Closing Bell - Closing Bell Overtime: New Hopes for Year-End Rally? 12/20/22

Episode Date: December 20, 2022

Do today’s gains offer any hope for a year-end rally? Virtus’ Joe Terranova gives his expert take. Plus, instant reaction to Nike results from top analyst Simeon Siegel. And, Charter Equity Research’s Ed Snyder breaks down the key themes investors need to be watching ahead of Micron’s report tomorrow after the bell.

Welcome to Overtime. I'm Mike Santoli in for Scott Wapner. You just heard the bells, but we're just getting started from post-9 here at the New York Stock Exchange. We are awaiting breaking quarterly results from FedEx and Nike, two marquee names that could give us a good read on the health of the economy. We'll bring you those numbers and the stock reactions

as soon as the earnings hit. But we begin with our talk of the tape. Stocks snapping a four-day losing streak, just barely, with all three major averages finishing marginally in the green for the S&P and the NASDAQ. But it has been a dismal December. The Dow, NASDAQ, and S&P 500 all on pace for their worst December since 2018. But do today's gains offer any hope for a year-end rally or a change in the script?

Let's ask CNBC contributor Joe Terranova of Virtus Investment Partners, who joins us here. 18. But do today's gains offer any hope for a year-end rally or a change in the script? Let's ask CNBC contributor Joe Terranova of Virtus Investment Partners who joins us here. Joe, a lot of kind of twitchy, jockeying back and forth type action today. We're sitting here with the S&P right around the minus 20 percent level from the all-time high. It seems like there's just been a lot of maneuvering under the surface. Hard to know what to pin it to. What's your read? Well, let's focus on the positive. That's the way I'm going to approach 2023. The positive today, Mike, was that from a fundamental perspective, the market took a pretty good punch and stood it on its feet.

And that was the news, obviously, overnight from the BOJ. I think there's a lot of technical mechanics that are right now impacting the tape. Clearly, last week, just remember one week ago, CPI 4,100, significant reversal. Then you follow that by tracing out a technical outside down week. So market came in really on its heels. Very difficult technical position. You still have the tax loss selling in the mega caps. We had Apple today go down and test its June low at 129.04. Did it hold? We'll find out in the next couple of weeks. And then there's the puzzle that is Tesla.

And obviously there's retail margin calls. Did, in fact, Elon Musk pledge his stock as collateral? Is that now being sold? These are all dynamics. These are all mechanics that are impacting the near term. And I think it's important for the viewers to understand that because you want to maintain a degree of emotional balance. And let's remember one thing. I mentioned tax loss selling. What happens when the calendar turns into 2023? That tax loss selling, well, maybe not to the extent that it affected the market in the last quarter, but it evolves into some buying.

Right. It should, if nothing else, leave a cleaner setup for the new year when you basically have the kind of price-insensitive sellers out there weighing on things. Now, just to get specific with Tesla, down 8% today, 155 million shares. This stock is down $700 billion in market cap from the peak. Clearly, there's an urgency to the exit that's going on. So you mentioned some of the potential factors. But in terms of whether that has coattails for other stocks, it hasn't really. I mean, Tesla right now is like 1.25% of the S&P. There was a time it was a top five market cap. And it seems like even though the rest of big growth stocks have not been strong, it seems somehow localized at the moment.

I think, again, that's why I want to be positive going into 2023. I want to look at markets and I want to focus on the resiliency. There's a tremendous amount of resiliency in what's the negative price action for Tesla and really a muted response for equities overall. I also think another dynamic that's unfolding is, let's remember, this is a positive quarter, not for the NASDAQ, but for the S&P. So you haven't had a positive quarter for equities in quite some time. You are seeing an institutional portfolio reallocation.

It's unfolding right now, going out of equities into bonds, to a lesser extent into commodities, and even to a lesser extent going into alternatives. Yeah, that makes sense because you had seen that unwinding in the other direction for a while. And we certainly have seen a bit in bonds in the last several weeks.

We do want to get to FedEx earnings. They are out and Frank Holland has the numbers. Hi, Frank. Hey there, Mike. FedEx shares taking a bit of a rollercoaster ride. They were just up 3% a moment ago. Now you see they're down about a percent, moving up and down after a report. That's probably surprising a lot of investors.

So there was a miss on revenue. That was a revenue decline of 3% year over year, but perhaps a surprise beat on EPS after CEO Raj Subramanian last quarter warned of a global recession. The estimate was $2.82 a share. It turned out to be $3.18 a share, also a beat on margin. This is a proxy for efficiency, especially in the parcel business. The estimate on margin was 4.3%. The result was 5.3%. In the report, CEO Raj Subramanian said the FedEx team moved with urgency to make rapid progress on our ongoing transformation while navigating a weaker demand environment. Our earnings exceeded our expectations in the second quarter, driven by the execution and acceleration of our aggressive cost reduction plans.

