Closing Bell - Closing Bell Overtime: Stocks Sink in Final Hour of Trade 2/16/23

Episode Date: February 16, 2023

Sofi’s Liz Young reacts to all of the late-day selling in today’s session. Plus, this morning BTIG’s Jonathan Krinsky put out a note saying stocks could be at a turning point. He explains why and what it could mean for investors. And, B is for “bottom?” – Hightower’s Stephanie Link debates if the lows are in for Alphabet. 

All right, Sarah, thank you so much. Welcome to Overtime. I'm Scott Watney. You just heard the bells. We are just getting started from Post 9 here at the New York Stock Exchange. And we have another big night of earnings upon us. DraftKings and DoorDash and Applied Materials will have the reports of the stock moves as they happen. Plus, a big-time market watcher coming right here to Post 9 to argue why an even bigger pullback than what we saw today might be coming. We'll debate that call, what it might mean for your money moving forward. We do begin, though, with our talk of the tape. A consumer piling up debt, the market piling up gains this year, and all of it happening while the Fed is piling up rate hikes and is likely to do even more. Does something have to give? It's the key question.

Let's ask Liz Young, SoFi's head of investment strategy. She's right here with me at Post 9. This speaks to, welcome back, it speaks to the don't fight the Fed versus don't fight the tape. You know, Mester's out today saying, yeah, I would have done 50. Bullard, who's not a voter, but still says, oh, you know, 50 may be needed. What do you make of all this now? Well, you know, what's funny is that if you rewind about a month ago, the market was behind the Fed. The market was saying, we're only going to get up to, you know, five, and then we cut a couple times before the end of the year, and the Fed continued to say, no, we're getting above five, we're going to hold it there,

and now here we are. The market finally agrees. So it's almost as if the bond market, the futures have agreed with the Fed, they listen. The equity market, in my opinion, is still not quite listening. Do you think it's in denial? The equity market's in denial? No, I don't think the equity market, in my opinion, is still not quite listening. So you think it's in denial? The equity market's in denial? No, I don't think the equity market's in denial. I think the equity market is listening to the data about the consumer that's concurrent,

right? That there's retail spending that bounced back, that consumer confidence bounced back, and that services PMI bounced back out of contraction. There are things to be happy about. The labor market is still tight, right? But what I think the equity market is not pricing in at this point or is not worried enough about is that the consumer spending at some point, savings run dry and wage growth is falling. It can't support that level of spending going forward. Well, did you see the New York Fed

number today about debt, right? Debt's piling up. Credit card usage is piling up. Delinquencies are increasing. Is that worrisome to you? That's like a signal that, okay, this can only last for so long. Of course. This consumer strength. Yeah. And I, you know, I question some of the narrative around, we've got all this pent up savings. Everybody's sort of sitting on these stockpiles of cash. Well, the savings rate fell below 3%. We're at, we're at lows in the savings rate. If all the spending is happening on credit cards in a time when credit card rates are higher than they've been in decades, that's a problem. And at some point, people will run out of money. They're not worried about running out of it yet because they all still have jobs and it's easy to find a new job and wage growth is hot. But the PPI numbers today, too,

did not give me a lot of confidence that inflation is going to continue to come down at the same clip that it has been coming down. I think that's another thing that the equity market is hanging its hat on, saying that, look, it's going well. It's going to continue going well until we get to target. And then we all sort of live happily ever after. And I just don't think it's quite that easy. All right. So I just want to let everybody know, I told you at the top that there are a lot of earnings coming out of supplied materials, which, by the way, is out. We're going through it. Our reporter is going to come on in a moment. We're going to see exactly what the stock is moving. We've got Dash coming out, DraftKings as well. And we're keeping an eye on those balls, too. So we're not

going to miss any of that and give you everything that you need to know there. Yesterday, Victoria Green was on the program, said this is the start of a new bull market. And you have been very open and honest about feeling run over by this market to start the year, right? Positioned sort of thinking differently of how it was going to go. So given what she said about this new bull market where you've been, how does it all play out here then? So I think the fight the Fed versus fight the tape is also fundamentals versus technicals. There are a lot of technicals that would signal to people that maybe they look similar to they have in the past during a new bull market. I'm still not in that camp.

I think that we're probably supported in this range between 4,000 and 4,300 on the S&P until and unless something bad happens or until and unless the Fed says, you know what, it's not going the way that we thought. I don't think that a bull market starts at this point in the cycle. I still think that you have to get to the point where the Fed at least pauses. You have to get to the point where at least some of the demand bakes into the data in the economy. And I think the valuations at this level, you don't see a new bull market starting 17, 18 times forward earnings. I mean, then it's like, where are we headed to? When people say, well, what if this time is different? And you just

don't think it is. I think that the rally that we've seen so far this year has been very rate driven. I'm not saying it wasn't true, but I think it was very rate driven. We saw rates come down quite a bit. We saw growth rally. If you look at the sector makeup of that rally, it is all that rate-sensitive stuff. And then even just the sell-off today, almost perfectly patterned in the opposite direction, right? And the sell-off today, I think, was the Fed comments. It was also PPI. So that's rate-driven in the other direction. If it's rate-dependent and we're headed higher in rates, then this bull, what we've seen, this rally is not necessarily a new bit of a sell off today. It wasn't, you know, of any great magnitude. It's not like yields really shot up after Mester and Buller. They were already up a bit today.

