Closing Bell - Closing Bell Overtime: The Bostic Bombshell 1/9/23

Episode Date: January 9, 2023

The head of the Atlanta Fed suggested this afternoon that the fed is willing to go too far, if that’s what it takes to bring inflation down. NewEdge’s Cameron Dawson gives her take on what’s at stake. Plus, Fundstrat’s Tom Lee sees a 20% upside for stocks this year. He makes his case. And, market expert Mike Santoli’s first Last Word of the week.

All right, Sarah, thank you very much and welcome everybody to Overtime. I'm Scott Walkley. You just heard the bells. We are just getting started from post nine here at the New York Stock Exchange. In just a little bit, I'll speak to fund strat star strategist Tom Lee, who says stocks can rally another 20 percent in 2023. We'll ask him just how as the Fed continues to talk tough and the economy is expected to slow even more. And that's where we begin with our talk of the tape. A Bostick bombshell. The head of the Atlanta Fed suggesting this afternoon the Fed is willing to go too far if that is what it takes to bring inflation down. Stocks didn't like that pronouncement at all. Let's ask Cameron Dawson what it all means. She's the chief investment officer for New Edge Wealth right here at Post 9. OK, so it's fair to say the Fed is willing to overshoot. That's what Bostick said. Yeah. What do you make of that? Well, I think that this is the equity market waking up to the harsh reality that this Fed is not going to cut interest rates in 2023, given where data currently is today. They simply don't have any evidence, whether it's from inflation or employment, that they will cut interest rates. And so as we saw stocks soften, it really reflects the fact

that they were banking on this idea that we would see some easing in policy. And that's just not going to happen. Yeah, I mean, it sort of begs the question of whether the Fed and Steve Leisman is going to join us in a minute to discuss this is tone deaf of sorts, like Bostick saying they're willing to overshoot. Well, what about the data of late that's come in favorable on the inflation front? If the CPI is good on Thursday, are they still going to be talking about past 5% on the terminal rate and staying there and a willingness to overshoot, i.e. put the economy into a recession? Well, it's not just where inflation is today. It's if it comes back. And

that's the key thing for this Fed. They are haunted by the idea of inflation reaccelerating. And that's why they are willing to overshoot. They'd rather tamp it down today, risk a shallow recession versus having to go full early 80s and really raise rates and plunge the economy into a much deeper correction. We're assuming that they can control the dial so acutely that they can do that without preventing a deeper pullback in the economy. Well, exactly, because if we look at their forecast for growth, it's very benign in the kind of slowdown that they see. And so we wouldn't be surprised if they did overshoot. But if we look at what the bond market's pricing in, they're pricing in a very dovish Fed, so nothing at all in line, which means that the bond market or the Fed would have to be so incredibly dovish, a huge pivot to out-dove this bond market.

What do you make of the move that we've had in stocks so far? We were anchored to 3800 or so in the S&P. We're able to move beyond that substantially on Friday, had a little something going today, late afternoon until Bostick started speaking. Well, we think that as we looked at positioning going into the end of the year, we saw a lot of flows come out of equities and we saw expectations start to move lower as well. That set us up for some kind of pain trade higher. But our view is that that's not really sustainable because once you get above $,000, 4,100, you're trading at simply unattractive valuations. So the short-term technicals can get you higher, but they can't keep you there. So you'd rather sell out than buy in to this move?

Yeah, I think if we continue to see the market move higher on those technicals, on positioning, we would be wanting to take risk off the table because we still see pressure on valuations and we still see pressure on earnings, which still have not come down yet. We have a 5% earnings growth forecasted for next year. What if earnings aren't going to be as bad as people think? Yeah. It's not like it's set in stone that they're going to be horrendous or that expectations are dramatically too high at this point. They've come down a lot. Yeah, I think that if earnings do come in a little bit better than expected, that does help us make the valuations today not nearly as bad as they might see if you see a big earnings decline. However, if earnings are better than expected, it likely reflects a strong economy and likely high inflation to drive that revenue

growth. So in that environment, the Fed's not cutting rates, which means that you might get better earnings, but you're not going to get multiple expansion. It's a matter of what really the Fed is going to do from here forward. And Bostick sort of throws many questions into the mix today. Let's bring in Steve Leisman, our senior economics reporter, who I mentioned was going to be with us. He is now.