Looking a little deeper in here, however, the guidance was soft. The company saying it saw a special especially saw weakness in its express air freight business. Full year EPS guidance of $13 to $14 a share, below the estimate of $14.08 a share. Important to note, that miss on full-year EPS was actually on lowered expectations again after that earnings warning from CEO Rob Subramanian. Shares right now, again, on that rollercoaster ride, down now about a half a percent. We're going to have to see where they end up. Back over to you. We do, Frank. Thank you very much for running through all that with us. So, Joe, obviously guidance coming in a little bit light, revenue also.

So it's looked like a pretty cheap stock, but what does it say? So this is all about cutting costs. And we've heard about idling the planes. We've heard about furloughing employees. Back in September, when the forecast was removed, I think it was about $2.7 billion that they identified in cost cutting. I think the street now says, OK, can you go beyond that? Can you find additional costs that can be cut? Can we raise that number? I think that will tell you exactly where this stock is going to go. Right now, UPS has done a little bit better job managing the business, trades at a mid-teens valuation relative to single digits for FedEx. So a lot of the street is in UPS right now,

but I don't think FedEx is too far behind if they can cut costs beyond what they've already messaged in September. I mean, I guess the street's going to have to gain some kind of comfort, either A, that the guidance is now conservative, as opposed to something that's just going to continue to slide lower, because we don't know under the current management exactly how to read those things. And then just the express business and just that call option on a recovery in global trade flows and freight. Well, the problem is the volatility is really

in the European business and in business in Asia. And that's very difficult to navigate and put your pencil down and try and figure it out. So to gain understanding of that, it's going to take some time. Do we read this because of all of its execution issues and its specific exposures as any kind of a bellwether in terms of the global economy or is it kind of its own animal? I don't know. I mean, do we need a bellwether at this point? We know business conditions continue to deteriorate. It's to the extent that they're going to deteriorate in 2023. And does that bring forth the earnings recession? Yeah, that is the paramount question for sure in front of all of us.

Let's bring in Emily Rowland of John Hancock Investment Management to talk more about these markets. Emily, it's good to see you. So as we look into the coming year and we balance out the maybe the Fed has inflation under control story with the what does it mean for growth? How would you look to be positioned? Has the market overshot in either direction, do you think, that's created any opportunities for you? Yeah, I feel like a bit of a Grinch here, Mike, coming in on the back of Joe's really positive comments here. But I still think that investors are underestimating the impact of Fed and frankly, global central bank tightening, which works the lag and is likely going to continue to impact investors into next year.

You know, we think about this year and coming into the end of the year as being eerily similar to 2018. And at that point, you had the Fed sort of in those final stages of tightening, but they weren't really even willing at all to budge, even though the economic data was decelerating. We all sort of know what happened to markets. Not a very nice Christmas into 2018. And when we look at today,

it's different because we have elevated inflation, which makes the Fed even less likely to budge into next year. We also have global central banks now working in unison. You know, this just last week, the ECB, the Bank of England, now some sort of stealth tightening going on with the Bank of Japan, as we heard early this morning. So we think that's going to continue to have an impact. And this year is going to be remembered as the year that the Fed came back with a vengeance from the most accommodative monetary policy in history during the height of the pandemic to the most restrictive. And we think that that's going to have a big impact on corporate earnings. The cost of capital was incredibly low. That is going up. We've had demand really fueled by fiscal stimulus.

That's gone. So we think margins are really going to get compressed into next year. And you've got to find companies that have the ability to grow organically, have great balance sheets, lots of cash on their balance sheets, high-quality companies that can hold up in a global economic recession. Well, you know, the comparison to 2018 is definitely interesting, but we did at that time have an economy that had kind of been operating at stall speed for a while. Everyone felt we were late cycle for, you know, some time before that. And, you know, nominal growth wasn't very strong. Here we have, you know, I think Atlanta Fed GDP for real GDP is over two and a half of the current quarter. Nominal growth stronger because of inflation. I guess what's the possibility that we have a subdued growth picture or at least one that's moderated from the current pace, but it doesn't spill into outright contraction of the economy? I'm wondering

about the muddle through case for next year. I think it's a tough one. I think the likelihood of a soft landing is diminishing quickly, especially given the hawkish developments we've seen across central banks over the last couple of weeks. The data is screaming at us. The leading economic indicators in negative territory for four consecutive months. Retail sales negative. The yield curve wildly inverted. It's all screaming the same message as, you know, a recession is coming. But I do want to say something positive because I look at the backup in bond yields as it's offering an incredibly attractive opportunity into next year. You know, we look at the price levels on areas like investment-grade corporate bonds, which are now trading the cheapest that they've traded since the global financial crisis. The fact that you can get

