Closing Bell - Closing Bell Overtime: Signs of recession? 3/29/22

Episode Date: March 29, 2022

The 2-year/10-year yield curve comes close to inverting. Liz Ann Sonders from Charles Schwab says it may be time to dust off the recession playbook. Plus, Halftime Report trader Pete Najarian gives his instant reaction and analysis to Micron and Lululemon earnings. And, Wells Fargo Senior Equities Analyst Mike Mayo discusses what an inverted yield curve could mean for banks.

Oh, they got a big crowd down here. Welcome to Overtime. I'm Scott Wadner. You just heard the bells. We are just getting started. And do we have a busy hour ahead? Earnings from Micron and Lulu breaking any minute now. Pete Najarian reacting to both. He owns both. And in just a little bit, we'll be joined by J.P. Morgan's top stock strategist, Dubrovko Lekos. Talk to him about where we are in the market. We do begin with our talk of the tape, this incredibly resilient rally, even as a key recession siren, very close to sounding for the first time in years. Let's welcome in now Schwab's chief investment strategist, Lizanne Saunders, who's with us in overtime. It's good to see you. Welcome to the program. Well, thanks. Thanks for having me. Nice to see you, too. Yeah, I mean, we're on the doorstep of an inversion. What does it mean to you? Well, you know, a lot of focus on this. The 10s, 2s is nearly always followed by an inversion of 10s, 3 months, which has arguably a shorter time horizon associated with when you tend to get recession. I think an inversion of 10s, 2s does tell you that growth

is slowing. When it happens relative to the 3 month, that's more of a signal that maybe a policy era is underway. I think it's inevitable we're going to get a recession, but I would say that at any point in time, all the time. It's just a question of when. But I think we now need to look further down the curve and see if we continue to see flattening in that more predictive of curve. So let me ask you this. Are you starting to model in recession in the way that you're thinking about stocks? I think you have to dust off the recession playbook. Keep in mind that relative to inversions, even the 10-year three-month, but certainly the 10-year two-year, although it's got a pretty successful track record of forecasting recessions with a lot of variability in terms of lead time, the market generally has done quite well. In the lead-into inversion, in the immediate, near-term, medium-term period after inversion.

So the inversion in and of itself doesn't suggest a problem. I think if we were to get more definitive signs that recession risk is quite elevated, which we would typically get from metrics like the RER, the economic index, then I think that the market could struggle. But this notion that the market is sort of defying history by doing well as we face an inversion, actually, that's very much in keeping with history. Well, you said time to dust off the recession playbook. What is that? Well, it always is when you move from an extremely loose monetary policy to tighter monetary policy. Scott, as you know, I grew up in this business starting in the

mid-80s working for the late, great Marty Zweig, who coined the phrase, don't fight the Fed. So I have that 36-year knowledge of understanding the monetary policy cycle and the fact that it is somewhat difficult for the Fed to engineer a soft landing, especially given that they're combating an inflation problem that is sort of well out of the bag. So looking at the leading indicators, as I mentioned, looking at the entire curve, looking at inflation expectations. So even if it's not your base case, you should at least start to look at some of the conditions that tend to stack up as you're approaching recessionary conditions. Listen, if you would just bear with me just for a second,

you see folks on your screen that those micron results that we were waiting for are in fact out. It is a beat on the top and the bottom line. The stock is up 4 percent. As Sarah was noting in the lead up to overtime, this stock has underperformed the semiconductor index by quite a bit. Lately, there are a lot of concerns about end market, whether it's smartphones, PC, the obvious issues regarding supply chain. Christina Partsenevelis is going through the report, looking for any of the critical details that you need to know about. She's going to pop on with us as soon as she is ready to do so. But you can do see a beat on the top and the bottom line in overtime. That stock, that being Micron MU, is up.

We're also going to hear from Pete Najarian momentarily, too. He owns that stock. We're continuing to wait for Lulu. He owns it as well. So you're going to want to get his instant reaction to both of these earnings reports. Lizanne, I'll come back to you and ask you this regarding earnings. That's what it's all going to come down to. How confident are you that earnings are going to hold up under the weight of everything in front of us, most notably

this Fed tightening cycle? So I think earnings are going to to hold up and we may even have had analysts yet again set the bar a little bit too low. That said, we're in a decelerating trend from the from the highs of second quarter of last year of 100 percent earnings growth. That was down to 32 percent for the fourth quarter. Expectations are in the six and a half percent or so range in the first quarter. So that's that shows earnings are still growing, but at a much lesser pace. You also saw the first meaningfully less of a beat rate in the fourth quarter, 76 percent versus the 85 percent or so that had been pretty pervasive for the prior six quarters. And the percent by which companies beat was also well less than what the trend had been for the prior six quarters. So I don't expect a fall off in in earnings. But, you know, we have to we have to concede that the rate of growth is clearly slowing.

