Closing Bell - Closing Bell Overtime: The Fate of Stocks 8/22/22

Episode Date: August 22, 2022

A steep sell-off on Wall Street has investors weighing the fate of stocks as we kick off a new trading week. Trivariate’s Adam Parker gives his take. Plus, Wharton School Professor Jeremy Siegel breaks down his stock playbook. And, market expert Mike Santoli’s “Last Word” on today’s big reversal.

All right, Mike, thanks very much. Welcome, everybody, to Overtime. I'm Scott Wapney. You just heard the bells. We're just getting started here at Post 9 at the New York Stock Exchange in just a few minutes. I'll speak live to Wharton professor Jeremy Siegel for his view on this market and whether the strong summer rally is in the process of ending. Maybe it did today. We have a busy hour ahead. Zoom and Palo Alto earnings, they're imminent as usual. We've got the numbers, the stock moves, all you need to know about those. And we'll let you know when those hit. We do begin, though, with our talk of the tape. The fate of stocks after today's steep sell-off. Let's ask Trivari. It's Adam Parker. He is with me once again here at Post 9. It's good to see you again.

Is the rally over? Is this it? Well, I thought the rally was a little too much. I mean, you know, we talked about it a couple weeks ago. Conditions really aren't any better, and the earnings estimates are way too high. So to me, what the rally was about was positioning and sentiment. And I started hearing a couple weeks ago people say, oh, maybe things are better. Earnings weren't as bad.

The CPI rolled over. There was a narrative that there was some fundamental improvement, but I don't believe it. I don't believe it. I don't believe it. Well, those are true. I mean, the earnings weren't as bad as feared. Inflation seems to have peaked. But the narrative that you can call into question, perhaps, was the one around Powell, that Powell pivoted or signaled that it was like peak Fed, peak Powell,

and that the markets were up like 8% since the day of the press conference. We'll see what they say at Jackson Hole this week. I don't expect it'll be dovish, but I don't even really care. What I care about is the fact that every consumer industry in the stock market for the last 20, 30 years grows its revenue 6% to 8% per year, and they all just grew 20% plus. So I know they're over-earning. Why has it taken longer than people thought? Why were earnings maybe not as bad? Because the Fed started lifting in March. Fed Fund Futures went up last year, but they didn't lift in March.

So the idea that all of the impact hit earnings from April 1st to June 30th, when we heard about it in July, I think it's a little unfair. I think it unfolds over the next two, three quarters. What's it mean then for where stocks go from here? Are we going back to the June lows? I think we're going lower in the short to medium term. I don't think there's any statistically significant data that September is a bad month. I think that stuff's a little bit astrology. You need another thousand years of data

to prove it. But I do think the risk-worth skew to the negative. I think when analysts come back after Labor Day vacation and sharpen their pencils on what's going on for the rest of this year in 2023, the numbers are coming lower. Now, 2023 numbers right now are $243 for the S&P. We're at $41.38 last. I think the real number is $215, about 12%, 13% lower. So will stocks act great when the numbers come down? Probably not. I think there's real risk that the numbers come materially lower

by sort of January. A real risk that they come way down. Do you think it's possible, though, that we could be at peak hawkishness and that we're not going to necessarily see 75 basis point cuts going forward and that maybe that in and of itself justifies part of the move that we had? Anything's possible because these guys were buying billions and billions of dollars of mortgage-backed securities when the housing market was on fire in every MSA in America. So I wouldn't have done that, and I'm surprised they did. So that's why I say anything's possible. What do I know, Scott? I know the CPI is going to stay high. So people got excited that there was a rollover because energy and food came down a

little bit. They have to kind of take a step back and say, what matters to CPI? It's owner's equivalent rent. Talk to any of the guys you have on the show who own tons of buildings and apartments, and they'll tell you the same thing. Rents are going up 1% a month everywhere, and it hasn't paused for a millisecond. Hey, Lizanne Saunders made an interesting point with Santoli in the last hour. She said, what happens if the Fed comes out? Let's say Powell on Friday at Jackson Hole gives you the idea that maybe they don't have to get inflation down to 2%, right? Maybe the target that everybody says they can be a little flexible on the target, maybe

it's 3%, maybe it's 4%. And the fact that that in and of itself could be market moving. You buy that? It could be. I mean, look, at the end of the day, they were comfortable running way below the 2% bogey for years and years and just made us believe that there wouldn't be deflation. So if they say, hey, look, guys, we're going to run way above 2% for a long time, but we're going to get rid of the really crazy, edgy inflationary stuff on our path there, I probably would communicate that.

