Closing Bell - Closing Bell Overtime: New Reality of 100 Basis Point Hike? 7/13/22

Episode Date: July 13, 2022

Could the Fed actually hike interest rates by 100 basis points in just a few weeks? Former Dallas Fed President Richard Fisher gives his prediction and what it could mean for the economy. Plus, NewEdge Wealth’s Cameron Dawson says we could see another 10% drop before things start to get better. She makes her case. And, Kristen Bitterly of Citi Global Wealth breaks down the top defensive plays to make in this current environment.

Sir, thanks very much. Welcome, everybody, to Overtime. I'm Scott Watman. You just heard the bells. We're just getting started right here at Post 9 at the New York Stock Exchange. In just a little bit, I'll speak live to Ritholtz Wealth Management's Josh Brown on what investors should do now after another blistering inflation report and just when earnings kick off in literally a matter of hours. We begin, though, with our talk of the tape. Is the unthinkable really possible? Could the Fed actually hike interest rates by 100 basis points at their next meeting in just a couple of weeks? The market's now betting on it and then some. Let's ask former Dallas Fed President Richard Fisher. He joins us now live. Mr. Fisher, it's good to have you back. How about this? Rafael Bostic said it a little while ago, quote, everything is on the table about that possibility. Quote, today's numbers suggest the trajectory is not moving in a positive way. Should they go 100 in a couple of weeks? Well, first, I have great respect for Rafael, but remember, he's not a voter this year. And those are his opinions. And we'll just have

to see as we get closer to the meeting what's likely to obtain. There are pros and cons about 75 or 100. I would say presently 75 is still the most likely outcome. The pros of 100 are you get ahead of the curve, which they're way behind. The negatives are, once again, you could surprise the market from what was claimed to be the path they were on 75 basis points. So I think it's too early to turn that determination. But this is a bad number, Scott. And you have to start narrowing down. It's going to be way too high relative to their goal. Richard, I'm going to try and pin you down. I mean, if you're sitting in the room, OK, like you like you once did. Do you make the argument for 100?

I was the most hawkish member of the committee. I think, Scott, if you remember, I would still argue for 75 here. And at the same time, I'm looking further down the road and I would expect that's another possibility in September. We'll see what they come out with at the meetings that they have in Jackson Hole in August. So why not rip the Band-Aid off, Richard? You said it yourself. It's a bad number, Scott, right off the outset here. Let's just get it over with. Just do it already. Inflation is blisteringly hot, even though some metrics suggest it's starting to cool in some places, but not others. So why not just go for it? Well, I think it's important to just have articulated a path. We all know they want to go to three and a half, right? So that's sort of the goal right now. Why not just continue along that path, not look like you're afraid, you're overreacting? The big issue here, Scott, is not the price of goods. We're seeing some of that stuff

come off, commodities, et cetera. It's the wage price spiral that we're in the midst of right now. Workers are not being paid enough to keep up with inflation. They're going to demand more. They have bargaining power. And that's going to be the real issue. How do you cut that off? And that's the argument for doing something even stronger. But I don't think they're going to go in that direction. We'll see. You never know. Canadians did it. Do you think they think, like Jim Cramer does, that this is the last of the really hot numbers? Because that's ultimately what this comes down to. Yeah, it may not.

It could be the last, but it doesn't mean you're going to go back to the 2% plus that they're aiming for. They have a long way to go between this number and two. Heck of a long way to go. this number and two. Heck of a long way to go. So they want to bring it back down. They want to see a series of declines. And we're not seeing that right now. So whether it's 9.1 or 8.2 next meeting or whatever it may be, it's still not enough.

They have a lot to do. And workers are demanding more and have the negotiating power. As long as that's the case, we're going to have inflation driven principally by the service sector, but by all corporations will be under pressure and we're going to have to tame it. That's the best job. It's interesting that you say they have a lot to do and they clearly do. The question is at what cost? And the Wharton professor, Jeremy Siegel, who was on with me today on halftime, suggests they're not going to be able to do as much as they once thought because the economy

is deteriorating faster than a lot of people thought it would. That is going to ultimately force a pivot. Do you agree with that? Look, the economy is a mixed bag right now. From the standpoint of employment, it's still doing well. We're seeing some leakage, but still look at that unemployment number and look at the number of unemployment claims. And as long as that's strong and it's not the target we used to aim for, which, by the way, was 6%, now it's in the 3.6 area. As long as that's the case, and you hear Powell saying this, the economy looks stronger on that dimension, even though it's looking somewhat weaker on other dimensions. So I have great respect for Jeremy. There's nobody better. But we'll have to see. And I don't think as long as we have had inflationary pressure, that the idea of a shallow recession is going to scare the Fed away.

