Closing Bell - Closing Bell Overtime: The Fate of the Year-End Rally 12/1/22

Episode Date: December 1, 2022

The rally taking a bit of a pause today after the big post-Powell pop. Altimeter’s Brad Gerstner gives his take and explains how he is positioning his portfolio. Plus, Larry Cordisco breaks down the fate of the tech trade. And, market expert Mike Santoli digs in on what he’s watching as we head into the final trading day of the week.

All right, Mike, thank you very much, and welcome, everybody, to Overtime. I'm Scott Wapner. You just heard the bells. We are just getting started for Post 9 here at the New York Stock Exchange. We're watching the cloud again for some key earnings for growth investors. PagerDuty and Zscaler, they are imminent. Both names have gotten crushed this year. We're going to see if the numbers spark a rebound of any sort.

We begin, though, with our talk of the tape, the fate of this market, the rally, at least, taking a pause today after that big burst yesterday, that post-PAL pop, if you will. Let's ask Altimeter Capital founder and CEO Brad Gerstner what's likely to happen now. He is with us today exclusively right here in overtime. Welcome back. It's good to see you again. Great to be here, Scott. Thanks for having me. You were last on September 15th. I mean, S&P is up three and a half percent since then. And a lot has happened in that period. Obviously, we're up a lot from the mid-October

low. But you described the market environment back then, Brad, as, quote, pretty treacherous. So how would you characterize it today? Well, listen, we have we've gone through a historical regime change for sure in 2022. And everybody has to reorient themselves around a rate environment, which is going to be four to five percent. What made the world treacherous for growth stocks in September was that they weren't pricing this new orientation. And so what we've seen since that period of time is great dispersion. For those companies that are driving free cash flow growth, we're seeing a great response out of the market, right? The Palo Alto networks are maybe even snowflake today. For those companies that are still anchored to this idea that they're going to get a multiple of revenue, right? 10, 15, 20 times sales without producing profitability. That ship has sailed.

Those days are gone. And the faster both private and public companies get on board with this new orientation, I think the better they're going to perform. You're so transparent with us every time you come on in terms of not only how you see things, but how you're positioning, right? Where you're putting your actual money to work. Can you give us an idea today where you're positioned? Well, I'll tell you, I've been uncomfortably long over the course of this year, and we've been long and wrong for many parts of the year, right? We didn't anticipate that inflation was going to be this persistent.

We didn't anticipate that rates were going to go this high. We didn't anticipate that rates were going to go this high. And the fact of the matter is that's been painful for us and for a lot of technology investors. But here we are starting December of 2022, and we're looking forward at a year. We listened to the Powell speech yesterday. I think there's a broad consensus that inflation is rolling over. I think there's a broad consensus that now we have an upward bound around rates. I don't know exactly what that is. Maybe it's a Fed funds rate of four and a half, a five or five and a quarter.

But that gives us something to hinge to as we begin to model and underwrite investments heading into next year. So I think that you, you know, you can either fight the last battle, which will be pretty painful, right? Or orient and position your portfolio for 2023. I think the things that you want to own to the extent you're going to be investing in technology need to be those beaten up names with real free cash flow support. There are big cap names trading at historical lows. There are companies like Snowflake today where this company over the course of a year has gone from trading at 100 times sales to 40 to 50 times free cash flow. Right. Free cash flow. And that's why the company that came out last night, they said, listen, the macro is tough. Fourth quarter is going to come in a little bit lighter.

In most instances, that would have been abused by 20%. In fact, it was down a lot after the bell, as you know, yesterday. However, the stock ended today up almost 8%. And the reason is they give you a free cash flow guide for next year that came in at $700 million versus the estimate of 550 million. Not only is this one of the fastest growing software companies of all time, but it's one of the most profitable fast growth software companies of all time. You made it clear, too, and I'm glad we're on this story now, because when you were with us in the past and we talked about the tremendous,

you know, rollover, I guess, in some of these growth names, there were 70%, if I recall correctly, in your estimation, that just simply had valuations and stock prices that made no sense because the environment that we were in. And then there were 30% in which Snowflake would fall that are great businesses, which have a great longer term trajectory, but also got valuations that they didn't deserve because of interest rates being at zero, the 30 percent category being the ones that you can still put money in because you think they may reach those peaks yet again, albeit at a much slower pace. Is that a fair description of how you saw the market then and how you might see it now? 100 percent, Scott.

