Closing Bell - Closing Bell Overtime: Strong Finish to a Bad Week 1/20/23

Episode Date: January 20, 2023

Stocks had a tough run this week, but did manage to rally in today’s session. Greg Branch of Veritas Financial gives his expert forecast. Plus, Goldman Sachs shares fell on a report from the WSJ saying the Federal Reserve is investigating the bank’s marcus consumer business. Wells Fargo’s Mike Mayo breaks down what is at stake. And, instant updates as Elon Musk testifies in a federal trial over his 2018 tweets about taking Tesla private.

And welcome to Overtime. I'm Carl Quintanilla in for Scott Wapner. You just heard the bells, but we're just getting started. Shares of Goldman taking a hit today after this new report says the Fed is investigating the bank's consumer business. We'll have top analyst Mike Mayo join us in just a few minutes with his take. But we'll begin with our talk of the tape. Pretty nice finish here to a bad week. Best day in a couple of weeks. Stocks rallying today, but the S&P posting its first weekly loss of the year. Who is winning here, the bulls or the bears? Let's bring in Greg Branch with Veritas Financial Group. Greg, of course, a CNBC contributor. It's great to have you kick off the hour, Greg. Thanks for being with us. You've been net cautious, right? Your

basic belief has been that the market is not accepting what the Fed is trying to convince them in terms of rates. I think that's right. And I think Waller underscored that today, although you and I discussed he came in a little bit lighter than I thought they would. As we see it, the unemployment scenario hasn't moved in the direction that 425 basis points of raising might think. So we're at 3.5% unemployment. Their target is 4.5%. So I was of the opinion that there'd be another 200 basis points and they'd probably do 50. Waller indicated 25. He's probably right. And that probably means I'm behind on the 200 basis points as well. Right. So you think maybe we get, what, 325s, 425s? I mean, what's your terminal rate level at this point? So I'm going to stay at 6%.

You are. I'm going to stay at 6%, Carl. And I want to make the distinction between the Fed being wrong and the Fed changing their mind. Right. And so at a time they were intimating 4% to us. And when the unemployment didn't move the way they wanted it to. And remember that it's the wage growth, right, that is spurred by the tight labor market. And it's the wage growth, right, that is spurred by the tight labor market, and it's the wage growth that then in turn spurs the services inflation. And so when the services inflation isn't moving, when the wage growth isn't moving, it necessitates doing more work on the unemployment. And so when they moved from 4 to 5 percent, that was obviously because that wasn't—but

it still hasn't moved. And so, you know, we're a scant 150 basis points away from 6%, and we're still looking at 3.5% unemployment. And that's on a week where some of the biggest companies in the world are laying off tens of thousands of employees. And a lot of chatter today about job liquidity, right? For a long time, if you were an engineer, you could fall back on big tech and maybe get a pretty decent paying job at Alphabet. That option has been locked out at this point. Doesn't that add to slack? Isn't that exactly what the Fed wants? It does. We have to be very careful about extrapolating results in the tech sector, though. Largely what's happening in tech is that they are right-sizing after the COVID surge in

demand. And so that demand surge was off-trend. They hired to accommodate those surges. And so they hired well above their organic trend and growth rates. So they're right-sizing. I don't know if it's of the magnitude, even when you combine it with the interest rate-sensitive sectors like housing, like auto sales, even when you combine it with some of those sectors, I'm not certain that it's meaningful enough to put a dent in the 3.5% unemployment number when the banks themselves are expecting about 5% through 2024. So you do think the labor market breaks maybe a little bit later than people expect. Earnings, you think the market is also behind the curve?

Yeah, and I think these two things are intertwined, Carl. You know, largely when I came into 2022, I thought that the analyst estimates were magnitudes off. Coming into 2023, I still think that they're too high, expecting single digits in the front half and expecting almost double digit growth in the back half. If we believe that the impact of the Fed actions are delayed to some degree, I think that's going to start to bleed into that promising back half. Even myself looked at the back half a little bit more optimistically than I did the front half, thinking that much of what the Fed is doing would be behind us. But as we see this delay, as we see this elongated duration between the Fed's actions and what is actually happening in the marketplace,

maybe it stretches a while. We saw even in the Fed's page book that what's happening is companies, although they're seeing a slowdown in their business, aren't letting workers go for fear that they won't find them again. They're hoarding workers, right? They're hoarding workers. Because of what they've had to deal with the past couple of years. Right. All right. So let's say the worst case or a bad case scenario is delayed by a couple of years. All right. So let's say the worst case or a bad case scenario is delayed by a couple of quarters. Now we got the debt ceiling and Yellen's comments today about extraordinary measures and T-bills pricing in an X date in June, late June, early July. Is that going to make what might have ordinarily been a net more peaceful Q2 more ominous? The timing is really important here, Carl.

You know, when I looked at 2023 coming into the year, I expected that analysts' estimates would right themselves by the middle of the year. I expected that we would no longer be arguing or looking to a Fed to determine our market levels because we'd all have agreement because they'd largely be done. And so when you start to throw in politics, which is what we're doing largely with this debt ceiling, you know, the X date right now is projected to be sometime in the late summer. As we know, the debt ceiling itself wasn't supposed to be reached until that time, and so those calculations can be off.

But at the end of the day, I'm hoping that this doesn't slip into what can be a promising back half still. Although the estimates are too high, many of the headwinds that I'm concerned about this year and that concerned me all of last year could very well be behind us by the third quarter, by the end of the third quarter, which could set us up for a pretty, potentially a pretty powerful round.