Yeah. So I was going to ask you about that, what they would be content with. And do you think a soft landing is possible, as Bullard has suggested in the last couple of weeks? It's possible. It's historically unlikely, but it's possible. Doesn't sound like you'd be putting any money on it. I would. I'm hopeful that this could be achieved. Again, the question of recession, Scott, is how deep is it? How broad is it? And right now, if we have these kind of weak numbers we're seeing from the Atlanta Fed, which by the way, is never a great predictor if you look at the statistics

behind that. But as long as we have those kind of numbers in the first quarter numbers, Scott, this is shallow and not necessarily could be tremendously damaging. We'll have to see if they can prevent it from becoming damaging. All right. We'll talk to you again soon, Richard. I appreciate your time as always. That's Richard Fisher. He's the former Dallas Fed president weighing in on really the news of the day now. Suggestions that the Fed could go 100 basis points at its next meeting in just a couple of weeks. The market actually placing that bet as we speak. Let's bring in CNBC contributor Josh Brown.

He's the CEO of Ritholtz Wealth Management for what he thinks. And Josh is so interesting. When these Bostick comments came out, the market expectations ticked higher. Stocks did not fall off a cliff. Rates did not shoot to the moon. In fact, the 10-year yield is lower. What does that tell

you about the market's wherewithal to withstand 100 basis points in two weeks? Well, I think, first of all, the bond market is aware that Bostick is not voting. But you know who is? Esther George. And there is a possibility that if 100 basis points starts being bandied about behind closed doors, more voting Fed members will come around to her point of view, which is not to stop the rate hikes, but maybe to be a little bit more thoughtful about the pace. So this is what Esther has to say, quote, the pace at which this path unfolds will need to be carefully balanced against the state of the economy and financial markets. And basically, she's saying it's already a historically swift pace of weight increases

that households and businesses have to adapt to. This is what we're living through right now, this adaptation. And no one is immune. Everyone's got to do it. And the question becomes, if you're looking to get to a certain terminal rate anyway, A, is 2% even realistic to be talking about as the target? You might start to hear that change very subtly. But B, what is the rush if you're already seeing some of the effects that you wanted to bring about taking place in specific corners of the market? So the Fed is getting its way in the housing market. It's slow, but it's undeniable. The Fed is getting its way in autos and auto loans.

Repossessions are now exploding. The Fed is definitely getting its way, although probably not influencing it much in terms of energy prices. So there are areas where you could say we're seeing that fall off. The stickiest thing, though, is going to be the wage price spiral and fighting that. And that's going to I don't think that takes faster rate increases. I just think it takes more time. But think about it. The cost of goods sold in America, 50 to 55 percent of that is labor and rents are not budging to the downside. In fact,

they continue to go higher. Now, the Fed doesn't look at CPI as much as they look at PCE. And the difference between these two metrics is that PCE has less of a concentration in rent, in real estate. CPI is more. So it's possible that PCE is a little bit more moderate than what we saw this morning. And maybe the Fed continues to pay closer attention to that. So look, it's complicated. I get it. But you are well aware, you are well aware of the current state of the economy because you've talked about it on halftime and on overtime on numerous occasions. I referenced with Richard Fisher the conversation I had a few hours ago with the Wharton professor, Jeremy Siegel, who is now making his case that the Fed is not going to be as aggressive as they once were

because of the state of the economy. He also talks about what he thinks will happen in the stock market, because that's ultimately the point that I want to get to. Let's listen to the professor. We'll kick it on the other side. The market will bottom and rally maybe in the July. He does 75 and says, listen, we think we've made a lot of forward progress. The prints will still show high inflation, but we feel we've done most of the tightening. Wow. I want to I want to be long on that day. It may not be July, but I want to be long on that day.

So if you believe, as Jim Cramer suggested earlier today, Josh, that this could be the last really hot inflation report, as Tom Lee has made the case, and as the professor, I think, believes as well, why wouldn't you want to be more optimistic today about stocks if you think, in fact, that will be the case? Well, I actually agree with what they're saying, but there's a caveat. The caveat is be careful what you wish for. Because if the reason we can get past this and say that was the hottest print is that we have pushed the economy into recession, it's certainly not the end of the world, but it's not the bottom for the stock market either. So look, you will have a massive rally if you get any kind of signal from the Fed that they think they've gone big enough with the last few hikes and now they're gonna observe their handiwork.

