Closing Bell - Closing Bell Overtime: Setup for September 8/31/22

Episode Date: August 31, 2022

New month, same choppy market? SoFi’s Liz Young and Ritholtz Wealth Management’s Josh Brown crack open their September playbooks with August’s losses locked in. Plus, Gabriela Santos of JP Morgan Asset Management says Fed Chair Jerome Powell gave the market a lot more than it bargained for at Jackson Hole. And, FirstMark’s Rick Heitzmann reveals how Snap’s restructuring story could benefit the social stock.

All right, Sarah, thanks very much. Welcome, everybody, to Overtime. I'm Scott Wapney. You just heard the bells were just getting started in just a little bit. I'll speak to Gabriela Santos of J.P. Morgan, why she says we got a lot more than we bargained for from the Fed chair last week. Star VC Rick Heitzman is back. He weighs in on Snap's ambitious new game plan and whether it will jumpstart that stock in the months ahead. We begin, though, with our talk of the tape. New month, same choppy market. That is the question as September looms large now. Let's ask Ritholtz Wealth Management's Josh Brown. He's also a CNBC contributor and member of the Halftime Investment Committee. It's good to see you. We're not in technically great shape heading into a new month. That's for

sure, right? We're actually we're in terrible shape on the intermediate term trend, but we're actually, we're in terrible shape on the intermediate term trend, but we're getting back toward some oversold conditions, which could augur well for a bounce. So really, like the answer to your question depends on what somebody is playing for. If somebody is in the market for a two or three day scalp, and they want to buy a stock that's, you that's down 30%, they think it'll bounce 8% and they think they can time that, they should do that. I don't think that's what most people want to do or can do or should do. So let's talk about what the situation is for most people. Today is the 100th day that the S&P 500 has been below its 200 day moving average. That hasn't happened. You have to go back to the financial crisis. So this is the only one that didn't V and didn't get us back to those new highs

and stayed in a dip or stayed in correction. And for the NASDAQ, it's the same story. And you have to ask yourself, well, what has really changed? And the big picture that's really changed is that you had a Fed put for a very long time that made buying dips easy. And now things have gotten a lot more challenging because that put is gone. And not only is the put gone, but the Fed deliberately, they're not going to hold a press conference and say this. They're not going to buy banner ads on Yahoo Finance announcing this. The Fed wants the stock market down. It wants wage growth to slow down or

even possibly go negative. It wants home prices down. It wants the supply of capital funding, everything from IPOs to LBOs to fade away. And once those financial conditions have tightened sufficiently, the data on inflation will start to go the Fed's way and not a moment before. And if you don't understand that or you refuse to accept that, then you're fully invested from January and you're eating everything this market has to tell you. Some don't. Some don't believe that they're going to have the wherewithal to go through with it, that they'll have the nerve to do everything that they say. You're right that that's what they say. I'm so glad you said that. But there are some people who say, show me, right? Show me like Mohamed El-Erian. Show me. Yeah. So what's the

alternative? What's the alternative then that the Fed flip flops? How much worse would that be for for investor sentiment? Honestly, like how much worse would it be to say, you know what, we give up, we're just going to let inflation do what it's going to do and run its course and it'll come down naturally, which is something we've been hearing people say now for for months, which is which is silly. So I don't think that the Fed has a choice other than to follow through on what it's what it's saying, because the alternative is so much worse. And it prolongs the inevitable. So, look, I'm not in the camp that says the Fed has to do this extreme tightening. I just think that if your whole game plan is like, I want to be in it for when the Fed says, you know, they're good and there's some sort of a pivot, there could be a

lot of pain between now and then. I think that's really the major point. One other thing, and let's all try to understand the history here. And Powell understands the history very well. In the early 1980s, the last time we were fighting an inflation spike like this, you have to understand that they were calculating inflation differently. Housing was a much, much larger component in the inflation data and the methodology that they used. That has not been the case since. But if you were to normalize those same inflation metrics from the early 80s and use housing the way that it used to be used, real inflation right

now would not be 9.1 percent. It would be greater than 10, maybe close to 12. Ask yourself, what did the Fed do to fight that at that time? Well, the Fed went to like 20% Fed funds rate. So I don't think anyone's considering doing that. And now it's even harder, actually, for them to try to do something that drastic. Because back then, debt to GDP was something like 30% or 35 percent. And now it's over 100 percent. So they have that constraint. If they try to jack rates up to a level that would really kill off inflation immediately, the government wouldn't be able to fund itself and a lot of stuff would blow up. So they ain't going to do it.