I think that makes sense. There's no way they can get it to 2% in one year. That would be a giant recession to make that happen. So I think that would be silly to try to do that. I think they should do that. And I'd probably be more optimistic if they did, but I don't think they will. But you just underscored the point about maybe why it's difficult to get too negative, right, ahead of Powell on Friday. What happens if he, in fact, is flexible in a way that people don't expect him to be? Look, the curve's inverted, okay? It's massively inverted. The two years above the five, it's above the 10. It's been there for a month or two. The market knows that the probability of recession is much higher next year and that the Fed's likely to continue to raise the front end until it can slow down inflation. So I don't

expect that we'll get a huge rally. I don't expect them to get super dovish at the meeting. But I think more importantly, I don't believe stocks can act incredibly well all the way through the fall when the earnings go from 243 to 210 or 215 for next year. I think that's asking a lot. Do I think there's pockets of things that work? Yes. And I think what's interesting, they were just talking about it last hour. Everyone wants to go back to the playbook and you saw it in July. Let's get hyper growth. Let's get crypto. Let's get software. Let's get set. I don't think the new leadership in the new cycle will be exactly the same. It never has been in the previous half century. It's always something new.

What's it going to be then? For me, there's three areas that are going to work. One is health care. And I think it's across the board that services are going to grow above GDP. They have lower volatility. They have pricing power. Probably pharma, which is just incredibly cheap versus other defensives. Biotech's worked here.

It makes a little bit more sense to me than some of the other areas. And I think the other areas are going to be energy and materials. We've talked about it. I think a real cross-current in the market that's a little odd, a disconnect to me, is so you're taking down oil and copper because there's a demand recession, but at the same time you're going to let all the risky stuff rip higher? That's not all the risky stuff that's run higher, right? I'm looking at, I just want to let all you know, too,

Palo Alto Networks, I mentioned at the very top of the program, Palo Alto and Zoom are the key earnings reports coming in overtime. Palo Alto's out. Zoom's going to be out. Reporters going through it. Pop on when they've got more information of what you need to know, and we'll let you know what's going on with the stock prices. It's not all.

I'm just saying there's a little bit more of a recession embedded in oil and copper than maybe there is in some of the consumer names or some of the software and semis and biotech that are up a lot off low. So some speculation worked at the same time, you know, oil's down meaningfully from mid-June highs. I mean, this is a group, we're looking at Palo Alto right now is up 6%, right? Cyber has worked. There are areas of software that are maybe bucking what is any bit of an enterprise spending or business spending slowdown. Right. I think that's possible. And obviously, there's going to be some differences between the names. Some have profits.

Some are expanding margins. Obviously, security is something that companies cut less in their budget than others. But, man, oh, man, there were so many profitless companies. I think we have a chart of tri-barrier. 43% of all software companies with $500 million or more in revenue lose money. Now, you and I aren't that smart, but if we came up with a software company and we got a half a billion in revenue, you and I, we'd make some money, Scott. What am I supposed to do with tech? In all seriousness, if you have tech up, let's say the Nasdaq's up 10 percent, OK, since the Powell press conference, everybody suggested he was making his pivot.

Is that the area that is most susceptible, as you see today, in a two and a half percent decline? I look at a stock like Apple was like at 270, 274, right? It had gotten back. Yeah, some of the big names have really appreciated it. I'm sorry, it was at 174. I was on vacation. It takes me a little while to get back in there. My head's still on vacation. But you know what I'm saying, right? Apple had led the charge back. Tech was doing great. NASDAQ's up 10%. Now, all of a sudden, you look at the 10-year at 303, and people want to throw tech out again. I think our view is if you're trying to beat the S&P 500 in a long-only portfolio, you're probably close to market-weight tech.

You're picking names that have cash flow generation and margin expansion. I don't think it's back to the hyper-growth software that's profitless as a basket, and that's the stuff we know worked in 21 big time. Let me jump to Frank Holland. He has more on these earnings that are coming out. Frank, what can you tell us? Hey there, Scott. Shares of Palo Alto Networks up about 6.5% after a beat on revenue and a beat on EPS. Profit about 11 cents above what the street was looking for. Also strong forward guidance for both the current quarter and the full year. Estimates for revenue

and EPS above what the street was looking for. The company's board also authorized a three-for-one stock split. Again, shares up more than 6% right now. And when you look at all the metrics when it comes to Palo Alto Networks, a very strong quarter. Billings, well above estimates, 2.7 billion for billings. The estimate was 1.9 billion.

