Closing Bell - Closing Bell Overtime: Searching for Stability 9/27/22

Episode Date: September 27, 2022

Can markets find some sort of stability in the coming days ahead? Vertas Financial’s Greg Branch, Citi Global’s Kristen Bitterly and Anastasia Amoroso of iCapital all give their expert market take. Plus, Schwab’s Omar Aguilar discusses how to protect your portfolio amid all of the volatility. And, Joe Terranova is back to break down the sectors that could have the most upside.===

All right, Melissa, thanks very much, and welcome everybody to Overtime. I'm Scott Wapner. You just heard the bells. We're just getting started here from Post 9 at the New York Stock Exchange, and let's get right to our talk of the tape. This surge in interest rates as yields around the world rise, and as you know by now, stocks fall. From the U.K. to the U.S., uncertainty is mounting as investors grow more and more nervous about inflation and the ability to fight it.

The only thing hanging in the balance now, of course, is your money. Markets finding some sort of stability in the days ahead. Can they do that? Let's ask Greg Branch, Veritas founder group, founder, managing partner as well. He's here with us on set today. It's good to see you. Welcome to the Stock Exchange. Good to see you, Scott.

So we tried, but we couldn't really get that much going. Now, albeit we did close off the lows. And you've been negative for those who recognize you from our program. Right. What do you think about where we are now? Are we set up for a bounce? We oversold. Can we get something going at least for the near term? I think that we haven't encountered all the negative catalysts that I foresaw at the summer rally, Scott. So on the one hand, while there's no argument at this point that there's no Fed pivot forthcoming, which is one of the underlying reasons for the rally, there's two negative catalysts out there that we haven't quite digested yet.

The first is that while we agree that the Fed hasn't pivoted, I'm not sure that there's agreement on what's going to happen in November and December. And if you believe them that we need a 4%, 4.5% rate, that implies another 75 basis points or 50 basis points in November and something similar in December. I don't think that that's quite in the numbers yet. The other thing that I think we have not yet encountered is the negative revisions. That's earnings, right? Well, it has started to some degree. In the first two months of the third quarter, we've seen them come down about 5.5%, which is twice the historical average.

But when you look at the fourth quarter, we're sitting at 60. I believe that's 10% to 15% too high. When you look at 2023, which we'll all likely turn to, I believe that that's 10% to 15% too high. When you look at 2023, which we'll all likely turn to, I believe that that's 10 to 15 percent too high. Because growth projections for earnings next year are 8 percent. So, I mean, the jury's out. Let's take one at a time, OK? Because I have my fact set pulled up right in front of me here. And I'm squarely looking at the 10-year, OK? At basically, we'll call it 398, all right? Two basis points away from 4 percent. As long as rates continue to go up, can stocks get out of the way of that or not? I don't think so. And I'm going to invite you to look at the other end of the curve.

At the end of the day, the one year is yielding 4.15 percent right now. Why would you buy equities in an uncertain environment in terms of interest rates, in terms of QT, in terms of earnings growth, when you can get a guaranteed 4.15% on a one-year. Okay, so you're in that there's a better game in town. There's a better game in town and that's investment-grade credit and other instruments right now. You're not being compensated for the risks that equities pose. Now, if rates stable, I mean it's not just rates too, it's I could pull up the dollar and I would say, man, I mean, that's been off to the races, too.

And therein lies sort of the two-headed problem. You've got interest rates going up. You've got the dollar going up and all the obvious issues that are related to that. But as long as that doesn't stabilize, if you want to use that word, stocks can't stabilize. Or can they? Even in the near term. Let's not look out six months from now. Let's try and look out six days. I think people need some sort of direction on where all this is going. I think stocks can stabilize if we see two things. The first is we need to see those negative revisions behind us. And maybe I'm wrong. Maybe

that we will have a soft landing. Maybe the economy will bounce back quicker than we expected. But from where I sit, another 150, 200 basis points of Fed raises, raises unemployment, slows growth in the economy, and the earnings aren't reflecting that yet. And so we can't have a rebound in stocks until we have reliable earnings, and we can't have reliable multiples until we have reliable earnings. So saying something is cheap on multiples that are inflated for 2023 is a fool's errand. Well, you imply then there's a gray area that's going to exist for months until we have clarity on all those issues. We have to wait around for all of that to happen before we can get some sort of bottoming in the market? You know, I've been waiting for that since January. That is exactly the problem, is that we have estimates and predictions that are all over the place there's no common or shared

reality in terms of where we are so the the other issue and i i frankly think it's the biggest issue is this uh debate over whether the fed's done too much uh because it leads to where bond yields and currencies are going and like dislocations that you see in the UK bond market right that certain policies that they've done there but more specifically here at home whether the feds done too much and you've heard the debate and it's escalated of late Jeremy Siegel was obviously louder than most in terms of where he came down on that issue what about you what do you think I don't think that they've done too much. I think that they've done it too late.