You will absolutely get a big one day, maybe even two day rally. But we are very far below the declining 200 day moving average. You look at a stock like Microsoft Judge, this is the furthest Microsoft has been below its own-day moving average. You look at a stock like Microsoft, Judge, this is the furthest Microsoft has been below its own 200-day moving average since the great financial crisis.

We're talking about a 12-year low in that stock, maybe the second most important stock in the world relative to trend. So even if you get that one or two-day snapback rally, what happens after that is everyone says, all right, that was fun. But wait a minute. Recession is is real and maybe even quicker that, you know, happening quicker than today. The tens and twos invert the worst inversion we've seen yet. 20 basis point inversion before things fell back down. So that's really the bigger risk. And look, I'm not telling

people don't play for that big rally when the Fed says it's going to relax. I'm just saying, like, don't get too excited about it either. Well, I mean, you better be ahead of it, too, because by that time it may be a little too late, if anything. And look, some of the bullish calls that we've gotten as some stick to fairly lofty price targets on the S&P from here are predicated on the fact of a Fed pivot, right, later in the year, like September. Does today's CPI print take that off the table? Once again, even if the Fed pivots sometime this summer, so if it's not July, then it would have to be September, right? So even if that is the case, a lot of the damage in the overall economy might at that point have prompted them to pivot. So it's like if they pivot, why?

Are they pivoting because all of a sudden they have the inflation data they want? Not a chance. The economy does not function well at 6% CPI. So it would be nice if it's falling from 9% to 6%. But even at 6%, how much of a pivot can they really do? So, look, I don't want to be the person that comes on every week and tells you we're not done, it's not over. But we're not done, it's not over. And we have to understand the reason why the Fed pivots.

It might not be a reason that we like. Yeah. Speaking of that, because, you know, the economy is weakening quicker than people thought, it continues to do so. That leads me back to Jamie Dimon's hurricane comment. And I bring it up because I know you like that stock. They report their earnings tomorrow. They kick off the whole thing. And now it gets real.

Enough of this, oh, our estimate's too high. What are they going to say? We're going to find out. So what's riding on that? Well, look, well, look, and don't even pay such close attention to profits. Pay attention to what's actually happening behind the scenes. JP Morgan put another 900 million aside for reserves. like you're that hasn't even started yet. Like that, that process of large financial firms starting to batten down the hatches and prepare for a storm or a hurricane or whatever they want to call it. So I would love to tell you, yeah, we did the whole thing and now we're ready to reverse. And that would be in keeping with what the market has done for the last 10 years.

But the major difference is when the Fed pivoted in the last 10 years, it's because they had the latitude to do so. And they had that latitude to do so because they didn't have to fight inflation. They were fighting disinflation. They couldn't even hit 2% inflation. This is not that. It's different. So yes, it's possible. There's a pivot. It's possible that earnings don't fall apart right away, but it's just a different environment with a different set of challenges. And these V-shaped bottoms that everybody had grown accustomed to for so long, some people, their entire career of investing, that's all they ever saw. This is not that. We're in a downtrend.

Only 14 constituents in the NASDAQ 100 are up after the first half of 2022. That means 86 of the NASDAQ 100 are negative on the year. Stocks are reflecting reality. The rhetoric so far from the sell side is not. You're letting your money do the talking too. I mean, you are, right? You sold Zoom in it not that long, sold FedEx in it not that long, bought a debt collector of all things. If that doesn't say where you say things are or heading from here, I don't know what does. Judge, I've been on the show talking about municipal bond funds.

I talked about SHY and SHM, which are treasury ETFs, muni bond ETFs. Like, look, it's not about being bullish on bonds, right? Almost nobody is. It's just about having optionality in case things get worse. And that's the environment. I wish it weren't the case. Look, I've been on the network like 11 years. I've been called the permable and Josh is always going to say bye. And I wouldn't even say that now you shouldn't buy. What I've been consistently saying is you have got to adjust your expectations on how soon you'll be rewarded for your buys.

But here's the good news. We studied every post-World War II recession and the effects of the stock market before, during, and after. Do you know how many times three years after a recession has been officially declared the stock market has been down? Zero times. It has never happened. And you've had a triple digit return after five years in every single instance. So if you understand that in the back of your head,

the question is, do I buy stocks? Do I sell stocks? The question is, what am I expecting from the stocks that I buy now? If you can stay calm and understand that this is not about where the S&P ends 2022, you're going to be fine. All right. We'll make that the last word. I appreciate your time as always. I'll see you soon. That's Josh Brown joining us here. Let's