Remaining performance obligation of 8.2 billion. The estimate was for 5.9 billion. And deferred revenue above estimates as well. Again, a beat on the top and deferred revenue above estimates as well. Again, a beat on the top and the bottom line, strong forward guidance. Also, Palo Alto Networks approved the board, a three for one stock split shares up just about 6% right now. Scott, back over to you. Yep. Appreciate that very much. That's Frank Holland with the latest there on Palo Alto Networks, a much favored stock, certainly among a lot of people. Let's broaden

the conversation out if if we could. Bring in CNBC contributor Greg Branch of Veritas Financial Group and Cameron Dawson of New Edge Wealth. It's good to see both of you. You never wavered, Greg, in your belief that we were going to give all this back, that we were going to go back to the June lows. And you must feel more conviction today that we're going to do that. I am still unwavering. And one of the things that my good friend Adam Parker does is he thinks that everything that's in that big brain of his is synonymous and kind of common knowledge throughout the street. And it's probably not.

But I'm going to add a couple of things to what he said, because I largely agree with him that the CPI is not coming down, that there's structural structural elements there that while we're celebrating a 50 a basis point decline in a month uh is likely it's not that the 50 basis point decline is something to celebrate but we should be worried about is that this level and this persistency of inflation uh by all accounts are going to persist from the data that we're seeing and so what that means is that we haven't seen peak Fed hawkishness at this point uh they have spent the last three weeks walking back everything powell said in that conference it gave the green light to go out and put risk on and i think they'll continue to do that through jackson hole i do i do think it matters that's where i probably depart from my friend adam

i think it matters a great deal because i think when you look at the futures with the futures rates it was discounting about a 50 basis point hike in september and i think it matters a great deal because I think when you look at the futures, the futures rates, it was discounting about a 50 basis point hike in September. And I think it'll be larger than that, hopefully at 100 that I expected last go around. And I don't think the market's prepared for any of that. And so I think, remember, Scott, what I laid out in this head fake bull run based on some false premises is that first, the market would digest that we're not past peak Fed hawkishness. And then secondly, the market would digest something that Adam also intimated, which is that the back half slowdown is probably going to be deeper and of longer duration than we originally anticipated in January when some of us said we'll likely see a recession this year.

Cameron, is that what this is? As Greg just said, is this all just that one big head fake from the June lows? Well, we think the rally was at first supported by the macro. We saw big turns in macro drivers, things like yields starting to move lower, the dollar moving lower, energy prices moving lower. But since August, we really haven't had that macro support. They've all moved in the opposite direction, meaning that as equities kept powering higher, yields and the bond market and energy markets were really telling a very different story. We saw the bets that the Fed would cut rates in early 2023 get walked back completely, given the Fed commentary saying that

this is not a pivot. We don't intend to cut rates, which meant that this equity market was at risk because it was expensive. It was trading at 19 times earnings. And that's far more consistent with a Fed that would be easing policy, cutting rates versus a Fed that still is clearly tightening. Do you want to respond to any of that? I was just dividing here. I think we're probably at 19 times the real number. You know, I mean, if the street's at 243, I largely agree with what everyone said. I mean, we're at 41 to 38. If there's 215 in underneath.

You got your trusty calculator out? Yeah, you know, I mean, I think we're around 19 times the real number. So, you know, I'm not saying I don't know about the June lows. You know, I don't know if we're going to go ahead at that low, but I could see us. I don't think Greg agrees, though, with you that you like 19 times is the right number. Greg, is that is that what you think that the valuation of the market should be? No, no, we could trade it. What it is now. Well, I know what it might be now, but what do you ultimately think it should be?

I mean, I think we should trade it. Hang on one second, Greg. Sorry. 16, 17 times. 16, 17. Is that what you think as well, Greg? That's what I was going to say. In a high growth market, it should be 19 times.

But, you know, the median is around 17 times. And so, you know, if we're not in a high growth market, I don't see any reason to use anything outside of the median number. What if everybody is just too negative on inflation? I'm looking at a note that passed a little while ago from Marco Kalanovic over at J.P. Morgan. Quote, we maintain that inflation will resolve on its own as distortions fade, likely drive a Fed pivot. Why? Why, Greg, is that view so out there? I really can't answer that, to be honest with you. You know, three things happened at once, though.

I think the view that we were in a Fed pivot, probably highly supported by what Jerome Powell said. And, you know, my belief is that he probably misspoke and probably got a call from James Bullard as soon as he got off the podium. But that was combined with what Adam said earlier, earnings coming in a bit better than expected, even though they were off of a drastically reduced baseline, as I always had revised down about 3%. And I think that that was also combined, that green light, that pivot, with this talk of this strong labor market and a strong consumer balance sheet you know both conversations we can get into whether those are as strong as we thought and if there's going to be any duration if there's going to be any resiliency in the back half with those issues so i think all those things kind of combine together to suggest well we have a great labor market and we have strong consumer spending. And with the Fed putting all these measures in, we see 50 basis point decline.

