Closing Bell - Closing Bell Overtime: The Bulls vs. the Hawks 8/18/22

Episode Date: August 18, 2022

Fed speak front and center on Wall Street today … so the question now is can the bull charge actually continue even as hawks swoop in? Dan Greenhaus of Solus Alternative Asset Management gives his take. Plus, top chip analyst Stacy Rasgon gives instant reaction to Applied Materials results. And, five-star fund manager Kevin Simpson of Capital Wealth Planning makes the bull case for oil.

Welcome to Overtime. I'm Mike Santoli, in for Scott Wapner. You just heard the bells, but we're just getting started. And we're awaiting results from Applied Materials, the chipmaker out with earnings at any moment. We'll bring you the numbers as soon as they cross. But we begin with our talk of the tape, the bulls facing down the hawks. Two Fed officials out in force today calling for even more tightening. St. Louis Fed President James Bullard saying he's leaning towards supporting another 75 basis point rate hike in September. While Minneapolis Fed President Neil Kashkari said today the Fed needs to keep hiking to, quote, urgently bring down inflation. But despite the tough talk on tightening, the market shrugs.

Stocks closing near the flat line, actually a little bit on the positive side. So can the bull charge continue even as the hawks continue to swoop in? Let's ask Dan Greenhouse, chief investment strategist at Solus Alternative Asset Management. Dan, good to see you. Good to see you, sir. This is a familiar equation, the interplay between a market that has a little bit of momentum. It's up plenty off the lows, expressing some kind of comfort with the level of economic activity today and what the Fed's going to have to do, and Fed officials feeling like they have to keep

hammering this point. Do you see a paradox there, or is it kind of the way the game is played? I mean, listen, we—the lows had gotten fairly oversold. Numerous people, myself included, had come on the network saying you were probably due for something resembling a bounce. The bounce has been considerably stronger than I think most people would have estimated at that point, but such is life in markets. Are they ignoring what the Fed is talking about? I don't think so. I mean, listen, for now, the economy is holding up well enough. Obviously, you've got specific problems. The labor

market is loosening a little bit. Housing is obviously in something resembling a bad situation. But you still have the ISM above 50. Jobless claims came back down, we saw today. So you don't have like some wholesale disintegration in the economy. But that's the dichotomy that the market's wrestling with right now. On the one hand, you sold off quite strongly in both equity and credit on the idea that you were imminently going into or already in a recession. We're bouncing on the idea that that has proven fallacious with the benefit of hindsight,

although I'd argue even at the time. But the dichotomy for markets is, OK, we're going to bounce on the idea that we haven't fallen apart yet with the emphasis on the word yet. We're still dealing with this extremely rapid tightening cycle that history suggests over and over and over again is going to be incredibly difficult for the market, for the Federal Reserve to thread the needle, so to speak. And so as you bounce, presumably over the next several months, call it the next six months, the data is going to start to deteriorate more rapidly. And at that point, you start to have to wrestle with, OK, you know, is good news good news, or is bad news good news, which is what the market believes now, or does bad news start

becoming bad news good news, which is what the market believes now, or does bad news start becoming bad news? I'm willing to bet on the latter as we progress through the next, call it, six to 12 months. So this feels to you like essentially a window of relief for risk assets that is basically going to give way to something a little tougher? Yeah, but let's also be clear, at the lows, high yield spreads were at not quite full recession levels, but pretty close to recession levels. Equities, the S&P 500 was down in the low to mid 20% range. I think a lot of people in my age group are accustomed to 50% drops in broad stock indices. That's not always what happens. Sometimes it's 20% as it was in the early 1990s

recession. Sometimes it's 33%. So at 24% down or so, you accounted for a fairly benign recession. And so with the benefit of hindsight, and even at the time you could argue, you've priced it in. Now, again, are we off to the races in perpetuity? That's a separate conversation. But at 25 down, you certainly have to take stock of the fact that the market is pricing a good chunk of a quote unquote recession. There's a line of thought that says, given how markets have recovered and become a little bit more confident, it would seem that there's at least a chance of a softer landing that Fed officials might not be happy with this. You mentioned credit spreads coming in. Stocks are up. Volatility is down.

