Closing Bell - Closing Bell Overtime: Stocks vs. the Fed 4/6/22

Episode Date: April 6, 2022

The FOMC minutes sent stocks lower and major averages posted 2-day losing streaks. Josh Brown from Ritholtz Wealth Management and Tom Lee from Fundstrat Global Advisors discuss how investors should navigate the Fed's next moves. Plus, Nancy Davis from Quadratic Capital Management explains why there could be potential for more volatility ahead. And, Michael Santoli gives his last word - "testing."

Welcome to Overtime. I'm Scott Wapney. You just heard the bells. We are just getting started right here. In fact, in just a few minutes, we'll speak exclusively to Quadratics Nancy Davis for the latest on market volatility and her best ideas right now. We begin, though, with our talk of the tape, your stocks versus an adversarial Fed. It's the kind of main event we haven't seen in more than a decade. So what does all of it mean to your money with yet another volatile market day to digest? Let's ask Halftime's Josh Brown, the CEO of Ritholtz Wealth Management and Fundstrat's head of research, Tom Lee. Both, of course, are CNBC contributors. It's great to see both of you. Tom Lee, I begin with you. You sat on this set a week ago or so and suggested that the lows of the first half were in. A lot seems to have changed

since then, certainly from the Fed. Do you stand by that call right now? Scott, it's a call that's looking really tenuous, but we still think the lows for the first half are in, maybe even the lows for the year. And it's not because the news has been great, as you're pointing out. Things have been really grim. The Fed's quite hawkish. We've got some bad inflationary data. But the confidence we have about the lows being in really reflects what we think is pretty extreme positioning by institutional investors. I think institutional investors have really positioned for a pretty deep contraction. You know, the latest J.P. Morgan Prime brokerage data shows it's where it was in like April 2020. So if the news becomes less bad or if the news tracks what people expect, we're actually going to expect investors to re-risk,

which means the stock market kind of has a general underlying bid by hedge funds. But Tom, you put out a new note today. And one of the key principles that gave you some comfort was that the S&P 500 was above its 200-day moving average. I'm not sure if you've seen how the numbers have settled out, but in the here and now, we're back below the 200-day moving average. And we closed below the 200-day moving average. That cannot be a good sign. Yeah, Scott, that's not a good sign. You know, 4490 is a 200 day. And generally we want the index to be above the 200 day because it's in an uptrend. So you're right. It's it's in a moment of indecision. However, I would just caution

the index was over 8 percent below its 200 day and then recovered its 200-day. And since 1942, since World War II, in the non-recession years, 90% of the time the stock market was higher six months later. So it's a pretty important signal that we actually made a huge move below 8% to the 200-day and then recovered. So it's not pretty today, but I still think that we still generate a lot of signal by making that recovery. All right. So Josh Brown, I want you to react to a tweet from Jim Cramer just a short time ago in which he says, quote, we're seeing two markets. The non-tech market is out of the bear's grip and can be bought. The tech market soon enough. I like the inexpensive non-tech stock portion very, very much. The bear market in that group has run its course and these stocks are headed to highs.

What exactly is he referring to? What do you think about what the point that he makes here? Well, without a doubt, there are many, many, many stocks acting better than tech stocks. I don't know that there's anything particularly profound about the fact that we have dispersion in this market. I could look at biotechs, for example, barely red. Those are supposed to be speculative stocks, but I think people understand they're down an average of 30 or 40 percent from their highs. And the science that they're pursuing is completely unaffected by the macro economy or the Fed. So like that's an area where if you're a growth manager and you say, OK, what's going to grow if the Fed slows the economy? Look toward mid cap and large cap biotech. That's

reasonable to me. If you're worried about inflation, look at high dividend paying oil companies that are about to report record profits. That's reasonable. Utilities look good. So I don't think we're saying anything special. Big picture. I come on here every week since January. I continue to give people what I think is the most reasonable playbook. You can't get too bearish because in the end, the best cure for the inflation blues is the growth you get from corporate earnings, dividends and the U.S. stock market. But anytime you see that VIX tick below 20, which I think is the new bottom of the range for the regime that we're in since coronavirus started two years ago. And so we saw 19 VIX on Monday.