Maybe we're here for a pivot. And, you know, we saw it go down from April to May of this year as well. It doesn't mean that we've reached peak inflation. Yeah. Frank Holland has more for me on Zoom. If I could ask everybody to just hang on for just two seconds. Frank, what do we got? Hey, there are shares of Zoom down about 4%. The company posted a miss on revenue, but a beat on EPS.

Soft guidance for the quarter and the full year for both revenue and EPS. CFO Kelly Steckelberg said this in part. Our revenue was impacted by the strengthening of the U.S. dollar, performance of the online business, and to a lesser extent, sales weighted to the back end of the quarter. Zoom phone, however, was a surprise to the upside, according to the report. Delivered milestone results, hitting a record number of licenses and up more than 100%. But again, a miss on revenue, a beat on EPS, soft guidance for both the quarter and the full year. Zoom CFO blaming the strengthening of the U.S. dollar, among other factors, for those misses and the soft guidance. Shares down 3.5 percent.

Back over to you. All right. That's Frank Holland again with us there on Zoom. So, Cameron, what's the right move here for people ahead of Powell on Friday? Is it right to assume that he's going to be more hawkish than maybe we thought? I don't think so. I mean, you know, Powell has to fight back these notions that they were going to be very quick to cut rates early in 2023. And that's what all this Fed speak was about, which is that we want to get rates past neutral and keep them there because they are worried of repeating that stop-go policy from the 70s, which really caused inflation to rear its ugly head again, even in lower growth environments. So from Powell, we'll likely hear a conversation about how much they think this inflation was actually their

fault. If we go back to last year's meeting, what they talked about was that it's all transitory, it's all related to the pandemic. It's not our fault, really not our problem. And that clearly is not the case. They definitely contributed to this inflation, as Adam mentioned, on the mortgage side of things, contributing to higher housing prices. And so if they start to lay the blame of inflation more at their own feet, it means that they are not going to be eager to start cutting rates, even if growth slows, because they'll be afraid that inflation will start to reaccelerate. Not only, Greg, do you not think the Fed is going to cut rates anytime soon? You

think they could go 100 basis points in September? I think they could. I think they should have done that the last one. I think you know, Scott, that there was a small but very vocal group of us saying this time last year that if they didn't start raising rates in the last quarter, at least, and I was advocating for September of 2021, that we'd be in a hyperinflationary environment. So as Cameron rightly pointed out, I don't know how they have a choice but to lay this at their own feet. The tools that they have are very effective at fighting inflation when used in a timely enough manner, an aggressive enough manner. And clearly, you know, the data is saying that they've failed on both those fronts. And while lots of people are in the course of pointing that out now after the fact, you know,

there were a small contingent of us saying this a year ago that they needed to start raising rates. And so I don't see how they can avoid continuing to be aggressive with the data where it is. I don't see why there's this, I don't know, this mysterious cloud of catastrophe around a full point rise. I mean, we've done that 38 times since 1970, where the Fed has raised rates at least a full point or more. None of those times have resulted in catastrophe. It makes it harder to do it now after you've given the impression to people that you are at the beginning of the end of your regime, and then now you're going to hike by 100 basis points. The market would not take that well. The other thing that the market is probably not taking too well before we go is the dollar. Adam, how much of a problem is that? I'm kind of hearing what everyone's saying.

And, you know, I'm not as you know, I'm not a Fed watching expert by any stretch. But I my my sense is, you know, when it does matter, I don't know. But when I look at the fundamentals, I know they're going to deteriorate more than people think that I can tell you. And when I look at the CPI, I know it's going to stay higher. The harder part's interpreting what the Fed's going to do. What's different, though, what Greg just said at 38 times, what's different, though, Greg, is that only nine times in the last half century we had an inverted curve. So not all of those times did everyone think the recession was as imminent. And so I think that's the group that I'm focused on. There's five times in the last half century where we were inverted for over a year.

My suspicion is this could be the sixth, okay, that we're going to stay inverted for a long time because people aren't going to trust economic growth. And I think Greg probably agrees with that. They're not going to trust economic growth. It's going to be very good out 12 months from now. So I think that averted growth does have playbook implications. And I think you said something really subtle here, Adam, that is the very reason why we may see a full point. And the very reason why James Bullard is lobbying very hard for a full point is that you want to pull that ahead before the deterioration is evident to everyone.