5% income on high quality bonds to us represents an incredibly competitive opportunity, even if you do see some more volatility here in rates. So we look at this as kind of, again, another holiday shopping analogy. You look across stocks, there's just not very much on sale right now. There's a couple areas of the market that are trading cheap, areas like mid-cap value. We like that. But when you look in the bond store, there is a lot on sale right now. Municipal funds, mortgage-backed securities, investment-grade corporate bonds.

We're going into that store all day long. So if you haven't gotten your family members a gift yet, that's where I would send it. There you go. It's Muni bond ETFs or even individual ones. Joe, there's no doubt. I mean, you know, you say you don't have to look at FedEx to know what the global kind of business conditions are. But the inverted yield curve, the fact that even like Fed funds rate is trading above, you know, the two year yield, all these things that are that are hallmarks of an economy that's decelerating hard and telling the Fed to ease up. Right. What what it mostly directly says, though, is inflation is definitely going to be coming in. Could be the hard way. Could be the easy way. Right. I mean, that's the way to think about this handoff from aggressively hiking Fed to maybe more wait and see.

Yeah, without question. And I think we have to focus on that inflation in the near term is coming down. Now, the question will be and I think without a doubt that the bond market is excuse me, the bond market's right. Yeah, it is not the Federal Reserve that's right here in the federal reserve is going to have to back off but I think you know the consensus view is Emily's view and the opportunity is in fixed income right now and I'll add upon that you can even look at emerging market debt because you're going to see the value of the U.S. dollar come down as the economy contracts and the federal reserve has to sit back and say okay we've done a little bit too much. But Mike, to your point, I think the bond market is right. And I think the bond market is signaling exactly the condition of the economy right now and in 2023 where it's going to be going. We also have Malcolm Etheridge of CIC Wealth to join the conversation. And Malcolm, you hear where we're starting at the moment. You know, maybe bonds over stocks, maybe look for safety over aggressive expectations for the economy. Where do you come in along that spectrum? Yeah, Mike, I don't know if we can even use that S word safety anymore in this market, to your point, where we're looking at bonds to be sort of the

calm port in a storm. And I would need to see the correlation between stocks and bonds separate a little bit better and also for longer than it has been in the past couple of years where they've been pretty much moving in tandem. And I know we normally would look at like high yield and say that should move somewhat in correlation with stocks. But it's been the entire aggregate bond index that's been moving in tandem, maybe not in tandem, but in correlation with the stock market. So I would want to see a little bit more divergence there before saying bonds are definitely the place that we know we can go to hide out like the good old days. But I would also say that maybe this whole move by the BOJ is a signal that

central bankers are probably not going to be hitting the pause button anytime soon. They'll use this as sort of justification for staying hawkish longer. And so I think stock investors, as well as bond investors, should add a little bit more patience to their Christmas list as we get ready to turn the corner in 2023, because I don't think that the volatility we've been experiencing simply due to Fed policy is going anywhere anytime soon. I mean, patience, certainly, you know, let's never miss an opportunity to grab some of that. But I do wonder, though, what the Bank of Japan move really says about other central banks and tightening efforts, right? I mean, they're essentially admitting that their constraint on bond yields mechanically was not working anymore, would not for much longer. They want to create more inflation in the Japanese

economy. They don't necessarily want to choke it off. So I do wonder if that's telling us that it's a leading indicator of something or just a result of what we've already seen, Maup. Well, I'm a little bit loathe to read too much into it just yet, simply because in all of the readouts that I've seen, at least so far, I didn't use the word inflation, which doesn't necessarily say to me that they see this move the same way that the rest of the central bankers around the world will see it. I just simply meant that other central bankers, Jerome Powell and others, could use this as cover, right? They could say the BOJ's move, them being the last ones to leave the party, the BOJ's move just tells us even more that we're going in the right direction and we need to remain as aggressive as we have been. And that's the part that I'm keying on,

because the rest of it from the BOJ, so far at least from the notes that I've seen, we haven't really gotten enough to parse out specifically what this move is meant to tell us. Yeah. Emily, I did want to get to the idea, if you're happy to shop in investment-grade debt and other products that at least have some economic exposure, is there a world in which corporate bonds work really well next year? And that would mean corporate spreads are not blowing out in any kind of panicky way and stocks have a rough road? I think you need to be really careful in terms of traversing around the fixed income market next year. We really don't want to load up on areas that come with a lot of risk. We're staying away broadly from high yield bonds. We're moving up into triple B and higher within investment

