Closing Bell - Closing Bell Overtime: Recession Fears Fade = Rally Time? 1/26/23

Episode Date: January 26, 2023

Have those most imminent recession fears been pushed off enough that this rally can actually last longer than most thought? Kevin Gordon of Charles Schwab gives his forecast. Plus, Intel reported results in Overtime. Top chip analyst Stacy Rasgon gives his instant reaction. And, Mike Santoli’s Last Word on what he’s watching as we head into the final trading day of this busy week.

All right, Sarah, thank you very much, and welcome, everybody, to Overtime. I'm Scott Walker. You just heard the bells. We're just getting started from Post 9 here at the New York Stock Exchange. Intel and Visa, their earnings are imminent. One, a good check on tech and demand for chips at a time when that sector's been surging. The other, a real-time checkup on the consumer. Our reporters, as always, standing by to break in with those details. We'll show you how the stocks trade after the numbers hit. We begin, though, with our talk of the tape.

Have those imminent recession fears been pushed off enough now that this rally can actually last longer than many thought? Let's ask Kevin Gordon. He's the senior investment strategist at Charles Schwab here with me at Post 9. I feel like it's good to see you again. I feel like that's the question of the moment, right? Every piece of data that came out today was pretty good. The economy appears resilient, at least to some respects, not one that's ready to go off a cliff. So if we can say a recession is pushed further off, why doesn't this rally have more to go? Well, it depends on where the recession is. And you know, I've talked about

this a lot, our kind of thought around rolling recessions being already present in the economy. And I think, you know, if we're looking at a metric like GDP, very relevant for today, even if you go below the surface of some of the headline metric of the 2.9% growth that we got, something like real final sales to private domestic purchasers, that's a long way of saying underlying demand. If you net out the government portion,

net out the export portion, that was just barely positive. So you're starting to see definitely over the past three quarters a deceleration in growth from a GDP perspective. I think the recession call, if you're going to base it off of the NBER-defined recession, is really just a call on labor at this part. If you're going to have a labor cycle where unemployment goes up, you start to see job growth really roll over. Haven't seen that yet.

Haven't seen it yet, and that's one of the reasons why people are so optimistic that not everybody, obviously, but that you. You haven't seen it yet. And that's one of the reasons why people are so optimistic. Absolutely. That not everybody, obviously, but that you can have a soft landing. Yeah. Because how can you have a, you know, a massive recession if the job market is as strong as it is? Well, that's the thing. I mean, in our view, it doesn't need to be a massive recession. And you know, for...

Maybe you don't need any recession. You might not. And that's actually one of our themes around this year is because of this rolling nature of the recession, it's hit pockets like housing, like confidence, both on the consumer side, all the way up to the CEO side. If you get a stabilization in some of those leading indicators, key indicators like homebuilder sentiment, and that starts to turn later this year, but we do get weakness in labor, that probably gets you to a milder recession. Maybe it escapes you from an NBER defined recession itself. I'm going to ask you to hold your thought for just a second. I want to just throw up shares of Intel. Let everybody know that the earnings are out. You see the stock is trading lower by some

6%. Looks to me like a miss on top and bottom, but our reporters going through it will come on, Pippa Stevens will, any moment now and let us know exactly what's going on. But the stock is obviously reacting negatively. A stock that was already down some 40 plus percent over the last 12 months. A lot of issues are in front of this company. PCs, as most of you know by now, are weak, right? Data center has been one of the areas that we've been looking at to offset some of the weakness in PCs. Big question is, is that slowing now? And I should also let you know that Stacey Raskin, top analyst in this space, has an underweight on that stock. He's going to join us later to give us his first read as well. But we'll hear from our reporter in just a moment on that. Back to Kevin here with me on the desk. I'll just take it from earnings. Earnings have not been horrible by any stretch.

Now, you could point to an Intel and say, well, what are you talking about? But that has its own issues. In fact, before you answer that question, Pippa, what do we see here? What is leading to this stock down some seven, six or so percent here? Yeah, that's right, Scott. Shares of Intel are falling 6% here in extended trading. It is a miss on the top and bottom line. The company reporting 10 cents per share, excluding estimates. That was against a forecast of 20 cents on an adjusted basis. Revenue coming in at 14.04 billion, once against a miss. Wall Street was forecasting 14.5 billion. The company said that it's making good progress on its transformation.

They are, you know, they're citing their cost reduction targets of 3 billion in 2023. And clearly the stock here now down 7%. So, Scott, we're still looking through this right now. We'll bring you the latest. Man, the guidance doesn't look great from what I see. They see Q1 revenue $10.5 billion to $11.5 billion. So that's interesting, too, because I have the street at near 14. So, Pippa, you come back I have the street at near 14.