But I want to read you something from a note that's being passed around today that's getting probably not enough talk. It's from Citi. And they talk about what they call the missing trillion. It goes to the idea of liquidity being pulled out of the system, allegedly, why stocks have rallied the way they have, and maybe there's more than meets the eye. And they say, quote, when price action diverges from policy rhetoric, what we've talked about, the origins of this year's risk rally lie in obscure technicals driving central bank liquidity. This time, the culprit is not the Fed balance sheet, but rather a decline

in government deposits at the ECB and surges in reserves at the BOJ and the PBOC. These have collectively added $1 trillion in liquidity. At this point, we think most of the boost to reserves is done. It implies that the story for the rest of this year should be one of liquidity drainage and risk weakness. In other words, this whole argument, like all this liquidity has been pulled out of the system, is not necessarily the case if you look under the surface, as they have. And that's what's fueled the market rally to start the year. Not a lot of the other stuff that's being talked about.

What do you make of it? I think it's possible that it helped fuel it. I think there were a lot of other things at play, tax loss harvesting and the bounce back from that, just a bounce back from a bad year in general. You know, I think we do probably overly focus on the Fed. And for a long time, that's really all that mattered here. And that's all that mattered to our stock market and our bond market. There is liquidity around the globe. And if the U.S., particularly the U.S. stock market, if it continues to be the strongest one comparatively, there will be capital that flows in.

So that makes some sense. We know that the Fed is not injecting any more liquidity. And I think that investors still have this muscle memory of constant liquidity and constant sort of pushing the market up because of that. it's dried up, right? And if it's drying up at other central banks, it's dried up around the globe. And now we have to stand on our own two feet without that extra liquidity. Because I know a lot of, you know, head traders at hedge funds who are talking about this very note and passing it around and saying, you know, keep an eye on that issue because it's been critical to why stocks have run up, and it may be also critical to why it can't last.

But Christina Partsenevelos is with us now, ready on Applied Materials. What do we see here? Well, we're seeing a 10-10 beat for earnings per share coming in at $2.03. Revenue also beat at $6.74 billion. Q2, what we want to know, what this company, this equipment maker, is thinking for Q2. It falls into a wide range EPS guidance. It's in range with what estimates were anticipating. Same thing for Q2 revenue guidance at $6.4 billion. However, there was one line in the report that pointed out that in the second quarter, they still believe that they're going to face ongoing supply chain issues. And then they did say that they're going to encounter a $250 million charge related

to a cybersecurity event from one of their suppliers. And that would be, I'm deducing this because they don't name it, MKS Instruments on February 3rd. MKS Instruments said they had a ransomware attack and Applied Materials is a big customer, hence the reason why they're taking a $250 million hit. Nonetheless, you had a beat on the top and bottom line. Shares are up almost 3%. All right. We'll continue to watch that. Christina Parsonellos, thank you very much. Deirdre Bosa is with us now because DoorDash earnings are out. We need to see what's going on here. Dee? Yeah, the stock is popping up more than 12% as investors digest this. It was a

beat on the top line, but a miss on the bottom line and quite a big one. Let me give you revenue first. It was $1.82 billion versus $1.77 expected. So slight beat there. Loss though of $1.65 versus $0.68 expected. And they're saying that has to do with an impairment charge likely to do with its investment in Flick. Gross order volume, this came in slightly better than expected to above $14 billion, but it's probably the guidance that is moving the stock right now, Scott. Better than consensus at the midpoint. Full year adjusted EBITDA, a wide range here though, $500 to $800 million. The street though was expecting $582 million.

I also want to point out a big 60% jump in the cost of revenue due in part to insurance reserves, Dashmart and headcount. Dash Cash members up to over 15 million, up from about 10 million a year ago. So all in all, the street is taking these mixed results well, likely due to that guidance. Scott, back over to you. All right. Deirdre Bosa, thank you very much for that. So one more with you before we broaden it out, Liz. I use the DoorDash thing as an example of a stock of what's happened in the overall market. It's up 30 percent in a month. It's unprofitable tech.

It has, you know, OK, some mixed guidance here. What happens? Stock goes up. Yeah. Some have suggested that the move in these names is, in their words, provoking the Fed by watching whether it's Bitcoin at a sixmonth high, unprofitable and highly speculative tech leading the show. What do you think about that? I don't think it is provoking the Fed. I think that there were dismissive almost attitudes towards financial conditions in the last presser.

