Closing Bell - Closing Bell Overtime: Late Day Sell Off Hits Stocks; Merger Brewing Between Warners Bros. Discovery and Paramount? 12/20/23

Episode Date: December 20, 2023

Stocks slid sharply in the final hours of trading and the Dow snapped a nine-day winning streak. Citi’s Scott Chronert and Strategic Wealth Capital’s Adrianne Yamaki break down the sell off. Earnings from Micron and reaction from Baird analyst Angelo Zino. Our Alex Sherman reports on the bosses at Warner Bros. Discovery and Paramount meeting about a possible merger. GTIS Partners President and CIO Tom Shapiro on the housing market. 

Well, a late-day sell-off made things interesting, sending the major averages sharply lower at the close. That's a scorecard on Wall Street, but winners stay late. Welcome to Closing Bell Overtime. I'm John Fort with Morgan Brennan. Well, coming up this hour, economist and investment firm founder Afsaneh Beshlas joins us with her take on today's market pullback and the wild card that could derail the Fed's plans next year. Plus, another bellwether earnings report is coming your way following FedEx's flop last night. We'll get numbers from chipmaker Micron in just a moment. That stock's up 57% for the year.

Stocks looked like they were headed for an intraday comeback, but a late session air pocket drove the major averages lower. We snapped a nine-day winning streak for both the Nasdaq and the Dow. It was the worst day for the major averages since October. We saw the 10 year yield fall to its lowest since July as well. Senior CNBC senior markets commentator Mike Santoli joins us now from the New York Stock Exchange with more. Mike, I mean, 47 14 is where we're settling here on the S&P 500. So down about 1.1%.

But you've been saying it ahead of this pullback that we saw in the last hour or two hours that we were looking at some very overbought conditions, and perhaps it was a moment where some consolidation could be happening. Right, Morgan. So for a couple of days especially, you've started to see some relatively rare extremes just in how far and fast the market had come. Now, it takes a little bit of a nuanced inference to really figure out what that means, which is in the short term, you're vulnerable to a quick switchback. You know, we've been going up in

large part, not on specific news as much as the general feeling that a soft landing was more likely. And people felt as if they were underinvested in equities for that scenario. So you had this kind of sleepwalk upward grind in the indexes. And so we've reversed lower once a little bit of that demand flagged and we hit some maybe some technical triggers and there was a little bit of agitated options flow around that. People were hedging maybe for some turbulence early next year. All of that stuff seemed to come together and swipe away, you know, more than 1% of the recent gains all at once.

So clearly it means that we couldn't just take for granted that we're going to glide right through the seasonally strong period when those Santa Claus rally type tailwinds emerge. We may have pulled forward some of that and emptied the tank early. I don't think it changes the longer term trend because those same rare signals usually indicate that there's a better than even likelihood of strength in the months to come. Got to mention, Micron's numbers are out. We are going through them. The initial move is higher by a little more than 2 percent. Mike, I couldn't help but notice that with the stuff moving down today, some of the stuff that was moving down the most is, what shall we call it, volatile, risky stuff. Affirm was down 10%, Stitch Fix 9%, C3 AI 8%, Peloton 7%.

Right. So you have a lot of, that stuff was up the most in the last few weeks anyway. So there has been this kind of squeeze rally in some of the discarded lower quality, lower profitability, just more aggressive areas that can get you, you know, big gains in a short period of time. Just high leverage to market volatility in both directions. So that being the case, there's low conviction, fast money in those stocks and therefore you get a reversal. And I will say, even when we first started to wobble in the market in the early afternoon, you still had positive breath. Well, that changed by the close. You basically had a lot of index level selling and probably new hedging and shorting

into this. Basically, people feeling as if, you know, we basically got to the extent of what this near-term rally is likely to give us. Although, you know, you absolutely never know. This could be a quick one day, 1% reset. We're back at it tomorrow. Yeah. I mean, for the past couple of years, this time of year, things can change on you pretty quick. Mike, we'll see you in just a couple of minutes. For now, let's bring in the market panel. Joining us is city U.S. equity strategist Scott Cronert and strategic wealth capital founder Adrian Yamaki. Adrian, consumer staples, utilities, consumer discretionary, the worst performing sectors in the S&P today. Is this just probably a garden variety pullback after days and days of gains? Or does it make you rethink anything at all?