You made you you made essentially what was a don't fight the Fed argument at the beginning. Right. You said this is what they want and their intent on getting it done. The question is, if you shouldn't fight the Fed, how bad do you think it could be? Jeremy Grantham is out with a note today that some are passing around. He's talking about a super bubble in stocks. He says equities are overvalued, bonds are, housing. It's all going to collide with higher rates and inflation to cause more pain. Now, Jeremy Grantham being negative on the market before you say it, I will.

Nothing new. He's not always right. Sometimes he's early. Sometimes he's just dead wrong. The question is, will he be right this time and looking for a significant collapse in stocks for all the reasons that you just said? And he's not the only one saying, by the way, that that could happen as a result of Fed action. I don't have the ability to predict what the economy or the market's going to do. So the shorthand that I have always used to manage risk is technical analysis. I've been on the show for, I don't know, 11 years up until this year. Bullish, almost every appearance made tons of enemies, all kinds of fin twit. People used to get mad. The market would go up. The Fed had your back. And I would just state the obvious. And for whatever reason, that was infuriating to people that were missing out

on the markets. This February, at the end of February, I told you that for the first time in a long time, the Nasdaq was now falling into a downtrend and had closed on a 10 month moving average below that important trend line. 10 month is like roughly 200 day. So roughly the same idea. And then at the end of April, I told you the same thing, but for the S&P 500. And never once have I ever said like, I can can see the next turn that's coming or I know exactly how low this will go before turns. I have no idea. I don't need a predictive number from you. I need a predicted direction from you.

And because of all the things that you see. What if what if what if we did this? What if we did this instead of that? Yeah. Which is obviously magical thinking. And I can't deliver on it. Not necessarily. Somebody can. I can't. Instead of that. Instead of that, which is obviously magical thinking and I can't deliver on it. Not necessarily. Maybe somebody can.

I can't. Instead of that, what if I told you, we know when you're below the 200-day or the 10-month moving average, we know for sure that rallies will have a tendency to fail spectacularly until that level is broken. We know for sure that volatility in both directions will be amplified relative to what it normally is. For instance, 47 of the 50 wildest days for the S&P, up and down, have taken place

while the market was below its 200 day. And if I give you the stats on a fall in 200 day, it's even worse than that. So if we know these things, what do we do with that information a we don't buy our 21st best idea right we want to own just the stuff that we really love B we're not on margin C we're not out there looking for opportunities to add or out there looking for opportunities to take profit D is like this whole run of things that you

do and don't do when you're in a defined bear market. That bear market is intact, August rally notwithstanding. And what, tell me, what would change it right now? I can't think of the thing. Maybe we just, we've sold enough and inflation all of a sudden falls out of the sky to 4%. I'm not saying it can't happen. I'm saying, why would you bet that way? Why would you bet that way? I hear you. So until people get this into their heads, it's not going to be fun.

Like, this is not going to be a pleasant environment. Okay. And today is like one more reminder of that. So I got you to go where I wanted you to go. It just took a little bit more effort than I expected it might. Thank you. Liz Young.

I've added her to the conversation now. She's right here in front of me. SoFi's head of investment strategy. It's nice to see you. Thank you for coming all the way here. Of course. How do you see it? You heard what Josh had to say. What's September going to hold? Well, OK, if we retest the lows, I think it happens in September. You think we're going to? I think in order to do so, something would have to get materially worse than it was on June 16th. The expectation of something would have to get materially worse. We're still in bearish sentiment as investors, but we're not as bearish as we were mid-June. So here are a few things that would make it materially worse. If earnings revisions start to come in for 2023, which we're not going to know this in September,

we're not going to know this until October, but let's say they start coming in and they're revised down by 10%, 15%, then I'm nervous, right? Then we have a bear market plus a possible earnings recession, which usually results in an economic recession. But it is likely that earnings revisions are going to happen and they're going to come down. It just has to be bigger than it is already. So far, they're only down 3% in 2023, right? So they have to be materially worse. And there's a good possibility that they will be,

because you have to think about what's been driving the strength in earnings so far is the fact that inflation has allowed revenue to grow. So if inflation comes down, which is what we're all hoping for, if it comes down, that also means for a lot of companies that revenue comes down, the top line comes down. And if their costs stay the same, then earnings will suffer. So if those revisions start to come in sharply lower for the next 12 months or for 2023 as a whole, let's call it 10 to 15 percent lower. OK yes we retest the lows maybe go through them does does more hawkish Fed than we thought count on your list of material things that have to happen to push you in that direction how could

they get more hawkish than they already are what I what I mean by that is this higher for longer there's a disbelief I think in the market that they're gonna have the resolve the wherewithal to to do what they say they're going to do. It's Powell telling you that we're going to raise rates. It's Mester today saying above four percent for a long period of time. I don't think a whole bunch of people believe in the higher for longer deal. If they did, they'd be more negative on the market. So what if it is a higher for longer inflation and rates picture? That can't be good for stocks, can it? No, that wouldn't be good for stocks at all. That's what I mean by being more hawkish, higher for longer.

