Closing Bell - Closing Bell Overtime: Looking for opportunities amid market sell-off 4/29/22

Episode Date: April 29, 2022

The Nasdaq Composite posts its worst month since 2008. Wharton School Professor says the market may look attractive for long-term investors. Plus, value investor Scott Black from Delphi Management gives his top picks right now. And, Michael Santoli’s “Last Word” is “endurance.”

Welcome to Overtime. I'm Scott Wapner. You just heard the bells. We're, of course, just getting started here. We have a lot to talk about in just a few moments. I'll speak to Wharton professor Jeremy Siegel on where stocks could be heading next. Now, the Fed meeting next week, more major companies are reporting their earnings as well. And all of it is going to drive stocks, as you know. We begin, though, with our talk of the tape. And that's this brutal month, this brutal day, really, for stocks. The worst for the Nasdaq since the dark days of 08 has April been and now a typically treacherous mayloon so what will it hold for your money let's ask Trivariates Adam Parker he is here with me at post nine it's good to see you yeah I don't want you to show up and now tell me oh don't worry everything's great because you've been more rosy than a lot of other people. This is ugly, and it feels horrible. Yeah, no, I think we're getting kind of some real opportunities now

to buy good companies at low prices. I mean, earlier today, about two hours ago before I came down here, you know, I'm a former semiconductor analyst. I was looking at the semiconductor stocks down 25, 26 a year today, thinking, you know, it might be time. There's almost, you know, I feel very low chance they don't beat the market in an 18-month, two-year, five-year view massively because they have, you know, above economic growth and just so crucial with big technology moats. You're starting to really see things feel like they're on sale.

And I think the fundamentals from this earnings season have been pretty decent, actually. But see, here's the thing, okay? And you've been coming here and saying that. It's only on Fridays. During the week, everything's fine. It comes to you. The market gets killed. Last Friday, we had an awful day.

Right. It's just us being together. And then we had a down open, and then we had a reversal. Yeah, great earnings. And maybe we thought things were pretty good. But here's the point. Because you keep saying earnings are going to be better than people think. Yeah.

Okay? You're right. Numbers are coming up. And you know what? It doesn't matter. Because the other numbers that matter are going down. And that's the stock prices. Even on good earnings. Sure. You know, I think, obviously matter because the other numbers that matter are going down, and that's the stock prices, even on good earnings.

Sure. You know, I think obviously the market is anticipatory. You and I talk about that a lot, and so I think people are starting to discount, frankly, a worse U.S. consumer, right? Because you can't really be bearish on the economy and bullish on the consumer. So when I spent time going through the earnings, and we've seen a couple hundred earnings reports in the last four or five days, they look pretty solid to me. I mean, you know, consumer companies generally are beating. The banks all across the board, every single one of them, Goldman City, JPM, all said consumer conditions are fine, right? Credit card data showed less delinquencies this month than last month.

So I come out of this week thinking I'm not seeing demand destruction for oil at the gas at the pump, you know, from the Wednesday data. Again, I think the consumer's in decent shape. So I'm starting to get more constructive. You know, I always come on your show and say, look, the algorithm for equity is a 68% total return per year. That's what earnings grow. You know, the multiple is too hard to predict. I'm starting now to get a little bit more optimistic in a 6-12 month view.

This is going to be a really good entry point for some stocks. I mean, the consumer can fall apart pretty quickly. I'm wondering what you take from, you know, this was a huge week in terms of mega cap earnings. Amazon, for example. E-commerce was a huge week in terms of mega cap. Earnings Amazon for example e-commerce was weaker than expected the guidance with. Was lower in fact all across of of big tech. Microsoft slowest revenue beat since eighteen.

Amazon slowest revenue growth since all one. Alphabet. Ads miss. Yeah at some point you can't ignore a lot of this. I looked at I thought as your you know what tech earnings by go ten percent this year versus last year. The tech sector now trades at twenty you can't ignore a lot of this news. Yeah, I looked at, I thought, look, tech earnings would probably go 10% this year versus last year. The tech sector now trades at 22 times earnings.

There's a lot of profit. There's stuff in there. Long-term average is 17, 18. Again, like, I just put context around it with any longer-term. If you're an investor, I think you're starting to get more optimistic. You can get stock. Look at Facebook. They were at 13, 14 times earnings.

They put up good numbers. Stock went higher. So the starting valuation obviously matters. So, look, it always feels bad when you have bad price momentum for a week or two. But when I'm looking around now, I see so many stocks below 15 times earnings that I think are going to have earnings growth. So I'm starting to figure out should I go in and buy the semiconductor index? I can name you eight tickers that I'm confident have technology modes. I don't know if you can remember eight off the top of your head, but ADI, Texan, Synopsys, Cadence, AMAT, LAM, K-LAC.

I mean, these businesses, ASML, I mean, they all have massive technology moats. Silicon's penetrating. They grow above GDP. The SOXL, the triple long semiconductor ETF, is down like 75%. You know, I'm looking around thinking, to your view, 95% confident that group of eight stocks kills the S&P 500 on the upside. You've got to hope that. I mean, look, PCs are slowing.

But these are diversified businesses, industrials. You've got to help that enterprise hold up. It's everywhere. It's data center. It's data center, yeah. It's going to hold up. You know, I know what we're talking about. We can't function without these businesses because nobody else can produce what they do.

