Closing Bell - Closing Bell Overtime: The Hard Reality of a Soft Landing 06/22/22

Episode Date: June 22, 2022

Following yesterday’s rally, today’s action has many investors wondering if the market is finally showing signs of stabilizing. Ritholtz Wealth Management’s Josh Brown weighs in. Plus, shares of Altria got smoked today on reports that the FDA could be cracking down on Juul e-cigarettes in a big way. Top-ranked analyst at Cowen – Vivien Azer – breaks down the big money implications. And, the Fed’s bank stress test will be front and center tomorrow after the bell. Leslie Picker gives a rundown of what to watch.

Welcome to Overtime. I'm Mike Santoli in for Scott Wapner. You just heard the bells, but we're just getting started. We begin with our talk of the tape of hard realities of a soft landing. Jay Powell warning Congress today that steep rate hikes could tip the economy into a recession, but stocks held in there pretty much as investors have assumed as much already and were reassured that the federal do what it takes to bring down inflation. So given today's action on the back of yesterday's rally, is the market finally showing real signs of stabilization? Let's ask Josh Brown, co-founder and CEO of Ritholtz Wealth Management and a CNBC contributor. Josh, great to see. I'd love nothing more for you to come on and say, absolutely. The past two days tell us this market is on firmer footing. The hard times are over and we're ready to run. Guessing that's not the case, but what is your takeaway from some of the action today,

both in stocks, holding on to a 2.5% rally from yesterday, and then bond yields softening up, oil rolling over a bit? Well, I think what you just finished with is the most important thing. If the trauma that we've been through so far this year originated in the bond and commodity markets, then any reprieve we get from there should be the basis for a meaningful, at least a meaningful bounce. I don't want to say full recovery and give people the wrong idea, but think about it. We're now looking at WTI crude below the 50-day moving average. Nationally, gasoline prices have gone down for eight straight days.

That should be very helpful, not just for sentiment, but for real costs in the economy. And it's a nice reminder for people that nothing goes straight up or straight down. And then I would say the same thing with bond yields. We can still have a high inflationary environment where at some point, bond yields give us a little bit of a break. And that's what we're seeing. And I think both of those things combine with the extreme oversold readings that we had in the internals, which I know you're well versed in. And when you look at those things in concert, you say to yourself, OK, there's a lot of bad news. It's tough out there. It might be even getting worse.

But is there anyone left who hasn't recognized that? The Fed is now talking openly about the possibility of recession. Elon Musk and Cardi B, it's like, is there anyone left to find out that maybe we're going to have a recession? Probably not. So this is really where we are at this point. I don't think people should get too comfortable,

but I do think people should just accept this idea that they need to be open-minded. And being open-minded put you in a position yesterday and today to enjoy some reprieve. this idea that they need to be open minded and being open minded put you in a position yesterday and today to enjoy some reprieve. Yeah, no, it's a totally fair point. Obviously, we're burning off some of that oversold condition that you probably should. I mean, at this stage, I agree with you on that. And it's interesting because being open minded and kind of deferring to the fact that maybe the trend is what it is, but it's not going to be in a straight line I think we just have to flip over 180 degrees what was going on last year which is why is the market going up today well same reasons as yesterday mostly it's the ongoingness of the Goldilocks type scenario and the profit growth and today it's why is the market struggling or why is the market a bit stuck? Well, it's really the persistence of the same issues. And this time it's been be ready to sell

the rallies as opposed to be ready to buy the dips. What would you be looking for, though, for a sign that it wasn't just that, that not every single rally was suspect? Well, that's a great question. So if you are fundamentally oriented and you're trying to do asset allocation based on where prospective returns and prospective opportunity are coming from, then you're not so much worried about what has momentum at the moment. that I referenced has created real opportunities and not just like, you know, ephemerally speaking in hard data terms. Urien Timmer has a chart up today looking at profitable companies in the Russell 2000. So let's take the IWN ETF as a proxy. That's the Russell value, small caps, obviously very economically sensitive, of course, not a ton of large cap tech or work from home in there, but real companies with real earnings, real dividends, the valuation, first of all, the, the, the level price level has now blown through the pre pandemic period of time, which

probably doesn't make a ton of sense unless you think this economy is worse than the economy of March and April 2020. I don't think most people do. But valuation-wise, Mike, you can now buy those companies at a sub-10 PE. So for all the talk we had about how overvalued stocks were and how big of a bubble the Fed blew in valuations. There are huge swaths of the market where there are plenty of stocks that don't look anything like that environment that people had been describing. So I think you can look at that and say, all right, I get it. Tons of volatility, but tons of opportunity. I'm willing to eat a lot of the former in order to have a lot of the latter later on.