grade corporate bonds. So it's all about balancing that risk and return potential. But when we think about stocks, you also have to be very, very mindful here of risk. A typical recession in the U.S. has seen an earnings decline of between 25 and 30 percent. And guess what? That doesn't even include 2008 because the math doesn't work because companies actually lost money. So when we look at earnings estimates right now, we've only come off about 4% from the peak back over the course of the summer. So we're likely to see a further re-rating lower there. You look at the returns we've seen on stocks over the course of this quarter, it's all been multiple expansion. There hasn't been any improvement in the fundamentals. We

want to find those companies that can manage costs. We want to find companies, areas where there's a valuation cushion. So we're looking at quality, we're looking at defense, and we're looking at value into next year. Emily, want to get to Nike's results. They are out right now. Want to give those to you. The revenues and earnings both coming in with a beat. EPS, 85 cents a share. The estimate was 64 cents.

Revenues, 13.3 billion. The estimate was more like 12.6 billion. So a beat both on top and bottom lines. Remember, their company had sort of preannounced, talked about inventory issues. Stock is reacting negatively, though, down 3%. We're going to have to hunt for some of the guidance and other color that they do give right now. But the big question marks going into this report were, did China demand stabilize? What happened with inventories? And obviously, North American demand was considered to be pretty good,

but what happened with pricing and gross margin, which is certainly in the sights, Joe? I can't see that the inventory story is going to be a good one if the stock is down like that. And in addition to that, what is the China revenue? The China revenue has to come in higher. If the China revenue is not higher, then the stock is going to remain under pressure. This is all about a recovery from the COVID restrictions in China and clearing the inventory. The inventory growth cannot exceed the sales growth. That has been the story for what is a quality company. Great balance sheet. But they have an inventory issue. They have to mark it down. And that's going to contract the margins. It does seem as if that is what's weighing. I'm seeing some commentary about that. Inventory is up 43 percent year over

year. So the margin issues perhaps are what's coming to bite. We're going to have to leave it there, guys. Thanks very much, Joe, Emily, and Malcolm. Appreciate it. All right, let's now get to our Twitter question of the day. We want to know, what is the best athleisure play right now? The choices are Nike, Lululemon, or Under Armour. Head to at CNBC Overtime on Twitter to vote. We'll share the results later in the hour. We're just getting started here in Overtime. Up next, more reaction to Nike's earnings. Top analyst Simeon Siegel is standing by with his instant take on the quarter.

We are live from the New York Stock Exchange. Overtime will be right back. We are back in Overtime. Take a look at Nike trading after, actually trading a bit higher. There was a little bit of a drop immediately after reporting earnings just moments ago. Company's call kicks off at 5 p.m. Eastern time. Joining me now with reaction to the quarter, Simeon Siegel, senior retail analyst at BMO Capital Markets. And Simeon, everyone scrutinizing kind of below the line, looking for the margins, looking for what's happening with inventories.

What is the main thing to fix on here in this report? Yeah, listen, I think top and bottom line B is key. So the positives are you got North America and China working in the right direction. You've got gross margins that's less bad than feared. And on the one other side, you have inventory that probably would have been a little bit nicer to be a little bit lower. But that's where we're going to get more color on for the call. So less bad than feared is what you would have said about margins at this point. Where are they headed? Yeah, so the gross margin down 300, nicely better than the guide, but still down 300.

But I think this is where Nike made it very clear that they were going to work through their product. They were going to discount. Everyone out there got good holiday deals. As we work towards the back half of this year, that gross margin is going to get better. We're going to stop talking about less bad than feared. We'll be able to actually talk about better margins. Some of the longer-term drivers, probably worth mentioning, Nike Direct sales, currency neutral up 25%.

So, I mean, the larger story seems like it's pretty well intact. But, you know, China and this inventory glut seem to be the things that are hanging over the stock. I think that's one thing you and I have talked about in the past, though. Wholesale was strong. I don't think we should forget about that. So a lot of people will be talking about direct, but wholesale actually grew faster. So when we look at this print, we needed to see North America moving in the right direction. It did. We need to see China starting to work out of the slump that it's been in. It's getting there.

