Closing Bell - Closing Bell Overtime: Tech-Led Turnaround 7/5/22

Episode Date: July 5, 2022

Stocks finished the session well off the lows of the day, with the Nasdaq ending the day solidly in the green. Schwab’s Liz Ann Sonders gives her take on the big market swings. Plus, Deutsche Bank out with a bullish call on Tesla despite weak delivery numbers. The analyst behind that call makes his case. And, Yardeni Research President Ed Yardeni is revising his recession forecast. He explains why and what it could mean for your money.

Welcome to All The Time. I'm Mike Santoli in for Scott Lopner. You just heard the bells, but we're just getting started. And we begin with our talk of the tape. The tech-led turnaround. Stocks finishing the session well off their lows with the Nasdaq posting solid gains. The S&P 500 nosing into the green after a 2% morning decline. The move coming despite the recession trade remaining in full force with yields retreating and oil dropping back below $100 a barrel. In just moments, we're going to break down today's action with our all-star panel of Adam Parker, Cameron Dawson, and Peter Tricchini. But first, let's get right to Schwab's Lizanne Saunders and her take on today's turnaround. Lizanne, great to catch up with you again. And real interesting dynamics today, as you might expect, with this massive rotation. It seemed almost like the maximum pain trade with energy and cyclical stocks declining,

the old discarded growth names rebounding quite a bit. I know you sort of have a sense that we're likely already in a recession. What does it mean if that's the case for an investor looking at the risk reward available to us in this market? So I think that what we're now facing as we head into earnings season is the likelihood that even subdued expectations of minus two and a half percent S&P earnings, excluding the energy sector, that that re-rating still has to go lower.

But when you have an environment where earnings growth is dear, that means that growth stocks that actually have earnings growth, not just your standard label of growth stocks based on sectors, they get a bid. And I think that may be some of why we're seeing some of these growthier areas and growth factors start to perform a bit better. I also think that if a recession is sooner rather than later, I'm not so sure that's such a bad thing. I think with the retreat in oil prices, we're sort of maybe witnessing the feature aspect of a recession versus the bug aspect of a recession in bringing inflation down sooner rather than later. Yeah, it seems remarkable how quickly the market is willing to shuttle from one worry to another within a few months, which, of course, leaves open the possibility that it overshoots along the way, least you know in the short term and I'm wondering how you might distinguish between the growth scares that we got you know in 2011 that

kind of muddled through period of time when you know things got priced pretty much like a high likelihood of recession was at hand and we didn't quite get there statistically and yet you know so the market was able to kind of gather itself up and something that would be a true recession where you did see across the board decline in employment and earnings and things like that. Is that a distinction without a difference at this point? Well, I think a key difference between 2011 period and the current period is the 40-year high in inflation and the fact that the Fed's in a very aggressive stance right now, seemingly with just an eye on only one mandate. And I think until we see a meaningful move down in inflation, their eyes will only be on the mandate, even as or if we start to see deterioration in the labor market.

You also had the debt downgrades. So there were other exogenous forces at play in the 2011 period. And what would you be looking for right now? I mean, obviously, credit spreads are now in focus. They've not been particularly friendly to equities. You've seen the yield curve flatten out again. Is it just about kind of being patient and waiting, or are there tactical opportunities that you would advise people consider? So I think, as I mentioned, you may have a sort of a growth factor trade.

I want to make sure we differentiate from saying, don't happen to live in the growth indexes, I think that that trade probably has some near-term legs as we get into the start of earnings season and get a sense of what the haircut is going to be to earnings. I still think you want to have sort of this quality wrapper around. You want a strong free cash flow yield, healthy balance sheet, cash-rich balance sheet. But that kicker of positive earnings revision, profitability-type factors, I think are rightly so in play at this point in the cycle. Are you having to, in general, pay a big premium for those characteristics at this point? Because it would

seem as if if they were inexpensive, it would be a complete layup and there would be really no opportunity cost to doing that, even if we get, you know, a rebound in the economic activity. Well, actually, I think what's become more expensive is are the classic defensive areas. You know, utilities trading at a multiple above the S&P, just because they live in the value indexes doesn't mean they offer a lot of value. It also doesn't mean they're growth stocks. And as we've seen, there's been the movement on the part of Russell. Because of the carnage in some of these growthier areas, you've now got some, you know, typically seen as growth stocks moving now into those value indexes. And you saw some traditionally value areas like utilities move to pretty rich valuation. So I actually think we've seen a narrowing

in the spread, which is why I think you want to take kind of a hybrid approach. You don't want to just look exclusively for that growth kicker. You want to still keep an eye on valuation. And that hybrid approach, I think, is the right one to take at this point for stock pickers anyway. Sure. And it's interesting, you know, I've been watching one of the kind of new bellwethers out there has been these free cash flow weighted ETFs or strategies or factors. And, you know, they looked great. It looked like they were bulletproof. And then you realize they were kind of energy proxies after a while, depending on the methodology. Is energy at this point giving you a chance to maybe reload on that? Or is it essentially, you know, just going to be kind of purely slave to the cyclical expectations from here?