And the last thing I would say, you know, the stat that you keep hearing people say on CNBC and elsewhere about this being the worst start to a year since 1970. Well, what happened after that? Fast forward four quarters from that first half of 1970 and the S&P 500 was up 27%. So, and you go back and look at any first half, and I think we've had probably six or seven first half periods where stocks declined more than 20%. None of them, none of them were losers 12 months out if you bought during those periods of time. So that's why being open-minded, even if you accept that we're in a bear market recession, that's why it's so important. Yeah, I agree with that perspective,

although I will say we have to maybe asterisk the current environment because we hit a literal peak on January 3rd for a bull market and probably a valuation peak in a trailing base. So my point is the 1970, it didn't start at an all time high. I don't believe so. You know, you have these little wrinkles in there, but no,

I think the bottom line is mean reversion has become more your friend than your enemy. If you're a long term investor in the first six months of this year. Fair. I like that idea. And, you know, look, one other thing that's worth pointing out is that not all stocks bottom at the same time. And not all sectors bottom with the overall market. If only it were that simple. And there will be people who get that right and they sniff out the areas of the market that have bottomed first. And then there are people that say, you know what, I don't want to play that game. I'm willing to accept the fact that I buy a portfolio and, you know, it doesn't all look great at once.

But I'm investing for more than the next three weeks. So I'm OK if this is not the best opportunity out of all the opportunities that will have been created once we're able to look back. Yeah. Well, let's broaden the conversation a bit here with Solus Alternative Asset Management Stan Greenhouse and SoFi's Liz Young. Welcome to you both. Dan, let me let you take a shot at some of what we've been talking about here, just in terms of clearly reassurance, at least in a short term basis, that maybe the peak inflation story has some credence, transitions pretty quickly too. But what is it going to mean in terms of growth?

You think that recession is kind of a done deal? Yeah, I don't know that I would say done deal, at least not publicly. But I think certainly, I think the odds, as I've been arguing, are more likely in favor of a recession than not. And again, that speaks to the degree of tightening that the Federal Reserve is going to have to do now, having not done so in prior periods when perhaps they would have avoided some of the problems that they're going to have. And the result of that, unfortunately, is going to be, I think, more economic pain than

people at least six months ago anticipated, but to Josh's point, are increasingly coming around to the reality that that's probably what's going to happen. And so the next step, I guess, is assuming that recession has become a more likely or the more likely scenario, how much of that is already priced in? Yeah. And what's particularly interesting is, as everybody knows, the S&P 500 is down, call it 20, 25 percent from its highs. That's really unusual. If you look back throughout history, markets don't drop 20, 25 percent and then a recession happens. Usually when the recession happens, the market's down, call it

7, 8, 9, 10 percent or so, and then the bulk of the declines occur once the data starts worsening and the earnings start worsening. We've moved at a much more rapid clip here to price in the recession. So again, if you think historically the market drops, call it 25 or 30 percent, give or take, when there's a recession. We've done, to the extent that we're looking at averages here, the bulk of the pricing in already. For stocks, yeah. I mean, Liz, I guess as we sit here and try and tabulate all the different factors that go into determining the risk versus reward, where do you put most of the weight at this point in terms of how much more downside

we might have to live with, given what we know of the probabilities, and how much you'd want to be kind of looking at what's already taken the pain? Well, just to build off of Dan's point, so when you look at where we are now in the S&P, as he pointed out, 20, call it 20 to 23 percent down. I think at worst we were 23 percent down. I think we probably chop around in that region, somewhere between 20 and 30 percent, until and unless we find out that we're in a recession. Usually, recessionary pullbacks are a little bit deeper than this. But we've done a lot of work already. Unfortunately, we don't have enough information, probably for the next month still,

or a little bit over a month, to find out whether or not we can actually come out of this and have some positivity on the other side. The economy catches up last, right? So we're finally seeing weakness in the economy. We still have a couple of things that need to roll over. That's not going to be good news for the market. If the labor market rolls over, the stock market isn't going to like it. So when some of that data rolls in, I think that there is further downside possibility. And that's why for this next couple of months, I'm telling people it's OK to keep a larger than usual cash position. If you're going to drip into the market, you can do it. But close your eyes for a few weeks at least. And, you know, Liz, in addition to saying the Fed is going to have to

tighten financial conditions, they have to play catch up. They have to, you know, suppress demand on some level. We also have the sort of glib line out there, which is not untrue, which is the Fed will move until something breaks in the system. Maybe that's true. That has happened in the past at times. Is crypto potentially a thing that's breaking right now that the rest of us- in- you know in in TradFi traditional finance have to worry about yet.