So I'm just looking around thinking, you know, we talked a little bit about biotech, and I'm like, you know, is there really no innovation ever again? Do you think there's nothing that's going to be safe or effective? Because mid-cap biotech is at an all-time low on price of sales. The pipeline is probably discounting almost no success. So I'm looking around thinking, for the first time now at these prices, thinking, wait a minute, this is a little emotional. I get there's disconnects between earnings and prices in a short-term

window. It can last a couple months. But ultimately, if people think earnings are going to be up high single digit this year and still think growth is going to happen next year, these prices are going to turn out to be very good entry points here at the end of April. I wonder if a stock like Teladoc, I use that as an example of a high valuation growth stock, right? Where we looked at those stocks and you say, all right, they've gotten pummeled. Maybe they've come down a lot to the point of where they become attractive, and then they drop a bomb, and then you start.

But then you re-ask yourself, maybe they haven't come down enough. We're really careful. We look at the growth stock universe, which we have not been recommending. We say, what works after the sell-off? Positive free cash flow flow gross margin expansion Accelerating revenue you picked one and like I think we came on last weekend

And I said I still think Netflix is a short right it changed its business model It still trades at 100 times forward cash flow It's got a macro issue a micro issue so you can always find tons of shorts And I think this dispersion you're seeing is highly should be a good stock picker market I starting to get an upward bias to where the market will end up six, 12 months from now because I'm seeing too many big, good businesses trade off like the bad ones here on these risk-off days. I feel like this is your, not you specifically,

but the broader you as the investor, your sort of worst nightmare scenario in that you've got this week with so much anticipation of Apple and Amazon and Microsoft, all these companies coming out, and it's not like their numbers were bad. Microsoft's were good. I mean, Apple doesn't have a demand problem.

And yet you finish a week as ugly as we did now. This was supposed to be the week where the generals didn't get smoked, right? The generals lived to fight again as we enter the next week. But we mark the market. Part of the job is, right, if the fundamentals don't support what the price action,

do you like those stocks more right now than you did at the beginning of the week? I think the answer is yes. I think it's yes because the stocks are down more than the fundamentals dictate they should. And you know a lot of these businesses, A, have pricing power, like at Microsoft Azure, they got on and said growth is 68% or whatever, right?

So you're seeing businesses that have pricing power. And unless small and medium businesses go to zero, and that's the kind of recession you're projecting, you're going to see earnings growth for most of these businesses really for the sustainable future. So I'm not saying, hey, Monday morning, light the candle. I'm just saying I'm looking around and seeing this dispersion is creating really good long-term opportunities. And businesses that I've been cautious on, select semiconductors, industrials, which have been underweight. Some of these things are now trading at 7% free cash flow yield

and have pretty good backlog. So I'm starting to get, all right, maybe we will have to get a little bit more offensive here. And I've been hiding in health care services. You know, our top trade has been energy, which I still like. But I still think energy can be way higher in 12 months. See, now you have, you know, even if you look at, let's say an Amazon, for example, right? To some, it's going to look very attractive. It's having a historically bad day,

and it just doesn't happen, you know, all that often. But the other side of that is then you have, you can't push the button because you're afraid that it's gonna go even lower, and that those stocks that are now upset or technically broken are gonna end up going down even further. I think it's going to go even lower and that those stocks that are now upset or technically broken are going to end up going down even further. The average person doesn't understand that their ability to time that is probably poor.

So you have to look out 6, 12, 18, 24 months and say, is this a good price to buy this basket? Look, a lot of people I talk to also try to beat the S&P 500. They're portfolio managers long only. They probably have to have some FANGM exposure. It's 20% of their index. So they're trying to figure out, do I keep close to that index weight? Maybe I pick Facebook and Google and Microsoft, and I short Amazon and Netflix. You're always going to be around there.

And so what you learn this week, I think, is some of these businesses are way better than others. I come away thinking kind of like Microsoft and Facebook more than I do Netflix and Amazon. That's the mark to market, right? I want you to stick here. I want to broaden out the conversation and welcome some more guests in today. Marcy McGregor from Maryland Bank of America, Private Bank, and Keith Lerner from Truist Advisory Services.

It's good to see both of you. Marcy, just give me your thoughts as you take in this horrible day in what has been a very bad month. Yeah, it's been a brutal week, but I think we're reaching peak uncertainty. You know, there's a number of macro clouds and big questions out there. I think once the market sees that we're going to get clarity from the Fed next week, kind of move along in this hiking cycle, hopefully they kind of meet expectations at 50 basis points. And they could use a hand getting some data showing peak

inflation. But once we see that profits aren't peaking, yields start stabilizing, I think some of the clouds move away and this market kind of goes back into the range bound. Fair to say we're at the low end of the range, but back into the trading range it's been in for much of this year. Yeah. Keith, April 11th, you downgraded equities to neutral and you were extremely positive on equities until you made that bold call. S&P is down 7% since then. How much more pain is ahead? Well, great to be with you, Scott. It is a painful day at least. You know, we think we probably still have a little bit lower to go. We probably have to break below these lows to get a little bit more capitulation.

It is a positive that we've seen sentiment become very negative. Like the AAII shows the biggest spread between bulls and bears or one of the biggest spreads over the last 30 years. So that's a positive. But the market coming in today wasn't extremely oversold. If we break those lows, I think we'll get a little bit more of that fear and fears cause bottoms. As far as how low do we think we can go, we think there's pretty good support for this market around 4,000. That's a 17 multiple on the market. And I think even if you overshoot that, I think that that will be probably a better risk reward if we get down there. Does that sound reasonable to you? I mean, that's kind of the line in the sand for a lot of people, including the technicians. I'm looking at Adam Park, who's sitting right next to me.

