Closing Bell - Closing Bell Overtime: Late-Day Sell-Off Hits Stocks 12/19/22

Episode Date: December 19, 2022

All three major averages erased early gains to finish in the red, but closed well off their session lows. Chris Hyzy of Merrill and Bank of America Private Bank breaks down pockets of upside opportunity for emerging investors. Plus, top technician Jeff DeGraaf is seeing some trouble for Apple in the charts. He explains what investors need to watch. And, former Tesla board member weighs in on Elon Musk and the future of the company.

Welcome to Overtime. I'm Mike Santoli in for Scott Wapner. You just heard the bells, but we're just getting started from post time in New York Stock Exchange. In just a little bit, you'll hear from one top technician who's sounding the alarm on Apple, where he sees the stock headed into the new year. But we start with our talk of the tape. The late day sell off in stocks, all three major averagesasing early gains. The finish in the red, but closing off their session lows. With today's drop, the market is now hovering near a six-week low. Still, our first guest says there are some pockets of upside opportunity emerging for investors. Let's bring in Chris Heisey, Merrill & Bank of America private bank CIO. Chris, it's great to have you here to kind of look into 2023 to the extent that we can. You know, just surveying the action today, it's very familiar. It's been in some ways the story of the year. You know, mega cap growth leading to the downside, defensive sectors outperforming. We're shadowed by this recession that people keep anticipating but isn't quite showing up

in all the numbers. So are these going to be the themes that carry into next year or we're going to we're going to flip the script a little bit. Yeah it seems like this is the final phase this lengthening phase here where technology is struggling. I should say the growth pockets of the market are struggling and then there's this realization now that. We're headed from an inflation shock to a growth shock- in the beginning of next year. And despite the fact that yields are coming down it just seems We're headed from an inflation shock to a growth shock in the beginning of next year.

And despite the fact that yields are coming down, it just seems like technology can't get that enthusiasm going for tailwinds because the relative growth in their earnings to the broader market is coming in. So there's a little bit more room to go. And it looks like the technology sector is being split into two and possibly three different types of verticals heading into next year. And what does that mean for, I guess, the rest of the market? If one were to say, OK, until further notice, tech is not going to be a leadership sector. Is the rest of the market in any sense priced for an earnings downturn? Is that what you think the market should be anticipating here? It looks like this earnings downturn now that everybody is expecting and they run the math, right? A lot of numerical quantitative analysts

will go out there and talk about the decline coming in earnings, but markets generally bottom before the earnings cycle bottoms overall. So the broad part of the market outside of technology still has prospects of earnings declines in it. That's a well-told story. It really is going to depend, Mike, on the actual magnitude of that decline. And I think the broader market, one thing that everyone's talking about is the broader market can't go up if the tech sector doesn't. And I don't think that that's the case. I think when you step back, you look at the big names, you pull them out of the market, it's reasonably priced. We're back to 15.7, 16 times if you back out the top five market cap weighted companies in the broader S&P. And if you include them, they've come down a lot of ways as well. So if the tech sector just levitates on a full

12-month basis, you get a little earnings decline outside of tech, and you look at the broader backdrop, I think you can have a very solid year for the S&P and U.S. equities in general for the full year. Does that anticipation of a somewhat solid year for the S&P 500, let's say for next year, require that we have the early year gut check because I keep commenting that it's really becoming a consensus that we have to have another leg lower in stocks, in growth expectations in the early part of next year. And it just seems as if that's where all the cycle patterns would take you to some degree. People talk about how the market doesn't

bottom ever before the start of a recession. So if you think there's a recession, it's too early, you know. So all these conflicting cycle indicators seem to be converging on brace for more downside. But now you wonder, what does it mean that everyone's bracing for more downside? No, you've nailed it, Mike. This is the essence of the next, say, three to five months or so. It's going to see confusing mixed data at the economic level, hawkish commentary coming out of central banks, no real change to the geopolitical risk equation that's out there, earnings likely to get reset by company management first, then analysts next, rates are coming down, the bond market's telling

us we're in a rolling recession, and that lends itself to, OK, what goes next? I think you're right. I think I wouldn't I don't know if there's a washout per se, but I think the end of the bottoming process, one more go at it is in the cards earlier in the year. We should have our plans ready right now because a 60 40 portfolio, generally speaking, should be resurrected next year. Savers helped out by higher income levels overall or higher yield levels overall. And the market giving us that better foundation to leap from early in 23 for the back half of the year. Yeah, that's I mean, obviously, that's been a big change over the course of this year. You've kind of rebuilt, you know, the availability of yield as a cushion for portfolios.