I love that you just use the TradFi. Yeah I think yes I think. On some level yeah. I love it I love it. So crypto has done nothing for sentiment right it has it certainly hasn't helped sentiment over this period. And what's happened this year, a lot of this year in crypto is that

it's been so correlated with risk assets. So even those investors that were anti-traditional finance are discouraged right now because of what's going on in crypto. I don't think crypto is going to affect what the Fed does. And as we've heard them say over and over and over again, inflation is still public enemy number one. They're going to keep tightening. Even if we get a negative Q2 GDP print, they're probably going to keep tightening because we have to fight it. If we don't fight inflation, we're going into a deeper and longer recession anyway. So they are going to stay on this horse no matter what happens in crypto, no matter what happens if we go down more than 30 percent in the S&P. It would take something serious breaking in the economy like the labor market to really slow them down. You know, Josh, it's interesting because last week, a lot of the immediate takeaway from what

Jay Powell said in the press conference and what the Fed did raising three quarters of a percentage point was, well, it looks like they've decided their mandate is to get gasoline prices down. And that's something that they don't really have the tools to do, as Powell acknowledged to Congress today. So where does that leave us? I mean, it seems almost as if they're moving in the right direction on rates that they feel they have to go to. At the same time, they hope they just simply get lucky on the headline inflation side. Well, what they have to count on is that the comps get easier and easier, meaning the further we go, the less shocking the inflation will be, even if it remains high. But to your point, short of building new refinery assets or solving what's going on in Eastern Europe, this is not really what the Fed is able to do.

They can try to do that via demand destruction, but I think the consumer has enough money to ride it out. And the idea that people want to travel this summer is going to win out in that battle. So there are a lot of forces that the Fed is just an observer of, which is why they go back to core PCE and try to focus on the stuff they can control. I think the bigger picture, though, for investors right now is once again just this idea that yes okay things are bad we all know they're bad everyone's miserable the sentiment surveys are in the dumps lots of stocks have been trashed then what you have to always be asking yourself then what just like you don't get any credit in these stocks that have now lost all of the gains in market cap from the pandemic all that new business and adoption digitally blah blah blah and the stocks don't care because that

already happened it's about what's going to happen you have to start thinking that way and you have to see beyond the world of eight and nine percent inflation prints because that ain't gonna go on forever josh the one thing i would add to what you were saying, and to some degree the problem I would have with what you're saying with respect to the headline and gasoline prices, is even if you look at the core, getting the eggs from the farm to the store, getting the oil from X to Y, the transportation costs are reflective of the tightness in the labor market and in the cost of gasoline and transportation costs. So even if you X out the direct inputs to headline inflation in the form of gasoline and oil prices, they still filter down through the core. And so there is a larger problem that we're all talking about here with respect to the Fed and demand and the likelihood that gasoline prices go down.

They can't really address that. But to some degree, even though they can't address it, it's still affecting the core that they think they can address. So they're in this sort of catch-22, and I'm not really sure how they get out of it. Well, by the way, KB Home results are out. It looks like a beat on the top and the bottom line. The stock looks like it has nudged higher just a little bit. We'll have Diana Olick with more details on that in a minute. But to your point, Dan, I mean, there's no doubt about it. You can you can slice it different ways. But Powell himself said this is not a time for particularly nuanced discussions of inflation. He's basically saying you got to swing at the headline number until that starts

cooperating. Listen, when they say that their commitment to combating inflation is unconditional, it sort of plays into what Liz was getting at. And this is the most important part for investors. They have to get inflation down. That's largely their only mandate. They've effectively said now that's their sole goal. Sort of akin to what happened in the 70s, the question becomes, to Liz's point, when the unemployment rate goes up, and it will, when the labor market weakens, and it will, and when the economy weakens further, and it will, how do they react to that? There is this hope in markets, I think, that they, not an unreasonable one, that they waver somewhat, and that perhaps gives a lift. But if inflation bounces thereafter because they haven't done enough to snuff it out now,

the second turn, the second bite of the apple is going to be really, really bad. And so I think to the point about further downside in stocks is if they prove themselves committed to bringing inflation down to the 2% level, let's say, it implies, although not guarantees, further downside for equity and for credit. Liz, I think, sorry guys, I think part of the solution, but it's not going to happen this year, is you start hearing noises about how 2% is really an artificial construct anyway. And maybe in the new world, the post-pandemic world, 3% is a little bit more of an appropriate target. And that's actually better for the economy because X, Y, and Z. They'll do that maybe next summer, Jackson Hole. But that's where the goalposts are going to be headed.