Right, but we've got some crucibles to get through in advance. Let's expand that conversation, bring in Malcolm Melfridge of CIC Wealth and Julie Fox of UBS Private Wealth Management. Great to have you with us on this Friday. Malcolm, let me ask you about guidance and the big names they're going to report next week. Some of them are names that have announced layoffs

in just the past couple of days. Do you think that's going to color the kind of corporate guidance we're going to get on these earnings calls? Not so much, Carl. I think Greg was making an interesting point that a lot of the companies that we hear about these big layoffs from were already huge to begin with because they were hoarding so much talent. So if you think about a name like a Microsoft, an Amazon, an Alphabet, Google even, these companies still have significantly more employees on the books than they did prior to COVID before they did all the hiring after they go through

these massive rounds of layoffs. So I'm not as concerned about the numbers strictly from a headcount perspective. Obviously, it matters that people are going to lose their jobs based on these announcements. But I'm not as concerned from a headcount perspective about hearing more of that through the earnings. I am concerned, though, when I hear about a name like a Wells Fargo, maybe a Rocket, somebody like that in the mortgage space that's getting rid of entire units because they see significant headwinds coming in their space. So in the tech world, layoffs kind of come and they go. They still tend to have a ton of talent inside of those firms. But specifically like looking

at the entire economy. The real estate space mortgage specifically is where I'm a lot more concerned when I see massive layoffs. You know Julie I was thinking maybe one of us at this panel. Would be a rip roaring bull it does I don't

think I can count on you for that either. Yeah I mean I think right now- we're continuing to see the market being driven by three things, really. Earnings, which we're talking about, and seeing that slowdown. Inflation, which is softening. And the Federal Reserve, which has made it clear that taming inflation is still their number one priority. So right now, I think the key to this market is earnings.

And we continue to expect to see a slowdown in earnings for the current fourth quarter reporting season. And for 2023, we're expecting an earnings recession. And that's really because what we saw last year, that the Fed raked interest rates by 425 basis points. And we don't believe that the earnings are reflecting that right now and that the Fed's aggressive actions over the past year and think that investors really need to embrace for some earnings pain ahead. And so, yeah, we really don't see any sustainable stock market rally ahead. The risk reward, I think, for U.S. stocks in the new year term is not as appealing to us. And so our mid-year target for the S&P 500 is 3,700. So really just

below the current levels that we're at right now. Right. Let me ask you about international guys, because we've had some recession calls in Europe pulled over at Goldman. Morgan Stanley says China growth is underappreciated. They're buying equities over bonds in Europe and got the best start to the stock 600 since data began. How can all that exist if we're so weak here in the States? So you have a number of unique catalysts that are happening there, right? I mean, obviously, China opening up again is one of the biggest. And so China being the end market for a lot of those markets that people are investing in, being a number one consumer of energy uh... supporting the the stocks

really separating from the commodities to some degree of last couple months and so very unique elements in europe and in asia that would enable those markets to coming off of bottoms that were typically lower than we've experienced here that that would allow those that equities to run a little bit farther a little bit faster obviously we have our own unique political situations here. Not to say they don't have interesting political dynamics.

Of course, of course, of course. But, you know, that might directly implicate the markets because they're so unusual, more so than is happening in some of those foreign markets. But there is opportunities, particularly when you identify the sectors that are poised to benefit from some of the current structural circumstances. And some of those are? Energy. We just named one. If China's going to open back up, right, then with supply continuing to be constrained and with demand coming back, energy is one that continue to show legs, I think.

At the end of the day, like I said, the stock prices in the companies have separated a little bit from the commodities. They continue to run even as the commodity prices have come in. But if we're going to get elevated commodity prices again, if we need to see Europe refill its gas reserves, if we need to refill our own strategic petroleum reserves, right, while China's coming back online, then you're setting up for a structural situation that favors energy stocks with a high free cash flow generation. Yeah, that bid at 70 from the White House, not there so much anymore, we're closer to 80. Malcolm, I know you want to hear from Visa and MasterCard next week, and it reminds me of the action that we saw this week in consumer finance, namely names like Ally, Capital One, Discover,

with, I guess, net concerning guidance on net charge-offs. But the stocks took off this week, or at least they filled the gap. Why? Well, a lot of what we're looking for has to do with the consumer, right? We've been hearing the consumer is so strong, the consumer is so strong, bank balances are at all-time highs. We've never been so rich and we've got to feel great about ourselves. And then all of a sudden, the Fed decided, well, we're going to pour cold water on this party about a year ago and really started hiking rates as fast as they possibly could, as aggressive. I won't say as aggressively as they possibly could, because they could have done a little more a little sooner, but very aggressively action from the Fed.

And that all of a sudden made credit more expensive and people started going to their reserves. And so I think the data from Visa and MasterCard will tell us a lot about the consumer and one, whether we're still out there buying. Right. Because inflation has started to abate. And some of that has to have to do with the fact that folks just don't feel as prosperous as they did a year ago before interest rates started working against us. But then also, are we having to rely on credit to pay our day to day expenses? You guys are talking about energy. Am I having to rely on credit to heat my home? Am I having to rely on credit to put fuel in my vehicle? I think the data from Visa and MasterCard will be very instrumental in telling us exactly how healthy we are or are not as consumers right now in relation to this big R word that's looming over us, the word recession. Yeah.

Julie, it's going to be interesting. Next week, we're going to get some personal income and spending numbers. We'll get some PCE numbers. A big part of the bull thesis at the moment is this notion that the price of goods is falling faster than your wages are slowing. And the net effect is stronger consumer power, more disposable household income, disposable income. That is why some are pushing back these these negative scenarios, because maybe the consumer doesn't have to cut into that excess saving quite as much. Yeah, I mean, I think you have this debate of are you going to have that soft, hard landing and what's going to happen and whether or not the Fed can really tame inflation without causing a recession. And that really, I think, centers around the timing of the economic pain caused by the frequent rate hikes that we've seen from the Fed.