And I don't think that they're going to react to financial conditions loosening because of the equity market. I do think that the Fed is going to stay on its path. I do also think that this is another indication of over-risk taking in this recent rally. And I mean, just think about the numbers. If you look at what happened in January and extrapolate that out for the year, we'd be up 100 percent annualized. That's obviously not going to happen. Even after the market low in March of 2009, we were up about 70 percent in the following 12 months. It's not going to persist this way, in this risky of a way. And I think that that's just another indication.

Crypto is another indication. The zero days to expiration, all of that adds up into an over-risking rally. OK, so let's broaden the conversation now. Bring in CNBC contributor Stephanie Link of Hightower Advisors and Cameron Dawson of New Edge Wealth. Ladies, good to see you right here at Post 9. So, Cameron, are stocks, do you think, whistling past some Fed graveyard here or how do you see it? I think it is a risk that yields continue to move higher and that stocks have not seen a valuation correction. So if we look at what drove the

valuation expansion to start this year, it was real yields moving lower. But now real yields are back near the highs where they started the year, but valuations are still 15 percent higher. So if the Fed still matters to stocks, still matters to valuations, then that's where the risk is for this market. You asked the key question, if the Fed still matters, right? There's activity in the market that would suggest that the key question, if the Fed still matters, right? There's activity in the market that would suggest that the stock market is giving the Fed like, we don't want to hear it anymore. We're doing our own thing. Well, I think that part of this is that we are seeing better growth, which may mean that those worst case scenario estimates for earnings are taken off the table for 2023. That doesn't mean that we have a gangbusters

year for earnings, but that 20% downside may be less likely. That supports a little bit, but I think that the reality is we're starting to see these divergences within valuations, within interest rates, and that eventually the market will wake up to that. It's what happened in August of last year. It's what happened in March of last year. And so I think we should be very cautious of that. All right, Steph. So you're bookended by caution. Yeah. And you, you know, have tried to be more positive of late, looking at some of the more positive things that are out there. Are you starting to waver at all as, you

know, people throw out, well, maybe we'll do 50 next time. And you know what? Maybe we'll go in June also. Well, yeah. So I think we're in a trading range, right? But I do think that there is momentum in the economy, as both ladies had mentioned, right? I mean, you look at the Atlanta Fed GDP now, it's at 2.4% for the first quarter. If you look at earnings, expectations are for 0 to 2%. Right now, they're coming in at about down 2%, because we talked about this on halftime the other day. But if you exclude technology just for fun, actually earnings are up 6.5%. So earnings are better. GDP is better. And GDP is better because the consumer is hanging in there. And stimulus, we are $4 trillion higher in stimulus

than we were in pre-COVID, right? So M2 is down. I get it. It's down. It's negative year over year. But you're still at elevated levels. And that is what is fueling the momentum in the economy. And oh, by the way, the Fed, they got to deal with inflation. It's everywhere. It's stickier. It's hotter than anybody expected. And it's going to remain so. So, yeah, we have that piece of it. And that is the reason why I think you're kind of in this range, even though I think there are other positives in the in the macro. But isn't the Fed likely to crush all of the positive things that you mentioned before you got to the Fed? I don't know. I mean, the consumer is 70 percent of the economy. Initial claims on a four-week moving average is down about 9 percent year over year.

That's going to propel wages a little bit higher. So if inflation can come down, if they can attack that, real wages are actually going up. Real income is going up for the consumer. And we are a nation of spenders. You know that, right? Whether we have to take on debt or you're paying out of your cash or your checks, whatever. But I don't want to I don't want to totally discount the consumer as being a real growth engine for the economy. But when you see the data from the New York Fed, as I was discussing with Liz, come out today about credit card usage jumping a lot, delinquencies starting to pick up. It

doesn't give you pause. Everything gives me pause. But I mean, like real pause to say, OK, it's only a matter of time before the consumer finally buckles under the weight of four decade old inflation. I mean, jobs are aplenty, right? Jolts are great. ADP numbers are awesome. Wages are still very high. And I think as long as the job market stays tight, even if we see unemployment go up more, as long as we see it tight, you're going to see better wages. And then the consumer feels a little bit better. And the key is it really is getting that inflation down because if wages are high and inflation comes down, that's really pretty powerful. See, this is a consumer is going to save the day idea. And Steph is not the only one who is more positive, who puts forth that same narrative. Manufacturing, it's a mess. OK, it's in like it's

in recession. I think we can can all kind of agree with that. But as Stephanie said, the consumer is more important right now than that. And it's showing no signs of breaking down. Well, I think we also have to appreciate these long and variable lags. And I think there's a good argument as to why the consumer is less sensitive to short-term interest rates today than they were in prior cycles. Prior to the great financial crisis, 35% of mortgages were floating rate. Going into this year, only 5% of mortgages. So they're not as sensitive. It takes time to work its way through. So eventually it will impact them, but it just is