Gross margin could be better, but a lot better than people are worried about. And we want to see that inventory. So I think that's that one piece where if inventory was down more, I don't think we'd be having this conversation, but they'll work through it. That's what they're showing us. And I think that's, again, we'll get this on the conference call soon. We'll get more color. Do the broader concerns about either consumers' ability and willingness to spend next year and also, you know, just sort of not needing as much stuff after the binge that we went through over the pandemic, are those bumping up against this stock here as well?

I mean, it still trades at a nice premium. Yeah, so, you know, that's been that's been the conversation you and I have been having for a little bit now. We all bought a lot of sneakers, the same way we all bought a lot of audio furniture. Right. So the different ways of thinking about it. But we do have to acknowledge that during the pandemic, everyone pulled forward a lot of demand. And so the question is, how many months of sneakers did we buy in a one year period? What's interesting, though, the way we see that in the other consumer companies is we see that on a revenue compression. We actually see pressure on the top line. Nike's not seeing that.

So I don't know whether they're pulling forward other people's demand as well. But right now, you're seeing strength in North America. You're seeing strength in footwear. So I think there's this interesting dynamic here where I would say you pulled forward almost anything that was in discretionary spending over the last several years. And what that should mean is a slower top line. And we're seeing that across consumer. We're just not seeing it at Nike right now. Nike continues to show that top line strength. And so that's why I think your earlier point, the question is going to be, what does it cost them to do it? What are the discounts that are

needed to get there? And how long does it take us to have a clean inventory position? Anything beyond all that that you'd be keen to hear about in the call? Listen, I want to hear about management. You brought up direct. They're going to talk about direct. I think it's interesting when we look about the direct versus wholesale presence. But I think right now China's probably going to be a big focus of this conversation. China has historically been Nike's best revenue growth driver, but also its best margin region.

So we want to hear where that's going. It's still negative as that moves into positive territory. I think a lot of people will put a lot of focus on China. So definitely something we're going to be looking forward to in the call. All right. We will as well. Simeon, thanks very much. Appreciate you jumping on. Good to see you. All right. Coming up, betting on a year end bounce. Our next guest says don't count one out just yet.

The big reason why, just ahead. Overtime, we'll be right back. Time for a CNBC News update with Bertha Coombs. Hi, Bertha. Hi, Mike. Here's what's happening at this hour. A former Texas police officer has been sentenced to nearly 12 years in prison for manslaughter. Aaron Dean was convicted of fatally shooting Tatiana Jefferson through the rear window of her home in 2019. A billionaire mortgage executive has agreed to acquire the Phoenix Suns and Mercury for a record $4 billion from their embattled owner Robert Sarver. Multiple reports say United Wholesale Mortgage CEO Matt Ishba is the buyer. Airlines are gearing up for a huge winter storm that could cause serious delays for holiday

travelers later this week. A so-called bomb cyclone is in the forecast for large parts of the Midwest and possible blizzard conditions and heavy rain in the northeast. Many carriers have issued travel waivers, letting people change their flights for free. And if you can get to New York for New Year's, Times Square will have all the festive lights you'd expect. The seven-foot-high sign announcing 2023 has arrived after a coast-to-coast trip. It'll be on the ground until Friday, so people can pose for pictures celebrating the coming new year. Nothing like New Year's in Times Square, Mike. Yep, and now it's just another Instagram moment, like everything.

Like everything else. All right, appreciate it. Stocks, meantime, finishing higher today, but the market is still on pace for its first down December since 2018. And with the seven trading days left in the year, our next guest says don't count out a year end rally. Let's bring in Carson Group chief market strategist Ryan Dietrich. Talk about all that, Ryan. It's good to catch up with you. I mean, there's been a little bit of a mixed feeling in this market here. You've got the tailwind that was working to some degree through November. And we've got this stutter step here and folks wondering whether the market is

telling us that there's just this downtrend is in place until further notice and it's hard to break higher. Yeah. First off, Mike, thanks for having me on when it's a green day. It's a little different, right? But you think about, I mean, everyone wants to know the Santa Claus rally. I think one of the things that's been misunderstood, Santa Claus rally, Mike, as you know, is the last five days of the year, the first two of the following year. So that's this Friday. And what people need to know, if you look at it, those seven days, okay, are up 1.33% average. Out of all the days in the year to go out seven days, that's the third most bullish. Another way to look at it, those seven days finish higher about 80 percent of the time. No seven days of the year finish are more likely to finish higher.

So anything can happen with this weakness we've had, with some of the oversold sentiment that we've had. We get into some of the other things here soon. We just think we still believe that there's a chance Santa can still come to town and might start this Friday. All right. I mean, that's certainly encouraging, although I do think people sort of conflate it. And we're, you know, trust me, guilty enough here talking about the Santa Claus rally in broader ways because the final two weeks in December have tended to be somewhat stronger than average as well. And I think even beyond seasonal issues, people are wondering whether this year has represented a sufficient reset, right, in valuations and expectations and interest rates that sets us up better for next year?