We've lived through a decade of very low interest rates, which caused this era of excess, excess hiring, excess investment. It deflated profit margins because everybody was just trying to optimize top line growth. And why not do that? That's exactly what the market was rewarding because long duration assets with fast growth in a low interest rate environment get a high multiple. But every 100 basis points that that 10 year moves up, it deflates the multiple by 15 to 20 percent for those same assets. So the world that we're going to have to orient around for the next many years. Right. And Chairman Powell said again yesterday, we're going to be higher for longer. So the world that you can underwrite to has to take into account free cash flow margins. Right. We're going from the age of excess right to an age that some are calling the

age of austerity. But whether it's the work that Elon's doing at Twitter, whether it's the letter that we wrote to Meta, whether it's the work that needs to go on at other big cap and small cap, unless you're converting those sales into free cash flow for the benefit of your shareholders, your stock's simply not going to work in this environment. I want to get to some of the stories that you just mentioned. But just since we're on the snowflake topic, did you use yesterday's big decline to buy more? It's already your largest position. So I don't know in terms of the size already being too large. But I figured I would ask you anyway, if you bought more on that dip. Listen, by most hedge fund standards, we've been uncomfortably long for the better part of this year.

And so, no, we weren't buying more yesterday, but it's our largest position. We think this is one of the most iconic companies, certainly, that I've covered in my 20-year career. But let me just lay out a framework for it. They said they're going to grow free cash flow next year by over 100%. Their guide was for $700 to grow free cash flow next year by over 100%. Their guide was for 700 million of free cash flow. We think that free cash flow beyond there will continue to grow at over 50% for many years because of how early they are in penetrating their market. They are a highly efficient cash generation machine. And so now if you believe that the multiple free cash flow is a fair multiple, then the stock ought to be able to appreciate at the rate at which that free cash flow grows. So if they grow free cash flow at 50 percent a year, the stock ought to be able to compound at 50 percent a year, which we think is a great return from here.

But let's be very clear. We also own the stock at 400 and 350 and 300. And given how the world has changed about around rates, those multiples and those share prices didn't make a lot of sense at one hundred and fifty dollars a share. We think there's a very fair entry price for a company that compounded over 50 percent a year for the next several years. Yeah, which is why I just simply was curious as to whether you had used that opportunity to even make the position size that you had a little larger. It's already a monster for me, Scott. Yeah, I knew that. Do you feel, I guess, more broadly that it's a better environment for risk

assets or not? And if not yet, at what point in the next year do you think it will be? Well, first, if there's no upward bound to interest rates, then all growth assets in the world are uninvestable, right? If you can't tell me whether rates are going to stop at six, seven, eight, you just have to sit on the sidelines from all growth assets until you understand that better because you can't apply a discount rate. So uncertainty kills the market. Part of the reason you got a bid yesterday, part of the reason you got a bid today isn't because anybody thinks we're getting out of jail free as far as the economic growth is concerned, but because what we heard out of Chairman Powell is a framework, a framework where they said,

okay, we see CPI, we see these data points starting to roll over. We're gonna raise again, maybe 50 in December, maybe a couple of 25s after that. But now we're in the range, right, of four and a half percent. And then we're gonna hold and we're gonna see. And remember, as CPI falls next year, the real rate.

Right. So this is the 10 year yield minus the 10 year expectation around inflation. We're getting tighter as as as the San Francisco Fed President Daley said, we're getting tighter as inflation falls, even if you just hold rates constant. So I think we now have a framework for investing in growth assets, or at least one is starting to emerge. But as he said yesterday, listen, we've had a couple prints that looked okay. We need to see confirmation of that. But everybody is out of the pool right now when it comes to growth assets, technology assets, and investing. If we start to see some of these prints come through like we expect they will, CPI rolling over, you know, a topping in the increases of rates. We think that creates a much more a much better environment for people to begin to dip their toe back in.

But of course, this is only going to benefit those companies with the courage to make the decisions to drive profit growth over top line growth. Do you put the Microsofts of the world and the mega cap tax, Microsoft, one of your largest positions as well? Is that out of the pool also for the foreseeable future? Because those stocks, as you know, have not done well at all lately. What were once leadership stocks have been replaced. I suspect that Microsoft will do very well despite the economic headwinds as we look forward at next year because of their ability to manage their profit growth next year. Same with Snowflake. I also see really positive movement afoot at Meta and Google that we think could help them again have some positive years next year.