a matter of time. What do we do with the tech trade? It's the hottest debate in the market now. As I suggested earlier, it's the Kolonovics of the world who say this is crazy. It's only going to provoke the Fed, along with meme stocks. And as I mentioned, where Bitcoin and crypto has gone as well. Would you fade the move or not? It's really expensive based on where rates are. We're seeing the Nasdaq trade at 26 times earnings. That's very expensive with a real rate at 1.6%. Now, I think what's happening today is you're seeing a dispersion where you have strong names that are growing earnings that have good

balance sheets able to win. It's the weaker names. And that's what we're seeing within the meme stocks. Valuations have fallen so much. They started 2022 at nine times sales. Now they're at two times sales to start this year. So the names that are doing well are those that are able to grow earnings and have good balance sheets. Steph, do you want to attack AMAT for a moment? What's reported? Stock was up. I think you own LAM, right? Yes. And I do like semiconductors a lot. And look at analog devices. Yesterday posted a great number, 30% growth in auto and 25% growth in industrial, right? And that's like 75% of their total revenue. So that part is really humming. And that is the common% of their total revenue. So that part is really

humming. And that is the common theme within semiconductors, those two end markets. I like the tool companies a lot because I think the expectations are the lowest, right? The valuations are still quite cheap. And with AMAT being able to beat and give a wide range, that's because 70% of their revenues is foundry and logic versus memory. Memory is the challenged piece, and that's lamb. But I'm thinking that that's more of like we're troughing in memory. So I think you can pick your spots within semiconductors. I do not want to own non-earners. I don't want to own price-to-sale stories.

I don't even really want to own FANG at this point. I own one, as you know, but I want to be very cautious. Meta. Meta, right. And that's because it is so cheap, and there's a lot that they can do in terms of cutting costs. I still like the product. I just want to make sure people knew which one you're talking about. You reminded me all last year when it was going down. So thank you for reminding me. I made up for it because I just brought it up and it's been running. Why don't you leave us with a thought before we move on today? So I would be fading the tech trade here.

I think that this is a little bit overdone, but I don't want to sit here and say, look, yes, I'm still cautious. We can't do nothing for the next six to eight months and wait for this to bake through. So there are still spots in the market, particularly the short end and now the ultra short end of the yield curve. I think gold deserves a look. I think that if you want to get defensive in the equity market, you do utilities instead of staples. I think staples are pretty overpriced. And we have to just watch what happens with the labor market. I think earnings are the big story. First quarter of negative earnings growth. Second quarter of negative earnings growth would be an earnings recession. And then that's where the economy starts to fall down. You still like the two-year, though, is what you're saying. I like

the six-month. I like the two-month. I like the two-year. I like the 12-month. Yes. The short, shorter, and shortest end. Correct. I hear you. Yes. All right.

That was great. Thank you so much. Good to have everybody here. Liz, thank you. Steph, you're going to come back a little bit later. Cameron, it's good to see you here post-9 as well. Let's get to our Twitter question of the day now. We want to know, what side are you on?

Don't fight the Fed or don't fight the tape. You can head to at CNBC Overtime on Twitter. Please vote. We'll share the results a little later on in the hour. We do have breaking news. Do not go away. It's regarding Moderna. Meg Terrell joining us now with that story. What do we know here? Hey, Scott, well, this is on Moderna's mRNA vaccine for flu. Some phase three results coming in a bit mixed and you are seeing the stock dropping in the after hours down now more than 6%. So Moderna is saying essentially the study met the goals against influenza A, which is the more common type of circulating flu,

but didn't meet the study goals against influenza B. Now this is just a study looking at the immune response and the safety of the vaccine. They also have another phase three study running, which will actually show efficacy and protection against the flu that they say they are going to get results on a little sooner than expected. We should have an update by the end of the first quarter. And that probably is the more important one because it actually shows the real world efficacy or at least the clinical efficacy and trials of this vaccine. Now, in terms of tolerability, so important because we know with mRNA vaccines, sometimes they can not feel so great after you get one. They said that this is well tolerated, but they did say that more participants on their vaccine experienced low-grade side effects

compared with the sort of standard flu vaccine that they were comparing it with in the trial, guys. So we know that this is part of the bigger strategy for Moderna to expand its mRNA vaccines beyond COVID to flu and RSV. Ultimately, the idea is to package all of them together. That is several years away. But we are getting the first sort of late stage trial results looking at mRNA moving into seasonal flu vaccines. And it's a bit mixed at this point, although Moderna says it does look pretty positive. Scott, sending it back to you. A key part of the thesis is you just underscored, Meg, that the bulls have for this stock, expanding mRNA to all sorts of other areas. Thank you for that, Meg Terrell,

with the breaking news for us. As I said, we're just getting started here in overtime. Up next, charting today's late session sell off. Top technician Jonathan Krinsky says it could be a turning point for the market. He put out a note citing today was the day to watch maybe most of all. He'll come on next. He'll tell you why. We're live from the New York Stock Exchange. Over time, he's coming right back. More earnings are out.