Yeah, I think a better way, a word to use is restrictive. So the Fed needs to get restrictive. What that would mean is that they have to get the Fed funds rate above inflation. So that means inflation needs to fall and the Fed funds rate needs to continue to rise. If we're at 4 percent in early 2023 and inflation is still year over year, 5 or 6 percent, that's really not restrictive yet. So it's possible that they have to stay at that level. I don't know. I don't think anybody knows whether or not this economy or this market can take higher rates and how much room we have to take a rate that high. What about we're getting,

we know what Josh, hang on real quick. I'm sorry. I'll come right back to you, but Okta is out. We were waiting on some more earnings and I think the stock's down like four or five bucks or four or 5%. Let's go to Steve Kovac.

He, he has the numbers here. Steve, what do we see here? Okta? Yeah, Scott, it's down about 5% now,

almost 6%. And it's, despite it being a beat on the top and bottom lines, we're looking at a Q2 loss of 10 cents per share versus the estimate of 30 cents per share. Revenue is coming in at $452 million versus estimates of $431 million. And then as far as Q3 revenue guidance, it's basically in line with estimates here, but they are predicting that the loss is not going to be as bad as they had originally thought. So a lot of good news in this report. We're still digging through to find out why the shares are down almost 6% here, Scott. Kovac, thank you. That's Steve Kovac joining us there. Josh, I know you don't own it,

but I know you do follow it, at least for this type of stock, right? These software names were once to the moon and beyond, and they've fallen back to earth. Yeah, in a lot of these cases, they have good earnings or even great earnings, but the earnings report is like almost a formality at this point. It's just another reason for people to get out. So I would not go looking for great earnings reports as the thing that's going

to save you from a stock that's like in a 30 or 40 percent drawdown. A lot of the recoveries in the old high flyers are going to turn out to have been L-shaped recoveries at best. And of course, there are worse kinds. But I don't know if that'll be the case with this. I guess the call will say. But bigger picture, Liz mentioned, Liz mentioned, like, what are some of the things that could send us through that low? So so like leaving aside any geopolitical stuff, just like like real world stuff that affects both the stock market and Main Street to a great degree. The first is the first is take a look at the semiconductors. I have said repeatedly that I regard this group as the new transports. I think anything that you're shipping these days has a chip in it, maybe five chips in it. And we cannot ignore the fact that that sector is now round-tripping back to the summer lows very rapidly. It's only 10 percent above that low. That could easily violate. And the Sox has tended to lead the overall Nasdaq over the last year. So that's one. Two,

are floating rate loans the new subprime? I would love to hear Liz's take on this, working in financial services as she does. But the new murmurings that we're hearing now is that you've got this one point five trillion dollar asset class that really has only been popular for third party investors in the last five years or so. It's always existed, but it hasn't really become a quote investment product up until sometime last decade. That one point five trillion in loans, leveraged loans that a floating rate loans and leveraged loans that adjust1.5 trillion in leverage loans, floating rate loans and leverage loans, that adjusts higher. So interest rates were at like zero to start the year.

So I know it's already August and we've had eight months, but look at how much of a change that we've seen underlying the rates as those debts roll off and have to be replaced. And that is something that maybe not enough people are focused on or looking at. How systemic is that market to everyone else? I think it's good. It doesn't have to be the new subprime. No, but I think it's a good point. And last. Well, let me let Liz respond. Let me let Liz respond to that. And then we'll come back to you for the last. Because one can surmise that when the tide goes out, it's still yet to go out, right? I mean, that's sort of what Powell alluded to, right? You put all this stuff into the system and it takes a long

time to get through. The tide hasn't fully gone out yet, right? We don't fully know what the impact is on the economy, on the market, on loans, on this, that, and the other. So to answer the question directly first, are they the new subprime? I don't think they have the power to take the economy down like subprime loans did because there's just not enough exposure and there's not as many layers reaching out into all tentacles of the economy like there were in 2008 in that crisis. However, the thing about floating rate loans is that many of them are sub-investment grade. And that matters.