So, Pippa, you come back on when you have more for us. But this doesn't look terrific for an Intel, which has already been struggling, to say the least. So as I was suggesting to you, earnings are not cratering, OK, in most of the market. And even where they've been disappointing, let's say a Microsoft, the stock fought back. What does that tell you? Well, it's gonna be sector by sector, I will say that. I think for us though, in a broader macro sense, they're not cratering now, and our focus for the current earnings season

is not what they're doing now or as reported, it's much more what comes in the form of guidance. So you see a negative reaction, like for the stock you were just mentioning for Intel right now, but you have to wait to get some more details around what management is saying, not just for this stock in particular, but for every company. So our view is if you have weaker guidance, if you have revisions coming down for the year, that's really what we've been waiting for to see and being the next driver of the market in its next phase of weakness because you've seen so much multiple compression. But again, that's sector by sector because a lot of the, you know,

growth oriented companies had taken the hit on the valuation front last year. So you got a couple of notes out today that I want your your opinion of. All right. Just like a positive and a negative one saying, OK, recession pushed off interest rate volatility, which really upended this market. Sure. You know, many months ago, that's going to subside as well. And all that means that you could get as high as $4,500, that the top half of the year is actually the good half. And then you

get the recession reality if, in fact, you have it. The negative part of that is everybody's too sanguine on the Fed, right? They don't want a 1970s-style reemergence of inflation, which means they're going to stay higher for longer. And they're going to keep their foot on the gas, on the floor, and that's going to undermine the performance of stocks. What makes more sense to you? So I think the disconnect this year will be not as much the next couple of Fed decisions and how much they hike by and how many more hikes it is. I think the disconnect is going to be what the terminal rate is and how long they stay

there. And the market right now is expecting and pricing in rate cuts later in the year. We just don't really see that as the case if the reason for that is just inflation rolling over. And, you know, until the Fed tells us that they don't want to see more labor weakness, more slack in the labor market, wage growth decelerating even faster, you have to wait to see that. And if the market is keying off of some just inflation signal itself, that's not going to be good enough in our view. So that's where you would see more pressure. So you need to hear from the Fed that if you don't hear that, you can't pivot your own view? You have to wait for some kind of pivot from them?

Well, if you're still getting a tight labor market and you have claims like you did this morning, an unemployment rate that is not budging where it is. But inflation's coming down. Absolutely. But you need that labor component because I think they're looking far out enough ahead where if you still have a relatively tight labor market, even and now that

inflation is coming down, you have real adjusted, real inflation, adjusted income growth going back up because you haven't seen that release of labor. That sort of creates a breeding ground for future inflation as a problem, I think, in the Fed's view. And they've been a little bit vocal. I mean, Brainerd was out recently in last week saying and hinting at that full out saying and going dovish, but hinting. I mean, she's a dove, right? We week saying and hinting at, not full out saying and going dovish, but hinting at the fact that you might not see it. Well, I mean, she's a dove, right? We know her to be dovish, relative to many of the others. Absolutely.

But starting to hint at the fact that you may not need to see as much labor weakness. So if that's the case, I think that changes the view. But at the same time, it's not even up to the Fed right now, at least, to say that you're not going to have the labor weakness that some have been expecting, because I just think that we need to wait a little bit longer to see if that's going to materialize. It's way too early in our view to say wages are coming down, wage growth is coming down fast enough, unemployment is not rising. I think we need to wait until probably the middle of the year to see if that materializes. What about this move that we've seen to start the

year in speculative areas of the market, right? The stocks that got obliterated last year are the ones that are leading. Even the ones that were down a lot this year. I mean, I don't know. What, is Tesla up like $60 in 20 days? It's been a wild rally, yeah. But what does that tell you about where this market's appetite for risk is right now? Yeah, well, I mean, this has been the case with prior bear market rallies where speculative names have led us higher.

I wouldn't buy into that at all. I just think that where we are in the cycle, the fact that the Fed is still tightening, that they want to keep policy tight for longer, and now that growth is noticeably decelerating, like I was saying, under the surface of something like GDP at a headline level, I really wouldn't buy into any of those names. I'd focus much more on quality. In particular, now that we're in earnings season, finding this balance between, yes, you have stickier labor costs, but companies that maybe aren't hurting as much from that or were smart enough to get out in front of that and release labor over time

and that are sort of hanging on to solid profit margins right now. It doesn't mean go out the spectrum of profit or pricing power and find companies that are charging high margins. It just means who's protecting margins right now. Let me go to Kate Rooney on Visa. Those earnings are out as well, and that stock's a higher bid. Kate, what do we see here? Hey, Scott. So we're seeing a beat in the top and bottom line.

Looks like this was driven by pretty strong payments volume here for Visa. We'll start with adjusted EPS. That was a beat by 17 cents. Revenue also a beat in the top line here, 7.94 billion, better than what the street was looking for here. Payment volumes got up 7%. That looks to be driving some of the results here. Cross-border especially strong of about 31%.

Still looking for the guidance here, which was really the key thing that analysts were focused on for MasterCard, which also reported a similar beat. It looks like net revenues were up about 12 percent year over year. Quote here from Al Kelly, the current CEO, talked about continued cross-border travel recovery as part of the reason for the beat here, Scott. But we'll let you know when we find that guidance. That may be coming up on the call, too, at 5 p.m. Back to you.