DraftKings, Pippa Stevens has that for us. Pipps? Hey, Scott. Well, the stock is up 7% here after the company beat both top and bottom line estimates. DraftKings reporting a 53-cent loss for the fourth quarter. That was less than the 59-cent loss analysts were forecasting. Revenue is coming in at $855 million, again, ahead of the anticipated $800 million. The company also raised its full-year revenue guidance, putting it now in line with analyst estimates. And CFO

Jason Park said that they are seeing strong customer retention and improved monetization as promotional intensity declines in their more mature states. Scott. All right, Pippa Stevens with that. Thank you. We'll watch DraftKings shares for the rest of overtime. Stocks meantime tumbling into the close. The major average is closing at their lows of the day. This morning, BTIG's Jonathan Krinsky put out a new note saying stocks could be at a turning point, and maybe today was going to be the deciding factor. He joins us now on the CNBC Newsline.

It's good to have you. So what were you alluding to when you put this note out, talking about today specifically? Hey, thanks, Scott. So there's two aspects here. You know, the first, we know over the last few weeks, there's been a lot of key macro data points. And during a lot of those, early weakness was bought throughout the session. And so this morning, we thought it felt a little different. Now, they did obviously buy it in this afternoon, is the fact that throughout this multi-week period, there's been this divergence, this growing divergence between interest rates and stocks, where we know the interest rates have kind of surged back to the upside, and stocks, by and large, have been ignoring that. But what we notice is that over the last 18 months, there's actually been a pretty consistent lead time between when rates,

whether it's real or nominal, start to move up and when equities start to falter. So pretty much every time over the last 18 months, there's been kind of this one- to four-week lead time. And so we know that real rates bottomed January 25th. So far, the market peaked February 2nd or so. So whether we make a marginal new recovery high or not, it's not atypical to see this kind of multi-week lead between rates and stocks. So we think the move in rates is telling that stocks should begin to resume their downward trend here. What I find so interesting as you talk about that divergence, and that's the word that you used, it goes to our argument or debate at the top of the show, which is raging in the market now. Don't fight the Fed versus don't fight the tape. You are trained as a technician not to

fight the tape, right? I mean, that's the very pedigree and the core of what you do. So how do you reconcile that debate right now when the market seems to be telling you something despite what the Fed is saying and what the fundamentals may suggest? Yeah, I mean, look, there's two parts to, you know, to kind of how we view things. There's the pure price action in a vacuum and there's the, you know, kind of taking the weight of the evidence approach. And one of the other things we've been pretty adamant about is that the entire market action over the last 18 months has really been predicated on the direction of the dollar as well. And we know that the dollar, you know, peaked last September, equities bottomed shortly thereafter,

and, you know, the entire rally since October has been in the face of a weaker dollar. So, you know, from our perspective, we don't think we can get a true sense of the sustainability of this rally until we see stocks act strong in the face of a stronger dollar. And again, so far, the dollar bottoms February 2nd. So far, the market peaked February 2nd. So there's a lot of cross-currents. We will 100 percent admit that the durability of the market has been, you know, more positive than we would have expected. But, again, it's not atypical to see a bit of a lag effect. You know, when you see rates move up, don't be surprised if equities, you know, move down in the subsequent weeks after.

And that's what has been consistent over the last 18 months. I feel like, I know that you were initially pointing to today, but I feel like tomorrow is now set up as an extraordinarily critical moment for the rally. The S&P closes, you know, what, 4090? 200-day moving average is 4088. So you've got two points to go here. We haven't closed below the 200-day moving average for a while, right? So how closely are you watching that line? And if we do breach it and close below it, what does that mean?

Yeah, I mean, that's another counterpoint to the bearish argument that we've spent a lot of time above the 200-day. You know, I think if you were to go back and look historically, you don't tend to spend that much time above the 200-day within bear markets. But that evidence goes back to about 1950. If you go back pre-1950, there was actually quite a bit of times where the market did spend a lot of time above the 200-day and then went on to make new lows. The last thing we'd highlight is that despite all the wild gyrations, the market this week has traded entirely within the range of last week's market,

and last week's market traded entirely within the range of the week before that. So we've now gone three weeks essentially sideways. And to your point, I think it'll be an interesting close tomorrow. And then into next week, there's typically some weakness post-February options expiration. And it kind of seems like the market's set up for a bit of a hangover after all this, you know, buying weakness off of these key macro data points. All right. We'll see what the conversation is literally 24 hours from right now. Jonathan, thank you. That's Jonathan Krinsky joining us on the news line. It's time for a CNBC News Update now with Seema Modi. Hi, Seema.