I think the profit margin story is going to be the most interesting one to to look at to see whether that pricing power remains strong enough that margins can stay relatively healthy. So within the last hour, Sarah interviewed the Philly Fed president, Harker, who said, and I quote, regarding a soft landing, I think we can pull this off. Are you as confident as he is? Well, I'm a big fan of Pat. He's a friend of mine. He was a former president of my undergraduate university. I've known him for a long time. I think it's tricky for the Fed to pull off a soft landing. It happened in the mid-60s. It happened in the mid-80s, although right after the double-dip recession. And then it happened in that 94 period of time. But under none of those circumstances was the Fed tightening into such a significant inflation problem right now.

That means the playing field is very different. I would put better odds that a soft landing is more tricky this time, given that very different inflation backdrop versus the other three periods in history where we had a soft landing. We have another earnings report. So I would ask if you would bear with me once again. It is Lululemon, shares of Lulu. Let's take a look there in overtime, because this is a mixed quarter. It is a beat on the earnings and a miss on the top line sales. They have missed estimates. Two point one three billion was actual and it's a modest miss, which is probably why the stock isn't reacting negatively. I mean, you can basically call it an inline quarter.

It was a $2.13 billion versus an estimate of $2.135. So we can quibble about that if you want. But nonetheless, we have to pay attention, obviously, at the outlook. And this is a really interesting time for Lululemon as well. Getting back to work, are we dressing differently when we go back to the office than we were during the pandemic at home? Perhaps. They've also broken into new categories like sneakers and running shoes as well that we need to keep an eye on in terms of where demand is. As I mentioned,

we do have instant reaction to color on that. Courtney Reagan is going through that report. She'll join us. And again, Pete Najarian on both momentarily. If you want to get, you know, the actionable information on both stocks, stay tuned for Pete. Lizanne, so I come back to you. I mean, it is a tough task that the Fed has to pull off. And I wonder if the biggest risk is that they're going to go too far. It was very interesting to me when your friend, Harker, said he wasn't ready to go 50 basis points at the next meeting. Now, I don't think he's a voting member, so maybe it doesn't matter. But the mere fact that that thought could be in the room, it almost feels like, boy, if they don't go 50, I wonder where the Fed's cred lies.

Well, that's, I think, the stage we're in. I think it's a very good point, Scott, that given that, at least as of this morning, it was a little more than a 70 percent likelihood of a 50 basis point hike. Unless we see some miraculous easing of inflation pressures between now and the next meeting, I think a timid Fed wouldn't be cheered by the markets because it would just suggest that they're getting further behind the curve. So again, barring a significant change in the data, I think 50 is probably very much on the table. There's even a 20% chance or so, again, as of this morning, of 75 at the meeting following that. Now, there's not a lot of precedent for that, although the Fed did raise by 75, I think, in the 94 cycle. But they've made it pretty clear that there may be a need to front and load these rate hikes. And

the market has been pricing that in. So I think a more negative surprise would be if they stepped back without the inflation justification for doing that. And I'll beg your pardon, too. And maybe I wasn't clear enough about this actual playbook. And I'll beg your pardon, too. And maybe I wasn't clear enough about this actual playbook. And I mean, literally, you know, if you have to dust off the playbook, what is the recession playbook in terms of the sectors that I want to be in and those that I want to steer totally clear of? Well, I think the unique circumstances of this point in time with a, you know, the first ground war in in europe since 1945 and how that impacts the factors that go into headline inflation like food and energy which

in turn is possibly and likely a feeder into recession risks i think it's a little bit trickier in environment to go back to the playbook and say, OK, the more traditionally defensive sectors perform well, because if a continued spike in energy prices sits behind a recession, that would suggest something very different in terms of a sector like energy, which has already been a leadership sector. We actually, a couple of weeks ago, neutralized all of our tactical sector recommendations. We have no outperforms, no underperforms right now, thinking it's a tricky environment to try to make those short-term sector calls. We won't stay in that sector-neutral position, but given the

unique uncertainty of the current environment, right now we're saying stick to market benchmarks, use volatility to rebalance and stay in gear that way versus trying to make a bet. I got you. Great speaking with you. Thank you so much. And thanks for your patience on the earnings as well. It's just the way we roll in overtime. There's a lot going on. I certainly appreciate having you. All right. That's Schwab's Lizanne Saunders with us. Let's get some more color now on that Micron earnings report. Christina Partsenevelis has that for us. Christina, what do you see? Well, firstly, you have Q3 revenue. The company's pretty bullish. That beat estimates going into the next quarter. Inventory levels, I was concerned about inventory buildup. Inventory levels for this past quarter have declined, which, you know,

raises the question as to whether they're going to have to increase prices or decrease prices, I should say, and get rid of that inventory. It's not necessarily the case. What I will be looking for on the 4.30 call is more specifically a revenue breakdown for their DRAM and their NAND chips, and as well, any comments about supply slowdown from PC sales, the fact that you have more maybe data storage sales. So we need a breakdown for the revenue streams for a lot of these memory chips. And at the moment, we don't have that. But nonetheless, bullish report. Okay, Parts, I appreciate it very much.

