Closing Bell - Closing Bell Overtime: Navigating the Big Downturn 06/16/22

Episode Date: June 16, 2022

Stocks dropped in today’s session, with the Nasdaq closing down more than 4%. Wharton School Professor Jeremy Siegel gives instant reaction to the brutal trading day. Plus, Morgan Stanley’s Chris Toomey breaks down where he is seeing opportunity in the market. And, Mike Santoli’s “Last Word” with his expert take on the big market slide.

Welcome, everybody, to Overtime. I'm Scott Walkman. You just heard the bells. We are just getting started here at the New York Stock Exchange. In just a little bit, I'll be joined by Morgan Stanley's Chris Toomey, who runs one of the highest-rated private wealth advisory teams in this country. We begin, though, with our talk of the tape. The brutal sell-off in stocks amid signs the economy is weakening, while the Fed is aggressively raising interest rates. What is an investor to do?

Let's ask famed Wharton School professor Jeremy Siegel. He joins us today from Philadelphia. Professor, it's good to see you. Welcome to Overtime. Yeah, I agree with you, Scott. This week was brutal. Today was brutal. Let me tell you, we're in a recession. It's a mild recession. It's not an official recession by the NBER, certainly not yet. But this first half is negative GDP growth and it's ending on a slide. And, you know, just when the Fed is, you know, the most aggressive because it waited far too long. It's interesting. I mean, you know, the data that I found so interesting on Wednesday, I mean, more even than the 75 basis points, FOMC was that retail sales data that we got in the morning. Wow, that was that was shockingly low and momentum downward.

And every single indicator we've gotten since then has really surprised pretty dramatically on the downside. So we're cooling off the economy. Let's just hope it's not too fast. You know, you point to a significant issue that we need to discuss, and that is the idea of a Federal Reserve that waited too long and now is acting too much. And that seems to be where we are in this world, what has unsettled this market so dramatically, this very issue that because they waited so long, Professor, and they're doing what is deemed to be too much now, they're going to break something along the way.

Yeah. And remember, I commented, you know, three weeks ago that we already had stopped the growth of the money supply, which was the second largest monthly decline in 60 years. I was sort of startled. I said, something's going on here. We're going to get another money supply soon. It looks like they're stopping the economy right in the tracks. We don't want to go through the windshield here, slamming on the brakes. They had to do what they had to do it what they what they had to do uh you know we might be surprised instead of 50 uh to 75 basis points in july you know it might be 25 uh if they really if this if this slowdown really continues now we saw oil up a bit today but we know so many of the other commodities have rolled over. And the economic momentum is really sharply turned negative. And I think that's certainly something that the Fed has to be

concerned about going forward. You can't have it both ways, though. You wanted them to do 100 basis points. I wanted them to. Yes. And it's to capture the negative that we're serious. And I think they did that. You know, we've seen a rise. You know, I look at the tip shield because I think that's the most relevant discount rate for the stock market. And I've never seen a rise like this. It was less than minus one at the beginning of the year. It almost earlier this week hit plus one.

Now, that's a two percentage point increase in the discount rate. That is mammoth in a period of less than six months. So you wonder, you know, why are stocks down 20 percent, 25 percent? You know, put that in a discount formula and you will see why that is happening. And that is really all on anticipation that the Fed has to step on the brakes, slow that money supply. It is happening. Let's hope, you know, they can't go overboard. They've got to be looking at this data. Being too late sometimes means that you may react too much. Not yet, but we're in the problem. Now, Scott, let me say something on the good side.

On the good side, despite the fact that the first half of this year, GDP is down. Earnings are up 5% over the previous six months of last year. So even with a negative GDP growth, we actually manage positive earnings growth. So that's actually saying something. And also think about the fact that we're going to be in earnings week. We're going to be at the end of the quarter in two weeks. Then one week after that is earnings season. I haven't heard a lot of warnings. I mean, we heard targets. Not yet.