So you try to refinance that. You think about the credit quality of those loans. At this point, you're right, Scott, we haven't seen credit spreads blow out yet. We're at about 520 basis points on high yield spreads. That's nowhere near where they would be in the middle of a crisis. But here's the thing. If and when they blow out, they blow out fast, and it could take a lot of things down with it. There's some contagion in that. There's some sentiment contagion in that. And then you start to hear the word default, which is something that absolutely kills consumer and investors. The other thing, Josh, is this idea that Tina is dead. There is

no alternative is no more. And I think I read that the yield on the two year yields double the dividend yield of the S&P 500 right now. So whereas there was no alternative to stocks, now there obviously is. Well, if you tell me you have a 10-year time horizon plus, I'm still telling you stocks and I'm telling you to eat the volatility that's coming your way because there are very few rolling 10-year periods where stocks don't deliver. So let's just clarify, like we're talking about this year. But to the point that you made to Liz about subprime, subprime was not in itself systemic. Subprime was a canary in the coal mine, and the losses there triggered losses in higher tranches of mortgage

and housing related debt. So I guess it's semantics. But in my third case that I think we need to just understand is the housing market is going lower. It's taken a long time because there's no supply. But at a certain point, the bow breaks. Where does it break? Is 5.75% on a 30-year mortgage? Is that the level? Is it 6? It's 6.25%. Do we even ever have to get there? At some point, the losses in housing are going to start becoming more noticeable.

And not just for people who were trying to sell a home. That's a tiny slice of the market. You need to think about the wealth effect. If we think the wealth effect from stocks is powerful, well, let me tell you, for most of America, for the largest slice of the demography of this country, the value of the house is everything. It's even more powerful than somebody getting a raise. And so when you see those trends, we had a 44% gain in home prices in two years. When that gets thrown into reverse, what is the impact? So people that are on the network all day, not on your show because you check them, but they're going like, oh, well, inflation is peaking and it's going to start to come down by itself.

Yeah, but why? Like, be careful what you wish for about, quote to start to come down by itself. Yeah, but why? Like, be careful what you wish for about, quote unquote, inflation coming down by itself. A, it ain't coming down by itself. It's coming down for a reason. If the reason why is because we have an acceleration in the deterioration of the housing market, the effects on the rest of the economy are very large. It's not something to play games with. So last word from you, Liz, is it time to be defensive in that part of the market? People aren't talking so much about the once hot defensive areas of the market like staples, etc. Now I hear, well, play Apple because

it's defensive and play the mega caps because they're defensive again. But what about getting really defensive? I mean, in the purest sense, if if we're headed for a recession, you have to keep the traditional recession plays out. And I think those are still staples, utilities and even treasuries in this environment. If you if your take is that we're going into a recession, that means at some point in the next 12 months, the Fed does have to cut rates, in which case you do see some defense action in those treasury markets. So it's okay to own that stuff. Now, I think another place that people can think about to play defense is health care. And that's a long-term play. But traditionally in the large cap space, I would

use health care as defense. I am just not on the tech bandwagon. Whether you want to call it defense or offense, tech is not my thing today. OK, I hear you. A lot of people like health care, by the way. Josh, thank you. Liz Young, thank you as well. Let's get to our Twitter question of the day. Now, we want to know which of these August Dow duds is ready to rally.

Is it Salesforce, 3M, Walgreens or Nike? You can head to at CNBC Overtime on Twitter and cast your vote. We'll share the results later on in our show. Up next, Snap's new game plan. The social media stock is rallying today. The company announcing a major restructuring. Noted venture capitalist Rick Heitzman calling it a come-to-Jesus moment for that company and others. He'll explain why when we come back on OT. Welcome back. We're back in overtime. Check out shares of Snap soaring today 9 percent.

That's after the social media company announced it would cut 20 percent of its staff as part of a sweeping restructuring plan. Our next guest says it should help the stock if and when a slowdown hits. Joining us now, star venture capitalist Rick Heitzman of First Mark Capital. It's good to see you again. Hey, Scott, how are you? I'm good. I remember our conversation after earnings. You hit him with a sledgehammer. Does this. Yeah. Now you put on kid gloves. Now, I mean, how does this move match up with with what you think here? This is exactly what they should have been doing. This is exactly what the best companies have done over the course of 2022. Is your cost of capital increased tremendously? And Snap was probably the last company to take

action on it. Snap grew their employee base over 100 percent during the first two years of the pandemic and never had announced the layoffs. And now what this shows is Snap's taking the macroeconomic economic conditions seriously, getting thinning down and focusing on the key priorities. Is the story intact? It is intact. It isn't. I think they were losing focus. They were focusing on drones.