get to our Twitter question of the day in overtime with bank earnings kicking off in the morning. We're asking what is the best big bank bet right now? Is it Goldman? Is it Morgan Stanley, Citi or Bank of America? You can head to at CNBC Overtime, cast your vote. We'll share the results later on in the show. Up next, a big warning from one top money manager. Could we really see another 10% drop in stocks before things start to get better? We'll debate that when Overtime comes right back. Welcome back to Overtime comes right back. Welcome back to Overtime. Stocks finishing well off their lows as investors take in today's red hot inflation read. Joining me now with reaction, Eugene Profit

of Profit Investments and New Edge Wealth's Cameron Dawson joins me right here at Post 9. It's great to have both of you with us. You think there's more downside ahead and you've been more, you know, you've been pretty negative for a while now. Yeah, I think that there's a fundamental and a technical answer to that question. The fundamental one is that we do think that a recession is likely sometime in the next 12 months because of the speed and the magnitude of Fed hiking. But the market's not pricing in a recession, whether it's with the earnings or the multiple. They're still rather positive. The technical answer is that we remain in a downtrend and we have had rallies, but they've

been rather anemic, not really led by that pro-cyclical risk on trading. That would tell us that we're still in a downtrend, lower highs, lower lows. 40, what, 3,400 is kind of the number that you're looking for? That's where we start to get really interested from a fundamental perspective. That gets you back down to the pre-COVID high. That's 10 plus percent from here, down. Yes, but that would take the total drawdown to about 30 percent down. That's on average what we see during recessions, 30 percent down about nine months of length. So at some point, we're getting rather close.

And this correction will have run its course. Eugene, if I'm looking for somebody to counter Cameron's negativity, apparently you're not the right person because you think we're going lower, too. But I can't counter it. I think that basically if we do go down 10%, it's going to be in those large cap company tech companies that have yet to decline significantly. They'll just be confirming what the rest of the market already has that we're in a bear market. We've had that 30% drawdown in a lot of other names. I do think that there is a recession risk. I think that the interest rates going higher will definitely be impactful. And then with earnings coming around, I believe the operating margins are going to really be the focus. I think companies have been able to pass

the prices on, but they have higher input costs. And on top of that, I really think Delta was a very good example of what we're going to expect to see the rest of earnings. Do you think, Cameron, the pain trade for tech too is lower? Yeah, if we look at tech earnings specifically, we see that those estimates haven't get cut. They're still at 14% for the year. And we've actually seen some of the most extreme inflows into tech compared to outflows out of other areas like energy and financials. Of course, financials being more beaten up. But if we think about tech, because earnings haven't gotten cut, we have to ask a question about the dollar.

Tech has the most exposure to non-U.S. earnings of any sector in the S&P. It's about 60% of their revenue. We already heard from Microsoft, what, a month or so ago, warning about that. Now, we haven't really heard from that many others. Your suggestion is there's a lot more that's going to take effect because of this strong currency. You know, you've got the euro basically at parity with the dollar. And they're going to try to pull every lever that they can to not have to cut estimates. And you heard Google last night talking about pausing on hiring. And so there's definitely starting to belt tighten. And I think we have to ask the question. We saw a lot of earnings resilience in the last recession

in covid, but that was really unique. It was a lot of earnings resilience in the last recession in COVID, but that was really unique. It was a lot of pull forward of demand because of being in lockdown, stuck at home. Does that repeat itself when we see broad companies maybe cutting back on CapEx in totality? Eugene, where does the Fed factor into the way you're thinking now? And look, I mean, I get the fact Bostick's not a voting member, but nonetheless, when a Fed president is willing to at least entertain the idea of 100 basis points, you got to sit up and take notice. And I'm wondering if they did that or who knows an intermeeting move, what the stock market would do. Well, I think you're right. You do have to pay attention to that. But I think Fisher might be more on point that it's going to be 75 basis points because the Fed is still

figuring out what the impact of these increases are. And they don't want to overshoot too quickly. And you do see some moderation. If they come at 100 basis points, a lot of marketers think that, you know, rip the bandit off, get it done. We can be off to the races, and in July, you know, you're running away. I don't think that that's quite the case. I think that them going intermeeting or 100 is actually more fearful than not. I think that if companies really are talking about, we have more revenue, but we have less profitability and analysts have not really downgraded those earnings estimates. That's what a pressure is going to come from from the market. And I think in that case, we probably are lower than we are right now. So, Cameron, I mean, forget ripping the Band-Aid off. There are some who suggest that the Fed is not going to be able to be as aggressive as some say. Like Jeremy Siegel, for example, as I referenced earlier, you know, goes from I want 100 at least to wait a minute. Now they can't do as much as we first

