Closing Bell - Closing Bell Overtime: Stocks Break 2-Day Win Streak 10/5/22

Episode Date: October 5, 2022

Investors weighing what’s next for stocks as markets pulled back following a big two-day win streak. RBC’s Lori Calvasina thinks we could see even more upside – before pulling back again. She makes her case. Plus, Costco released its monthly sales number. What that figure could mean for the other big box retailers. And, OPEC made a historic production cut today … we’re finding opportunity in that major move.

Welcome to Overtime. I'm Mike Santoli in for Scott Wapner. You just heard the bells, but we're just getting started. Just ahead, we'll drill down on today's big move in energy after OPEC Plus announced a major production cut. What the move means for investors in the energy space. But we begin with our talk of the tape. Stocks are racing early losses to finish well off their lows of the day. The move follows big back-to-back gains for investors. The S&P 500 is up nearly 6% just this week. Our first guest says if history is any guide, stocks could see even more upside ahead

before pulling back in a big way. Joining us now is Lori Kalvasina, head of U.S. equity strategy at RBC Capital Markets. Lori, great to have you here. Thanks for having me. It's great to be back. Tell me what we can read into the last couple of days. I mean, we know at minimum that technically markets were oversold. We got this big snapback rally. Things were washed out. Is there anything else at play? In other words, market sniffing out anything about the Fed.

Did we reach anything in terms of valuation support with the S&P at 3,600 or is it all mechanical? So, look, it's interesting you bring up valuation. I've got a below consensus earnings forecast for next year at 212. And when we do the math there, we were at 16.9 times on Friday, and that's right in line with the historical average in terms of a forward PE. So we actually said Friday you may have seen the door open up just a teeny tiny crack for bargain hunters. I think that was part of it.

We also thought 3,500 was going to be a big test for the market because that would price in the median recession. And Mike, I've been traveling all over the country the last month or so, and I will tell you, I still hear a lot of commentary about a short, shallow recession. I think that's still the base case for a lot of investors. If that's your operating assumption, you probably don't really need to go beyond a typical recession in the drawdown peak to trough. Right. So the, let's say, median historical recession S&P 500 loss is 25, 27 percent or something like that? 27 percent, and that takes you to 35.01. And we said, you know, if 3500 fails, you look to 3200.

That's an average recession. That's a 32 percent drop, so 32 percent to 3200. And that would sort of be the next battleground. And interestingly, some of my friends in the technical strategy community have also been talking about 3,500 and 3,200 as support levels. So it all kind of adds up. That is interesting how it does connect. 3,500, I guess, would be half of the entire kind of COVID low to the ultimate peak would be given up. And then some other reasons for 3,200 I have heard as well. It's nice when things like that happen. Do you think that that sort of soft consensus that you cite, that it's going to be a brief and shallow recession, is plausible? Is that

your operating assumption? I think it's still plausible. I think that it's maybe a little early to say that is definitely 100 percent going to happen. I tell clients that I think a lot of it depends on the corporate reaction function between now and year end. And so one of the things that is definitely 100% going to happen. I tell clients that I think a lot of it depends on the corporate reaction function between now and year end. And so one of the things that is different this time is the tightness of the labor market. Now, we know it's not going to stay incredibly tight forever. We know that these metrics are going to deteriorate. But the question is how much. If there's a massive wave of layoffs coming that happens, say, in the December-January timeframe, that might change the trajectory. But for now, we don't think that's going to happen. We think there is going to be some deterioration, but not something really of a major scale. When we got the very strong rally off the June lows in the S&P 500, it carried up

about 18 percent. There were lots of good technical characteristics of that initial rally. But also, you were able to say, you know, maybe we kind of overplayed the imminent recession card into the June lows. At the same time, you could have built a case that the Fed was getting closer to where it had to go. And there might, in fact, be a pivot priced into the forward curve. Fed didn't like that, it seems. Plus, you know, inflation didn't calm down as much as we would prefer. Are we in for another round of that kind of false hope, or is there some more grounding to it now? So look, I think that hope is still alive.