The dollar has come off the highs. That means financial conditions have loosened up again. And then the argument goes, well, they have to work to try and retighten them or talk the markets off this point. I wonder if that's the case when it comes to stock. Stocks, as you say, go from down 24 percent to down 10 percent. IPO proceeds are down 90 percent year over year. Margin debt is down 25 percent. You basically have every company talking about cost consciousness and trimming jobs, not really investing heavily, meaning higher stock

prices, to me, in themselves are not going to create some kind of boom effect in the real economy that the Fed is going to have to work against in terms of tamping it down. Does that make any sense? What do you think the Fed's up to here with talking the way they are? Well, I mean, in their defense, they haven't let off at all. That's right. The market, the equity market and the credit market is betting that they're going to. But to their credit, and again, I think we should have a whole segment about whether they should be talking as much as they do. But that's besides the point for now. They are coming out and saying inflation is still uncomfortably high. And for all the talk about oil coming down and commodity prices coming down, you have not gas prices,

both here and across the Atlantic, basically at cycle highs. They should not let off the brakes, so to speak. But from a market standpoint, you're looking through this to the, quote unquote, eventual pivot. What I find super interesting, and I don't think it's nearly enough discussion, is when you look historically, the Fed pivot, so to speak, away from tightening in towards dovishness is not when you're supposed to buy. It's when you're supposed to sell. That's right. And I think it raises this larger conversation about the reversal of this entire cycle. You don't normally decline while you're tightening. You usually rally. Exactly.

Yes. And it's really very, very interesting. And again, I don't think it gets enough discussion, but it's interesting nonetheless. I think it's a great point because at the start of this year, when everybody knew the Fed, because the Fed had told you, was prepared to embark on a tightening cycle. Everyone sent out the charts and said, stocks do well in the first year, first six months, whatever the number is, after the first hike. That didn't happen. We started to decline into the first hike and then kept going down. The other thing is, you've compressed valuations in equities. You did it for six months pretty significantly. And then people say, well, now the earnings estimates have to go down. That's the next phase. That actually isn't usually the sequence. Normally, stock prices kind of peak with absolute earnings levels.

So I do wonder what it means. What do you think it means for trying to handicap how the rest of this cycle plays out? Yeah, listen, I don't know. Because again, I would have been one to tell you, I was very nervous to start the year. The Fed was very clear about wanting to tighten financial conditions, which everybody now knows means lower stock prices and higher spreads. But I don't think I would have anticipated a 25% drop in stock prices by the middle of the year. I think the estimates, or my estimation would have been and was that that would be more of a 2023 story. And, again, getting back to the bounce and the look through, it's something investors have to wrestle with. We're going to bounce and presumably, you know, let's say we rally into year end because you always rally into year end.

You are left then with the repercussions of what the Fed has done, the most rapid tightening cycle we've seen in 30 or 40 years. What effect does that have on the economy? And you have to revisit this entire conversation later this year. And at the start of 2023, it's it's backwards. Without stocks really having necessarily gotten outright cheap or anything like that, right? You're still kind of an in-between phase. You're still in the upper teens on a multiple, which is not cheap. Let's get to applied materials. Those earnings are out. Seema Modi has the numbers. Hi, Seema. Hey, Mike. And a big beat on its bottom line, $1.94 versus the estimate of $1.79 adjusted. Revenue also came in much higher than Wall Street consensus at $6.5 billion. But here's the key.

Guidance for the fourth quarter above Wall Street forecast. It comes following comments from Micron and NVIDIA over the past month, warning of slowing demand. Applied materials are often seen as a leading indicator in the semiconductor industry. The call starts at 4.30 p.m. Eastern. Wall Street will be keen to hear what it has to say about China. It has about 30 percent revenue exposure to that market. CEO Gary Dickerson in the press release talking about the macroeconomic headwinds,

saying that we can navigate those headwinds and we remain very positive about the long-term strength of the semiconductor market. He says the ongoing supply chain challenges might constrain our ability to meet demand. Top priority, they say, is increasing shipments to customers. And the stock is up about 3 percent here in extended trade, up about 17 percent over the past four weeks. Mike? Yeah, up a couple percent over the past four weeks. Mike? Yeah, up a couple percent in the regular session today as well, Seema. Thank you very much. So a beat and raise from ImprovMaterials being taken relatively positive,

at least at first reflex. Let's bring in CNBC contributor Stephanie Link of Hightower Advisors and Brenda Vangelo of Sandhill Global Advisors to continue the market discussion. Hello to you both. Brenda, you heard us talking over here I wonder. How you're thinking about. Where the market is. In

the process of potentially earning back the benefit of the doubt right because we were in a sell the rallies mode- for several months there. This one has been the best. Of all the rebound attempts has a persuaded you. Yeah I think

comparing this cycle to other cycles is really hard because there just are so many unique attributes and just the fact that the economy recovered in two years it's had the same amount of recovery that took 10 during the last economic cycle is really significant but when we look at the environment now i mean i think it's clear that when we look at earnings which everyone had assumed were going to be a disaster- they're not- and the environment still seems to be holding up pretty well. Even from what we heard

this week from a lot of retailers that have been struggling. Being on the wrong side of what consumers want right now but nevertheless. Still seeing that the consumers they're still pretty positive about what's to come. So I