thought because the economy is weaker than we thought. But when they make that pivot, the market's going to rally. Is he right? Well, isn't it interesting that the reaction today in the bond market was pricing in a higher probability of 100 bps this month, but also bringing forward the expectation for rate cuts from March into February. And that's why we saw that rally in the long end of the curve, because you started to say that, hey, if things get bad enough, this will cause the Fed to pivot. Now we're missing a big piece there is that

things have to get bad enough. If you look at fundamental data whether it's the job market manufacturing it's not that bad to justify a pivot nor our financial conditions yes they're elevated yes high yield spreads are elevated. But

they're not to the point that would justify or spur the Fed to come in and save the day, mostly when inflation is so high. We've talked about that, too, this sort of misnomer, if you want to use that word, Eugene, that the stock market is the barometer that the Fed's looking at to come save the day. It's credit. And to Cameron's point, yes, spreads have blown out a bit, but they've narrowed more recently. Let's turn our attention to the morning, because as I said to Josh Brown, that's when it gets real. That's when we're going to really start to get earnings from the banks. So we're going to have to start paying attention to the outlooks and the guidance. And then you're going to get to some of the biggest companies

in America for their reports and their outlooks. Tell me what you're thinking. How nervous are you going into tomorrow morning for starters? Well, I think bank earnings will be solid, essentially. I think that the issue is the market thinks the recession risk is going to be a negative for the banks. But they're reporting on a time period when interest rates have been higher for them, so the margins are better. And I don't think they have a lot of long loss reserves as of yet. So I think it's really going to focus on the guidance. And I think they're going to moderate the guidance a little bit because of the inverted yield curve.

But from a profitability standpoint, I think the earnings will be quite strong for the banks. All right. We're going to see. Again, kicks off tomorrow morning. Eugene Profit, Cameron Dawson, I appreciate your time very well. We'll see you back here at Post 9. I hope very soon.

Up next, top plays for your portfolio. City Global Wealth's Kristen Bitterly joins us with the number one defensive move she is making right now. We're back in overtime right after this. It was a down day for the Dow as we welcome you back in overtime. It's time for a CNBC News Update with Shepard Smith. Hey, Shep. Hi, Scott. From the news on CNBC, here's what's happening. President Biden on his first trip to the Middle East since taking office. Today, he's reassuring Israelis that the United States is committed to stopping Iran's nuclear program.

Asked by Israel's Channel 12 News about using military force against Iran, President Biden said, only as a last resort. Another foreign trip for the president, another Secret Service agent sent home. According to the agency, an employee was briefly detained by Israeli police after a physical altercation, then sent back to the United States. Just two months ago, during the president's trip to South Korea, two other agents were sent home after a reported fight there with locals. And the former Trump adviser Steve Bannon is again asking a federal judge to delay his contempt of Congress trial that's scheduled to begin on Monday. Bannon's legal team arguing that after the latest January 6th hearing, getting a fair trial for him will be much more difficult.

Just yesterday, the same judge denied a similar request. Tonight, fallout from the newly released video of the Uvalde police response, plus the mystery of 21 teens who dropped dead in a bar, and a second shark attack on the same beach. On the news, right after Jim Cramer, 7 Eastern, CNBC. Scott, back to you. All right, Shepard Smith, thank you very much. Check out the health care sector over the past month.

It's up better than 5%. Our next guest says this is the top defensive play to make in this current environment. Joining us now, Citi Global Wealth Head of North America Investments, Kristen Bitterly, here at Post 9. It's good to see you in person here. Good to see you, too. So I kind of feel like everybody now loves health care the way that everybody loved energy. And then ultimately it got a little crowded and then the bottom fell out. Why is there still some room here to go in health care?

So this is something that we've been investing in. Actually, we started Q3, Q4 of last year. So we shifted our portfolios away from some of the hyper growth stocks into quality across the board. So when you're thinking about quality, it's like the dividend aristocrats, quality dividend growers, strong earnings, strong balance sheets. And so health care is a very defensive play. So we think that there's room to run in terms of you're looking at strong yields and you're also looking at one of the only sectors that has been able to consistently grow earnings through the past three recessions. Is this an expression of your overall market view? It's just how you want to play the defensive, right? We want to be defensive right

now. Yeah, we want to be defensive. And here's the thing is when you look at how the market has been behaving, we expect continued volatility. Unfortunately, that's what we expect. And we're not going to get clarity as to whether or not we're going to tip over into a recession for the next couple of months. And the reason that's important is that recessionary bear markets behave very differently than non-recessionary bear markets. Non-recessionary bear markets, we've done the damage. They see average drawdowns of about 23 to 25 percent and a duration of about 200 days. If you tip over into a recession, you see drawdowns in excess of 30 percent and a duration of around 400 days. What if we're already in a recession, as some literally suggest we are, and the Fed knows this, and you're going to have a