Well, also slave to oil prices, which in turn is not just driven by the demand side with regard to recession, but of course, forces like a war, which none of us have the ability to predict. I think you and I probably talked about it on a prior show toward the highs in energy. I think energy became overbought technically, but it is still substantially under-owned from a more broad perspective. So I think in terms of, you know, at what point do you nibble, I think it depends on your time horizon how exposed you already are. But I think the under-owned story is still a powerful one, even if we haven't worked off yet the overbought conditions. Yeah, down 25, 30 percent, and it only got back up to maybe 5 percent of the S&P at the highs.

Lizanne, great to speak with you. Thank you very much. You too, Mike. Good to talk to you. All right. Let's dive deeper into today's swings with Adam Parker, CEO and founder of Trivariant Research. Adam, I mean, you heard some of that there in terms of the risk to the earnings picture still seems like maybe some shoes to drop there. Is that your premise at this point? Yeah, I think it's virtually guaranteed. I mean, one of the strange things here is every single macro indicators rolled over stronger dollar, higher commodities, you know, from the beginning of the year, yet the 2022 earnings estimates are higher now

than they were on January 1st. So everyone knows the numbers are too high. The price of forward earnings of the market was 21 and change on Jan 1, 15 and 16 now, depending on where you think earnings are. So everyone knows earnings are coming down. I think the question is how much? And are we afraid they're actually down in absolute terms, 23 versus 22.

I don't believe it's in the price yet, though. We haven't seen any individual stocks rally on guide downs yet. If you think back, you know, at least the day they've happened, Nike, Target, Micron. So I think we still have a ways to go in terms of discovering how much earnings will come down. My guess is the 23 numbers are a healthy amount too high, 10%, 15% plus too high. Now, some of the counter to that is the normal pattern is for the year ahead earnings to be, quote, too high. Of course.

And so there's always been this kind of undertow as you go through the year. I guess the real question is, is it going to be a little more than just a drag and it can be more of an up-hop? I think you and I talked about that a decade plus ago in an article you wrote. So you're absolutely right that when earnings come down, the market can still rally. I think what matters is not that they're too high because analysts do get too optimistic. What matters is, do you believe that earnings will actually be higher next year than this year? If that's the case, you can find a bottom and start growing from there. But I don't think I want to own stocks where I know the gross margin expectations are too high because this week we'll get some prenegs. And I think as earnings unfold, you're going to see guidance

that's disappointing across the board. And so I think the game is where are estimates relatively more achievable or not when you pick stocks? Yeah, and that's a good place to go next in terms of where there seems to be a little more reliability sector-wise and where it looks vulnerable. For me, I think health care across the board looks pretty attractive. Health care services, you've seen Centene and others put up pretty good numbers. They benefit Medicaid versus Medicare. UNH, I know down a lot today, it's been a monster stock. But those kind of names have pricing power.

So I think one area is health care services. Honestly, pharma, you were talking with Lizanne about defensive things, bringing in premiums and staples and utilities. Pharma is basically at an all-time low relative to staples, similar dividends. And then if you want to buy something growthy, probably biotech, where your all-time low is on price of sales, low expectations, and probably you have something that will be safe and effective in the next year. So I think that's an area you can kind of dive in and pick some stocks heading into earnings season.

I don't want to say it's recession-proof because nothing is, but probably relatively more achievable. Whereas I look at industrials, machinery, capital goods, over 20% earnings expectations every quarter this year, another 18% in 2023, yet everything is rolled over. That feels probably the worst estimate achievability in the market to me right now. And then what about in terms of energy? Because on the one hand, people clearly, you know, extrapolated maybe the move up to the highs in crude oil, felt as if there was almost no way out of this. Now we're talking demand destruction. Right. But in the background was always this story that, listen, the industry can do well with like whatever the number is, $80 plus crude.