I think the things you want to avoid in technology, if a company is not demonstrated the courage and the willingness to drive profit growth, free cash flow growth, over top line growth, all those companies have to be avoided. You need to see that balanced approach between growing the top line, penetrating the market, but also making the courageous decisions to drive profits for the benefit of shareholders. It's interesting. You know, we were waiting on some earnings and I'm looking at a couple of stocks that have come out. And I'm just as you're speaking about what you are talking about, I'm looking at a Zscaler, for example, down 11 percent. I know you don't own it, but nonetheless, it's sort of one of these stocks that was so loved in a group that was overloved, perhaps, in terms of cybersecurity.

We mentioned Palo Alto. CrowdStrike got knocked around pretty good as well. Just, you know, valuations that just got way, way stretched, stocks that got way overloved and are now finding themselves coming back into the atmosphere, if you will. And they may have further to go as being witnessed by what I'm watching right now. Do you feel like these stocks in that area of the market still even have further to correct their valuations, Brad? Listen, if you don't produce profits, there is no bottom to your valuation in this tape. Let me be very clear. And I don't take any pleasure in this, Scott. Listen, there's a lot of blame to go around here. The fact that the Fed was 12 months late in raising interest rates caused

massive distortions in the market, right? They may not be the direct cause, but they're the proximate cause of the silly behavior, you know, that everybody participated in to different degrees. Now, it should be clear to every board of directors, to every founder, to every CEO, that you better present a balanced and courageous plan for profit growth, as well as top line growth, if you want to get investors. And so, you know, again, I think we have a framework heading into 23 that can achieve that. And as Snowflake demonstrated last night, even with a challenging and choppy economic environment where they said, you know, that revenue growth will come in at 47 versus, you know, the street was at 51 percent. Right. They said, but we went into the P&L,

we harvested more free cash flow. So the free cash flow for the quarter came in at 65 million instead of the expected 10 million. That's what you want to see out of your leaders of these companies during tough times. Let's let's speak of leaders going through some tough times, including Mark Zuckerberg and Meta, in which you wrote the now famous letter recently, urging that company to become more fit and more focused. They have announced layoffs since then. Mark Zuckerberg was at the Dealbook event yesterday, speaking with Andrew Ross Sorkin and said the following. I'd like your reaction to it. He said, quote, we've had to pull back, still kind of pushing forward in the same direction over the long term. But our operational focus over the next few years is going to be focused on efficiency

and discipline and rigor and kind of just operating in a much tighter environment. Boy, that sounds like your letter got to Zuckerberg. What's your reaction to what he said? Well, let me Let me say this. I wrote the letter, you know, time to get fit, really is an open letter to all of us, to all of Silicon Valley, to investors and to companies. This is applicable across the board. And it was particularly applicable to Meta because of the significant investment, long-term investment that they wanted to make

in the Metaverse, right? I'm hugely encouraged by my conversations with the company and what we've seen, right? Just think of those words, right? Efficient, discipline, and rigor. That is not what you have heard out of big cap tech in Silicon Valley. And they're stepping forward. And I believe that they will take a leadership role in showing the rest of us the path forward. The fact of the matter is they went from 25,000 employees to 85,000 employees in a very, very short period of time because they, too, were led to believe that the distortions of zero interest rates in 2021 were a new normal. It wasn't a new normal. The laws of gravity, interest rates and multiples remain. And I think they've gotten that message. So they've reduced their workforce. They weren't headed in that direction. They've reduced hiring. They're reducing their office footprint. And so

there's a lot more to do. But I said in that letter, $40 billion in free cash flow or $20 billion in free cash flow for Meta. It's just a choice. I believe the right choice for all companies right now is to tighten your belt, act with discipline, be intellectually humble in the face of a lot of economic uncertainty. And this will benefit not just Meta, this will benefit the entire ecosystem in Silicon Valley. Well, I mean, let's be clear. You want, in addition to what Meta has already announced and those words that may play exactly to the way you were hoping that they would react, they're still planning to spend a lot on the Metaverse. report, you know, or at least after that letter came out, you were not that encouraged about sort of the initial steps that the company said they would take. Do you think that they will cut their expenses as it relates to the metaverse as much as needs to be done? I would say this. I'm really