Fair to say the Fed's willing to overshoot? Steve, I mean, that plays to the to say the Fed's willing to overshoot. Steve, I mean, that plays to the notion that the Fed's hell bent on getting over 5 percent and staying there. Data be damned. Yeah, I mean, that's been an idea that's been out there. I think Powell has expressed it in so many words, this notion that they're willing to risk pain in the economy. They're willing to risk higher unemployment. And they're frankly willing to risk the economy slipping into recession in order to fight inflation. I think Bostick may have said it more plainly, perhaps, than Powell has said it. But it's been an idea that's out there. It's an idea I think that is in the market. I think some

of the other comments of Bostick were also very interesting. He told me on Friday he's willing to keep rates high well into 2024. He repeated that today, but then he said no rate cuts through 2024. As you said, he said the Fed's willing to overshoot, Scott. He also said on the maybe somewhat more dovish side, how do they express their reaction to better data? Well, they'll do a 25, not a 50. You have to wonder, though, at some point, Steve, and some have raised this issue, too, as to whether the Fed at this point is more interested in saving, if not restoring, its own credibility than it is in doing what's really right for the economy, because they blew it so badly on the transitory side, and now they're going to overdo it on the other side.

Yeah, I think for the Fed, though, Scott, I think those two things are intertwined, their credibility and the economic outlook. I think they feel like they have to restore their credibility in terms of delivering 2% inflation. That's where they think about credibility, Scott. If they don't deliver 2% inflation, if they're unable to get it under control, then they have a whole host of other problems. So that's the way they look at it. And to the extent that they see the risk of inflation to the upside,

they are going to risk putting this economy into recession and, as Bostic said, overshooting. Got Cameron Dawson of New Edge sitting next to me, nodding her head, Steve, as you're speaking. What do you make of what Steve's explanations are for what he himself has heard directly from Fed members and what they're saying otherwise? Yeah, I mean, Bostick said today he was asked, how long should we keep rates above 5 percent? He goes, three words, a long time, which means that even the Fed's projections in 2024 in the dot plot, they have 100 basis points of cuts priced in. And what's interesting is though they have that 100 basis points of cuts in there, they

have real GDP accelerating in 2024. So there's a lot of disagreements here within the Fed's own forecast, which means that there's lots of uncertainty. But what we do know is that the bond market's still pricing in those 40 basis points of cuts into next year. And that's likely the first thing that needs to be priced out of this market. Steve, Cameron just used an interesting word, disagreements, right? We haven't had many disagreements of late in that room. Are we in a new era, perhaps, approaching one if this inflation data continues to go in the right direction? It'll be interesting to see, Scott. I think the Fed has a quandary here, and it's as follows.

The Fed knows that in order to bring in, or believes that in order to bring inflation down, it's going to have to have financial conditions be tight. You look at the two-year, though, the two-year's come off quite a bit, especially on Friday, it came off 30 basis points. I didn't look at where it closed today. It was down in the 420 zone. Didn't seem to reverse itself very much. I guess, yeah, it's still right around that zone there, 420, 419 even today. And so it has to keep financial conditions tight. On the other hand, they have the economic data coming down and they're going to have to at some point acknowledge the reality of what's been happening. Scott, if you look at, for example, the ISM services prices index, it is essentially round tripped.

It is back to where it was before the pandemic. So what's confusing to me is the Fed has focused so much on services. So we'll see Thursday if they do get some relief in the services component, which is the one they've talked a lot about. But in the ISM index, Scott, it has come back down to where it was before the pandemic. So they're going to have to acknowledge it eventually, whether or not they feel like they can do so while inflation remains high. And what Alan Blinder was talking about, what other economists

were talking about was this idea that, yeah, you've had a high year over year rate, but look at the last five months annualized. It's quite a bit lower. Yeah, it's kind of like, yeah, exactly what Blinder wrote last week. What if it's, you know, evaporating in front of our face and we just don't see it? Steve, I appreciate you jumping on with us to talk about what Bostick said, your comments from him last week as well. Last comment from you, Cameron, before we welcome in our panel and we continue our conversation. They have to keep talking tough in a sense, which when you think about where the market can go from here, it's going to be faced with this continuous tough talk because they don't want financial conditions to ease.

And the market going up helps that happen. Exactly. And that is that consternation that they expressed in the Fed minutes about financial conditions easing because they see that as working against them in their fight against inflation because they see financial conditions as the key mechanism for them to be able to control inflation. So that tough talk is important, which means that it will be an interesting balance tomorrow when we hear from Powell if he acknowledges softer services PMIs, because that's been the key thing that was really a frustration for them. Services inflation driven by wages. And that was the thing that was stickier.

If they acknowledge that, let's see if there's any openings for them to ease up. All right. Let's expand the conversation, as I mentioned, and bring in Victoria Green of G Squared Private Wealth and Shannon Sikosha of SVB Private, both CNBC contributors. Ladies, welcome to the conversation. Shannon, to you first. Had some nice momentum, especially after Friday, into the afternoon, in fact, until Bostick said what he did and had us focusing once again on how far the feds going to go and what damage they might do along the way certainly thought we were moving past this macro environment I'm kidding but that's what everybody was talking about we came into January right Scott we were all going to focus on fundamentals again I think what the

market is continuing to reflect is that they are under the impression that market participants play a relative game and the Fed is playing a relative game as well. And they are not. They are playing the absolute game. And so when you look at something like services PMI on Friday, 30 months of contraction, you think that the Fed is really all that interested in seeing one contraction figure from the services report? Hiring remains robust, and it's particularly robust in the services economy. Cameron just made a great point. That is going to continue to be a challenge for the Fed.