But talking about a rolling recession, I guess the real question is, where is it already rolled through and where is it headed next, right? I mean, what, housing, some manufacturing? Seems like they've taken some of their medicine. But how do you think that plays out and how would you want to position for it? Yeah, this is where the story gets a little bit more interesting. You're correct, at least in our view, you know, housing and then manufacturing. And then now when you filter over into consumer land, consumers healthier heading into this downturn, well-told story. Businesses are healthier heading into this

downturn. So where's the next type of rolling recession? I would call it a relative growth or a rolling growth slump in the other areas coming off a very high level so in the in the so-called consumer spending areas and and largely the last one to go will be the service side of the equation where there's still high pent-up demand I'm but I would caution that this is not your typical movement lower as it relates to a all recession in those areas because you still have a very solid employment backdrop which keeps the fed potentially on pause for longer than expected. Two big surprises next year, Mike, likely to be the sharpness that inflation comes down.

And secondly, does the Fed get forced to pull forward cuts earlier than expected? Not really talked about. But if growth slumps more than most people are talking about, it's a likely occurrence. Interesting. Yeah, no, that would certainly be a surprise to a degree, at least relative to the Fed's rhetoric and what people are talking about, although the market might be starting to sniff some of that out. We'll see if that does continue. And, Chris, let's expand the conversation.

We'll bring in Layla Pence. She's president of Pence Wealth Management and CNBC contributor Courtney Garcia, senior wealth advisor at Payne Capital Management. Welcome to you both. And Courtney, you've heard us talking here in terms of a starting point for a portfolio right now, or if you're going to be thinking about how to shift things around looking into next year, what opportunities have been presented and what are the hazards that you think are most important? I do think this idea that interest rates are clearly higher and the idea is they may stay a little higher for longer than people want them to be isn't necessarily

going away quite as fast as people want, which is where some of your longer durations. So think of your tech. You do not want to be overexposed there. I do think that's likely going to continue to outperform. I'm sorry, likely underperform just as it has. You do not want to be overexposed there. I do think that's likely going to continue to outperform. I'm sorry, likely underperform just as it has. You do not want to be overexposed. You want the exposure as a long-term investor, but I would not be actively over allocating there currently. What I do think is one of the bigger stories I don't think is being talked enough about is the reopening that's happening in China. I do think that's the second largest economy in the world. And the pent up demand that the consumer is going to have as they're starting to let the economies finally reopen is huge, not only for China and emerging

markets, but the global economy. So we are definitely starting to look abroad and looking at some of those opportunities as well, because the valuations are really attractive. And that reopening, it's going to be huge moving forward. And Leila, would you be advising your clients to seek out more risk or back off from it going into next year, given the reset we've seen in valuations and rates so far this year? We would definitely consider backing off some risk. We do see some volatility coming in the first and second half of the next year, and we need to be cautious with that. We're cautiously bullish for the year, but the first half is going to be challenging.

Okay. And in a, I guess, practical way, what would that mean in terms of looking for ways to, I guess, stay relatively safe, whether it's in the bond market or different parts of the stock market at this point? Yes, we definitely like the defense area. We like financials. We also like the payment sectors and the fixed income. For the first time in 12 years, we actually have an interest rate. And so the clients can actually get an interest rate over 4%. So we really like the fixed income arena with some defensive stocks.

And when you say defense, do you mean the defense sector as in military contractors or you mean just more defensive parts of the market? Yes. Defense sector, the defense sector, military area and also the defense area, defensive stocks like value stocks, like financials, like health care. We do like those areas quite a bit for the upcoming year. Chris, it seems like financials, you know, they kind of pulled one over on a lot of investors this year. They had a massive run higher into this year. Everyone felt smart in January. It felt like everyone loved them and then they worked and then it fell apart. Where do you think that they're set up going into 2023 at this point? It's a pretty solid backdrop for the financial sector in general. You know, the mention around we finally have an interest rate is

absolutely correct. And the way the cash flows work at some of the large financial institutions, you know, a rising yield backdrop above average yield backdrop works very well for them. But right now, there's a few headwinds on growth. There's a few headwinds. There's overly cautious talk about recessions coming. So from that standpoint, that particular sector has taken a backseat. But as we head into a Fed pause, doesn't even mean a Fed pivot, a Fed pause, a higher stock of yields moving forward with a little bit of an expansion in the second half, that's where the financial sector is, generally speaking, the sector of choice. So we would hang in there. We're still favorable on it in our CIO portfolios,