As I've talked to investors, I don't think anybody's pounding the table saying the Fed is definitely going to pivot. I know some of the headlines suggest that. That's not really what I'm hearing. But I do get a lot of questions about, you know, what are the components of inflation doing? There are still people poking around, at things saying the case for moderation is here. And, you know, I think that the Fed is talking a very tough game and investors are listening. But I think a lot of investors I speak with say, well, look, if inflation is moderating and employment's deteriorating, you know, sort of what's the point of keeping this aggressive stance? So I had one client put to me and say, you know, maybe the Fed is bluffing in here. And, you know, I think there's a lot of uncertainty around that. But that conversation is still going on. If not bluffing,

then perhaps the Fed is just saying, we think there's a certain amount we can get done. We're going to see what the economy and the market allows us to get done in terms of higher rates. And I guess in any case, we're a few months closer to wherever we're ending up than we were in June. And I'll tell you, in a strange way, I actually kind of like that the market broke the June lows because one of the things I was struggling with over the summer in conversations with investors, it just seemed like it was a little too early in June for markets to bottom. If you go back to the 30s, markets typically bottom about three to six months. I think it's about four and a half on average before a recession is over.

So if you think this recession is happening 4Q and 1 Q, June was just too early to be the bottom. But having it sometime in coming months is plausible. Now, you have also been looking at the template of the kind of 2001 to 2003 period, I guess, when you did have, you know, multiple waves of of selling and new lows and bear market rallies. And I guess you would say not a very deep recession alongside that. Where does that map take us now? It's fascinating because we actually looked at the 2002-2003 period and the 2010-2011 period because we sort of described those as normalization. You had kind of a triple bottom. You had the big crisis, initial rally, and then you sort of got stuck in a rut for a while.

And we're actually trading this year with a 72% correlation with O2. So it's more like O2 than it was like 2010, 2011. That playbook says, if it happens, that you should bottom sometime in early October, that you should move up maybe 20% or so in November, but then get it all right back and go down and retest the low by next March. And look, that kind of makes sense to me, Mike, because I think there's some excitement building over the midterms again. 2002 was also a midterm election year.

And if you think about earnings, I do think investors, before they're really going to be true bargain hunters, they need some certainty on the E. I don't think we're going to get anything close to certainty on the earnings outlook until that kind of March timeframe once companies have reported 4Q and put those 2023 outlooks out and analysts have finally done sort of the cleanup on their numbers.

Yeah, I guess in the meantime, if in fact you have this period of relief or where some of the pressure gets taken off of stocks, where's the opportunity? Where should you consider still to be risky? So I think it's a question of sort of what your time horizon is. I think one area that's been very de-risked, and remember, I'm an old small cap strategist.

I think the small caps have clearly priced in a recession at this point in time. Their trading, like ISM manufacturing, has already plunged to typical troughs. They're baking in a very big spike in jobless claims beyond the uptick we've already seen, and valuations have been at trough levels. And if you look at the performance, they've been trading sideways relative to large caps since January. We've seen some good days and bad days recently, but they really haven't broken out of that range. So I've described small caps as the lion that's waiting to pounce. It hasn't broken out yet, but the stability in and of itself in that relative trade this year is telling you

something important. Interesting. Let's bring in our market panel to broaden out the discussion here. CIC Wells, Malcolm Etheridge, and Exonix, Peter Cecchini. Welcome to you both. And Peter, now you have also been assuming that we're still in some tough sledding here and that, in fact, relief rallies will come but not necessarily mean an all-clear. What's the current, I guess, set up with this rally suggesting to you? Yeah, thanks, Mike. Yeah, it's that's a that's a good characterization of what our view has been really since fall of late fall of last year. You know, the idea was going to be that inflation was more persistent than Fed thought.

Financial conditions would tighten early this year. And then also inflation itself would do the damage that it typically does to company margins and to consumption. And we're seeing all of those things. And so, you know, to Lori's point about what is a useful and somewhat durable analogy from history. I'm thinking 1970s. And when you look at sort of the mid-1973 into 1974 experience, I think that's more appropriate given the inflationary characteristics of and causality of this slowdown and recession relative to just about any other recession we've seen in recent memory. And I think that's the really tricky thing for investors. That drawdown peak to trough was around 47 percent. And the recession that 1970s investors experienced wasn't the sort of run of the mill average

recession. And so this this this rally, in my view, the beginnings of it anyway, are, you know, your sort of typical bear market rallies or plenty of those in the nineteen seventies on and one of the tells for me of uh... last week was bread on the n y s e bread on the s and p at almost three standard deviation extremes going back uh... forty fifty years of data

relative to the number of stocks uh... forSE above the 200-day moving average. Only 10 percent were, and a roughly similar statistic for the S&P as well. So expected this rally, but don't think it will persist much above 3,900 on the S&P. All right. We are getting some headlines here. Atlanta Fed President Rafael Bostic is out speaking. He says the inflation fight is, quote, still in early days. He's reiterating this idea that the Fed should keep rates moderately restrictive at a level between four and four and a half percent for a period of time, then hold and I guess reassess where we are with the economy.