There was a small minority of us who were saying last year that they needed to come out of Jackson Hole into what we knew was going to be a blockbuster third quarter and start raising rates in 2021. That would have prevented the need for draconian measures this year. Now, at the end of the day they haven't moved their mandate you know others like you said have suggested even moving the goal post that maybe the the target rate shouldn't be two percent on inflation maybe it should be higher but at the end of the day they've rejected that and they said that they're going to stick to this mandate which means that they haven't done enough to reach it because we haven't seen any meaningful

impact yet on the inflationary numbers especially the the core numbers. But too late is not so different than too much. The whole, I mean, they were late, which is why they've had to raise a lot. That's exactly right. And fast at that, right? You do 375s back to back to back. That shows you how late they were in terms of getting in front of, or at least trying to get in front of. It's interesting. Our Delivering Alpha event is tomorrow. In person for the first time in three years.

Buy your tickets. Now that you're here in town, you have no excuse. So we did a survey of investors leading into that. Is the Fed moving too fast on rates? Thirty-five percent said yeah. What's your biggest concern for the markets right now of all the issues on the table? China, Taiwan, no. European energy shortage, no.

Midterm elections, no. Job market in the U.S., no. 58% Fed's too aggressive. Right. And I think that they've done a pretty good job. The Fed? I think they've done a pretty good job of telegraphing that there will be pain associated with this and that they're aware of that. And so when I think people say that the Fed has done too much or the Fed is moving too fast, it doesn't recognize that they were slow to the table and that they essentially don't have a choice.

But it is also a rejection of the economic pain and the pain and the slowing of the economy that we know necessarily has to accompany the actions that they're taking. What if they get it? What if they hear the critics? And, you know, I keep hearing the argument, well, they can't pivot because then they would lose their credibility. In essence, is it really a pivot if you've done three straight 75 basis point hikes? What if they listen to, what if Charlie Evans' voice gets a little louder in the room who says, yeah, I'm worried about doing too much too fast?

What happens if that view starts to take hold where they say, you know what, we have done 375s in a row. Maybe we should just kind of wait and watch because the lag effect of everything we've done is not in the system yet. And you can look at 20 different metrics of inflation. And they would all suggest that it's peaked, if not collapsed. Now, there are some stickier ones. But what about that possibility? Look, and I'm even going to add to that argument, to be honest with you, Scott. We haven't really seen the impact of what QT is going to yield.

At the end of the day, we're still in the very early stages. They've just accelerated to the $95 billion. And so I'd add that to the argument. And so there's a possibility. But the issue, I think, that they might be more concerned about, I don't know if it's justifiably so, but it's a credibility issue. Jerome came out very forcefully after Jackson Hole, very forcefully after this FOMC. He definitely did. And said that this is our mandate. We understand the pain that will be associated with it, but we'll continue to raise rates until we see meaningful impact on that target. Unless they realize the tighter financial conditions that they're causing,

and that becomes worse faster than they expected, right? We've always said that it's not so much dislocation in the equity market that forces the Fed to move. It's dislocation in the credit market, right? And that seems to be where the action is these days. As painful as an equity pullback of this magnitude can be, it's the other that can be more destructive to the economy itself. Right. We need to watch for two things. These are the two things that will cause a pivot. They are getting cover from the fact that we haven't seen a significant contraction in the economy on record yet.

That's right. You know, 1.6 percent, and then what was it, 0.9 percent? And so, you know, look, if we see a 5, 6 percent number, that will give them pause for thought. The other thing we haven't seen yet is we still have 3.6% unemployment. When that starts to creep up into the five and six range, then we'll see, I think, a possibility for a pivot, something that gives them pause for thought.

But right now, those two numbers give them cover to continue to be aggressive. All right, we have a couple of ladies sitting next to us here on the desk. Let's bring in Kristen Bitterly of Citi Global and Anastasia Amoroso of iCapital to expand our conversation. It's great having both of you here.