Well, look, before we had the inflation surge, the Fed went to pains to modify its inflation target to say 2 percent is not a ceiling. And so they kind of gave themselves the upside leeway at the exact moment they weren't going to need much of it necessarily. But, Liz, I did want to get to something, you know, a little more knitted together here, which is agreed. Don't fight the Fed and don't fight the tape are both telling you stay cautious. You said it's OK to hold is agreed. Don't fight the Fed and don't fight the tape are both telling you stay cautious. You said it's OK to hold more cash. What would you be looking for to line up to say, OK, you kind of bring some of that cash down, be opportunistic, because you know what? It's probably not going to feel great when the moment is right for that. In other words,

it's not going to be a complete clear sailing ahead of us. Right, because we know the market bottoms before the economy does, right? So before we have all of the data that tells us maybe the labor market is weakening, the market will probably already have bounced. So what I would be looking for, and this is because I don't think that tech leads us in the next leg of this or leads us out of this. It doesn't mean that they're not going to produce results, but I don't think that it's the leader anymore. I would be looking at things like financials, the stuff that's gotten really beaten up and maybe didn't deserve to be as beaten up, and some of the consumer discretionary stocks that I don't think have seen all the pain yet. We still probably see downward revisions in earnings through the rest of the year, and consumer discretionary gets hit harder. But I would pick some of those up as really good bargains when they do get hit harder. And I would be looking at small caps exactly to Josh's point

earlier in the show. Small caps have really gotten hit hard here. And again, think about things that have hurt large cap companies like the dollar. Small caps are insulated from that. So they're at levels that are back in 2008, 2009. They're a bargain at these levels. All right. We will leave it there, guys. Liz, Dan, Josh, thanks very much. Appreciate the conversation. We have more now on KB's quarter.

Diana Olick has been digging through the numbers. Hi, Diana. Hey, Mike. Yeah, this report, a nice beat, of course, on top and bottom line, but it's a lot less severe on the commentary than we saw from Lenar yesterday. Yesterday, Lenar's chairman was saying that buyers were pausing and reconsidering. But the CEO of KB Home today in the release says sales rates are monitoring from the exceptional levels the industry has experienced as buyers process the impact of higher mortgage interest rates. But then it talks about the KB Home's built to order flexibility, which is you can choose what's in your home and how expensive it's going to be. So you can really moderate the pricing on that and really just allowing consumers to get what they want for the lower price that

they might want it for. So, again, not as severe as we saw from Lenar. KB is a slightly lower price model than Lenar's are. So you might see more demand in that area. But remember, the strong beat again was for the previous quarter when mortgage rates had not gotten quite to the level that we're seeing now. So interesting that he's not quite as dire as Stuart Miller was yesterday. Yeah, very good call, Diana. Thanks very much. Appreciate that. We do see the stock reacting likewise.

Let's get to our Twitter question of the day. On the back of KB Home's numbers, we want to know, is it time to bet on a rebound for the builders? Head to at CNBC overtime to weigh in. We'll bring you the results later in the show. Up next, Wall Street's report card, Goldman's Tony Pasquarello on how far the market has come in processing the Fed's outlook. He joins us exclusively next. And later, shares of Altria getting smoked. New reports that the FDA could ban Juul e-cigarettes. The top analyst breaks down what is at stake for the industry. Overtime, we'll be right back. More talk of a potential recession on the horizon, this time from the Fed chair himself,

Powell telling congressional leaders today that with more rate hikes coming, achieving a soft landing without a recession has become significantly more challenging. So how far along are markets in processing the Fed's outlook? Here with me now to discuss is Tony Pasquarello, Goldman Sachs head of hedge fund coverage. Great to see you, Tony. Thanks, Mike. Great to be with you. We've known for a while that this sort of path to the hoped-for soft landing, I've been saying, it's narrow, it's bumpy, it was no guarantee,

maybe gotten a little tougher in the last few weeks. How are markets situated relative to that outlook? Sure. So I think if you take a quick step back from some of the noise, I think the tough setup for the market is the Fed is tightening into a slowdown. That's kind of the hard truth of the hand we're playing right now. And they're not, of course, they're not doing it for the sake of form. They have an inflation problem. They're taking the fight to inflation via tighter financial conditions. So in a way, what we're seeing in the markets is what needs

to happen. The further you go along that path, the tighter financial conditions. So in a way, what we're seeing in the markets is what needs to happen. The further you go along that path, the tighter financial conditions get, the more you worry about the prospect of a hard landing. So we're not there as a house yet. Jan Hatzis, our U.S. economics team, over the weekend, though, they said, look, the probability of a recession over the next one year is not 15%, it's 30%.