Malcolm, does that fit into where you think the market is right now in terms of the Fed's posture and what it would like to see or what it, I guess, feels like it's in for? Yeah, I think similar to what's been said, you know, to this point, frankly, including Bostick's point, I just don't think investors should be so quick to think we're out of the woods here just yet, just based on the last couple days of trading because at this point big rate hikes are the only car the Fed has left to play. So they will continue to

play it regardless of what. Flowery language maybe they decide to use to soften it a little bit regardless of what whether it actually has the intended effects of bringing down inflation or not. So I'm concerned that you know that'll

continue to weigh on markets throughout the rest of the year and at least this month as we start to get Q3 earnings. And oh, by the way, aside from the Fed, investors are having to contend, you know, with the fact that the dollar index has reached 20 year highs. And so that'll undoubtedly impact portfolios in the upcoming earning season. If you consider, you know, Apple, Google, Microsoft and Tesla all earn between 50 to 60 percent of their revenues from outside of the United States collectively. And those four names make up somewhere close to 20 percent of the overall market cap of the S&P. So I think earning season

is going to get pretty ugly in the coming days here. And that might be the opportunity that folks are looking for. But not just yet, not just based on the last couple of trading days lori it's interesting because it's it's plausible that analysts have not fully reckoned with the the currency effects uh and maybe still have downside to estimates but it seems like the market doesn't always take that so hard when basically we're talking just about foreign exchange no i think that's fair mike and it's funny because we get a lot of questions on dollar sensitivity and we see all the same things everyone else sees, right? Dollar up year over year, you get downward earnings revisions, weaker down earnings, it's bad for performance.

But you also do tend to see that U.S. stocks outperform non-U.S. stocks in a strong dollar environment. And when you look at the sector sensitivities, things get a lot more complicated. So areas like financials, utilities, REITs, even consumer discretionary companies just simply don't have as inverse of a correlation between the earnings revision trends and the dollars as the broader market does. That risk is more concentrated in areas like industrials, materials, those sorts of areas. Consumer staples is another one. So the risks do get bifurcated. And technology, I mean, it's interesting. Remember, this is a secular growth part of the market. So it

does have a lot of that dollar exposure in terms of just the revenue numbers. But it's actually middle of the pack in terms of earning sensitivity. So it's actually, you know, probably not quite as hit as you might think. Interesting. And Peter, I'd love to drill into the sort of 1970s analogy just a little bit, because it's not clear, is it, that in the 70s, you would have seen things like we are seeing right now, where some of the leading indicators of inflation seem to be rolling over, whether it's, you know, we could look at the used cars, you could look at the expectations piece of it, the market-based inflation, even, you know, more real-time data on things like rents.

Not to say it's all fixed, but I just wonder also, obviously, look how far energy is off off its highs to say that maybe it's just not going to be as intractable as it might have been through the 70s. Well, you know, in fact, I think there was some variability in the data in the 1970s, just as there is now. I mean, there's this perception that there an inflation was a one way trip and that largely was a one-way trip. And it largely was, in hindsight. You know, when you look at long time series, it's sort of human nature to compress what

in real time would have felt like a real contraction or expansion in inflation over a period of months. But the fact of the matter is, is that, you know, oil prices fluctuated during the 1970s not unlike they are now. And I think that's the key here to the analogy. Like in the 1970s, it is a supply side shock that is going to make central banks jobs so hard. And, you know, moreover, the recent sort of rollover in inflation we have was impacted and affected by the reserve, the release from the strategic petroleum reserves into the midterm elections, that's a million barrels a day, which there's not going to be supply

to replace, especially in light of the recent OPEC announcement. And so, you know, we're expecting oil prices to continue to rise from here significantly. And that, not unlike the Yom Kippur War that, you know, catalyzed the price shocks of the 1970s, the impact of that will be felt long after the war in the Ukraine, if it ends anytime soon, and I hope it does, even if that is over. So, again, I think that analogy holds up pretty well. I mean, we certainly had the OPEC news today, was perhaps telegraphed, but even if it's a million barrel a day net decrease,

as some people are basically saying, you know, despite the two million headline, it was good for, you know, barely a move higher in Brent today. I mean, does that not tell you something, Peter? I mean, you know, WTI did move up today. You know, Brent didn't move as much. But, you know, when you look at natural gas prices in Europe as well, Mike, and you consider that that supply is coming off with the SPR reserve