This is the reason why I thought we should have raised into the third quarter when we're having a spectacular earnings season. We all knew we were going to have a spectacular earning season. It's to do it under the cover of all the good vibes coming from that kind of shields us a little bit, at least from the psychological effects. And here, too, I do believe that they will pull forward to some degree because I believe that they are cognizant as you are, Adam. But I don't believe that streetwide we have digested yet the deterioration that is likely to happen, particularly with the consumer in the back half of the year. Cameron, I give you the last word, then we got to bounce. Well, I think we also should be very aware that if Powell starts talking about being accepting of inflation rates above 2 percent and keeping them there, that means that the bond market is mispriced. If we look at

inflation expectations that are priced into bonds right now, they still remain anchored and muted in the five-year and 10-year space. They're still below 2.5%, which means the bond market still believes that the Fed will get inflation down to its 2% target over the long run. If they start moving away from that, what does that do to inflation expectations? Well, maybe they just make the runway a little bit longer in terms of when they're willing to get there. I guess that was that was a suggestion that we were we were making. It's good to have everybody back with us today. Cameron, I'll talk to you soon, along with you, Greg AP. Thanks for being here. All right. Let's get to our Twitter question of the day. Now, we want to know where will Apple be trading by the time the next iPhone is announced?

That event reportedly coming September 7th. A lot of time between now and then. Will shares be higher, lower, or around current levels? You can head to at CNBC Overtime to vote. We'll bring you those results as we always do. A little bit later on in the show. Up next, we get the professor's playbook. Wharton professor Jeremy Siegel is with us to break down today's sell-off, why he thinks we could see a big rebound by the end of this week. We're live at the New York Stock Exchange OT. Back after this. Back in OT, stocks selling off with the S&P seeing its worst down day in nearly two months. Joining us now to break it all down, Jeremy Siegel.

He's professor of finance at the Wharton School. Professor, always good to have you on. Welcome back. So what are you thinking now after what happened last week and then certainly after today? Well, I think when yields go over three percent, you're going to you're going to have an effect on on the stock market and tech stocks. You know, most of this year, I was looking at the 10-year and the NASDAQ or the S&P. You know, we started the year one and a half at an all-time high. Then we went to three and a half. Stocks bottomed, two and a half, big rally, and now a little bit of tightening and a little softening.

So, you know, interest rates are really important for the stock prices. And I think a lot of people are nervous that Chairman Powell is going to be hawkish in his Friday talk. And I think they're positioning for that. And if he turns out not to be, I think we could see a really big relief rally on Friday afternoon. Interesting. Why wouldn't he be, though? Well, I mean, it's right to expect him to be hawkish, is it not? Well, you know, if you take the market says we're going to have another one hundred and twenty five basis points of tightening by year end, I think we should only have one hundred. How we do it, you know, you know, take your choice, 50, 25, 25 or whatever, because I see a lot of tightening in the actual data. What I mean is, first of all, and it was mentioned, the money supply has come to

a screeching halt from the one, the biggest increase in history to the biggest slowdown in history. Take a look at the dollar, one of the biggest increases in history. One of the biggest increases in the tenure. One of the biggest increases in the Fed funds rate. If you take a look at the amount of tightening that is there, it is strong. Take a look at the market prices. Take a look at commodities. Take a look at housing.

Now, I know Adam mentioned that we're going to have that rent index continue to come up. That's very backward looking. Talk to realtors. Housing prices are sinking right now. Rentals, they're not getting the jumps that they got. It's still up a lot, but they're not getting the jumps that they had just one or two months ago. So if Powell and the Fed take a look at what's really out there, I think they won't take an overly aggressive, which I think would be a mistake. And by the way, something else which I've mentioned, and I really wish Powell and the Fed would talk about it is how do you add 3.2 million workers as we have in 2022 and have zero increase in GDP? The biggest collapse in productivity in history and nary a word from our central bank or our government about, gee, what's causing that? And if we have a snapback in that biggest collapse in history, that's going to also lower prices going forward. So I don't think we have to do that much more. OK. OK. All that said, let's assume you're correct. But at the same time that they're not doing as much tightening, the economy is slowing even further. And it's just a matter of time before earnings get blasted, which they will, according to people like Adam Parker, who was sitting right next to me just a few moments ago. And many others think

the same thing. And the Fed pivoting or not tightening as much as some think is still not enough to overcome the scenario that I just painted to you, at least for stocks. Why is that wrong? Well, first of all, I'd like to ask Adam, we had zero GDP. We had negative GDP growth in the first half of the year, which, you know, we've always talked about is technically a recession. Did earnings get blasted? Does he think there's going to be another two quarters and then another two quarters after that? They didn't do so badly, believe it or not, in a scenario which is a technical recession. Almost all economists think that second half of the year is going to be a positive GDP. Yeah, but I mean, everybody was so late. First of all, everybody was reticent to even take earnings expectations down.

OK, earnings were better than than some people expected. But it's only a matter of time. You you you have said yourself that we are already in a recession. So if we're already in a recession, you said that. And if if the economy continues to worsen, how aren't earnings ultimately going to take a hit? Well, we talked about what's the right price earnings ratio. I think it's 20 on the next 12 months of earnings. 20. Now, I know historically it's 17, but on average, historically, we've had 5, 6, 7, 8 percent interest rate and competition from bonds, which even today we absolutely do not have.