Or, you know, in other words, it's not necessarily real dangerous for their own income statements if we back off more. But where does that stand? Yeah. Look, I've been an energy bull. I think it's like, I don't know if you remember physics 101, right? Amplitude and periodicity. So how much does it go up or down? And then how long is the cycle? I think we're probably going to be more in dip buying mode here when things come down,

because I believe demand growth versus supply growth is going to be in pretty good shape on a two-, three-, four-year view. Obviously, when you get recession fears, demand destruction gets in the price, you see huge moves down. But I think what you said is right, which is these guys can make money now. They're profitable at the trough. They're generating cash flow. And the valuation is still pretty compelling versus history. So I think the risk-reward on estimate cheap ability is definitely above average for energy and probably select metals as well.

And when they sell off sharply like this, it makes me more interested, not want to hit the eject button like in other sectors. Right. Got you. Well, let's bring in Cameron Dawson, Chief Investment Officer at New Edge Wealth and Exotic Capitals Director of research, Peter Cicchini. Hello to you both. Thanks for thanks for staying in the wings. Cameron, I know you've been you've kind of been kind of in tune with this market in the sense of staying relatively defensive, a little more on the quality side of the of the equity markets, thinking energy was was a place to be and feeling as if you had to wait until we had confirmation of a low. Does anything about today's action alter that or put you on alert for a change in this market's character. Yeah it is disappointing to see such an anemic bounce off of what was an oversold condition back in June when we had that absolute bloodbath in energy

trading. And we really hope to see a more powerful rally because that would have told us that the uptrend is still intact. And so right now we have to keep energy on a really short leash because if we continue to have these anemic rallies and bigger down days, it would tell us that we need to be more inclined to be sellers of rallies instead of buyers of dips. And that would be indicative of a market that's going from favoring late cycle cyclicals to favoring late cycle defensives like health care, as Adam mentioned. Because if we think of the defensive sectors, the thing that health care has is that it's actually the cheapest of all of the defensives. It's trading at 18 times an aggregate that compares to 21 times for both staples and utilities. So that screens well. It's

counter cyclical. It is rather defensive. And we think that the market is slowly starting to shift in that direction. Peter, it's tough to to look at the action today and really read into it as anything but the playbook for, OK, let's get ready for a recession pretty much across all asset classes. Anything in there that you want to either fade or feel as if it's a lot? It's already kind of in the books or you pretty much say, yeah, that's that's the way to play it. Yeah, I think, you know, it's good to see you, Mike. You know, the sort of dual analog we've been using some combination of late 2018 into early 2019 relative to QT and relative to inflation, which we were on sort of early the 1970s. And so if you think about what happened in the 1970s, particularly relative to the oil shock, which is, in fact, you know, not within the Fed's control or anyone else's, for that matter,

except perhaps Putin's, we're likely going to see something of a more significant drawdown. Now, I think what's interesting, you know, along the way you get some considerable bounces. And I actually think we're in store for one of those. Breadth for both the NYSE and the S&P fell considerably about two, three weeks ago. I think for the S&P, only 20% of the stocks in the S&P were above their 50-day and for the NYSE, it was about 20% were above their 200. And every time that happens, even in the depths of a sell-off, you tend to get something of a rebound. So I actually think we're going to see an expansion of breadth and some of the beaten down sort of value cyclicals are going to get a little bit

of a bid here. But it's clearly still a sell the market rally. And outside of equities, which I think is important to mention, you know, they're not the only game in town. You know, we're a structured product specialist in town. You know, we're a structured product specialist with a penchant for, you know, multifamily. And we have an interval fund that investors can buy. And that tends to be a very defensive place to be in the kind of economic environment that we foresee. You know, Cameron, Peter talking about some historical analogs. If you look at just some of the momentum, the positioning, the tactical indicators, whether it's, you know, two straight 10 percent down quarters, it's, you know, how some of the sentiment readings have looked.

A lot of the stuff that shows you the magnitude of downside we've had in a relatively short period of time, a lot of the historical pattern work says, well, generally, that improves your forward returns unless it's 08 or unless it's 02. In other words, unless it's kind of a multi-year compound bear market with a significant corporate recession alongside of it. Would you say that that's the binary we're looking at right here, or is there somewhere in the middle that we might be occupying? Well, you said the most operative word, which is a corporate recession or some kind of debt crisis. That really is the arbiter between do we have a kind of drawdown that looks to be in that 30% range, which is the average for recessions, or something that looks closer to down 50%,

which is what we saw back in the early 2000s in 08, where we had two debt crises. And so if we don't see a debt crisis, we think that we could start to find some value around that 34, 3500 level, because that's what gets us back to the pre-COVID highs. We will have round tripped all of this COVID froth. We could undershoot from there. That's still very possible. As you mentioned, if you look at some of these shorter term indicators or breadth and things like sentiment, yes, they do look rather poor. But if we look at positioning, it still remains really long. All year long, we've been saying we need to watch what investors do, not what they say.