This is the time. Now, you know, maybe the fall off. We're going to start getting them. But by by and large, even with this slowdown, earnings are coming in fairly good. And, you know, a definition of a recession technically is two consecutive quarters of GDP. Now, we're not going to get too consecutive. And by the way, the only reason we're having positive GDP, and I think we will get slightly positive in this quarter, is really what we saw in April and early May. End of May and June so far is a negative GDP by all indicators. And so all of a sudden, we really slammed on on this economy through the, you know,

that's the price inflation, the rise in rates in anticipation of what the Fed has to do. And if they had done earlier, we wouldn't have the hard landing, which we likely now. You suggested to me the other day that you thought we could go down another 5% or so. Yeah, we did. We're down a lot today. We're down a lot today. What does that mean? What's fair value in the market right now? Okay, what's fair value? We're 16 times this year's earnings on S&P. Now, that is the 150-year average

in a world of interest rates that are still much higher than we exist today. Russell Value is selling at 13 times this year's earnings. Europe is selling at 10 to 11 times earnings. I mean, these are really bargains. Now, it doesn't mean it won't go down more. We've seen single-digit P.E. ratios, but we've seen those when the interest rates are north of 10%.

And we ain't getting there. Take a look at what happened to the long bond at the end of today's session. The recession fears, the slowdown fears are taking hold of that market. You can actually see it. The Fed is going to take note of that. And, you know, if that long bond stays down, they increase more than anticipated. Don't forget, their 340 was the 340 the market thought by the end of the year.

If they become more aggressive, they're just going to be inverting that curve. Professor, I beg your pardon for a moment. Adobe earnings are out, and I just want to note the fact the stock is lower. And we're keeping such a close eye on what companies are reporting and what the stocks are doing as a result of those reports and their outlooks you can see adobe shares are down six percent uh it's especially important given the bloodbath really i don't know of a better word frankly to use at the present time in technology stocks uh watching the software space closely our frank hang on one second professor our frank holland uh is going to have more on that coming up. But but, you know, these stocks, professor, when I look and I see the Nasdaq today down 450 points, it's stunning.

Yeah, it's stunning. And then Nasdaq is actually still selling for 23 times this year's earnings. It's the most expensive market in the world still. Of course, it's come down from 45 times earnings. So still not cheap. But see, Professor, when we talk about earnings, there's an interesting note out today from J.P. Morgan I want your reaction to. And you note the 16 times the market is trading at. And I think we can all agree that earnings estimates are too high and they're going to come down. The question is by how much they suggest that if earnings fall 20 percent, so go from two hundred and fifty dollars down to two hundred dollars and you put a 15 multiple on that,

you get S&P 3000. OK, we're about 600 points above S&P 3000. Let me ask you, why would you? I hear you. I hear you, Scott. Why would you put an average multiple on a recession level earnings? That's not right. In recessions, they sell more than the average. If he thinks that those earnings are going to be there for the next five to 10 years, okay, I can grant that. Although even then I think it's cheap. But you can't put average PEs on recession level earnings because that's one year and then what? In 2023,

24, 25, they're going to jump back up. Now, you might say psychology does put those earnings on there. Well, that's why, listen, whenever you bought at the bottom of the bear market, your subsequent return for the next 10 years has been 15 to 20 percent a year. It's crazy undervalued. So, you know, I'm not saying, you know, craziness can't happen, but to say that that's a justified level, I'm going to put an average 150-year P-E ratio with interest rates were much higher on a recession-level earnings. Now, I'm not saying the market can't get there, but it would be irrationally low at that level. I hear you.

Look, that's one person's view. And you're the professor. I mean, it's more than one person's view. Because we've heard this from others. More than one. Let me ask you this view. Because I think people are trying to look at the market today and figure out if we're close to a bottom, whether if their time horizon is a long time from now, that these are the kind of markets that you look to put money to work, which seems crazy

to suggest, because I feel bad even having these kinds of conversations when the market feels so upset and it's return of capital. People feel like better than return on capital. So I totally get it. I do. However, I get it. I do. However, there are some who are suggesting that the market has so overshot itself. Professor Morningstar, Christine Benz, our analyst price fair value for their coverage universe suggests, yes, the market is overshot.

The typical stock is selling at about 18 percent discount to fair value as of the 14th of this month. How about that idea? I agree. I agree totally with it. I mean, you know, I actually think that given interest rates and and costs of diversification being so low that really 18 to 20, it should be the normal P.E. of the market in normal times. We're not in normal times. We're in a Fed tightening period with fears of recession and hard landing dominating and as a result, we're undervalued. You know, Scott, the reason it's precisely these terrible times that people say, I'm not going to touch stocks again. They stay out of stocks. They go into their 2 or

3% C.D.s. Maybe we're going to have, for the first time in 15 years, 2% to 3% CDs. And fail to recognize that over the last 50 years, stocks have returned 10% a year because they can't stand the bear markets. I hear you. It's unsettling, to say the least. I want you to stay with me, Professor, if you would. I want to broaden stay with me, Professor, if you would. I want to broaden the conversation and bring in Veritas Financial's Greg Branch. He's also a CNBC contributor, along with BNY Mellon's Alicia Levine. It's great to have you both with us.