That's why the numbers only tell part of the story. That's Christina Partsenevelis with us. Don't miss, by the way, the CEO of Micron squawk on the street tomorrow morning, 9 a.m. Eastern time. Look, there was a time where Jim Cramer had called this, depending on what that time is, that Micron was one of the most important stocks in the market. So he's going to be on with the gang in the morning. Don't want to miss that interview there. Now let's drill down more on Lulu's report.

Our Courtney Reagan has that for us. What's the color there that we need to know about, Court? Yeah, Scott, so there was a lot of question to see if Lululemon could still see strength, knowing that Nike was very strong. Did that pull away from Lulu? Doesn't look like it. A very strong quarter for Lululemon. But more importantly, the outlook is much stronger than expected for both revenue and earnings in this current first quarter and for this full year ahead. Shares are responding higher by more than 5 percent. The company also authorizing a new one billion dollar stock buyback program.

That's important. And the total comparable sales numbers just continue to impress for Lulu. Twenty two percent growth for the quarter stores alone of 32 percent. Scott. Wow. Big stuff. Courtney, thank you. That's our Courtney Reagan getting to the bottom of that earnings report. Now let's bring in Pete Najarian. He owns both stocks. He's with us on the news line. Pete, thank you for coming on Overtime. I appreciate it. Absolutely, Scott. Lulu first. That stock's up quite nicely. What do you think about the report, Pete? Well, you know, I thought they finally got a little bit too inexpensive, quite honestly,

Scott. I know they traded 34, 35 times as far as the P.E., but the five-year average is closer to the 40s. And after we heard from Nike, my read-through was that Lulu probably did even better, which it looks like they did. And obviously gross margins are going to be a big factor. I think DTC is another area we'd like to get a little bit more detail. We haven't gotten everything yet, obviously, but that's about a 40% margin area for them. So with growth there, that is something that I think is very, very important. The outlook being strong, the buybacks, they've got great cash flows. I think that when you look at what they've done, it's really impressive.

And one of the areas that we were talking, you just brought up a little while ago, was the shoes. And that's an area that they were talking about. The online reviews were overwhelmingly positive. As a matter of fact, selling out in some cases of their key sizes and colors and that type of thing. So with all that being said, it's a great quarter for Lulu so far. We need to get a little bit more deeper into things, but so far it looks great. All right, from Lulu to Micron, I'm looking at the stock with a 52-week high of 98. Currently sits at least at the end of the session at 82.

We can take a look at what it was doing in overtime because it was higher as well on that beat, that top and bottom beat, Pete. Yeah, they were strong on the top and the bottom, like you mentioned. And, you know, there's so many different categories that Micron really does offer themselves to, the data center, mobile, PC, auto. And when you look at AI, it contains an area where you've got five times more to compute than a normal vehicle. So when you're talking about all the different categories where they are, they seem to be doing extremely well when you see the top and the bottom. Their cash flow is great. They're talking about the repurchase plan. CapEx, they're willing to spend right now. Well, they've got unbelievable cash flows.

So it looks to me like Micron still is way undervalued, but it's always traded somewhat undervalued, Scott. So I think the move that we are seeing today and the after hours, it's just a great representation of what we're seeing from Micron right now. It's been strong. It's a stock I've owned from somewhere close to 2017. I continue to own it, and I like what they're doing. Unfortunately, they don't quite have as much oomph into the markets like you see out of an NVIDIA or an AMD, but Micron certainly is giving us some pretty good reasons why people ought to look at this stock a little more closely. Slow and steady can do well in the race, right, Pete?