Some say that the drag on the economy from the Fed's rate hikes that we've seen from the Fed. Some say that the drag on the economy from the Fed's rate hikes is occurring now and that that economic growth, we could still recover by mid-year. And if that's the case, I think a soft landing is likely. But another view that we've talked about at UBS is that this idea that there's this lag of effect to the Fed rate hikes and that the economic drag from what we saw last year is going to start to bite this year. And I think that would really be more along the lines of a hard landing. So I think, you know, time will tell. And I think we really need more data to really assess how the economy has been responding to these rate hikes. And we'll see how that evolves. Yeah. I'll tell you one thing I read today, Greg, and that is that

tech leadership is trying to assert itself. Namely, Microsoft got humbled, right? Took tough medicine. Netflix with a pretty good guide. Not necessarily the expensive names that have come back to earth and stayed there, but the names that people care about are outperforming the market, at least since the beginning of the year. You think that's too much of a reach? I would imagine you do. No, no, I actually don't think that's too much of a reach. Look, it's not typically what I'd look for in this environment. What I'd look for in this environment is an elastic demand and sustainable earnings growth. So I'd look at energy, I'd look at health care. But I think that there's a rosy story to paint about tech in the back half of this year. Remember, advertising dollars, for example,

that spigot got cut off in the second half. So they're going to have pretty easy compares coming into the back half of this year in terms of those advertising dollars that basically went to zero about a year ago. So I think that tech will get back into a growth trajectory at the end of this year. And if some want to be ahead of that, I'm okay with that at not Herculean multiples. Now, are they cheap? No. And we need reliable estimates to actually determine that. And we've all agreed that the estimates probably don't reflect everything that the Fed has done and everything that the Fed is about to do yet. But I think we'll get there with the estimates.

I think that there are still magnanimous growth stories in many of these companies, be it the cloud, be it advertising, be it search, all of these things. And so I think that they will get back on a growth trajectory that is not colored by a pandemic spike. Because that's also part of the problem is relative to the growth we were seeing a year ago or a year and a half ago, the growth that they're showing now doesn't look that robust, particularly with IT budgets coming in.

So once we get past that, I think we will normalize the story, so to speak. It's going to be nice to be unshackled from this weird curve ball that COVID threw at everybody. Threw at everybody's growth playbook as they tried to keep up with that demand and now try to right-size in the absence of that demand. And Carl, can I go back to the argument you were making about the consumer? I think a little bit

of that is hogwash. At the end of the day, we saw a 2.3% savings rate, a historically low savings rate a month ago. We're seeing record credit card openings, while the APR, the average percentage rate for those new cards, are at historic highs. The consumer is leveraging up. Make no mistake about it. And there's only so much runway that's there to leverage up before we have to have a record. And so I am concerned about the consumer. And I think that the banks are concerned about the consumer as we see them starting the provisioning cycle. That's a good word of caution.

Greg, Malcolm, Julie, thank you guys. Appreciate it very much on this Friday. Great to see all of you. Let's get to our Twitter question of the day today. We want to know which earnings report next week you are paying the most attention to. Microsoft, Intel, IBM, or Tesla? You can head to CNBC Overtime on Twitter to vote

and we'll get you the results later in the hour. Meantime, Goldman Sachs shares falling today after this report in the journal says the Federal Reserve is investigating the bank's Marcus Consumer business. Joining us on the CNBC Newsline today, Wells Fargo senior banking analyst Mike Mayo. Mike, appreciate the time as always. Thanks for doing this today. It sort of takes me back to what Solomon said on our air in Davos earlier in the week, is that they did bite off a little bit too much. What did you make of this journal report? Well, growth in consumer at Goldman Sachs has been some of the worst predictable destruction of shareholder value that I've seen.

I mean, five years ago, Goldman shouted from the rooftop about the abilities of their new consumer banking, reimagined consumer banking, the 21st century digital banking store, disrupting with their modern tech, and they hiked it. The ex-CEO, Lloyd Blankfein, made a lot of noise. He made actual calls to individuals. I never liked it. I repeated that I didn't like it. Shareholders didn't like it. And now you see they've had losses for years. They're restructuring the business and the regulators are looking at their controls. Now, Goldman Sachs is not confirmed of the report in the Wall Street Journal. But in any event, this whole consumer expansion is just a sideshow.

It's 3% of the firm. Center stage of Goldman is the legacy 150-year-old business of banking and trading. That's 70% of the company. They're killing it. Best in class, and they've gotten better. They've grown twice as fast as Pierre over the last three years. So it's a shame that 3% of the company can tarnish, you know, what otherwise has been a really good story for the last three years. But the bigger story here is that, hey, by the way,

it's not so easy to start a bank and compete against the incumbent banks. By the way, there's a lot of fintechs which are reducing headcount. They were going to, you know, crush the banks. I mean, there's a lot of fintechs which are reducing headcount. They were going to, you know, crush the banks. I mean, there's a lot of regulation, controls, and compliance. And, you know, first, do no harm, you know, to, you know, your reputation. And this is one more reason why the large banks, you know, are looking very attractive here. And, Carl, as of the end of today, the bank stocks have outperformed by a little bit the S&P 500. One more reason why we love Bank America and the moats around their businesses

are strong. We love the regional banks like PNC, U.S. Bancorp, Truist, Regions, Keycorp. Even Citigroup has surprised me. So let the traditional banks do traditional banking and let Goldman Sachs do what they've been good at for 150 years, and that's Wall Street banking. Right. Finally, Mike, I remember a year ago you were railing on expense growth at, for example, J.P. Morgan. Do you think they've gotten collectively more religion about managing their headcount, their compensation per employee and all that? I think it's to be determined for JP Morgan. They still are having, look, they have record revenues, but they also have record expenses.