Over the next two years, it's not 35 percent. It's 48 percent. And you can see whether it's some of the sell off in commodities or the fact that break even inflation rates stop going up. The markets more comprehensively have started to wring their hands about, again, the prospect of a hard landing. Is it not a little bit of a comfort that the markets are in those ways trying to say that that maybe inflation is less the thing to worry about right now? And then I guess it would require a leap to then say maybe the Fed's a little closer than we had feared to where it has to go. I think that's right. I think the hard part for the market, though, is the moment the Fed basically says we're done or what's priced into the strip is as far as we'll go,

the minute they let off, the market's going to rally back and will ease financial conditions into doing. And that's kind of the cat and mouse game between the Fed and financial conditions, the Fed and financial markets. Powell today did, of course, give acknowledgement to the fact that, yes, financial conditions have tightened quite a bit and the markets have reached a certain point where price is in their outlook. But he said, but we have to deliver it in order, I guess, to retain credibility and really to have the effect that they're looking for, which means time. I mean, more than anything. Right. I mean, you could say the market's down 24 percent at the lows. You know, credit spreads have done what they've done. Hedge fund positioning.

I mean, you know, this is as well as anybody really defensive right now. So you could build a bullish case, but it's a matter of how long do we have to wait to get clarity. You nailed it. The markets have done a lot of work. Just witness to your point, S&P starts the year in a 22 PE in the 97th percentile valuation. We're now down on a 16, not yet quite at the long-term average, but we've done a lot of work. Positioning, there's no doubt about it. If you observe our prime brokerage data, which is a pretty good teller of truth about where hedge funds are, gross exposure, net exposure, as low as they've been in five years. Last week, record selling through our franchise. The front end has done a lot of work. If we were doing this interview at the start of June 2021, kind of before Powell made his initial pivot,

the two-year note yielded 15 basis points. It traded nearly three and a half last week. So that is the good news. I think the challenge, though, again, is, to your point, the Fed funds rate, as we speak, is 1.50 percent. Headline CPI is 8.6 percent. And so the Fed still has to deliver. And I think it's in the doing where the markets are just going to continue to feel that that pinch from the Fed. Does it feel like, let's say, the post 2000 period? I mean, in some respects, I'm sure it does. But is there a way to fit this into any of the analogous periods that would be relevant and tell us what might be happening next?

Like I think like any market, I always look for analogs to help just have kind of some some signposts for where we may be headed. I think the tough thing about this setup is it was preceded by five trillion dollars of QE, five trillion dollars of extra fiscal spending. The Fed did things they've never done before in the covid era. Corporate bond QE, this notion of average inflation target. And so it's a policy exit without precedent. So I think it's hard to reach. If I and my 23-year market, 23 years in the market, were to reference any point, it probably would be 2000. Now, the setup was different. I think the average tech PE in March of 2000 was, you know, call it 200. NASDAQ had rallied 108% in the year that preceded that. And

so it's different. But I do think there's common elements. And I've mentioned this before. There was a liquidity surge ahead of Y2K. Looks quaint by comparison to the liquidity surge to fight COVID. But you did, I think, kind of pull a bunch of demand forward. There's still some reckoning for that in single stock land, in tech land. And you have, I think, elements of in Q121, where there are elements of a financial market bonanza, a financial condition bonanza, there were. And so we're kind of now on the other side of the coin and we're working off some of that overvaluation. I know you have focused, you mentioned where hedge funds are based on your window on that.

But I know you've also kept an eye on what retail is up to, not just in terms of the trading activity, which, look, last year kind of mirrored some of the 99 stuff, too. But in terms of their kind of, you know, willingness to stay in or keep equity exposures high, where do we stand with that? Is that a shoe that must drop? That wedge between the risk and positioning of professionals and households remain about as wide as I can remember. So, again, the hedge fund community, very de-risked, very de-leveraged. Households, I guess the way I think about it is in the summer of 2020, they kind of came alive in a way that they were not alive circa 2009 through 2019. That was a very kind of unromanticized bull market. They came alive in the COVID summer. From that summer

through Q1 of this year, they put one point.3 trillion to work in just traditional equity mutual funds and ETFs. Before you get into the other kind of the rock and roll around SPACs or cannabis or short-dated call options, celebrity SPACs, I don't know. Traditional fund flow, $1.3 trillion. We started to see them make some sales in April, traditional tax seasonals. They made some sales in May, which tax seasonals. They made some sales in May, which I thought was probably the turning point. But the reality is they've come back to the bid. And so they just have it back down. And on any given day, they are still the biggest sponsor in the market. It has seemed to me that retail, based on surveys and their positioning, they hate

bonds more than they fear stocks, at least for now. I wonder if that's going to change. I mean, if yields kind of calm down a little bit and things like that, and all of a sudden it can seem viable to rotate into fixed income? I think that's right, and it's been a horrible year for bonds as well. It's, I think, one of the worst starts on record for the ag index. I do wonder at some point, and maybe there was moments of this last week where you push nominal yields high enough, particularly in the front end, where people say, you know what, I'll buy that three-year note.