And so while you take these data points that are potentially optimistic, like slowing wage growth on Friday. Again, it's just relative to where we've been. And the Fed knows that that's still 2x what they really want to see for that figure. So I think it's going to be very difficult as we move into earnings season, because I do believe that it's going to be continuing to focus on what should the multiple of the market be, but most importantly, what companies are going to be able to drive earnings? Because right now you can say that a company like Microsoft looks cheaper than it has been historically. But what is the correct absolute value for its multiple? I don't think we've actually reached that just yet. Victoria, you want to decide where stocks are going. Maybe you need to bet on whether you believe in Bostick or the bond market, because Bostick can say whatever he does,

right? Bond market says not so fast. It's not like rates ran away on that pronouncement by Bostick in any stretch. And the bond market has been signaling all along here that the Fed's not going to be able to do what it says. So maybe we shouldn't listen to them as closely as we are. Yeah, and that's the disconnect, like you guys were talking about earlier, what the Fed fund futures are pricing in, which is obviously some cuts in 2023 and what the Fed is saying. I do think they're a little embarrassed about the transitory problem that they had last year. I'm sorry, two years ago now. So I do think there's a lot of pressure on them to stay the course. They're pounding the table. Listen to us. The market has it wrong. And that's always a bit of a dangerous time to be an investor if the Fed is telling you the markets have it wrong. And if you look at the signals, they just don't look great. And I know everybody's bearish. It's

like Envogue to be bearish now. But it's hard not to be. When you have 130 basis points between the six-month and the 10-year, that inversion's never happened without a recession. So right now, robust job market. We'll see what happens with earnings. We're actually cautiously optimistic it's not going to be terrible. And the hurdle is now a little bit lower for earnings. But for me and where the market goes right now, I am actually listening to the Fed because that mantra you got to repeat to yourself is don't fight the Fed. And the Fed is telling you the market has it wrong right now. Well, it's one thing what they're telling you.

We need to see what they're actually doing. Of course, if they actually follow through, it would be prudent to not fight the Fed. But if they're all bluster and then less on the action side, then maybe it does pay to go against history and actually fight the Fed. What's interesting, Victoria Cameron says to sell the rips, you're actually looking to buy the dips. And you've been fairly negative in the market. So you're looking for opportunity after a while? I do. I think the end of the world is not going to happen. Yes, we're seeing some seismic shifts in the world with deglobalization and what's happening with all the global geopolitical kind of crises we're in. But I see a bottom in the first half of this year. So if we had something like happen in November where we had that kind of, or I'm sorry, in the end of the

year in December when we had the markets fall off before it rallied out, I'm looking to start adding capital to these dips because I do think we're going to get better in the second half. So I'm not a seller of the rips. I am looking to discipline, add money to the markets when the markets go down, because I'm, again, listening to our core tenant, buy low, sell high. I do think there's a lot of companies that have been fairly beaten up. I think you're going to see a weaker U.S. dollar. You saw the dollar kind of barely holding on to that long-term trend around 103. If it can't hold 103, that's a lot of downside to the dollar, which might be a huge pickup for multinationals that saw a lot of currency headwinds. So for me, I am looking at positives. As an investor, you are having to be optimistic that it will eventually get better. I'm not calling a bottom yet. We see

that more around 3400 area. But at this point, also, if we see those nasty pullbacks like we got over the fall, then I want to be adding capital because I see an improvement coming in the second half of the year. I'm going to ask you ladies to stand by for just a moment. Go to our Steve Kovach. We do have breaking news regarding Apple and some stocks that are now moving on some interesting headlines. Steve, what can you tell us? Yeah, let's talk about Apple, Broadcom and Qualcomm, Scott. So Apple wants to replace the Broadcom Wi-Fi and Bluetooth chips and Qualcomm modems with its own chips and iPhones. That's according to a new report in Bloomberg. Now, look, Scott, this should not be surprising at all, at least on the Qualcomm side. Apple and Qualcomm, if you remember, settled their

patent dispute back in 2019, agreeing to a six-year deal for Apple to keep using those modems. But look, in the meantime, Apple has been working on building its own modems. It bought Intel's failed 5G modem business for $1 billion, using that as the foundation to move forward. It even opened an office in San Diego, which is Qualcomm's hometown, to develop it. Now, Apple, we know this. They like to make as many parts of their own as they can, and that's why they make their own main processors. And that seems to be what they're eventually trying to do with the Broadcom chips that do Wi-Fi and Bluetooth in their devices as well. So look, this is something we've been expecting to

hear from Apple for the last four years or so. And in the next couple of years, they're going to be, you know, weaning themselves off Qualcomm. And it sounds like soon Broadcom. All right. We'll continue to follow that. Steve Kovac, thank you very much for the headline there. Thanks. So, Cameron, I turn to you as Steve teased that up. This move we had in tech today. Lasting, does it have staying power? Would you buy any of these mega caps, which obviously have seen valuation compression, but maybe for some have come down far enough? Well, a lot of the tech names are the most oversold parts of the market. So they have the most room to rally over the very short run.