They were focusing on all these other projects. Now they're back to their core business, AR, communications, ad-sponsored content. And I think they're going to skin themselves down and focus on what's going to get them through the recession. What do you make of this new COO position? I'm wondering if it takes a little bit of the onus off of Spiegel, what it means in the big picture. I'm not saying it's an unusual move, but maybe it's just unusual in that it happens now. What is it a sign of? I'm not sure what it means.

I mean, Evan has always been a product-focused CEO and a lot of the great entrepreneurs, founder CEOs are product-focused going back to jobs. And to bring someone in from the technology side to kind of sit between operations, product, ad, and technology is an odd place for them to bring someone in. But I don't know him well enough to know what the real role is going to be. But I don't know him well enough to know what the real role is going to be. But obviously, everyone's going to need more support if we expect a downturn. But you don't take anything of it, for example, that it's a sign of a step back in any way from

Evan? I don't believe so. I assume the questions that he's going to get are to that effect of he lost two key executives today. They went to Netflix to run the ad-supported side of Netflix, and they might have needed to have a battlefield promotion. My guess would be Evan is completely locked into the future of the company, and they need a battlefield promotion to rally the troops and to focus them going forward. I got you. I spoke with Glenn Kacher the other day of Light Street, tech investor, venture capitalist like yourself. I asked him about the current environment, what he makes of it here, what he thinks is going to happen going forward. I want you to listen to

what he said about the pullback in many parts of tech and what he thinks happens from here. And then you can opine on the backside of that. Sure. This seems like an incredible buying opportunity for our industry. And so we're incredibly positive and we like the portfolio that we have built to come out of the current environment that we're in right now. We're kind of bouncing along the bottom here and expect that ultimately when investors decide to come back and take position, more positions in this sector, that we're in the right stocks that are going to benefit greatest from from that from that re-rating. What do you think of Kacher? I think the key thing he said is if you're in the right stocks. So I don't think this is a broad based, you know,

the market's going to continue to rise after Labor Day and everybody's going to be rewarded. I think the best companies are going to continue to be rewarded. As we think about first market, what we're going to focus on kind of after Labor Day, back to school, back to work, period. It's going to be how do you identify which are the babies, which are the bathwater, to use an analogy that we've used over the last year, and which companies are really the most excellent companies who are going to benefit in a downturn and are going to continue to execute because they have strong leadership, and which companies might have succeeded just because the tide lifting all boats in the last cycle, but that might not be strong enough to really survive and thrive in the coming downturn. I've asked you before to sort of game out the

Twitter Musk deal, the whistleblower thing. Does it change anything in your mind? I think it's noise. I think it's noise. I don't think it goes to the core problem. If they're still trying to focus on the bots, if they're trying to focus on, hey, you know, the misincenting the the executives to not count bots. I think that's a small part of the problem. And I don't I don't believe it's going to be material enough to get to get Elon out of his problem. So deal deal happens as is written. I think I still think they still cut a deal. I think there's going to be some compromise. You know, the Delaware courts can't afford to lose it on appeal. Elon can't afford to have this continue to keep going, especially the direction the test was going. There's going to be a compromise deal in which Elon buys the company is my my guess.

And it's been for the last six months. We're probably going to find out in about three more. Look forward to that. All right, Rick, thank you. That's Rick Heitzman joining us today. Always wonderful seeing you, Scott. Yep, I'll see you soon. Up next, hike and hold. J.P. Morgan's Gabriela Santos has a new playbook post-Jackson Hole. She'll break it down for us straight ahead. Welcome back.

It's time for a CNBC News Update with Shepard Smith. Hi, Shep. Hello, Judge. From the news on CNBC, here's what's happening. The Trump legal team has until 8 o'clock Eastern time tonight to respond to an explosive Department of Justice legal brief on the search of Mar-a-Lago. A Florida judge is deciding whether to appoint a special master. documents were likely concealed and moved from a storage room at the former president's home as part of what the DOJ calls an effort to obstruct the investigation. Included with the filing, this photo is our first look at what Justice Department says are top secret documents recovered during the search earlier this month. The FBI says it seized more than 100 classified

documents, including three classified records found in the former president's office, a hearing to decide whether to appoint a special master scheduled for tomorrow in Florida. Tonight, more on the Mar-a-Lago search and the potential legal trouble for the former president, plus nuclear inspectors on the ground now in Ukraine and new neighborhoods being built entirely off the grid. We'll show you them on the news right after Jim Cramer, 7 Eastern CNBC. Scott, back to you. Look forward to that, Shep. Thank you. That's Shepard Smith. More than we bargained for. That is what my next guest says. Fed Chair Jerome Powell delivered last Friday in Jackson Hole,