And you've heard the conversation firsthand right here and now, Anastasia. So what do you think about what Greg said? Where do you think we are? Well, I think we're certainly not at the end of the road in terms of pricing and kind of the full, you know, recessionary outcome. And last time I was on overtime and halftime, I said, you know, we really need to get to dirt cheap valuations on equities. And we're not quite there yet. If we were to get to dirt cheap valuations, I honestly think the S&P could probably trade down to 3,200. Not that we need to get there. But after we had the week that we had, Scott, even though nothing has fundamentally changed, I think a lot of investors are looking at these levels and say,

this is getting close to a washout. This is getting close to certain things breaking. And for example, you saw the VIX that finally spiked about 30. You saw market breadth, which is, I mean, everything has been thrown out altogether. You had dividend stocks that got crushed last week, for example, along with energy. So that feels a little bit closer to capitulation and a washout. You know, you've got PE to pull back. You've got the relative strength indicators that are in oversold territory. So I think investors, while acknowledging that we're not out of this bear market by any means, they have to stop and think and kind of assess the damage. I mean, to Greg's point, the average bear market lasts 15 months. So I know you've been very patient, but I think

we're going to be patient a little longer. But there's possibilities for tactical rallies here. And I think we have a setup for one. See, now you just said, you know, nothing fundamentally has changed. Now we can debate whether, Kristen, a more hostile Fed is a fundamental change in the conversation, which I would argue that it is. Right? If you think that the Fed has grown more hawkish more recently and overly so, then fundamentally, you could say that the environment for stocks has gotten worse in the last couple of weeks. And that's what last week represented. And that's what the bond yields that I'm looking at right now represent, too, no? These markets, unfortunately, require patience and a bit of defense. And I think a lot

of times what's happened over the past couple of weeks is the market was looking for signals that maybe the Fed would pivot. Maybe there were signs they would change course. The Fed, it's one thing what you want the Fed to do or what you think they should do, but they are being very clear on what they're going to do. And their target for inflation right now is 2 percent, and they are tightening into a slowing economic backdrop that has not flowed through into earnings in a meaningful way so we're not just talking about the

fastest rate hikes the most severe and fastest rate hikes in history but also quantitative tightening how that is going to impact consumer spending which is 65% of our economy or how that's going to impact corporate earnings 8% you mentioned

earlier in the program for 2023 we actually think we're going to see an earnings contraction because there is a delay of all of these tightening financial conditions. And on average, it's anywhere from six to 12 months. So we haven't seen the impact of this tightening quite yet into earnings. Forgive me. Bear with me two seconds. We have breaking news. The SEC is charging 16 Wall Street firms with record keeping failures. Our Steve Kovach joining us now with the specifics here. What do we know? Yeah, Scott. So this is just coming out from the SEC. They have settled that case where people at our employees at certain banks were using private messaging services like WhatsApp

to communicate and not preserving those records. It headline number here is $1.1 billion in penalties, and that's broken up across these 16 firms. So that includes firms like Barclays, Bank of America Security, Citigroup, all paying $125 million, and some with lesser penalties, like $50 million, Jeffries, Nomura Securities. And then on the even lower end, we got a $10 million penalty for Cantor Fitzgerald. This is the SEC saying they admitted to wrongdoing here, but basically just the facts of the case. And just to clarify here, Scott, this is a civil case from the SEC.

Gotcha. Steve, thank you. Thanks. That's Steve Kovach with our breaking news here in overtime. Let's get back to our conversation because, Anastasia, Kristen said something interesting, right? And Greg alluded to this too. You don't know the P because you don't know the E. You're not going to know any of this for a while. The expectations are that they're both going to be depressed in the environment that we're in. Yet you say that it's a good near-term tactical entry point. Look, how do you buy stocks not knowing those two questions? This is a trader's market for sure, and I wouldn't stay in it.

But given how oversold we are and given how relatively little event risk we have in October versus September, I mean, coming into September, I was quite bearish calling for a 3% to 5% market pullback. We got 9% instead. And part of the reason was that if any of those events went wrong, you had to set up for a pullback. Now you're sort of on the other side of that. And we don't get CPI until the middle of October. We don't get the next Fed decision until November 1st or 2nd. And by the way, the earnings season is upon us. But the downgrades were already quite severe. The analysts cut back those earnings revisions by 6.3%, which is versus

2% that they typically cut those back. So I think a lot of these bad news revisions by 6.3 percent, which is versus 2 percent that they typically cut those back. So I think a lot of these bad news is in the price. And again, I'm not suggesting, you know, you go all in on risk, but I think you can trade this. I want to agree with something that Kristen said is the relative value for stocks has clearly deteriorated. Right. If you if you take a step back and, you know, if you think about just how the yield curve changes people's behavior, how they invest, borrow and spend, that's all going to change. And that's going to lead to the deceleration of the economy. So trade it, but probably don't stay in it. So, Greg, back to you. Are you like playing like cash under the mattress or are you

still invested in the stock market? And if so, where? Right. And so we went through this. We talked about this a little bit last time. So we've had historically low exposure all year. We have had a put buying strategy that obviously worked out well when I was at $3,600 and the market was at $4,700. We are figuring out what to do at this juncture because now that my targets have been reached, the question is, where do we go from here? There are some places that we've hidden out where we need to have exposure, which is where I will continue to hide. Energy is a big one of those.