topped out inflation report this time, we think. And all of that's going to force the Fed to not be as aggressive as we once thought. I think one of the challenges that we have right now is what we thought could have been a Q3 resolution is now getting pushed out into Q4. Chair Powell, a couple of weeks ago, was very clear on one of the mistakes that the Fed made is that they reacted too quickly to the data, that they saw one print and they decided that, OK, maybe inflation is transitory. What Chair Powell said is we need to pay attention to trends. So seeing what happened today is only actually going to encourage them with the 75 basis points. And then come September, are we going to really get any data that would pivot them away or pull back from that trajectory? Yeah. I mean, our Steve Leisman has made the same

good point. Restart the clock from today, right? Last CPI print you thought was going to be the top wasn't. This CPI print you thought was going to be the top wasn't. So now you have to start the count all over again. Exactly. And then it really comes down to how are you positioned, right? So you want to be positioned for these two different outcomes. You want to be positioned for what could be called resilient, which is just slowing growth and seeing a reduction in earnings growth or a recession. And that is why it sounds very simple, but both in terms of our equity positioning, as well as our fixed income positioning, we're invested in quality. What would you avoid most of all? Right now, what would I avoid most of all?

I think market timing, to be honest. When you think of what is the biggest mistake you could make in these types of markets, this idea that you're going to be able to call bottoms or get out when we see some of these market rallies. We see a lot of people doing that, either sitting on the sidelines thinking that they're going to be able to call that bottom and seeing inflation really kind of erode the value of that cash. Or we see people getting out, basically deciding that they can't take it anymore and they don't get back in. So avoid that temptation. What about like a sector type conversation on that same question? If you're a longer term investor, the kinds of which you're obviously advising in a global wealth role, would you buy large cap tech here, for example, or not? I think there's an opportunity for a long term investor to buy large cap tech. So when you see

some of the sell off that that's occurred, I would stay away from the hyper growth. I would stay from areas that are not profitable. But one of the areas where we're investing in tech is cybersecurity. So take a look at that particular subsector. It's off about 20%. We've seen some pullbacks. But when you actually look at their business models, their earnings, it hasn't pulled back really at all. There's no material difference. That's also an area of durable demand.

And when you look at the indices, only around 9% of those companies are not profitable. So when you buy market capitalization, so you have some good, strong profitability and you have some long-term secular growth trends in your favor. If I say, okay, I'm looking at a Microsoft or Alphabet or Apple and I say, well, I'm a long-term investor, why shouldn't I buy these? Do you have any trepidation at all about currency impact on earnings? Or do you put all of that aside because you're focused on the end game of years from now rather than moments from now? I think the end game is the most important thing. Currency obviously is going to be a big topic in Q2 earnings. It's hard to avoid. And

any of those companies that have international models, you're going to see that come and it's going to be very front and center. That could be a short-term impact. But I think using some of these opportunities, the pullback to build long-term positions does make a lot of sense. Okay. Thanks for coming by Post 9. Thank you. All right. I appreciate it. That's Kristen Bitterly joining us now. Up next, we're tracking all the biggest movers in the OT as always. Christina Partsenevalos is all over that action as usual. What's on deck?

We've got a slew of new dividend payouts announced in the OT, a new vaccine that's ready to hit U.S. markets, and uh-oh, ads are definitely going to interrupt your Netflix and chill time. Details right after this. We're tracking the biggest movers in overtime as always. Christina Parts of Novelos is here with that. Christina? Well, we're seeing shares of Novavax down in the OT right now. This after the Food and Drug Administration just announced emergency use for the Novavax COVID vaccine. For anyone 18 and older, you can see the stock is down over 2%. The vaccine does come in two doses and it's ministered three weeks apart. This is a protein-based vaccine, not mRNA-based.