That was it. Start calming down. Start taking things off if you're a trader. Don't overstay your welcome. We had a nice run. Now the VIX is spiking once again. Back toward 28, 29, 30. Don't stay too bearish. There are buyable stocks at those VIX levels. That's when people get too bared up. And I agree

with Tom, a lot of what's going on now is positioning. The only thing I want to say about positioning and the only problem with that idea is that it's not quite what it used to be. Meaning, yes, people might be getting risk off in the stock market, but keep in mind how much risk they're taking in private equity that they weren't taking years ago. It's like five trillion dollars in PE funds. Look at venture capital. Crypto is two trillion. So there are a lot of risks that are being taken by institutions that are not stock market risk. So I don't lot of risks that are being taken by institutions that are not stock market risk. So I don't know that we could still rely on how bullish or bearish positioning is

based on the old metrics from a prior time. I'd love to hear what Tom's take is on that. Well, let me ask you this first, because Jim's clearly speaking of defensive stocks, which have remained strong, as you said, utilities and the staples. And you make an interesting comment. I come on here since the beginning of the year and we talk about the playbook. And I wonder if yesterday's playbook works today, given what Brainerd had to say, what Dudley wrote. He basically said the Fed is not your friend. In fact, it's not even close to your friend. It's your adversary. And they want stocks to go down. That's wrong. And they're going to make stocks to

go down. That's wrong. That's wrong. That's wrong. I'll tell you why that's wrong. The Fed is your friend. They're doing this for a reason. It's not good for the economy and ultimately for earnings to let this run wild. The Fed is your friend. The nonsense has to stop. The nonsense. The trading of digital JPEGs amongst people who don't have a job. It's got to stop. 19% year-over-year increases in home prices.

Did you read Barron's this weekend? They think 2 million people are going to be locked out of the housing market this year because of unreasonable costs. The Fed is your friend. The nonsense has to stop. We did an extra year of stimulus that was way unnecessary, and that's what's being unwound now. And it's going to be a better entry point for investors once we clear the once we clear the decks. Tom, the nonsense has to stop. It's going to stop one way or the other. And Bill Dudley lays it out clearly today. It's going to stop because the Fed's

going to stop it. And he says, and I quote, if stocks don't fall, the Fed needs to force them. One thing is certain, to be effective, the Fed will have to inflict more losses on stock and bond investors than it has so far. Investors should pay close attention to what Powell has said, right? Josh is right. Is it good in the end? Of course. Is it going to be painful as heck if the Fed has to do what Dudley suggests it does? You bet it. You bet it will be. And I wonder if you're ignoring those risks to the stock market, which the Fed is screaming at you and the stock market seems to be Fed is screaming at you and the stock market seems to be at least part of it snoring. Yeah, I I would say that the Fed communication is 80

percent of their policy. So nobody should ignore what the Fed's saying. I think in a way what Josh it ties into what Josh is saying, which is there is a pretty large adjustment taking place in valuation of assets, not just public equities, but it's really privates and venture that need to be marked down. They're really going to be affected by tightening financial conditions because a lot of these, one, didn't have any marks, but also their access to capital isn't as liquid as large cap publicly traded companies. The tech sector, which is kind of linked to all this, has already made a huge correction. I mean, down 24%. I mean, that's already a bear market. So

to an extent, I don't know what, like when you hear about Fed policymakers and job winning and communicating, and I think really trying to calibrate market expectations, I don't necessarily think that means the S&P has to itself make a visit down to 3,500 because there's no level here where the S&P gets to that cures inflation. It's really a process of calibrating market expectations around inflation and then actually having delivered inflation lower. So I think we're in a dead zone. I think that ties into a treacherous first half. But I also think that 4000 on the S&P, which was the February 24th low, is a pretty important level because that was pricing in two thirds of the chance of recession.

So I don't think that we get back to that level. So Josh what what am I supposed to do if I'm an investor in technology today and I witnessed the last couple of days and brain or really started though the waterfall maybe Dudley poured some on it and then the minutes today certainly suggest that the

amount of Q. T. is going to be a bit stronger than the market initially thought in the last couple of days for example I've got snowflake down eleven percent Salesforce down eight, Palantir down 10, DocuSign down eight. I mean, I can go down the list,

even to the big caps, Microsoft and Apple and Google and Amazon and Nvidia given some decent amounts back over the last couple of days. What do I do with those today? I think most investors are positioned in such a way that they can weather what's already happened. To Tom's point, a lot of this damage has already taken place.