Listen, I've tested whether the bull bear ratio has any predictive value for subsequent one-month return, and it doesn't. So I think it's one of those things where you try to find something to grass onto that they could tell you sentiment's bottoming. The answer to your question is I have no idea. So if you pick $4,000, okay, that sounds like some arbitrary level it could be. I don't know. All I know is that corporate earnings are going to be higher. And ultimately, if we get to $4,000, then you're going to have a really low multiple for some quality equity. So I have no idea where it will capitulate. But what I do know is that the conditions that we're seeing from the largest corporates give me confidence earnings will grow for longer than other people.

So I'm getting increasingly bullish as prices come down. But I know Bull Bear Ratio doesn't have any two-week or three-week predictive value for the equity market, and so does him. No, but Marcy, the problem is— If I can, Scott. Yes, please. I'm sorry, Keith. Please, it's fine.

My point was not the next week or two. All I'm saying is that you have sentiment. People have been saying, hey, the sentiment's negative, including us. But you haven't seen that kind of flush out from the market. All we're saying is, hey, sentiment's already negative already negative and adam's point corporate earnings have held up pretty well if you break below these lows you'll get more of a flush out and i think we have good fundamental support for this market around the 17 multiple doesn't mean we're going to exactly get there but i'm just saying you put that together and the risk we bore becomes more attractive both

from a fundamental and a technical perspective. What do you think? I don't, yeah, okay. I mean, I don't know what flush out means. So if 4% down in one day isn't a flush out, then I can look at all. Last Friday felt like a flush out. Right, so what we can do is we get what you're really saying. And it wasn't. What a quantitative person would say is there's a price momentum signal.

When the stock's down a certain amount, what's the distribution of subsequent returns following that price? I don't think the work will show that there aren't that many markets to point to where we go down 10%, 15%. So you have to ask yourself, is this like, oh, wait, is this like the European crisis? Is this like COVID? I don't see that sort of impairment. I'm not seeing tons of inventory impeding margin progress. The issues are around U.S. labor force, U.S. wage inflation, some rising commodities in various pockets that likely roll over. So I just don't see the impediments to think earnings are going to be down 10 percent next year. I mean, look, that's why I hear him. I think he's got some common sense in there. It's short term price momentum. It's some sort of capitulation. But it's hard to measure those things quantitatively

and predict subsequent return. So you've got to step back and say, I just got 200 data points from corporates across consumer tech and banks. And what did they generally tell me? Pretty much that things are better than the prices of these stocks are telling you. So you've got to like stocks more now at 413 on Friday than you did Monday at 929. That's what I think. Unless, Marcy, you have less conviction than ever on what the appropriate multiple on the market is, because you just don't know really what's going to happen to earnings as the Fed embarks on its rate hike regime. And, you know, it's coming this week. And who knows what

they're going to say and what they're going to do after that. But the likelihood is that it's going to be nothing but hawkish. I think the key question, though, is are we headed into a recession? We don't see a recession in the next 12 months because the labor market is tight. Nothing is more stimulative than having a job. And the Fed is so far behind the curve. Policy is so accommodated. I think it's really hard to see a recession in the next 12 months. So if you don't see a recession and you do see sentiment is pretty bearish right now. And I agree, profits are going to rise from here, even though we've seen peak profit growth. I think the market can find its legs in this type of environment. I wouldn't be overly cyclical.

I wouldn't be overly defensive. I would try to stay really disciplined and balanced in this environment. But I do think we'll come back to those fundamentals of corporate profits after the market gets some of these clouds clearing. I just chime in and say the long-term average on price-to-forward earnings for the market is 17 times. We're around 20 to 21 times now, depending on your view of next year's earnings. So if you're more bearish, you're at 21 times. If you're more constructive, 20. That probably is pretty reasonable reasonable given where bond yields are and given that the constitution of this equity market is so much better than much of history. So I'm starting to create a view now that the market's getting reasonably cheap even,

or at least attractive. Here's what I want you to do. I want you to sit right here. I'm going to keep AP around, guys, in the control room. Marcy and Keith, you guys have a good weekend. I'll welcome you back soon. I thank you for your time today. I want to bring in the Wharton School professor, Jeremy Siegel, for his perspective on what we have.

Because I feel like we might have a little bit of a debate to be had here. Professor, it's always great to have you. And it's especially good to have your insights on a day like this and what has really been a difficult month for those who are watching and have money in the market. What's your perspective here? Well, Scott, I like the market long term. I mean, actually, it's 18 times earnings. S&P is 18 times this year's earnings or forward 12 months earnings. That's very cheap. X tech, it's 15 to 16 in a low interest rate environment. Even with the Fed hiking, that looks good. But I think the Fed next Wednesday is going to sound hawkish. I think Powell is going to be hawkish.

So I think the markets could have to digest that. I think there might have to be a little more capitulation. I would love, actually, the VIX to get above 40 for a day or two to really flush out all the margin and all the overvaluation, which I think has mainly been flushed out over the last nine months, six months particularly. So I think we're very near a bottom, maybe not quite there. It's very hard to predict the short run. Well, very near a bottom, but not quite there.