Yeah, we'll look for that as well. Kate, thank you. That's Kate Rooney there. So a tale of two stories, really, so far in overtime. A double beat top and bottom for Visa. Stocks higher. Double miss for Intel. Stock is sharply lower. And we're going to continue to dive into both of those reports, get you everything you need to know. You'll hear from the experts on that as well. Let's expand our conversation now. Bring in Shannon Sikosha of SVB Private. Malcolm Etheridge of CIC Wealth, Shannon, a CNBC contributor. It's great to have both of you with us. All right, Shan. Stocks clearly are trying to make a statement, right, that they want to go higher. Do you believe in it?

We're getting some momentum, Scott, and it's not altogether surprising. You're continuing to see this better than we feared earnings season. And I think that that's continuing to see this better than we feared earnings season. And I think that that's continuing to buoy stocks. And the other thing to think about in terms of believing in the rally is just this expectation that is a potential contraction later in the year priced into stocks. And if that is so, then you could see a sustained rally here over the next couple of weeks. However, I caution that I think it's probably a little bit too far too fast I think we're benefiting frankly from

being immersed in earnings season. And I think as we start to enter into the last couple of weeks of earnings season. The emphasis is going to go back to the macro it's going to go back to the Fed- and clearly we know that they're

angry they're trying to make sure that inflation is anchored before they become accommodative. I think we should enjoy this right now I think investors should be looking at this as an opportunity to potentially reposition, particularly from a valuation perspective. But I don't know that we could say for sure, just given the headwinds we have in the couple

of Fed meetings that we have coming up, that we're in an all clear scenario. I got you. What a difference, though, if a couple of weeks or a few reports makes to hear Shannon say we're benefiting from being in earnings season when we were worried about what earnings season was going to bring. Malcolm, that that was going to be the tipping point for whatever kind of early year rally had gotten started. Earnings were going to upset that. Not so far. Well, we did expect a lot more choppiness is the word I would use. The markets do seem to have a bit more of an upward bias, I guess, as you guys are talking about through earnings season so far.

But I would just point out the fact that we're probably only 25 percent or so through all the S&P companies. And so maybe it's a little bit too soon to be patting ourselves on the back and popping the champagne here. But I definitely do think that we've seen a better market reaction a little bit earlier in the year than those of us who expected a rally in the first half were predicting. I myself thought we'd at least get on the other side of earnings season and at least get one Fed meeting out of Powell in February before the markets decided to start churning higher. I mean, your point is well taken, but I'll just come back to you. Are any of the big tech companies next week going to tell us something we don't already know? Like, where's the great surprise going to come from? Right. They're concerned about the macro. We've heard it from CEOs already. We're downsizing our workforce.

We've heard that already. What could they possibly say at this point that's going to be a giant surprise? Yeah, I would agree. I think the story in the tech sector is a little bit old now and nobody's really looking to them for guidance on where the economy is. I would say, though, a little bit different to that point. I would be concerned if I started to hear other industries, non-tech, non-healthcare, non-financial start to announce massive layoffs the same way that the tech sector has, simply because that could mean that there's a bit more contagion there and a bit more softness in the labor market that you guys were just talking about is the thing that's making this particular market cycle so unique. We may not have to have a recession because the labor force is so strong right now.

But if we started to get layoffs from any of those other sectors that aren't easily replaceable, easily hireable, and they're walking out of the door with generous severance packages, then I think we're coming back to this conversation and saying we've got to reassess. All right. Hold your thoughts, everybody. I want to go back to Pippa Stevens, who has more for us on this Intel report and the slide in those shares by some 6 percent, Pipps. Yeah, Scott, and it isn't a missing on the top and bottom line. It really is that weakness that is sending the stock, sorry, the weak guidance that is sending the stock 6 percent lower. Intel does see a loss of 15 cents per share in Q1. That was against a forecast of a 24 cent per share EPS. They see revenue coming in at between 10 and a half to an 11 and a half billion dollars. That was against

forecast for 13.9 billion. They also see gross margin at 39 percent compared to estimates of 46 percent. So once again, it really is that disappointing guidance that's weighing on the stock here. Wow. Yeah, I mean, we're watching for gross margins. Pippa, thank you. What's really interesting, and again, we're going to get into it a little bit more with Stacey Roscon in a matter of moments. She, of course, the star analyst who covers this company, has had an underweight on it. He just downgraded AMD within the last handful or so of days because of the gross margin issue there. You have to wonder, if you're worried about AMD's gross margins, what would you be thinking about Intel? And here they come in, what seems to be well under the street estimates, 39.2% gross margin. Shan, is there anything that would get you into Intel shares right now? I mean,

there's been so much focus on chips. So many to start this year have done quite well. This may upset a little bit of that story. Yeah, I think this is a confluence of factors right now, Scott. And it is certainly concerning. I mean, listen, you can't separate the fact that Intel has cost issues. They have execution issues with the fact that we're seeing PC and data center slowing. I mean, that is going to continue to be an impact. We own AMD and we own AMD because we think that there's a market share opportunity here. But overall, you're just going to see this inventory cycle have to play out over the course of the next couple of quarters. And so it's really hard for me to want to jump into Intel, despite the fact that the valuation is fairly compelling. Because I think there is, again, there's sort of the execution headwinds for this company

as well as the secular headwinds. And I think there is going to be a lot of divergence within semis over the course of the next couple of months because they're all going to be facing some of these cyclical challenges. And it's really going to be about company management being able to keep those margins and make sure that they're cutting costs as much as possible in this challenging environment. Yeah. And you own Visa, too, right, Shan? So, I mean, as I said, it's really a tale of two stories here. A smile on one end and then, you know, obviously how you look at Intel here. But how about Visa? Just give me a comment on that. Yeah, I mean, we expected cross-border trade to certainly benefit Visa.