We're just revisiting levels that we saw at the end of February. We're not necessarily carving out new lows in the tech large caps. And I think most investors are not overexposed. Bear in mind, there are substantial losses taking place all over the world. But in places like, for example, SoftBank North Star Fund or some of the Tiger Cubs that became crossover investors, those are big boys. They can weather that. They will be fine. They'll all be billionaires tomorrow. Most investors right now have to focus on a couple of things. Number one, liquidity. Are you invested in such a way that if you need to get access to money, you can? If that's going to be an

issue with the way your portfolio is set up on the next massive rally, do something about it. Are you diversified? Is any one sector going to make or break your life? I know a lot of young people are like 80% tech and consumer discretionary. You have an opportunity now. Fix that. There are other places to be invested that are non-correlated with the growth trade, to Jim Cramer's point. So you have a playbook that you can make moves today when you want to before you have to and it's too late. Great points you make. Should I, to expand on Kramer's point and yours, should I continue to ride what he calls an outrageous bull market in consumer packaged goods and drug stocks? Should I continue to play that?

Is that the winner in the environment in which we describe? I think the tragic answer that I have to give you and the very intellectually honest answer is that if in fact we're still in the grips of this bear market that I think started probably sometime around November, if we're still there and the evidence says we are, the lack of new highs is the tell, eventually they're going to get to everything.

We are already anecdotally hearing stories about consumers trading down from craft to generic brands in the supermarkets, not because it's a full-blown recession and they're worried about their jobs. In fact, it's the opposite. Their wages are not keeping pace with the cost of things. So even in an inflationary environment, you would have to worry about the staples because they're not going to keep those margins and they're not going to keep the consumer pulling their products off the shelf where cheaper alternatives lie.

And the best example of that, look at the divergence between Walmart and Target or Costco and Target. What do you think is happening there? Walmart and Costco are consumer staples. Target is consumer discretionary. That's why those stocks are being treated differently. Think about the mindset of the consumer. 20 to 40 percent of consumers are looking for ways to cut back on costs. And that's at full employment. OK, so the staples ain't going

to save you. What I don't quite understand, Tom, from your point of view is don't fight the Fed. We say it every time. We've been saying it since 09. Don't fight the Fed on the way up. So why are we trying to fight it and be cute potentially on the way down? Right. Sam Zell said it last hour. There's no substitute for liquidity. The liquidity is being taken away. If liquidity gets you way up on the top of the wave, if you pull it away, the wave crashes. It doesn't seem to be any more difficult than that. Why is it? That's right, Scott. You're right. I think it can come across that we're trying to weave too narrow a line. I mean, we still think the first half is treacherous for all the reasons that we've discussed. And the S&P below its 200-day isn't a positive

development. But I think that February 24th is still a key level to watch because that was S&P 4,000. That's what we think is the low for the year because of what it discounted at that time. And again, I think you're absolutely right. And I think everybody who's watching this should be, should understand the Fed is not dovish. They're trying to adjust and really communicate to the markets. But it doesn't mean every stock is dangerous. And even Jim's point and Josh's point, energy's held up really well. I think some of the defenses are certainly doing quite well. But even large cap tech, I think, is really now at a point where seasonally it actually gets kind of attractive.

So I think a lot of bad news is priced in. But yes, this doesn't mean stocks go up into the right. I think we're in a really tough zone, but I'm still a net buyer of stocks here. OK, let's welcome in our senior economics reporter, Steve Leisman. I want him to join the conversation. What I want to know from you, first and foremost, Steve, is how much has really changed for investors over the last 48 hours from Brainerd to the minutes, Dudley and everything combined? It depends a bit on how much they were paying attention, Scott. Right. If they were not paying attention to what's largely been out there on the Fed balance sheet reduction, it may seem like the Fed went from zero to $95 billion overnight. But for those who are paying attention, our survey showed somewhere between $75 and $85 billion. This is marginally more aggressive. It's a quicker ramp up to the full number, $95 billion.

So it's a little bit more aggressive. And then you're going to combine that with the new idea, which is out in the last couple weeks and affirmed in the minutes today, that they're probably going to do one or more 50 basis points. So we're probably looking at having a back and forth with Barry Knapp on this, Scott, as to whether or not this is equal to more aggressive or less aggressive than 1994. But it's around that kind of magnitude of the 1994. And by the way, we survived that. It wasn't pleasant or pretty in the bond market, but we survived it. We went through it. And the question is whether or

not that's enough to get a hold of inflation here. Does the fact that it's more aggressive, and I think we can all agree that it is, does that in and of itself underscore the doubt in the room from the Fed that they can pull this off and they need need to get a handle on it, and they need to do it now. You know, we talked about that last week, Scott, what the Fed itself is saying about the outlook here, that they say, yet Esther George say, a soft landing is possible but not guaranteed. You had Fed Chair Jay Powell saying that a soft landing,