think that it's- we think this is more than just a bear market rally here there's more legs to it. Just the fact that we've seen that the consumer is willing to shop for goods when there's a reason to do so with back to school I think that

bodes really well. For the holiday season and as long as the job market continues to be very strong I think that's certainly a positive for the consumer. And especially if we see inflation starting to tick down

even though it's coming down slowly. Hopefully that will continue. But I think that it I think it creates a little bit more of a positive environment in our view. Certainly a more I guess

balanced mix of things you know getting better or worse or holding together. Then we thought we were going to have a couple of months ago. Steph, we're about halfway through this quarter. And, you know, you've seen some trimming of corporate earnings forecast for the current quarter. Nothing that seems out of whack with the historical trend. And I guess if we're looking at the coincident indicators of how the economy is performing, it doesn't give you a whole lot of reason to think that those profit estimates are going to fall apart from here. But I guess

the big question is how much of it's priced in. How do you see the risk reward at the moment? Yeah, I mean, I think that, as Dan and Brenda alluded to, that expectations were so low in the beginning of June. The sentiment was horrible. But what I'm looking at and I have been looking at is the economic data, as you know, I usually do. And it's actually OK. It's not falling apart. It's not perfect. We are slowing. But if you look at retail sales were huge yesterday. You look at the jobs market. You look at manufacturing, industrial production, double what expectations were. That's telling you supply chains are getting fixed. And then when you add in what Cisco made comments on yesterday, that it's actually very consistent.

And so that's good news. And I suspect applied materials also saw a better supply situation, which is why they beat. And we can talk about that if you like. But I think commentary is getting better. Now, it's not all perfect. Housing is horrible, right? You can say it's a recession. And some of the regional manufacturing series are really not that great. But it's not pointing to recession, Mike. And I think the fact of the matter is inflation is still high. And I know parts of it are peaking, but parts are not peaking. Natural gas prices are at 14-year highs.

Wages and rents are high. Food up 10 to 15 percent. So the Fed is not pivoting. And I think that was largely what people expected, in part contributing to the rally that we have seen. But now you've got a Fed that going into September, a very volatile month, that's going to be more aggressive. And I don't know. I mean, I think we've come a long way in a short period of time. I would not be surprised to see some of that giving back. Hey, but but Steph, in defense of the market here, yes, inflation is still very high. But and

I know you know this very well. The market doesn't really care about good or bad. It cares about better or worse. And to the extent that CPI has at least for now peaked to the extent that CPI has, at least for now, peaked, to the extent that PCE has for now at least peaked, or at least the assumption is that it's peaking, you can understand why the equity market would be enthused at that prospect, because presumably that means that the Fed doesn't have to continue tightening ad infinitum. Right. That's very, very true. Well, let's talk next Friday, Dan, when the core PCE comes out, because that number is what they watch, right? And right now it's at 4.8. It's expected to be 4.7. They want it to be 2. So yes, you're right. Rate of change does matter. But we've come a long way in a short period of time. And I think expectations went from one side of pessimism to now another

side that's not really reality in terms of expecting them to pivot. And oh, by the way, I agree with you. I think 2023's setup is not going to be great because we know that we haven't even felt the effects of the Fed and what they've done already. And we don't know what they're going to do going forward. But that's going to come up in about six to nine months. And that's going to really be into a slowing, a slower economy. And I think that that's just a really tough recipe

for risk on. I'm not a bear. I am fully invested. I have a little bit more cash than I usually do, and I am buying stuff on the weakness. But I do think you just don't want to be over your skis in terms of one sector or one style over another. You know, Brenda, it is interesting in terms of what one should perhaps wish for or wish against when it comes to how the markets and the economy are going to be set up going into next year. You know, we think about the December 2018 low. You had that flash 20 percent drop in the S&P. And everyone points to the fact that the Fed sort of retreated from a tightening plan and became a little bit more dovish over the course of that year. But, you know, we still felt

like and in fact, the market acted like we were in a late cycle environment in 2019, flat as shield curves. Everyone was on individual waiting for the recession to come. Nobody saw it coming the way it did in 2020. But I think we look back on 2019 as this Nirvana like period because, you know, Fang was able to carry the market higher again. And, you know, the most bullish thing, and I've said this before here, is if we just had the recession, if technically speaking, we did have a little bit of a downturn and then it kind of heals from here. So I don't know how that plays into your idea that we have some unique aspects of this cycle right here or what it means for how you would invest through. Yeah I you know I think I would love

to think we already have the recession we just move on but I don't I don't think that because we just haven't seen. The broad based weakness across all the components of the economy that we would need to have. And but I don't I'm not

saying I don't think that could come it certainly depends on. How the fed acts and how much they raise rates. I am in agreement that I you know the market thinks the fed's going to pivot I believe please the bond market is assuming we're going

to have great cuts by next year but I think it's premature to expect that- but I think if the fed goes on hold. And we can digest what- has been done at the end of this year. That there is a possibility that corporate earnings could hang in there

and we could still have an environment that slower growth. But still growth and not a recession and I think in that sort of environment in our view I we still want to have some exposure to risk assets but I agree with Stephanie's earlier

comment I don't think you want to get over your skis and risk assets- because we're also an environment now where bond yields have risen enough that there's also cut a work much more compelling case to have some exposure to bonds.