And more than ever before in the past, they're spending and hurting near-term efficiency to gain market share. It might work, but for me, I'm taking a more wait-and-see attitude versus those that are taking more of an incrementalist approach, like a Bank America or the other banks that I named, which I think should grow revenues far outpacing expenses this year, whereas I'm not so sure that's the case JP Morgan now. So maybe long-term, but not right now. Mike, appreciate it as always. Thank you very much, Mike Mayo of Wells, talking about both Goldman and JPM. We're just getting started here on overtime. Tesla's chief Elon Musk about to testify in the trial over his notorious funding secured

tweet. We'll get details and talk about whether this could be a black eye for Tesla stock when we come back after this. Welcome back to Overtime. Tesla's chief Elon Musk about to take the stand in a federal trial over his 2018 tweets about taking the company private, which you probably remember. Steve Kovach joins us with details. Hey, Steve. Hey, Carl. How could you forget? Funding secured, right? For a 420 a share. That is what this trial is all about. These investors are upset that over losses they experience when basically the argument now is, was the funding secured or not? Lots of debate from Musk's lawyer over what the definition of funding security even was. But look, we have one witness on the stand now. He's expected to last for another 15 minutes or so. And then hopefully by the end of the hour, we'll be hearing from Elon Musk himself.

And for the first time under oath for him, explain the thoughts behind that tweet and what really went on behind the scenes, Carl. Steve, we know you'll keep us honest on that if we do get some headlines in a moment. Steve Kovach, let's bring in Web Bush's analyst Dan Ives for his reaction. He covers Tesla. And I would argue would argue dan it's taken a lot you've put up with a lot and kept your outperform really the only time you bring that you brought down some numbers was on delivery news right yeah i mean look it's really been a tale of two cities because if you look at the transformational growth story that continues to be intact for tesla despite the dark storm but it's really musk i mean that's really been the black cloud over the story here in terms of it. I think even when you look at the trial,

it's just another situation where it's been a black eye for Musk and a black eye for Tesla. So today, outcomes today are meaningless to the stock at this point? Yes and no. I think, you know, him on the stand, there's always a lot of sort of wild cards that that could take. And I think it is a frustration from an investor perspective because you want to focus on fundamentals, price cuts, China, but Musk continues to insert this narrative. And I think this is a good example. Combined with the Twitter situation, still no CEO, and that has been a lingering overhang over the stock. Speaking of price cuts, you've got this new survey work looking at EV consumers in China who appear to be responding pretty well to the prospect of maybe a cheaper Tesla in that country. Yeah, we did that this week. Over 500 consumers in China

across EV. It was really to try to gain, OK, what's really happening on these price cuts? And especially against domestic competition, BYD, NIO, and others. Look, three of every four, 75% plan to buy a Tesla in 2023. That was even over BYD, which I think is pretty important. It shows they're battling that domestic competitors. And that price cut, you look at that, they ripped the Band-Aid off. 70% said now much more likely to buy a Tesla. Shows that that poker move, I think, is working out of the gate. I've heard a couple of different. One idea is, why would you want to get into an industry where a price war is possible? On the other hand, if they're choosing between margins and units, maybe they're wise to go after units, right?

Yeah, I think you've seen it in the stock. The reason the stock's up, call it 25%, 30% from Luz is because they're putting an iron fence around that install base as well as we're in the second inning of EVs. The last thing we want to see is them sit there at a higher price point and lose, especially with competition coming from the 313 area code, the Detroit stalwarts, and others. So from the streets perspective, sacrifice margins right now for volume. And I think that's really been the important move. Overall, you cover a lot of names in tech.

And we've had a lot of people talk about being cautious this year in the Fed and the debt ceiling and earnings recessions. But you think tech year to date, or I'm sorry, full year could have double digit gains, right? Yeah, the New York City cab driver is bearish on tech right now. And I think it's easy to yell fire in a crowd theater. Our view is that they're doing the headcount cuts they need to do. Numbers in terms of whisper numbers from a buy side perspective, 8 to 10 percent below street numbers. I think it's set up where you're going to have a lot of these better than feared. And you look in the Della, Cook and some of these other and they're going to be able to navigate the storm.

So my view is that tech stocks are up 20 percent plus this year. We believe FANG names could be up 30 percent this year. How are they going to do, though? How are they going to lay off a significant number of employees and then turn around and invest in areas of innovation where they're facing competitive threats like AI? It's a great question. But look at Nadella and what's happened in Redmond. They're cutting costs in hardware and some of these non-strategic areas, but yet you look at ChatGBT, the $10 billion investment, doubling down

artificial intelligence. Because Microsoft, Amazon, Salesforce, and others, they'll cut costs where they need to, but this arms race is going to continue to play out in tech. You're going to see, really, what I view as winners and losers emerging from tech in what we're seeing today. Do you cover Alphabet? Yeah, so look, to me, my view on Alphabet here, you need to rip the bandaid off,

like we've seen across tech, and I think the reaction that you're seeing in Alphabet, look at Microsoft since those cuts, look at Meta since those cuts. Street wants to see these companies rip the bandaid off, navigate through the storm, and I think that's an important thing. Essentially, because the bare thesis I've heard on Alphabet is they're going to have to match whatever Microsoft's putting together on AI, and that's going to be expensive. It's going to weigh on operating margins. Whether or not they

hire less, more, the same year on year. But look at Gates' biggest regret is in the mid-90s during antitrust, didn't invest in social, didn't invest in mobile, and ultimately lost out on trends for the next two decades. So I think these companies have learned from that. And that's why this Game of Thrones is going to continue to play out in artificial intelligence, cloud. And I think the theme over the next few weeks is tech. Lowered guidance, stocks up. Better than feared. I think it's as underweight as I've seen investors in tech since 2009.