Listen, the comps aren't easy for Visa this year, Scott, and it's had a great run. I mean, you know, performance has been fantastic for the stock. Versus the S. and P. five hundred over the last year- but I think if you think about. Average transaction. Volume you're you're going to get higher ticket prices right just

because of inflation and so I'm most most interested though in hearing how they potentially see the back half of the year some potential- demand decrease from a consumer perspective. And how they're guiding for back half of the year, some potential demand decrease from a consumer perspective and how they're guiding for that in the event that those tougher comps in the back half of the year coincide with potentially some consumer demand slowdown.

Kevin Gordon, just to remind everybody, sitting next to me here from Schwab as well. What's your favorite part of the market right now, if you have one, in terms of equities? In terms of equities, so it's tough to call it on a sector basis. You can't even find a sector that you like? It tends to lean more cyclical, so energy, industrials, materials, not that we're explicitly overweight them, but I say that because when we look at it from a factor-based perspective, and what I was mentioning earlier about companies that didn't overhire and then are able to stomach or withstand better margins right now, you're finding a lot more of that in cyclical value areas of the market.

And value, just as a factor, has been an exceptional performer over the past three, six, nine months. And even in a sector like tech, last year, value was the top performer. So you can find it. Like an IBM, for example, was the outperformer. Yeah. So I think that's where you want to stay positioned, because even though you're getting to the the tail end of the Fed's tightening cycle getting closer to the terminal rate

Again, they're wanting to keep rates higher and for longer where there are now or a little bit higher than where they're at right now In an environment where that's the case and you have growth slowing and some weakness in consumption not overall outright weakness But signs are there that you're starting to slow down. So in that environment, you don't want to move down the quality spectrum. There's a time to do that when you get back to a cycle that is reigniting, but we're just not seeing that right now. Malcolm, your favorite part of the market is where? I would actually agree. I'm starting to lean a little bit more value,

especially since over the last six to 12 months, value has been starting to improve out. Now you're starting to lay towards value? Value cycles tend to last a lot longer. The sirens have been going off for months. But value cycles tend to last a lot longer than we think. So folks will look at value rotations and say, oh, I'm in, I'm out, I'm going back to growth because that's where the party is. But if you just look at it on a backward looking basis, you usually get a good two to three years worth of value being the dominant place to be where we look back and go, oh, yeah, we should have been there. So I don't think that

it necessarily is too late to get to the party. But I do take your point, take your criticism that I'm a little bit late to agree that value may be the place that we should be looking. Well, believe me, I mean, there are, and it's not really criticism, there are many people who think that, like you, that the runway for value has a long, long way to go, that after some head fakes of the past, that this move is actually legit, and it does have a lot more to go. Let me get one quick thought from everybody on energy.

I bring it up because of what Chevron announced, that tremendously large buyback, right? Seventy five billion dollars. Exxon announced one of 50 billion dollars within the last 10 days or so. Shannon, does that underscore for you why you want to be in an area like that? It feels like that's where the action is. Go where the money is. Go with it. It's not just the money, Scott. I mean, it's it's it's it's margin protection. It's valuation that still sits, you know, under under the market multiple. But this is I mean, these buybacks are incredibly important because the knock on energy companies in the decade prior to the pandemic was capital allocation and return to shareholders and

investing in projects that were not going to be profitable unless energy prices were significantly higher. And so this shows you know to me right and should show to other investors as well. That you know perhaps there has been an introspection about capital

allocation- I think this is the appropriate thing for both of these companies to do. But I think just the undemanding valuations and the continuation of being able to be- margin sensitive- I think is sets a foundation for continued gains.

Malcolm, quick, energy. Like it? Yeah, I'd be a little bit concerned that those massive buybacks are going to make them an even bigger target for Democrats in Congress and the Senate. Just focusing on the fact that they're returning capital to only the shareholder class and not Main Street America or whatever you want to call it, I'd be a little bit more concerned that that's going to raise some red flags in Washington. Yeah, maybe noise, maybe more noise than anything. We'll see. Everybody, thank you. Malcolm and Shannon, I appreciate it very much. And I think we'll see a little bit later. Kevin Gordon, I appreciate your time as always today. Kevin,

of course, Charles Schwab, senior investment strategist. Our Twitter question of the day. We want to know, should you buy into the rally in stocks or fade it? You can head to at CNBC Overtime to vote. We will share those results a little later on in the hour. We are just getting started, though, here in overtime. Up next, I've already told you about him, Stacey Raskin, top chip analyst. He's here with his instant reaction to Intel's results. Those results sending the stock doing that down more than 7 percent. We'll find out what he's going to be listening for when the conference call kicks off in under an hour. We're live at the New York Stock Exchange. As always, overtime is right back. We're back with a news alert on Hasbro. Shares are falling right now in overtime after the company just announced it is cutting 1,000 jobs.

