control, he says. The bond market is. They're going to hike in February, but the bond market is signaling they're not going to get to 5%. Yield curve screaming recession. You'll have an opinion on this.

Don't recommend a 60-40 portfolio, but rather a 40-60. So 60 bonds. Yeah. Yeah. I mean, that's actually. Says the bond king. Sure. No, but I think that there is some basis for the idea that bonds are somewhat insulated here.

A one, they will serve as a hedge if, in fact, we do have a recession and a hard landing. And two, you're starting with a decent yield cushion. And even if things get rocky, corporate balance sheets are in good enough shape that it's not going to be some massive default cycle. I get that call. Now, whether the Fed gets to five percent, I mean, the upper end of the range right now is 4.5 percent. So in three weeks, if they decide to go half a percent, did they get to 5? I mean, even though the range obviously is a little bit under that, I think it's kind of a rounding error at this point. But yes, it's true. The bond market is speaking in a pretty forceful voice that says we think you're just about done, if not completely done. Doesn't mean that one is like out per se right versus wrong. I get why the Fed needs the

cover of lower inflation data before they can sort of call off the fight. And that's, I think, the semantics that we're dealing with. So the fear, though, is that they get the data and they're still punching. It's always the fear. And that's why they've acknowledged that they may actually, down the road in retrospect, be seen to have overtightened and overdone it. But I think that they get that, look, we have a mandate that says,

control inflation and make sure you maximize employment. You have a 3.5% unemployment rate, right? You just check off that box and say, we'll worry about it another time. You can't be anticipatory, or at least they refuse to be anticipatory to a degree that says, you know what, a six handle on CPI is okay for now, because even if they believe that it's going in their direction, I get why we're at this point. But the market's job is to anticipate. And that's why it's doing so. What do you make of how the market finished yesterday and how we finished today? It seems pretty benign to constructive, I think, all around.

The weakness in this market so far in the six trading days has been in the defensive sectors and the stuff that did well last year. So there's a little bit of a risk appetite building. You see the high beta ETF is outperforming the low volatility basket by like five percentage points here today. It could just be that typical New Year's, you know, scoop up the laggards and, you know, just do that mechanical trade. But I think it's relatively encouraging. Junk bond spreads have come in. So people are, I think, again, leaving themselves open to the idea that we somehow get lucky or at least the pain is down the road and not immediate. Got to be careful, too.

How we have initially reacted to the CPI isn't how we finished. Well, that's very true. The last couple of times, I think, were two of the last three. Initial reflexes and then it has not lasted. And wouldn't it be fitting if the S&P were right under 4,000 under the 200 day average the moment the CPI hits. It tends to do that. Get into place for a big test. All right. We'll see. I look forward to talking about that again tomorrow with you. That's Mike Santoli for his last word. I'll see you back on the desk tomorrow. Fast money begins now.