and she has a new playbook as a result. Gabriela Santos, global market strategist with J.P. Morgan Asset Management, joining me once again. Live. It's good to see you again. Good to see you, Scott. So you were with me right before Powell. Now, post Powell, you say we got more than we bargained for. In what way? So when I was there with you pre Jackson Hole, we had a wish list of what we wanted to hear. We wanted a lot more visibility on what kind of data they're looking for, where they expect to take rates and for how long. But we actually thought it was very unlikely to hear anything about these short term dynamics. Instead, we did hear a lot from Chair Powell. And the fact that he had such a short and direct speech, I think really forced investors

to listen to what a lot of Fed members had already been saying for weeks. It's going to take a lot more softening in the inflation data to calm their fears down. It's going to take a lot more softening in the labor market data as well to get the Fed pivot back in play. And what that means is rates higher, closer to 4% by the end of the year and staying there through 2023. And I think we're starting to price that in better, but we're not quite there yet. OK, so what does that higher for longer scenario mean for stocks? Can't be great. So I think it means, first of all, higher real yields, because remember, the first leg of the stock market rally during the midsummer night stream there was related to the plunge in real yields from 0.9 percent mid-June to 0.1 percent in August.

Now, we've unwound part of that. Real yields are back to 0.6 percent, but they're still too low. So that means what started to become a growth led rally once again is starting to reverse course, but has further to fall from here. The other thing it means is investors have to take seriously the pricing of a mild recession next year. And that's what fueled the second leg of the rally in August was this belief that maybe there was a path for a soft landing and there wasn't a need to price as much recession risk into multiples, earnings and credit spreads. And we still need to unwind that optimism and better price in the economic risks as well. Read your notes today in which you say don't give up on the traditional 60-40 portfolio, which has been especially tough,

obviously, in the month of August in and of itself. Bonds down 3 percent, stocks down 4 percent. Why not give up on that? So I would say for two major reasons. The first one is this encouraging upturn in the 40 part of the 60 40 or the core bonds part, which actually started to rally from mid-June to early August when yields were falling and there was still more of a recessionary concern. So bonds have started to act as a diversifier again when there is recession risk. So that's really good thing. And we want to continue adding duration, core bonds as a hedge against that higher recession odd. The other reason to not give up on the 60-40 is just where valuations are today.

They're so much better than they were on January 1st. Multiples are still lower. Yields are higher. And that suggests much, much better returns ahead. In the past, we have had other moments where the 60-40 has been down over 10 percent. We've had, for example, nine years where that's happened historically. The following eight out of nine years, the 60-40 was actually up the following year by an average 17 percent. So that's the kind of much better returns we expect if we zoom out the time horizon. Let me ask you lastly about the Fed. Does his I guess you call it unexpected directness. Maybe that's how you you come away from it thinking it was unexpectedly direct.

Does that lessen the chance for a surprise in the upcoming meeting? Does it put 75 basis points on the table in a way that you didn't think existed pre-speech? How do you think about those two things? So I don't think it changed the expectation for September too much. Going into Jackson Hole, there was already about a 68% probability of a 75 basis point hike. Markets were better priced in for that possibility. And it's still only 70. It's still at about 70 percent today. We do think the odds of a 75 basis points are more likely than not, but will depend on the jobs data on Friday, as well as the August CPI data on September 13th.

What I think it really changes is much more the outlook for rates in 2023, this expectation that we pivot from hikes to cuts so quickly. That's what's a next very welcome way being shaken by that speech that Powell gave. Rate cuts have gotten pushed back a little bit, but they're still there in expectations for the back half of 2023. We'd like to see those push back further before we really feel comfortable adding risk here. You and Loretta Mester, both, because those were her comments today, too. Basically, don't even think about the cuts next year because we don't see it now. We'll see if they hold to that because maybe they can't

hold to that. That could be a surprise. Yeah, exactly. Gabriella, thanks so much. I'll talk to you soon. That's Gabriella Santos, JP Morgan Private Bank, joining us. Up next, a big call on PayPal as Bank of America upgrades that. Beaten down stock to a buy is the worst really over. We'll debate that in our halftime overtime. Don't forget, you can catch us on the go by following the Closing Bell podcast on your favorite podcast app. Overtime is back right after this. In today's Halftime Overtime, it's time to pay up for PayPal. That is the call from Bank of America today. They upgrade that stock to a buy. It's lost half of its value this year. Shannon Sikosha isn't convinced, though, to get back in just yet, at least until costs get