It doesn't have to be the big burst of the NVIDIA. And to your point, the PE is only 12.5 or thereabouts. I didn't realize it was at that level. Incredibly, incredibly inexpensive from that perspective. And you just said the right thing. I mean, Tom Brady is kind of that slower, more methodical. And then you've got guys like Patrick Mahomes and some of the others that are fast. Right now, I'll take the slow and methodical. And I think I feel pretty good about that one. I understand what you're

talking about, though. I know you take Mahomes, too. But that's beside the point. Pete Najarian, thank you for joining us in overtime. I appreciate it so much. Shannon Sikosha is with us now for more on her earnings reaction. And I'll tell you what, Shan, I mean, outside of these specific companies, if you wanted to try and paint a pretty decent picture going into the very earliest parts of earnings season, I got Nike, I got Micron, I got Lulu, I got beat, beat, beat. Absolutely. And Scott, I think if you think about what the common denominator is there, it's China. And so I think coming into this quarter, a lot of folks were concerned about these intermittent lockdowns. Let's just think about the way China's handling this, though.

They're making these lockdowns very geographically specific. And therefore, we expect there to be less supply chain disruption, but even more importantly, less consumer disruption. Lulu's game plan over the course of the last several years has been to focus on e-commerce. The margins are much higher in that space. However, they only have about 70 stores in China. And so to be able to get their stores on the ground, be able to expand that footprint, China's the second largest athleisure market in the world. And so, yes, they will start to compete more actively with Nike, particularly in the footwear category. But I think this is really important because they

have a lot of cash flow. They're buying back shares and they can start to expand internationally, especially if they want to make that footprint in China a little bit bigger. All right. So now the hard questions for you. I mean, you own neither Lulu or Micron. Why? Well, I feel like for an apparel company, Lulu trades at a, you know, a pretty high multiple. But I will say, you know, one of the things I was very skeptical of their movement into men's brands over the course of the last couple of years, that's proven to be very successful. They've managed to continue to grow e-commerce. They have been thoughtful about growing their store count. And so, you know, and Pete made a great comment that they just continue to execute. And so even though they

are entering into the footwear category, which is certainly more competitive, perhaps this is one of those marquee brands that make sense to own in your portfolio. On the side of Micron, I would say that for us, from a semiconductor perspective, there's a lot of cyclicality just within the semiconductor space. And so I don't disagree. I think Micron trades at a very reasonable valuation. But I think if you buy a basket here, you're probably able to pick up the beta of this sector rather than picking those individual stocks. All right. Good stuff. Shannon Sekosha, thank you very much for being in Overtime. We'll see you soon for sure.

Let's get to our Twitter question of the day now. And we do want to know, what is the best athletic stock to own right now? We're playing off of Lululemon's earnings and Nike, which was recently. Is it Lulu? Is it Nike? Is it Dick's Sporting Goods? Maybe another one you have in mind. Head over to at CNBC Overtime, Cast your vote. Tweet us what you think.

We'll bring you those results. Read some of your responses before the end of the show. Up next, more on the big bond warning. What does a yield curve inversion mean to this incredible rally off of the lows? J.P. Morgan's global head of equity macro research joins us next with his latest on that. Plus, late breaking news from billionaire investor Carl Icahn. I've got it. He's taking aim at Kroger.

Those full details coming up when Overtime comes right back. All eyes on the bond market today and what the inversion or an inversion of one part of the yield curve would mean for the markets. As I said, we're on the doorstep. Dubrovko Lakos is J.P. Morgan's global head of equity macro research. He joins us now. It's good to see you on this new program. Nice to see you. Thanks for having me, Scott. Good to see you, too. Yeah. So as I said, I mean, let's just say it's a formality. It feels like at this point. Right. So what does it mean? I mean, yes, just say it's a formality, it feels like, at this point, right? So what does it mean? I mean, yes, yield curve inversion historically has been one of the most closely watched signals.

Efficacy of the signal, I think, varies quite a lot. And, you know, we can talk about it for sort of the next hour or two. The few things that I will say is, is yes we're moving more and more towards inversion uh but one of the things that we find to be uh very powerful is not just looking at sort of the 10 minus 2 but more broadly looking at the breadth of the yield conversion i repeat the breadth so you basically look at a lot of different you slice and dice the yield curve across different segments and you basically see the inversion happening across the curve only in select segments. And so far, the breadth is still standing at about 19th percentile from a historical perspective. So it's still a wait and see mode. I don't think it's telling us anything definite at this point.

You know, you're not you're not worried. I mean, first of all, what do you think of this rally? I don't know. And nobody was prepared for this kind of the magnitude of the bounce back from the lows. I've got to put you in that category, too, right? Yes. I mean, look, I'll take the other side and I'll say we didn't necessarily see the market going down as quickly as it did several weeks ago. But on the flip side, if you sort of look at our research from like two weeks ago, we did think we did think that positioning and sentiment just simply got way too bearish too quickly. And we argued actually for relatively strong bounce in a low liquidity environment. So I'm not completely surprised that the market is up to 4,600. I think a lot of it is positioning driven. But I think sort of when you look at the next, you know, the next few days,

you have this month end quarter end rebound where we do think equities get sold, bonds get bought. Bonds had one of the biggest sell offs on a a quarter-to-date basis historically. I think the market has gone maybe a little bit too fast to discount geopolitical tensions coming off. So that's still something that we've got to pay close attention to. And then obviously the Fed. But I think on the Fed side, a lot is priced in. We don't think this is imminent recession. And we think there's still some time to sort of re-evaluate the situation. I've got to make sure I heard you correctly. In the near term, you think equities get sold off?