encouraged by their steps. I'm encouraged by the conversations that we've had. As you know, in that letter, I was very clear to say, I think that meta is very misunderstood. I think they're making massive investments in AI. And I think AI is one of the greatest opportunities over the next two decades for all of technology and humanity. I want them to invest there. I don't understand the metaverse quite as well. I suggested they ought to trim back their investment, but continue investing there. I have some other ideas. Maybe they should spin out the metaverse Oculus Reality Labs investment. Those things will unfold in the months ahead. But the significant thing is that Mark is the leader of this company. And when the leader of the company says efficiency, discipline, and rigor, when they take steps to reduce workforce, to reduce office footprint,

to me, that's a demonstrated step in the right direction. We know there's been a let her go to Google. I know that Ruth and the leadership at Google takes all of these issues very seriously as well. I hope what we're about to see in this Elon Twitter moment is a recalibration across Silicon Valley. And investors have a lot of responsibility here as well. We made plenty of mistakes as investors encouraging companies to focus on the top line. It's time for us to talk truth about this balance approach to growth and profitability. But what I see out of all of these companies, starting with big tech, is quite encouraging. But there's a lot more work to be done. There is no V-shaped recovery here.

This is going to be a grinded out moment over the next couple of years. And if your company doesn't get on board with that way of thinking, right? They'll be dragged there kicking and screaming or they'll be replaced. So you mentioned Elon and Twitter. And in terms of Elon, before I even get to Twitter, which I do want to get to, you had also recently bought Tesla. Now, I'm curious as to how as a sideline viewer, if you will, but one who's got skin in the game, right? So you've got good seats. You're right on the sideline here. What you make of what's gone on and the negative impact that it's obviously had on Tesla shareholders like you? Yeah, as you know, we made a very small investment in Tesla. Our view there is a five to 10 year view on the super cycle associated with electrification. I still think that Tesla is going to end up owning a wildly different market share of the electrification market, both energy as well

as cars, than exists with current OEMs today. But the timing of our small investment was not a great one. There's been a lot of concerns, and I think appropriate concerns, over Elon's focus, over what's going on in China, over general economic conditions. And so we haven't increased the size of that position since then. And in fact, we trimmed some of our position on the way down because of some of these concerns. And so-

We did. Yes. And so when you look at what Elon's doing and when you look at Tesla, my five, 10 year view there hasn't changed, but the short term outlook for that business certainly has a lot more uncertainty. And I think it

needs to be resolved. And uncertainty because directly related to what's going on with him at Twitter? I think uncertainty about both what's going on in China vis-a-vis the company, what's going on in terms of general economic conditions and yes, his time and attention to Tesla as well. But like I said, this was less than a 2% position for us at Altimeter, and so I'm not making a grand statement about the short term. I wouldn't try to trade the short term in Tesla. What I said to you when I came on before was we believe there's an opportunity over the next 5 to 10 years to build an enormous company, a multi-trillion dollar company, you know, in the field of electrification and make

no mistake about it. I think that Tesla is, you know, has massive leadership advantage as a full stack AI company over the other car companies in what that future is going to look like. But I think that anytime the leader of your business is also focused on two other businesses, when you have this much economic uncertainty, I think you have to question whether now's the time that you must own that stock. Do you feel, since you mentioned China and we've all been watching, obviously, what's taking place there, the COVID lockdowns, the protests related to that, and the likelihood or unlikelihood maybe that anything is really going to change. You know, there was a time where you

were invested in some Chinese Internet names. And then I believe, you know, in one of our conversations, and I honestly can't remember exactly which one it was, said they're for the most part uninvestable at that time. Your view had changed. So where are we today? And a lot of those stocks have gotten huge, huge moves higher in the last, you know, I don't know, three, four days. Has the landscape changed back to a place where you're looking again? I mean, listen, the volatility around China over the last year, we had that conversation a year ago, Scott. I think it was October from the Milken conference when I told you when Jack Ma went missing and all these leaders of these Internet companies went missing, that there was a big change afoot in terms of Chinese leadership, CCP, you know, party management of the economy.