more under control. It might be a little bit too early for us to go back in just yet, at least until costs get more under control. It might be a little bit too early for us to go back into the space because we do think the payment space, to Amy's point, is incredibly competitive. You're starting to see the stock down to a valuation where if you can bring costs in and you can start to focus on that revenue per user rather than net ads, this could be an opportunity. Well, Aries Asset Management CEO Carrie Firestone, she owns PayPal, joins us right now. So it's nice to have you here. You have experienced the pain in this as much as anybody. What do you make of this call? Well, I'm sure there are plenty of people who have experienced pain, including the management of that company. And, yes, it's down 70% over the last 18 months. It has not been a good stock to own.

But here's the way we look at it now. It's one of these large-cap tech names that really gained a lot through COVID. And it's cycled through its, in fact, most difficult comparisons. So now the comparisons get easier. It's been in the doghouse. It's starting to see something of a benefit from what they've experienced, and it's put pressure on them to cut costs. They've made a commitment to cutting $900 million in costs. They have Elliott Management breathing hard down their backs. They've got a stock price

that's way down, and they're showing some respect for shareholders and commitment to doing things that will improve margins. They also talked about how revenues were beginning to show a positive upturn. And we think next year, in 2023, that the stock is going to do more than 20 percent earnings growth. It sells for slightly less than 20 times earnings. And at this price, we think all of the bad news is in the stock. And we're going to start to see tailwinds that can carry this forward. If Elliott, the activist, wasn't in this name, Would you be anywhere close to as optimistic as you sound? Yes. Yes.

Because if he weren't there, there'd be other buyers who would see that it was a value at this price. PayPal's trading at value stock levels. It's attracted new buyers. And we owned it prior to Elliott being in it. And we would buy more of it. We had been buying more of it at these prices because they're so low. All right. I appreciate you calling in. It's Kerry Firestone, RAS Asset Management, joining us on the phone.

We are all over some big stock moves in overtime. Seema Modi is tracking that action for us. Hi, Seema. Scott, that's right. A cloud company soaring in the OT after forecasting sunny skies ahead, plus a software stock slumping after reporting results. We're going to break it all down when Overtime returns. Welcome back. We're tracking the biggest movers now in Overtime. Seema Modi here with that. Hi, Seema. Hey, Scott, let's draw your attention to share the MongoDB falling in the OT despite reporting a smaller than expected loss last quarter. Revenues topping estimates, but guidance for the Q3 did come in a bit light.

The company now forecasting a loss of 16 to 19 cents. That's worse than the 14 cents expected by Wall Street. Analyst stock is down 7%. Cloud company Nutanix surging, though, in the OT on a top and bottom line beat. Strong guidance, too, for the current quarter and full year. Shares are still down, though, about 45% this year. It's been a tough year for cloud stocks. Pure Storage, that stock is popping on earnings. Both earnings and revenue topped estimates.

The data storage company also painting a somewhat rosy picture for the future offering. Strong guidance for the third quarter. CEO Charles Giancarlo pointing to solid market share gains, and the stock is up 7.6% here. Scott? All right. Seema, thank you. That's Seema Modi. We're also watching shares of Disney in the OT.

A scoop from the Journal reporting that company exploring an Amazon Prime-like membership program, packaging things like streaming, parks, and merchandise. It's an interesting story. We continue to follow that. Stock's a little bit higher in overtime, 1 and two thirds percent there for Diz. All right. Up next, ready to deliver one money manager making a bull case for a struggling shipping stock. We'll bring you that name in our two minute drill. And coming up at the top of the hour, August trading is in the books. Stocks still feeling the summer heat. Your September setup as ahead on fast money. Don't

go anywhere. Overtime is right back. It's time for the two-minute drill. Joining me now is NFJ Investments' Burns McKinney. It's good to see you. Set up September for me first. What's going to happen this month? Well, investors are focused currently on what the Fed is going to be doing at their next meeting, although we believe that the focus should really be not necessarily on what the Fed does in September, but how high rates get and how long they keep them that way. You know, the equity investors were a little bit surprised by what Jay Powell had to say in Jackson Hole,

and they really shouldn't have been. Bond investors seem to have been pricing that in. Really what the Fed has done a good job of is trying to manage expectations. In many ways, what Jay Powell is trying to be is the parent with kids in the backseat on a long road trip. They're saying, don't make me stop this car. You hope the threat works in and of itself. You don't actually hope to have to stop the car. Yeah, there's some belief as to whether he ever will stop that car. Anyhow, let's talk stock picks for September. Number one, FedEx. We alluded to it in one of our teases. Why this one? Why now? Well, right now you're getting FedEx. We alluded to it in one of our teases. Why this one? Why now?