Next Wednesday, Thursday, tomorrow and Thursday, you got month and quarter. Mark my calendar. You're that good. It's just looking at historical patterns and, you know, month end effects that to be quite powerful. And when you sort of see one of the biggest quarterly bond moves that we've seen, I think it's hard not to argue that bonds get a bid and equities could get sold on the back of that to fund the bond trade. OK, everybody, mark your calendars Wednesday, Thursday. We're going to see what happens. Dubrovko, thanks. I know you got to run. I do appreciate your time here in overtime. That's Dubrovko Lekos of J.P. Morgan. We do have some big news in the food space here in overtime. You heard something about it last hour. Billionaire investor Carl Icahn sending a letter to grocery chain Kroger,

calling out the company over the CEO's pay package and the same issue he took issue with at McDonald's, pork, notably the treatment of pigs. Icahn saying in a letter obtained by CNBC, the wage gap between the CEO and the median worker is, quote, unconscionable. He cites industrialized farms supported by Kroger's and what he calls deplorable animal suffering. Mr. Icahn also nominating two people to Kroger's board. The company, of course, is responding to all of that. They say they first heard from Mr. Icahn on Friday, March 25th, where he voiced his concerns regarding animal welfare and the use of gestation crates in pork production. They say, quote, as America's grocer, Kroger is committed to providing fresh, affordable

food for everyone. Responsible sourcing throughout our supply chain is embedded in how we operate and is of the highest importance to our company. While Kroger is not directly involved in raising or the processing of any animals, we are committed to helping protect the welfare of animals in our supply chain. Now, it is my understanding that it is a very small position. It's yet another case. Mr. Icahn, trying to use his influence to affect change, he noted with McDonald's, similar story, at least as it relates to pigs. He noted his daughter's work with the Humane Society.

So you have to think, at least in some respects, the same playbook is in effect here, too. Up next, we break down the banks. What a yield curve inversion actually means for the financial stocks. It doesn't seem to be good. Mike Mayo may tell us otherwise. He'll join us next and later. Our two minute drill, a pair of semi stocks to have on your radar. Our overtime is back right after this. News alert now in overtime on restoration hardware, better known as RH. Our Courtney Reagan has the details. Hey, Courtney. Hi there, Scott. Yeah, so RH putting up a mixed quarter here for its fourth quarter results with earnings beating but revenue coming in shy, and that's an adjusted revenue number. But the company also announcing a three

for one stock split that will take place in the spring. And when they're looking at their outlook in this current first quarter for revenue, they're basically saying, look, we're doing OK with our sales and our margin trends because we're working through this backlog. But we did see the demand soften when Russia invaded Ukraine. And then we saw the subsequent market volatility afterwards. So shares of our HR now down almost six percent as we await more details on the call. Scott. I appreciate it. Courtney Reagan, thank you again. All right. It's time now for a CNBC news update with Shepard Smith. Hey, Shep. Hey, Scott. From the news on CNBC, here's what's happening now. Both Russian and Ukrainian negotiators called peace talks in Turkey conservative and constructive.

And Russia announced it would reduce military activity around Kiev as a sign of good faith. But the Pentagon spokesman John Kirby is warning not to be fooled by Russia. John Kirby says there has been a small bit of movement of Russian forces away from the Ukrainian capital, but it's likely a repositioning of forces and not a concession to peace talks. President Biden signing a bill just moments ago to finally make lynching a federal hate crime. It's called the Emmett Till Anti-Lynching Act, named for the black teenager whose brutal torture and murder in Mississippi in 1955 galvanized the civil rights movement. In the last century, bills in Congress to ban lynching have failed more than 200 times until

now. And a federal bankruptcy judge approving a $73 million settlement between Remington Arms and the families of the Sandy Hook mass shooting. Remington made the weapon used by the shooter to kill 20 first graders and six educators back in the 2012 massacre. The company declared bankruptcy that same year. Four of its insurers are expected to make the payout. Tonight, they're called Clean Air Vigil vigilantes and they're earning thousands and thousands of dollars just by pointing a camera and pressing record. Their story on the news right after Jim Cramer, 7 Eastern CNBC. Scott, back to you. All right. Good stuff, Shep. Thank you very much. Shepard Smith. OK. Of all the sectors impacted by the move in yields, banks may be most in the crosshairs.