there was some possibility of it happening. I'm not sure that a soft landing, there was some possibility of it happening. I'm not sure that a soft landing is actually in their forecast, but I think what the Fed wants you to understand here is they're willing to do the hard landing in order to get control of inflation. And there are some people out there, there's Larry Summers, for example, who feel that's exactly what the Fed will have to do, is to slow the economy down below potential growth or sorry down below zero and contract the economy in order to get a hold of inflation the guy remains to be seen the fed could get some help from the fiscal side supply chain stuff bringing people back into the workforce uh some

demand destruction from higher prices all that stuff could give the fed a little bit of a hand here but there are those who think you've got to raise the funds rate above, at least above negative, where it is right now on an inflation adjusted basis. So that could mean a three or four percent rate. Right now, the market has 200 additional basis points. Call it 240, 245 for December this year and then up towards three percent for next year. You know, Josh, of all of the important things that Mr. Leisman just said, I think the most important one is they're willing to do the hard landing. They're willing to. They're willing to rip the Band-Aid off. They have no choice. And that hard landing means that stocks are not where they are today. And they are potentially a lot lower than where they are today.

And they're trying to get that message across. And some investors don't want to listen to it. Yeah, the market is now pricing in 250 basis points approximately worth of Fed action this year. We learned that the Fed was willing to go 50 basis points in March and would have if not for the invasion of Ukraine just a week and a half prior. That's like meaningful because it backs up what Steve is saying. Look, I hear a lot of people come on and talk about buying opportunities. And yes, there are currently and will continue to be. But to have this overall market view

that everything's fine because of valuations or whatever, you really should be nowhere near a Bloomberg terminal if that's how you're looking at this. Technicals, technicals are what are going to tell you what's going on and what the not things that don't matter in a moment where the Fed could conceivably do three straight months of 50 basis point hikes. Because no amount of conference press conferences are going to change the fact that that is a substantial difference in the liquidity situation from where we were just three months ago. Steve, real quick, and then I'm going to give Tom Lee the quick last word. Is there any scenario in which the Fed goes a full point?

I don't think so, no. And I want to push back a little bit on Josh here. Josh, you're right. It's taking liquidity out of the market, but that doesn't mean we're necessarily going to have a liquidity crunch here. You're going to take liquidity away from some people who don't deserve it and are going to be crunched by that. I'm just making a distinction here, Josh, between the idea that we don't at the moment have a taper tantrum and we don't have a liquidity problem inside the bond market. We could get there and that could cause the Fed to

pause. But right now we have losses. We have higher yields. We don't have a liquidity question. I want to make that short term versus longer term distinction. I got you. Rest the pipes. We're going to see it on fast money in just a little bit, at least. I appreciate it very much. I know you hustled to make this work and we do appreciate that in overtime. Tom Lee, quick, last word. Well, I think it's, again, a really tricky time for investors, but it's important to have a view, both long term and short term. And I mean, I agree. I think it's a very tricky period. I still think February 2020, 24th are the lowest for the for the first half, maybe for the year. But again, it's it's not smooth sailing in the first half.

Tom, a lot of people listen to what you say. They certainly do, because I can see on Twitter that people hope you're right. Thank you for coming on. That's Tom Lee joining us in overtime. Josh, I'll see you soon for sure. Thank you as well for your time today, too. Let's talk about our Twitter question of the day. It plays right into this conversation. We want you to be part of it.

Where do you think the S&P 500 will be on June 1st? Higher than today? Around current levels or below 4,000? You can head to at CNBC Overtime on Twitter. Cast your vote. We'll bring you the results at the end of the show. Up next, we have a trade alert in the OT. Stephanie Link is making some late day moves. She's ringing the register on one tech name. She'll join us on the news line and tell you exactly which one. And later, much more on today's sell-off. Quadratics, Nancy Davis is with us. We'll find out now how she's playing volatility,

particularly in fixed income. We're back in overtime after this. Welcome back. We have an alert in the OT. Hightower Stephanie Link making some late-day moves in her portfolio. She wants you to know about him first right now. Hey, Steph, what's going on? What are you doing? Hey, Scott. So I am selling out of HP Enterprises and I'm buying Walgreens just to kind of set the stage on technology in general. You know, I have been narrowing the number of technology stocks in my portfolio over the last month, month and a half. I want to own fewer names, but I want to be in position to add to the ones that I like and make them bigger. So I've sold Lamb Research. I've sold NXPI, now HPE. But I have been buying Facebook,

Fortinet, Apple, IBM, and Cisco. Those five names are my workhorses, and I want to make them bigger on days like today. I like what HP is doing on their cloud strategy, but I worry about the potential double ordering as supplies improve, but I worry about the potential double ordering as supplies improve, and I worry about their elevated inventory. So my average cost is about, I made about 17 percent, and so I think it's prudent to trim that one. Walgreens, the stock's down 15 percent year-to-date, trading at eight and a half times earnings. The historical average is 10 times. The CEO, who has been there now for a year, by the way, she came from Starbucks.