Well, right now you're getting FedEx at about nine times earnings. The logistics and shipping peers trade about 15 times. UPS is about 15 times. So right now FedEx is trading at a discount to its peers and you're getting it for about half the market multiple. You have a dividend yield of about 2% that they raised earlier this year by 50%. That's a huge management vote of confidence in the direction of future earnings. You've got a name there that they benefit from rising demand for e-commerce. And really, in an inflationary environment, to protect against inflation, pricing powers what you want. And because they have a duopoly with UPS, that's really proven to give them a fantastic ability to pass on price increases. Forgive me, I didn't mean to interrupt you there. Excuse me. Verizon, VZ, number two pick. That's another one. Right now, it's even cheaper at about eight times earnings. This is the

cheapest Verizon's been relative to the broader market in about a decade. It trades at a discount to its global telecom peers. You have one of the highest dividend yields in the S&P 500. And again, that's supported by a fantastic free cash flow yield. And you look at the names like Verizon, they really benefit from just rising demand for digital content. In many ways, in today's economy, this is your new pick and shovel type play. And they have a solid balance sheet. And because of investments in new spectrum, they should have one of the best networks going forward. Of the two you have left on the list here, Baxter International Medical Devices and Lennox International, which you call a contrarian play, which of the two do you like the most?

I think there's a great case to be made for the medical device companies like a Baxter. You're getting Baxter again. It trades at a discount to its peers, a discount to the market. It's a lot cheaper than it's historically traded. You have a name there. They do have a dividend yield of about 2 percent and they dominate several markets in medicine delivery, things like, you know, basically dialysis equipment, IVs. Really, a lot of what they treat are, you know, they provide non-discretionary consumables for chronic diseases, which means, for better or worse, a lot of what they're providing provides visible revenues, it provides predictable revenues, and it makes it defensive in what is likely to be a little bit of a volatile and uncertain economic environment going forward. All right. We'll leave

it there. Burns McKinney, thank you so much. We'll talk to you soon. Up next, it is Santoli's last word. Overtime's right back. Let's get the results of our Twitter question of the day. We asked you which of these August Dow duds is ready to rally in September. 48% of you said Salesforce. Nike was second, as you can sort of see. Let's get to Mike Santoli for his last word. All right, here we go. New month. Game on. Yeah. Yeah. We'll probably be glad to see August go, even if September has a bad reputation. I don't know that there's a lot of comfort to be taken from the fact that the last 10 minutes of trading today looked like a very mechanical kind of across the board sell, because, you know, it does leave the market in a place where it's clear there's no motivated buyers willing to step in. I will say it seems as if whatever part of that June to August rally was based on the notion of peak Fed hawkishness,

that part seems to have been given back. Whatever part of that rally was based on, hey, the economy looks like it's a little bit more resilient than we had feared, that seems to be still in place. So I think that's where it leaves us in a pretty ambivalent spot. You have to really believe in those technical signals off the June low to say that the market could make a stand soon here. So as you were talking and I'm listening and I'm writing down the key question, as I think you're alluding to for investor. What makes you buy in September? Is it a better than expected CPI read? Is it a suddenly dovish sounding Fed share? What else could it be? It would certainly more likely be the former. And I think there's a good chance of that. Look, we were at the end of August. We know

what the inputs to CPI are pretty much. And they're relatively friendly, right? Gasoline cooperated. Most of the other, you know, kind of categories that were decelerating look like they're OK. I don't know if that's going to be enough. I don't know if two months of improvement is going to really encourage folks. September in the midterm election year, and this is, you know, a reach, but it's kind of the low point of the entire four year cycle. So it doesn't mean, you know, September 1st things get better. But what it does mean is we've already built in a fair amount of pain. I think the big problem is valuation is defensible at these levels, but not compelling. So that isn't really in the bull's arsenal to say that I have to buy them

here, at least not at the index level. And I wonder if this higher for longer idea that Mester was talking about today, Gabriela Santos mentioned as well, starts to take traction because that could impact things like we're not we don't know yet. For sure. Although I would say we're higher. We're in that range for a long time in like the early to mid 2000s. And we didn't think of it as onerous. That's true. All right. Good stuff. Have a good night. I'll see you tomorrow for your last word. All right. Does it for us. Fast money begins right now.