not being continued past midterms, you know, that's clearly going to lead to a substitution effect that, in my mind, that through the winter months in Europe, that pushes oil prices higher. And I think investors sometimes think that prices ought to react immediately on news. And I just think that's a fallacy. Oftentimes, positioning ahead of an announcement, for example, can impact the way a price moves on the day of a news event. Sometimes people will actually sell the news, but that does not mean that the underlying fundamentals that drive price for whatever the asset is won't take over once that positioning move on the day of an announcement is done. So I wouldn't make too much of how oil moved today. And Malcolm, you know, if you say that perhaps you have a little bit of softness still to come on the earning side of things, are you finding areas of the market

that seem like they've been punished too much or areas of the market where you feel like, you know, they simply have not reset enough in terms of valuation? Yeah, I get the sense that Lori disagree with my point on interest rates but for the sake of argument if I actually am close to right on that I think it supports her- analysis that you guys talk through initially about small

caps. I think it supports the rotation into small caps for investors who are looking for an opportunity to- stay invested in the U. S. and not necessarily have international exposure. Because you know obviously the mega cap tech sector that domin in the U.S. and not necessarily have international exposure because, you know, obviously the mega cap tech sector that dominates the S&P has so much of that international exposure.

I think that's where the opportunity set probably is from a different perspective, maybe less technically and more fundamentally. I think the opportunities in small caps that will come after Q3 earnings and we do hear how much of a difference those interest rate, I mean, the strength of the dollar actually does have on earnings, will be the thing that pushes investors looking for opportunity in the shorter term back into small caps. And that's where we see the resurgence that you guys were talking about in that small cap sector.

Yeah, I think the S&P small cap 600 might be at like 10 times earnings or something like that at this point. We do want to get to Costco out with September sales numbers. Courtney Reagan is here with those. Hey, Courtney. Hi there, Mike. Yeah, so Costco is putting up their September sales. Remember, this is one of the retailers that does still give us a glance at what they're experiencing every month. And so for the total company, up 8.5 percent. If you look at the geographic regions, the United States, definitely the strongest. Comparable sales for September increased more than 11 percent.

That was almost double as strong as what Costco saw in Canada. And international was slightly negative. And then if you look at the table that sort of strips out the impact of FX and of gasoline, you can see that the reason that that international number was so weak was because of the strength of the dollar there. Costco shares often don't move very much on some of these numbers because it's a very steady as she goes retailers. The operation is always sort of steady. We know what we can expect from a retailer like Costco. So we've only seen a little bit of stock movement in the last three months. I believe the stock is down just about

1.6 percent. It was down slightly today on these results or ahead of these results, I should say. E-commerce, too, Mike, up just 0.7 percent for the month. That has been an area that's been slower growing for Costco. If you do point out one weakness, perhaps that would be it. Back over to you. For sure. Court, thank you very much. And I mean, not to drill too much, Laurie, into Costco's numbers in particular, but you'd have to say it shows the consumer is still kind of out there either by necessity or will. They're spending at a decent clip. And I think that's something we heard throughout September. There were a number of consumer conferences around the street. We read a lot of transcripts on my team. And that was one of the themes that we continue to hear. And obviously there you know

that doesn't apply to every single company. And we saw some negative market reactions to some of those crumbs that came out. But by and large I think the idea that the consumer may still be more resilient than some people expect. I think that is a theme that is still alive and well. Yeah, and Atlanta Fed GDP for this quarter is back above 2.5%, I think, based on the real-time data. We'll see how that comes through. Lori, thank you very much. Thanks for having me. Great to see you.

Malcolm, Peter, appreciate it. Let's now get to our Twitter question of the day. We want to know, are the lows in for the year for stocks? Head to at CNBC Overtime on Twitter to vote. We'll share the results later in the day. We want to know, are the lows in for the year for stocks? Head to at CNBC Overtime on Twitter to vote. We'll share the results later in the hour. We are just getting started here in overtime. Up next, much more on that news just out of Costco. September sales up eight and a half percent. What it means for the other big box retailers and later how to trade the energy space following OPEC's big production cut. We are live from

the New York Stock Exchange. Overtime, we'll be right back. Welcome back to Overtime. Another check on shares of Costco after the retailer just reported September sales results. You see them down just over 1% here in the after hours. Let's get instant reaction from Greg Mellick, consumer and retail analyst at Evercore. Greg, any surprises relative to what you were expecting in the Costco numbers? I think just surprising durability. We keep thinking that retail sales

will decelerate more than they are. Costco in particular has been outperforming with consumers. They basically are a great way to save money for the middle to upper income consumer. They've won a lot of traffic and members the last few years, and they seem to be sticking with Costco now as things start to slow. Now, Costco just traditionally is a company that does not look really to expand its margins, right? I mean, it's earning on the membership fees, and it kind of passes along value to customers in prices. What's happening in this inflationary period to the company's margins? Well, they've actually been able to