Adrian? So it's interesting because when we look at the broader market, and there's been notwithstanding today, since the FOMC meeting a week ago, there's been a very, very big, the markets have reacted extremely well, which makes sense. The Fed kept key rates the same, and next year is potentially going to be raising them about 75 basis points. So this puts a lot of money in consumers' pockets. Businesses can borrow a lot more cheaply and earnings will, should benefit across the board from it. If we look at specific sectors of the economy and what's done well, so there's a lot of talk and a lot of analysis these

days in the magnificent seven. And the tech sector is up about 50 percent for the year. Financial services and a lot of non-discretionary sectors have not performed as well. However, if we think forward to next year and what it means for interest rates. Different companies, different sectors have very different balance sheets, different dependence on borrowing and therefore very different earning sensitivity

to interest rates. So I think what we'll see is a big broadening of marketplace growth, of the stock market growth, instead of it being concentrated in one sector and specifically being a very narrow band of performance in half a dozen stocks, I do think that the lower interest rates will benefit many, many different industries and many different sectors. So the broadening will be quite healthy. All right. We'll talk more about that in a minute. But for now, Micron earnings are out the stock higher by about three and a half percent.

Christina Parks and Nevelis, how do the numbers look? Well, investors are getting that recovery story that they were looking for for their adjusted loss per share. They did lose about 95 cents, $5 billion anticipated by the street, with an adjusted loss of $0.28 for the second quarter. That's much better than the $0.62 loss that the street was anticipating. Gross margins was a major concern. There was talk about gross margin recovery. We're seeing gross margins come in for this Q1 quarter at 0.08 percent.

So it's not negative, a little bit positive there. And I'd like to just point out that much of this beat has to do with stronger pricing from the company. They said that as well. The CEO saying, we expect our business fundamentals to improve throughout 2024 and record industry TAM projected for total addressable market. All you need to know is that the recovery is underway.

Memory prices are improving with this report. Scott. John. All right. Christina, thank you. Got to mention Micron's CEO is going to be on Squawk on the Street tomorrow morning in an interview you don't want to miss, Sanjay Mehrotra. And that guide so important here because, Morgan, they did release the results for the current quarter or the past quarter, I should say,

a little earlier in November. The guide is what people were concerned about, and that did come in better. That's right. There had been that pre-announcement and, of course, commentary, perhaps not surprisingly, given the year that we've had and the environment we've been in around AI, AI applications, and what high bandwidth memory for data center AI applications is going to mean for this company in the midst of that guide as well. Scott, you feel like the S&P equities in general can continue to move higher in 2024. Are there particular sectors you think are going to lead that? Is it going to take breadth for that to continue? Well, yeah. So I think the way we're suggesting positioning is that no doubt, as mentioned earlier, you've had this big seven, you know, mega cap growth leadership this year.

We're on the page as well that we look for a broadening effect next year. We're suggesting a barbell between growth and cyclical. So essentially, the cyclical element is what we think ultimately should benefit, you know, shorter term from increasing confidence of a Fed pivot that comes with on the heels of some of the interest rate declines we've seen of late. So broadening, yes, is a key message. But again, what we point to is that this run that we've just experienced since the end of October has taken valuations on the S&P past where we thought they would end the year. We were looking for 4,600 for the end of the year. So we think we're living on a little bit of shorter term borrow time. But as we go into next year,

we're still looking for this broadening in response to a more concrete set of earnings growth dynamics across sectors that we think lifts the index higher over the course of the year. Okay. And of course, the S&P falling back below 4,700 in the close today, 4,698 down almost one and a half percent. Adrian, is there the only thing that's been as fast as the run up that we saw in Treasury yields this year has been the subsequent reversal. Is there a point at which falling yields is no longer good for stocks? I think it very much depends on specific companies and specific industries. If we look at, for example, the broader classes such as fixed income, interest rates declining

is going to be good more or less across the board for asset classes, specifically even for fixed income. So right now, there's a lot of money that's been sitting in cash, which makes sense if we look at Treasury bills yielding 5% CD rates. But as that's going to change next year, it helps fixed income because going out further in maturities locks in a higher rate. So normally going out further, you're paid more anyway, because you take the longer risk, you have less liquidity. But now there's an additional aspect to it, which is if you can get a 5% in, let's say, bonds going out between two and five years, and you lock that in for that period,