Although we've seen the natural gas prices retreat in Europe because they've largely filled their reserves, they'll have to replenish those reserves at some point. And, you know, the Nord Stream pipeline doesn't appear to—will appear to be functional for quite some time. Even oil, while it's pulled back, we are setting up for quite the supply shock. We have 427 million barrels in the Strategic Reserve, which for the first time in history is less than we have in commercial storage. And at the end of the day, we're not in a position to aid Europe if Russia decides to pull back its oil,

if the boycott does, in fact, end up being placed and affected in December as they projected. So this, Kristen, goes to kind of what you want to do and where you want to do it. And back to the delivering alpha survey that we did, the asset class where I will be most aggressive for the rest of 2022, I'm surprised by the answer here. Near 40% say stocks. So given all of the other options now, 19% say bonds. So you're getting, you do have a healthy vote there. And 19% say cash. Let's call cash bonds are equal to what the exposure wants to be to stocks. But 39% still want stocks. I think the thing is diversification works in these markets. And so one of the things that we've been doing within our portfolios is really leaning into quality

and preparing our portfolios for if we do tip over into a recessionary environment, how do you want to be invested? So when we look at equities, we want to be in those sectors that have actually been able to consistently grow their earnings through the past three, four recessions. Healthcare is there, growing 8% over the past four recessions. Consumer staples around 5% earnings growth. And so having overweights to those areas in your equity portfolio, I think if there's any positive news, if we can extract some positive news from everything that has transpired. We need some, please. Just a couple of years ago,

40% of the world's government debt was negative yielding. We now have a two-year that's over 4%, 4.30, somewhere in that ballpark today. And so for short duration, medium-term duration, when we look at high-quality fixed income, whether that's Treasury's investment-grade debt, now yielding around 5% to 7%, even preferreds are an interesting part of this market in high single digits. Being able to source reliable sources of yield is a way of adding diversification and getting through what's going to be volatile and choppy markets. Last word to you. Speaking of volatility, use that to your advantage.

Now that volatility is high, now you've got the put and call implied volatility in the 98th percentile over the last 10 years. That means that investors can actually use that to their advantage, sell the calls, sell the puts, do it on the indices, do it on favorite stock positions. But that's another, I guess, silver lining to use to your advantage. All right. Good stuff. Thanks, everybody, for being here. Great to see you. I enjoyed the conversation. I hope our viewers did as well. Greg, Anastasia and Kristen joining us. Let's get to our Twitter question of the day. Now, we want to know which of these beaten down September stocks look most attractive right here. as well. Greg, Anastasia and Kristen joining us. Let's get to our Twitter question of the day. Now, we want to know which of these beaten down September stocks look most attractive right here. Caesars, Western Digital, Boeing or Pioneer Natural Resources. We want you to do some stock

picking. Head over to at CNBC Overtime on Twitter. Place your vote and we'll share those results as we always do. At the end of our show, we are just getting started, though, here in overtime. Up next, navigating this volatility. Stocks are racing early gains to end the day in the red. Schwab's Omar Aguilar joins us next with his trading strategy. We're live from the New York Stock Exchange. OT is right back. We're back in overtime. The early bounce investors were hoping for evaporated mostly during today's session. Our next guest, though, says use this volatility to rebalance your portfolio. And he has three sectors he likes right now. Joining us now, Omar Aguilar. He is Schwab Asset Management CEO.

Welcome back. So the last time we spoke was probably, I don't know, six, eight weeks ago, maybe a little bit longer than that. Volatility's still here. How long is this going to remain this unsettled, do you think? Well, it's a great question. I think we've got to ask the bond guys. They're driving the show right now? A big part of the driving of what we've seen in volatility is being driven by yields. You know, if you look at just the volatility of yields over the course of 2022, it's probably been two to two and a half more than the typical volatility

you have in risky assets. You know, just the level of yields, but the volatility of yields just has been incredible. I'm looking at it right now. As I was chatting with the gang before we had you come up, as long as that remains where the action is, if bond yields continue to go up, do stocks not have a place? Well, stocks will have to wait until we get some stabilization. I think stability of the yields will probably be a big driver of this. And again, a lot of that is related to, obviously, monetary policy and global central banks, and we'll see that effect. Of course, we have the U.K. situation that is, in fact,

applying pressure to the rest have the U.K. situation that is applying pressure to the rest of the global yields overall. But until we have a little signs of stabilization of those yields, we're going to probably see a little bit more of action in the equity market. So how much do you think what's taking place over in the U.K. is really having a more dramatic impact on yields globally? You think that's a significant part of the story, how unsettled it feels and appears to be? impact on yields globally. You think that's a significant part of the story, how unsettled it feels and appears to be? It is unfortunate, definitely this week. I think what we've seen

in the UK, I think the biggest challenge that we see there is the typical effect of risk aversion coming into a shock that is happening in the UK as a result of obviously the actions we have with tax impact and so forth. So the bigger question is, what is the contagion that is going to happen and which investors will actually be affected by this so quick change in the landscape of what we saw in the UK? See, this is this is the issue, right, is contagion. You use that word. Are you worried about something breaking?