And we got out of everything in China at that point in time, with the exception of our position in ByteDance, which, as you know, is a private position, but it's a large position for us where we were early investors in that company. Over the course of last year, frankly, we've had a lot of ups and downs. I think we've had four or five, 50 percent moves in a lot of these companies, right, as people look to try to discern what leadership is doing. The party Congress scared the hell out of people when we saw people ushered out of, you know, the party Congress. But over the course of the last three weeks, really starting with the Biden-Xi summit and the comments coming out of that really cooled the rhetoric as it pertains to the CHIPS Act in Taiwan, demonstrated that

the government was going to stimulate the economy. We haven't added to our positions in China. But the early indications are that Xi, probably appropriately so, recognizes that the key to his ongoing leadership in China requires economic growth, and they are not on a path to sustainable economic growth. And so rather than the government fighting the economic growth in China, it seems that they're starting to get behind it, make the right decisions. I suspect that they will roll back zero COVID. They will continue stimulating the economy and they would be well served to return to the economic path they were on before, encouraging openness, more entrepreneurship. You know, if you discourage investment and you discourage risk-taking in China,

you're setting the country back. I didn't understand the decisions that were being made, but, you know, I don't think it's all clear, but certainly in the short run, we've had, I think, the biggest 30-day move, you know, in many, many years in Chinese Internet, and that shows you both how oversold it was, but also at the encouragement some people are taking from these recent moves. Let's let's leave it with one last question. And I want to bring it back to Twitter before I let you go. You know, you can be active on Twitter. I certainly follow you and a lot of other people do.

And we mentioned Elon and me, you know, at least in your mind, maybe some of the negative impact that it's had on Tesla shareholders. I'm curious that, you know, a lot of players in this game right now regarding Twitter and some of those who are there, you know, helping Elon. I'm just wondering, you know, what do you make of this, this whole thing of what he's trying to do with Twitter and sort of the, I think it's fair to say, regardless of whether it's criticized or not, I think it's fair to say it's been somewhat haphazard, to say the least, the way that the early days have gone. You know, Scott, this is a place where you and I will probably have to agree to disagree. Set aside for a moment, you know, kind of the human element, which I think is incredibly

important here, how people are treated, because I don't know all the ins and outs. I know some of the stuff that I read or watch, but we know that even in the first instance, there was a lot of fake stuff going on in terms of people walking out of buildings and, you know, you know, and what was being reported. But what I will say is this, and where I have absolute confidence is this, and I said it in the letter, time to get fit. There is no doubt in my mind that Twitter will operate better with 25% of the employees than the company was operating at before. I said in that letter, it's a well-publicized secret in Silicon Valley that Google and Uber and Facebook and Twitter could operate better with a fraction of the employees.

This reset from the age of excess to what comes next, we need these companies to be efficient. We need to return these engineers into the pool of engineers that can build the next companies. Very few leaders. I agree with Reed Hastings, who said this yesterday. He said yesterday that there's no more leader, there's no leader with the creativity and courage that he has in business today. And so it's easy to take shots at some of the random things that he says on Twitter, you know, or some of his late night antics, right? I cut him slack on that. What I see as a business leader and the decisions he's making for that company,

I think Twitter will be a better, stronger company because of these decisions a year from now. He's yangling for a position on the board or something? I don't know. That's pretty glowing commentary. I mean, listen, I'm going to give it to you. I'm going to give it to you straight. I have not always, you know, understood the tactics of Elon. But what I understand is this, right?

The bloated entropy which exists in Silicon Valley and in technology and across corporate America today is not good for businesses. It's not good for capitalism. That's what happens when rates go to zero. There is no constraint on hiring, on growth, on investment. Constraint within businesses is a good thing. It's a good thing at Altimeter. It's a good thing at Twitter. It's a good thing at Meta. I'm happy to see it coming back and good riddance to zero rates and good riddance to this era where everything went. Right. And I think that Elon is going to he's going to demonstrate and give courage to a lot of other business leaders out here. Right. That you can operate more efficiently and a much better organization, just like systems design, right? Go back and look at what Steve Jobs did at Apple when he returned to Apple.

He threw all the products out the door. He got rid of tons of people. It was off the rails. He put it on the rails, system design and org design around simplicity and discipline. I would never say good riddance to you because I enjoy our conversations too much, but I do have to say goodbye as our time is up. And I really appreciate that conversation, Brad. Thanks for coming on. Great to see you again, Scott. Have a good one. All right. Yep. You be well. That's Brad Gerstner. He's the Altimeter founder and CEO. Let's get to our Twitter question of the day. Now, we want to know where can you be best positioned to capture a year end rally? If in fact there is one tech, financials, retail or energy, you can head to at CNBC overtime on Twitter. Cast your vote. We'll share the results later on in the hour. We do have a lot more ahead in overtime up next year.