You know, it's interesting when you say that Fed's going to be hawkish and the market's going to, these are my words, not yours, it's going to have to come to grips with that. I thought the market already knew it was coming, Professor. So what are we still trying to come to grips with? Well, the market knows it's going to be hawkish. Most of the journalists who are going to ask questions are going to say, hey, we had negative GDP. Aren't you worried about a recession? And I think Powell's going to be pretty tough on that rather than saying, yeah, we're going to have to look at it and we may have to moderate our increases. He's been so behind the curve. You know, what you have is a pendulum. They've been so behind. The worry is, are they going to

stay too tight saying, you know, listen, you know, we're not going to get that criticism anymore. So I think he's got to show a firm face, even though he himself is saying, you know, our medicine may be getting to work. By the way, Scott, let me say, you know, I look at the money supply. We had that report last on Tuesday and two months in a row, we've had a meaningful slowdown in the growth of that money supply. And that's an absolute prerequisite for slowing inflation. Now, with all that said, you know, we have 25 percent more money in the system even after trend corrected than we did before the pandemic. And we've only had 7 percent more inflation. So I think there's still a lot of pent up inflation that's going to be reported in those statistics.

And, you know, the Fed is going to be very, very sensitive for having started so late. So they're going to have to put on a very tough face on this. But I was encouraged by the first time since the pandemic that we were actually looking like we're controlling the supply of credit. We need many, many more months of that moderate monetary growth to really slow down this inflation. And honestly, I don't think it's going to happen for another six to 12 months. We're going to be maybe a little lower than now, but we're running five and six percent inflation for quite a while. Professor, you know, you use the word capitulation and that's that's the word that matters, you know, for the narrative of where we may go before we feel a little bit better.

And let's be honest with ourselves, too. There are a lot of people watching now. There's a, you know, a new cohort that's coming to the market since the pandemic started. You know, maybe some of them are still with us. They've never felt that before. They don't know what capitulation feels like. And they're listening to you and Adam and myself. And they're saying, what are you guys talking about? Like last Friday, market was down 900 on the lows. And now here we are down more than 900 and we close basically on the lows. When do you know, you say we're getting close to a bottom. when are you going to know that we're there oh i i i mean one would have to be uh a true psychic and seer to know the absolute bottom

but you know what i mean i don't need you to pick the number i don't need you to pick the number but like what is going to be the most telling sign we've already had 90 down days or thereabouts in terms of volume. So all of the telltale signs may suggest that we've reached that point. But then we get smacked upside the head like we are this Friday, like we did last. Right. But but also remember, it was two years ago in March. So, you know, if you've been in the market more than two years, you know, the market was down 35 percent from February to the end of March in 2020. So, you know, you experience the bear market. I think the VIX went up to 80. I mean, I'm not saying it's

going to go that high, but that's the type of thing that you get in capitulation. Nor do I say the market's going to go down 35 percent. I don't even think S&P is going to get in bear market range. What is it, down 13% now, approximately from the high? That's still correction territory. NASDAQ, I know, is in a bear market. I said that last year that I thought NASDAQ was going into a bear market. I thought S&P might barely get there, maybe another 4% or 5%. It is so hard to actually pinpoint that low. If you're a trader, these are the things you worry about. If you're a long-term investor, I think these are values you become interested in the market at. Yeah, I agree with what he said at the end there. That's what I'm kind of pushing, you know, a longer-term investment view.

I think you'll know when the bottom was six months after the fact. I mean, there's no way you can forecast that perfectly. So I think you're just trying to get some combination of valuation sentiment fundamentals. And I think we're, you know, the judgment is the risk rewards looking, I told you today, I'm starting to think about these things a little bit more aggressively. You know, we look at the gap earnings. So maybe we think it's a little bit more expensive than the number you throw at 18, but it's roughly in that same vicinity of slight premium to long-term history, but starting to look pretty attractive. So I don't really know if the only thing I think I would disagree with a little bit is

I don't know if the Fed is behind or not. And what I mean by that, and I'd like to talk about this a little bit, is I don't think them raising rates will handle or really address why we have supply-demand imbalances in the wheat or semi. They can't deal with the supply, but they can hit demand. That's what they need to do. They can, but do you want to hit demand on wheat to the point we get equilibrium? Because that feels like the economy will be down 25%.

So my point, I'm being a little bit sarcastic. I'm just saying a little bit like I'm not – obviously he's got the credibility to criticize anybody he wants, you know, Dr. Siegel does. But for me, I just tend to think the Fed are generally pretty smart. And they've been kind of saying maybe we shouldn't raise rates a lot because we're not going to handle some of the things that causes supply demand. I don't know. You know, Professor, I keep hearing this view, and it's not just from Adam, that, well, the Fed's going to, you know, turn a little bit dovish, right? They don't.

They're not going to put us in a recession. Fed fund futures kind of show that i just would point out there they they ripped massively last fall through a couple months ago but you're not seeing the perception about rates accelerate anymore so when i say i think we're near peak hawkishness i'm just talking about the fed fund futures you know but yeah respond i mean tell me tell me why i'm an idiot again i mean it's possible no but but the fed was really behind the curve i mean they should have way started tightening last year uh i and and and now they're getting a lot of criticism and i think justifiably so by not looking at all the credit that was created uh they dismissed

that model i have been harping about that model for over a year. They totally dismissed the money and credit that was created and they went on their merry way and just let the thing get worse than it should have gotten. It doesn't mean they won't get it under control there and that they will eventually, but they're putting us through a lot of inflation and they may put us through a mild recession, maybe in 23. I'm not I'm not ruling it out to get out of this situation. But I do blame them for starting way too late in this game. And as much as I respect the people that are on there, I think they were not looking at all the data in their decision. Look, I think to a person that the Fed chair, if he were sitting here, wouldn't be able to really argue with you, professor.