We've been bearish all year on that AAII sentiment survey, and yet people haven't been selling. They're just starting to sell, but they're still at about 65% allocation to equities on a retail side. That went down to 45% back in the 2000s and 08. So there's likely some more selling to happen, some more shaking out to happen really before we can find that really meaningful bottom. But once we get to that 34, 3500 level, we look out a year, two years. We think even if that's not the ultimate low, we're creating some really interesting value there. Yeah, I mean, 35 is also, Adam, exactly unwinding half of the rally from the low in 2020 to the high that we just got in January.

So, I mean, it's a lot of reasons to think that that has some gravitational pull. But what's your thought on how we should be thinking about putting this in context of history? Well, we studied 100 years of daily returns to the S&P in a recent note. We've had 25 sell-offs of 10 percent or more, 7 of 30 percent or more more peak to trough. So the seven, three in our kind of investable lifetime, which were, you know, TMT financial crisis and COVID, I don't think we're set up for you fear about earnings collapse, the magnitude of those three. So mentally I was sort of thinking 30% or more would be kind of a lot. And, you know, the hard part for us is going to be the multiple, but I don't think we'll get there. So maybe that means 10% more down and 30% more up over a couple year view. And that's probably the risk of war.

But I just don't think you want to buy individual stocks when they're about to guide down massively. I need some evidence that they won't. I'm not as much of a fan on the short-term calls around bull bear and stuff because it's hard for me to assign predictive value to that. So I think the sentiment is always a little bit trickier to get at. I think if we look out, you know, 12, 18, 24 months, the market will be higher. It's context, not catalyst sentiment. Quickly, Peter, you mentioned structured products as kind of an avenue. What about in general, higher grade fixed income? Is there any cushion being built into yields at these levels yet? Well, obviously a great follow-on question to whether or not we're gonna see

another leg down in the equity markets because yeah you know look if we if we see the kind of recession that works you know that we're expecting- at let's call it five fifty to six hundred on high yield spreads. You would expect them

to blow out to about a thousand or twelve hundred and that typically doesn't happen. Like- you know, in the studies we've done until you really start to see the trailing default rates start to pick up just a little bit. And so the expectation becomes a little bit different relative to how fixed income investors are thinking. It's it shifts from how much yield am I getting to, oh, my gosh, am I going to get repaidaid and we haven't quite gotten to that change in mindset yet and I think that's really going to be a tell as to whether or not we

get that that additional that second leg of widening in high yield and relative to investment grade I think we are going to see fallen angels but the maturity wall is not massive only about seven percent of high yield games mature over the next 18 months. But I think you're going to start to see coupon defaults on margin compression. Yeah, that's right. The maturity wall, not a lot of companies need to refinance right away, but some of them will. So we'll see how that goes. Peter, Cameron, Adam, thanks very much. Sure. Appreciate it. Good to see you. All right. Don't go anywhere. We're all over this volatile day on Wall Street. Coming up, what today's action means for your money long term,

plus our most valuable pick, a top analyst getting bullish on Tesla while a lot of Wall Street has started pulling back on the name. He makes his case after the break. Overtime goes back in two. We are back in overtime. Deutsche Bank reiterating its bull case for Tesla in a new note today, despite a lot of other firms pulling back on the stock. Joining us to break down today's most valuable pick,

the analyst behind that call, Emanuel Rosner. He's the lead auto and auto technology analyst at Deutsche Bank. Emanuel, good to have you with us. Talk about Tesla here. I mean, clearly the market had sort of revised lower its own expectations, seemingly, for what Tesla was going to have in the way of deliveries and maybe the outlook, just given what's happened with the stock. So how does the quarter shape up and what does it tell you about the rest of the year? Yeah, thank you so much for having me.

So, yeah, I think a lot of the concern around Tesla have been around the ability to produce, so essentially the supply side. Some of the weakness we've seen in the second quarter was highly predictable. It was basically the result of COVID shutdowns in Shanghai. And so the numbers that Tesla delivered in the quarter were actually better than we had expected and bang in line with what the street was essentially looking for. So pretty robust execution despite those challenges. The reason we remain bullish and actually we feel it's a good opportunity now is really looking forward. As part of its press release, Tesla essentially said June was the best quarter in the best months in history from a production point of view. That means that it's really lapping some of these production issues. China is back on track. The other factories are on track.