So if you take 20 times 220, 225, 230, you know, we talk about earnings going down. Earnings are always too high. There's almost never been out of the last 25 years. I think there's been two or three years. We're going a year hence. The earnings haven't been too high. Overly optimistic. Yes, they're going to come down. But are they going to collapse? I don't see that coming. All right. We're going to see. That's what makes the market professor. And I know I'll be speaking with you many times between now and then. That's Professor Jeremy Siegel at the Wharton School. Thank you, as always, for your time. Let's get a CNBC News update now with Shepard Smith. Hey, Shep.

Got from the news on CNBC. Here's what's happening. A body found today in Northern California Reservoir believed to be that of 16 year Kylie Rodney, or Rodney, I should say. That's according to the local sheriff just this afternoon. Rodney went missing weeks ago after a party at a campground in the Sierra Nevada mountains. A volunteer group of divers said they located the body and Rodney's car in about 14 feet of water. A South Dakota ethics board has now ruled today that the Republican governor there, Kristi Noem, may have engaged in conduct when she said or I should say misconduct when she stepped into help with her daughter's real estate appraiser license. It also referred to the state attorney general and investigation into the governor's use of a state airplane for political events. Governor Noem has denied any wrongdoing. And the former NBA star Dennis Rodman could be on his way to Russia to help free Brittany Griner. Rodman telling NBC News he got permission to go to Russia

to, quote, help that girl. Unclear who gave him any go ahead, but the State Department today said Rodman is not traveling on behalf of anyone in the U.S. government. Tonight, the fallout in Dallas from a summer's worth of rain that they got in just five hours. And some classic cars bring in almost half a billion dollars at auction on the news right after Jim Cramer. 7 Eastern CNBC. Scott, back to you. All right. Good stuff, Shep. Thank you. That's Shepard Smith. We'll see you then. Take another look at Palo Alto Networks and Zoom moving in opposite directions in overtime after their earnings. You see it there. Palo Alto's up a little more than 7 percent.

Zoom, meantime, the opposite direction, down more than 7 percent. Do not miss two key interviews on the heels of those reports. Palo Alto CEO on Mad Money with Jim tonight, 6 o'clock Eastern. Zoom's CFO first on CNBC tomorrow. That's Squawk Box, 8.30 a.m. Eastern time. Up next on Overtime, the big call from one long-term bull. Ed Yardeni says the market is now overbought. We'll find out how he thinks you should position heading into this big week and certainly what's taking place later in the week. We'll do it next. Stocks getting whacked across the board today, all three major averages finishing deep in the red. Our next guest, a long term bull who just put out a note saying it is time now to go risk off.

Let's bring in Ed Yardeni. He's the president of Yardeni Research. Welcome back. Why so now? Well, by the way, welcome back from vacation. I hope you had a good one. Thanks so much. I did. Thank you very much. Look, the market's had a huge move here since it bottomed on June 16th. I don't think we're going to go back and retest that. I think sentiment was so sour, so negative, as negative as it was back in 2009. So I think you've already seen a lot of capitulation, a lot of exhaustion by those who wanted to sell. But on the other hand, we're approaching September, and September can be a tough month. And you can find plenty of reasons why it might be tough this time around. We know that the Fed is likely to increase the Fed funds rate by 75 basis points. At the end of this week, Powell will update his hawkishness. I think he's going to

continue to be hawkish about inflation. I think the key number here coming up here is going to be the CPI in September on the 13th, and that will be for July. And I think it's going to be another good number. So I think we're in a consolidation pattern here for a while. I don't think it goes down a lot. I don't think it goes up a lot. I mean, you mentioned that we were so oversold before sentiment was so negative, right? We were due for we were due for some kind of a bounce in which I would say, OK, I totally would agree with you in that light. But then things got crazy. Right. The market decided that Powell shifted when, in fact, he didn't. I mean, I don't know how many Fed people had to come out after Powell and suggest that he wasn't.