when rates fall, you'll be in a better position than if you're holding a six-month fee bill with the same yield, but that matures, and you're probably not likely to be able to reinvest it at the same yield. Okay. Scott, I'm looking at your notes here, and you talk about the fact that average, quote-unquote, can be misleading, And that's in reference to what happens to the stock market when we do see the Fed begin to cut rates. Break it down. Well, essentially, there's this focus on, you know, for the past couple of years, we've been following the Fed in terms of a more hawkish interest rate scenario. And we frequently get questions from investors and, you know, how do you position for this? Now we're moving to an area where we're getting a little bit closer to this peaking in Fed

hawkishness, potentially becoming more dovish. Question then emerges, how do you position? And rather than kind of focus on this, what's the average return when the Fed does begin to pivot? We're just simply making the point here that when you go back and look at periods going back to the early 70s, when the Fed pivots, there has been no common theme. The resulting performance out of equities has varied to a certain degree as a function of the underlying economic condition. All told, we have to consider that going into next year, a Fed pivot probably ends up being net positive. What we do want to be attentive to, which kind of follows on the earlier question, is that be careful what you ask for here. Yes, Fed pivot. Yes, lower interest rates are certainly

a part of the positive narrative here. But what you do have to prepare for is ongoing volatility as the markets respond to the macro inputs that result from some of the interest rate and other variables. High level view, we need to be just a bit sensitive here that as we go into 2024, the playbook's going to have to shift a little bit. Okay. Scott Kroener and Adrian Yamaki, thanks for kicking off the hour with us with all the major averages finishing the day at the lows, the S&P and the NASDAQ both down 1.5%, but the Russell 2000 down 1.8%, and the Dow Transport's the worst performer, down more than 2% today. Let's bring in Mike Santoli again with a look at the equal rated version of the S&P 500, which recently saw its fastest reversal from a 52 week low in October. Mike, what does that tell us?

Morgan, to a 52 week high just earlier today, actually. And, you know, extremely another one of these extremely rare kind of reversal momentum signals. The last time, according to Sediment Trader, this happened in a brief time like this was the early 80s, which of course was the touch-off of one of the biggest, basically the biggest bull market ever. Not saying the same thing is happening here, but it shows you that the market

has kind of answered a lot of those complaints about how it was too narrow. The average stock was really in breakdown mode. It didn't look like a bull market that began late last year because of that trailing action in some of the typical stock. Now, what's happened today where that little dot is, is it's kind of fallen back into what does appear to be, you know, that that older range back toward the the highs from earlier this year. Now, take a look at a longer span

of the same thing of the equal weighted S&P 500. And you see we're still working below the all time highs from very late 2021, early 2022. And it sort of has this sense up there of you can plausibly say maybe this is the upper end of a trading range, at least for now. So I don't think the verdict is in, but it's encouraging. You have a broader market, again, short term vulnerability because the markets are kind of stretched. But longer term, usually this kind of burst of buying demand does tend to have a long tail in terms of a more lasting advance down the road measured in months. Okay. I mean, how much does seasonality factor in here?

We talk about seasonality with Santa Claus rally and all that kind of stuff for the broader market. But for the Russell 2000, one trader pointed out in a note that I read earlier this week that the Russell 2000, the small caps, tend to seasonally perform the best each year from about now until March. So does that factor in? It definitely factors in. Now, again, we might have been front-running that a little bit because small caps have been extremely strong.

Low quality washed out stocks have really had a huge comeback. And that's kind of the action that fuels the so-called January effect, which is small and underperforming stocks outperforming in January and a new tax year. So, yes, we have those patterns that we can definitely keep in mind. I'm just not sure exactly if you want to, you know, put them put them in the books and pen just yet. All right. Mike Santoli, thanks. Pencil, maybe. Yeah. Up next, we're going to have more on this late day sellout plus reaction to Micron's results with an analyst who says the stocks are buying. Plus, we will talk to a real estate investor with billions of dollars of skin in the game for his read on the homebuilders, which have had a stellar year. We've had some pretty interesting housing data so far this week as well.