Year end playbook. Just 20 days are left in 2022. 20 trade, 20 trading days. How should you play the rest of the year and beyond? Overtime is right back. All right, we're back in overtime. Stocks pulling back slightly today. Altimeter Capital's Brad Gerstner saying just moments ago, now's a good time to reposition for 2023. Joining us now to discuss is Gabriela Santos of J.P. Morgan Asset Management and Keith Lerner of Truist Wealth for their reactions. Great to have both of you with us. So as we try and position Gabriela to 2023, I mean, I thought it was pretty telling as he was talking about this massive re-rating that has taken place in certain parts of tech. I mean, all of tech. The Nasdaq's down 27% year to date. But there is a certain part of tech that remains no touch to many people in this market because of where rates are,

where the Fed still might go. Is that how you see it as well? I mean, we've seen a massive re-rating across asset classes, broadly speaking. So we're feeling, in general, much more optimistic about returns over the next 10, 15 years. In terms of tech specifically, I think one of the carryovers from this year is going to be the return to positive real rates and the end of acronym investing. So it's going back much more to us to overlaying in each sector we invest in both the quality and the value factor. So within tech, we see plenty of optimism, especially still for business tech related stocks where we have growth at a reasonable price. So we are seeing opportunities within semis, within software, within cyber, within cloud computing. It's just overlaying those quality and value factors going forward.

You know, Keith, on that note, I think maybe one of the biggest questions is, and it plays off of what Gershner was saying, determining what that reasonable price is, is the toughest question to answer right now for those types of stocks. Yeah, well, first, great to be with you. First, as far as the overall market, we actually would be fading this market strength. We think the upside is cap. And more specific to technology, you buy tech because earnings momentum is stronger than the market. That's not what's happening today percent premium relative to the overall market versus an average of about 7 percent over the last 10 years. The other thing, Scott, you have to remember, these stocks outperformed by so much over the last decade. So, yes, they're down a lot. Yes, there's been a reset, but we're still underweight the sector. And we do not think they're likely to be leadership next year. So we remain underweight. And it's not something where we see a lot of value today. One thing that you said to our producers, Gabriella, is that you say it's the best entry

point for long-term 60-40 investors since 2010, at a time where I think we're still questioning the viability of a 60-40 portfolio. And here's where I think we have to separate strategic versus tactical asset allocation. If we're thinking about long-term returns over those next 10, 15 years, we have higher rates, we have a better entry point for equity valuations. So just over the last 12 months, we've upgraded our expectations for long-term returns for a 60-40 from 4.3% to 7.2 percent. So strategically, you can get much better returns. But tactically speaking, that's where we would still not be too trigger happy. We would still be underweight risk going into the first quarter of the year where we still have some unanswered question around inflation rates and recession pricing. So, Keith, do you not think that stocks can put a good rally

together between now and the end of the year? Yesterday was just a fool's move. And today is a precursor of what lies ahead once we come back to reality, so to speak. Yeah, I mean, today is actually pretty reasonable. You pull back. There wasn't a lot of selling pressure. You had a big day yesterday. So I think the biggest positive for this market is position is still somewhat light. We all know we're in an area of positive seasonality. A lot of that happens towards the back half of the year. But for our investors, we're not looking just for the next month. We're looking for the next six to 12 months at minimum. And if we think recession risks are relatively high, which we do, if we think that earnings risk is pretty high, which

we do, and you look at the market multiple today, you're trading at a 17.6 forward earnings, the consensus earnings today. If you look back before the pandemic, the top end of the range was about 18 to 18 and a half. So we just think even if you use really optimistic numbers today, maybe the upside is 4,200, maybe really generously 4,300. That's 3% to 5% upside. We think the downside is much greater than that. So therefore, we would be at this know, at this point, overweight fixed income, more high quality fixed income. We do think there's opportunities in the equity market, but we think it's below the surface. The equated S&P tilted towards value. And we think just like this year, investors will continue to have to be more tactical, taking advantage of these big swings in both directions, which is likely to continue

next year. Yeah, I appreciate both of your understanding. I got to run. I'll make it up to you down the road. Gabriela, thank you for being here. Keith, thanks as well. We'll see you soon. Up next, the fate of the tech trade, the Nasdaq down nearly 30% this year. Is the sector due for a big turnaround in the new year? Hope you heard Brad Gerstner talking about what lies ahead for tech, even as he is a growth investor. We'll talk to another tech fund manager, Larry Cordisco. He joins us when we come back. The fate of the much talked about tech trade on the minds of many these days is those stocks.