Alicia, I'll go to you first. You know, react to what the professor says here. I'm wondering what you're thinking about a bottom, if you think we're close, what your feeling is. So I have to say I'm very close in agreement with Professor Siegel. And the issue on the multiple is a really important one, because if this were normal times, then yes, we have overshot to the downside, and investors should feel comfortable putting capital to work here. The issue is that we're probably getting some form of earnings recession,

whether it's a recession in the real economy. The margins are probably too high for S&P earnings estimates. The numbers will come down. And so you're not going to stay at a 16 times forward earnings if the denominator is going down. And that's the issue. That's why we don't think we're there yet. In addition, I have some fear that the Fed is going to have to go 75 basis points in July, and that's because there's not going to be enough time for the inflation data to come in to convince the Fed that it doesn't have to be hawkish.

And so you've now pulled forward a lot of tightening, and that's why stagflation is such a toxic brew, because many policy choices are wrong. You're also assuming that they don't break something along the way between now and July, which, look, a month is a long period of time. The way that things feel, and the fact, Greg, that central banks around the world are in tandem. Everybody is tightening.

And that in and of itself, given the environment that we're in, is somewhat unprecedented. With economies that were strong, with employment markets that are so tight, and what these central banks are now being forced to do, all I might add, mostly late. Right. That's right, Scott. And I'm going to quibble with a couple of things that the professor said with all due respect. Using his own multiple at 16 times, he doesn't have the E right. At the end of the day, if we're going into a recessionary environment, which is what he thinks,

that means earnings contraction. At the end of the day, I think you know I'm not a come-lately-to-this-party, Scott. At the very beginning of the year, I said we're going to see earnings contraction in the S&P 500. So point number one, we've had over 70 companies at this point announce that they're not going to meet their second quarter expectations. We've had 70 S&P 500 companies announce that. Now, the analysts have been slow to react to that, but the companies are telling us that the estimates are too high. And so, as you know, I went a couple of months ago from single-digit expansion this year to

single-digit contraction. That takes me down to about 195. Remember, the inflation-adjusted estimate on the S&P last year was 205. So at 195, at the professor's 16 times, that's 3120 on the S&P. At my 18 times, which I'll admit is probably generous and I'll probably revise it down, that's 3510. And lastly, the last quibble I have with the professor is there's a number of us, we were called alarmists last year, who said coming out of Jackson Hole, in what we knew were going to be robust third quarter earnings, the Fed should have announced a tightening plan, even if it was just 25 basis points a meeting. And now they don't have a choice. Are they going to lead us into

recession? Of course they are. There's not going to be a soft landing because they don't have a choice now. And that is why while there are technology companies I love, while I know that they have to raise 75 basis points or 100 basis points on the next few meetings, I can't buy them because the psychology of those rising rates is going to overpower any sensibility that these companies don't need to borrow money and they're generating 20% plus free cash flow. Okay. So, Professor, I'm just going to back up and give you the floor because he took issue with a lot of things you said and I want to hear your response. I love to be challenged. This is for both and that's good. First of all,

one is right and is that the official inflation statistics are going to be bad for a long time. And we've talked about the way they constructed the lags in getting housing prices and all the rest, which, by the way, given what we've been hearing, probably have peaked. I don't predict a collapse, but you know what? In the next 12 months, you're going to get those housing inflation tick in to the official statistics. But the important thing is the Fed has a lot of other things to look at rather than just the official CPI that comes out once a month. They can look at, you know, commodity prices. They're going to be looking at the long bond.

They're going to be looking at spreads between the tips and the standard nominal bond. By the way, the reason why Jay Powell kept on saying almost all indicators are showing some increase in inflationary expectations is that one does not. The difference between the tips. So, you know, that's why he made that qualification there. They they are looking at a lot of other things that are going to turn before those official statistics. First of all, no argument with anyone saying that not only is the U.S., but I think the world's central banks are very late, the U.S. being the worst, because we had the most stimulus compared to GDP. No other country matched our stimulus. The Fed gave them all the money without ever saying, you know, raise it in the bond market. We should have had interest rate increases in 2020, 2021, and we would have avoided the crunch here in 2022. But that's, you know, watered down over the dam, so to speak.