hold their EBIT margins, grow them a little bit. Their gross margins have been under pressure, but because they want so many new customers and grown traffic and sales, they've been able to make up the difference by leveraging their operating costs. So EBIT margins have held steady. You hit the nail on the head. Their membership fee income is a majority of their EBIT. So they continue to show shocking value to members. And that's why the members keep renewing at record rates and why they keep coming back more and more. So if we look at these results and how Costco has just generally been performing, can we infer anything about the consumer as a whole? Or is it simply that they have a good value proposition,

they're going to be a net beneficiary and maybe gain some market share? Or does this show that consumers in general are holding up? Well, I think this is one data point, one month out of Costco. What it shows is that they continue to gain share. I would say from an overall retail sales standpoint, we think sales will grow 7% nominal this year. The fact of the matter is unit growth in retail is probably going to be slightly negative because there's so much inflation in that number. And I think the reason that consumers have been able to fund that inflation is there's over four and a half trillion dollars in consumer household banking accounts,

up from a trillion pre-COVID. So we printed trillions, and a lot of it's sitting in consumer balance sheets. And while they're getting pickier with where they spend money and they want better value from it, they have the wherewithal to not collapse. And I think this this number from Costco just confirms that. Now, you do have a price target of about 550 on on Costco. So showing pretty good upside, that suggests you think that the company is going to be able to sort of retain that super premium valuation it's had for for quite some time. Yeah, we do. We think that because they are not just in retail or consumer, but they're one of the only membership models we can think out there that won millions of new members during COVID. And instead of them dropping afterwards, they actually saw the renewal

rates take off. And so when you have a higher growth rate from that sort of annuity of a membership model, we do think it's warranted to trade at the historic premium that it gets, which is actually slightly above twice the market multiple. So, you know, we think the stock can get back above 500, you know, whether the market's at 16, 17, 18 times. We think that Costco, given that share gain and given the other alternatives out there in this inflationary environment with the accelerating top line, that quality will see its premium again. And are there other of the big chain retailers that you cover that you also like that you think are valued well here or no? Yeah, we're actually going to start a little bit on the other side of

another quality one that's gained share and won customers through COVID. I'd actually highlight Home Depot. The valuation is not, you know, Costco's at 2x the market. It's actually getting down to near a market multiple now. And they've gained a lot of customers, a lot of share. It's just that, you know, interest rates going up could scare people away from anything associated with housing. But we think, frankly, the housing market's challenges could actually help home improvement if a lot of households are basically stuck in place with their mortgage currently set at 3% instead of resetting it at 60% to move across town. So I would pick a Home Depot as one that's maybe pulled back more

this year that we think has been winning share and its compounder attributes. Yeah. Down 30 percent this year. Could be interesting. Greg, thanks very much. Appreciate it. Thank you, Mike. All right. Up next, major moves in oil. OPEC plus announcing a big production cut. What the move means for the energy trade. We are back right after this. Welcome back to Overtime. Time for a CNBC News Update with Shepard Smith. Hi, Shep. Hi, Mike.

From the news on CNBC, here's what's happening. President Biden touring the destruction in southwest Florida today, emphasizing state and federal cooperation in the recovery. We're one of the few nations in the world that on the basis of a crisis we face, we're the only nation that comes out of it better than we went into it. And that's what we're going to do this time around, come out of it better, because this is the United States of America, and I emphasize united. The president pledged federal help for homeowners and businesses in need of emergency low-interest loans,

and he promised the federal government will pay for 100 percent of the debris removal costs for the next 60 days. The U.S. government accusing Russia and Iran of protecting North Korea at the United Nations. Ambassador Linda Thomas-Greenfield telling the Security Council today that both countries are shielding Kim Jong-un's regime from sanctions over its nuclear and ballistic missile programs. All of this comes two days after North Korea launched a missile over Japan. It violated U.N. Security Council resolutions. And the actor Alec Baldwin settles a lawsuit filed by the family of the cinematographer Helena Hutchins. She was killed by a live round on the set of the movie Rust. Financial turns of

that deal with Baldwin and the film's production companies were not disclosed. Tonight, the search and rescue ride-along in southwest Florida, plus the hunt for a suspected serial killer in California, and the rise of the $1,000 a month car payment. On the news, right after Jim Cramer, 7 Eastern, CNBC. Mike, back to you. Chef, thank you very much. Energy is the top performing sector today after OPEC announced the largest oil production cut since the start of the pandemic. The sector has also been leading this week, gaining nearly 13 percent in just three trading sessions.