The NASDAQ is still 9% below its 200-day. Compare that to the S&P. It's only 1.5% below. So there's room for tech to run. But we don't think it's sustainable once it has that run because valuations simply aren't attractive, mostly given where real interest rates are. So tech still trading at a 20% premium to the market with a real interest rate of 1.6% does not make a lot of sense. So we'd see valuation risk continuing, which means that

we'd likely want to lighten up on tech if we continue to see this rally. You agree with that, Shannon? Lighten up on tech if those stocks continue to rally? I think it depends what you're positioned in. I still think that there's opportunities within technology that are a little bit cheaper from a multiple perspective. But I think the point is, is that if you look at- a particular company is trading relative to what it's been trading as a premium to the S. and P. five hundred. There is an expectation that growth does not afford. Any sort of premium in this market I think that we're only going to see. A real true strong rotation back into technology in particular but into growth in general. I'm more facing that lower growth environment. That is what we anticipate for 2024. So our view is that you can start to step in in this first half of the year to see some of these mega cap tech names, but be very thoughtful about the valuation because there is going to continue to be pressure

and some additional compression as rates are rising. You know, Victoria, lastly to you, I see somebody who doesn't really like these stocks right here, but otherwise would advise aerospace, defense, Victoria, lastly to you, I see somebody who doesn't really like these stocks right here, but otherwise would advise aerospace, defense, energy, in other words, dance with what got you here in the first place. The stocks that did well last year don't switch up yet. Yeah, stay with the horse you rode in on, right? Look, we're staying value. We think it's the good place to be in the market.

We like our balance sheets. We like our cash flow. We like companies that have a little bit more sustainable revenues if things get squeezed. And that's why, you know, the consumer discretionary and the technology sectors got hit so hard last year. We're just not 100 percent ready to say, hey, these are going to be what leads us right now. I know today the Dow was down, NASDAQ up. But we really like our value names. We want something that if it gets worse, they can still raise capital. And we want companies with good leadership. We also see the whole aerospace and defense theme. That's not going away. I think you're going to see continued spending. The U.S. is spending more on defense budgets than they even

needed. They were like, here's another $45 billion. Nobody's going to argue. Please just spend it. We're going to get into this arms race with China and Russia right now. So if you talk about my themes for 23, it's energy security. We want to be dealing with partners we know and trust. It's going to be defense and aerospace and investing in areas that we haven't seen as much investment in over the last decade. The last decade, it's been tech. Now, I think it's more the real businesses, the industrials, the energies. And like Rolls-Royce came out today, they had record profits in 22. And so I think the private jet business, like General Dynamics has, they're not going to see pressures yet. So stay General Dynamics has, they're not going to see pressures yet. So stay long then. All right. We're going to leave it there. Ladies, thank you.

Victoria and Shannon, we'll see you soon. Cameron Dawson, of course, right here at Post 9 with me. We'll see you as well down the road. Let's get to our Twitter question of the day. We want to know, is it time to buy some of those hardest hit growth names? You can head to at CNBC overtime on Twitter. Cast your vote. We'll give you the results a little bit later on in the hour. We, however, are just getting started here in overtime. Up next, 20% upside ahead. That's what longtime bull Tom Lee is forecasting for stocks this year. He's going to sit next to me at Post 9 and tell me exactly why.

We're live at the New York Stock Exchange. Overtime is right back. We're back in overtime. Stocks off to a strong start this year. And my next guest calls this, quote, strong omen for the market. See stocks rallying 20 percent this year. Joining me now right here, Post 9, CNBC contributor Tom Lee of Fundstrat Global Advisors. Happy New Year's. Good to see you. Welcome back.

Great to see you, Scott. So you were admittedly too bullish last year. Yes. You are, in a sense, doubling down on that 20 percent. How? Yes. You know, last year was a year where inflation shocked the markets in the first half. It's come off the boil since October. Very soft. I mean, if December comes in the way we think, it's probably 2.6 annualized inflation now. And wages are coming off the boil, right? If we look at the employment report Friday, they're growing at 3.7, which is where they

were before the pandemic. So the third thing that we think needs to happen is volatility needs to come down in the VIX. The bond market volatility is below its 200-day. If that happened in the VIX, we'd be at 17. And since 1950, following a negative year, if the VIX is lower on average than the prior year, we're up an average of 22%. So I think we're set up for a 20% year. Even with the Fed, even with the Fed speak, you know, if it's not Kashkari, it's Esther George.