Or are we still going to struggle? Yeah, well, we'd be in the camp that things could be better next year, right? Yes. I mean, there's no question. Earnings estimates have come down. So have multiples. One of the big worries about this year, 12 months ago, was multiples were high. They're not as high now. But, you know, Mike, you just think about it. I mean, everybody's saying almost the same thing. The first half of three barons over the weekend, the first half of the next year is going to be really rough. Mike, when you look at a four year presidential cycle, the first quarter of a pre-election year.

So next quarter has been up more than 90 percent of the time, up seven percent on average. The very best quarter out of 16 quarters in a four year presidential cycle. The second quarter is like the third best one. So all we're saying is it's very unique that everyone's saying the same thing. But looking at history, maybe there could be, honestly, a surprise rally. What's going to spark it? We still think it's better inflation data. I know what the market's done since we saw better inflation data.

We're still optimistic, though, the Fed's going to take their foot off the pedal. And we could probably get, again, a surprise rally the first half of next year, which almost nobody's talking about. Well, I agree with that. I've been making that point as well. The consensus is very solid that it's going to be kind of a U-shape from here, maybe break even next year, but with some downside and maybe significant downside beforehand. So I agree, be on alert for, you know, that consensus to be upset to some degree. What about parts of the market? You know, because it seems as if in addition to just having this cyclical kind of gut check, we've gotten the sense that, OK, you know, growth tech seemed to really

dominate things coming into the January peak this past year. Now it's been on the downside. Where does that sit in terms of being a place to avoid or to reload on? Yeah, we haven't really liked growth or tech and communications all year. Even in the next year, we still do have some issues. Those are still some pricey areas. I mean, look at things like industrials, right? Industrials are starting to lead here. I know utilities and staples have also done well. Of course, we've got energy. But to us, you know, those industrials are a clue that if the dollar continues to weaken like we think it will into next year, that can be a tailwind. So we would stick with kind of your

value, your cyclical value over your tech. And I want to bring up one point. You've had some awesome discussions last half hour about the economy, the yield curve, all these problems. I think one thing you need to remember, the credit markets. Look at the credit markets. They're not seeing a monster under the bed. They're not saying a big recession or even a recession is coming. That's usually the smartest guys in the room. So I know about the inverted yield curve, everything else. But when you look at those spreads, Mike, specifically investigate corporate spreads, they're really been improving. That doesn't look recessionary to me. That's true. No, they've been been very tame and it's been a source of support. Just in terms of broad tendencies, there's been a lot

of chatter that, you know, two consecutive down years in the S&P has not been terribly common in the last 80 years or so. I think it's only happened a couple of times. On the other hand, when the down year was down more than 10 percent, you know, the following year returns have been weaker. Are we going to put any kind of credence in those types of breakdowns or no? Yeah, I mean, we pay attention to it. But like you said, it's pretty rare, right? 73, 74 back to back and then three years after the tech bubble. That's like it since World War II. We don't think we're seeing a scenario like that.

One more point on this. When midterm years are down, like this one's going to be in a likelihood, the next year has been higher eight out of eight times. That's our pre-election year. Eight out of eight, up about 25% on average. Not calling for 25% next year, but are saying bounce backs after bad midterms is kind of how history's played out. And again, that would surprise darn near everybody. We think that could be what it is 12 months from now. All right. Yep. Some patterns, you know,

going to have to break in order for all that. I mean, they can't all be right, but we'll see how they go. Ryan, thanks a lot. I appreciate it. Thank you. All right, up next, a record-breaking fine. Wells Fargo hit with a multi-billion dollar penalty to settle charges of widespread mismanagement of customer accounts. The fallout for the big bank and its shareholders is next. Take a look at FedEx and Nike, both companies reporting results. You see FedEx up 3.5%, Nike turning around from early losses up about 7%. Apparently enough progress on those inventories people were worried about to feel a little bit of upside there ahead of the conference call. Wells Fargo shares closing down 2% today after agreeing to a settlement with

the Consumer Financial Protection Bureau. The bank ordered to pay the largest ever civil penalty issued by that agency over allegations of misconduct tied to customer mortgages, auto loans, and overdraft fees. CNBC.com banking reporter Hugh Song is with us to talk more about this. Hugh, package this together with some of the other regulatory issues that Wells Fargo has worked through. Is it an extension of those sort of, you know, cross-selling allegations and settlements, or is it totally new? I mean, I would say it's an extension of the culture that led to those cross-selling, you know, essentially the fake account scandal from 2016. The thing that really raised my eyebrows today was we learned that the issues that they had with auto loans, the issues they had with mortgages,

the issues they had with bank accounts, some of those continued until this year. So in other words, even though the 2016 fake account scandal brought all this attention onto the bank, that they had issues with the basic nuts and bolts of retail banking for the American consumer all the way up till a few months ago. And so that's really the surprise here, Mike, is that, you know, even with all the attention on them, all the regulators in the United States focusing on them, that they had some issues here that were, you know, really rather basic banking issues.