Then there certainly been there was a year ago- so I think- you know picking your spots but sticking with a plan and and having diversification and exposure. To high quality companies. That really have- a good niche- within their space.

The ability to manage costs in a given environment, I think, is really important in the sort of market environment we're in. Dan, is the bond market providing a bit of value or any kind of a cushion right here? Because if you think about a high nominal growth and the fact that the broad economy is not going into recession, I mean, it seems like default rates among companies shouldn't really be spiking too much. What's built in? Yeah, I mean, listen, the credit markets are to the extent that, you know, forget the treasury market. The high yield market has gotten has come right back down.

There was a moment in time where the level of distress, the spread, if you will, between different rating classes was all as bad, if you will, as the stock market being down 25%. That's all completely gone away. The stock market's not back at a record high, but the credit market is pretty close to what we would call a record high. Listen, that provides a tremendous funding environment for investors. But I think you can make the same case that the credit market in general, and this is high yield, but IG as well, is ignoring, for lack of a better word, or at least discounting or dismissing some of the things that we're talking about here. Which is, at the end of the day, every single time the Fed hikes rates, every single time, there are ample newspaper articles and TV clips of people saying, oh, it's going to be fine. They're going to thread the needle. And they never, ever do. And maybe this time is different. Maybe this is a 94 type situation where they did once in memory. But the one time that everybody credits is it was a

situation in which the unemployment rate was not as low as it is and the inflation rate was not as high as it is. And there were multiple major bond market disasters along the way. Yeah. And let's to the extent that we're talking about 1994, we can call it Michael Steinhardt and anybody that was trading bonds at that moment in time. It didn't work out well for them. No, it didn't feel like it was perfectly executed in

the moment, but it played out okay afterwards. There was no recession. Yes. Thanks, everyone. I appreciate the conversation here. Dan, Steph, and Brenda, we'll catch you again very soon. Let's get to our Twitter question of the day. We want to know which of these stocks that hit all-time highs today is worth fading. On Semi, Northrop Grumman, Waste Management, or Con Edison?

Head to at CNBC Overtime on Twitter, vote, and we'll bring you the results at the end of the show. Up next, we're digging in on Applied Materials. That stock on the move after reporting just a few minutes ago. The company's call kicks off in moments. Top chip analyst Stacey Raskin is standing by with instant reaction to the quarter. We are live from the New York Stock Exchange. Overtime, back in two minutes. We are back in overtime.

Another check on shares of Applied Materials. The stock is higher by about 2% after reporting earnings. The company's call kicks off in about 10 minutes. Let's bring in Bernstein's Stacey Raskin. He has an outperform rating on the stock with a $125 price target. And Stacey, you did bring some numbers down last month into the zone, I guess, where Applied Materials did land with the quarter. What's your headline in terms of the performance in the results we just got? No, no, no. So the quarter was quite strong. They beat the quarter

pretty solidly. They were guided and the street was around 6.25 billion. They came in at 6.5. They did $1.94. The street was at $1.79. So it was a good quarter. And the guide was also quite strong. A little bit above the street. But I think expectations have been coming down. So I think people have thought that maybe things could be weaker. And it was a good, strong guide. They guided $6.65 and $2. The street was at $1.94. If you sort of parse it out, they actually are still claiming that they still got supply constraints. So as strong as this was, they seem to be suggesting that they still got

demand that they're not fulfilling. And they're trying to force, obviously they want to bring their production levels up to try to satisfy that. I know investors have been worried about memory. They've been worried about China. China was down year over year. DRAM was down year over year. But overall, Foundry and everything else looks really strong. This is a solid print. What are the key things to listen for or to press the company on during the conference call? Yeah, I think the biggest question people are going to have is not so much like this quarter or the guy. It's what what do they see next year? There's a big controversy on is wafer fabrication equipment, is it going to grow next

year in the wake of what we're seeing cuts in memory and a potential like recession, people worried about a semiconductor downturn. And we're almost at the point where investors probably actually want to see the companies in general take a more measured view of next year. And so I think the tone of the company, like how bullish are they or not next year? Do they have enough backlog to carry them through even if like the underlying demand starts to get weaker? Those would be some of the things that people will be digging into on this call. Is there much in the longer term investment cycle in terms of the industry's CapEx efforts here in North America that is something that's material to apply materials at these