and we're going to remain that way heading into next year. Chris, you mentioned a couple of times this idea of the Fed, whether it's forced to turn a little bit more dovish or simply responding to the data in that way. How does that fit with, you know, all the reminders that Fed officials keep throwing out there that they expect to stay higher for longer in rates, they don't want to see financial conditions loosen too much, they feel as if they have to be extra sure that inflation is wrung out of the system

and expectations before they declare victory, especially if jobs remain plentiful. Yeah, it's so difficult to time these things as it relates to what the full effect is, is the cost of capital being hiked by the Fed and financial conditions, obviously, getting tighter and tighter and tighter. And mixed with that, the fact that the money supply has gone negative and then now rents coming down, the housing market going through a rolling recession. So put that all together, they still see a higher stock overall, if you will, of inflation. They see the employment market staying strong at this point. So they have to be hawkish. Unfortunately, we just don't know what is around the corner in terms of how much the growth slump is. And that includes significant hikes that have

already happened mixed again with lower balance sheets. So if you kind of run this story out, it's likely that their hand is going to be forced. The market's telling us that in the bond market, the bond market is really incorrect. So I think we're going to be looking at a situation here where the Fed might have to back off earlier than expected. Yeah. And of course, I would say you don't have to look any farther back than 12, 13 months ago to see Fed rhetoric being pretty offside with what was about to happen over the following year. Courtney, wondering about this idea, I know that you actually like the homebuilders, which is an interesting kind of contrarian point right here. Do you feel as if that's because just simply rates coming back in and giving,

you know, demand to come back online? Or is there something else going on in that group? Yeah, I do think one of the biggest things that's overweighing your home builders is the fact that mortgage rates are so high, which is really just pricing a lot of your buyers out of the market right now. But if we are seeing inflation coming down, and I do completely agree with Chris here, I do think likely we're going to see the Fed having to bring down rates a little sooner than later at some point next year. And that's going to bring mortgage rate down, which is going to bring that demand back into housing. You just have to look at some of these long-term fundamentals. And especially with the millennials, which is the largest generation out there right now, is starting to start families, starting to

buy houses. Just over the last decade, there were about 5 million more households created than homes built. And there's just this huge supply and demand issue that's not going away anytime in the near future. So these higher rates I see as a shorter term issue. But longer term, I do think this is a great opportunity. And you want to start to buy these in before the rates come down or before some of those longer term issues go away. I'm sorry, short term issues go away because once they go away, it's already going to get priced in. So I think you want to take advantage of that now. Yeah. I mean, obviously, they look super cheap because maybe the earnings have been overstated. But we'll see.

They're well off their lows already. And Leila, how much does the Fed outlook play into your portfolio strategy, what you would be looking to do with clients for next year? It plays quite a bit. The way, you know that the old adage don't fight the Fed and we think we are going to have at least two more interest rate increases probably February and

March and they're going to pause and that will be then the signal that the companies can plan on the terminal rate and and that will be a really good thing for the markets and for our clients so we definitely watch that on a. We thing for the markets and for our clients. So we definitely watch that.

We watch all the indicators of inflation and CPI and PCE. I know we have a PCE number here coming up on December 23rd, which is going to determine whether we're going to have a Santa Claus rally or not. So we're watching it constantly. Yeah, and then I guess if you think that, you know, maybe the first half of next year could be a little bit shaky in the markets, Leila, do you think have to look and and dollar cost averaging. When you see the certain sectors that you like are down enough and you just

have to dollar cost averaging because as you know the market turns very very quickly when things get better. And you can't wait for that to make some moves. So we do think it is time to nibble back into the markets and- if it goes down

some more you buy some more. Yeah, that's usually a whole lot easier than trying to pick the actual moment of the low. And Chris, I wanted to circle back to something you alluded to earlier about the approach to technology or growth in the coming year, that it might be more of a selective view or kind of a bifurcated situation. What do you have in mind there? Well, Mike, you and I and this panel knows that, you know, the leadership group of the past is rarely ever the leadership group of the next cycle. And it appears that that is already happening. We're in a bridge period right now where investors are trying to figure out what part of tech has staying power to it. And usually when you lose leadership, you lose it for a very long period of time.