And that's what's happened. Secondly, I'm a little confused on what earnings we're using. When they're trying to put the water back in, Professor, that's the problem. That's the problem. Yeah, most certainly. That's what we're worried about. To be sure. But I also am questioning, we have 20, I don't know, did you make an inflation correction on earnings? Because we're talking about nominal stock market averages on nominal

earnings here. I mean, I still, I don't know if we're going to get 220 this year or 225 or 30. I mean, I'm not sure whether 190 would be a sharp recession in the second half of the year. I don't see that. Yeah. Greg, respond real quick. And then, Alisa, you get, and then, Greg, you go, and then, Alisa, you get the last word. Yeah. Greg, respond real quick. And then, Alisa, you get and then you, Greg, you go. And then, Alisa, you get the last word. Sure. The last five recessions, on average, the S&P 500 earnings declined 30 percent. So forecasting a mid single digit contraction in S&P 500 earnings

is not a Herculean estimation. I'm actually mild. And it's likely that next month odds could revise further downward when we get all those negative announcements and downward analyst revisions. Alicia, you know what? I also want to bring you this headline that's moving on Twitter because you guys were just talking about this notion of, Professor, we had more stimulus than everybody else, and that is contributing to the inflation we're seeing here. The president has done an interview with the Associated Press and said that the notion that the coronavirus relief bill caused inflation was, quote, according to President Biden, bizarre.

So perhaps he's challenging you, too. But we can do that another day. There were three, there were two bills under Trump. We were well out of the recession. And then Biden put a huge stimulus on top of that. I'm not talking about 2020. I'm not talking. I'm not talking about, you know, the original one or the second one under Trump, which was also a bit too excessive. But the first the one under Biden that did pass, what was it, two and a half trillion dollars? And the Fed handed them two and a half trillion dollars. That's the one I'm talking about. I know what you're talking about. Lisa, last word to you.

And some of that, if you could, let's steer it back, not towards this, but towards the market. Leave my viewers, if you would, with it, with a thought of what they need to think about as they head into the rest of or the remainder of this week. Tomorrow, really, you have options expiration. That could be contributing to some of the volatility we've witnessed, too. If you're lucky enough to have any cash. Oh, I'm sorry. I don't know if you asked me or not. Most market participants are negative.

Positioning is negative. Very few people want to step in front of this. And so, therefore, should anything go right, meaning an end to the war or some talks of resolving the conflict in Europe, because it's really going to get to the energy complex, you really could rip higher here. So we expect a very difficult summer, but ultimately we think the market's going to bottom before the real economy does. And once the earnings really come down, you can step back into this. It is unpleasant. We do think the Fed's going to tighten at 75 in July. Okay. We're going to see. You guys are great. Thank you so much for this conversation. Greg and Alicia, Professor, I'm going to have to, like you do with the students,

I'm going to have to have you raise your hand. I'm going to have to call on you next time. You be well. I appreciate your time always. Okay. Thank you. All right. It's always great having you, all of you two. Let's get to our Twitter question of the day. We want to know which of these mega cap tech stocks look most attractive following today's pullback. Is it Apple, Microsoft, Google, or Meta? You can head over to at CNBC Overtime on Twitter, cast your vote. We'll bring you those results at the end of the show. Now let's get to Frank Holland. He does have more on Adobe's quarter. The reason why this stock is down after that report,

Frank. Hey there, Scott. You know, it's down because of some weak guidance for both Q3 and Q4, but let's start off with this quarter. Shares down 4% right now after a beat on the top line. Adobe says it's record revenue and a beat on EPS, 4 cents above estimates. You look deeper into numbers. ARR, that's money from current customers above estimates, just slightly above estimates. Also, digital media, where the company gets three quarters of revenue. Think Adobe and Photoshop products. That was also above estimates. Also, better than expected cash from operations, just over $2 billion, where the estimate was also above estimates. Also better than expected cash from operations, just over two billion, where the estimate was for one point nine eight billion.

But again, week Q3 and Q4 guidance, the company citing one hundred and seventy five million in currency impact from the stronger dollar, also impact from pulling out of Russia and Belarus. Again, shares down now four and a half percent after a beat on the top line and the bottom line. But week four guidance for the next two quarters. Back over to you. All right. Yeah, appreciate it. Frank Holland, thank you so much. Don't go anywhere. We are all over today's big stock sell-off.