She was the COO, putting a really good restructuring plan in place in terms of cost savings, asset sales, and also focusing on health care. They want to be the pharmacy of the future. They want to be the leader in local clinical care services. I like what they're doing, and I think the stock is just too cheap and oversold. And real quick, I got to run, but it sounds like you're playing right into the narrative that we were talking about with Josh, Tom and Steve. Yeah, I mean, I hear you on technology. You know, I have been underweight for a very long time in tech and I have been adding over the last month to these other names. I just want to be more selective. And yeah, I mean, I think when something like a Walgreens trades at that kind of a multiple and it's also

more of a defensive has defensive characteristics, I don't I have no problem buying that one. I am going to continue to add to it because I really think it's a special situation restructuring stories. And, you know, I like restructuring stories. Yes, I do. Steph, I appreciate it so much. Thank you. That's Stephanie Link calling in with a late day trade up next. Quadratic Capital Management's Nancy Davis is with us. We'll get her take on today's sell off. But the Fed is now planning to do where the volatility goes and how to make money off of it. And later, the four big tests for this market. Mike Santoli breaking them down in his last word when overtime returns.

Welcome back to Overtime. It's time for a CNBC News update with Shepard Smith. Hey, Shep. Hi, Scott. From the news on CNBC, here's what's happening. More military aid on the way to Ukraine. The administration announcing $100 million worth of javelin anti-armor systems will be sent. A senior defense official tells NBC News they should arrive in a couple of days.

That brings the total U.S. military aid to almost $2 billion since the war began. Millions of Americans with federal student loan debt getting another freeze on payments. The White House announcing today that the pause on payments for millions of borrowers in the U.S. would be extended through the end of August. Payments were scheduled to restart May 1st. And police in Sacramento today say Sunday's mass shooting appears to be gang-related and that they believe at least five shooters were involved. Six people killed, 12 others injured, when more than 100 shots rang out early Monday morning. Police arresting three suspects so far, but yet to charge anybody with murder.

Tonight, a key panel of the Food and Drug Administration advisors meeting today to hash out the future of COVID boosters. How many do we need? Meg Terrell breaks it down on the news right after Jim Cramer. 7 Eastern, CNBC. Hi, Scott. Back to you. We will see you there. Thank you, that's Shepard Smith.

Stocks closing off the lows of the session. Our next guest says there could be a potential for more volatility ahead. Let's bring in Nancy Davis, founder and CIO of Quadratic Capital Managements. Good to see you. Welcome back to Overtime. Hey, Scott. Thanks for having me back. So what should my expectations be now for volatility, particularly in fixed income, which is your area of expertise? It feels like much has changed since we saw each other last a couple of weeks ago. It does. It's been less than 30 days since the Fed stopped their QE purchases. You know, it's amazing to think the taper was just just earlier last month. And now we're talking about balance sheet and how to unwind the money supply and tame inflation. I

think the Fed has come to the realization that the rate hikes alone are not going to be enough to stop the inflation that we're experiencing in our everyday lives. So it's definitely a turbulent time, especially for bond investors. What does it mean for how you look at the market and how you try and make money off of this new environment? Well, you know me and we own volatility, fixed income volatility in our funds. So the more turbulent, the better. But I think that's why investors have diversifying assets in their portfolio and why you can't have everything that looks the same. Diversity is a good thing, especially having some long volatility and fixed income right now, because it seems like we're just getting this party started.

I'm feeling like, you know, I don't know what the majority of your investors are, let's say institutional versus retail, but I'm sure it's very heavy towards the institutional side. What do you say to those investors who are watching now and saying, you know, I agree with everything that Nancy says, but I can just buy tips, you know, inflation protected securities. And that's been my bread and butter in times like this. So why is now different and why should I look at something like your product? Well, tips are reset with one index, one index only that is the consumer price index. To compare it to the world of stocks and equities, nobody would ever buy the Dow Jones index

and say, ta-da, I have U.S. equities. Why would you ever do that with something as big and broad as inflation? Inflation is very hard to measure. It's a very big thing. And so what we do is we take that core treasury portfolio and then we augment it with another way, another way to measure inflation expectations. And using interest rate differentials is a very simple way of developing a way of accessing inflation expectations outside of CPI because it's where lenders lend money right if if I you