levels? Like longer term, look, longer term, I'm actually really bullish on industry capex levels and their impact on the semi cap space. I think there's only two things you need to believe long term to really like semi cap over that period. One is, do you think semis can grow over the cycle? And I think, yes. And even at mid single digits, we'll get ups and downs, but it'll be a trillion-dollar industry in 10 years, plus or minus. And the second question is, do you think capital intensity is structurally going higher? And I think absolutely the answer is yes. And, like, people have been pinning on, like, $100 billion kind of, like, equipment market as a peak, and maybe. But I don't see why at some point you don't have a trillion-dollar industry and, like, 20% capital intensity and have a $200 billion WFU. Maybe it'll take 10 years, but we'll get why at some point you don't have a trillion dollar industry like 20 percent capital intensity and have a 200 billion dollar W.

Maybe it'll take 10 years, but we'll get there at some point. I'm actually very bullish long term on the prospects of this space because of those drivers. But you think that shorter term, the street essentially wants the company to sort of rationalize expectations a little more and take, you know, I guess, recognition of the fact the stocks are down 35 percent. Everyone's anticipating a little bit of friction in the market. Yeah, I think like buy side investors already have the equipment market down and in some cases reasonably materially next year. So that's where expectations already are. That's where the stocks have been weak. The multiples have been coming down because they're starting to price that in. So in some sense, that's a good thing. We've had the buy side investors come down. The sell side estimates

have started to come down. We've actually started to see order cuts from the customers. What we have yet to see are the semi-cap companies themselves kind of acknowledge it. We're not really getting it here yet because, again, the near-term demand is still strong. The backlog is strong. They've got supply constraints that have been easing. But in general, investors like low expectations. As soon as strong the backlog is strong. They've got supply constraints that have been easing- but in general investors like low expectations as soon as those expectations. Get lower I think

the stocks become eminently viable. Yeah then everyone says okay fine now estimates can go up from here once they bottom and all that. We're in that squirrely part of the cycle now like that's just kind of where we are now. Yeah it makes sense

you're at one twenty five on a price target so what does that imply in terms of- valuation where you think earnings are going to settle. Well I mean presumably like if everybody has rolled this through earnings would go up. Right. And we were already decently below the street going forward because like we did we had sort of corrected our out year equipment estimates a little while back. And we'll see where things settle up. But I do not think the stocks in general are egregiously valued here, especially if we're, you know, getting closer, you know, to expectations and the numbers actually like sort of matching up. Got it. Stacey, appreciate you breaking it down for us right after the numbers hit. Thank you. We have breaking news on Bed Bath & Beyond. Leslie Picker has the details. Hi, Leslie. Hey, Mike. There's a new SEC filing out showing that Ryan Cohen of RC Ventures now has a stake of 0% in Bed Bath & Beyond, indicating that he did, in fact, sell the entirety of his beneficial

exposure to that stock. You can see shares down about 20 percent after falling significantly the most since June 29th in the market day trading. Today I am told by a source close to Ryan that he has not purchased any new security in Bed Bath & Beyond since March. If you recall earlier this week the stock has seen pretty much a roller coaster on a filing that implied that he may have new purchases of calls that were very much out of the money. It wasn't actually new calls that were purchased. It was an update to the size of his stake after Bed Bath & Beyond had engaged in a buyback, which changed obviously the denominator for the number of shares outstanding, increasing his stake. So in recent days, according to this 13D, he did in fact sell that stake. As he has been an activist in this stock, he got three

members elected onto that board via a settlement, not an election, but via settlement. And subsequent to the stock price gains that it's seen in recent days, decided to sell out. Mike. Yeah. Yeah. Fascinating turn here, Leslie. And we see the stock down another almost 20 percent or so in the after hours today. One hundred and forty two million shares. Well, you know, through this moment, one hundred forty two million shares of this stock traded today. They're fewer than 80 million outstanding. So clearly, I mean, there's just a massive amount of frenzied activity around this name.