Well, we have seen when there is rapid moves in any particular asset classes, especially in areas like what we saw with the guilds and what we see with the FX market, there is always something that you have to be concerned about, who has exposure and who's going to actually end up looking at it. It goes back to sort of this issue of what policymakers are doing, whether it's fiscal and monetary or in some cases over there both, to the debate on whether the Fed's doing too much, whether the Fed has caused a lot of this volatility on both markets, bonds and stocks. What's your answer to that, do you think? Well, the answer is that it takes, you know, between eight months and 12 months for the monetary policy impact to actually see it in the real economy. Now, what we see the early signs already is that we see yields up, you know,

even before the UK, we already saw that the 10-year yield was reaching, you know, all-time highs. Yeah, I'm looking at it right here. I said almost 4%. I wouldn't be surprised by we're having the conversation it goes to 4%. You never know. We see that the yield curve is inverted at very high levels already We actually see you know significant amount of those Implications already embedded into the markets now what we have not seen is that embedded into the economy And I think not until then we're gonna see the real impact of what the Fed is doing now the bigger question mark is the Pace of what they're doing it without necessarily taking a pause. It's certainly created more uncertainty in these markets and creating that

level of volatility we're seeing out there. I mean, I hear you saying, yes, I think they're doing too much because they have not allowed this lag effect to come to fruition, to at least see what the ramifications are of what they've done. Is that a fair characterization of your point of view? I think the point of view has to do with if the whole concept of reducing inflation, it is as far as a function of labor market, it is going to be a really long way before they can commit to slowing down. Obviously, the labor market is pretty tight, and that's a source of inflation, mostly demand-driven inflation. And as long as we have a tight labor market,

and that's the message or the signal that the officials will look for to continue the rising rates, it is going to be a very difficult piece to actually overcome. Do bonds continue to get cheaper and become more and more attractive? Well, that's actually a great question. You know, the interesting thing about this is that if you actually think about what we were just talking about earlier, the volatility in fixed income relative to the volatility in equities, this year the equity risk premium has actually come down as opposed to go up like what you would expect now.

What that means is that equities look cheaper relative to bonds, even with these higher levels of yields, just because the changes have been so dramatically fast. It's great to have you back. We'll see you soon. Good to see you. That's Schwab's Omar Aguilar joining us here at Post 9, New York Stock Exchange. Up next, the fallen angel bracing for a comeback. That's what our next guest is calling one key chip stock. It's Alger's Ankur Crawford. He joins us when Overtime returns.

All right, welcome back. It's time for a CNBC News Update. Now with Shepard Smith. right, welcome back. It's time for a CNBC News Update now with Shepard Smith. Hi, Shep. Hi, Scott. From the news on CNBC, here's what's happening. Hurricane Ian, now a Category 3 storm and gaining strength as it heads towards Florida's west coast. The center of that storm now 265 miles south of Sarasota, moving north at 10 miles an hour. Latest update from the National Hurricane Center shows Ian will likely make landfall late tomorrow, somewhere in a cone of uncertainty between Tampa and Fort Myers,

with the highest probability seen right now as around Venice, Florida. The worst of the storm surge, 8 to 12 feet at landfall and just to the south. Then on Thursday and Friday, here's the problem. Ian is expected to slow its forward motion over land just 3 to 4 miles an hour, about the speed at which we walk, and drop copious amounts of rain, up to 2 feet or more in some areas. That's the greatest danger, says the Hurricane Center, flooding and storm surge. Ian also causing a delay in Washington. The January 6th committee just postponed a public hearing scheduled for tomorrow

because of the storm. A new date for the hearing yet to be announced. Tonight, we're live in Florida with the preps for the hurricane and the latest on the path. Plus, inside the DEA's fight to get fentanyl off the streets and the American billionaires who are still too poor to make the list of the richest in all the land. On the news, 7 Eastern, CNBC. Scott, back to you. All right, Shep, appreciate that. Shepard Smith, thank you. Stocks posting their sixth straight day of losses.