And in addition to the size of the fine, which you've heard some analysts today say, well, they had a reserve for it. So maybe it's not necessarily immediately harmful to the books. Does it does this action come with any constraint on their business activities or any further supervision? I'm wondering, you know, how much life these issues are going to have within Wells Fargo. Well, for today's look, it was sort of a little bit of the battle of the press releases. Now, if you read Wells Fargo press release, they were happy, happy to put this behind them. If you listen to the CFPB head, you know, he was very clear. He said, look, they're not they're not done. They're not out of the penalty box yet. This could be, for instance, he was very clear. He said, look, they're not done. They're not out of the penalty box yet. This could be, for instance, the employees, none of them get immunity and that

if they're ongoing problems, if they're found to have ongoing problems, that they can go ahead and come back and re-examine them and continue to penalize them. So I would say, look, it is very clear to me that, you know, the regulators, you know, they want to at the very least seem very tough on Wells Fargo. Wells Fargo is still the pushing bag of the banking world. And so I think that's going to have knockout effects in the future. And by the way, they pre-announced the they're reserving for future settlements that they're going to have with some of the remaining, I would estimate, six to eight consent orders that they can currently face. It's kind of a cynical way to approach this, this question, but to what degree do you think these practices are not unique to Wells Fargo? In other words, simply the fact that CFPB and other regulators have been looking closely at Wells Fargo, at the culture there. They're kind of

come at it with a level of suspicion that they're discovering these issues that maybe are not unique to Wells Fargo. And who knows what it would mean if you were looking into other banks? Well, Mike, I'll lead with this number of 16 million. That's how many customers they had, you know, made mistakes with in terms of mortgages, you know, auto loans and bank accounts. So, you know, I sit here and I get emails and I'm sure the CFPB gets complaints from other banks, American banks, Canadian banks that do the exact same thing. So on the one hand, it is, you know, symptomatic of some very, you know, widespread issues. On the other hand, I don't know if there's another bank that's had these issues at this scale, which is indicative of cultural, systematic regulatory issues and problems that

they've had since Charlie Scharf took over a few years ago. Yeah. And certainly, you know, the fact that you say these these issues were present until not very long ago is is definitely something to take up and notice. Hugh, thanks very much. Good to talk to you. Thanks, Mike. All right. Coming up, we're tracking some big stock moves in overtime. Kate Rooney is standing by with those. Hey, Mike. So there's a CEO shakeup hitting one stock. We'll also tell you about why one semiconductor manufacturing company is spending billions of dollars on a new investment. That's coming up with closing bell overtime returns. Another check on shares of FedEx.

That stock is higher after reporting just a few minutes ago. The company's call kicks off in less than an hour. Let's get back to Frank Holland with more on the quarter. Frank, what are investors keying on so far? Well, Mike, after that strong earnings beat, 35 cents above estimates, FedEx cost reduction plan and its guidance will be the main focus of that earnings call coming up at 5.30 Eastern.

We have new details on the cost-cutting plan. FedEx now is updating to say it will seek to save $3.7 billion in the current fiscal year. That's up from its previous target of $2. to save $3.7 billion in the current fiscal year. That's up from its previous target of $2.2 to $2.7 billion from its earnings warning last quarter. Investors could take this and the strong margin beat is a sign that CEO Raj Subramanian's goal of focusing on higher revenue and higher quality revenue in freight, as well as cutting hours and flights at the same time, somehow doing those two things at the same time is working. In the report, FedEx saying, in part, it's prioritizing actions to quickly reduce costs. When you look at the segment results, they paint a picture of a FedEx that is really maintaining

strong pricing power despite weaker volumes. Express, where FedEx gets more than half of revenue, seeing price per package up 8% year over year. Ground and Freight with double digit increases. You see Freight with an increase of 23%. However, all three had declines expressed with a 12% decline. So certainly something to watch on that call coming up. Of course, that news about China and the COVID situation perhaps being worse than we previously thought, something that will deeply impact FedEx's guidance and revenue going forward. Yeah. And we've got to check up on the CEO's views on this global recession that we may be bracing for. Frank, thank you. Appreciate it. We're tracking some other big movers in the OT.