So if you split technology into three different types of camps, it's the long-term camp, the pandemic arena that benefited a lot of companies within tech or tech-like. And they built their business models off of really long-term market share, grabbing type of business models and profit second. And that's an area that's going to be put off to the side, obviously, with the higher yields out there. The second camp is the higher yield, the higher quality area that are providing you a little bit of yield, growing slower right now. So also not immune from a downturn, but they're more than likely to stabilize first. And that third one is the areas that will benefit from the ongrowing themes of the next cycle,

and that could be the semiconductor arena. All right. Interesting way to break it down. Chris, thanks very much, and thanks to you, Leila, and Courtney as well. Appreciate it. Thanks, Brad. All right. Let's get to our Twitter question of the day. Morgan Stanley's Mike Wilson sees the S&P 500 hitting 3,000 early next year. That's down 800 points from here. So do you agree?

Head to at CNBC Overtime on Twitter to vote. We'll share the results later in the hour. We're just getting started here in overtime. Up next, trouble in the charts for Apple. Top technician Jeff DeGraff sees some serious downside ahead for the tech titan. He will break down the key levels that he's watching. And later, betting on the friendly skies. Juan Adel is just named two airlines as top picks for 2023.

We'll bring you the names coming up. We are live from the New York Stock Exchange. Overtime. We'll be right back. We are back in overtime. The major averages posting another day of losses and coming off their longest weekly losing streak. We are back in overtime. The major averages posting another day of losses and coming off their longest weekly losing streak since September with only eight trading days left in 2022. Let's check in with Jeff DeGraff. He's chairman of Renaissance Macro Research.

Jeff, it's good to catch up with you. I mean, the trend is what the trend is. I know you've been pointing that out. We had a pretty decent chance, it seemed like, in the fall for the market to prove itself. Maybe that it was going to break it. Where do you see it right now after we've kind of rolled over 300 S&P points in, you know, four days? Yeah, well, I think you hit it. We got to a resistance level. It was a really natural resistance level, you know, coincided with a 65-day high which took us back into the fall.

Coincided with a declining 200-day moving average. We had no thrust. We didn't have anything from, you know, the measures that we look at that give us some indication of escape velocity. And we really stalled out right there. And, you know, we actually did it on what I would consider more bullish news for the market with sort of this affirmation that inflation has probably peaked and yet we still couldn't get through it. So I think that sets up bearishly for the first quarter of 2023. I'm hopeful that we can hold the lows because we did have some pretty good sentiment figures and wash out type of behavior. But I think this is just an elongated purgatory almost for equity investors right here as we get through this readjustment period.

Yeah, it obviously has been kind of nobody happy with it. Even if you're bearish, it's been kind of tough to catch the straight line move. They've been pretty quick. What is the macro message that you might pull out of what the market is suggesting here with things like, you know, parts of industrials doing well and even discretionary not falling apart? Is that those head fakes or are they something you would like to get behind? Well, I think it's a good question and I'm really not sure. But I would say they're incrementally more bullish than not. I mean, discretionary is really important because when we go back and look at bull markets,

you know, discretionary participates in every bull market in some way, shape or form. It doesn't have to be the leader, but it certainly is, top three, if you will. And it hasn't achieved that status here, but home builders look good. Apparel names are looking better. What we're seeing out of the casinos is starting to look better, the restaurants. So I think that, along with some of these industrials, really suggests that any type of recession, even if we have a recession, is probably a soft landing and possibly not even a recession, just an incremental change in the growth dynamics, which were so, so powerful a year ago, that feels maybe like a recession to equities, but ends up, you know, really just ends up being something that's contracted growth from the excessive levels that we had in 2021. Yeah, it's been such an interesting compressed cycle, maybe just a stutter step,

and we're over anticipating a deeper downturn. Got to see about that. But when it comes to the very largest index names, I know that that's been a pretty persistent source of pressure on the markets. And a lot of them look like it's kind of a long-term trend change. You pointed out today Apple just sort of structurally looks like maybe it's topping. How does that set up right now? Well, it's bearish. I mean, if you're into pattern recognition, which it's not really our forte, but we certainly pay attention to it, you know, you're talking about a head and shoulder top formation that

really counts to about 100 down on the objective to the downside. In fact, you can get under that if you really lean into it, you can get to about 85. So I think there's additional pressure there. And the reason that's important, one, it's obviously a mega cap tech name that has a huge influence on the index, but it's also within technology and it has been one of the leaders of technology, really the last one to break, if you will, in terms of the trend. Now, that might be good news because it says we're starting to get to everything, but I think there's more downside there for Apple before there is some type of a low or a bottom.