If it's not Esther George, it's Bostick. Just to make sure, Bostick got his message across. He spoke late last week. He spoke again before the show today. I mean, these guys are talking and women are talking tough. Yes, they're talking tough because they want financial conditions to stay tight. You know, that's dollar stocks, bonds. Everything's kind of easing. So they're probably a little worried and they want to be sure inflation

is in fact dead. But I think one of the changes, especially since October, is that inflation's been undershooting. This Thursday will be very telling. But if CPI comes in at 0.2 core, below consensus again. That means the Fed's original projection of 4.8 on the PCE is 60 basis points too high, you know, translating that over. And that means inflation is undershooting by a huge margin. The bond market is going to push the Fed to say February might be the last hike, and then after that is cuts. I mean, but the Fed members themselves are not, you know, drinking what the bond market's serving up, right? They keep talking as if they're, as I used the

word with Leisman a little while ago, hell-bent on getting to that plus 5%, however much over 5% we can argue about, and then staying there for a while. Yeah, I think that's because part of the Fed model is they're using a Phillips curve. And at the moment, they're focused on this services number, ex-housing, which has been inflationary. And their view is that it's driven by wages. But what is sort of not being captured at the moment is the goods have dropped so much and wage inflation slowing. And housing, especially this week, looks like it's actually come off sharply, that the trajectory for CORE could be, you know, we could be sort of annualizing close to 1% in the first half, and that's far below what the Fed, I think at that point the Fed would have to sort of rethink its reaction function. So what happens if they, I'll grant you, let's say they pause, right, but they don't cut.

How much do you need to cut to get your 20 percent? I don't even think the Fed would even have to cut because once they pause, which is now the Fed went from five ones, the terminal rate to we're pausing at four, seven, five. It raises the bar for them to start hiking again. So I think that the bond market would interpret that as the start of a cutting cycle. I think rates would come down. Of course, this is a worry of the Fed. That's why we're hearing tough talk. But if inflation data comes in soft, I think everyone's going to be on the same page. So a pause alone is enough for a huge rally in stocks? Yes. Yeah. In fact, I know folks talk about earnings could be down this year,

which I think is a possibility. But was it a probability or a possibility? I think it's only a possibility because the dollar falling is a tailwind for earnings. And but if earnings are down since 1950, it has not been an important factor for what if stocks go up or down. So it's volatility. The VIX is a much more influential fact you think the market's going to overlook the fact if you know if earnings come in even lower than where projections have re-rated them to already markets go overlooked that yeah in fact I think that's uh you know we can look at it even just now Tesla missed on delivery numbers it's at 120 now I mean I think stocks are already showing you that you could have bad news.

But if it's priced in. Well, I mean, we're going to use Tesla as the litmus test. I mean, that stock's already gotten from a multiple of 80 something, you know, all the way down to 20. That's kind of why it's interesting. If you look at what's correlated to financial conditions easing, it's tech, discretionary and industrials. These have been doing well. They're kind of telling us financial conditions will ease. But also these stocks shouldn't go up if earnings are I mean, these should be the ones getting hit by earnings and they're going up.

What about tech? It remains the biggest. I don't even know if I should say biggest question mark, because it seems like the questions have been answered. The stocks were overvalued. Even the mega cap stocks that deserve to have a premium valuation don't necessarily deserve the premium that they even still have now, which has been compressed as well. That's right. Tech's been a darling. It was over-owned. They got expensive. Now people think that they're going to derate forever. But we know that if the market is bottomed in October, tech has always led off a bottom. Tech is also how you cure inflation because that's how you reduce wage pressures. And if the multiples have come in and financial conditions ease and rates fall, then multiples should go up. So tech has tailwinds this year that didn't exist last year.

Do you think the worst is over?, and let's separate the baskets of tech. Massive multiple once, two banks, the mega caps, which, you know, most of them, I think we would suggest, their multiples weren't nearly as egregious as some of the others. Do you think the mega caps, the Apples, the Microsofts, etc., have they corrected enough? Yes, I do, because I think that their shareholder base includes a lot of people who have huge capital gains aren't going to sell because of a miss, but a lot of those who had to get out because of performance issues have sold. So I think tech can get new ownership, and that's what's going to help them. On the mega cap, I mean, on the hyper growth stocks, if rates fall, it's going to help them. So I mega cap, I mean, on the hyper growth stocks, if rates fall, it's going to help them.

So I think that they can bounce. But they're not the ones that make this a good year for stocks. I mean, what's going to make this a good year for stocks is industrials, discretionary tech. And I think that it's going to feel better as we go through this year if inflation continues to undershoot. What's your most favorite sector right now? Well, I think FANG might be the easiest buy just because nobody really thinks it can do well. And of course, if FANG rallies, I mean, that's going to almost drive the 20 percent gains. Easier than, say, a financials or a health care or an energy where, you know, a lot of the smart money has been going?