know Scott if you're going to give me a loan- for a week. And then I said you know actually I'd like a loan for- a month and then I say no actually I'd like it for ten years. That factor of where you lend me money is inflation

expectations and that's what we try to capture in our strategies. I'd make you pay a higher interest rate if you stretched out like that. I think let me ask you this. Let me ask you this. You told one of our producers that you think the market has fully priced in interest rate hikes. And I'm wondering if that's really true and if the behavior of the last couple of days suggests otherwise? Well, you can very easily look at that in Fed fund futures. You can see there are over 200 basis points of additional hikes priced in this year alone. There's also another almost two full hikes priced into 2023.

So the Fed has used their words, their forward guidance has been effective. The rates market really believes that they're going to hike rates that much. I think what we're saying at Quadratic is we really think rate hikes are not enough. They're not going to bring more lumber to Home Depot or more truck drivers or get people back to work. The rate hikes are just one side of the equation. And I was pretty excited that Will Brainerd started to talk about the elephant in the room, which is the money supply. It's the balance sheet. It's almost nine trillion dollars. And they really that's a great way for them to kind of address inflation.

But I also think that will bring more fixed income volatility to investors portfolios. And that's why our strategies really fit in well with today's environment. I'm trying to sort of think that the environment in which your strategy would work best. Is it is it stagflation? I mean, what what do you foresee is the outcome amid talk of recession or stagflation and how that plays into how investors should think about where they're putting money? Well, stagflation we haven't had since the 70s. But if you close your eyes and you look at the first quarter, stocks, bonds, everything's sold off together. And a stagflationary environment is typically bad for both stocks and bonds. Obviously, our Ivol ETF didn't exist in the 70s, but I think it would do well in a stagflationary

environment because I think you would have higher fixeds, but I think it would do well in a stagflationary environment because I think you would have higher fixed income volatility. I think inflation strategies would outperform nominal strategies as well as credit. If you think about companies, they really can get hurt if you have higher costs and lower growth. Obviously, we hope stagflation doesn't happen, but I think investors need to be prepared for things that are unknown. And stagflation is one of those things that it could potentially happen. I always feel smarter after I talk to you. Thank you for coming on. It's good to see you again. That's Nancy Davis of Quadratic joining us in overtime. We'll see you again soon.

Thank you, Scott. Coming up next, we're breaking down the banks. The nation's biggest lenders gearing up to report their earnings next week. Is now the time to get in or cash out? We'll debate that in today's Halftime Overtime. But first, a message from CNBC contributor Guy Adami as CNBC celebrates Financial Literacy Month. Financial literacy has a huge impact on Wall Street. Why?

The great mythology for years was nobody understands money better than we do. We on Wall Street. Why? The great mythology for years was nobody understands money better than we do. We being Wall Street. Well, 2008 and 2009 proved that to be exactly the opposite. We now can ask questions that we never asked Wall Street before. So if you're financially literate, you can ask questions that will make the industry better. In today's Halftime Overtime, Selling City. That is what Halftime Investment Committee member, Surat Sethi, is looking to do after the company reports earnings next week. Listen.

I will tell you that after earnings season, I'm going to look to move this into the money, into another stock, whether I add more to another financial or something else. But I'm just going to wait to see kind of how they perform there. Then to me, it's a source of funds. I'm not going to be adding to this one unless something really changes. All right. So Surratt's fed up. Lee Cooperman yesterday said he wasn't selling it, but he's frustrated. Let's bring in MarketRebellion.com co-founder John Najarian.

He's on the news line. Doc, I thank you for joining me. You don't own Citi, but you do have a bunch of other calls in the bank stocks, and it hasn't been pretty. It has not, Scott, and that's why, if anything, I guess I'm glad I have calls instead of those stocks. I think that's the same frustration Lee Cooperman and Surratt are talking about right now. There's a fair amount of demand destruction. A lot of folks just figured, okay, higher rates means bigger profits for the banks. And as long as you could keep people borrowing at a pace that was similar, yes, that would be true. But they're not. And in particular, Citi just has not been able to really hit the sweet spot and get enough deposits against the loan demand. And if loan demand is indeed slipping, as I believe it is, Scott, and is