Mike Mayo covers that space for Wells Fargo Securities. And he joins us now. Mike, welcome to Overtime. It's nice to see you. Thanks for having me. I want you to try and make the case and tell me how this is all going to be great for the banks. I'm sure you've figured out one reason or two,

but I don't know. What is it? Well, this year should be good for bank fundamentals. You have interest rates, a giant move up. We've gone from maybe two Fed rate hikes to six. You have the 10-year Treasury yield from one and a half to almost two and a half percent. You have the economy, which is just now coming back online after the pandemic. You have balance sheets, which are strong for both consumers and corporates. You have corporate spending, which is up. You have bank loans, which are growing. You have bank deposits, which are sticky. And we are on the cusp of what we

think will be the best Main Street banking growth since the mid-1980s. So it adds up to better earnings power at banks. But in the midst of all this, bank stocks are down. That's ridiculous. And Scott, I mean, what is going on here? The market is disoriented. The market's confused. I mean, you had a low 10-year treasury yield and people said sell bank stocks. Now you have a higher 10-year treasury yield and the market says sell bank stocks. No way. And as a reminder, you know, I was negative on the bank route for 17 years. And one reason I was hoping there'd be a day like today where that would add to credibility when we say buy the bank stocks. So this is the time to buy bank stocks, period.

I mean, it's not even a close call in my view. All right. All right. Touche. I asked you for a couple of reasons. I didn't realize you're going to give me 15, but you but you did. But what if I come back and I say, OK, flatter yield curve, make the case on how that's great for net interest income. And if the economy slows and we start talking about a recession and I've got consumers, you know, smoked with high inflation, maybe they're not going to be borrowing as much. People pull back. That can't be great for the banks. Well, first, two thirds of the benefit of interest rates is on the front end. So the Fed raising rates is eliminating, which has been one of the biggest taxes on the banking industry in modern history. I mean, the net interest margin showed the biggest decline

in history over the past couple of years. So that's a relief. That's the absence of what's been a huge negative. But you're right. If we go into recession, that would be bad for banks. But from my bottom up bank analytical perspective, a recession is not happening. I mean, the recovery from the pandemic is transcending all these other factors out there. It's really amazing to look at the loan growth and the stickiness of deposits and transaction volumes and the pent up U.S. consumers back out there. And so you're seeing a very resilient U.S. economy and banks are the engine behind that. So we've had you on, you know, numerous times on Halftime Report, and you've said that Bank of America is your number one pick, and that's not changing today.

And we're on the precipice of earnings season where the last time J.P. Morgan disappointed. And that stock hasn't been the same since. You have a neutral rating on that stock. I'm sure you're Jamie Dimon's best friend at the current time. What is that stock going to deliver this time and what gets you off neutral back to buy? Well, as you know, Scott, I downgraded J.P. Morgan after recommending the stock for seven years. And during that seven year period, they showed much faster revenue growth than expenses. It's really a simple business. If you grow revenues faster than expenses, good things happen and good things happen for J.P. Morgan over those seven years and over Jamie Dimon's history. But you're seeing the biggest increase in expenses during Jamie Dimon's career, and it's far outpacing revenue. So I would like to see

greater financial discipline. They will be having an investor day in May where they address some of these and other issues. But I don't think it's down to one quarter. I think this is a structural repositioning where Jamie Dimon and JP Morgan need to get more metrics and details about what they're spending this on and what they hope to achieve. But Bank of America, meanwhile, they're showing the benefits of this higher rate environment and allowing those benefits to fall to the bottom line, which would be a very good thing. My only caveat to all this is the best benefits are after the first quarter because it takes a couple quarters for the benefits of higher rates to seep in through the bank earnings. But as you know, the stock market is a discounting mechanism. So the market should be looking ahead. But the way it looks from my

perspective is it's as if you went to the baseball game and you left after the first inning. Stay for the whole game. It should be a good game for the bank stocks ahead. All right, Mike Mayo, thank you very much. We'll talk to you again soon. Coming up next, more room to run. Halftime committee member Jim Labenthal saying the commodity run is far from done. Is the market voicing other concerns? He's with us to break that down. Plus, Micron and Lulu, their earnings calls are now underway in the OT. We, of course, are dialed into those. We'll bring you any big headlines that come out of those calls.

Stick around. We're back in two. Let's take another look at the spread between the two-year and the 10-year bond on the brink of inverting today. Awfully close. We'll have to see that that happens in the moments ahead. Stocks, though, rushing off that move. The S&P 500 rising 1% on the day. Let's bring in Maryland Bank of America, private bank CIO Chris Heise for more on that.