Let's now bring in Rob Dummell, Tortoise Capital Advisors portfolio manager. Rob, you know, on one level, it's bullish news when you get a supply cut. Clearly, we've been dealing with some concerns about global demand coming out of China and elsewhere. But the market didn't seem to have too big a reaction to it. So does it change the outlook in terms of where the commodity will go from here for you? No, I don't think so, Mike. I think really if you look at what happened today, obviously the OPEC and OPEC Plus nations decided to make a cut. It really offsets really the lack of demand that's coming from China. So China oil demand has basically been nothing or negative this year,

and usually China oil demand 600,000, 700,000 barrels a day. So that's really what that's offsetting. It really sets a floor floor for oil prices, though, from here going forward and allows the energy sector really to continue to deliver lots of cash and return that cash back to two shareholders. Right. Which has certainly been a theme for a while. And is the current level of oil and natural gas prices a comfortable one, I guess you would say, in terms of the industry's ability to keep producing, investing and generating that cash? Or do we need more upside? No, no, this is a good level. I think the way to look at it is I think the market really reacted when oil got over one hundred dollars a barrel here in the U.S. The gasoline price got over $5 a gallon. Consumers

reacted. They didn't drive as much. And that resulted in lower demand. But then once oil prices came back down, gasoline prices came back down, you've seen the consumer come back and continue to drive and drive their cars. And really, demand's been pretty resilient, despite what's going on in the broader economy. And so we can keep oil prices below 100 in the $80, $90 range. Natural gas prices can come down a bit as well, probably in the $5 to $6 range. That's really the sweet spot for energy companies to really deliver pretty strong returns and once again deliver lots of dividends back to shareholders.

Yeah, in that kind of an environment, if that's what we're in for for a while, what particular names are attractive right here? You're looking to play, you know, leverage to the production cycle or just more cash flow? Yeah. So, Mike, what we like at Tortoise is energy infrastructure because there's less of a leverage to the commodity price, more of a leverage just to volumes. And so companies like Chenier Energy, which is the leading LNG operator that's really going to benefit from decades worth of LNG growth globally. It's one of one of our favorite names as well. Energy transfer is another one. You know, it's an eight, nine percent dividend yield. It's going to grow its dividend, keep its dividend growth up with the pace of inflation.

So investors can get a really healthy dividend yield from a really quality company that's been decreasing its debt pretty substantially over the last several years. Oil producers or natural gas producers, EQTs is one of our favorites. You know, you probably had Toby Rice on the show or listened to him, but he's one of the top, really, natural gas executives and really energy executives in the U.S. EQT is the largest producer of natural gas, really, in the U.S., and we just see natural gas as playing such a critical role globally as well as domestically over the next several decades. I mean, with Chenier in particular, I mean, clearly right at the center of so much that's been going on in terms of the LNG market and exports to Europe and all that to meet their heating needs. Stock up, though, 70 percent in a year or something like that. Is there more left? Oh, yeah. Well, when you look at the outlook for Chenier going forward as far as the cash flow that the company can deliver,

this company just turned into really an operating company a few years ago. It was a construction company for several years building this massive LNG infrastructure. And now it's going to spend several decades really harvesting the cash flows from that capital investment that just occurred over the last several years. So there is a significant amount of cash flow. The company's been paying down debt very rapidly, getting it to a level where the company will likely become investment grade very soon. But in addition to that, that's not only the only thing that Chenier's doing. It's increased its dividend pretty substantially, made it competitive with other companies in the S&P 500. But more importantly, it has a lot of

cash flow to buy back stock in the case that the stock would decline, or even at these levels. The company is likely buying back stock even at these levels. So we just see a really strong free cash flow story out of Chenier, a free cash flow yield that's double digits. And if you look at a free cash flow yield double digits relative to the S&P 500, that's five percent. That spread is way too too wide. So we see obviously that spread narrowing, which means the chenier price probably goes higher from here. Yeah. Well, yeah. The other way it happens is S&P goes much lower, I guess, which who knows could be the case. Just quickly, though, I assume if we're assuming, you know, 80 to 90 percent crude, that's not really in a recession scenario, I would imagine. Right. Would there not be downside if you did see a severe economic downturn? Well, that's a good point. So typically

in a recession, you could see a million, million and a half barrels a day globally of demand destruction or temporary demand destruction because of the recession. We're just in a different environment this time, Mike. Rarely have we gone into a recession, at least in my 30 years of looking at energy, with global oil inventories at such low levels. Inventory levels are so low. And so you can actually have global supply actually exceed demand really for the next year. And all that will do is really get global oil inventories back to what's called normal, the five-year average. And so I just don't see a mild recession really having a huge impact on the oil price. Now, obviously, significant recessions like we saw with the financial crisis, what we saw with COVID had a huge impact on the oil prices. But we've gone through other recessions over the last couple of decades and they've had minimal impacts on on the oil price. All right. Good context,