And I think it's something that will probably continue to put persistent pressure on the overall index just because of the size of the constituent. Yeah, I mean, I know that this has been something that has really struck a lot of these big names. In other words, it seems like there's individual company stuff happening, and there is always. But yet they all kind of went up as a group and they're and they're showing similar uh underperformance recently does that lead you to that idea that just you know you might as well stay away from the largest names or go with an equal weighted approach to the indexes or just keep it into particular pockets of strength well we we like to go for pockets of strength but as a second consolation prize, I would go equal weight because I think there is more interest in better charts along with the breadth.

But back to the point on industrials and what we're seeing out of the discretionary names and what we're seeing out of some of the select areas in energy, even some of the steel names in materials still look really, really good to us. So I think this is a market where, you know, we can almost perfectly show you a very good sub-industry group within a sector. And within that same sector, autos as an example within discretionary, we see something that's terrible

and it looks like there's further downside. And that's true really across the board, whether it's in REITs, whether it's in staples, discretionary industrials. I can show you very, very bullish long-term charts and I can show you very, very bearish long-term charts. And I think that's great news for our clients and active investors that are not just indexing, because I think you can add value here. But it does get frustrating in terms of trying to to isolate and pull out or distill a message from the overall market. Yeah. A little tougher for those of us have to, you know, tell a story about it. But that's OK. Jeff, great to talk to you. Appreciate it. Enjoy the holidays. Happy holidays. Thanks, Mike. All right. Thank you.

Up next, ready to rally. One former Tesla board member says the struggling stock is poised to pop if Elon Musk follows through on his promise to step down as the head of Twitter. He'll make his case coming up over time. We'll be right back. Tesla finishing in the red after bouncing earlier in today's session. Investors initially seem to cheer the results of Elon Musk's Twitter poll, asking if he should step down as the CEO of the social media platform. More than 57% of users voting yes in that poll. And our next guest says Tesla investors would be big winners if Musk leaves the top job at Twitter.

Let's bring in Steve Wesley of the Wesley Group. He is a former Tesla board member and a Tesla shareholder. And Steve, it's good to see you and get your take on this, and Steve Wesley of the Wesley Group. He is a former Tesla board member and a Tesla shareholder. And Steve, it's good to see you and get your take on this because I'd love for you to just tease out what specifically would be the benefit to Tesla shareholders and presumably Tesla the business if we didn't have Elon Musk seemingly full-time running Twitter and kind of involving himself in that drama. Well, look, Twitter's been a meltdown for Elon.

It's a lot for anybody to handle. And if you look at the share price, down from $399 a share at the beginning of the year to roughly $150 today, that's a 60 percent drop, $700 billion of shareholder value lost. So I think Tesla shareholders are eager to get him back. And I think it's time. And I think Elon feels that himself, which is why I went to Twitter followers and say, look, do you want me to turn this over to a full-time CEO? And it was overwhelmingly yes. Now, if he wasn't serious about that, he's put himself in something of a box. But

I think Elon was looking for a way out. I think there are plenty of people who are going to want that Twitter job. And I think it's going to give him a chance to provide full focus on continuing to build what is the most valuable auto company in the world. Well, what is, practically speaking, necessary for him to do at Tesla? Obviously, every company needs a CEO

to handle lots of issues. But the other line that we hear is Tesla's actual fundamentals are unchanged. They look like they're well positioned. Yeah, there's problems in China, but looks like volumes might hit roughly the targets for 2023. In other words, it doesn't seem as if there's a imminent business crisis at Tesla. It's more just a valuation adjusting down to the current fundamentals, perhaps. I don't see that at all.

I think here's what's really happening. Because Elon has been so diverted, people are saying, my gosh, the CEO of Tesla is not providing full attention. At the same time, you see the very same person selling $40 billion of his own shares. That's putting huge downward pressure. Everybody knows Twitter has been a real meltdown of a situation. If he comes back, and if you just put the political intrigue aside, and you look at the fundamentals, they've had a banner year, 55% growth on revenues, growing from $53.6 billion to $84 billion this year. Record new sales growing from $936,000 to this year on track $1.4 million

vehicles. Stunning growth, 13 consecutive quarters of profitability, roughly two X the profitability of Volkswagen, Ford, or GM. They're doing awfully well. I think if you can just get rid of the selling of his own shares and provide the focus the market's looking for, I think the share price is going to bounce back. By the way, Ford already talking about potentially, we've heard reports, doing a share buyback. That tells the whole story right there. Well, they are talking about that. It's, I guess, unclear if that's the thing to do, if that wouldn't help a lot.