And therefore, I think the second half will actually look particularly strong. The company is right now retooling Shanghai to even boost capacity by another 300,000 units. It's also boosting the number of shifts in Berlin. We believe the second half could actually be quite strong and then some more in 2023. Big picture, I assume based on what you said, is that you still believe that fundamentally Tesla is mostly constrained by supply. In other words, we don't have to be concerned about the pace of demand, even if we're all looking for a potential recession in parts of the world coming up. Obviously, it's a very important question. So based on existing data, we could track essentially the wait times to get your car. If you place a reservation, when would you get your Tesla? There has not been any compression in wait times. In most cases, whatever the model is,

whatever the geography, you would have to wait several months, often into 2023 in order to get your Tesla. So there's no sign so far of any sort of compression in demand, despite Tesla increasing prices by 10 times in 2021 and multiple times again in 2022 and keeping up with inflation. So, so far not. I think on a go forward basis is still a very valid question. If we go into a recession, my point would be, look, we're essentially looking now at backlogs that stretch year long or more in terms of ability to supply. So even if demand took some sort of hit,

we'd still be looking at some pretty solid volume trajectory. Let's not also forget a big piece of the Tesla story is about their own supply, but also about new models. Next year in 2023, we should get the Cybertruck. This is an all new supply, but also about new models. Next year in 2023, we should get the Cybertruck. This is an all-new segment, an all-new model. We don't have a fresh mark-to-market of how many reservations there are, but there's certainly some noise that it could be a million units or more. This is all new. This is all new customers. And I would think a decent portion of the reservation holders would actually come through. All right. Well, we do

have to watch that demand pipeline. So far, it has not really buckled. Emmanuel, thank you very much. Appreciate you coming on. Thanks for having me. All right. Let's get to our Twitter question of the day. We want to know what's the best auto stock to own for the rest of the year?

Tesla, Ford, GM, or Rivian? Head to at CNBC Overtime on Twitter, vote, and we'll bring you the results at the end of the show. Up next, a recession reversal. Our next guest making a fresh, bold call to kick off the week. His new growth forecast and how he's navigating the uncertainty is ahead. Overtime, we'll be right back. Welcome back to Overtime. Time for a CNBC News update with Shepard Smith.

Hello, Shep. Hi, Mike. From the news on CNBC, here's what's happening now. Police say a seventh victim died today after the sniper attack on a 4th of July parade in Highland Park, Illinois. 30 others injured. Cops say the suspect is talking in jail, that he planned the attack for weeks, and that he was wearing women's, that he'd planned the attack for weeks, and that he was wearing women's clothing to disguise himself during the attack. We're expecting another

update from police in just a matter of minutes. Trump lawyers Rudy Giuliani and John Eastman subpoenaed today by the Georgia grand jury investigating potential criminal activity around the 2020 election. Senator Lindsey Graham and others in Trump's inner circle also subpoenaed. And Boris Johnson's political career now in deep peril. Two British cabinet ministers resigned today, including the health secretary, saying they'd lost confidence in Johnson's leadership. Tonight, the new details of the parade attack, including the red flags online from the suspect, the WNBA star Brittany Griner's appeal to President Biden, and today's big market rebound on the news right after Jim Cramer, 7 Eastern, CNBC.

Mike, back to you. Thank you, Shep. Recession fears front and center in today's choppy trading session, and our next guest just took down his growth estimates for the U.S. economy this year. Let's bring in Yardeni Research President Ed Yardeni. Ed, good to catch up with you now. Talk about the revised economic outlook you have and I guess what it means for a market that has kind of been bracing for something like this for a while. It's been bracing for it and now it may actually be embracing it. The idea being that let's just get it over with.

If we're going to have a recession, let's do it. Let's kind of clean out the excesses and start all over again. The market tends to look ahead by six months, and I think it's done a pretty good job over the past six months of anticipating this significant slowdown in the economy with some elements of a recession going on. And now I think the market's starting to look ahead into next year. And that could very well be a recovery year from whatever this recessionary environment turns out to be. You know, we're all kind of doing a Hamlet recession, to be or not to be, I'm kind of thinking that there's going to be a mild recession. So a mild recession in real terms, obviously, we still do have nominal growth that's pretty high because of inflation being where it is. But what do you actually expect in terms of, let's say, second quarter GDP? And is that going to be the end of the contraction, do you think?