They all walked it back. So why is all of this a surprise now? And it also leads to the question of whether the move was even justified in the first place, at least part of it. I think it was justified to the extent that pessimism was way overdone. I think what we're experiencing is what I would call a rolling recession or on average a growth recession, which is not growing very much. And I think the first half of the year, we're going to find out that it wasn't even a technical recession. I think there's going to be upward revisions on GDP because we know that gross national income is a lot stronger than gross domestic income. And so I think we are going to see an improvement in the first half of the year. And for the second half of the year, I think we're looking at something like one percent growth and maybe two and a half percent next year. So I think that this is the most anticipated recession of all

times. And that, from a contrarian perspective, either means it's not going to happen or it's going to be very mild. And so I think it's going to be very mild. Oh, so you'll stick with your soft landing call? Yeah, absolutely. Yeah. And you don't think earnings are going to be nearly as bad as some people now expect? You know, I'm sure you heard part of the conversation we had already on the program. You don't agree with that? Well, it's not that I disagree with others. I have my own opinion. And maybe it's different from some of the others. But my opinion is that the mild recession will be associated with a flattening of earnings looking at forward earnings at record high levels for quite some time, maybe for a couple of more quarters. And that's consistent with an economy going

sideways and a stock market going sideways. Appreciate it, as always. Ed Yardeni, I'll talk to you soon. My pleasure. All right. You be well. All right. Up next, ringing the register on the semis. One halftime committee member cashing in on the chips. We're breaking down that trade in today's halftime overtime. Speaking of, we're right back after this. In today's halftime overtime, hitting the sell button on the semis. The sector has been under pressure recently, with the SMH ETF declining today and falling more than 7 percent over the past week. Halftime Steve Weiss isn't sticking around for a rebound, though.

He's completely cut his exposure. I sold the SMH last week. I sold Qualcomm mostly on Friday, some before. The reason being it was a trade. And Qualcomm, I thought, was safe to trade because it was a cheap stock. Still a cheap stock. But you can't ignore the news that's coming out around the world on cell phones. And while Qualcomm is not just a cell phone company, that is a big part of their business. And they, you know, they came out in a quarter.

Quarter was good, but the guidance was poor. All right, let's bring in halftime committee member Degas Wright of Decatur Capital Management. Degas, it's good to see you as always. Number one, is this the right move to get out of cyclical tech like chips right now if you're worried about the trajectory of the economy? Well, Scott, I think Steve made the statement that he's a trader, not an investor. And so what we see is that we're looking at the long-term view on semiconductors, and I have several. So I'm looking at the long-term view. So as an investor, I'm still holding these companies and look for positive performance going forward. Yeah, I mean, he would probably say, look, I'm an investor. I'm just a trader when it comes to

these stocks, because it's dangerous to be an investor in an area that seems suspect, at least at the current time. NVIDIA may be on that list, which reports this week, which you own. You worried? I'm not worried because ultimately what I'm looking at is that NVIDIA's long term strategy is still on point. You know, they're focused on being a differentiated, broad player. They have exposure to the data centers, gaming and artificial intelligence. And so they do this very well. Now, there are some headwinds that we're going to see, but that's only temporary. What about tech in general? Before I let you? The NASDAQ getting really beaten up today, down two and a half percent, a better than 300 point decline. How much worse do you think it gets?

Well, we talked about this earlier that it could go down further. But as once again, in a long term, stay true to your strategy and focus on reasonable valuations, which we still see profitability expectations and having a corporate, a company that is a good corporate client or good corporate citizen is what you want to focus on. So stay true to your discipline. All right. We will do that. Degas Wright, thank you very much. We'll see you soon. Up next, more reaction to Palo Alto's quarter. We have a shareholder standing by with instant reaction. Overtime's back right after this. Another look at our question of the day. We want to know where will Apple be trading by its next iPhone announcement coming in September? Head to at CBC Overtime on Twitter. Cast your vote. We'll bring you those results just ahead.

Plus, we have more reaction to that Palo Alto quarter from a shareholder. Overtime back after this. We are back with our two minute drill. Joining us now, Noah Hammond, advisor shares CEO. It is good to see you. I want to start you out on Palo Alto. We could put up the chart and show everybody what this stock is doing. We mentioned that you own it. It's up nearly 10%. Strong outlook. They post a profit. You get a three for one split. You get a buyback. I can't imagine you are anything but thrilled. Yeah, very excited about it. This is one that we hold in our sentiment based strategy. It's the SCNT ETF. And it looks at sentiment. It tries to measure by looking not just at social, but just engagement with a company and its brand. We knew that the guidance was going up, that the numbers would be higher. But we try to look at alternative data like sentiment data

to help us understand if someone's likely to beat even better earnings that the analysts were putting out there. And it looks like they did it. And it certainly worked well for one of our holdings. Why is this the best cyber stock that you own? Do you own others or do you just choose to have this one over a CrowdStrike or some of the other popular names? No, we hold a CrowdStrike as well. Just one that I was picking for today, knowing that the earnings were this week. You know, not sure if they were exactly going to work, you know,