He certainly had enough volume to sell into today. But fascinating that a lot of times if you know somebody says they might sell or are going to sell and then they tell you they already did. It means there's no more overhang of supply. Yet it doesn't seem to matter here following the close, because I guess for a lot of folks, the fact that he was involved was reason, you know, one through 10 to actually speculate on this name. And clearly that puts some kind of valuation floor on the stock, especially in recent days. Yesterday, if you recall, there was that form 144, which indicated that he had proposed or had the option essentially to sell his stake. Usually those forms actually do mean that someone has already sold, although not necessarily it could mean that they intend to sell. But this confirms, of course, that he did in fact sell in recent days on the surge in Bed Bath & Beyond stock. And having not purchased any security since, I guess, March or the early part of this year, it would seem he may not have really made much of a profit. I mean, I know we have to, you know, you probably have to have all the

numbers in the cost basis, but the stock spiked early in the year and then returned to those levels. But right now is not there. Yeah. And those call options, I mean, like you mentioned, they were very much out of the money. The lowest strike price was $60. And so you can see shares now $14. You would know better than me, Mike. I think it was up as high as $22 this week. So still about $40 shy of where that strike price would be in an expiration of January 2023. Right. Yeah. So that was sort of an added bit of leverage on top of the existing shares that gave him a little juice. And now it's gone. Leslie, appreciate you working through it with us. Thank you. We have some breaking news on Starbucks. Kate Rogers has the story. Hi, Kate. Hey, Mike. Starbucks Chief Operating Officer John Culver will be departing the company at the end of the year,

transitioning to executive advisor as of October 3rd. In a letter to employees, Culver said the company is reorganizing the leadership team, eliminating the COO role at the end of the fiscal year. He's been with the company for 20 years. Most recently in this role, he took over for Roz Brewer after Brewer departed for the CEO role at Walgreens. Day-to-day business operations will now report to Starbucks interim CEO Howard Schultz, and strategy will report to Frank Britt, who has a newly expanded role as EVP, chief strategy and transformation officer. Now, in his own letter to partners about the executive structure change,

Howard Schultz said, quote, our reinvention requires us to rethink our leadership structure to create every opportunity for our new CEO and, most importantly, to accelerate delivery of modernized and elevated experiences for our Green Apron partners and our customers. The reinvention has been a very big focus for Schultz, who will also be leaving the company around the end of the calendar year. The new CEO, of course, has yet who will also be leaving the company around the end of the calendar year. The new CEO, of course, has yet to be named, but the company says it's been speaking to external candidates for that role. Mike, back over to you. So, yeah, Kate, so it would seem as if it seems to clean up exactly what the chain of command looks like for the new CEO whenever that person is named.

Was there a sense out there that the outgoing COO was at some point a candidate, or do we not know? Starbucks has been saying, and Schultz has said, that they've been looking at external candidates. Cowan actually had a note out today saying there's a 50% chance we'll get some news at the annual meeting in early September. And some names that they had floated were Mary Dillon, formerly of Ulta, and also Rich Allison, the former Domino's CEO, who also retired earlier this year.

So those were some names that were kind of floating around. We'll definitely be very curious to see who it is. Yeah, some pretty big names in the consumer area. Kate, thank you very much. Thank you. Stephanie Link is back with us for Reaction Steps. So you are a Starbucks shareholder. Does this alter the story for you much?

No, not at all. I mean, if you told me Schultz was leaving, that would have been a shock, right? But he's the interim CEO. He is changing the culture. He's cleaning house. He's streamlining expenses. And we're going to eventually get a new CEO who can bring in their team as they see fit. So not a big deal in my mind. The bigger deal is that they've got $20 billion over the next several years to invest in the company. That was going to be initially a buyback program, and it was a three-year program, and Schultz canceled it, and the board canceled it when he became interim. Now they're going to use that money to invest in people, product and stores. And I think that there's a lot that they can do on all of those fronts. Now, we know that U.S.

has been resilient in same store sales. I mean, it really has been the bright spot in the face of major inflation. Right. But they have a loyal customer base. The problem is China. China is closed or and they're now starting to reopen. That's your reopen play. So you've got a quality U.S. play on the stores and the momentum staying strong. And you've got to reopen very depressed earnings in China. And I think that that's a good recipe for the new CEO when they when this person arrives. Yeah, would seem like things will be lined up for the for the new CEO. Steph, thanks a lot. I appreciate your take. Up next, sell into strength. That's the playbook from city U.S. equity strategist Scott Croner, why he's positioned for some downside ahead.

Overtime, we'll be right back. Welcome back to Overtime. Time for a CNBC News update with Eamon Javers. Hi, Eamon. Hey there, Mike. A federal judge sitting in the motion. The possible public release of a heavily redacted version of the affidavit used to secure a search of former President Trump's Florida home. The judge plans to hear more from the Justice Department next Thursday about what the government wants to keep confidential. The Justice Department argued making the affidavit public would jeopardize an ongoing investigation. Turkey's president and the U.N. chief met with Ukrainian President Volodymyr Zelensky today in an effort to help with grain exports and to secure Europe's biggest nuclear power plant.