But that's certainly in the mix and says where the company has found itself relative to where it was in the past. What about the thought, though, and this was kind of the rationale behind one of the stock downgrades today, which is that there is some tarnishing of the brand simply because Musk has kind of gotten involved in a lot of these divisive political debates. You know, half of everybody is now unfavorably disposed to him or Tesla. And you've reduced the ultimate potential market for the brand. It may be more than half of anybody. But the reality is with this level of growth, most profitable auto company out there, again, 14 percent net margins, 2X, the 5% or 6%, GM, Ford, VW, the rest of the industries add. This is a stunning story. And I think if you can put the political intrigue behind it, if you can stop selling shares, this ship gets righted pretty quickly. And I think other people watching the sector are going to feel the same way.

There is no doubt we could be going into a recession. There are more entrants in this space. There are a lot of firms out there, possibly Lordstown, Lucid. It's a long list. Fisker, it may not make the cut, but Tesla is going to be at the top. And the question is, how long do they stay at the top? But at these numbers, 149, $148 a share, this company at this growth rate, this level of profitability looks like a buy to me. Steve, really appreciate your thoughts today. Appreciate it. Steve Wesley. Yeah, you bet. Time now for a CNBC News update with Bertha Coombs. Hi, Bertha. Hey, how are you, Mike? Here's what's happening at this hour. The House January 6th committee

voted to issue criminal referrals for former President Donald Trump to the Justice Department. Those referrals cover obstruction of an official proceeding, conspiracy to defraud the United States, conspiracy to make a false statement and inciting or assisting an insurrection. The committee voted unanimously, saying Trump broke the faith and the foundation of American democracy and is unfit for office. China reporting two COVID-related deaths today. It's been more than two weeks since Beijing reported a death from the virus. It calms as China begins to lift its strict lockdown measures. And Reuters is reporting that Congress is set to extend a deadline for imposing a new cockpit safety feature in two of Boeing's new 737 models.

As part of a federal spending bill, Boeing has been lobbying for lawmakers to waive that deadline for months. Congress had mandated the new warning system following the two 737 MAX crashes that killed 346 people in Indonesia and Ethiopia back in 2018. Overtime, we'll be right back. Airline stocks losing some altitude in December with the ETF that tracks the space falling nearly 8%. But Raymond James says that investors should be building positions on pullbacks in names like Delta and Southwest into 2023. It is today's MVP, most valuable pick. Joining us now is the analyst behind that call, Savi Scythe.

Savi, if I were to look at this idea that Delta and Southwest are better positioned into next year, it would strike me that maybe you're not that enthusiastic about the overall industry right there. You seem like they're the higher quality, better balance sheet plays within the group. That's fair, Mike. You know, what I would say is there are still some headwinds. But one is there's a lot of labor cost inflation coming on next year for the airline specifically. And you don't know what fuel is going to do. And I think the biggest unknown is what demand does. We believe that demand is going to hold up better than the rest of the industry. But given like all the headwinds that we have here, I think it's better to pay equality here, even though we see kind of upside for the group in general.

I think the better bet for investors to go with quality. The demand side is an interesting debate, I suppose. You can easily envision us, you know, spending next year talking about, well, the comparisons were very tough. Everybody got their pent up travel out of the way back in 2022. And the demand has been so strong here. On the other hand, wages are what they are. Maybe businesses come back a little bit. So what are your current expectations for how demand looks next year? Yeah, that's exactly right. When you think about, you know, clearly the Fed is trying to create some slowdown in the economy. And usually airlines are, you know, early cycle, very cyclical stocks that you don't want to play heading into a slowdown. But what's different is

we are coming off of a pandemic where not all the demand is going back to upper levels. And so there's still some demand coming back online. It's large corporates. It's international. So there is some opportunity here. And I think the biggest thing that we point out to is domestic revenue has historically been fairly steady about 0.7% of GDP.

And right now it's showing up at around 0.5%. So even if GDP kind of comes down or doesn't go up as much, there is the opportunity for airlines to narrow that gap and really outperform the other sectors. And with a name like Delta, aside from the fact that it does seem to have, you know, the better balance sheet and, you know, the franchises perform well, is there anything else in terms of, you know, the routes and exposure to different markets that make it attractive? Yeah, Delta, you're right. They have a good balance sheet. They have

taken on leverage and they've been deleveraging, but they didn't dilute shareholders during the downturn. The other thing that does help Delta is exactly to your point that they have a lot more international exposure and long haul international exposure. You know, you saw Transatlantic come on nicely starting the second half of 2022. So I think you see a full year impact of the Transatlantic really coming back. And the Pacific is starting to open up. China is still a big question mark, but you have other countries that are starting to open up. And so I think those will be nice tailwinds for Delta next year relative to some of the domestic players. You mentioned we obviously don't know what's going to happen in the way of fuel prices.