evidenced by mortgage applications and so forth falling pretty dramatically all over the board, which of course affects my investments in Bank America in particular, Wells Fargo to a lesser extent. But yeah, that's it's not good. The demand destruction that we're seeing right now because of those higher rates. So tell me before I let you run of all of the call positions that you have, which is your favorite B of A, Bank of New York, J.P. Morgan, Wells Fargo, or simply the XLF? Well, if I had to pick just one, Scott, it would be Bank of New York, Mellon. If, on the other hand, I think that we're going to see rates come back down a little bit. All the bets we're seeing right now, like you and I talked about just yesterday,

about the TLT puts, those worked out fabulously. That's bad in the short term. Of course, for interest rates, it means interest rates going higher because they move in opposite direction. But all the bets are short term right now. So if that stays the course and we're not seeing long term institutional money betting that interest rates go significantly higher, then I think banks will be just fine. If they do keep going higher, I think the demand destruction will push people off for a while. Let me lastly ask you, which one are you more nervous about? Is it J.P. Morgan? I mean, I just look at that one and I'm thinking, OK, last time after earnings, J.P. Morgan really

hasn't been the same as a stock after that. Is that the one you're most nervous about? I don't mean to put words in your mouth. Tell me if there's something else. Well, I'd be most worried about what Bank of America might say about, like I say, the cutback, dramatic cutback by consumers for loans. I think we're also seeing a cutback pretty significantly from institutions. That's more J.P. Morgan's side. So it just depends on what they say after the call, because the real problem will be this next quarter that we're entering, not the prior quarter, at least in my mind, Scott.

Doc, I appreciate it. We'll talk to you soon. That's John Najarian joining us on the phone there. Up next, Santoli's last word, why he says the market is up against four big tests. But first, Christina Partsinovelis is tracking the action in overtime. Christina? Oh, because we know there's going to be continued action in overtime. And I've got four movers. I'll break them down in 45 seconds. A clue, new members of the all-time high club. That's coming up right after this break. Welcome back to the overtime. We are tracking some stock action in the OT. Let's get to Christina Parts and Nevelis with more. KP.

Thank you. And, you know, when you're in overtime trading, it doesn't mean the action stops. Starting with Costco trading slightly in the green right now after hitting an all-time high dating back to its IPO in 1985. Just after hours, we've got net sales that came out and jumped in the month of March up almost 19%. Keep in mind, Costco sells cheaper gas. So when you go to get that cheaper gas, they benefit from you buying groceries at a one-stop shop. And sticking with retailers and possibly maybe your favorite pair of jeans, Levi's up slightly after earnings. Could have been a little bit higher.

Even though the company did say customers were willing to pay more for jeans and T-shirts throughout the quarter. And how about fitting into those jeans? Hershey's traded an all-time high, dating back to 1972. You can see right now it's just unchanged in after-hours trading. And let's end with some tech love, Spotify. Today was quite a day for Spotify. At one point it was down about 8%, dragged down with tech and Fed tightening concerns. But in after hours trading, we could see that, well, it was when I was writing this, a little bit higher, now unchanged as well. But those are the shakers and movers for stocks in 45 seconds. Scott, back over to you.

We'll take your word for it. I mean, things happen quickly in overtime. It's just the way it goes. All right, that's Christina Parts of Neveless. We'll see you again tomorrow. Up next, the four big tests for this market. Who other than Mike Santoli breaks it down in his last word. Overtime's back after this. It's time for Mike Santoli and his last word. And today it is what? Well, Scott, it's testing. Pretty much everywhere I look in each direction

in the financial markets, you see these tests that are underway and have been for a few months. Obviously, the S&P today was testing some relatively significant levels on the downside that seemed to divide the area of that breakout of the rebound rally and then something a little bit worse toward the lower end of the range. Defended it OK. And then, of course, the Fed defending investors' tolerance for just this urgent message about how much they want to get done in tightening and perhaps how much they want the markets to play defense at this point. Obviously, the level of yields, Treasury yields is testing equity valuations has been for a while right now. And then even the underperformance of these cyclical bellwether sectors, we're testing the streets confidence and really the underlying condition of the economy. So now are we passing? I think we're not failing them just yet, but I also don't see them letting up anytime soon to where we're

actually going to get a final result. So do you think that the Fed has now firmly slammed the door on the growth trade? I mean, there are fits and start. You don't. I don't in the sense that, well, because the growth trade has been on the outs for so long and there already has been an adjustment. And, you know, there's also this element of, well, if we're going to start worrying about overall earnings growth down the road, you know, guess what actually holds up better is resilient, big mega cap growth companies, not the small speculative stuff. I think the Fed right now has probably been pretty satisfied with how its message has gotten across.