They've struggled mightily this year. The Nasdaq still down 27 percent with one month to go. The big question is, can they stage a rebound into 2023? Let's ask Larry Cordisco. He is Osterweiss Capital Co-CIO. It's good to see you again. Welcome back. Thanks, Scott. Yeah, I mean, it's been a tough go, right? And I felt like, I don't know if you heard the conversation with Brad Gerstner and myself. He was pretty dour on the near term, I think, for technology. What are your thoughts? Yeah, I get the negative sentiment. And it's valid. We saw a big deceleration in tech earnings in the third

quarter, especially with the cloud vendors. And I think investors are really grappling with the idea of how much of this is cyclical and how much of it is and how deep is the cycle and how much of it is secular? Are we seeing all of a sudden maybe more competition with the cloud vendors? And frankly, we don't know the answer to those questions right now. But I heard your last interviews. I think some of the guests hit on some points that I would emphasize as well, which is not all tech's the same. If you look at the ones that maybe have, or ones that do have more attractive valuations, long term secular tailwinds and possibilities, potential to surprise next year.

I mean, there are places to find, I think, opportunities and values. But all that being said, if the economy really does do a hard landing on an absolute basis, I think there's I think there's going to be challenges across the board. I mean, Brad spoke of what I feel like is a real sea change, a real big picture view of a tremendous change that is taking place as we speak out in Silicon Valley. And it's going to, in fact, affect excuse me, investors like you, where he says Silicon Valley needs to recalibrate towards profitability. In other words, you better be profitable or your stocks are just going to do horribly. I couldn't agree with that more. And that's one of the reasons when you look at the names that we emphasize in our portfolios, they're all profitable. And in fact, I think one of the big surprises we could see in 2023 is this recognition, even amongst the very large tech companies that already have big margins, like a Google and the like, that they need to do better on their expense management and on their cost structures. This is one of the places we're looking for. In fact, the last time we spoke was

when Google reported they didn't do well. And one of the things that investors really zeroed in on was the margin pressure with that company. It wasn't so much that the top line was weak. It was, and that's partly the economy, or it's a big part of the economy. But it's the fact that there was such negative drop down onto the margins. That is absolutely a place that people are focused on. And you're seeing Amazon talking about cost cutting with its Alexa unit. You've obviously seen Facebook respond very well or respond very well to its cost actions. I think it's resonating in Silicon Valley. Now,

those are companies that can manage costs, already have margins. So if you're talking about the higher growth, low margin, no profit, low profit companies, I agree. I think you're going to continue to see a lot of challenges with those business models because they have to reinvest to grow. Yeah. And to be frank, I mean, I think we're talking about all the companies and not just those. Those are just the most egregious of the story. But we are going to be talking about everybody, no matter how prestigious your ticker symbol is. It is a new there's a new sheriff in town. Right. And that's just the way it is. Larry, I appreciate your time. We'll talk to you again soon. That's Larry Cordisco joining

us after the break. We've got some top picks for your portfolio. One market strategist telling us names he is betting on into the end of the year. Overtime's back after this. All right. As you know, stocks took a breather today following yesterday's big rally. Our next guest says don't chase any bear market bounces into year end. Joining us now is Troy Gajewski, chief market strategist at FS Investments. Why not? I mean, if I think stocks are going to rally for seasonality and maybe for other reasons, why shouldn't I? Why shouldn't I get while the getting's good? Hey, yeah. I mean, if you're a day trader or a short-term trader, more power to you. But the way it works typically for asset allocation is you have people that get sucked into bear markets that are making allocations into next year. And that could end in tears.

So the broader message there is the Fed is still draining liquidity, not only at the front end of the curve, but more importantly, with their balance sheet. Money supply is actually contracted. And so we'd be incredibly stunned if this wasn't the third bear market rally of this bear market. So just be very careful if you're going to do it. But to your point, Scott, if your time rises next four to six weeks, you could get continued strength into the end of the year. Yeah. Let's talk about some names that you like. Philip Morris, PM, why? Yeah, Philip Morris, so pretty straightforward. Our overall focus is cash flow is king. You know,

big dividend, obviously have some benefit from the Swedish match deal. You know, the Icos brand rollout is going rather well. And you have very stable margins that are very defensible. So we think that's a very defensive way to play this market cycle. It says to me when you pick Ferrari that you don't really like the auto market. You like the high-end consumer. And if you like anything, you'll just play that one. Is that anywhere close to target? A thousand percent, Scott. So we know we're headed for a recession. The most recession resilient consumer in the world is the uber rich, right? They're not hurt by inflation.