It's about 15% of the workforce. The COO will also be departing that company. And Hasbro has announced preliminary results for the fourth quarter of 2022, $1.68 billion. It's down 17% year over year. The stock, as you see, is taking a slide here by some five percent. In sympathy, Mattel, not surprisingly, perhaps, is also lower on that news. Then there's Intel, also under big time pressure in overtime. That company reporting a top and bottom line miss just moments ago. The chipmaker also slashing guidance in a big way.

That call kicking off 5 p.m. Eastern time, 35 minutes or so from now. Joining us now with instant reaction to the quarter, Stacey Raskin. He's the senior semiconductor analyst at Bernstein, has an underperformed rating on the stock. I don't even know what to say. What's your reaction? Neither do I. I don't really know what to say. I don't think I've ever seen anything quite like this before. This is this is something special. What most jumps out to you in terms of a disappointment that you can't even put words to it? I mean, clearly the guide is disappointing. People

knew it was going to be weak, by the way. That's not surprising, but it's very weak. The gross margins of 39% is astonishing. I don't think they've had an $11 billion quarter since 2010. And that 39% gross margins is even higher than it looks. If you dig in the release, they've got some accounting changes. They're extending their depreciation lifetime. That 39% gross margin is three points higher than it would be if they hadn't made those accounting changes. So the like-to-like versus what they were reporting for is actually 36%. I've never seen... you're getting into like, you know, commodity semiconductor kind of ranges for gross margins down.

Like I've never seen anything like this before. What's what's the problem? I mean, I know that PCs are weak, but that's not a shock to anybody. And if there was one thing that was trying to hold things together, it was data center. And now we see that's weakening, too. Their data center business has actually been weakening for quite a few quarters. I mean, it made a little money this week. It actually broke even last quarter. I mean, it was so this is a business that used to run 50 percent operating margins. It's like barely making any money. And it's come down. I mean, data centers down. Oh, I don't know, 20 percent more, more than 30, 33 percent year over year, I think. But it was bad last year. So that's that's but it's

getting worse. It has to be getting worse. And you're right, on the PC side, everybody knows the market's awful. But I'm wondering how much of this might be pricing. Are they being more aggressive in the market? Is it utilization? Is it yields? Maybe the processes are not yielding as much as they want. I have no idea. I guess we'll have to see on the call. And then the other thing is, importantly, they didn't give a full year guide. That's right. Maybe they'll talk to it on the call. But like, just looking at this, I have no idea what next year looks like, but it's going to be a lot lower than the street is molding. The

street already thought numbers probably needed to come down even more, but it's going to be a lot lower than where people are right now. Yeah, I'm looking at my own, you know, print out of the earnings grid and the full year EPS and revenue guidance both sits blank to underscore your point. The uncomfortable question, I suppose, would be, is this in any part execution related? I know that most have a favor. Clearly it is. So look, when Pat's been there six or seven quarters, they had an analyst day in February of last year and they put out some, some revenue targets that were completely outlandish. And that was the perception of the time.

It had them doing $120 billion in five years or something like that. They were hiring to that headcount. I know they're going to be, they're laying off now, but headcount is up 20% in like the last seven quarters since Pat Gelsinger took the job. So they were clearly hiring and planning for a much different revenue environment than we are going into now. So, yeah, no, clearly there are execution issues here. Yes. I mean, I think it was my colleague, Carl Quintanilla, earlier today who raised what I thought was a really good point of in terms of management, of of managing through a couple of cycles happening at the same time. It's the weakening economic

environment, right? And you're having to manage through that as you're already losing market share to an AMD while managing at the same time through a burst of CapEx spending, right? You got the new facilities coming online here in the U.S. I thought it was a great point that Carl made. And I wonder if you could speak to it as it relates to these management challenges that may be happening there. Yeah, the problem is, especially on the CapEx, remember, you have to make these plans years in advance. And so it is a bit of a problem. You've got to put that in place before you know what's going to happen. And by the way, we'll see what they have planned for CapEx in 2023. I don't know. Presumably, they're going to cut it with numbers

that look like this. But that is a problem. You have to manage through that. I'd say historically, though, Intel was pretty good at managing through that, and many semiconductor companies seem to be able to handle it. But I guess things are just changing so rapidly in the market, relative to at least where their expectations were. It's causing problems. They clearly got caught on the wrong foot here. And it's not even just this quarter. This has been building for the last several quarters. They haven't had a good print in a while. This seems to be where they just went right off the cliff, though. Wow. But you just recently downgraded AMD,

right, on gross margin concerns. So this can't be that much of a shock. I'm also wondering what the read now is for everybody else. Yeah, so to be fair, like this gross margin, I'd love to know how much of this guide is actually pricing, right? Because one of the reasons that I was worried about AMD's gross margins is Intel has capacity. They can build parts.