Our next guest, though, finding big opportunities within this pullback. Joining me once again at Post 9, Ankur Crawford, Portfolio Manager at Alger. Welcome back. It's nice to see you again. We'll talk about the opportunities in just a second. It was choppy last time you were here. Now it's choppy again. Is it going to end anytime soon? What's your best view of where you see things? Yeah, look, I think it's a little bit of a crazy market. You know, if you were to ask me how we're positioned, we are positioned more defensively than we have been historically, with a lower amount of exposure to long-duration assets, because it is a choppy market. If you look at the overall market, I think there's many variables at play here.

So it's really difficult to say which direction the market is going to break. So if I look at, we've talked a lot about bond yields, I know, and I know you watch them closely because you have to if you are thinking about long duration assets, right? As long as yields continue to go up, are longer duration asset stocks, tech? Absolutely. In trouble? Yes. Well, you know, they've already baked in a lot of the effects of this longer duration asset. God, they pulled back so much, right? They pulled back so much already.

And the question is, how much more do the yields have to go? And that kind of brings us to our thoughts on inflation. I mean, the Fed is so fixated on 2% inflation. And the question is, you know, why is 2% the holy grail for inflation rates? Why can't it be 3? It might be. It might be. So if you like NVIDIA, OK, this fits right into the conversation. So are you making a call at the same time that, OK, this stock has gotten destroyed, come down a lot, and we think bond yields are topping out?

And that's why now can be a decent opportunity to get into that name because we think most of the damage is already over? Yeah. So if you look at NVIDIA, it's a fallen angel. It's down 65%. It produces cash flow. And if you can just look through this divot in earnings, yes, the earnings have come down significantly, over 50%. There is cyclical exposure to the consumer, even to the data center, which is slowing. However, if you can look through 24, this is a business that will grow 30% for the next five years, in part because of

the end markets that they're levered to. I mean, if there's a new set of fang that is going to come out of this, I think NVIDIA is going to be anointed as one of them. That's like one of the more difficult things, I guess, for the average investor who's watching is to think five years and not five minutes. But we live in a five-minute market, right? It's so volatile. You're so afraid to buy some of these stocks that have gotten cut in half, in some cases two-thirds, because you're afraid the market's going to go down more and you're going to have a better opportunity to get in. You're saying if you're a long-term investor, NVIDIA is a buy here now. I do think it's a buy here now. If anything, it will be a relative outperformer.

Not saying that it won't go down at all, but it should relatively outperform over the next two years. Okay. Lilly is another pick. Healthcare remains a favored space foremost now. How does this factor into your view of the overall market? Yeah, so it absolutely does, in part because Lilly is a pharmaceutical stock that sells insulin, right? And insulin is this very, it's a staple-like characteristic, and everyone needs insulin,

whether you are in a recession or not. However, what's exciting, you know, we like to invest in innovation. And Lilly is an innovator in that they have produced a new drug that is for obesity. So it is 25 to 30 percent reduction in weight loss. And we think that the TAM for this obesity drug is two times greater than their core market today. Wow. And lastly, LVMH. You're playing on globally, high-end consumer, still holding in in the face of all the stuff we just talked about. Yeah, absolutely. I mean, you have a high-end consumer that is relatively recession-resistant. You know, LVMH has pricing power, surprisingly. Since 2019, their pricing is up on the order of 20 to 25 percent for

handbags. The weakening dollar is a net benefit to them in terms of units. Everyone is rushing to Europe to go shopping. And so we think that they're relatively recession resistant. So again, we look for businesses that through a recession, they can continue to grow. Are you on the lookout for more stocks than you otherwise would be just because you think there have been enough dislocations in the market across the sectors that you like? Yeah, I mean, across the market, there are opportunities right now. Now, you know, it is tricky because the multiple for the market can still compress from here. So it is not necessarily a call that the market is done going down.

But if you look at where we've come from, we came from 4,800 on the S&P. In market prognosticators, even we think it could go to 3,200. We're at 36. The majority of that move downward in the market has already occurred. Right. The problem is, as we've, you know, discussed from the top of our program today, no one quite knows what the earnings are going to be. And you don't even know what the right multiple is going to be on top of earnings. You don't know the answer to. Yeah. Which makes stock picking a little more difficult. However, as we've discussed, if you're a longer term investor, in some cases, it might not matter. You may not get the bottom, but you're going to get, you know, in at a reasonably attractive level, one hopes. Absolutely. And it's not about the next five minutes, as you

were saying. You know, it's really about where you're going over the next three years. Good to see you again. Thanks for being here. All right. That's Anca Crawford joining us once again, Post 9. Up next, we're searching for upside. CNBC surveyed hundreds of money managers about where they're finding opportunity right now. We're going to debate the responses in today's Halftime Overtime. But first, a message from Halftime Report supervising producer Patty Martell as CNBC celebrates Hispanic Heritage Month. There's a saying in Spanish, ponte las pilas.