when we sent the notes in earlier, but happy that it did and excited. It's already in our portfolio. So, you know, everyone can see that it's in there already. All right. You rolled the dice. You came up a winner. I like that. Intuit is your second pick. Tell me about that stock. For the same reason. So we work with a firm called Alpha DNA just outside of Baltimore, Maryland, not too far from your old stopping grounds in Montgomery County, sentiment-based research, right? So they're looking at the financials. They're looking at companies that are already expected to have good earnings and analysts expect good earnings. But what people might be missing is just that other piece of data where there's a lot of engagement with the brand. And just look at the environment we're in relative to the services

that they provide. Credit card debt is at an all-time high, higher than it was during the financial crisis. So this is another one where we're looking at the engagement with the brand and products, and we think they're going to do even better than what the analysts are saying. All right. Pick stocks, does background checks on the person asking the questions and everything. I see right through this. Short position in Boeing. Why are you short now? Isn't the time now to be long? The technicals aren't good. So you're right. They're turning it around, even though, you know, might be building planes for airlines that don't have pilots or anyone to put on them yet. But this is one of our shorts in our

DWSH ETF, very technically driven. It's run by the Dorsey Wright team. We get the research from them to pick our short picks. And all it's doing is taking relative strength that people that are technically based and who like to buy in a trend following manner, and it turns it on its head. So when you look at the price action for the stock, it indicates that it's probably going to go lower, at least lower than the broader large cap group. So we're only short based on technicals only. And it's important to know that we probably only keep most of our short positions for a shorter period of time. So if you're looking for a smart hedge, this is one of the stocks that we think you can add to your portfolio.

All right. I'll see you next, and I'll ask you about it then, if it's maybe a short-term short. Noah, I appreciate the time. Thanks, Scott. That's Noah Hammond joining us there. Up next is Santoli's last word. Overtime is back in just two minutes. We're back in overtime.

Let's get the results now of our Twitter question. We asked, where will Apple be trading by its next iPhone announcement expected on September 7th? Roughly half of you saying lower. 51% of you saying that gave back a bit today in a big Nasdaq sell-off along with the broader market. Mike Santoli is here with his last word, which is? Well, is it a retracement or is it essentially a relapse into that kind of macro storm that we were in for a while? You know, taken from a wide angle, you go up 17 percent in two months in the S&P 500. You pull back 4 percent in a week. That's not necessarily that disturbing. I think just on those mechanics, what has people on edge is I think the way that the market has so obeyed all the resistance points.

Right. The 200 day average. Yeah. And we pull back a little bit. We didn't really pause in the decline right where people were hoping to in the early June highs. I still think the quality, the breadth, the force of the rally off the June lows bought it some credence, meaning that it's probably going to take some other new macro shock or a real kind of bottom falling out of the earnings expectations to break through it decisively. But it's an uneasy point. Well, because you generally when you get more than 50 percent of your losses back, you typically don't go back to the lows. That's sort of what you're alluding to, at least in some respects. That's one of the things. And, you know, I've seen people try to poke holes in that and say it's only on a closing basis. It's only after 1950, whatever. It's still the case historically. Maybe the sample size isn't huge, but also really

the percentage of stocks that surged off the lows, all those things. The problem is the people who love the market most after that are just the ones who look at those tea leaves, are not the ones who tell themselves a story about what's actually going on. Because it's tough to say, you know, that the Fed is going to serve up some kind of a dovish turn. It's tough to say that the macro, you know, the economic growth is going to reaccelerate. So I get why it's a little bit uncomfortable to buy into that rally story. Maybe we're on edge, too, because there are doubts to the validity of the move in and of itself. Right. Powell pivoted or did he? Right. I mean, it was everybody was all in on that. And then now we're like, well, maybe he didn't.

Well, first of all, I don't really think he did. I think that he was essentially acknowledging the spot they're in. But the markets tried to get to that place. And that's by we, I mean the market. Exactly. The market got there. The bond market said we're almost done. I don't think the market's saying and then they go on a big easing campaign. Because if you get there, that's probably getting there the hard way, which is the economy really is struggling. I think it's much more about we got really oversold. Everybody, even the bears, said we should bounce right here. And that's why people doubt it, because they think it was just a mechanical reaction as opposed to something that was sniffing out something good.

And now maybe we're overbought. But it all leads up. Yeah, not so much. It all leads up to Powell on Friday. Was the market today trying to get ahead of all that? I think we were sort of bracing for something there. I think on the yield side, look, the two-year yield has really built back in what we expected in terms of potential hikes. It's back above, you know, almost 3.3, right? It was 3.43 at the high. So that's not showing a lot of an immediate pivot right there. I mean, even, you

know, Edgar Ardeni with us just a few minutes ago saying risk off right now because he thinks it's overbought. You moved as much as you said in a short period of time. Wait it out and wait and see. Yeah. Yeah. All right. That's Mike Santoli. I'll see you for your midday word. Yeah. And then your last word. And I'll see all of you tomorrow as well. Fast money begins now.