Hey, Scott. Good afternoon. Let's start with the first story. Senator John Fetterman is being treated for clinical depression at a hospital near Washington. His office says the Pennsylvania Democrat who is still recovering from a stroke has experienced depression at times in his life, but it became more severe in recent weeks, says doctors think he will quickly respond to treatment. After telling reporters the U.S. does not think the three unknown aerial objects shot down over North America were being used for spying, President Biden exclusively telling NBC News he does not think China's leader wants to fundamentally rip relations with the U.S. over the downing of its spy balloon. Justice Department officials in

Washington have taken over the corruption investigation into Texas Attorney General Ken Paxton from federal prosecutors in the state. That's according to the Associated Press. And Tim McCarver, described by Major League Baseball as one of the most influential voices our game has known, is dead of heart failure at the age of 81. He became a Hall of Famer broadcaster after a long career as a catcher for several teams. Scott. All right, Seema, thank you very much for that. That's Seema Modi. Up next, prepare for a pullback. J.P. Morgan's Mira Pandit is raising the red flag on stocks,

saying a recession is on the horizon. She makes her case right here at Post 9, tells us where she's putting her money to work after this break. And during February, we are celebrating Black heritage through the stories of some of our CNBC teammates, contributors, and leaders in business. Here is CNBC senior field producer Karen James Sloan. My parents immigrated to the U.S. from Guyana, South America in 1967 to pursue a better life for their family. During that time, African-American leaders like Martin Luther King and Malcolm X

were helping to pave the way for all black people to have opportunities. My brother and I are first-generation Americans and our parents instilled in us the importance of education, hard work, and to recognize the sacrifices of foundational black Americans that led the civil rights movement. Today, I pay it forward by mentoring young journalists of color. All right, we are back in overtime. Prepare for a pullback. That is the warning today from our next guest who says the U.S. economy is certainly headed towards a recession. Joining me now, J.P. Morgan, asset management's Mira Pandit. Welcome back to Post 9. Thank you for having me. So I would like your take on the rally. And let me correct something

that I said a moment ago as well when we were talking to Jonathan Krinsky. 4088, two points lower than here on the S&P, is the 20-day moving average. I added an extra zero to his notes. So my apologies for that 20-day moving average. All that said, you're looking for a pullback, even more than what we got today. Of what magnitude? Look, you can't have your cake and eat it, too. And I think there's been this market narrative that you can see disinflation and avoid a recession. But ultimately, demand impacts both growth and inflation in the same way. We're either going to see slower growth and a slowdown and disinflation, or if growth is resilient, that means that inflation

might have a little bit more room to run and therefore the Fed has to hike. I think either way, that's a little bit pessimistic for risk assets. And why are risk assets rallying? Ultimately, I think they're trying to pick the best of all the narratives. I want to see disinflation. I want to see stronger economic growth at the same time. I think there's a little bit of confusion here, despite the fact that you see Fed fund futures actually accurately pricing in what the Fed says they're going to do and even going beyond that. I think you see the stock market a little bit too optimistic about where we go from here. Right now, it's reacting to very strong economic data, overshoot on jobs, CPI, PPI, retail sales, industrial production. But I would say that this is probably the overheat

before the retreat in the economy. So when people like, you know, for example, today, Mester, Bullard talk about 50 basis points and now the market is like 50-50 on June. You say stand up and take notice to that more so than some of the other positives that people are hanging their hats on. Look, when we think about a lot of the positives in the economic data, I don't think we've seen a fundamental new driver of the consumer. We're in an environment where rates are high, where we're actually seeing a fiscal drag

because even though government spending is still high, it's a lot less than it has been over the last two years. So those stimulus checks are starting to be eaten into. That $2 trillion in excess savings has dwindled to under a trillion. As was mentioned earlier, higher credit card usage, higher auto delinquencies, savings rate moving lower. So while the consumer right now might be spending,

I don't know that that's going to be durable for the next several months. I know, but, you know, in fairness, I've heard that same argument for the last six to eight, you know, months or so. Consumer can't hang on. Consumer is, you know, consumer is ultimately going to weaken. It just hasn't happened. It's taken some time. And look, sometimes it feels like the stimulus from the last recession, it was enough to carry us through two recessions. But ultimately, if we think about how economic data tends to roll over, we see areas like housing and

manufacturing first, and we've already seen that. Then we start to see profits weaken, and profits are already weakening. I think there's some more to go. And employment tends to happen last. So, yes, consumers are workers and workers are consumers. They're hanging on to those jobs. But even anecdotally, we're hearing from some areas, even outside of tech, where profits are still OK, but you're seeing some job cuts. I think there is a limit that companies hit where they need to trim a little bit on the edges. You're pointing to a reasonably, you know, dour, you know, rainy outcome here. Do you think we're going to new lows? October was it or no? I think that October low is in.