The incremental cost for them to build a part is not that big. They've already got the asset in the ground. And they can be aggressive. And they've been being aggressive the last several quarters. And so we've been seeing discounting on A&D parts. And I was worried that was going to continue. I would love to know how much of this gross margin compression in the next quarter and even this quarter is from pricing. And then obviously, we've got the overall market environment, which is not healthy. I'd love to know what Intel has a view. Intel just did a PC TAM presentation

a week or two ago. They were talking about 270 to 295 million PCs, which I mean, looks completely outlandish at this point. I'd love to know what they have baked in next year. But that AMD downgrade, yeah, I mean, you could certainly read across from this to some of the points I think that we were making in that call. Yeah. Hey, I appreciate your time very much, Stace. You've been with us for the last few earnings reports, and I appreciate getting your immediate insight into all of this. Reports that, frankly, have left you speechless more times than one. So we'll see you soon.

All right. Take care. Thank you. All right. That's Stacey Raskin. By the way, do not miss Intel CEO Pat Gelsinger himself. Going to be on Tech Check in the 11 a.m. Eastern hour. That is tomorrow. It's time for a CNBC News Update now with Bertha Coombs. Hi, Bertha. Hi, Scott.

Here's what's happening at this hour. The video of Tyree Nichols' violent arrest will be released tomorrow night after 7 p.m. Eastern. The announcement coming after five former officers were charged with second-degree murder. Tennessee's top investigator did not mince words when describing the arrest video. In a word, it's absolutely appalling. Let me be clear. What happened here does not at all reflect proper policing. This was wrong. This was criminal. 28 guilty verdicts, including for murder for an Islamic extremist who killed eight people on a New York bike path in 2017. Jurors will now decide whether the defendant should get

the death penalty or spend the rest of his life in prison. And the massive storms that flooded parts of California will also mean far more drinking water for many residents. State officials have raised water allocations for public water agencies to 30 percent of what was requested. That's up from just five percent that was promised before the storms. A little bit of a silver lining there, Scott. Back to you. All right, Bertha. Thank you. That's Bertha Coombs.

Up next, the pulse of the big money. Morgan Stanley's Chris Toomey is waiting in the wings. He runs one of the highest rated private wealth advisory teams in this country. Find out where he sees the market heading from here. He'll join us live here at the New York Stock Exchange when Overtime comes right back. Stocks have been rallying this year. The big question, though, is can you believe it? Let's ask our next guest. He runs one of the highest rated private wealth advisory teams in the country at Morgan Stanley. Chris Toomey, back with me at Post 9. Welcome back. Thank you. All right. So I

think it was the last time you were on and your team sends out a notice to say Toomey is going to be on. Everybody pay attention. And the shot of you under you under your face, it said cautious and defensive. That's right. OK. Are you still. Yeah, I think I am. I mean, look, I think things have changed a little bit since I was last here. We had a lot of good news. We had a better inflation number. P.C. looks better, which is obviously the number that the Fed spends most of the time focusing in on. Wages are moving in the right direction. And then you had China reopening. You had Europe with a warmer winter, natural gas being a little bit more prevalent. But then importantly, which I think you focused in on,

the dollars come down pretty dramatically and rates have stabilized. So I think all of those things are very positive. And then I think you throw in the seasonality and some of the things that are going on the technical side. And I think this is pretty real. You've got a situation where the S&P has taken out the 50-day, the 100-day, the 200-day, which obviously brings in new money as well, particularly on the CTA side. And then you see what's going on with earnings. which obviously brings in new money as well, particularly on the CTA side. And then you see what's going on with earnings. You get even with some bad numbers or so-so numbers and bad guidance, stocks are selling off and then they're moving higher.

So it is really a situation where some of the numbers have gotten better and the sentiment has gotten very strong in the market. So I think it's something that you have to respect. But I think there's some other things that the market's not really paying attention to, which is why we're still pretty cautious. But you use the word real. You said this looks real. So that hasn't forced you to put some fresh money because you had a lot of cash. And I think maybe one of the last times you were here, you said you had more cash than you ever have had. That's right. That's right. Yeah. And I think, you know, look, I think we were a lot more comfortable sitting in that cash in November,

seeing what was going on in December than we are right now. That being said, we're pretty patient. And I think the thing is, is that I think the market, like most times, is probably getting a little bit of a head of itself right here. And I think the thing that it's not really focusing in on are three specific things. The first one, profit margins. You had Mike Wilson on here. He spoke very eloquently about the fact that, you know, revenues coming down and costs are not moving in line. So the margins are going to continue to contract. The second thing is oil, which I think is a big deal, which I don't think people are spending too much time on. The China reopening is really going to affect, I think, the natural resource market. In particular, if you look at demand right now,

it's 5% pre-COVID. But the most important thing that I think people are underestimating is the consumer, right? We all talked about the Fed balance sheet getting to $9 trillion. What is it going to mean as we unwind it? But the thing that people aren't talking about is the $2.7 trillion worth of savings that we're sitting on consumers' balance sheets. And I think what that means is what is the timing for that to unwind? And I think part of that is elongating this cycle, which is why everybody was focused in on earnings. And now we're starting to see what's going on in the consumer. Does that matter as much if you blow through some of your savings as long as you have a job?