At the meeting, Turkey agreed to help rebuild Ukraine's infrastructure damaged by the war. And Cleveland Browns quarterback Deshaun Watson has been suspended for 11 games and fined $5 million after the NFL reached a settlement with the Players Union over accusations of sexual misconduct from dozens of women. The settlement overturns an earlier six-game suspension handed down from an arbitrator. Tonight on the news, we're going to have much more on the court ruling surrounding that affidavit for the Mar-a-Lago search warrant. That's tonight at 7 p.m. Eastern. Back over to you, Mike. Eamon, thank you very much. You bet. Up next, the case for selling strength. City's Scott Cronert opens his playbook. that is next. The S&P 500 fighting for its longest weekly win streak of the year,

gaining more than 10% in the last five weeks. But Citi U.S. equity strategist Scott Cronert believes selling into any further strength is the right strategy. From here, he joins us now. Scott, good to speak with you. You know, it's interesting. Some of the more bullish observers out there at this juncture for the markets are the ones that are looking at the technical kind of scorecard of this market, the fact that it was a very broad rally, the fact we've regained more than half of the total loss. You know the whole story, which usually, historically, if you go down the checklist, it implies maybe a low is in and it might be the start of a new uptrend. So what's telling you to be a little more cautious here and use further strength to perhaps sell? Yeah, thanks, Mike. So what I would say is that the market

continues to vacillate between, let's call it recession risk and recession probability and soft landing scenarios. We think that low and mid-June touched on maximum recession risk concern. As we move higher, as we move through our 4,200-year-end price target, what happens is that the S&P incrementally is discounting a higher probability of a soft landing. We think that still is somewhat aggressive in terms of where the Fed's trying to take the economic circumstance. So essentially, the higher you go from here, the more you introduce valuation risk, as we still expect next year's earnings revisions to point south. And if one were to, you know, take some off the table with equities on further rallies from here, what do you do with it? Is it a matter of just

bolstering cash levels and preparing for some more, you know, downside opportunities? Well, the way we're thinking about it, the market is poised, in our view, to transition away from this ongoing triumvirate around interest rates, recession risk, and inflation, which has created a sort of a macro risk-on, risk-off playbook for most of this year. As we move forward and get more experience with the Fed intent and the economic condition, we expect the market to transition much more down a sector or stock specific dispersion path. So essentially, we think the setup here is for incrementally better stock picking environment than we've had for the better part of this year. And what types of characteristics are better positioned then to work if that's the environment we're heading into?

Basically, the playbook we're coming with is that in a economic downturn, growth often proves defensive. You get a little bit less cyclicality in the earnings stream and investors can take some conviction in the longer term growth trajectory with these types of companies. So we're essentially kind of settling back on a playbook that says, let's look at growth. And we've even considered via different thematic tendencies as a means of offsetting some of the cyclical or recession risk that is, we think, is still a distinct possibility for the first half of next year. And growth stocks are not where the valuation excesses remain, though? So, I mean, this is where it gets really interesting. If you kind of go back to that first half, right, where we had that quick devaluation in S&P multiples as we dealt with

negative real rates transitioning to a positive circumstance, the valuation resets were much more severe on the growth side of the market, much less so on the value side. So we've been saying since the late last spring time frame that the issue from here is less about multiple derating and much more about earnings growth trajectories. The risk as we go incrementally towards a recession scenario is more likely on the value and economic sensitive side of the ledger. In turn, what that sets up for is the D rating and growth largely behind the earnings growth. Resiliency of growth is positioned, we think, incrementally to stand out as we go down this path. Yeah. Profit predictability becomes a premium that Scott

appreciated. Thank you very much. My pleasure. Talk again soon. Up next, we are all over the biggest stock movers in overtime. Frank Holland is tracking the action. Hi, Frank. Hey there, Mike. We're watching a meme stock that's trading on actual fundamentals after the CEO of AMC gives his review of the movies coming out in Q3.

That and much more coming up in the OT. We're tracking the biggest movers in overtime. Frank Holland is here with that. Hey again, Frank. Hey there, Mike. We're following some news from Madison Square Garden Entertainment, ticker MSGE. They just recently announced they're going to explore a potential spinoff of their live entertainment business, their MSG cable network, their sports booking business, and much more. If this spinoff happens, it will be a tax-free spinoff for current shareholders.

You can see right now shares up more than 5%. We're also following Bill.com surging in the OT after a beat on the top line and the bottom lines. EPS loss smaller than expected and also strong forward guidance. You see shares are up almost more than 20, excuse me, more than 19 percent. That's strong forward guidance forecasting a profit compared to what the street was looking for. Actually, a 10 cent loss, a profit of five to seven cents a share. Shares down 28 percent year to date, but you can see right here in Q3 they're up more than 60 percent. AMC shares falling in the OT after CEO Adam Aaron says he's expecting a weak Q3 for moviegoers, blaming what he calls a a weak Q3 for moviegoers,

blaming what he calls a relatively weak slate of films. This follows rival Cineworld issuing a similar warning. AMC shares up more than 30 percent month to date. Actually, it just fall on this news, but up more than 25 percent month to date as the memes trade has regained a little bit of traction. Mike, back over to you. Yeah, regained it and then lost some. We'll see, Frank. Thank you very much. Thank you.