They know that they were behind the curve extraordinarily late. I'm sure he's embarrassed and feels bad by it, but also in the same respects knows that they have a job to do to make up for whatever deficiency they had in the way that they saw the inflation picture. And they sure as heck sound like they're darn ready to do it. And that's the key point. They're ready to do what they have to do to get what they think needs to be done to get inflation under control. And if the stock market goes down as a result of that, so be it. So be it. Professor, I can't thank you enough for your time this Friday. We'll talk to you again soon. Thank you very much. Thank you. All right. That's Jeremy Siegel, the professor, of course, at the Wharton School. Thank you so much for being here, too, AP.

Have a good weekend, guys. It's good to have you right on set here so we can kick this around. Anytime. An important day. All right. That's Adam Parker. Speaking of the Fed, we have a big interview coming your way next week right here in the OT. Double-line CEO Jeffrey Gundlach is joining me on Wednesday.

It's Fed Day once again. So we're going to get his instant reaction to that decision by the Fed. You don't want to miss that. We'll do it right here in overtime. And let's get to our Twitter question of the day right now. As we close the books on April, we want to know what will be the best-performing sector in May. Will it be tech?

It's gotten beaten up, as you know. Financials, that's a battleground area. Energy, Adam Parker's favorite sector. The defensive trade has been good. Some worry it's too expensive. So what about staples? You can head to at CNBC Overtime to cast your vote. We'll have those results later on in our program.

Up next, while we catch our breaths, trading the turbulence. Growth stocks getting slammed. So top value investor Scott Black is back. He's going to give us some value plays for your portfolio as well. Plus, we have a late- day trade alert in the payment space. One halftime committee member is hitting the sell button on a beaten down but popular name. We're going to tell you all about it when we come back. All right, welcome back. It's time for a CNBC News Update now with Shepard Smith. Hey, Shep. Hi, Judge. From the news on CNBC, here's what's happening. The mayor of Mariupol says it's hell on earth in what's left of that Ukrainian city.

This, as the United Nations says, it's working nonstop to broker a civilian evacuation from a steel plant there. The mayor says time is running out for them, measuring time left in hours, not days. Former President Trump will have to keep paying $10,000 a day in fines. A judge today denied his request to reverse the fines. The judge ordered it on Monday after the Trump legal team failed to turn over subpoenas and documents in the civil probe of the Trump organization. And the L.A. Dodgers pitcher Trevor Bauer suspended for two whole seasons by the league. He's accused of violating the domestic violence, sexual assault, and child abuse policy.

A woman accused Bauer of choking, punching, and sexually assaulting her. The L.A. District Attorney declined to bring charges in that case. Bauer denies the allegations, says he's appealing the decision, and expects to prevail. Tonight, at least five sailors from one Navy ship killed themselves over the last year. The investigation on the news right after Jim Cramer, 7 Eastern CNBC. Scott, back to you. We'll be there, Shep. Thank you very much. That's Shepard Smith. Major selling across the board today to end a very tough month of April. The Nasdaq posting its worst month since October of

2008. So is it time to rotate into the value trade? Our next guest is a well-known value investor. Joining us now on the phone is Scott Black, Delphi Management president and founder. It's good to have you back, Scott. Welcome. Well, thank you for inviting me. Yeah, always welcome. And I know we're going to get some stock picks from you. But first, I just need to get your take on this very, very brutal day in what's been a difficult month. Well, stocks are a lot cheaper now. If you look at the S&P earlier in the year, it was like 23, 24 times. It's 18 times. But I watched your preceding schedule here with Jeremy Siegel, and the real issue is that the Federal Reserve has been way, way behind the curve. And even though they're

jawboning now about the 50 basis point increase, that's not enough. You know, if you actually look at the Fed balance sheet, it's still up week over week. It was $9 trillion. It's still up $1.8 billion, and it's up $1.15 trillion. And I know Jeremy referred to the monetary aggregates, but I got the real numbers. M1 is still up 11% year over year. M2 is 10%. And, you know, money times velocity is price index times the net national product. That hasn't changed since Milton Friedman. And until we start wringing out this inflation and we have some expectation we're going to get it down to 3 percent, interest rates need to back up. And, of course, I wrote you in the prelim there that sort of the fix is in.

They're in a delicate situation. If the Fed raises rates too much, each 1 percent on the $30 trillion worth of national debt adds $300 billion in interest expense, which we can ill afford at this point. So they're in a little bit of a conundrum. But I still think interest rates have a long way to go. And 50 basis points in the upcoming meeting doesn't really do it. So I feel like there's still... That's okay. I still think there's more downside.