Rob. Appreciate it. Thanks for the time. Thank you, Mike. All right. Up next, a top tech pick for your portfolio. One money manager making the case for this trillion dollar company. We'll bring you the name just ahead. Overtime will be right back. We're back in overtime. Stocks finishing the day in the red, but well off their lows. Let's break down today's action with Ryan Dietrich, Carson Group chief market strategist. Ryan, great to talk to you. You're good for crunching the numbers on these dramatic market days like we've seen the past couple, Monday and Tuesday. Pretty historic levels of kind of intensity to the upside. What does it tell you if you look back at other periods and how does that fit into your general outlook here for the rest of the year?

Yeah, Mike, thanks for having me. Kind of a last minute scramble to come on with you. And I'm honored to be here. You know, you think about it. Yeah. You think about it. We just had the 5.7% bounce the first two days of the quarter. Best first quarter since the second quarter, 1938. People here in 1938, they think, oh, that's got to be bad. Stocks actually had a really good year the rest of that year. But you think about it, Mike, you know, it's the fourth quarter.

And I get it. A lot of these things haven't worked. But in a midterm year, the first three quarters aren't that great. October is the best month of a midterm year. November is the second best month of a midterm year. And December is the third best month of a midterm year. When you factor all these things in the positive seasonality tailwinds that are now here that were not there earlier this year with the extreme negative sentiment, with the retest of the June lows, we get it. There's been a lot of banana peel slips this year with the extreme negative sentiment, with the retest of the June lows, we get it. There's been a lot of banana peel slips this year. But I'll tell you, Mike, we think, you know,

this could be the start of a pretty decent size end of year rally. It's interesting you characterize it as a retest of the June lows. Of course, you had a slight undercut and things like that. You also did get one of those, I think, October 2011, where there was a pretty good bottom in the early part of that month as well. And the market has kind of just hung around those levels for a little while as yields raced higher, as the dollar raced higher. Aside from the seasonal stuff and the midterm patterns, are there things you're seeing internally in the market that say, you know, we might have gotten sold out for a while? Yeah, I mean, you know, you mentioned we violated small caps didn't, right? There's a lot more small

caps than large caps. So we saw that positive sign there. Also, you know, credit markets, look at credit spreads, right? High yield spreads did not go above where they were in June. I talked about some of this stuff over the weekend. These were baby steps in the right direction that maybe you could have some type of a bounce. And honestly, let's just talk about today. I was on a plane this morning. I flew. I'm in Omaha at our home office here at Carson Group. Stocks are like all the way back to flat.

I mean, when I got on the plane this morning, they weren't, right? So that buying pressure, the follow-through that we saw after a really strong two days, I think is really impressive. What have we seen all this year? These big rips higher, and then you give it up really soon. Now, we know we're not out of the woods. But just today's reaction, my goodness, Mike, you got to think that's pretty positive. And I guess the other piece of it is, I mean, there's always a sensitivity when you've been going down for nine months in the market and you don't want to get trapped with a run to new lows. But if you extend out the time horizon in terms of how things tend to go after the market's down 20 percent or whatever you want to say in terms of after you've been in one of these skids, what does it tell us?

Yeah, Mike, we were down 25 percent in this bear market as of last Friday. There have been six other bear markets since World War Two that got down that much. If you just bought the day down 25%, a year later, you have a median of 26%. Bottoms about a month later. The ultimate low is about a month later. But that's kind of skewed because of 73, 74, the tech bubble and financial crisis. So this is more of an average bear market with an economy that's still not perfect, but relatively healthy, can avoid a recession, still our base case. This is probably an opportunity here. And I know it doesn't feel like that because everybody's just been so beat up this year when you look at 60, 40 portfolios, what's happened. But you mentioned the dollar. One quick thing on

this, I know guests have talked about this, the dollar finally coming down, right? No offense to Businessweek. Businessweek had that thing about how the dollar never goes down anymore, that cover story. You talk about contrarian things. That might have been one where everyone's bullish in dollar. Now the dollar is coming down. That could be the big driver. A weak dollar could help risk assets come back the rest of this year and maybe even further into next year. So if you're pretty confident that things line up to say that we have a good shot at being higher over the course of through this year, does that mean that that we run into some some friction after that? I mean, we've been talking about this cadence of, you know, a late year low,

but then a retest the following. Yeah, I mean, potentially, but I'll just put it this way, right? The fourth quarter of midterm years, if you look at a four year president cycle, fourth quarter midterm year, we are right now is really strong. Next quarter is the best quarter out of 16 quarters. The quarter after that, so the second quarter next year, is the third best quarter out of 16 quarters of a four-year cycle. So we could have a retest, but these seasonals are really in our favor. And those are things we wouldn't want to ignore with an economy. Last point on this, if we don't have a recession, we don't think we will. You look back, non-recessionary bear markets might pull back 24 percent. We just pulled back 25 percent. It didn't feel good at all.