I don't necessarily think we need to go plumb new lows. And the reason for that is just given all of what the Fed has already done. So if you look last year at basically a graph of the S&P 500 and Fed futures expectations, they are kind of a perfect X. Every time you saw people think that the market's going to go to three, four, five percent on that top federal funds rate, you see the S&P sell off more. Now we're in a much tighter range in terms of where the Fed has to go. We're arguing over, you know, a quarter point here, a quarter point there, at most a percentage. You know, 75 basis points was one hike last year for an increment. Those days are over. Right. So I think that we've seen a lot of the hikes. Therefore, a lot of the market sell off

associated with higher rates is in. I don't think we need to see the new lows. But where we are in the market today feels a little bit optimistic and valuations, especially in the U.S., mostly in the U.S., feel a little bit expensive. Does that mean when you underscore mostly in the U.S. that you like elsewhere rather than here? Absolutely. When we think about what we're wanting to buy in this market, people worry, oh, am I missing the rally? Look, U.S. stocks are already expensive. They're above their long-term averages in terms of P.E. If you look internationally, you have international stocks, two standard deviations cheap, a 30 percent discount.

They always traded a discount, but this is a pronounced discount. You're also seeing a lot of good economic data internationally. Forty percent of countries' P.P.I.s or P.M.I.s are above 50. Whereas if that translates to higher earnings revisions upward internationally, we're seeing an environment of downward revisions in the U.S. So I think from a risk asset perspective, that's where we're putting the marginal dollar. I appreciate you being here. That's Mira Pandit joining us right here at Post 9. Up next, and all clear for Alphabet, one halftime committee member says the recent sell-off is over. We'll debate that call next.

Overtime is back right after this. All right. In today's halftime, Overtime B is for bottom. Alphabet shares are still trading roughly 10 percent off of their 2023 highs in the wake of the company's new AI product announcement. But according to Serity Partners' Jim Labenthal, the recent sell-off is over for this mega cap name. Listen. It's been a week and a half since their disastrous response to chat GPT. Stock's down 10 percent. It's about 140 billion in market cap loss. That's enough. It's bottomed. All right. Big call from farmer Jim Labenthal. I mean, you used to own this and you sold it to buy Meta,

the aforementioned stock that's now up a lot that was down last year. Right. What about his call? That's tempting because the stock is still down 30 percent from a year ago and it trades at 17 times. And so, you know, I was kind of looking at it at the end of last year, but I think they're going to have some serious problems in search. They have a 90 percent market share in search. Bing has 3%. Microsoft, you're talking about. That's right.

Microsoft's Bing has 3%. For every 5 percentage point change in market share for Alphabet, that's 9% to 10% hit to operating income and earnings. And so I don't know if we have a sense as to where the numbers are going to go. That's number one. Number two, we got YouTube. That's decelerating. And you had the head of YouTube just leave today, which is disappointing. And then you have cloud, which is fine.

Cloud is still growing at 32 percent, but the margins are negative. So I kind of put it all together and I'm like, I just don't know where earnings are going to come in at. And you have a lot of moving parts at this point. So you think that the Microsoft, you know, AI push was a game changer? I do. You're making the case for that. I do. I mean, it doesn't take much to go from 3% to 10%. Why aren't you looking at that stock then instead of looking and saying that Alphabet's tempting? Because that stock is trading at 26 times forward estimates. So I get it. Yes, I can see a case for that. And cloud is obviously still very exciting for them as well. But I just

think that's too expensive, at least for me. But I don't really necessarily need to buy either of them. I don't have to be involved in either of them, especially when I have still this meta, which even though it's up a lot, it still trades a two multiple point discount to Alphabet. You still look at meta as a project, so to speak, that, you know, you do. You're looking at me, you do. Yeah, I do. I really do. I mean, there's a lot they need to fix. And there's a lot more in costs that they can cut. They cut eleven thousand jobs last quarter, right? In November, when they made that big announcement, four quarters before that, they hired nineteen thousand people. So they have still so much that they can cut, which I think they will.

But I think the jury is still out on reels. They still have to make progress there. But overall, I like their DAUs and M and ma use and I think that they're gonna be around they're gonna be a survivor we just got to get through this slump but I think the easy money has been made on meta but I want to stay with it for the very reasons that I just you're not exactly making a bullish case for the mega caps no no well I don't really think that you don't trust the fact that the valuations have come down enough and I were going like stock by stock by stock by stock.

And you're telling me why they could have further problems and they're too rich. Well, I would say, well, Meta is not too rich. And there's things that Meta can do, a lot they can do on the cost side of things. And I think as they do that, that will get rewarded. But there are a lot of unknowns with Alphabet. There are a lot of unknowns. By the way, there's a lot of unknowns with Amazon. And that stock is extremely expensive.

And he wants to double down on physical stores now? I mean, what do you have, right? It seems a little desperate to me. Well, it's why some of these things actually may deserve the premium that they get, like the Microsoft, doesn't it? Just because, I mean, it's not as much of a premium as it was, right? Well, it's still very expensive for what you're getting, and you have a decelerating cloud business, right? And it's not a foregone conclusion that they are going to be successful with AI and Bing. I'm just making the case for Alphabet. They got a competitor that they didn't have just two weeks ago.