Up next, oil prices breaking back above $90 a barrel today. Five-star fund manager Kevin Simpson makes the bull case for some key energy names. He joins us after the break. Oil prices jumping back above $90 a barrel today, and one five-star money manager says the bull case is still strong for a few energy stocks. Let's bring in Kevin Simpson, chief investment officer of Capital Wealth Planning. Kevin, it's good to see you. So you've got a few big energy names. Is it mostly about a play on the commodities?

Of course, natural gas also hanging out near our ties. Yeah, it's easy to come on today with WTI over $90 and say you're bullish on energy, right? Kind of a cheat. But the truth is, Michael, to your point, it's not about the commodity play. We're investing in the space for dividends, dividend growth and cash on cash to shareholders. I mean, there has been a secular shift, a major change. Ever since the invasion of Ukraine, the horrific invasion of Ukraine, management is now rewarded for things that they were vilified before in the past. So if I think about what we can do with cash, there are five things that companies can do with cash. And as a lifelong reader of Barron's, Michael, I know you'll appreciate this. They

can do nothing. They can grow dividends and distributions. They can engage in mergers and acquisitions. They can buy back shares. Where they can grow organically and generate even more cash on their portfolios. So it's not our job to be political it's our job to

create cash flow for investors. In our strategy the enhanced dividend income portfolio in our ETF Devo it's all about cash on cash and And as we head into the winter months, I think that these energy names are just going to be even more well positioned to return cash to shareholders and increase dividends. Right. It seems like they've not really wavered from that shareholder return orientation, even through this spike in prices.

You do like Chevron, which is, you know, it's down off of its highs. What specifically are you expecting here in terms of dividend growth and such? Well, that's the best of breed. We've owned it for a decade. We've trimmed positions along the way only because it has done so well in certain time periods. But you've got a 10 PE, so very reasonable. They blew it out of the water in terms of earnings. They continue to increase dividends year over year. And you're getting a three and a half percent yield on it as it is. So looking forward, I think you have to build the portfolio with a big block of Chevron and make that your core energy holding. And then Marathon Oil, somewhat different,

I guess, mix in terms of where the revenue comes from. Yeah. And for that reason, we sold half the position in early June. It was peaking with the rest of the market. It was up 500 percent since its pandemic low. So between 95, 100 and 105, we sold half the position again because we had too much of a weighting there. Then energy rolled over. It was down like 22 percent before you could snap your fingers. And we were able to buy some shares back in the low 80s. You've got a PE 6 or 7, 2.5% dividend. Again, incredible dividend growth. So the shares that we weren't able to buy back, we introduced a new position in the portfolio just over this past week, which is Devon Energy. And Devon's similar in terms of valuation, where you get a 6.7 PE, 3% dividend

now because they just increased it from $1.27 to $1.55. But the best thing about this is the variable dividend that they're committed to. What Devin is saying is we're going to take 50% of our free cash flow. We're going to allocate that up to fifty percent of free cash flow to distribution to shareholders. They've paid three dollars and eighty two cents so far this year. And if you do some quick back of a napkin math on the cash flow, this could be a six, seven, eight, possibly even a nine percent yield. So we really like the space. And this is a new name for us that I'm very excited about. All right. Up fifty percent year to date, but still has that that dividend growth ahead, it seems. Kevin, thanks a lot. Appreciate it. Kevin Simpson. Thanks, Mike.

It is last call to vote in our Twitter question of the day. We want to know which of these stocks that hit an all time high today is worth fading. Head to at CNBC Overtime to vote. We'll bring you the results next. And don't miss this year's Delivering Alpha conference making an in-person return on September 28th. Scan the QR code on your screen to register or head to DeliveringAlpha.com. Overtime, we'll be right back. Let's get the result of our Twitter question. We asked which of these stocks that hit an all-time high today is worth fading. On Semi is the winner.

That stock is up 75% in the past 12 months. Folks would rather lighten up on that one than the more defensive stocks that were in there, including Con Ed, Northrop Grumman, Waste Management. Maybe an interesting sentiment tell there. We do have a market today that has pulled even for the week. The S&P 500 actually just barely in the positive zone, up about a quarter of a percent today. Russell 2000, the outperformer today, up about two-thirds of one percent and finished right exactly on the 2000 level, which a while back acted as a bit of a ceiling.

That does it for overtime. Fast Money begins right now.