But honestly, this is kind of run of the mill what you tend to see in a non-recessionary bear market in our view. Yeah. If you if you if you pan out, that's the way it tends to look. Brian, thanks a lot. Appreciate it. Great. All right, still ahead, we are tracking the biggest movers in overtime. Seema Modi, what's on deck? Hey, Mike, the Twitter story continues to get more and more interesting. A new report from Reuters suggesting a large investor is not on board with financing Elon Musk's deal. We've got the details after this short break. We're tracking the biggest movers in the OT.

Seema Modi has them for us. Hey, Seema. Mike, let's start with that story on Twitter. Reuters is reporting that private equity from Apollo Global is no longer looking to lead preferred financing for Elon Musk's proposed purchase of the social media giant. We are watching shares of Twitter down about three- three tenths of one percent here in the OT. Now, remember, shares of Twitter did close down today after gaining about 22 percent in yesterday's trade after Musk signaled he would go ahead with his 44 billion dollar acquisition of Twitter. Let's check out at Leisuremaker Under

Armor. Shares are moving higher in the OT, the company announcing changes to its leadership team, the company getting a new president of the Americas, David Baxter, and a change in position of chief legal officer. It comes as Under Armour cut its profit outlook for the full year back in August as promotions continue to eat into margins. Shares are down about 64% on the year. And let's end on Splunk, the company filing a lawsuit against Kribble in federal court of Delaware, alleging patent infringement, copy infringement, unfair competition, and other claims. The stock is not moving in the overtime, but down about 22%, 28% rather in 2022. Mike, I'll send it back to you. All right, Seema, thank you very much.

Up next, a top tech play for your money. One money manager is making the case for a stock that's lost nearly 30% this year. We will reveal that name in our two-minute drill. Last call to weigh in on our Twitter question. We want to know, are the lows in for the year? Head to at CNBC Overtime to vote. We will to know, are the lows in for the year? Head to at CNBC overtime to vote. We will reveal the results after this break. Plus, our two-minute drill. Overtime,

we'll be right back. Let's get the results of our Twitter question. We asked, are the lows in for the year? 62% of you saying no. That's just another bear market rally. That's a pretty significant wall of worry, if that's what this is. Well, it's time now for our two minute drill. Joining us is Margie Patel, portfolio manager for the multi-asset solutions team at All Spring Global Investments. Margie, great to have you. Did want to get to some of the names. You got one. We've been teasing it. It's a big trillion-dollar company. It's a widely known name, Microsoft. Clearly checks all the boxes off on business and balance sheet quality,

but is the valuation in the attractive zone to you? Well, I think so. It's had a big correction so far this year. It's a PE of about, say, 24 times. It has a dividend yield of a little over 1%, but they've been raising that dividend at about a 10% rate. And we think as we go forward, companies' ability to raise a dividend is going to be more important in valuation. They have the ability to cash flow. And we think larger companies are going to do better because the real risk to the market isn't so much from any industry, but what the Fed is going to do.

So we want to see big companies, very sustainable. And so Microsoft really fits the bill on that. Yeah, certainly, certainly defensible business and all that. L3 Harris, defense, electronics, what's attractive there? Well, again, I think it's a it's a large company. It has a very strong position in the defense and aerospace industry, communications for surveillance, intelligence, reconnaissance. About three-quarters of the revenue come from the U.S. government. So we think that's a pretty solid source. And we think with what's going on in the world that we think that demand for their products will increase. They're

reasonably priced at about 16, a dividend of 2%. Again, they've been increasing the dividend about 15% rate. So that fits that bill. Having a quick word on Thermo Fisher, a $200 billion company we don't talk a lot about. Yes, again, very large, very diversified company, very strong positions, lab equipment, consumables, tools and devices for the health care industry, for pharma and biotech. They only recently started to pay a dividend. It's pretty small, but it's on the course.

I think we'll see rising dividends from that company. Yeah. Margie Patel, thank you very much. Three interesting ones.