Do you think the entry point for consumers when they go to the Internet, the way Google has owned for so many years, could actually change? You think they lose share of that because of this new technology? Well, I think it's a shot across the bow from Nadella and Redmond. And that's why they're going for it. Look, Google continues to really have that ironclad understanding of the market. And no one could deny that. But you're starting to now see some market share potential gains. And it just shows Microsoft's not going to sit there in the right lane.

Left lane of innovation, that's when the Dell is going after. It's like Bing's revenge if it works out for them in Redmond. We'll see. What a week. Dan, thanks, as always. Thanks thanks as always. Good to see you. Dan Ives. Time for a CNBC News update with our Contessa Brewer. Hey, Contessa. Hello there, Carl. The U.S. will impose more sanctions on Russia's Wagner Group, the private military company with tens of thousands of soldiers fighting in Ukraine. The White House says Wagner will be designated a transnational criminal group, accusing it of widespread human rights abuses. In Ohio, a police officer has been suspended after he was caught on camera striking a woman following a dispute over a fast food order.

Sergeant Todd Stanley and his partner were called to a McDonald's to handle a disturbance that turned out to be a woman complaining that she didn't get the extra slice of cheese on the Big Mac she had requested. I don't know what they have given me to give you for news, but the video's crazy. When the woman refused to identify herself, the officers tried to arrest her and the video showed Stanley, it's not funny, hitting her multiple times in the head, but it kind of is. On a much, is it a lighter note, really? A favorite dress of Princess Diana will hit the auction block later this month. Sotheby's estimates it will sell for $80,000 to $120,000. Also on sale, a jersey worn by LeBron James during the Miami Heat's win in Game 7 of the 2013 NBA Finals.

Bidding on that piece of basketball history is expected to hit $3 million to maybe $5 million. Of those, Carl, which would you like to talk about? I think the latter. I'll go halfsies with you, Contessa, although we might have to finance it. Thank you, Contessa. Maybe we can win the lottery. That'll be in next week's news update. Still to come this afternoon, a hidden gem. Our next guest is highlighting one part of the market that he says is the most attractive group. He'll explain after this break.

Overtime, we'll be right back. Welcome back to Overtime. Tesla's chief Elon Musk about to take the stand in a federal trial over his 2018 tweets about taking the company private, which you probably remember. Steve Kovach joins us with details. Hey, Steve. Hey, Carl. How could you forget? Funding secured, right? 420 a share. That is what this trial is all about. These investors are upset over losses they experienced when basically the argument now is, was the funding secured or not? Lots of debate from Musk's lawyer over what the definition of funding security even was. But look, we have one witness on the stand now. He's expected to last

for another 15 minutes or so. And then hopefully by the end of the hour, we'll be hearing from Elon Musk himself and for the first time under oath for him, explain the thoughts behind that tweet and what really went on behind the scenes, Carl. Steve, we know you'll keep us honest on that if we do get some headlines in a moment. Steve Kovach, let's bring in Web Bush's analyst Dan Ives for his reaction. He covers Tesla. And I would argue, Dan, it's taken a lot. You put up with a lot and kept your outperform. Really, the only time you brought down some numbers was on delivery news, right? Yeah, I mean, look, it's really been a tale of two cities because if you look at the transformational growth story,

that continues to be intact for Tesla despite the dark storm. But it's really Musk. I mean, that's really been the black cloud over the story here in terms of it. I think even when you look at the trial, it's just another situation where it's been a black eye for Musk and a black eye for Tesla. So today, outcomes today are meaningless to the stock at this point? Yes and no. I think, you know, him on the stand, there's always a lot of sort of wild cards that that could take. And I think it is a frustration from an investor perspective because you want to focus on fundamentals, price cuts, China, but Musk continues to sort of insert this narrative. And I think there's a good example, combined with the Twitter situation, still no CEO. And that has been, you know,

lingering overhang over the stock. Speaking of price cuts, you've got this new survey work looking at EV consumers in China who appear to be responding pretty well to the prospect of maybe a cheaper Tesla in that country. Yeah, we did that this week. Over 500 consumers in China, you know, across EV. It was really to try to gain, OK, what's really happening on these price cuts and especially against domestic competition, BYD, NIO and others. Look, three of every four, 75 percent plan to buy Tesla in 2023. That was even over BYD, which I think is pretty important. It shows they're battling that domestic competitors.

And that price cut, you look at that, they ripped the Band-Aid off. 70% said now much more likely to buy a Tesla. Shows that that poker move, I think, is working out of the gate. I've heard a couple of different ideas. One idea is, why would you want to get into an industry where a price war is possible? On the other hand, if they're choosing between margins and units, maybe they're wise to go after units, right? Yeah, I think right. And I think you've seen in the stock. The reason the stock's up called 20, about 30 percent from lose is because they're putting an iron fence around that install base as well as we're in the second inning of EVs.