OK. Stephanie Link, thank you. Thank you. All right. Coming up, we are tracking some big stock moves in overtime. Christina Partsenevalos is back with that. Christina. A pair of tech stocks falling on disappointing earnings. And, oh no, steak prices are set to increase at this popular food chain. I'll break down those earnings after the break. All right, we're tracking the biggest movers in the OT. Christina Partsenevelos is back to do that. Christina.

A restaurant chain that boasts the largest margarita menu of any U.S. chain, according to them, is Texas Roadhouse. And Texas Roadhouse shares are dropping 5 percent on revenue that missed by at least 10 million dollars. The restaurant chain blames higher commodity inflation and higher wages for that shortfall. Management, though, says they plan to increase menu prices, including stake, over 2 percent this March. So I guess the margs didn't help. Stock is down 5 percent. Shares of Cognix plunging on an earnings and revenue miss. The machine maker of sensor including stake over 2% this March. So I guess the Margs didn't help. Stock is down 5%. Shares of Cognix plunging on an earnings and revenue miss. The machine maker of sensors and vision systems

also posed a weak Q1 guidance because of slower trends across factory automation. And they also said several large e-commerce customers pausing, quote, most of their investments. Shares are also down almost 8% at this point. And last but not least, Dropbox shares also falling in the OT. Slight revenue beat with guidance that will be provided on the conference call, so we didn't get that number. But I noticed that free cash flow came in light, and that could be what drove the stock down. But now it's back up about 8 tenths

of a percent. Scott. All right, Christina, thank you very much for that, Christina Partsenevelos. Once again, still ahead, Santoli's last word. We find out what he is watching as we head into the final trading day of the week next. All right, it's the last call to weigh in on our Twitter question. We want to know, what side are you on? Don't fight the Fed or don't fight the tape? Head to at CNBC Overtime to vote. We've got the results in Santoli's last word next. To the results now of our Twitter question, we asked which side are you on? Don't fight the Fed or don't fight the tape? The majority of you saying don't fight the Fed.

64 percent. Does it matter that? All right. Let's get to Mike Santoli for his last word. The debate. It's an interesting question because I think you can have various interpretations of what not fighting the tape is right now. I mean,

I think that obviously there's a little bit of a medium-term uptrend in place. You've had better breath. We're trading above the 200-day average for longer than you typically do in a bear market rally. But I'm not sure that the tape has said anything decisive, right? I keep saying we're still below the August highs and all the rest of it.

So I think both of those things are subject to different takeaways. I think part of the point here is that you've got a lot of Fed speak, and you got it again today with Nestor and Bullard. And the market handled it OK. OK, so we closed down. I mean, yeah, all things considered, the bond market just ripped higher on those comments. It's true. It's all happening within this pretty compressed range still. The S&P is flat for the week. You know, last Friday was was actually a down day. So I think that it was interesting that people in the afternoon felt like, oh, no, you know, we had to tear up the script a little bit because as we talked about in the noon hour

today, people probably got comfortable feeling like you buy the open and it's free money because every single day we closed higher. So I think maybe there's a little bit of a threat that we have to be on alert for the character of the market to have changed in the short term. But I think it's tough to draw broader conclusions. Clearly, when the market's been up this much in a few months, you're not trading at cheap valuations. There's a higher bar for what incremental good news it requires to get us to go higher. So we're, I think, trying to assimilate what the Fed really is going to be doing and what it's going to have to do.

And we're in suspense about it. You's, you know, you've made this point a bunch of times that we're not going to have a verdict about whether it's a hard or soft landing, whether it's no landing, whether the Fed's done, whether it's not, whether inflation is back to target. So this is the world we exist in where we have to operate in the gray area. But in this world, we have like an air pocket of stuff. Now, earnings are almost over. Fed meeting not for for a bit. So what what now pushes and pulls us for the next, I don't know, week? I think it is. Unfortunately, I'm sure there's going to be plenty of Fed speak. So we're going to have to see if there's a clearer message that's going to come out of that.

Yeah, we don't get real inflation numbers for a little while. We are still tuning in, I think, to the the the shorter term, you know, the weekly unemployment stuff. You have to watch this this now because it is about, you know, the economy kind of surprising to the upside. So all those things seasonally, things get a little bit choppier, you know, the second half of February. So it wouldn't be weird if we if, you know, if we sort of tested what was really behind the earlier rally. You know, the next time we see each other is going to be next week when we start closing Bell. That's right. We'll all be doing it three o'clock. And I just wanted to take a moment and wish Morgan Brennan and John Ford well as they take over overtime. And of course, my friend Sarah Eisen was going to crush

it at 10 and 11 and you'll see you'll see all of them i think at some point i'll be here uh you know uh the mic is on whenever i get called in front of the camera i'll be here but absolutely uh best to everyone we'll have your life i'm going to make sure your last word is in closing bell too so you're not off the hook don't go anywhere i'll be that's mike santoli i'll see all of you on the other side i have a great evening fast monies now