Overtime is back in two. Welcome back. Micron reporting Q1 numbers moments ago. That stock moving higher right now in overtime of about 4.5% enough to regain the losses from the session. CEO Sanjay Mehrotra saying he expects the business fundamentals to improve throughout 2024. Joining us now, CFRA equity research analyst Angelo Zeno got a buy rating, an $85 price target on Micron. Angelo, $85, not that far away. The guide, maybe not as conservative as some feared. What do you do with it from here? Yeah, I mean, listen, we continue to have a positive view on it. I do think 2024 is the recovery year for Micron right now. It is all about kind of the margin trajectory here and

their ability to get back to profitability. I think when you kind of look at the guidance here in terms of both the top line perspective at about $5.3 billion. I think the street was looking about $5.5, $5.1 billion. But more importantly, on the gross margin side of things, at about 13%, that's relative to where the street was at about 6%, 6.5%. It's showing you that the recovery is happening quicker than expected. Obviously, a lot of it has to do with an improved pricing landscape. So at the end of the day here, I think you continue to hold this or continue to buy this stock here, looking ahead into a recovery through the rest of 2024. But to what point? Because there's micron recovery, pricing, margins, inventory, and then there's end market demand. We've seen this demand slowdown in enterprise,

hitting some hardware names that one would figure would be building memory and those kinds of chips into their hardware. So at what point does that become a problem? Yeah, listen, and our fear actually going into the February quarter numbers was some of the consumer side of things may not have been sustainable in terms of the recovery on the PC side of things, as well as the smartphone side of things. And we kind of think about things. We do think that area is going to be a lot more resilient in 2024. I think Micron just commented on the fact that they expect low single-digit growth on both sides of things.

And a big reason for that, obviously, is the easier comps. When you look at servers in 2023, I think that was the first decline in seven years on that side of things. We do expect a recovery there in 2024. And then, of course, high bandwidth memory is going to be the big story here for Micron in 2024. I think that absorbs a lot of kind of, you know, some of that excess capacity out there. But when you think about Micron and the story here, a lot of it also is about the inventories there. They are making a lot of headway in terms of improving the inventories. I think about 170

days last quarter, down to about 159 days here. The goal is to get down to about 120 days. But when you kind of take back some of that strategic inventory that they're holding in terms of high bandwidth memory and what have you, they're closer to 142 days. So they're making a lot of strides there. Our view is kind of the pricing landscape will continue to improve through 2024 as that supply demand landscape improves. How much of this is a Micron specific story? In the release, it says we expect calendar 2024 industry supply to be below demand for both DRAM and NAND. So I wonder how much of this inventory correction benefits not just Micron, but others across the semi-landscape? Well, listen, I think when you think about the broader semiconductor industry, 2024, again,

will be a recovery year. We're looking at about 10% to 15% growth in terms of total semiconductor revenue growth. But among the different areas of semiconductors, the most pronounced recovery should come on the memory side of things. We're looking at north of 30%, 35% growth, specifically on the DRAM side of things. In fact, when you look at Micron's guidance here, you're looking at north of 40% growth on a year-over-year basis in the February quarter, again, on some easy comps out there. So those memory players will, of course, see kind of a more pronounced recovery than other areas of the semiconductor industry. So I think another reason why you continue to play that theme into 2024. I think the risk here is one of the big players out there,

clearly a Samsung or a high-end out there, potentially increasing capacity quicker than expected. But we don't necessarily expect that at the very least until later into 2024, into. Okay. Stock's up 5% almost right now. Micron, that is. Angelo Zeno, thanks for joining us before the conference call. Treasury yields hitting fresh multi-month lows today with the 10-year dipping below 3.9%. We will ask a real estate investor what falling rates mean for the homebuilders after a standout year of gains for those stocks. Welcome back to Overtime. Let's turn to a late-day headline in the media world.

Warner Brothers Discovery is in talks to merge with Paramount. CNBC's Alex Sherman just confirmed that headline. He joins us now with the details. Alex. Here's what I can tell you, Morgan. There was a meeting that took place between Paramount Global CEO Bob Backish and Warner Brothers Discovery CEO David Zaslav yesterday. The meeting, I'm told, was to talk about the contours of what a potential combination of Paramount Global and Warner Brothers Discovery might look like. The way it was described to me was, look, the only way you know if this deal makes sense for both parties is that you got to bring the two CEOs together and

have them discuss it. I think what's going on here is a little bit of a bigger picture, where I think there are three assets, and one of them is our parent company, NBC Universal, where there's potentially a dance that may or may not happen between Paramount Global, NBC Universal, and Warner Brothers Discovery. We've been thinking that maybe if Warner Brothers Discovery is in deal mode, and by the way are they executed what's called the reverse Morris Trust when they originally put together Warner Media and Discovery. There is a two year window basically where they kind of have to lay low. That's coming up in April. So that is no longer a concern for tax benefits, meaning that Warner Brothers Discovery is now thinking, OK, maybe it's time for our next deal.