Right. The labor market has held up a lot better than many expected it would to this point. How does that factor into it? Because it has to factor into it somewhere. It does. I think the issue is, is if we've withdrawn all of our savings, right, and depending on what quartile you fit in, whether it's the top quartile or the bottom quartile, a lot of that savings has been eroded through the end of this year. And now what you're seeing is credit card debt picking up by about 15 percent. And if you look at APRs, they're at levels that we haven't seen in almost 50 years. So the thing is, is if you're if you're still employed and your salary is moderating, which we're seeing with regards to PCE, but your costs are going up because you've got this huge credit card debt problem, that's something that the market's not fully pricing in. OK, if I say, OK, I agree with you on all of that. But even so, the data of late and the

strength of the labor market tells a story that if there is a recession, it's not coming tomorrow or the day after that. And even if it's pushed off, let's say it's six months, like some firms are talking about, that that provides an opportunity and a runway for stocks to go up, especially as you say, inflation is coming down, the Fed's near done. Well, that's potentially the issue, right? If the market continues to go higher, if an unemployment starts to stabilize, but not necessarily go down, you could make the argument, looking at the Fed right now or the dot plots, I think there's probably two points where the market's expecting the Fed to actually cut rates at the end of the year. And if that dialogue

starts changing just because some of this data is not going in the way that the Fed wants to see it. Instead of focusing in on earnings and profit margins, we go back to focusing on the Fed. And that's not a good thing. I'll be interested to see where we are the next time you come back. See if this was, in fact, real or a head fake. We'll see you soon. That's Chris Toomey. Thank you. All right. He's the founding partner of Morgan Stanley Team Global.

Coming up, building a brighter future. The big brothers, big sisters of America just rang the closing bell. There's video of it just a short time ago right here at the New York Stock Exchange. The CEO of that group joins me live at Post 9 next to talk mentoring, philanthropy and giving back. It's next. All right. Welcome back to Overtime. We had one of this country's great mentoring organizations ring the closing bell here at the New York Stock Exchange today. Big Brothers, Big Sisters of America commemorating National Mentoring Month. Artis Stevens, president and CEO of Big Brothers, Big Sisters of America, is here with me now at Post 9.

Congratulations on this day. Welcome. It's good to meet you. Scott, it's my pleasure. Thanks for having me. Can you talk about the importance right now of mentoring in our society? Yeah. So one in three kids in our country don't have a positive, sustained mentor in their life, right? You compound that. Even in our organization, as large as it is, Big Brothers, Big Sisters, 230 local agencies, 5,000 communities.

We have 30,000 kids on our waiting list, 30,000. I was shocked by that number, I have to say. And Scott, most of them are boys, right? Waiting on positive mentors in their lives. So part of what we're trying to do is to rally more mentors around this cause, create more access and more opportunity for young people in this country. How do you become a mentor to serve one of the 30,000 kids who are waiting? And by the way, I saw some of the cute kids you had up on the podium up there. You have a great story to tell. How do you get people to become more engaged in it? Yeah. So it's a few different ways, right? So one thing is the idea of a lot of people think that it's a time issue, right? For most of our

mentors, it's typically two times a month, an hour per time. But here's what typically happens, right? So it's that burden, that time. You get involved. And what we found out from most of what we call our bigs, who are positive adults who get involved in Littles or the young people, the bigs say that the Littles impact their lives more than they impact their lives. So a lot of things we do is giving people easy chances, easy opportunities to mentor and to create voice for young people. What age is the sweet spot for who needs to be mentored? Yeah. So we traditionally serve school-age kids. We've been doing that for about 119 years. Here's what's really interesting.

Since the pandemic, our fastest-growing population that we're serving is 18 to 25. A lot of people don't know that. And the reason why is because kids are saying, what's next after high school? How do I navigate it? So our fastest-growing programs is actually career mentoring. We need more people and more companies who are interested in investing in career mentoring, workplace mentoring, and helping our future workforce. I was going to ask you about that breakdown, that personal mentoring, if you want to call it that. I don't know what the official word of that is, but versus workplace mentoring. What's the breakdown? Yeah, so

we do a little bit of both, right? So about 50% of our programs is what we call community-based mentoring, which is what we call one-to-one. So personal is one-to-one mentoring, right? Where we're starting to see growth, though, are these different types of mentoring programs, technology-enabled mentoring, so that you can not replace in-person, but do technology. But the career side is so important is because companies are coming to us to say, listen, we need to get into the workforce earlier. We need a much more diverse population in terms of skill sets and development that we're trying to do. We got families who are saying we need our kids to have skills and kids who want to get opportunities. So what we're doing is becoming

more of a solution based model to say it's not just about relationships. They're important, but it's the relationships that help to create outcomes that will solve societal issues. I have to believe that the pandemic had a major impact on what you do because it's screwed up so many things. It's screwed up how we work. It's screwed up how we show off our skills to where we want to work.