You know, energy, you know, we we've liked it since 2020. Alleged smart money. Yeah. And, you know, I think it's going to re-rate. But the challenge is it's still got a geopolitical element to it. Healthcare, I think, is a good Garpy group, but it's not something that can be up 50 percent. You know, FANG could be up 50% this year. So you're thinking that 50%? Possibly, yeah. 5-0. Yeah. So the NASDAQ is going to have that great. So if the S&P is going to be up 20%, what's the NASDAQ going to be up? It's well over 20. I mean, Scott, I just say that the first five days is a pretty indicative of how markets go for the year. In fact, of all the instances where you had a negative prior year, and then you're up the first five days, okay, that's 85% of the outcomes had positive gains for the rest of your year, averaging 20%. The only two exceptions was 1970 and 02.

So maybe if you think this is 02, when we have a lot of trouble ahead, but if it's not 02, then you have an 85% probability it's a 20 percent year. Well, I mean, you set the bar this high at the beginning of the year, Tom. There's little wiggle room now. You got to you got to get there. All right. So I'll just have to come back on December 31. You'll be back many times between now and then, I hope. Thank you for being here. Yeah. Thanks. All right. That's fun. Strats. Tom Lee with us here at Post 9. It's time for a CNBC News update now with Bertha Coombs. Hi, Bertha. Hi, Scott. Here's what's happening at this hour. Buffalo Bills safety DeMar Hamlin has been

released from intensive care. His doctors say that he has made remarkable progress since he went into cardiac arrest one week ago today during that game against Cincinnati. Doctors say Hamlin has been walking since Friday. He is now back in Buffalo. He will continue his recovery at a hospital there. Heavy rains are pounding parts of California. Millions of people are under flood alerts in Santa Cruz County, just south of the Bay Area. Drone video showed numerous houses underwater. In Southern California, the entire community of Montecito has been ordered to evacuate. Eight inches of rain have fallen in the last 12 hours and more rain is expected. The evacuation order comes on the fifth anniversary of the massive mudslide that killed 23 people and destroyed more than 100 homes.

And Brazil's president is promising prosecution of the protesters who stormed key government buildings in the nation's capital on Sunday. Officials say more than 1,200 people have been detained for questioning, and investigators are looking into who paid for buses that transported those protesters to the Capitol. Scott. All right, Bertha, thank you. That's Bertha Coombs up next. Top dividend plays for your portfolio.

Our next guest is breaking down some under the radar names he thinks are safe bets right now. Overtime right back. We're back in overtime. Dividend stocks holding up against the broader market over the past 12 months. Check out the dividend aristocrats ETF. There it is. It's down about 6% compared to a 16% drop for the S&P. And our next guest is expecting another big year for dividend payers.

Joining us now, Aberdeen Deputy Head of Global Equities, Josh Dietz. Josh, welcome. It's good to have you on Overtime. Nice to be here, Scott. Rates are going to stay up. Fed's going to stay aggressive and dividend stocks are going to still do well. Why? So if we look back what's happened over the past decade plus where we've had historically low interest rates,

it really has allowed growth stocks to outperform because everyone's pricing in the present value, that terminal value. And we believe this is really a change. If you look back historically since 1936, 36% of the total return was from dividends. Since 2010, only 15%. So we think it's no longer about growth or value, but really about companies that have dividends, have cash flows, and pay those dividends out to their shareholders. And that's what we think will change. It started to change last year and will continue going forward because we're not going back to zero dividends.

Well, I was going to ask you, we don't have to go back to zero, but could we go back to anything less than what we are now if we have a more recessionary environment? We can have lower yields. And that would still, I still believe that dividend names will outperform in that environment. It's only if you go back to where we have 0% interest rates are close to plus quantitative easing. And then you have growth stocks taken off and valuations didn't mean anything. The valuations were just absurd for some of these names. And now it's coming back down to earth.

And we think if we go back historically, companies that have dividends and can grow their dividends outperform over the long term. Let's go through a few names to give folks some ideas of what exactly we're talking about here. Number one, Amdocs, DOX, software company. Correct. There's a service provider to telcos. Historically, they've grown about 2% on the top line, not very much. But what's happened over the past couple of years is they've really gone under a transformation where not only they're providing back office services, but they're also now helping with 5G and cloud deployment.

So the top line's now grown 6% to 10%, and the bottom line's going to grow low double digits. In addition, they've raised their dividends about 11%, 12% over the past five years. That's an extremely strong balance sheet. Their contract's about five to seven years long, about 60% to 70% of their revenues are recurring. So really, now it's going to be able to perform consistently at a much higher growth rate. And the market hasn't recognized that. So we believe it's undervalued for the transformation that it's that has happened for it. And we think it's a great opportunity to buy this name now with a nice dividend and growing dividend.