And maybe we want to do it with Paramount Global. Maybe we want to do it with NBCUniversal if Comcast is open to it. Or maybe we want to do it with no one. We decide we don't want either asset. But those talks are now beginning. And that's what I think today signals, that Warner Brothers Discovery is open for business. We know a little bit that Paramount Global may be open for business because Sherry Redstone, the controlling shareholder of National Amusements, has been talking to a variety of different people and sources about potentially doing a deal. So we have entered the action mode phase of things. But Alex, why, when Disney Fox isn't exactly

lighting the world on fire, Adobe Figma just basically got smothered and the regulators don't seem to be open to business. So there's no real glaring reason to me why Paramount Global and Warner Brothers Discovery should be rejected by regulators. This is a company that has a broadcast network that would be combining with a company that does not have a broadcast network. You put these two assets together, Paramount Global isn't particularly an asset that I would say is of major scale. They struggle to compete against the biggest players in the media industry. So I can see why both companies may think that regulators would allow that deal. There potentially are some more issues with NBCUniversal and Warner Brothers Discovery, for sure.

Combining, say, CNN and MSNBC in the same company, that may be problematic. Universal is a bigger studio than Paramount. Putting that together with Warner Brothers from the studio standpoint, maybe that could be also problematic. But look, I think the big picture here, John, to answer your question is these companies may be in a mode now where they just feel like they cannot survive long term in this industry against Netflix, Amazon, Apple, Google with their huge balance sheets. So they have to do something. You can't just sit there and wither away. So maybe regulators decide that this is OK. Maybe they don't. But they may have to push the envelope to find out. It's interesting that we're having this conversation.

You've just confirmed these headlines, given the fact that just earlier today, Alex, you published your anonymous 2024 predictions from 13 media executives. M&A was definitely on that list. So how does this speak to the fact that whichever way this goes with Paramount, with Comcast, with Warner Brothers Discovery in general, there seems to be dealmaking potentially afoot in 2024? You know, it's an interesting dynamic because to John's point, the regulatory question is out there from a monetary policy standpoint. Interest rates aren't nearly as low as they were a few years ago. So if you were to do a deal where you had to borrow a lot of money, that may be off the table until, let's say, nine to 12 months down the road when theoretically interest rates will be lower.

In other words, from a macro standpoint, it's not a fantastic deal environment. And yet these companies, I think, are saying, you know what, we can't just wait. We've just seen in the past 18 months or so all of our valuations drop precipitously. Some of it has come back up a little bit as the market has improved. But the secular trends of streaming loses money. Cable subscribers drop by the millions every single year. The box office is lower than it was 10 years ago and may not come back in a post-COVID world. All of these things, there's no really easy answer to. So the companies are now thinking at least, do we want to do another deal to add more scale,

to take costs out of the business, to put these companies together? There are major synergies on either end of things. They're at least exploring those options now to figure it out. Do they need to merge? Does it make sense? I don't know, but the companies are now trying to figure that out. Do they need to merge? Does it make sense? I don't know. But the companies are now trying to figure that out in real time. OK, Comcast about to have that Hulu money burning a

hole in our pockets. Alex Sherman, thanks. Time now for a CMC News update with Bertha Coombs. Bertha. Hey, John. Lawyers for former President Trump urged the Supreme Court today to reject a request by Special Counsel Jack Smith to expedite a review of Trump's claim that presidential immunity means that he cannot be prosecuted for trying to overturn the 2020 election. Now that the high court has the Trump team's response to the special counsel, it could rule within days on Smith's request. The Biden administration has reached a deal with Venezuela to release an ally of President Nicolas Maduro in exchange for the release of 10 jailed Americans and several Venezuelan political prisoners. As part of that agreement, Venezuela will also extradite Leonard Francis, known as Fat Leonard, who was convicted of a massive bribery scream inside the U.S. Navy. He escaped house arrest in 2022 and went to Venezuela

weeks before his sentencing. And Toyota announced today it is recalling one million vehicles in the U.S. over a risk that a short circuit in a sensor could prevent airbags from deploying properly. The recall covers several Toyota and Lexus vehicles from the 2020 through 2022 model years. Back over to you, John. All right, Bertha, thank you. Now, existing home sales turning in a surprise gain for November. We will talk to a real estate investor about what that means for the home builders and how falling rates factor into the equation. Plus, new details from Mike Rahn's report just coming in. We're going to break that down when Overtime returns.