I'll clip that coupon, a 3.42% yield to maturities. Not terrible. Again, purely in a nominal context. Absolutely. So I think there's probably some of that that made its way into the market last week in fixed income. Yeah, well, we'll see if that continues. Tony, great to talk to you. Thanks very much. All right. Tony Pasquarello there from Goldman. Time for a CNBC News Update with Contessa Brewer. Hi, Contessa. Hi there, Mike. And good afternoon, everybody. From the news on

CNBC, here's what's happening. President Biden calling on Congress to enact a federal gas tax holiday. The goal, he says, is for Americans to save money at the pump this summer. By suspending the 18-cent gas tax, federal gas tax, for the next 90 days, we can bring down the price of gas and give families just a little bit of relief. I call on the companies to pass this along every penny of this 18-cent reduction to the consumers.

There's no time now for profiteering. NFL Commissioner Roger Goodell tells Congress he has no authority to remove Daniel Snyder as the owner of the Washington Commanders. Goodell testified in front of the House Committee on Oversight and Reform as that committee looks into accusations of harassment of women by team executives under Snyder. Committee Chair Carolyn Maloney of New York says she plans to issue a subpoena for Snyder, who had declined to testify before that panel. And AAA predicts nearly 48 million people will travel this Fourth of July. That's an increase of more than three and a half percent over last year and back in line with pre-pandemic levels.

Tonight on the news, a look at the climbing number of airline cancellations and what that means for summer travel. Join Shepard Smith tonight right after Jim Cramer at 7 p.m. Eastern. Mike, I send it back to you. All right, Contessa, thank you very much. Up next, cracking down. The FDA reportedly planning to ban Juul e-cigarettes. Altria shares slipping on the news. Top-ranked analyst is breaking down the FDA reportedly planning to ban Juul e-cigarettes. Altria shares slipping on the news. Top ranked analyst is breaking down the big money implications next.

And don't forget, you can catch us on the go by following the Closing Bell podcast on your favorite podcast app. Overtime, we'll be right back. Shares of Altria getting smoked today. The Wall Street Journal reporting the FDA is preparing an outright ban of Juul e-cigarettes. Altria has a 35% stake in Juul. Joining us now for more is Vivian Azar, senior research analyst at Cowan & Company. She covers Altria with a market-performed rating and a $56 price target. Vivian, it's great to have you here.

Please just kind of place all this in context. Obviously, the market had a pretty harsh reaction, down 9%, even though it's not really impacting the majority of Altria's business. So how would you sort it out for us? Yeah, absolutely. Thanks for having me. So just by way of background, Altria invested $12.8 billion in December of 2018 to take a 35% stake in Juul. At the time, Juul was proving to be incredibly disruptive to the U.S. cigarette market, which comprises 85% of Altria's profits. While they did have their own

e-cigarettes in the marketplace, they were not able to effectively compete against Juul, hence the investment. Fast forward to 2019, the youth vaping epidemic became incredibly problematic. Juul did try to be proactive. They pulled their characterizing flavors out of the marketplace before the FDA ultimately banned them. That's stuff like mango and cool cucumber. But then as of September of 2020, all of the e-cigarette manufacturers that were selling products in the U.S. marketplace at that point had to submit very comprehensive PMTA applications to the FDA. So the FDA has spent the better part of two years reviewing millions of applications in e-cigarettes. They've gone through about 99% of them, and they left the largest players to the end. We have heard from the FDA on a couple of Juul's key competitors.