But when it comes to other margin drivers, things like employee wage costs and things like that, have things changed on a longer term basis just because we are we're dealing with a worker shortage and and they were kind of scrambling to get back in the air yes a capacity is definitely being constrained in the industry because of what's happening on the you know the pilot training side i think on the other employee side airlines have caught up and and the other thing on capacity you know the airlines would be flying a lot more today i think there's enough demand for a lot more capacity today than what we're seeing. And it's because we are having kind of supply chain issues where OEMs are having a hard time, Airbus, Boeing having a hard time delivering aircraft on time. And even when aircraft come off for maintenance purposes,

they're taking a bit longer to come back on. So capacity is definitely constrained. But I think there are other things that have changed too. I mean, I think there's a lot of more premium purchasing going on, just having more premium products, more choice for passengers to buy up an experience that they would like to have. I think all of that is kind of creating a stronger revenue environment. If you look at fuel as a percentage of revenue, it has over time for U.S. airlines come down, and not just related to the cost of fuel. So I think there are some positive trends where some of this cost can be absorbed by airlines, especially those with premium products.

I think it was last week the Southwest CEO was saying that their main constraint is the training programs for new pilots and things like that. In other words, they can't process enough people to maybe add capacity. What does that mean for, you know, just ticket pricing? I mean, you suggested, just ticket pricing? I mean, you suggested that people are willing to pay up for maybe some premium perks and things like that. But would you expect prices to just remain elevated because of all those factors? Yeah, I think the good news is that you're probably not going to see it go up a lot more, in my opinion. You know, I think capacity is coming back online. It was really constrained. I think peak

constraint was probably in April, May of this year. And we've started to catch up, especially on some of the other employee groups. On the pilot group, we're still playing catch up in some areas. But as we head into next summer, I think some of that will be caught up. And as we move into the second half, I think the constraint will be less on the employee side and more on the aircraft side. So ticket prices probably stay elevated. You know, fuel, what fuel does will matter as well. But generally, you know, we're probably not going to see a lot more inflation, but maybe price is holding up fairly well here. All right. Well, price targets for Southwest, $48, Delta, $52. Savi, appreciate you walking us through all that. Thank you. All right, coming up, we're tracking some big stock moves in overtime.

Kate Rooney is standing by with all that. Hi, Kate. Hey, Mike. Yeah, so we've got a pharma deal and new government guidance for EVs moving stocks in the OT. We'll also tell you about a top Wall Street executive taking on a new title. That's all coming up next when Closing Bell Overtime returns. We are tracking the biggest movers in overtime. Kate Rooney is here with all of them. Hey, Kate.

Hey there, Mike. Catalyst Pharmaceutical shares are lower in the OT after some deal news. The company is saying today it plans to buy the rights to Eastside's epilepsy compound. The pharma company says the deal is a way to expand its neurological disease portfolio. Meanwhile, EV stocks also moving slightly here after the Treasury Department said it would issue new rules for minerals and battery components. This has to do with Congress's $7,500 vehicle tax credit. And some of the new guidance should give more clarity on the minerals and battery requirements the car needs in order to qualify for that tax credit.

And finally, NASDAQ has elected its current CEO, Adina Friedman, to chair of the board. That's effective January 1st. This makes Friedman the 10th female CEO to take a combined CEO chair role in the S&P 500. She succeeds Michael Splinter, who will become lead independent director. Shares are unchanged in the OT, but outperforming the broader market on the year. Mike. All right, Kate, thank you very much. Up next, big money and big risks. What wealthy investors see as the number one threat to the economy in the new year. The results from CNBC's Millionaire Survey straight ahead. And coming up on Fast Money,

a potential retest of the October lows. RBC's Laurie Kalvasinis lays out where she sees stocks headed in the new year. Overtime is back after this. Welcome back. CNBC's Millionaire Survey shedding some light on where the wealthy are seeing serious risks to the economy. Robert Frank is here with more. Hi, Robert. Hey, Mike. Well, the big risks for wealthy investors are inflation and the stock market. When asked about the biggest threat to their wealth, stocks topped the list for the first time in a decade. That's according to the new CNBC millionaire survey. Now, most say the S&P will be down double digits next year, and a third

say it's going to be down at least 15%. That's the most bearish millionaires have been since 2008 in the financial crisis, but half of them have more cash in their portfolio than last year, but they're also spending less. 80% say they plan to spend less this holiday season due to inflation, and they think inflation is going to be here for a while, most expect it to last at least a year or two. But they have faith in the Fed, Mike. 58% say they are confident or very confident in the Fed's ability to manage inflation. Remember why this group matters. Millionaires hold or own 89% of the individually held stocks so they can move markets.