Welcome back. Christina Partsenevelis has more on Micron's report. Christina. Well, that's because the CEO call is our earnings calls going underway. And the message from Micron CEO today is that the recovery is underway, partially driven by generative AI. In his prepared remarks, and I'm just adding right now, Sandra Marotra, sorry, is saying they expect pricing to improve in 2024, helping margins as well as their financial performance. He also noted inventories for memory and storage are at or near normal levels for most customers, according to him, across PC, mobile, auto and industrial end markets, which is interesting given the weakness that we've seen within industrials as of late.

Lastly, he said that supply, though, could be an issue. The CEO saying that its memory supply growth for fiscal 2024 is planned to be, quote, well below demand growth for both DRAM and NAN memory. And you can see the stock is climbing up almost 5 percent. All right. Christina Parts and Avalos, great stuff. Thanks for bringing it to us. Thanks. Ahead of the call, new data out today on the housing front.

Existing home sales rising unexpectedly in November, increasing 0.8 percent, ending five straight monthly declines. Meantime, the 30-year fixed rate mortgage falling to 6.6 percent as the Fed holds rates steady and signals cuts in 2024. Joining us now with his outlook for real estate investing in 2024 is Tom Shapiro of GTIS Partners, a global real estate private equity firm with investments in the U.S. and Brazil. Tom, it's great to have you back on the show. And it is interesting to see. We saw it with Home Starts yesterday, too, or earlier this week as well. We're seeing real estate and specifically housing activity in the U.S. perk up a little bit, albeit off of very depressed levels. Is it sustainable? Great. Thanks so much for having me. Really appreciate it. This is all an

affordability story. So right now, people are spending about 46% of their income to buy a house. That is way too high. The norm is about 32%. So put into perspective, we'd have to have wages go up almost 50%, prices drop 30%, or the mortgage rates go down to 3.2% to get to what would be a typical market. So anything that helps in any of those categories is great. And as you point out, mortgage rates are down now over 100 basis points. But keep in mind, that's still basically the highest mortgage rates we've had since 2000. So we're still struggling a bit with this. And I think part of the story here has been, and I've said this multiple times when I've been on the show, is this is about inventory and supply. In a normal market, we have about 2 million existing homes on the market. And why we got into the GFC, we had 4 million existing homes on the market. And now we have 1.1 million homes on

the market. And why is that? Because people are locked into very low mortgage rates and they're not selling their home. So the home builders are having a lot of fun right now. Normally, their market share is like 12 to 15 percent. And they're now their market share is 30 to 35 percent because there's just no supply of homes. So I think, you know, we're going to see very good home building throughout 2024. I think this would be a good year for the housing companies. We talk about it so much, right, this idea of golden handcuffs and the fact that we've had some of the home builder CEOs come on this show to talk about how they are stepping in to help fill that inventory void. It sounds like, and we've been teasing it ahead of this interview,

that you were very bullish on the home builders. I also wonder, though, what it means for things like single family rentals as well. Sure. Well, think about it this way. We produce 1.2 million households a year. They've got to live somewhere. So they're going to rent. They're going to buy. I think people make a lifestyle decision. Do I want to be in a house or want to be in an apartment? Do I want to be in a mobile home? And then they make the financial decision. We're going to buy or rent that. So I think right now we're seeing great demand for single family, for both built to rent as well as single family. The problem right now in multifamily and as well as built to rent, it's somewhat oversupplied now.

Certain markets are doing better than others. So the market is worse for multifamily, a little bit better for built to rent and SFR. But, you know, we do have to watch the supply numbers in some of these markets. I think next year we're going to see a good year for the SFR market, BDR market, as well as the home building market. Tom, seems like prices have to come down. You're talking about affordability, which can't happen unless inventories come up, which either comes through much lower rates or desperation because the economy gets really bad, which is more likely to happen. Right. Or wage growth. Right. But but look, that's the that's

the issue. I mean, people predicted 2023 we would see a 10 percent drop in home prices. That didn't play out that way. And again, because of the supply story. And look, we had a strong economy. We had wage growth. We had very low unemployment. I think that's continue to story. And look, we had a strong economy. We had wage growth. We had very low unemployment. And I think that's continued to happen. But again, people have to live somewhere. And so people are sort of going in now and they're buying. And we're seeing that happen.

And I think we're going to see as mortgage rates come down with as Fed cuts rates, we're going to see that. And I think it's going to be a good year for the home builders next year. OK, Tom Shapiro of GTIS Partners, thanks for joining us. Great. Thanks so much for having me.