The last thing we want to see is them sit there at a higher price point and lose, especially with competition coming from the 313 area code, the Detroit stalwarts and others. So from the streets perspective, sacrifice margins right now for volume. And I think that's really been the important move. Overall, you cover a lot of names in tech and we've had a lot of people talk about being cautious this year in the Fed and the debt ceiling and earnings recessions. But you think tech year to date, or I'm sorry, full year could have double digit gains, right? Yeah. The New York City cab driver is bearish on tech right now. And I think it's easy to yell fire in a crowd theater. Our view is that they're doing the headcount cuts they need to do. Numbers

in terms of whisper numbers from a buy side perspective, 8 to 10 percent below street numbers. I think it's set up where you're going to have a lot of these better than feared. And you look in the Della, Cook and some of these other and they're going to be able to navigate the storm. So my view is that tech stocks are up 20 percent plus this year. We believe FANG names could be up 30 percent this year. How are they going to do, though? How are they going to lay off a significant number of employees and then turn around and invest in areas of innovation where they're facing competitive threats like AI? It's a great question, but look at Nadella and what's happened in Redmond. They're cutting costs in hardware and some of these

non-strategic areas, but yet you look at chat, GBT, the $10 billion investment, doubling down artificial intelligence. Because Microsoft, Amazon, Salesforce and others, they'll cut costs where they need to, but this arms race is gonna continue to play out in tech. You're gonna see really, what I view as winners and losers emerging from tech in what we're seeing today. Do you cover Alphabet?

Yeah, so look, and to me, my view on Alphabet here, you need to rip the Band-Aid off like we've seen across tech. And I think the reaction that you're seeing in Alphabet, look at Microsoft since those cuts. Look at Meta since those cuts. Street wants to see these companies rip the Band-Aid off, navigate through the storm, and I think that's an important thing. That's interesting because the bare thesis I've heard on Alphabet is they're going to have to match whatever Microsoft's putting together on AI. And that's going to be expensive. It's going to weigh on operating margins. Whether or not they hire less, more, the same, year on year.

But look at Gates' biggest regret is in the mid-'90s during antitrust, didn't invest in social, didn't invest in mobile, and ultimately lost out on trends for the next two decades. So I think these companies have learned from that. And that's why this Game of Thrones is going to continue to play out in artificial intelligence, cloud. And I think the theme over the next few weeks is tech. Lowered guidance, stocks up. Better than feared. I think it's as underweight as I've seen investors in tech since 2009. Do you think the entry point for consumers when they go to the internet the way Google has owned for so many years could actually change? You think they lose share of that because of this new technology? Well, I think it's a shot across the bow from Nadella and Redmond,

and that's why they're going for it. Look, Google continues to really have that ironclad understanding of the market, and no one could deny that. But you're starting to now see some market share potential gains. And it just shows Microsoft's not going to sit there in the right lane. Left lane of innovation, that's when the Dell is going after. It's like Bing's Revenge if it works out for them in Redmond. We'll see. What a week.

Dan, thanks, as always. Good to see you. Dan Ives. Time for a CNBC News Update with our Contessa Brewer. Hey, Contessa. Good to see you, Dan Ives. Time for a CNBC News update with our Contessa Brewer. Hey, Contessa. Hello there, Carl. The U.S. will impose more sanctions on Russia's Wagner Group, the private military company with tens of thousands of soldiers fighting in Ukraine. The White House says Wagner will be designated a transnational criminal group,

accusing it of widespread human rights abuses. In Ohio, a police officer has been suspended after he was caught on camera striking a woman following a dispute over a fast food order. Sergeant Todd Stanley and his partner were called to a McDonald's to handle a disturbance that turned out to be a woman complaining that she didn't get the extra slice of cheese on the Big Mac she had requested. I don't know what they have given me to give you for news, but the video's crazy. When the woman refused to identify herself, the officers tried to arrest her, and the video showed Stanley. It's not funny hitting her multiple times in the head, but

it kind of is. On a much, is it a lighter note, really? A favorite dress of Princess Diana will hit the auction block later this month. Sotheby's estimates it will sell for $80,000 to $120,000. Also on sale, a jersey worn by LeBron James during the Miami Heat's win in Game 7 of the 2013 NBA Finals. Bidding on that piece of basketball history is expected to hit $3 million to maybe $5 million. Of those, Carl, which would you like to talk about? I think the latter. I'll go halfsies with you, Contessa. That's great. Although we might have to finance it.

Thank you, Contessa Brewers. Maybe we can win the lottery. That'll be in next week's news update. Still to come this afternoon, a hidden gem. Our next guest is highlighting one part of the market that he says is the most attractive group. He'll explain after this break. Over time, we'll be right back. Getting some word this afternoon that Elon Musk has, in fact, now taken the stand

in that securities class action trial over his tweets from 2018 about funding being secured. We're going to monitor that. If we get developments, of course, we'll bring them to you. In the meantime, value has outperformed growth this year so far, keeping with last year's trend. Our next guest says growth remains expensive and the value trade has more room to run. Let's bring in Ben Inker, co-head of asset allocation at GMO. Ben, thanks for the time today. Great to see you. What do you think it's going to take for that switch to pivot, to get a flip where growth starts to get rewarded in ways that it has been in yesteryear? Well, I think it would really help for growth to get cheap first. We think growth is

still trading at quite a large premium versus the rest of the market. And that's dangerous. It's particularly dangerous for those growth companies that wind up disappointed. The thing about 2022 was it was just about the worst year in history to be a growth company who gave bad news to the market. And we think with growth companies in general still trading at quite large premium to the market. It's dangerous if they don't come through with the growth people are expecting. And the nice thing about the very cheapest companies in the market right now is people already hate them. They are priced for pretty bad news. And so it doesn't take much to get a positive surprise out of that. Right. Is that is it time to a Fed pause? Or at this point,

has the market begun to price into the end of that story? You know, I think it's getting harder. If you listen to the Fed, the Fed is not going to pause. And the market is saying we don't believe that. We think the Fed is going to have to stop soon. The weird game of chicken in that is that if the market is reacting in a way, hey, we really believe they're going to have to stop soon. The weird game of chicken in that is that if the market is reacting in a way, hey, we really believe they're going to have to pause and therefore conditions loosen, credit spreads tighten, the market goes up, that kind of puts the Fed in a position where they have to keep tightening to keep inflation down. So it's this very weird game of chicken with the market. But I do think people really overestimate how important Fed policy is to the growth versus value debate.