It literally translates to put in your batteries. And I wanted to fire up the next generation of Latinos and Latinas so we continue to build on the work of so many that persevered before us. Embrace your heritage and your Latinidad. We are all Hispanic, but we are diverse. We eat different foods and wave different flags, yet we are bonded by a shared history. We are bicultural. Let's own it. It's our superpower. In today's Halftime Overtime, top trades for next year as part of CNBC's exclusive Delivering Alpha survey. We asked hundreds of money managers and strategists which S&P sectors would outperform in the next 12 months.

Healthcare, energy and financials finished in the top three. Joining us to discuss those results, Joe Terranova, Virtus Investment Partners Chief Market Strategist. Welcome back. Healthcare was number one in the survey, 52 percent, 45 cent energy, 42 cent financials. I know you agree with this because I think at the beginning of the year, healthcare was your number one? Without question. Number one sector. Return of really offense, defense, growth and value, place that you want to be. I like to see that now we finally have got some money managers and investors coming around to it.

Why does it still work, right? As we're thinking about the next year, this is not just now, the returns have been fine. Why should we assume that they're going to continue into next year? Valuations still matter. The sector trades at a valuation discount relative to the S&P still. Keep in mind, coming into 2022, that valuation discount was nearly 20 percent the widest it had been in 30 years. So I have exposure there. Medical devices, Merck. Let's talk about that. So health care first. The best names you have are, I mean, the ones you must think are the best are the ones you've actually put your money in. AbbVie. Yep.

IHI Medical Devices. Yep. That's the ETF. Yep. Merck and UnitedHealthcare. Right. We just had a guest talk about Lilly. You prefer Merck.

Like Lilly, I prefer Merck, though. Like a lot of things that Merck is doing, valuation basis, very strong franchise. AbbVie, you're also going to get a nice dividend. Medical devices, so critical. Whether it's a recessionary environment or not, and then managed health care, UNH is clearly the best. I'm looking at oil. So we've got a seven handle, right? We're at $78 on WTI.

You've got EOG, more natural gas, right? EQT, Pioneer Natural, and Valero. You like the natural gas part of the energy play rather than oil? I like the natural gas play in terms of the potential supply destruction that the winter can present. But if you look at my four holdings, I'm pretty diversified. I have a refiner, I have exposure to oil through PXD. And then I have the two natural gas place with EOG and EQT. OK, so I've got bond yields rising all over the place. Theoretically good for the banks. Right. Net interest income and all the like. However, I've got big concerns about the Fed hiking too much and destroying the economy.

So where am I? How am I supposed to think about the financials? So your excitement towards financials is not going to be what it is towards health care or energy. The exposure I have there, as you could see, is Blackstone and Morgan Stanley. I would advise the viewers, if you think there is going to be potentially a recovery for risk assets, more specifically equities. Think second derivative. A second derivative is an asset manager. You could look towards T. Rowe Price. You could look towards Charles Schwab. But I would return first for your opportunities into the health care sector. And there's a name that I will buy before the halftime show tomorrow.

There is? There is. But you're not going to say what it is now? I'll tell you now. Would you like to know? Cgen. Cgen. What do you think we got all night? Cgen. It's a name that you know the last couple of years I've owned frequently. I've traded around it. They had a potential merger agreement with Merck in place for $40 billion. That now is a low probability. And what you're getting is that valuation has now been

restored. This is a stock that was up towards $'re getting is that valuation has now been restored. This is a stock that was up towards 185. Now it's down towards 135 on the expectation that the deal falls apart. But guess what? The antibody drugs that Cgen has, they're still going to greatly impact the oncology space as we move forward. I'm going to buy Cgen tomorrow morning on the open. On the open. All right. You give us an update on the price you get so we can keep keep track all along the way. Thank you, Joe Terranova. See you tomorrow here at Post 9. It's not too late to get in on CNBC's Delivering Alpha conference. I'll be there tomorrow live and in person. We're going to host the halftime report and overtime. I'm going to be interviewing Ken Griffin. Looking forward to all three of those things. To register, just scan the QR code on your screen.

It is literally that simple. Up next, another down day on Wall Street. The action, though, isn't over. We're tracking the biggest movers in overtime. Steve Kovac has that for us today. What's up, Steve? Hey there, Scott. Yeah, got an excellent group of OT movers.

One named that, No Yolk, is up 60% so far this year and moving again after hours. And there's another name I'll tell you about making great progress here in the OT, plus some news out of Delaware affecting one of the most watched M&A deals of the year. We'll have all the details when Closing Bell Overtime returns after this. We're tracking the biggest movers in OT. Steve Kobach is back with that. Steve. Yes, I am.