Yeah, for sure, Robert. I mean, always a good reminder that the market is pretty top heavy in terms of its ownership out there. You know, there's an instinct, at least I have the instinct when you see surveys like this to say, aha, everyone is already in a defensive crouch. They already expect bad things. Therefore, maybe take the other side. However, if this is how they felt in the beginning of 08, that was not actually the time to take the other side of it. That's exactly right. I mean, throughout the day, I've had people say to me, well, this is a very bullish sign, the fact that the millionaires that own 89 percent of individually held stocks have capitulated. They've thrown in the towel, so that means all the selling's done. That's a bullish sign.

But then you're right. There is their predictive ability. It was the beginning of 2008 that they were sort of maximum this bearish. So it's a bit of a toss-up. But, yeah, going into this, they're holding a lot of cash. They don't plan to buy many stocks. And calling for at least a double digit decline next year. That's very bearish. Yeah, it's not terribly common to have two back to back negative

years for the SME, but it has happened. And certainly early 2000s was was one of those times. Robert, appreciate it. Thank you very much. Talk to you soon. Up next, we're gearing up for FedEx earnings. The company sets a report tomorrow here in overtime. We've got your setup into that print straight ahead. And last call to weigh in on our Twitter question. We want to know if you agree with Morgan Stanley's Mike Wilson that the S&P could hit 3,000 early next year. Head to at CNBC overtime on Twitter to vote.

We'll bring you the results next. Welcome back to Overtime. Let's get the results of our Twitter question. We asked if you agree with Morgan Stanley's Mike Wilson that the S&P could fall to 3,000 early next year and the majority of 54 percent saying no. And just for scale, that would be about a 26 percent drop from where we closed today. So narrowly speaking, people not anticipating a drop of that magnitude. FedEx gearing up to report earnings tomorrow right here in overtime. Let's get to Frank Holland with a look at the key things to watch when those numbers hit the tape. Hey, Frank. Hey there, Mike. You know, FedEx outperforming in Q4, pretty much doubling the S&P. General consensus about this stock is that all the bad news has been priced

in. Big thing to watch. Any details on the $2.2 to $2.7 billion cost reduction plan that FedEx announced after CEO Ross Rumanian said a looming global recession was weighing on volumes. $700 million of those savings from cutting flights and staff hours expected in this quarter. FedEx often also trades on margin results. The estimate of 4.3% will be the lowest operating margin since 2001 if you don't include COVID, according to Bank of America.

Also a lot of curiosity about FedEx's commitment to its stated $1.5 billion share repurchase plan. Back over to you. Frank, you know, that was a pretty dire warning that the CEO gave. I mean, the stock went from a little over 200 down to 160 a few months ago. You know, we haven't necessarily seen the numbers come in so bad that you might have anticipated there. So where does that leave us with regard to gauging the guidance we might get tomorrow? You know, the guidance that we get tomorrow is going to be really interesting. FedEx splits up its quarter where this current quarter starts on December 1st

and it runs to the end of February. That's going to include a earlier Lunar New Year than years past. So it might have a slower Christmas and then perhaps an accelerated Lunar New Year if China continues its reopening. OK, so those are the kind of near-term issues. What is he going to lay out there in terms of, you know, progress report at this point for the strategy that he's embarking on here? Because it does, as you say, the stock seems to reflect a lot of anticipated bad news. Well, I mean, first off, where's the $700 million going to come from in this quarter? They've saved about $300 million in the previous quarter, but that came from cutting staff hours, cutting some flights. So where else can FedEx really cut?

And then, as I mentioned, perhaps, you know, CEO Ross Rumania is correct. There's going to be a big slowdown. Then, you know, they won't need more capacity in Asia. But if China does reopen, as it seems to be doing, that remains a big question mark over a lot of different companies in different sectors. Well, FedEx is the biggest player, bigger player over UPS over there. So then how do they handle that increase of exports and raw materials and other things? Yeah, much more a global air freight type story as opposed to domestic delivery as we get with UPS. Frank, thanks very much. We'll get the numbers with you tomorrow. It's Frank Collin. That's going to do it for Overtime today on a Monday.

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