Up next, Mike Santoli returns with a look at how much damage has been done to FedEx's long term chart after its double digit move lower post earnings. I finished the day down 12 percent today. Stay with us. Welcome back to Overtime. If you're just joining us, it was a rare down day, at least as of late. After an afternoon sell-off pushed the major averages to their worst daily performance since late October, the Dow falling 475 points, the Nasdaq and the S&P 500 each shedding 1.5%. The Russell 2000 losing nearly 2%, and the Dow Transports faring even worse, down more than three percent. Meantime, FedEx tumbled more than 12 percent after a weak revenue forecast weighing sharply on the Dow Transports. Mike Santoli's back with more on that. Mike. Yeah, John, this

decline in FedEx took it right back into essential parity with UPS over the last few years. As you can see right here, FedEx had had a comeback against UPS, which outperformed through the pandemic because of its domestic focus, and now more or less both showing around 10 percent declines over this span. But you can see it hasn't really leaked into very much in the industrials or the broader transportation sector, which still show decent uptrend. So it's not being taken strictly as a broad macro tell. Now, in terms of valuation, it has taken FedEx down to a forward P.E. It's pretty much in the low end of its 10-year range, around 12.5 times forward, again, at a pretty steep discount to UPS, which has tended to trade at a premium for being a little more steady. I think the question is, are FedEx's forecast, earnings forecast, solid

enough that you can believe that this is, in fact, the true multiple going into next year, John? Yeah, got to weigh that just like a package. Mike Santoli, thank you. Up next, Rock Creek founder Afsanib Beshlaw on today's late-day sell-off and how geopolitical concerns might impact the Fed's rate-cut strategy when overtime returns. Welcome back. Apart from today's late-day pullback, markets have been racing higher to end 2023.

But could the latest geopolitical developments in the Red Sea and elsewhere pose a threat to investors and to the Fed's rate-cut timeline? Well, joining us now is Rock Creek's founder and CEO, Afsaneh Beshlas. Afsaneh, it's great to have you back on the show, and that's exactly where I want to start, because in addition to all the focus right now on what's going on in the Red Sea and the potential impact there to supply chains, just earlier today, NBC reporting that China's President Xi apparently at the APEC summit warned President Biden that Beijing will reunify Taiwan with China, although the timing, at least according to this report, reporting was not determined or at least not Geopolitical risks. How should investors be thinking about this going into 2024? So, Morgan, we just put out Rock Creek's top 10 trends for ending 2023. And on top of it is exactly what you said, which is the very heightened geopolitical risks. And we see VIXs up, right?

The uncertainties in the world are so much higher. You mentioned the U.S.-China conflict and the issues that remain to be resolved, whether it's Taiwan or whether it's the microchip war. The big issue, though, is what we're seeing with the continuation of the Ukraine war, with the potential expansion of the Middle East war now with these Houthi attacks, obviously we hope that the U.S. response and the allies' response will keep them in check.

But we should not get surprised every morning when we open our eyes and we look at the markets that you don't have a surprise, whether it is Venezuelans looking at Ghana or another kind of a Houthi attack. And of course, all of this injects a certain amount of uncertainty into economic modeling as you look to 2024 as well. And as we know, when you see these types of conflicts or tensions arise, they have a tendency to present inflationary impact, whether it's fully realized or not. But I mean, just this week, look no further than what we saw with energy prices and oil starting to tick back up a little bit. So what does it mean for the Fed as it does have a forecast that includes potential rate hikes next rate cuts next year?

So we had the Santa Claus rally since we heard from Jay Powell. And I think we're seeing a little bit of a correction today. But the bigger issue is exactly what you said, which is that with potential risk and with potential supply chain issues that we're seeing, also because terms of trade are changing, there's two straits through which a lot of trade happens. We're now seeing the Red Sea problems. Other ones are getting affected by climate change and less water. So we have a lot of issues that are going to impact trade and impact supply chains. So we can't just forget what happened, I think, about a year ago,

where all we talked about was supply chains, to completely forget about them. So I would expect that while a lot of people expected, following the Fed talk, that rates would come down faster and in larger amounts, that in fact, those rate cuts might be later in the year and maybe even smaller. Okay. Okay. Afsaneh, good to see you. Great to have you back. The international stocks, with the exception of Japan and India, really underperformed this year. So if that changes in 2024, what geographies do you think will lead? So, of course, as you said, Japan was up 27 percent. I expect that Japan will still continue to do well. They're getting the advantages of what is the move towards EV and batteries. They're getting the advantages of China slowly, slowly doing a little better. So they're still beneficiaries in terms of their