They're not hurt by downturns. Obviously, Ferrari's an incredibly powerful brand. They have tremendous order book visibility and tremendous free cash flow margins. We're going to leave it there. Troy, thank you. Troy Gajewski. Coming up, we're tracking the biggest stock movers in overtime today. Christina Partsenevelos is standing by with that, as usual. Hi, Christina. Hi, Scott. Nice tie, by the way.

Two tech names warning of a weaker Q4, and their stocks are plunging. And pull out that lipstick index. A new earnings report shows shoppers are still buying makeup. Details next. We're back to track the biggest movers in overtime. Christina Partsenevelos is back with that. Christina. Let's start with work management. Asana beating both on the earnings and revenue driven by enterprise customers and more customers spending over $100,000. But the stock, look at that, plunging almost 12% right now in the overtime, and that's because of weaker Q4 revenue guidance.

You got a similar story from chipmaker Marvell, the company posting a much weaker than expected Q4 guidance with earnings per share of 46 cents. That's what they're expecting. The street was expecting a little bit more than that. The CEO, Matt Murphy, blaming inventory reductions, especially from their storage customers. And some call it recession-proof, but shoppers keep spending on makeup, even as prices climb across all categories. Ulta Beauty, beating estimates and increasing its guidance after comparable same-store sales,

soared almost 15% year-over-year in Q3. And that's why you're seeing the stock climb over almost 2% higher and did hit a one-year high earlier today. Scott? All righty, Good stuff, Christina. Thank you. Still ahead, Santoli's last word.

It's next. All right, we got Santoli's last word now. Moving bond yields today caught your interest? It did. It seemed pretty extreme relative to the data. Now, granted, you got some weakness in that ISM index. You got a little bit of a downside to the data. Now, granted, you've got some weakness in that ISM index. You've got a little bit of a downside to present inflation, but really you saw some breakdown in the yield charts. Two-year going well below 4.3. So it at least causes you to ask the question,

is there something else that we're bracing for? This whole Blackstone putting up a gate and rationing cash for the real estate fund. I don't think it's anything necessarily systemic, certainly, or representative of some kind of real distress in the asset class. But Blackstone shares were down really big on heavy volumes. Six to nine percent throughout the day, I think the range was. So you can take that as, are we just kind of clenching up in advance of something that's not going to actually hit us or something else? Naturally, got a jobs number tomorrow. Maybe the idea that you get some downside pull on payrolls,

which, again, would be positive from the Fed policy standpoint based on the market's view of things. But it's delicate. You don't want to see things fall apart quickly in the economy. I mean, you could just simply have, you know, smart and wealthy investors seeing the writing on the wall in real estate and what and what's likely to still happen there. Let me ask you this, though, about the bond yields. Is that the thing that opens the door for the late year rally? Or is it in your view as well? You still got pain possibly predicted by that for the economy. I think lower yields, no more pressure from from yields going up and people ratcheting up their Fed hawkishness expectations is the prerequisite for a further rally in the market. So I don't think that that's the whole the whole

source of it. But again, if they can go too low, if they're going down for the wrong reasons, if there's a buying panic in treasuries. Now, the good part is credit's not not panicky at all. So corporate credit looks OK at the moment in general. So, again, it's one of those things. Just stay aware of it. It's a new month. There could be quirky flows. We don't really know if there's something bigger happening, but it was worth noting, especially at a time when everyone is completely fixated on the shape of the yield curve and and yields at an absolute level going down across the board. Falling bond yields are good until they're not. That's right.

The other story, too, is that the S&P getting above the 200-day moving average and being in an uptrend seemingly for the first time in a long time. It's at least threatening to break the downtrend. VIX below 20. Bad part is the meme stocks ran today. You don't like to see that. Yeah, all right. Good stuff. Thanks.

See you tomorrow. That's Mike Santoli with his last word. I'll see all of you as well. Fast Money's now.