We now have a month until the meeting. It's hard to see, really is hard to see, how you get incrementally hawkish from here in any kind of sustained way. Not to say things are going to be free and easy, but it doesn't seem as if there are going to be as many opportunities. Perhaps the inflation data is the only one where that's going to arise. And I think there's two-sided risk, so to speak, in that number this time. So then what kind of legs do you think the defensive trade has? If you still think at some point people flood back to tech, what about staples, utilities, the things that we're talking about now every day? I don't know that it's flooding back.

And I also don't think it's to the exclusion of anything else. I think tech would participate if the overall market did well. Staples Utilities, it's basically, are we going to continue to have fresh reasons to worry about the path of the economy and to doubt a soft landing scenario? Again, this is all months and quarters away to actually when we're going to know about this. So we're probably going to go back and forth on that debate several times. I just would want to point one thing out. If you were playing the game of stick with the leading sectors three months ago, four months ago, what were you doing? You're buying semis and you're buying banks and you're saying stay cyclical. So it can change quickly. No doubt about that. He is Mike Santoli and that is his last word. We'll see you tomorrow.

Yep. Thanks. All right. Still ahead, our two minute drill. Our next guest recommended this energy stock three weeks ago. Since then, it's up nearly 10 percent. So we'll find out what she's doing now. Overtime's back in two minutes. All right, welcome back to Overtime. Now to the results of our Twitter question of the day. We asked you where you think the S&P 500 will be on June 1st. Most of you said higher. Well, barely. Wow, that's pretty split. That's interesting. 37% say higher. 35% say below 4,000. I was going to say optimism abounds, but that's pretty split. That's interesting. 37% say higher, 35% say below 4,000. I was going to say optimism abounds, but that's pretty close. And similar to where we are now, 28%. It is time now for the two-minute drill. Payne Capital Management's Courtney Garcia is back with us. It's good to see you. Welcome back to Overtime. So we're going to get to some new picks, but I want to revisit an

old pick because you picked Exxon three weeks ago. That stock's up 9% since. What do you do today with it? Yeah, I still like this. I mean, I'm definitely a long-term investor here and I'm not going to look at these for just a couple of weeks. Exxon is very much a play, especially with inflation kicking in right now. And don't forget with Exxon, they're actually expected to double their earnings by about 2027. So this is definitely a longer term play. I think it's a really good opportunity. Don't feel like you missed the jump here just because it's already done so well. You still feel like oil is going higher, and that's why you think, I mean, that's a longer term story as well for oil itself? I think what you need to keep in mind with these is oil prices do not need to be as high as they

are now. The break-even is significantly lower when it comes to that. They think they only need oil to be around $30 to $35 a barrel to break even. So even if oil comes down, they still have that effort for profitability going forward. So I think that's what you really want to look at. They don't need oil to be as high as it is. If it is, it's only an added benefit. So I have to be honest. I looked at your stock picks and I saw Toll Brothers and I went, wow, that's interesting. I mean,

yes, the homebuilders have gotten smoked. Why is now the time to go into a cyclical stock, which is very much in question today? I think that's the reason, right, is how much of that has been oversold, because what you're looking at right now is there's this dynamic here where there's a huge undersupply in the housing market and the homebuilders are going to be the thing that bridges that gap. Their price to earnings is now some of the lowest in the entire markets right now, which is why it's a good thing to take advantage of. But arguably, the biggest risks with this is the fact that affordability is becoming a problem right now with interest rates rising and housing costs going up. But that's where I really like Toll Brothers as an option here because they're in the luxury home market. So when they're selling million-dollar

homes, they're selling to people who already own existing homes that have appreciated value, where affordability isn't quite as much of a problem as, say, your first-time homebuyers. So yes, that is going to be a concern. But I do think this can be a really good opportunity to take advantage of that huge supply and demand discrepancy, which isn't going away in the short term. Of the airlines that you like, Alaska stands taller than the rest. Why so? I like Alaska for a couple of reasons. Number one is they clearly have pricing power. They've actually been able to increase their prices by about 3% since pre-pandemic levels. They became profitable middle of last year when a lot of their competitors are still showing losses.

And I really like that they did not have to get overly leveraged during the pandemic, again, like a lot of their competitors did. And so I do really like this increase in travel demand. But when you're looking at them, you want the stronger balance sheets. And Alaska is definitely one of those. I mean, you have Delta Airlines, I believe you like Expedia. So you're very much playing that game. And your final pick was BHP Group Limited. So again, a commodity related play. Courtney, I appreciate it so much. We'll see you again soon. That's Courtney Garcia. That does it for us in overtime.