BAT has received some approvals. Japan Tobacco with their Logic brand has seen some approvals. Enjoy has seen some approvals. And Imperial Brands actually got a marketing denial order. And that's what the Wall Street Journal article is talking about today, that Juul would receive a marketing denial order for their applications with the FDA to remain in the marketplace. Now, from an investor's perspective, with the stock where it is right now, you know, trading cheaply as it typically does, eight and a half times forward earnings or something like that, almost a 9% dividend yield. Does it make sense to have this reaction

to this news? I mean, assuming that this is not going to be a particularly viable business even going forward. So Altria isn't recognizing any equity income from Juul. So if you think about the risk to consensus estimates, there really shouldn't be any. We weren't factoring anything from Juul in our 2022 or 2023 estimates. But the fundamental picture is a little bit more challenging. So Altria had access to a couple of different pieces of reduced risk technology. One was Juul via the 35% stake. The other was access to Philip Morris International's Icos heat-not-burn product. PMI has subsequently announced that they

intend to acquire Swedish Match, and the market believes that Altria would lose access to that heat-not-burn technology. And so the reason we think that the stock has responded so negatively to this news is not the immediate financial implications, but really the position that it puts Altria in, in terms of diversifying away from their reliance on combustible cigarettes in the face of mounting regulatory policy priorities that the FDA has laid out, including the announcement last night to move forward on very low nicotine cigarettes. Yes, obviously, that's another entire piece of it. I guess, though, bottom line, where the stock has come to now, it seems to leave a fair bit of upside to your $56 target.

So do you think the risk reward is okay on Altria, or do you prefer another tobacco name? We prefer Philip Morris International. That is our top pick in tobacco, and it's actually the only global cigarette manufacturer that we're recommending. Their reduced-risk products, Icos, are available in 66 countries around the world and account for 30% of their revenues. The company aspires to generate 50% of sales from reduced risk products, which puts them in much better stead from an ESG perspective than any other tobacco company that we cover. Vivian, thank you very much. I appreciate it. Vivian Azar from Cowen. Still to come, a key semi-stock for your portfolio.

One money manager is betting big on a chip name that's down more than 40% this year. We'll bring you the bull case in our two-minute drill. But first, we're watching all the biggest movers in overtime. Christina Partsenevelis, what's on deck? Inflation, inflation, inflation. One retailer plans its fifth price hike in the last 16 months. I'll have that name and obviously much more after this break. We are tracking the biggest movers in the OT. Christina Partsenevel is here with that. Christina, what's moving? I'm going to start with shares of office furniture company Steelcase.

Moving in the OT after posting a net loss of $11.4 million, which sounds like a lot for the first quarter of 2023, but it is an improvement year over year. So you can see the shares are climbing 4%. The company sees Q2 adjusted earnings per share coming in between $0.11 and $0.15, which is lower than fact set estimates. And the reason for that is the CFO warning about inflation. And he said, quote, we responded by announcing our fifth price increase over the past 60 months to be effective in July. Switching gears, the Nasdaq, that's the actual stock. The Nasdaq held its annual

shareholder meeting and shareholders approved a proposal to increase the number of shares of common stock. And so that would be a proposal for a three for one stock split. Nasdaq shares right now are flat in the OT. And then we've got Ivan Trust Properties Corporation. They're on the move right now. The company, which owns grocery chains and neighborhood strip malls, is going to be added to the Russell 2000 and Russell 3000 indices. Right now it's unchanged. The stock is only down, and I say this only because of how many drops we've had,

it's only down 3.8% year to date. Mike? Yeah, that's a pretty serious outperformance for a read. Isn't that kind of sad at this point where I'm looking for, I'm grabbing for straws here. Yeah, down a little is the new up. All right, Christina, thanks a lot. Thanks. Still ahead, a moment of truth for the banks. Stress test results hitting tomorrow here in Overtime, a rundown of what every investor needs to watch.

Overtime will be right back. We're back in overtime. Energy stocks flipping again today. The XLE ETF falling another 4%. That ETF's top holding, Exxon, also under pressure. And tonight in an all-new CNBC documentary, David Faber takes an exclusive look inside ExxonMobil. Unprecedented access to executives, workers, and facilities,

including one of Exxon's oil vessels off the coast of Guyana. What is actually happening with all of this equipment? We bring up a co-mingled stream from the reservoir. And within that, we essentially separate the oil to put onto the tankers to sell around the world. We separate the gas that we recompress and inject in their reservoir.

At 340 meters long, roughly the length of three U.S. football fields, the FPSO has the capacity to hold up to 2 million barrels of oil, which it offloads to tankers for transport. At the moment, we're about half production capacity of the facility, and we've got more wells to bring on and get us up to full production. What is full production capacity for this facility? Yeah, so we usually reference about 220 KBD, and that's usually an average for the year.

But on any given day, we can go as high as 230. And just depending on some of the conditions, we can actually even go a little higher than that. 230,000 barrels a day. Correct. Don't miss ExxonMobil at the Crossroads tonight at 8 p.m. Eastern time. Up next, trading the market swings. One money manager breaks down his strategy in our two-minute drill. And we have a big interview on deck tonight.