Up next, Morgan Stanley's Chris Toomey. He joins us exclusively with his take on that drop. Where he sees stocks heading from here, we'll ask him in two minutes on Overtime. We're back in overtime following another major sell-off on Wall Street. So is there opportunity in today's big drop? Our next guest runs one of the highest-rated private wealth advisory teams in the country. Let's bring in now Morgan Stanley's Chris Toomey. Good to have you here on a miserable day in the market. You just heard the conversation we had with Professor Siegel.

You want to react to anything that you heard there about where you think stocks could go from here? I think it was a really good conversation. I'm upset in the sense that I think I'm going to also have to take the panel side and be a little bit more bearish than Professor Siegel. I think the concern I have is the Fed's dealing with the demand side of the equation. They're raising rates. And typically, the solution for higher prices is higher prices. And the problem here is it's not affecting the supply side. And so the thing that's really turbocharged inflation

is really what's going on with regards to Russia and China. China, the shutdown because of zero covid Russia with regards to natural resources and agriculture and raising rates is going to have nothing to do with that. And my concern is, is if we have a situation where natural gas prices, oil prices continue to flow through the economy, raising rates can affect demand, but it's not going to completely stop demand. And I think that's going to continue to keep rates high and keep inflation high. Maybe not as high, though, right? I mean, it might start to bring it down. But I think what's interesting is, is you see the CPI number was very hot, but the PPI number is very hot. And it just shows how much fossil fuels are built into the overall economy. And so as great as it would be to move purely to an EV cleaner economy, I think right now we're in a situation where we're

actually realizing how much that affects the overall economy. The debate, I think, at its core ultimately is what is the impact on earnings if you're thinking about where stocks should be? And the prime answer is we don't know where stocks should be because we don't know what's going to happen with earnings. So you don't know what the appropriate multiple is on the price that you don't know either. Totally. So how bad do you think earnings need to come down or how much is maybe better asked than the prior? Where do they need to go so we can figure out the question. I mean, I think the problem is that earnings are still projected to go higher.

Which is ridiculous. I mean, maybe they'll go higher, but not to the degree that they're still projected to go. No, and I think we're just going to start seeing that go down and go down and go down as we go through the earnings cycle. And I think probably part of the problem is that we have these record margins. We've got higher growth expectations for earnings, and no one's ratcheting them down. So when you talk about P-E ratios and you look at historical comparisons, you have to assume that earnings are going to change, they're going to come down,

and then you have to reduce the multiple. And so in our mind, I think there's two parts to it. It's the macro piece that we talked about, and then the other piece of this is the liquidity piece. Right. So we added all of this liquidity to get through the pandemic and now we're removing it. Right. And so take treasuries. Right. For example, treasuries are the first thing to respond to these higher inflation. But we haven't necessarily really started pulling the liquidity out of the treasury market. Right. So the three largest owners of treasuries right now are China, which is just coming out of zero COVID and trying to reinflate their economy. Japan, which is now 24-year low on the yen. And then the U.S. government, which in the next year

is going to pull $1.5 trillion out of the Treasury market. So if that happens, Treasury yields have to go higher. And that's obviously going to affect the earnings risk premium because you've got higher treasury risk-free rates and earnings are going to come down. Okay. So then the person watching this is saying, okay, Toomey's just said, you know, A is going to happen. B is bad also. So I put A plus B together. What does that mean for where stocks go from here? Where is the bottom? It's worse, right? Because if you're in a situation where liquidity is being pulled out of the bond market, it's also got to start coming out of the equity market right now, right? And so one of the things you could say is looking at, you know, what Jeremy Siegel said and looking at high quality companies, highest quality companies in the market right now

are probably big tech, right? They've got secular growth tailwinds. They've got great margins. They've got great balance sheets, but they're also the largest component within the S&P 500. So if you're continuing to pull money out of the equity market, it's got to affect the technology. Because those are the ATMs in which people are taking their money out because they're the biggest sectors and they've run up the money. Now, all that said, you don't manage money for five minutes. You manage it for five years, if not longer than that, I think. You mean to tell me that Apple at 130 and Microsoft at, you know, wherever it's come down to, I'll look there. But the point being made here is that, you know, Microsoft, for example, in some of these