Netflix, slightly in the red, just after rising before the close. And this is on news that it will be partnering with Microsoft on its ad-supported service. After years of resisting, ads are finally going to interrupt your Netflix and chill time. Netflix earnings are out next Tuesday, and it expects to lose 2 million subscribers in the second quarter. You can see the stock down slightly. Lastly, dividend payouts continue to rise, this time with retailers Walgreens Boots Alliance. They just announced a quarterly dividend of 48 cents a share. That's half a percent increase, payable on September 9th. And then Costco also announcing in the OT a quarterly dividend of 90 cents a share, payable on August 12th. Tis the season

of dividends. Q2 just hit a record for dividend payouts. Scott. All right. Christina, thank you. Christina Partsenevelos up next. Bailing on the builders, the XHB home builder ETF down more than 30 percent this year. So is it time to cash in on the housing trade or cash out? We'll debate it in today's halftime overtime. And don't forget, you can catch us on the go by following the Closing Bell podcast on your favorite podcast app. Overtime is back right after this. In today's Halftime Overtime, ringing the register on the housing trade. Bryn Talkington taking profits on Lenar on the heels of today's hot inflation report and a double-digit gain in just the last month. Joining us now is SVB Private Chief Investment

Officer and Halftime Investment Committee member Shannon Sekosha. It's good to have you on. I mean, you don't have home builders, but you do have a fair amount of exposure. And I'm looking at all of these home builders year to date. They're all down at least 30 percent for the most part, as are Home Depot, Masco, Trex, among the stocks you own. Why should I continue to own these in the kind of environment it looks like we're heading into for housing? It's definitely a headwind. I mean, we've had a really nice tailwind from housing really since mid-2020. But I want to maybe take the flip side of Bryn's argument because I don't disagree with her. I do think we're facing a shortage. But the reason I'm in housing adjacent stocks versus homebuilders is that I think there's a lot of anchoring going on right now. People are stuck to their homes based on a very low mortgage rate. And granted, nobody wants to pay a 5.5%

mortgage rate or more when they looked at the threes last year. But we are going to get to a point, Scott, where we're stabilizing in terms of mortgage rates. We're resetting, and people are going to start to anchor to a different number. In the interim, though, I do believe that the U.S. consumer is going to continue to reinvest back in their existing home, make renovations rather than relocations. And that's why I like the housing adjacent trade here. Didn't they already do that over the last two plus years of the pandemic? They absolutely have. But if you look at things like tracks from a composite decking standpoint, you know, a lot of a lot of homeowners got interested in that space based on lumber prices at where they were. Granted, they're down 60 percent. There's still a meaningful

amount of folks that are making the decision to upgrade their home. And frankly, for those that still have discretionary income, which is a lot of them, small purchases at a place like Home Depot can start to refresh those properties and make it a little bit easier for them to get to two years from now when they look at the mortgage rates and go, well, I guess it's the new norm, so I could potentially relocate them. I mean, part of Bryn's argument, too, was today's CPI says more aggressive Fed, more aggressive Fed means higher interest rates, higher interest rates mean higher mortgage rates. Right. I mean, well, we know that the Fed's raising rates, Scott. We know that one of the

byproducts of that is going to be higher mortgage rates. But if you just look at where we've been historically from a mortgage rate perspective, this idea of affordability, certainly for first-time homebuyers, certainly a challenge here. We need supply to go up. We need mortgage rates to stabilize. But again, if I look at Home Depot, Trex, even Pool, for instance, that we own in the portfolio, I'm thinking about, again, this middle-income to high-income consumer who knows they're going to be stuck in their home for a while. And I do think that there's still legs on that trade. I just think about it from a retail perspective, execution wise, Home Depot, for instance, has done an excellent job being able to build out their e-commerce platform, as well as this is a story you still have to go into. So again, I'm going to pick my spots for quality. I think this is a trade that can remain. And I

actually think to Bryn's comment, in six to 12 months, the homebuyers are going to be a great opportunity because that shortage isn't going away. Yeah, Depot down 31 percent off the 52-week high. Give me a quick opinion on the market here. Suggestions of maybe 100 basis points in a couple of weeks. Do you buy that at all? Unprecedented is the new precedent, right, Scott? So, you know, it's a possibility. It certainly is. I mean, I think the Fed really wants to be very aggressive and front end a lot of this activity because they're seeing that it can be coincident with some of the demand destruction plus supply chain improvements based on lower demand. I think that they're going to try

to be as impactful as possible. 100 basis points seems a little high. But, Scott, a week ago on your show, people were talking about going back to 50. 75 is in the books for sure. I don't see 100 on the next one. Yeah, well, now I wonder whether some were talking about going to 25 in September. Now it feels like that's off the table as well. But we shall see. Shannon, thank you.

That's Shannon Sikosha joining us here in overtime. Up next, Unity Software plunging in today's session. The company cutting guidance as it announces a $4 billion deal. We're breaking down those details just ahead. Coming up at the top of the hour as well, how the fast money traders are positioned for a possible 100 basis point hike at the next meeting. That's at 5 p.m. Eastern. Don't go anywhere. Overtime's back after this. Shares of Unity Software handing in their second worst day ever after cutting guidance and

announcing a $4.4 billion deal. Let's get Steve Kovac who has more on that for us. Steve. Hey there. Yeah, I asked Unity CEO John Ricciatello today on Power Lunch about why he did this deal and why investors, what investors are missing today, rather, as the stock plunged over 17 percent. Richie Tiello telling me this deal brings in more data and customers to its gaming and ads business, but it'll take a while for everything to pan out as he sees it. Companies saying it won't see significant earnings from this acquisition until the end of 24. Let's take a listen to what he told me. My sense is this is one of those deals where it'll take a while for people to figure it out.