And I did a little micro analysis as well. Out of the top 25 stocks cap weighted in the S&P going into the day, 12 of them are over 25 times this year's expected 22 earnings. So it's not like a lot of the speculation has been wrung out. You know, 25p is still pretty expensive. The historical norm is about a 16 multiple or about 18 times at this point. So I think there's some more downward pressure to come until we see a reversal in the inflation number. So, I mean, my initial takeaway, Scott, to what you're saying now would be like, I don't want to buy anything. Cash is the best position I want to be in. But yet you've come with a couple of picks, a reinsurer named Everest Re and then KLA Tencor. Can you tell me briefly, if you wouldn't mind, about those and why, even in the environment in which you describe,

which sounds so treacherous to try and stick your toe in such choppy waters that you would want to buy even these names? Well, if you have a one- or two-year horizon, these are really good companies. And what's good is they both have accelerating earnings for the coming year. It's not like you have to worry that the earnings are going to trend down. Everest Re is consistently been a very good underwriter with a combined ratio well under 100. It's got 91%. The top-line premiums are going to grow at about a 20% clip this year,

and they should earn roughly $32.50. The stock is an 8.5 multiple. It's sort of a giveaway, and it's selling at 1.1 times book value, and the book is very clean. They have a very solid business. You don't have tremendous exposure to catastrophe re. They have a direct right business, which is 31%. Reinsurance is 69%.

And the book of business that they have really is pretty steady. A lot of it is just casualty, professional liability type insurance, workman's comp. So you're not sticking your neck out with climate change to any great degree on tornadoes, earthquakes, and fires. It's conservatively managed and it's a low multiple, and the earnings are going up nicely. The other one, KLA, if you know that, it's a dominant factor in what's called metrology. You have to inspect the wafers, the radicals, the integrated circuit packages, because it's

what referred to with Intel or Samsung is yield. It's very expensive to make chips. You don't want to throw them away. KLA has like a 54 worldwide share. The stock closed today at 319. It's down 30% off the high, about a $48 billion market cap. And they're going to have tremendous earnings. It's your June fiscal.

So for the June of 2022, they're supposed to earn about $20.55. And for next year, $23.60, up another 15%. It's selling at a 13.5 PE. You never get to buy a company as good as KLA at a 13 multiple. Okay. I'm going to make – Okay, and the company does nothing but generate cash as well. They generated over $2 billion in cash for the first nine months of this year, and they've already bought back just in the latest quarter $565 million worth

of their own stock. Well, forgive me for keeping this more brief than I would otherwise like, but I'm up against it. Scott, I'll talk to you soon. I so much appreciate your time tonight. Thank you very much. Have a nice weekend. All right, you can do the same. That's Scott Black, Delphi Management. He's the president and, of course, the founder to stock sinking to end the week. Up next, we wrap up some of the biggest moves in the O.T. Plus, we have a trade update on NVIDIA. One money manager recommended this name a few weeks ago. It's been a rough ride ever since. You know what's happened to that stock, too. She'll tell us what she's doing now. Overtime's back right after this.

Stocks closing out the week with a sell-off. Contessa Brewer is here with our rapid recap. Contessa. Well, that's a bit of an understatement. This was not a pretty way to end the week for the Nasdaq. The worst month since October 2008. The worst month since March 2020 for the Dow and the S&P. Every sector finished lower today with tech, real estate and consumer discretionary all down more than 4 percent. Hey, there were a handful of bright spots. Chinese tech stocks rebounded with the K-Web ETF snapping a three week losing streak. You had giants like Alibaba and JD.com finishing the day up 6 percent or more. And despite tech's weakness, Western Digital was a relative outperformer. The company topped analyst estimates, capped off its first monthly gain since December,

and Mohawk Industries posted its best day in almost two years after beating on earnings. The flooring company says it expects a sustained boom in home building and remodeling, despite rising rates and geopolitical tensions. Scott, I'll send it back to you. Oh, I can test. I appreciate that. That's contested Brewer. Up next, the bull case for Amazon. The stock is plunging on weak guidance, as you already know, as today's drop of buying

opportunity. We'll debate it in halftime overtime. All right, welcome back to overtime. Amazon shares posting their worst day since all the way back in 2006 on a revenue miss and weak guidance. Let's bring in halftime investment committee member and Amazon shareholder Degas Wright. Degas, it's good to see you. Thank you for being on Overtime with us. You know, Josh Brown made some interesting points earlier today on the half that Amazon at this point had come down so much that somebody like Warren Buffett and company over at Berkshire Hathaway might be sharpening the pencils and taking a look at this one. You own the stock.

Is this an attractive place to enter or are you still concerned that there's more downside to come here? Yeah, unfortunately, with Amazon, there could be more downside because if you look at the multiple, it went from about a 79 times down to about 50 times. So we're still concerned about the valuation. But we really like the profitability because ultimately, if you look at return on invested capital, it's about 18 percent. It's been consistently there. Obviously, today was a bad day because if you look, if you take out the Rivian investment, you come in at about a $4 per quarter. And this is something that obviously the street did not expect. What we're going to be looking for going forward

is in Q2 and Q3. Typically, they're forecasting about a $12 per share for earnings in Q2 and also in Q3, about $13. If we can get back to those numbers, this could be a good, you know, Amazon would be fine after this. Plus, we're long-term investors, so we're going to stay invested in Amazon. You're not staying invested in PayPal, though. I see that you sold that, and I'm looking at it in my fact set right here. A stock that was $310, the 52-week high is now down and closing today at 87.93 so we'll call it 88. you had enough i had enough scott because we looked at this uh stock and we were we became concerned ultimately it moved down from about 89 times down to about 27 times so now it's priced

very similar to other uh payment systems such as Visa and MasterCard. But our concern is this becoming a value trap. A value trap can occur when a multiple comes down, as we have in PayPal, but there's not expectations to support it. And so we're really concerned about the fact, have they really said anything that materially gets them to be very competitive? And will they be innovative going forward and also contain costs? Some of the things that we look at is ultimately their transaction per customer moved from about, in 2019, at 41 transactions to about 47 transactions. So their big push now is to try to get greater customer engagement. And how do they plan to do that?