stocks, Microsoft at 244, they haven't come down enough yet to be long-term buys now. I mean, look, we own these stocks, but there's things that you can do within your portfolio to reduce that downside. So we talked about this the last time. We're putting hedges on our clients' portfolios, the overall equity exposure. So we're buying put options on the overall equity exposure, and we're writing call options on top of that to reduce some of that cost of the put option. Covered calls. Covered calls, but we're using that income we get off of the calls to offset the puts that we're buying to protect on the downside. Okay, so you're pretty hedged. We're hedged and we're also raising cash. So, I mean, if you look at today, this is kind of reading very close to the May playbook where the Fed raised

rates, the markets rallied, and everything sold off. And remember, after a couple days of the sell-off, we had this run-up of 8% or 9%. So we still think markets probably oversold. We could see a little bit of a rally, at which point we would probably be taking from some of the risky areas of the market to raise cash with the anticipation to also roll back into the equity market. I think, look, I think if you've got a long-term investment time horizon, against my thesis, against my argument, is going to be the fact that a lot of these companies are sitting on tons of cash and they can start buying back stock more aggressively. You could have a catalyst that moves the market up. 75% of the time, stocks are up. So you don't want to necessarily be selling all of your stocks and

getting out of the market, but you do want to start being very careful with regards to your exposure. I mean, one of the things that underpins this market is the consumer. And if you look at the consumer data, you look at credit card data, the last four or five weeks, not very good. Consumer savings, they're down below 5%. They're below their long-term average. So all of that stuff kind of coming together means I think earnings come down. Dynamics in the market are bad. So you want to be very defensively positioned for the next couple weeks. Which is why sentiment is so bad that you, Mishling, was startling even to the Fed chair who said so yesterday

and in part caused them to do what they did. It's good to see you as always. Thank you. Chris Toomey, Morgan Stanley, Private Wealth joining us. Coming up. Well, time for a CNBC News update with Shepard Smith. Hey, Shep. Scott, thanks from the news on CNBC. Here's what's happening. The committee investigating January 6th attack on the Capitol, focusing its attention today on former President Trump's attempts to pressure the then Vice President Mike Pence not to certify the 2020 election results.

We heard from Ivanka Trump and a former Trump White House lawyer about an Oval Office phone call between Trump and Pence the morning before the insurrection. When I entered the office the second time, he was on the telephone with who I later found out to be was the vice president. Could you hear the vice president or only hear the president's end? Only hear the president's end. At some point it started off as a calmer tone and everything and then became heated. The conversation was pretty heated.

Former aides say President Trump called Mike Pence a wimp on that call and someone who didn't have the courage to make a hard decision like overturning the election. Tonight, a full recap of today's January 6th hearing, plus an exclusive look at an online investment fraud scheme. And fake German heiress Anna Delvey speaks out on the news right after Jim Cramer. 7 Eastern CNBC. Scott, back to you. All right, we'll be there, Shep. Thank you, Shepard Smith.

All right, much more on today's market. Sell-off is coming up. Up next, we'll hear from Ed Yardeni, where he sees stocks now heading from here. Overtime's back right after this. We are back in overtime following that 741- point drop on the Dow Jones Industrial Average. It's now below 30,000 for the first time since January of last year. Is the bottom close? Is more selling ahead?

Let's ask Ed Yardeni. He's the president of Yardeni Research. It's good to see you once again. What do you make of this? Well, we're in a bear market, certainly. And in bear markets, it's hard to predict exactly where the bottoms are going to exist. In the past, we've always had the Fed put, could always wait for the Fed to finally lower interest rates. And that's not happening this time. It's quite the opposite. We're all worrying about how much the Fed is

going to be raising rates. So I don't see that there's a lot of upside in the market other than trading rallies anytime soon for the foreseeable future. I think much is going to have to depend on when inflation actually shows definitive signs of peaking and when that allows the Fed to ease off a bit. And I think that could happen later this year. I think we'll see some improvement in the inflation measures, but that's still not around the corner. I'll tell you what, Ed, frankly, you sound more sanguine than you have with me most recently, if not downright dour about where things are, given what happened today in this environment we're in. Well, look, you know, bear markets, and we're in a bear market. Some are longer than others, but they eventually end, and then they set you up with lots of buying opportunities.