Well, I'll go with the Atlanta Fed's tracking model, which currently is seeing a 2% annualized decline in real GDP. And I think we could have a similar decline in the second half of the year. It looks as though the consumers are very depressed about inflation. They've realized that prices are going up as fast as wages, in some instances faster than wages. And so that's been depressing. And it's meant that their purchasing power has been eroded by inflation. I do think that inflation is going to be moderating, but it's going to take some time this year to next year. And I think in the interim, while we're also going to continue to have what certainly looks like a housing recession, that's been one of the biggest weaknesses in the economy in the second quarter. And then I'm also seeing some signs of capital

spending slowing down. Yeah, I mean, it's certainly the case that the market is always itchy to look ahead to the next turn. I just wonder, is it almost, you know, too cute that it gets to this moment where, OK, guess what? We've been in a recession for two quarters and that's the worst it gets. We don't have to live through the earnings downgrades. And by the way, the Fed's going to also become maybe less hawkish because of what's already gone on in the market. Yeah, I think some of that is wishful thinking. Some of it is a possibility. But I think the Fed is still committed to and has to increase the Fed funds rate this month, at the end of the month, by 75 basis points. And I think they're still going to go ahead and do 75 basis points in

September. Remember, the Fed keeps repeating that they want to get inflation down to 2 percent. So even if it moderates down to, let's say, 4 to 5 percent, they're still going to be under pressure to deliver on tighter monetary policy. And, of course, that could weaken the economy and a weaker economy could bring inflation down. But it's not going to bring it down to 2 percent anytime soon, which is what they keep talking about. Right. I mean, I guess it gets a little bit to what was going on today, which was a very stark example of everybody to the other side of the boat with the Nasdaq screaming higher, some of the most beaten down, heavily shorted tech stocks actually leading the way. It's so easy to look at this and say, well, that's probably just kind of a blip and a lot of short covering on one end. Or it could be the market saying, you know, time for time for a new flavor to sample. Well, I think it's really just more in the nature of volatility, quite

honestly. I think there's still some significant issues ahead here. And I think the market liked that the price of oil was down. It wasn't good for energy stocks, but that suggests that we may be getting closer to a peak if we haven't actually peaked in inflation. We all know that a big part of the inflation problem is energy prices. Seeing oil prices come down a lot is an interesting development. But the reason they're coming down a lot is because it looks like while we're trying to figure out whether or not we're going to have a recession here. Again, I think we're going to have a mild one. I think it's pretty clear that Europe is on track for a very severe recession and it's energy crisis related.

They can't get enough oil. They can't get enough gas. And as we get through the summer and start to think about the winter, a very severe recession in Europe is a real possibility. So I think that from a global perspective, things might actually get worse overseas than here, which, by the way, is one of the reasons the dollars have been relatively firm. And maybe that'll help the stock market for a while to the extent that clearly it doesn't seem to be like a great place to invest right now in Europe. Some of that money may come to the United States. Yeah, the point's been made that actually, if you're a euro based investor, the U.S. actually hasn't been down all that much. It's you know, it seems like it might it might work in favor, even if in wild. Yeah, even if it might cosmetically, of course, you know, be a headwind for U.S.

corporate earnings. We'll see how that all plays. Ed, great to speak with you again. Take it easy. It was a pleasure. Thank you. All right. So long. Up next, we're tracking all the biggest movers in the OT. Christina Partinella standing by with that. Hey, Christina, what's on? Hello. I got some talkers for you. An airline that says the cancellations could have been worse this past weekend. And for all the Stranger Things fans, the show just hit a new milestone and the stock is moving. I'll have the details after this short, short break. We are tracking the biggest movers in OT.

Christina Partsenevelis has all of them. Hey, Christina. Oh, hey, Mike. You may not agree if you're one of those travelers stuck at an airport recently, but Southwest Airlines just said this afternoon it's saying its summer cancellations are trending well below 2020 and 2019 levels, you know, the height of the pandemic. The stock, though, is down about 14% this year, outperforming the S&P 500.

And take a look at some of these other airlines right now in extended hours in the OT. You can see some movement just with American Airlines, probably the worst of the pack. Southwest trending higher. And switching gears, Netflix announcing that the latest season of Stranger Things just surpassed the 1 billion hours viewed mark. The show has only been out since May 27th, but viewers have spent 1.15 billion hours watching the season's nine episodes. That makes Stranger Things the second most watched Netflix season after Squid Game. Keep in mind, though, that Netflix's viewership membership system or measurement system is known to be a little bit wonky.