I went through their report recently, and I didn't see a firm plan to do that. Plus the fact that they get about 46% of their revenues from international, and the weakness in the Europe and China market is something to be very concerned about. I got you. All right, Degas, I appreciate it. Thank you. I'll see you next week. You have a good weekend. That's Degas Wright from Degas Capital joining us right there. All right. For more on today's market sell-off, let's bring in BTIG chief market technician, Jonathan Krinsky. I wanted you to come on because you've been suggesting over and over, and thank you for being here, we're probably going below 4,000 on the S&P. It's just a matter

of time. The breakdowns that we're witnessing are just too severe in the most acute ways and in the places that would take us there. So what now? Yeah, I think the playbook is the same, and the action we're seeing is really just a function of how corrections unfold. And it's really a function of the weak stocks and the weak trends are unable to bounce. And ultimately, the market works its way through to the names that have held up. And I think that's what we're seeing now. You know, we saw with Amazon. We've seen it a little bit with Google. You know, even the names that reported, quote-unquote, good numbers like Microsoft are probably, you know, on the chopping block here.

So those so-called generals that people, you know, have been referring to them as, do you think they're, most if not all, are in danger now of a bigger breakdown and that's what takes the market with it i yeah i think that's i think that's pretty pretty fair to say um you know and i'll just say uh you know from a from a sentiment perspective you know you guys are talking about amazon um you know it had been a great stock up until a few months ago but it's it's down you know i don't know 30 or 40% from the highs. And I actually noticed today there's 59 sell-side analysts covering the stock. 57 have buy ratings on it, only one hold and one sell. And so I think you need to see sentiment from the sell-side come down as well before we start to find bottoms in some of these names. I know you know how this goes, though. I

mean, if you look, I literally think I counted today 24 price target cuts from Amazon. That's the first place the knife goes to, right, is you reevaluate what the price of the stock is because it's gone through such a correction. But there's such reticence to actually downgrade the stock. And I don't know if you're going to get to that moment at all. But what seems like a reasonable number on the S&P 500 for you before we can start building a base back up? Yeah, I mean, you know, we've kind of ballpark had that, you know, that 4000 level. I think you probably need to break that just psychologically. There's probably some stops there. We in our last note, we targeted 3900 based on some other

technical input. So I think somewhere in that, you know, once we start getting below 4,000, you can start to look for some signs. But, you know, ultimately more than just a price level, it's, you know, it's watching the action. You know, do we get that final full-scale washout? We've been talking the lack of a full 90% downside volume day. And I know some people are saying we may not get there, but I think ultimately you will get that full scale capitulation where it's indiscriminate selling. And you'll kind of know it when you see it. We've we've gotten close, but we don't think we're just quite there yet. I mean, I'm looking, you know, one point three billion billion shares traded here at the New York Stock Exchange. I mean, it was twelve hundred and fifty. We're

down volume. I feel like we're quibbling here on the actual number of downside volume. It's already been pretty severe. It really matters as to whether it achieves the actual 90 level or not? No, I don't think it, you know, if we were to get, you know, like you said, we've been 86, 87, you know, we're close. And I'm not saying we have to print 90%, but I think it's the way the market acts, right? You haven't seen that kind of full whoosh that, you know, in some ways you can define it, but in other ways, it's just one of those events you'll know when you see it. And I think, you know, if and as we break 4,000, you're going to see kind of that trading action. You know, I'd also say we haven't really, I think today was the worst percentage down day for the S&P.

I could be wrong. I think it was the worst down day of the year. So, you know, we're getting those bigger price moves. So, again, we're getting closer. We're just, in our view, not quite there yet. Where can I hide out if I'm intent on doing so? Where is a decent place right now? You know, it's tough because traditionally you would start to say, let's go into the defensives.

But people, the problem with people, you know, rotated into those so heavily. And that's what we were talking about a few weeks ago. Places like utilities traditionally are defensive. People kind of front ran the correction by hiding in those. You know, saving utilities, you know, we're down pretty substantially today. You know, I think we're getting closer to a point where you could probably, you know, rotate back into some of those defensives. I'm not necessarily recommending it, but I think, you know, you look at the China tech names were actually up pretty good today. So

some places that are just so washed out like that might be okay. But, you know, again, in a real full-scale washout, it's, you know, unfortunately, cash is really the only pure safety. And even bonds are, you know, in a tough spot right now. Yeah, it's like picking up a beehive when you think all the bees are out, and then you get stung when you least expect it. I appreciate it. Jonathan Korinsky, thank you. We'll talk again soon. Up next, we're headed to Omaha for Santoli's last word. He is there live ahead of Berkshire Hathaway's annual meeting. And there is a live picture. And of course, there are plenty of people at the Woodstock of capitalism. We're back right after this. All right, let's get to Mike Santoli with Santoli's last word.