Kate Rooney is here with us. Hey, Kate. Hey, Mike. So shares of Workday are slightly lower in the OT after a CEO shakeup. The company appointed Carl Eschenbach to co-CEO. He's coming over from Sequoia Capital. He'll stay there as a venture partner. Eschenbach takes the role alongside Workday's co-founder and chairman, Cheno Fernandez. Meanwhile, is stepping down as the current co-CEO and as a member of the Workday board of directors.

Applied Materials, the latest chipmaker now to make an investment, a big investment in the U.S., announcing a multi-billion dollar project. It's spending on its innovation infrastructure in the U.S., announcing a multi-billion dollar project. It's spending on its innovation infrastructure in the U.S. and plans to expand its global manufacturing capacity between now and 2030. The company says the spending will enhance equipment capacity, among other things. And investors really liked Nike's report earlier this hour, beating estimates on both lines. Some other names getting a lift here as well right now. Check out Lululemon, Under Armour, and Skechers all in the green in overtime.

Back to you. Okay, thank you. Coming up, Zuck takes the stand. The meta CEO testifying today in an FTC antitrust case. Full details straight ahead. Let's get the results of our Twitter question. We asked you, what's the best athleisure play? Nike beating out Lulu by a slim margin with Under Armour a distant third. Speaking of Nike, the stock hitting after hours high is on a top and bottom line beat.

FedEx also higher in the OT. Now the focus turns to Micron. The chipmaker reports earnings tomorrow right here in overtime. Joining us now with your setup is Ed Snyder. He covers the chip sector at Charter Equity Research. So Ed, what clues might semi-investors be looking for in Micron's results? Well, they won't have to hunt for clues. It's going to be pretty evident from the conference call. You had nothing but a series of down quarters, pre-announcements. I think people are expecting more of the same. Consensus has next year down even harder than the company allows for. Of course, they're not guiding for

23 in detail yet. So what they're looking for really is bid growth, which is going to be down year over year. They're looking at CapEx reductions, so they already cut. Wafer starts, which they've already reduced i think the real issue is um obviously demand has dropped significantly in consumer it's held up a bit in auto you're seeing um hyperscale doing okay people are going to be looking at what the comments on those markets are going to be because those are the only holdouts keeping uh keeping micron even in in the in the region they are now if they start to decline you're going to see further pre-announcements so it's pretty a pretty pessimistic environment. The streets, you know, had a couple

quarters of this. They're burning cash. So it's not going to be a happy quarter. No. And things are, you know, obviously they're at the whip end of the cycle always, Micron. In terms more broadly, in semis, to what degree has a real slowdown, a real retrenchment next year been priced into the sector? That's an excellent, in terms of the, it depends on the stocks you're talking about. In the industrial sector, companies like TI and to some extent Infineon, they've gotten hit, but not terribly so. And they're kind of blue chip companies in a way. But there's more to drop. If you listen to TI's comments over the last two quarters, they tell you what's going on, but they don't give you much guidance. So the

anticipation is auto is going to get worse. You're going to see a steeper decline in some of the core markets. They've already said that for consumers. If you're looking at handsets, they've taken a beating already. If you look at Qualcomm, some of the RF semi guys who's applying those, even Broadcom, which is a bit of handsets. They've already taken a beating. You're going to get more of that. Apple has not preannounced or guided down on phone sales. That's largely expected in the beginning of next year. So when that happens, you're going to see another step down.

And then you've got PCs. You know, Intel's been a mess, a hot mess, and continues to be. And then you've got the memory issue. So where you sit right now is there's a slim glimmer of hope, if you could, if anybody is holding on to hope, is that automotive doesn't take too big of a hit because you had shortages and they're still fairly strong. And hyperscale has been delivering really well. It depends on what you believe about the recession. Most folks think it's going to get bad.

They will fall, too. Yeah. Oh, that's obviously a similar story with every sector. We've priced in a lot. We're not sure if we've done enough if we do get that fill-out recession. Ed, appreciate the time today. Thanks very much. Ed Snyder.

Let's take a look at the market, how we finished up today. Barely above the flat line, the Nasdaq under the pressure of an 8% decline in Tesla has managed basically to stay flat. Small caps outperforming the S&P 500, up about 4 points, 3820. The low for the day was below 3800. This has been the trading range. We were at 4100 just a week ago after that CPI report. That's been the high for this month so far.

It has been a tough month so far in December for the market. That's going to do it for overtime. Fast Money starts right now.