I'm sorry. American Tower, AMT, 1.7 percent yield. I think it's actually a bit higher than that. Again, growing the dividend over the past five years, about 17%. This is great defensive growth. It's non-cyclical growth. Basically, these are the large cellular towers that allow communication for cell networks. And data has been growing 30 30 to 40 percent per year we're in the early innings of the 5g transformation if you think about that if we're able to actually have 5g and machines are able to communicate with each other um like

we think about in the future and we have autonomous driving cars autonomous driving cars. Autonomous driving cars is going to use as much data in one hour as an iPhone uses in 3,000 years. The large cell towers are the easiest way to deploy and cheapest way to deploy the wireless spectrum. So we think this is a great play. They have great visibility for organic growth in the U.S., about 5% to 6%. Internationally, over the longer term, they should grow faster than that. So we think this is an opportunity to buy it. The stock got hit last year. It's inexpensive.

And part of that was because of T-Mobile and Sprint. There were some headwinds due to the combination of the two. And we think that's now in the backseat mirror. So we think it's a good opportunity for AMT. All right. I appreciate it. We'll leave it there. Josh, thank you. That's Josh Dietz joining us today in overtime. Up next, making the case for Microsoft, one halftime committee member getting in on that stock. Should you do the same? We'll debate that in today's halftime overtime next.

All right. In today's halftimeime, taking a tactical shot on Microsoft. Steve Weiss starting a new trading position in that stock ahead of this week's inflation report. DataPoint, he believes, could drive a near 10% rally from here. I've got a free data ride as people focus on CPI on Thursday and believe it's going to come down. And if it comes down measurably, you can see Microsoft get to 250. Microsoft in these environments trades higher when things like this happen. When the market goes there, it goes to the big cap tech. It goes to reliable brand names.

Well, Douglas C. Lane, Surat Sethi, owns Microsoft. He joins us now. It's good to see you. You know, interesting from Weiss, who's very cautious on the market and has been for many, many months, says now's a decent time to get Microsoft at a same time where I've got Jim Cramer trimming a little Microsoft because thinking about a valuation that might still be too high. What do you say? I'm in the Cramer camp there. I'm actually trimming as well. I think, Scott, when you look at Microsoft trading at about 24 times earnings, very good company, solid balance sheet, but everything has to be perfect.

I mean, if you look at the pull-in that we've had for Microsoft, not just in cloud computing, but in PCs, in software, and now they're trying to make an acquisition in gaming, I think everything is perfect there. And I don't think we are priced in an environment where if you miss, and I think these big, large tech companies could do that, you could see some money coming away from Microsoft. So maybe if Weiss is doing this as a trade, and again, he's betting on CPI. Again, none of us really know.

He is. He is. He is. But I mean, you know, still. So you're you're trimming some of your your holding as well. Look, I mean, when you've got the CEO of the company saying a week or so ago, the next two years are going to be the most challenging. I hear you. But the valuations come down a lot from thirty one and a half a year ago to twenty three now. Twenty three is still not cheap. I mean, if you look at kind of what their growth rate is going to be in a 200 billion dollar revenue base, you have to have really good earnings trajectory. You have to say for the next few quarters, we're going to have

good earnings trajectory. And I think that's going to be very hard to do in an environment where companies are going to be cutting back and you don't have that spending that you had for the last two years and you don't have really, really low interest rates to support it as well. Wow. So I'm looking at your holdings and I'm saying, OK, if if Surat thinks that Microsoft is still too expensive and he's trimming, I can only imagine what he thinks about his NVIDIA or his Amazon. So what I've done there, so I do own them, but what I do is I have much smaller

positions than the market. So Microsoft's position in the S&P is 5%. I'm two and getting down lower. Amazon is at one, and I'm really rethinking my whole holding at Amazon. NVIDIA, I like just the secular growth of it, and I own about a buck 50 in there. So that's a different kind of view on that one. But I am definitely pulling back on the tech exposure. I think the days of the last 10 years, we're going to have to really be careful because there's a lot of other opportunity where you're going to get growth at a much more reasonable price. Wow. Surat doing some bomb dropping on overtime today. We have to expand on that sometime. Surat, thank you. Appreciate it. All's Surat Sethi. All right. Halftime overtime with us today.