Of course, he's in Omaha, as we said, at the Berkshire Hathaway annual meeting. Mike, what is the last word today? I would call it endurance, maybe, or quality. I mean, it's, you know, obviously nobody knows what the market backdrop is going to be when we have this get-together here. But interestingly, things have been working, certainly on a relative basis, in Berkshire Hathaway's favor and, of course, in the shareholders' favor. If you break apart what makes up Berkshire Hathaway, I'm not talking about, you know, Warren Buffett's genius. I'm talking about the actual pieces, the types of businesses. Berkshire's done well. It's in the right places,

in a sense. You talk about insurance. I mean, Progressive's been a relatively strong stock. You look at Berkshire. It's actually outperformed Progressive. Apple, of course, been resilient relative to other FANG stocks. Now, railroads have given way a little bit. United Pacific there has comped to the BNSF business of Berkshire Hathaway. Utilities, of course, also a big chunk of Berkshire Hathaway. So, up 7% or so this year, up 16% on a one-year basis. That's all to the good. The question is, you know, is that just about shelters, just about a impenetrable balance

sheet and quality attributes of the business? Or is, you know, things moving in the right direction more generally here? Maybe there's going to be some buys coming out of this severe correction we're going through in the market for Buffett and Munger here, Scott. Well, it's interesting you say that. And I don't believe that it was Mr. Buffett who actually coined the phrase, you buy when there's blood in the streets. But if he didn't come up with it, he certainly lived by it. And he has taken advantage and wholeheartedly of dislocations in the market

like we are going through now and may continue to go through. Without a doubt, he has done that. Interestingly, it's almost as if the 2020 sell-off and crisis didn't last long enough for Buffett to do much. In fact, there's a bit of frustration if you read the latest shareholder letter that they didn't really deploy more of their cash into new businesses because maybe things just almost bounced too hard and too fast. And it wasn't a chance for these businesses to come looking for a buyer like that. But absolutely, I think right now they'd be motivated to do that. They have this pending acquisition of Allegheny, a smaller but similar kind of mix of things,

insurance plus operating businesses. But you've got to believe there's probably more for them to do at this point. Looks to me, the way it looks behind you, is that the vibe there doesn't represent anything close to the feeling in the market. Not at all. I mean, I haven't walked around too much yet. But first of all, it's packed. People are back.

It's the first in-person meeting since 2019. So they're excited to be here and you look they've been rewarded and in fact if anything the folks that come here come here in part to have those principles reiterated about why you want to just stick things out for the long term and not get caught up in the short-term market moves yeah you enjoy yourself I think if I recall you telling me this is your first trip there so you soak it all in and we'll get your your insight on all of it when you when you get back. Yeah, you enjoy yourself. That's Mike Santoli out at the Berkshire annual meeting. And we have a real treat for you as well.

Our coverage of Berkshire Hathaway's annual meeting is very special this year. You can watch Warren Buffett and Charlie Munger take the stage and answer shareholder questions for five hours for the first time ever will be live streamed only on CNBC.com. Those events kick off at 9.45 a.m. Eastern Time. Again, CNBC.com backslash Buffett. Do not miss that. Let's get to the results of our Twitter question of the day. We asked, what will be the best performing sector in May? Will it be tech, financials, energy or staples? Forty percent of you said tech. But we're going to have a rebound because April was terrible. Tech got pummeled. The Nasdaq had its worst month in so long. And we're going to see 40 percent. Very interesting. Thank you for voting there. Let's go to a news alert now regarding Twitter and to Julia Boorstin.

And apparently the Friday night news dump is coming by way as well from one Jack Dorsey. Julie, and you know what I'm referring to. From Jack Dorsey at Jack posting a series of tweets. This comes after he previously tweeted in support of Elon Musk's proposed changes to Twitter and critical of his old team at the company. Jack Dorsey now tweeting, I've tried taking a break from Twitter recently, but I must say this company has always tried to do its best given the information it had. Every decision we made was ultimately my responsibility. In the cases when we were wrong or went too far, we admitted it and worked to correct. He goes on to say in another tweet that his failure was in how quickly the app learns and improves. And he's confident that that part,

that quick response part is now being addressed. He also seemed to weigh in on the ban of President Trump. He said, quote, in his tweet, we don't believe any, I don't believe any permanent ban with the exception of illegal activity is right or should be possible, saying this is why we need a protocol that's resilient to the layers above. So, Scott, I'm not entirely sure what that language in that last sentence meant, but he seems to be saying that he thinks everyone should be allowed to eventually come back onto the platform. Yeah. Yeah. Very interesting to hear from him now, given everything that's gone over over the last week. Julia Borsten, thank you so much. Let's finish things out this hour and this week with Victoria Green, CIO at G Squared Private Wealth.

It's good to see you again. And you know what? It's funny. It segues perfectly into one of your picks this time, which is Tesla. Right. Which is so interesting because we learned about all these sales, eight billion dollars worth of sales from Musk to help finance the transaction with Twitter. And you have 30 seconds only. I apologize. Hey, you know, you got to think like Warren Buffett, right? Like, if you think it's a good company with strong leadership, I know Musk is a little crazy. But if we like Tesla at $1,200, we certainly like it at $800 or $900. They've got a substantial lead on every other EV maker, both in terms of distribution and following. So I think Tesla, every time you see it touch that 800 would be a buy.

Yeah. Even, you know, some of the questions that are around this transaction, you know, it sort of hangs in the balance. We think it's going to go through and maybe the likelihood is much better than not. But we're certainly going to see. Victoria, I owe you another appearance. I apologize. This one's so short, but I'm going to let you go because I'm out of time. That's Victoria Green joining us. I hope all of you have a great weekend.