Don't miss Jim Cramer's sit-down with Meta CEO Mark Zuckerberg. That is tonight on Mad Money, 6 p.m. Eastern Time. Overtime, we'll be right back. It's time for the two minute drill. Joining us now is NFJ Investment Group senior portfolio manager Burns McKinney. Burns, good to see you. First of all, give us your take on just the action here near term? You know, the big conversation is it seems as if the market maybe is easing off the panic about inflation, whether it can be tamed toward the concerns about growth. And, you know, we've down 24 percent, discounted some of that. Where are we in that

process? Well, despite the fact that the central bank did get a little bit behind the curve or a bit behind the curve in fighting inflation, one thing that Powell and the team did do a good job and have done a good job with is just being very transparent. There haven't been a lot of market surprises. And so when they speak like they did today, you haven't seen a lot of shocks. And one of the things that I think the market really welcomed today was just the concept that the Fed is going to continue to be data dependent going forward. And, you know, really, we're living in a market in which it's really very binary based on what you see on the coming inflation data. You know, when the CPI comes out, if that comes out a little bit

larger than expected, then you can expect the markets to assume that the Fed's going to have to be more aggressive and they might actually pull back. But any signs at all that maybe inflation might be peaking and such as such, the Fed could maybe move a little more slowly would probably be seen as very positive for equities. Yeah, that seems to be the sort of tennis match we're watching back and forth. In terms of individual names, I mean, the average stock in the S&P has had more than a 30 percent drop at this point. I know you're finding some that look like buys right now. Talk about Lamb Research. Lamb Research, for those who aren't as familiar with it, it's a semi-capital equipment company.

They have a 50 percent market share in wafer etching. And one of the things that we've seen in recent months is there have been shortages of chips, which means that the chip makers are going to have to invest in new capacity. LAM is one of the winners there. It trades at a discount to its peers. One of the things we really like is that they've raised the dividend by 27 percent per year for the last five years. That's a great way to keep up with inflation. And likewise, because these semi-cap equipment companies tend to be a bit cyclical, you want a strong balance sheet. And Lamb has more cash than debt on the balance sheet. And so for a name that they're growing earnings, they're growing the dividend, and they have a rock solid financial condition,

getting that at trading at around 11 times earnings, it's trading really below average for S&P stocks. Yeah. And 40 percent off its off its high. Seems like maybe some value surfacing there burns. We've got to leave it there. Appreciate the time today. Thank you. Thanks for having me. All right. Up next, financials in focus as investors await tomorrow's stress test results. We'll break down what needs to be on your radar when overtime returns. To the results of our Twitter question, we asked, is it time to bet on a rebound for the builders, the home builders, that is nearly 18 of you said yes, but 82 percent no. So a big majority of those out there saying not to buy the 40 percent drop in the home builders. The Fed set to release the results of its annual bank stress test tomorrow in overtime. Leslie Picker here with

a rundown of what to watch. Leslie, as stress is now on the radar again. Yeah, did stress ever leave the radar, I guess, is the question, Mike, since last year. But the whole point of stress tests is to see how banks would perform in a severe economic downturn. And of course, these results come as seemingly everyone from bank executives to Fed officials to investors is sizing up the probability of a recession and what that might look like. Tomorrow, we'll learn about something called a stress test capital buffer for each of the largest banks. Essentially, that's a measure of financial stability. And that buffer is the regulatory determinant for how much capital banks can return to shareholders

through dividends and buybacks, something we'll learn next Monday afternoon, early evening. The test no longer incorporates that pass-fail result that we've seen in years past. Under the severely adverse scenario outlined by the Fed this year, the unemployment rate rises to 10% with a sharp decline in real GDP and a large slump in inflation down to an annual rate of about one and a quarter by the third quarter of this year. A big change, of course,

from the current environment, Mike. Right, exactly. So that's a tough scenario, although, you know, we also have Jamie Dimon saying he's already preparing for a hurricane, right? Yeah, no, that's exactly right. And you've seen kind of a divergence among bank executives about what they think about the recession. You've got Dimon saying he's preparing for a hurricane. But then on the other hand, you have Gorman of Morgan Stanley saying basically he thinks he's raised his odds of a recession from 30 to 50 percent, but essentially says it's kind of a coin toss at this point in time. Other executives have been a little bit more muted about their concerns as well.

But it'll be interesting to see what the results suggest in terms of this severe economic scenario. Yeah, and obviously everyone attentive to it about the capital return question. Leslie, appreciate it. We'll watch for that tomorrow. And that does it for Overtime today. Fast Money begins right now.