And I kind of look at the situation now, and I see that we're creating tremendous opportunities in technology where things have really been hard hit, but also in financials. And by the way, energy has had a great run here, but those stocks are still relatively attractive here. Look, I think a lot of the problems have been with us all year. But we really got hit with a game changer with that CPI. The May CPI report just kind of changed everything. Suddenly the Fed talked about much more aggressive rate hiking.

And that's really where the issue is. And if you look in that CPI, a lot of that is energy. And, you know, Scott, I was listening to the conversation. Everybody's talking about the Fed. We really should be talking about this cockamamie energy policy that's coming out of this administration, which has contributed to the high inflation in the energy sector, which is then creating a real nightmare for the Fed. I don't know that the Fed can do much to create more cheaper energy prices other than by causing a recession.

Let me ask you this, and then I got to run. I mean, if this is what happens when you do 75 basis points in what is still a reasonably strong economy, understand it may be weakening as we're having this conversation. What's going to happen the next time if Powell does 75 again, when the economy is only likely to be incrementally, if nothing else, worse, the data we're already getting, Philly Fed today, no good. Housing data, no good. Retail recently, no good. No good. Well, I think we have to appreciate the fact that Powell has proven himself to be quite a pivoter. And while he's recently pivoted from 50 basis points in this latest meeting to 75 basis points and then 75 basis points at the next meeting, we'll see how that goes.

I mean, he could pivot and suddenly say the economy is looking a lot weaker and maybe he goes back to 50 or even 25, as one of your panels said before. So it's a it's it's a fluid situation. What can I tell you, Scott? Yeah, I hear you. And it's tough to make sense of. Your honesty is certainly welcome and refreshing. And I appreciate I think everybody is in the same boat. And I know a lot of us watching and listening to people like you share it. We'll talk to you soon. That's Ed Yardeni. All right. Up next, we are tracking the biggest movers in overtime. Contessa Brewer is all over that for us. Contessa, what's coming up? Hey, there's got a stay at home stock that soared last year. It's just plummeted this year. It gets a little fuel in the tank with a first

of its kind partnership with a giant retailer. I'll tell you all about it ahead on Overtime. We are tracking the biggest movers in OT. Contessa Brewer has more for us. Hi, Contessa. Roku shares up more than 4% right now on news. It's entering a partnership with Walmart. Now, the plan is to put shopping directly on its streaming platform. And this is not just, you know, pointing your phone at the QR code, but pressing the OK button on a shoppable

ad would take you straight to checkout. Really, I think this spells the end of delayed gratification. But at any rate, Roku shares traded up above 450, as you might remember last year, down now in the low 80s, getting a big boost off of this news. Next up, U.S. Steel. Shares are up about 5% after the company issued second quarter guidance for earnings in the range of $3.83 to $3.88 per share adjusted versus what had been the estimate of $3.17. Okay, it says it expects improvement in its European business, higher costs from the war more than offset by the rise in the price for selling their product. And finally, Lyft's annual meeting just getting underway. Shares getting a bit of a lift because the company settled claims that it hid safety issues before its IPO in 2019.

Now, shares are down about 80 percent since the initial public offering. This settlement claim is $25 million there. Scott? Contessa, I appreciate it. Thank you, Contessa Brewer. Up next, trading the software space. Shares of Adobe are lower after reporting earnings just a few moments ago. We're on top of that. We'll talk about the other big software names as well. Feeling the pain this week. Big question, is now the time to get into that sector. How do you know when it is? We'll debate it next. Welcome back. Adobe shares are falling in OT after the company just reported weak third quarter guidance. This is software stocks have been getting slammed over the past week, along with pretty much all of tech. Joining me now on set is Decatur Capital's Degas Wright. It's good to see you down here at the Stock Exchange.

I mean, you were trimming the stock into the number, which is pretty good because it's going to open. I mean, the bid ask on this is a lot lower than where it closed. What do you think now? Well, first of all, Scott, it did beat on earnings and also revenues. So, first of all, that's positive. The stock always goes down on announcement day. So I'm not surprised. And so that's why we sold down.