It is not the case that value needs rising rates to outperform. And it is not the case that growth is destined to outperform any time rates are coming down. Meanwhile, we have the action of the past couple of weeks as we've come into this new year and new month. I've heard everything from short covering to new January money. But I assume you think those were short term dynamics that maybe have lost some steam. I think some of them are. I mean, there's actually some of the stuff that's been weird and I don't really understand it. The kind of recovery of meme stock seems to me weird that, you know, stocks that people were buying, not because they believed in the fundamentals, but because, I don't

know, it was fun and there was FOMO and stuff. I don't really understand how that got reignited. And I assume that won't last that long. On the other hand, the basic pattern of stocks that did really bad in the previous year doing pretty well in January, we've seen that time and again, whether that's tax loss selling or something else. It's not that weird that some of the stuff that got hit really hard has come back. It's just weird that stuff where the price had nothing to do with the fundamentals is going up, having nothing to do with fundamentals. I would have thought fundamentals should start to matter again. Yeah. We'll see if the back half of January brings more seriousness to some of those plays, which I think viewers

know exactly what you're talking about, Ben. Appreciate it. Good to see you. Thank you, Ben Inker. Thanks very much. Coming up next, a rough road ahead. Our next guest is betting on a bad stint for stocks, some of the key levels to look for and the best way to trade that turbulence when overtime comes right back. Major averages today rallying into the close, but the Dow and S&P still posting their first negative week of the year, with the Dow falling nearly 3%. Our next guest says investors should be bracing for some more downside from here. Let's bring in Tom McClellan of the McClellan Market Report. Tom, it's great to talk to you again.

I'm fascinated by your framework this week because you're setting it up as a pretty powerful collision of both bullish and bearish forces. Can you explain it? That's exactly the right way to describe it. We have the third year of a presidential term, which is nearly always a bullish year. 1939 was an example of an exception when Hitler was marching through Poland. And so if you don't have conditions like that, it tends to be a bullish year. We also have just seen gobs of breath, which is nearly always bullish. My friend Walter Dieamer created his breakaway momentum

indicator, and that is triggered. That's a signal that's really reliable for forecasting bullishness. There's been a Whaley breath thrust. We've seen the McClellan summation index get up high enough to signal escape velocity for the uptrend, but it had a bad signal last August. You got all those on the bullish side, but on the bearish side, you've got the Fed that's going to screw up and raise rates farther than they should. You've got money supply already shrinking. We've never seen M2 shrink as fast as it's shrinking right now. And at the same time, GDP is still growing. So the ratio of M2 to GDP is shrinking faster than has ever happened in all the history of the monetary aggregates. We can go back to 1959 with M2 data. We've never seen this happen before.

We know what happens when M2 growth is much faster than GDP. And we know that that shows up as a huge rally in the stock market about a year later. We don't know for sure what happens when you get a big drop in the ratio of M2 to GDP because we've never done one of these before. So it's a grand economic experiment that the Fed is trying. It seems fair to believe that when you yank away all the excess money that was being used to lift stock prices, it's going to have a bad effect this year. Right. Of course, you know, Fed officials get asked about M2 quite a bit. They always seem to suggest that it's an outdated metric, not as relevant as it was, say, 40 years ago. I assume you think that's folly.

It's partly true and partly false. 40 years ago, since you mentioned that, money supply aggregates had a coincident relationship with the stock market. And so all the brokers would all gather around their Quotric machine every week to get the weekly money supply measures because the stock market and M1 or M2 would move together. That started to change in the 80s and 90s to being about a six-month lag time between them. And in the late 90s, it stopped working at all because money supply was shrinking because we were all moving to debit cards and online payments. And so we didn't need as much cash in our pocket to pay our bills. For the last 20 years or so, it's been about a one-year lagging relationship. And that's why that chart that you just shared, that I sent over to you, is showing that one-year lag. It takes about a year for that

effect to take place. And so this summer is going to be when it's really ugly. If you're using the rules of 40 years ago, then yeah, it's all broken and doesn't make any sense. But if you understand how those rules have changed over time as changes to the monetary system have affected how that money supply goes to work, then you can start to unlock the lock and get the understanding from the data. Speaking of money being put to work, I know you're watching taxes as a percentage of GDP, which you argue is getting a little bit heavy here and creating unproductive uses of money at this point. Well, it's just that when the government takes too much money out of the economy in the form of taxes, there's not that excess money left in the economy to looking for a job

and lifting up stock prices. We've seen in the modern era, since Social Security was invented in the 1930s, that every time we get taxes above 18% of GDP, we get a recession. Every time. And there are a few things that you can say in economics that happen every time you get an indication, and this is get an indication. And this is one of them. And so it's not a surprise that stocks are having trouble in this environment with taxes as a percentage of GDP up so high. And Congress is not showing any inclination to change that. If we get a recession, the tax collections will fall and there'll be some excess money eventually. We had great money supply availability to the stock market in the early 2000 teens. We had it in the later latter part of Trump's presidency when his tax cuts went to work

and got price got tax rates down. And that helped lift the stock market in a huge way. And the Fed helped, too, in 2020 and 21. Now we've got taxes up really high as a percentage of GDP. They're eating the seed corn. They're not leaving enough money in the economy to lift stock prices. And it's going to be another one of those bearish forces that are colliding with the bullish forces. And I think that the bearish forces are ganging up and they're going to outnumber the bullish forces. And we're not going to have a pleasant year in 2023. And the last thing I would say, please don't shoot the messenger. We're going to, the messenger is going to continue to talk as we get closer to the conversations this summer. Tom, thanks as always. Tom McClellan today.