My job is to make sure we're doing the right things in the long term. But in this case, short term and long term, we're going to deliver. Now, Scott, this is just the latest in a wave of gaming M&A action all this year, and there could be more coming. And look, let's dial it back a bit and ask why gaming? Well, I think Microsoft explained it pretty well when they announced they're buying Activision back in January. There are 3 billion gamers in the world, and that number is growing largely thanks to mobile games that are going to be powered by Unity and this iron source acquisition.

So more companies are trying to get a piece of that. And I got some names to watch for you. Oppenheimer saying in a note today that app advertising company similar to iron sources are in play, pointing to a company called Digital Turbine with about a $1.6 billion market cap as a potential acquisition target. And we're expecting a lot more action in the market cap as a potential acquisition target. And we're expecting a lot more action in the gaming space as the year continues, Scott. Didn't Unity cut the guidance as well today?

And that maybe has as much to do with the sell-off in the stock as anything else. Yeah, that's part of it, too. They cut their guidance a bit for the full year, although they said this past quarter that just ended, Scott, they're going to have slightly beat expectations. And on top of that guidance cut, though, they also got a new $1 billion investment from Sequoia and several like previous big investors in the company. I got you. Steve Kovach, thank you very much for that. Next is Santoli's last word. We're back in two minutes in overtime. All right, welcome back to Overtime. Let's get the results now of our Twitter question of the day.

We asked, with bank earnings kicking off in the morning, what is the best big bank bet right now? Bank of America, the big winner, 35% of the vote, closely followed by Goldman Sachs with 32%, Morgan Stanley and Citibank rounding it out right there. Mike Santoli here for his last word. So how would you sum up the stock and bond markets reaction to what happened today with the CPI? Peculiar a little bit, right? A little bit. A little bit in the sense that on the one hand, it was not wholly a shock because the magnitudes of the moves in equities were not really that dramatic. I mean, less than a half percent down. On the other hand, you know, we did kind of get a jolt lower by 2 percent.

The bond market was really kind of twisted all around and we now have badly inverted yield curves. But I would say that it doesn't dissuade a certain faction of investors from saying, look, nothing says that wasn't the peak, right? You keep rolling forward your hope that, in fact, we're getting closer. I think better than feared is kind of the mode we're in, even going into earnings season. So you do have a very low base of expectations what the economy is going to deliver, even if the published numbers for corporate earnings have not really plummeted. They're down a lot. I mean, for X energy, profit margins are anticipated to be back to 2014 levels. We're not talking about complacency, I don't think, on that level.

Don't know how far that gets you because it's going to be messy back and forth. I'm always hesitant to characterize an earnings season as good or bad before we get a couple of weeks into it because it's always just going to be back and forth noise. We fixated for the next two weeks now on the idea of 100 basis points? Now the market has gone there. And I think the word Steve Leisman used was either astonishing or astounding in what the market is pricing in for the next few months, like 175 basis point move. We're not used to this type of jump, you know, kind of scares in the market.

This idea that we have these step function moves and what we're anticipating on rates. Remember, in 2015, we got a quarter percent in and then it was so jarring after years of easing that we waited a year for the next hike. OK, so it's a different world. Now, that being said, does it matter that much, 75 or 100? It probably matters only if the market has a sense that it's a pull forward of what ultimately is a move to neutral, as opposed to we're chasing some super restrictive level and we want to really choke the economy. But don't forget, part of the more bullish second half narrative is predicated on an easier September than once thought. Now you wonder whether that, in fact, would be the case. What I wonder is if there's going to be a period of of respite where you get to whatever we're

going to get in two weeks in terms of the Fed. And then you've got this like eight week spread before the next Fed meeting. And then you'll see exactly what happens with the economy if we get any confidence about recession, no recession call. Speaking of, we're going to be talking about hurricanes again tomorrow. Diamond JPM kicking earnings off. Yeah, we might be. Hurricanes, expense cuts, I think is going to be another theme. Yeah. All right. We'll watch for it. There's so much on our plates. I appreciate it very much. Helping us make sense of all of it is Mike Santoli. Back again tomorrow. Fast Money begins now.