We feel like it, Chris, is a formality that it's going to happen. Is that going to do anything at the very least psychologically to this incredible rally that we've had? Oh, psychologically, it might. But I think right now the most powerful force here is the unwinding of the absolute core sentiment, the extreme negativism that was built in at the beginning of this year for a variety of reasons. And if the curve is going to predict anything, it's going to predict, obviously, major gyrations. That's how we see it. This particular yield curve is in a different cycle. There's a lot of quantitative easing that has kept the back end artificially low. What we think is most telling, at least at this point, Scott, for what we know, is the three-month to two-year yield spread is very,

very steep. And that is an important tonic overall for the economy, at least this year. So that's what we're focused mostly on. And if we invert twos to tens, which are three basis points away from that, it might have a little bit of dampening effect on enthusiasm. But we're going to look towards profits to give us the best signal for where we are in the cycle. OK, I'm glad you finished that. That's exactly where I wanted to segue next about the cycle. Are we closer to the end of the cycle or are we closer to the middle? You're probably not going to like this answer, but we are no wishy washy stuff. This is overtime. We don't play around. Come on. Yeah. For those who know me, that's not me. But I'm going to tell you early late cycle. So this late cycle move

could be a long time. The Fed is just bumped rates, 25 basis points. They have detailed out what they're likely to do and potentially going to go 50 basis points twice June, July, and end somewhere around 3% to 3.25% May of 2023. But there's a lot of head fakes between now and then. And this late cycle phase, because of quantitative tightening and all of the 50% of GDP stimulus that's been out there in the form of fiscal and monetary outlays, still needs to level itself through the global economy, let alone the U.S. So for what it's worth, we're early-late cycle, and that late cycle move could be a very long time, like we saw in 1995. I'm trying to think like in a baseball analogy. So, you know, maybe are we entering like the

seventh inning? That's the early stages of the late part of the game. And a lot can happen between the seventh and the ninth inning. And maybe we go into overtime. Well, that's right. And this overtime, as the show says, doesn't have a runner on second base. So that runner is still in the dugout, as far as we can see. And that positioning in the marketplace is still under positioning. If you're overly allocated to fixed income right now and your statements are coming through, it's not a fun start to the year and you're starting to see reallocation. That's one of the reasons why sentiment, where it was, mixed with a powerful reallocation now needs to be confirmed by profits. If it's confirmed by

profits and the Fed stays diligent but measured, that's where you can have another five, six percent upside to here in a relatively short period of time. I mean, it's sad. I'm going to continue the analogy, though. I mean, the Fed has the opportunity, though, to rain all over the game and then you get a rain out. Isn't that more likely than not at this point? It seems to be a heavier lift to make the case otherwise.

I mean, they're basically telling you that the voting members are and the most significant one, Jay Powell, kind of put it on the table. They're going 50 basis points. They may go the next meeting. It is coming. And there may be more than one. That's right. And quantitative tightening is about to start as well. So you put that into the whole equation and now you have a real tightening move overall. And for what it's worth, when we look at all of that and we say, OK, the Fed has never been this transparent before. They kind of realize that the market community, financial assets, the wealth effect is very important. Their number one goal is still price stability. And inflation is, at least we could all say, a little bit

unanchored at this point. And they're trying to get ahead of that because they're way behind so how do you do that you use communication use words you suggest we're ready for 50 basis points you see how that filters over into inflation expectations and then uh let's be honest supply shock uh if that continues to move forward it's going to be hard just for them bumping rates and doing quantitative easing to get inflation to roll over pretty quickly. We need to see money growth come down, Scott. That has to happen. And if money growth comes down, they stay measured. I'm not going to say soft landing because we need more data, but certainly a measured move in the land. All right. We're going to see. Harker thinks they can pull off a soft landing. We'll see what happens for sure. Chris Heisey, thanks so much. Chris, of course, with Maryland Bank of

America up next, weighing the commodity risk. Are they setting up for another leg lower? We're going to debate that in today's Halftime Overtime. Looking for the best investment ideas and themes in health care right now? Well, CNBC's Healthy Returns is coming up March 30th, featuring CEOs of Walgreens, Johnson & Johnson, and more, plus actionable insights from top investors. You can register to attend at CNBCEvents.com. We are getting some headlines now from the Micron earnings call. Christina Partsenevelis is back with us with those headlines. Christina.