How does that play into what you try and do? Yeah, it did two things. It screwed up a lot of stuff because we had about 60% of our programs in schools. So we had to readjust when schools closed down as well. So imagine that. Everything that kids are going through, social isolation, a lot of kids we serve are in poverty, a lot of challenges. So we had to pivot a lot in terms of how we delivered our service. We showed up at doorsteps.

We did other types of things. We delivered food. So we pivoted in some ways. But here's the other interesting thing that it did. We had to innovate, right? That was the other thing that happened during the pandemic was a lot of innovation. So what we started to do with our program, when I was saying we did a one-on-one for a hundred and something years, we became much more innovative. And we said, you know what, we're going to do more group mentoring, where we bring groups of people together to be able to mentor. We're going to have peer mentoring where young people can mentor each

other. So we have much more of a portfolio of mentoring programs that will allow not just young people to be impacted, but you as an adult to say, I can get involved that way. And it doesn't have to feel like too much of a burden or a time, but we just need people to say, hey, I'll raise my hand and I'm looking forward to getting involved. Comcast NBC Universal is a corporate partner. We're proud of that. Yeah. Great corporate partner. Been a long term over a decade with us. And we have incredible partners. And I'll tell you, one of our goals is that every company in America has a workplace, a youth workplace mentoring program. It is good for kids, but it's also good for companies in terms of what we need to do to help this economy grow. We have a richness that we're sitting on.

And there are young people and big brothers and big sisters at the table to help be that solution. Continued success. Thank you, Michael. Thanks for being here. That's Artis Stevens again. Big brothers, big sisters of America, the president and the CEO. Coming up, we're tracking some big stock moves right here in overtime. Steve Kovach is standing by with that.

Hey, Steve. Hey there, Scott. Yeah, we got a semiconductor company falling on weak outlook. Plus, the increase in U.S. defense spending gave a boost to the full year guidance for one big name contractor. And finally, some warning signs on the consumer during the holiday quarter from a freight company's earnings report. We'll have all that for you when Closing Bell Overtime returns after this. We're tracking the biggest movers in overtime. Steve Kovac is here with that.

Hey, Steve. Hey there. Yeah, shares of KLA Corp falling more than 5 percent, Scott, in the OT after reporting its fiscal Q2, despite missing estimates on the top and bottom lines. It's the Q3 guidance sending shares lower, the company missing revenue guidance expectations saying it'll book up to $2.5 billion in sales. Street was looking for at least $2.53 billion in revenue. Meanwhile, shares of L3Harris Technologies moving 2% higher after beating expectations on the top and bottom lines in its Q3 earnings. Company reporting $4.58 billion for revenue in the quarter and EPS of $3.27. Guidance for the full year also in line with expectations, with the company saying to expect up to $17.8 billion in sales. Now, Althea Harris crediting the increase in defense spending

approved by Congress for that strong outlook. And finally, take a look at shares of freight company Knight Swift, falling more than 1% on some dour comments from its CEO in its earnings release, hinting at falling consumer demand last quarter. He said, quote, we did not experience the typical seasonal strength associated with the last three months of the year. In fact, it was the most benign peak shipping season in recent memory. Not good for a holiday quarter, Scott. I'll send it back to you. No, dour is right. You put that right. Steve, thank you. That's Steve Kovac. You got it.

Still ahead, Santoli's last word. We'll be right back. Buy into the rally or fade it? There's our Twitter question. The majority of you saying fade it. Santoli's next. All right. Mike Santoli is here for his last word. What is it? I mean, you heard Chris Toomey, who was on, and he's been negative and defensive and cautious, and even he used the word real. He used the word real. He also said he's getting uncomfortable with the amount of cash that they're sitting on.

And I do think that's a little bit of a fix that a lot of folks might find themselves in. The market is kind of answering a lot of the critiques of it. You know, before the other rallies, they weren't broad enough. The leadership was kind of suspect. You didn't see some of the critiques of it. You know, before the other rallies, they weren't broad enough. The leadership was kind of suspect. You didn't see some of the riskier stocks and the cyclical ones leading.

So I think you've answered that. Now, it gets a little bit more of a tough call to say that we should just overshoot higher from here just because of where we are. Getting a little bit stretched, if you look at it technically, we'll get tested by some of the, it looks like the gut check and semis tomorrow.

But in general, what we've done is built a cushion. You can have a perfectly routine pullback if one of them hits. And it's all it's going to do is take you back above the month's lows, probably if you go down 5 percent. So that's a decent position to be in relative to where we were. And then, look, we got big tech earnings next week and the Fed in front of us, too. So maybe, you know, don't get ahead of your over your skis. Yeah, you would never expect it to just kind of melt up in a straight line. But I do think, first of all, the bad analogies of 2001 and 2008, they're kind of off the table. The market's not acting as if it's following those particular paths,

at least at some comfort. All right. Good stuff. Thank you, as always. Mike Santoli with his last word. I will see you tomorrow, as will Mike. Fast Money begins now.