Shares of egg producer CalMain down 1% after reporting Q3 earnings. The company boasting 100% revenue growth year over year, totaling $653 million. CalMain crediting increased prices on eggs, hello inflation, for the results. A rare name benefiting greatly in this inflationary environment. Shares of CalMain, by the way, are up better than 60% so far this year. And shares of Progress Software are up nearly 2% after hours on a strong earnings report. The software company reporting 3% revenue growth year over year to $151 million and giving better than expected guidance for the fourth

quarter. And finally, here's another Twitter story for you. It's up over 1% here after hours following another hearing in the company's case against Elon Musk. The hearing focusing on items for discovery in the case with both sides quibbling over how Musk's team analyzed the data Twitter shared with him. Clearly, the market doesn't view this as a good thing for Team Musk. And by the way, his deposition with Twitter's lawyers has been rescheduled to next week after a last minute cancellation yesterday. Scott, I'll send it back to you. All right, Steve, I appreciate that. Steve Kovac, thank you very much. Up next, betting on the banks. One money manager makes the case for a financial stock that hit a 52 week low today. We'll bring you the name in our two-minute drill.

And coming up on Fast Money, First Smart Capital's Rick Heitzman, where he sees opportunity in technology right now. Don't go anywhere. Overtime is right back. Last call to weigh in on our Twitter question. We want to know which of these beaten-down September stocks look most attractive right now. You can head to at CNBC Overtime.

Place your vote. Is it Caesars, Western Ditch, Boeing or Pioneer? We'll bring you the results plus our two minutes drill next. All right, we're back. Let's get the results now of our Twitter question. Pioneer Natural Resources just edging out Boeing as the beaten down September stock you think is most attractive right now. Appreciate the votes as always. It's time for our two minute drill. Joining us now is NFJ Investment Group chief investment officer, John Mowry. John,

it's good to see you. Scott, good to see you. Yep. So I'm looking at, you know, your stock picks and I want to get to that in a second, but I see something that you told our producers. We're seeing multiple capitulation indicators flashing. Is that you saying you think we're about to have that moment or we've already had enough of it? Well, I think that we've got a lot of capital market rubbernecking going on. Everyone is stopping to stare at what the Fed has already done. And I think people are missing out on the valuation dislocations. And you are seeing sentiment indicators indicate that. For example, you've got the highest levels of cash with mutual funds on record. The B of A fund manager survey, you've got the highest percent of people calling for a recession that you've not seen since March of 20 and March of 09, which were both great buying opportunities. And lastly, commercial hedgers

are the most short equity futures that you've seen going back to March of 20 or actually 2011, which is when we had an operation twist in March of 09. So we're seeing a lot of indicators, Scott, and I think that the risk is to not be invested at this point in the cycle. Wow. OK, so the risk reward has gotten better. You think valuations have been dislocated enough to make certain stocks attractive? We've got three on our list and we've got two minutes to go. So let's go through First Republic hit a new 52 week low today. OK, so it got cheaper. So that is another reason to get interested. So First Republic is a high quality regional bank.

A couple of things I would say. They have over 3% net interest margins. They've been totally recapitalized as many of the regional banks were the post the 08 crisis. They've got over 10% dividend growth and it's the cheapest valuation in a decade. You want to step in and buy these companies when there are storm clouds. We do not see a risk with the balance sheet here. And loan growth may slow a little, but the valuations have more than offset that in our opinion. So you don't care if it rains a little bit for a while. You're willing to take the risk while the clouds are rolling in, even if it gets a little wet. Well, I often say

to our investment team that you've got to be willing to be wrong to be right. If you're afraid to take a risk on a dislocation when it's trading at a 10-year low and you've got high-quality assets like First Republic that is not as high to interest rates because of their wealth management business, then I would say that maybe equities aren't the best place to be. I mean, if you're going to ride the bull, there's going to be some volatility. It's the name of the game in equities. But you get paid for it. Yeah, I know. But you hope you don't get thrown and get an injury. Let's get one more in. We have 30 seconds left. So we have to be quick. Viva Systems, V-E-E-V. Viva Systems. So this is a health care technology company. It's grouped in with kind of the cloud providers. Everybody hates the cloud companies. They have high levels of recurring revenue.

They are integral to the infrastructure for companies to get patents approved. So they're vital for the ecosystem there, Scott. They're in a net cash position. They have 25% operating margins. And again, you've got a very high quality company that's actually growing faster than the earnings multiple. I'm going to leave it there. John, I appreciate it. That's John Murray.

I'll see all of you tomorrow. Fast Money's now.