And lastly, no particular company news per se, but I wanted to point out some energy stocks that are moving right now. Freeport, MacMoran, Exelon, as well as Constellation Energy, all trending or moving in the OT. That's more of the trend from today's session with energy. The worst S&P sector in oil falling about lower than $100 per barrel. Exelon and Constellation Energy were also the biggest drags on the Nasdaq 100 today. Mike.

Yeah, shakeout in utilities and energy. Christina, thank you. Thanks. Up next, PIMCO's take on today's big turnaround. Erin Brown is standing by the one sector she's watching that could be at serious risk in a recession. Overtime. We'll be right back. We are back in overtime. Stocks making a big about face on Wall Street today, even as recession fears remain front and center. And our next guest is sounding the alarm on one sector if we do tip in that direction.

Joining me now at Post 9 is Erin Brown, portfolio manager of multi-asset strategies at PIMCO. Erin, good to see you. Nice to see you. You know, the market's speaking pretty loudly today, it would seem. It's just to say, look, flatten out the yield curve, corporate spreads widen out, dollars surging. It's saying that it's getting further along the path of pricing in something like a recession or corporate retrenchment. First, you feel like that's the right call by the markets. And what's left in terms of trades that might be able to capitalize on?

So I definitely think that's the right direction that we're heading in. The data last week, I think, was a clear sign that we are heading into a recession, even if we're not already there, which will be seen in the next couple of weeks. But you had very weak ISM data, the manufacturing data that came out, weak consumer sentiment data as well. And I think all of this is lining up, along with micro data points that we're hearing from companies that are telling you that the data is rapidly slowing. And that's a real concern because if you look at how earnings estimates are pricing in both this year and next earnings consensus is still pricing in higher year on year growth, particularly for 2023. We still haven't seen earnings estimates really come down. so I think that the market right now

despite the fact that we're off twenty one percent year to date on the S. and B. five hundred is still too optimistic in terms of earnings estimates and consensus. You know market expectations. Particularly amongst some sectors that

typically start to roll over early. Into a recession like the industrial sector. You've started to see some weakness, but I still think that estimates are way too high for the industrial sector. And that's something that I think we'll start to see really percolate as we go through second quarter earnings season. So that's something to watch because the early cycle companies like the shippers and truckers,

I think, are early canary in the coal mines, but you haven't really seen widespread fear being priced into that sector yet. Yeah, it's interesting because you've actually seen things like the shippers, well, something like FedEx, where they've kind of come up off their lows. They sort of said the outlook looks fine. And you just wonder if they're going by what's directly in front of them in terms of current order books and run rate of business. Right. And what you've seen is a lot of supply, a lot of demand that has been held over from the pandemic is now hitting. And so they're seeing orders that were placed six, seven, eight months

ago that's now flowing through into their business, which is making their business look okay right now. But when you look at new orders out, you've seen those rates and that demand really start to collapse. And so I think that's the risk. If you look at shippers, their rates have come off really significantly over the last eight weeks or so. The same thing with trucking, where you've seen spot rates really start to come off. So that's what I'm looking at, you know, the future demand, not the order flow that you're seeing right here, right now. It has been such a relatively fast-moving cycle in a lot of ways, right? You just had that massive rebound off the COVID shutdown, and then now this recoil back from it.

I just wonder how long it has to play out. Obviously, if you're talking about 2023 earnings, we should be, you know, kind of trading off of those now. Right. I mean, we're in the second half of the year. But I just wonder if there's any wrinkles in the story based on the fact that you're now seeing those shipping rates come down. Oil prices coming down. The things we thought we wanted to wish for four months ago are coming true. And yet it's it's treated as bad news. Does that take any of the pressure off the economy? You know, I don't think it does, because you look at a company like Nike that pre-announced negatively last week, and they're still seeing shortages, challenges from the pandemic holding over, which is impacting their gross margins.