Coming up, we are wrapping up a very busy week on the street. Seema Modi standing by with a rapid recap. Hey, Seema. Hey, Carl, a week full of winners in the media and entertainment space. Plus gold just defying gravity once again, just $70 away from breaking $2,000. Everything you need to know about this week and the next one coming up in two minutes. We are wrapping up a busy week. Our Seema Modi is here with a rapid recap and a look at what investors should keep an eye on next week, Seema. Well, Carl, best day in two weeks today.

Yet the Dow and the S&P 500 both breaking two-week winning streaks. The Nasdaq remaining a bright spot in 2023, finishing higher on the week. And now its third consecutive week in the green. Communication services, the top sector, led by names like Match, Google, Disney and Netflix, following that better than expected earnings report. On the flip side, industrials are losing significant momentum this week, down nearly 3.5 percent as we await major earnings from 3M and General Electric next Tuesday. Both will provide a crucial read on the U.S. economy and the Chinese consumer. Speaking of China, that's really been seen as one of the drivers behind gold, which is up for the fifth week in a row, its highest price since last April. Meanwhile,

crude at a two-month high. Natural gas prices moving the opposite direction, trading at its lowest level since June of 2021. Now, one area of strength, emerging markets, we've been talking about it a lot. It's fourth straight positive week thanks to a weaker dollar. And so these growing expectations that the Fed may go with a 25 basis point rate hike at the next meeting. Looking to next week, Congress back on Monday. Two important reports. We'll get GDP and new home sales. We'll also be hearing from big names like Microsoft, AT&T, Boeing, and Tesla. Carl, that's the weekly recap.

Back to you. All right, Seema, thanks so much. That's our Seema Modi. Still ahead, Santoli's last word and Elon Musk testifying right now in federal court. We'll bring you the latest headlines after this quick break. We're back in overtime. Tesla CEO Elon Musk has taken the stand in that federal trial over his 2018 tweets about taking the company private. Our Steve Kovacs here with an update. Hey, Steve. Hey there, Carl.

Yeah, so the big contention right now so far in this early part of Elon Musk's testimony is whether or not he thinks his tweets are able to impact Tesla's share price. So the attorneys for the investors in this case suing Elon Musk over the original 420 tweet, there it is, saying 420 funding secured. They're asking him, do you believe that when you tweet something that Tesla's share price moves? And he says, well, not really, because sometimes they tweet something like, if you remember that famous tweet, I think the share price is too high. And instead of going lower, Tesla's share price went up. He's using that as an example to show that his tweets don't necessarily impact Tesla shares the way people might perceive it to. But other than that, a lot of quibbling over his Twitter behavior, including questions whether or not he remembers certain Tesla investors had told him back in 2018 to stop tweeting, including Ron Barron. He says,

I don't recall hearing from people like Ron Barron telling me to stop tweeting back in 2018, Carl. That's another question for Barron's next turn on SWAT. But sure. Steve, thanks so much. Steve Kovach. Last call to weigh in on our Twitter question. We want to know which earnings report next week you are going to pay the most attention to. Microsoft, Intel, IBM, or Tesla.

Go ahead over to CNBC Overtime, vote, and we'll get you the results and Santoli's last word in a minute. Let's get the results of our Twitter question. We asked you which earnings report next week you're going to pay the most attention to. The majority of you saying Microsoft, obviously a stock that's been heavily in the news so far this week. Maybe Mike Santoli and his last word can weigh in on that or other big names of the week like Ally. Yes, although I do think Microsoft index wise is the most important and the one that people might actually have a lot to read into. Tesla's going to move the most probably. But yeah, Ally, I think, is a good tell today. So Ally Financial had better than feared results and also guidance that was reassuring. And it was up

20 percent. The stock's up 20 percent today, dragging things like Capital One Financial, Discover, higher with it. And to me, that's just one of those revealing moments. It says, OK, how were people leaning? What hand has been overplayed right here? So in the very short term, it showed you that parts of this market, like consumer finance, like auto lending, are exactly where we have a concentrated worry about hard landing. So if you get anything that feels like soft landing, you get the move in the opposite direction. I think this is where we're at day to day. If you say soft landing is a 30 percent probability, a 40 percent probability, it's going to have days where it's going to look

like more likely than that. And we're going to pop. And I think that's how it is at the moment. And it could turn out to be that the market's a little bit sanguine about that, a little bit overvalued relative to the likely path. But you can't expect the market to just ignore the possibility that things break in a benign direction here. Right. Doesn't hurt to trade four times. Without a doubt. No, that's a good and it's a good sign, right? Because everyone's like auto delinquencies are rising and we have to worry too much about that. So it's not happening market wide.

I mean, I think market wide we're not priced for recession, but in pockets we have been. Right. I had to read this Barclays note out loud. I don't think many, including myself, expected Discover to be almost flat on the day after putting out their NCO guidance a couple of nights ago. Exactly. And look, it could be a fleeting thing. Obviously, shorts get chased out of these stocks in the short term. And we'll see what the real run rate is. But I do think it's a good reveal, at least for the moment, that everyone's not very upbeat. And all of a sudden, the market has not been delusional in deciding everything's going to break okay. By the way, S&P exactly flat the past six months. So next week's going to be big on the macro and the micro.

Mike, thanks so much. That does it for Overtime. Fast Money starts right now.