We trimmed it back. And so we're satisfied with this because another thing, with their cloud subscription, they actually beat about 15% revenue came in higher. So Adobe is still looking like a stock that we're holding. Would you buy more on the pullback? And that's an interesting question in the greater context. Right. Everybody wants to sell when they think the stock is going to go down. Nobody wants to buy it in an environment like we're in when you're in the midst of the pain. How do you know when to do that? So we go back to our process and we focus on evaluation. Now, Adobe is still at about 31 times. But we also look at what's called expectation. The analysts are still revising down

their earnings. And that's going to be a problem. We talked about this with the consumer. So we're seeing that still as an issue. Profitability is holding and sustainability. They do a good job as a corporate citizen. So you obviously have some other software holdings, but you're really broadly exposed throughout tech. I mean, we're talking the tried and true names, folks, Apple, Amazon, Meta, Alphabet, IBM, Microsoft, NVIDIA, Texas Instruments, Seagate. What do you make? I said it to somebody else today. $450 down on the NASDAQ? This is just negative market sentiment. And this has nothing to do with the fundamentals, has nothing to do with the companies. This is just negative

market sentiment. And what we do not see is a catalyst to change it. That's what we have to see in this market, some type of catalyst. And we haven't seen it yet. When someone calls you up today and you're managing their money and they say, Degas, Apple, I'm looking at it right here on my screen at home, and it's $130. Should we buy more here? It's down a lot, right? You don't see Apple have this sort of, I mean, $182 is the 52-week high. What do you tell them?

I would tell them not necessarily to buy Apple at this point, but look at some other stocks within your portfolio. Because what we're seeing, we're seeing weakness in technology. We're seeing weakness in consumer discretionary. So what we're focused on is health care, energy, materials, and industrials. That's what we actually have an overweight to for our clients. All right. Thanks for coming down here to the Stock Exchange. Thank you.

All right. That's Degas Wright from Decatur Capital. Of course, a member of the Halftime Investment Committee as well. Up next is Santoli's last word. We're back in two. Let's get the results now of our Twitter question of the day. We asked which of these mega cap tech stocks looked most attractive following the big pullback, not only today, but recently. It was neck and neck, too, which kind of surprises me

because I figured a lot of people would say Apple. 33% did. 32 two did for Alphabet. Twenty one percent said for Microsoft. Only 14 said Meta. Thank you for participating in that, as always. Up next is Santoli's last word. Mike Santoli is here for his last word before we see him again at 7 o'clock tonight with Shepard Smith. That's right. You'll be here. I know you're going to be watching me in person two hours from now. Man, it's more of the same, only more so is what I keep coming down to. It's like you want to find the hidden message in all of the ugly action in the market. It's not really hidden. It's all basically the stuff we've been contending with for so long. I do empathize with those people who look at the action today

and say cyclical stocks getting blasted again today. Bonds actually rallying, yields coming down. People say, well, that suggests policy error by the Fed maybe is a greater possibility, or it just says that there's such a fear of both kind of the stubborn inflation and the growth slowdown that you might as well just surrender and just sort of not try. I get all that. Now, if you want to ignore the news and all the fundamentals and say, what are the market conditions telling you? And just the one-way action, in theory,

should just basically be pulling that rubber band back pretty far at this point. Maybe tomorrow's expiration means something for trying to culminate this move. I don't know. But you have had some of the daily sentiment numbers and all the rest of it feeling like people are pretty despondent. The way I see it, it's like the catalysts for the sellers are many. The catalysts for the buyers are few, if none. I mean, there's nothing right in front of us now. Inflation prints aren't for a little while. Earnings aren't for a little while. Broken momentum. Buyers have actually not been rewarded for rushing in.

Patience on the buyer's part, urgency on the seller's part. That's why you get a downtrend like this. Also, this real gathering consensus that earnings are just looking too high. That may be very well true, but it also could be true that the market has been effectively discounting that for a while. So we don't know if that's a one-way trade necessarily. Also, there's a piece of this where ultimately people might get reminded that equities and earnings tend not to do terribly when you have high nominal growth and inflation, right? I mean, it is sort of a quasi-equity hedge inside of corporate earnings. They sell into nominal GDP.

They sell into inflation. It was interesting, too, to hear Professor Siegel, to bring it full circle to the beginning of our show, argue that you don't want to take the multiple down too low, even though instinctively you may be inclined to do so, and that maybe earnings won't be as bad as everybody suggests they will. We spent very little time in the last decade under 15 times forward earnings. Very little time. Just this little V. And so if that matters anymore with yields where

they are, I don't know, but it's worth keeping in mind. All right. I'll see you back here tomorrow. All right. Everybody will see you tonight on Shep. I will see you here to Fast Money's now.