That's still occurring in the same environment where demand's coming off. So you still have margins under pressure because of higher input costs at the same environment where demand's coming off. So you still have margins under pressure because of higher input costs at the same time where you have demand rapidly slowing. And that's not a good environment for earnings or for owning stocks right now. You know, the markets have also sort of resumed pricing in this Fed roller coaster, right? Now it seems like, OK, they're going to have to keep tightening through this year, but then maybe projecting three quarters of a percentage point of cuts after that, thereabouts into the second half of next year. Obviously, it's a it's quite a trick to pull

off without having a recession intervening. Do you think that's now the plausible path? I think that that is the plausible path right now. For this year, the market's still pricing in about one hundred and sixty three basis points of hikes and like you said they're pricing in about two cuts next year so the market right now is telling you that that they think that the fed is going to likely sort of over tighten through the neutral rate this year and then have to cut next year which is basically telling you that the markets you know at least the fixed income market is starting to price in, if not a recession, much slower growth next year. And, you know, potentially that creates opportunity for mistakes or over tightening. Yeah. It seems like there's

not a lot of margin for error, if nothing else. Would you expect employment to have significant erosion as well as part of that picture? Because that's been another one of those yeah, but stories because it's been so tight labor market and you i think that's what's going to be the key thing to watch particularly as we come into the end of the week with the payroll report you've started to see on the margins corporates talking about pulling back and hiring you've seen it from tesla you've seen it from facebook you've seen it from a large of a lot of the large cap tech companies that were significant drivers of the hiring frenzy over the last 18 months. And now they're really starting to pull

back and retrench on hiring. That's, I think, going to be the key thing to watch. I don't think that you're going to see it in this week's payroll report. I still think you're going to see a solid number, albeit a slowdown from what we've seen over the last six months. But that is going to be the key thing, particularly as we look at wage data to see if that's starting to slow. We're still in this environment, though, where there's a sort of dichotomy where the jobs that companies really want to hire for, they're still hard to hire. but we're, you know, there, and, but there's still a lot of people there that, that's creating a lot of tightness in the labor markets. But so we're still in this sort of pandemics period where there's a challenge in hiring the right people for the right jobs.

So, but where I do expect to see a slowdown over the next couple of months. Yeah. And then you have, as you said, these big tech companies that just kind of binged on workers and now they're trying to figure out what the right number is. Aaron, great to speak to you. Thank you. Up next, trading the volatility, how you can best protect your portfolio. That is our two-minute drill. Next.

And coming up on Fast Money, the perfect storm for the U.S. dollar and the euro. A big warning coming from a top economist. The detail is at the top of the hour. Overtime is back after this. Last call to weigh in on our Twitter question. We want to know what's the best auto stock to own for the rest of the year? Tesla, Ford, GM or Rivian? Head to at CNBC Overtime on Twitter to vote. We'll bring you the results, plus our two-minute drill after this quick break. Let's get the results of our Twitter question.

We asked, what's the best auto stock to own for the rest of the year? Most of you saying Tesla. 51% of the vote, only 8% betting on Rivian. That means Ford and GM share just about 40 percent of the vote. Time now for the two minute drill. Let's bring in TD Ameritrade's head trading strategist, Sean Cruz. Sean, great to catch you on a day like today where it was just kind of a complete whipsaw in terms of what had been working and what started to work with this session this afternoon, especially the ARK complex up double digits, the energy, the momentum leader

of the year falling out of bed. Do you see any real changes that might last in terms of, you know, trader behavior here? Or is it just kind of, you know, vibrations in a bear market? I think this is more vibrations in a bear market. And I was looking at some of the internals of what's going on today, not only the number of issues that are advancing versus declining, but also some of the volume that's behind it. And it looks like you just have a handful of names that are really dragging a lot of these indices either in a positive territory or keeping them afloat, you know, just down slightly. And I think that is something you want to see more broad-based participation to say, OK, there is actually some positive sentiment coming into the market. So I would be a little bit cautious right now. And you still have the volatility index sitting right up there around 30, letting you know you can expect about a 2 percent swing one way or another on any given day.

Yeah, there's no doubt. I mean, the market is in this uneasy spot with the VIX where it is. On the other hand, you've got the Nasdaq down at the 30 percent level trying to gain some traction. So you think there might be any more life in that kind of counter trend move? I think so. And I was looking at some of the names that are really holding up the Nasdaq 100 today. And it's a lot of these big tech names. And sometimes I guess you wouldn't even necessarily call them tech. Amazon's a big one, Tesla as well, which are actually consumer discretionary. But a lot of these names are starting to hit some interesting support levels that they hit earlier on in June, rallied off of, came back down, and those actually held as support again. And so that sort of price action can actually be something that can bring some buyers

in off of the sideline. So you could be seeing the early innings of some some money coming in. But like I said, it's focused in a handful of names. You're not seeing it really broad based. So I don't think you want to dive in with both ends just yet. Gotcha. Sean, appreciate the time today. Thank you. All right. That does it for overtime. Fast money begins right now.