economy. Their wages are going up. So I think Japan will continue to do well. You mentioned India. I think India also is expected to continue doing well with their move towards a greener economy, but also faster growth and better economic policies. In terms of the rest of the world, I think within emerging markets, potentially some of the LATAM countries could be continuing to benefit, again, from the nearshoring and some of the trends we could be continuing to benefit again from the nearshoring and some of the trends we saw this year. And that could continue. The big question is Europe. We saw with the UK CPI numbers being a lot better than expected. There could be a potential since Brexit, UK has really got killed and UK equities have got killed. There could be

good news, particularly in stocks in Europe that benefit from the trends in the rest of the world. As you place bets outside of tech, how are you factoring in the impact of AI, whether it's on specific geographies or industries? Who's going to get affected first? I think the positive impact of AI is every single industry could benefit, whether it is in terms of the labor force, anybody using data in any shape or form, the financial sector, right? Financial sector is a big user of data, and AI will make a huge dent. So if you and I are having this conversation in three years or five years, I think the whole structure of the financial system will be different. The whole labor market around the financial sector could be quite different. But really across the board in medicine, in health sector, there is really nothing that AI will not touch, hopefully on the positive side. On the negative side, I have to

tell you, there is still lack of connectivity. One of the projects we actually just closed on last week is a project that brings fast internet to close to more than 560 schools in Chicago in areas that don't have fast internet today. So this division, even in our own country, let alone in the rest of the world, could be quite huge in terms of people who have access and people who don't have access. One of the key stories we'll be watching. Afsaneh Beshlas, thanks so much for joining us. Thank you, Morgan. Nike has been crushing it lately,

significantly outperforming the Dow over the last three months. Not so much year to date, though. Up next, a top analyst tells us whether the stock will just keep doing it when Nike reports earnings tomorrow. date, though. Up next, a top analyst tells us whether the stock will just keep doing it when Nike reports earnings tomorrow. Welcome back. Dow Component Nike reporting Q2 numbers tomorrow on overtime. Stocks had a nice run lately, up nearly 30 percent in the last three months.

Analysts will be watching margin levels and commentary on sales in China. Joining us now, Jonathan Komp, Bayard Senior Research Analyst with an outperform rating, $140 price target. So is Nike mostly a China macro and overall consumer demand story at this point? Or can new products help it outrun the competition? Yeah, thanks for having me, John. We're expecting really a solid update overall from Nike tomorrow evening. I think it's important to highlight the stock has had a pretty tremendous run here over the last three months, one of the strongest inter-quarter runs that we've seen looking back over history. But our expectation is for really a solid update. We previewed the

quarter last week. We raised our price target to 140. That's based a bit more on the margin upside opportunity in the short term rather than looking for revenue upside. But we do think the company and the brand remains on very solid footing and feel good about the outlook for sales as well. It's interesting because we were talking about Micron and inventory correction we're seeing in semiconductors. You can make a very similar case for retail and for a company like Nike, too. How much do the geographies matter to that thesis, whether it's North America or China or elsewhere? Yeah, that's a great question. The geographies individually matter a lot. There's different dynamics going on in each one. Here in North America, we're optimistic that we're seeing the light at the end of the tunnel in terms of the inventory correction going on. We think that gets progressively better throughout calendar 2024.

Europe, there's certainly questions about the macro environment. China, we're actually looking for a bit of upside. We modeled 11% revenue growth. We think the indicator suggests slight upside for the quarter. And hopefully we're seeing signs of a little bit of an improvement in the environment for global brands operating in China. That's a big, big driver for the company, and it's an important part of the margin recovery story as well. Okay. Jonathan Komp, thanks for joining us. As we look to Nike earnings after the bell in this hour tomorrow. He has an outperform rating and $140 price target on the stock.

John, late-day sell-off, we've been talking about it. Every S&P sector finishing the day lower. And, of course, we do have more earnings on tap, including Nike tomorrow. Yeah, and before that, CarMax, Syntax, Paychex and Carnival before the bell. Those are going to be a variety of consumer reads, which could tell us something about at least what the hopes are for these companies heading forward. That's right. And of course, we get PCE inflation reading on Friday, too. But in the meantime, that's going to do it for us here at Overtime. Yeah. For today, Fast Money starts now.