Well, we had the CEO on the call say that the company had diversified their supply chain over seven years ago. So the situation in Ukraine hasn't really hurt them when it comes to specifically raw materials like noble gases. But they did say in their slides as well as in the call, we do expect an increase in our costs as we secure supply of certain raw materials that could be at risk. So they could see an increase in costs. Two forward-looking statements. They did point out that they expect weakness coming from the Chinese market, more specifically about smartphones, PCs, et cetera. And they do think that the semiconductor shortage that we continuously talk about, certain shortages will persist into 2023. And lastly, Scott, I'll end with this. I know we

were talking about the end user. We're talking about a slowdown in PC sales, slowdown in smartphone sales. Micron believes that that will be offset by data storage, by auto and the push towards 5G. So those are three major points right now from the call that is still going on. Back over to you. All right. Good stuff. You get the CEO tomorrow morning on Squawk on the Street, too. So it'll be important to hear from him. Christina, thanks so much.

In today's halftime overtime, is the commodities trade starting to peak and is the space now set for a move lower? Jim Labenthal, earlier on the halftime report, made the case for more commodity outperformance from here. He joins us now live. Jim, so we were talking specifically about your favorite and largest position, and that is Cleveland Cliffs, which, by the way, was lowered today by a little more than 3 percent, but it did close well off of its lowest levels. You continue to make the case that that stock has more to run. Others argue the commodity cycle, at least this part of the cycle,

is topping out. Why is it not? Well, I think it's a nuanced answer to your question, Scott. First off, I'm sorry that my video is not working for you today. But look, I think there are certain commodities where the issues around Russia, Ukraine are going to persist for many years. And oil is the leading candidate there. You're simply not going to get oil past the sanctions that are in place until Putin is out of office. And that may not happen. So oil is going to be in a chronic supply-demand imbalance for years to come. Something like steel, which obviously Cleveland Cliffs plays into, there may be a normalization in the short term in terms of the supply coming online.

But here's where it gets nuanced, Scott. Demand is still extraordinarily high for steel. And so the volumes are high. The prices are high. They may come off a little bit. But the cash flow generation from steel manufacturers, not just Cleveland Cliffs, is going to be terrific. Now, there are other commodities, and you were just talking about Micron a second ago.

You take a lot of comfort from the fact that neon supplies maybe aren't going to be as big a deal in the short term as we feared. This is what I mean by nuance. You're going to have to do it commodity by commodity. Something like oil is going to be a problem for a while. Something like steel, you're going to make money on for a nice while, even though supply may pick back up. And neon maybe isn't such a problem at all. We're going to see. I mean, I'm looking at letter X is up 55 percent in three months. Cleveland Cliffs is up 53 percent. So it's very similar moves there. I'm looking at Nucor,

which is up 31 percent in three months. All of these stocks, specifically related to steel, have moved a lot in a very short period of time. And, Scott, there may be some giveback, as there was today, for instance, with Cleveland Cliffs. There may be some giveback in the short term, but in the long run, and we talked about this. I know you know what I'm about to say. You've got factories being built all across America. And, by the way, in Europe, too, supply chains are reorienting across the globe. And that means construction. You've got demand for cars. You've got infrastructure spending. Basically, you've got a lot of steel demand. And what's missing, the one thing that's

missing is overinvestment. You haven't had that overinvestment in residential construction that you saw 15 years ago. You haven't had overinvestment in technology that you saw 25 years ago. So I just don't see this cycle as anywhere near its end. All right. We'll talk to you soon, Jim Labenthal. Thank you so much. Up next, two top trades in the semiconductor space. We're going to bring you those names in our two-minute drill when we come back. Let's get to our results of our Twitter question of the day. We asked what's the best athletic stock to own right now, whether it's Lululemon, Nike, Dick's Sporting Goods or something else. The majority, 48 percent of you voting for Nike. Wow. Not even close after that company had really strong earnings results a couple of weeks back. All right, our two-minute drill today, it's only 90 seconds. That's how we roll. We can do anything we want

with the clock. Let's get at it with Bauer Rock Capital's Emily Hill. Emily, I apologize for the 30 seconds that we stole from you. Nonetheless, you're on the clock. Your number one pick is Honeywell. Why? I'll talk fast. It's arguably one of the strongest industrial conglomerates in existence. It's a very high quality defensive name that's also positioned for growth. It's in a place where it can capitalize on ESG trends, for example, energy efficiency. we're expecting in the next 12 months. We like the idea of cash flow with growth as part of that. And Honeywell really, it's down about 8% in the last year. It really wasn't positioned well for a pandemic economy. And it's now in a place where it can outperform. Can you give me 10 seconds or 15 seconds or so on Taiwan Semi? Yes. The world's largest dedicated contract chip manufacturer. Its price is depressed in part because the market is concerned about Chinese aggression in Taiwan. And we would argue that the example of Russia, where they've essentially been isolated from the global economy, is going to slightly diminish that risk.

So the name is currently underpriced. Emily, thank you. That does it for us in OT. Fast Money's now.