Coming up, we're tracking some big moves in overtime. Christina Partsenevelos standing by with that. Christina. More online betting options coming at Pennsylvania and the strong U.S. dollar hurting shares of WD40. By the way, do you know what the W and the D stand for? All those details and more after this break. Tracking the biggest movers in overtime like we always do, Christina Parts and Novelos is here with that. Christina. Shares of WD40, which stands for Water Displacement 40th Formula. I had to look that one up. Bouncing around in the OT, you can

see shares are just barely higher right now, one-tenth of a percent right now. And what we're seeing is the company reiterating its fiscal year 2023 guidance despite the fact that q1 net sales fell seven percent year over year the company is known for its degreaser products said the strong u.s dollar hurt foreign transactions by at least 10 million dollars and they are still impacted by suspended sales in russia everyone wants a piece of the gambling market church hill downs just announced an agreement with Bet365 to offer online sports betting and iGaming in Pennsylvania. Shares are moving up 1.8% on the news. Lastly, some upbeat commentary from Danaher Corporation ahead of the CEO's appearance at the JPMorgan Healthcare Conference tomorrow. Management from the U.S. conglomerate estimates core revenue growth in the high single-digit range,

which is better than the previously announced flat-to-negative guidance that they provided. Shares are higher of over 2% right now in the OT. Scott? All right, Christina, thank you. Christina Partsinella still ahead. Santoli's last word. And coming up at the top of the hour, the Fast Money crew is laying out their new acronyms for the new year, the names they are betting on in 2023.

Overtime is back after this. Last call to weigh in for our Twitter question. We want to know, is it time to buy some of the hardest hit growth names? You can head to at CNBC Overtime to vote. We'll bring you the results plus Santoli's last word next. Welcome back. Take a look at shares of Jeffries in the OT down about three percent, a little bit more than that right now. The investment bank just reported earnings and saw a decline in fourth quarter profit due to a lack of M&A. As most of you know about at this point,ly any deals, which means lower underwriting fees. All right,

to the results of our Twitter question now, we asked, is it time to buy some of the hardest hit growth names? The majority of you saying no. Pretty tight boat, though. 53, 47. Santoli's here with his last word. Good day for growth, though. Yeah, it was for especially larger cap growth. And then, yes, some of the bombed out stuff. I mean, look, we have to remember that it all happened in waves, right? So late January, early February of 2021 is when you really saw the peak of the speculative mania, the IPO index, ARK funds. Right. So it's pretty far along. I don't think it's the place to look for the next driver of the market. But at some point, things get sold out. You had another private equity firm buying another software company today. That's how the lucky ones get out. And maybe you can see if that's a reason to reprice some of the other comparable names.

What do you make of the move that we had today? And then do you think it was Bostik who took some air out of this thing today? I think it was probably Bostick more than any other single thing. Or just as a reminder that Fed officials are not going to be the ones to usher us into a new phase. They're not going to tell you to go buy stocks. At least not until it's essentially inevitable and you can't escape the economic effects or if inflation truly does crash and we start talking about, you know, below target inflation numbers. So I think it was that combined with the fact that the market's higher, right? Financial conditions have eased a bit. Credit spreads have been coming in for a couple of months. I think where I argue with this idea that the Fed's going to swat down any rally effort is if inflation's cooperating, they're not going to stand on principle and say,

oh, but financial conditions aren't tight enough for us. Financial conditions are the tool. They're not the job. They're not the job. That's a good debate right now, though. Whether they're going to be tone deaf to everything and just say we're hell bent on doing what we're going to do, no matter what.

Well, I don't think they're saying no matter what. I think they're saying until inflation gets in the zone of our target. Now, we can argue about what that means, how fast it has to happen and what the economic toll might be along the way. That to me is the crux of the debate that the markets are having right now. It's kind of like saying that what he did with saying the quiet part out loud today. Yes. This willingness to say, yeah, we'll we'll overshoot if we have to. Yes, exactly. And I think that that even goes back to the last Fed meeting when you had the summary of economic projections. And basically, you have to look at the unemployment rate where they think it's going

to go and where inflation is going to go and say, yeah, they're basically trying to engineer a recession or near recession. That's that's essentially what they anticipate happening. Then you get the jobs number last week on Friday. And all of a sudden people like, well, look, maybe there's something structural going on in the labor force. There's not as much of a direct connection to broad inflation measures as there used to be. And by the way, you've had these revisionist episodes before in the 90s. You thought unemployment couldn't get below six percent without causing inflation. You know what I mean? So the market tries to talk itself into, OK, maybe, you know, these things can coexist. Maybe you can actually have decent GDP growth with the Fed essentially saying mission accomplished

at some point. So in the 30 seconds we have left, how are we thinking about CPI now on Thursday? Look, if it's really below target, I think it does add fuel for a rally. So it's not as if a great number is priced in. But anything that complicates this idea that inflation is kind of already figured out, I think that you'd obviously have risk. That's a non-answer. It says it's binary. But I don't think a good number on inflation is fully reflected in the markets. Yeah, good number balanced by tough continued Fed speak.

That's going to be the tug of war for investors. We'll see you tomorrow. All right, yep. All right, it's Mike Santoli with his last word. See all of you as well. Fast Money is now.