Closing Bell - Closing Bell Overtime: The Market’s Big Pivot 06/23/22

Episode Date: June 23, 2022

Investors have shifted their focus away from inflation panic to growth fears. Stocks saw gains in today’s session but Avery Sheffield of Vantage Rock at Rockefeller Capital Management still isn’t calling for an all-clear from the sell-off. She explains why. Plus, the Fed released the results of its annual stress test. David Ellison of Hennessy Funds and Hightower’s Stephanie Link give instant analysis. And, Intel issued a big warning and said its new Ohio factory could be delayed if Congress doesn’t move quickly on a key piece of legislation. Top chip analyst at Bernstein’s Stacy Rasgon breaks down the big money implications.

Welcome to Overtime. I'm Mike Santoli in for Scott Wapner. You just heard the bells, but we're just getting started. And we begin with our talk of the tape, the big pivot, investors shifting their focus away from inflation panic to growth fears. The market is navigating it reasonably well, certainly at least today. Stocks posting gains on the day, but our next guest isn't calling it all clear from the recent sell-off just yet. Joining me here at Post 9 is Avery Sheffield, co-founder and CIO of Vantage Rock at Rockefeller Capital Management. Avery, good to see you. Good to see you, too. We've known for all year the market's been kind of fighting a two-front war, inflation on one side, wobbly growth on the other. It seems like slower growth maybe today seems like the solution for the inflation problem on some level. But how would you read it? Where would you where do you think the pendulum swings next? Yes. Well, I mean, I think it is

possible that we have seen peak inflation. I mean, with commodities coming off energy, but not just energy, the metal stocks. Also, you have the food-related commodities coming off. That's likely to be positive for the rest of the economy. You also have seen in trucking and supply chain some loosening. Many companies are still under contracts, but some signs of inflation to a beat next year. But they're—so I think that—and that's why rates have come down a bit, and that's net positive versus where we were, you we were a few weeks ago, certainly a month ago. The question here is really how much inflation would potentially moderate?

And does that still leave us with a higher discount rate than we've had before? And a little bit more pressure on the economy rate than we've had before and a little bit more pressure on the economy than maybe we've had in the past. And we have this sort of timing issue that becomes a little bit awkward or uncertain in which if the market's gaining confidence that it's in peak inflation, the Fed's not taking that for granted. So the Fed will keep trying to lift rates pretty aggressively. Powell said as much today.

And then in the meantime, we don't know exactly how much of a growth sacrifice we're going to have to experience. So how does that translate into what you would want to be doing with your portfolio? Right. Certainly. Well, there's like a short term navigate through and then there's what you think will happen longer term. So short term, look, we're seeing a rally of a growth-driven rally, a rally of names that are considered to be more stable, but also a lot of names that have been growthy but actually still don't have good business models. So those types of names, like they might work, they might work for a while, but I would still be very cautious on some names that have run a lot today and recently because

they just don't have underlying strong fundamentals. However, on the long side, what is beneficial is, again, if interest rates have peaked, I don't know that they're peaked, but if they're coming down a bit, if inflation's a little bit better, we have much lower valuations in a lot of more cyclical companies that are actually really cheap on even 2019 earnings. They're pricing in, I think, a recession, maybe not a dramatic recession, but enough of a recession that we're kind of incrementally more positive in those areas. Do you think that we're in this mode where it looks like they're getting cheap enough, but there's going to be time? I mean, I just wonder

about the motivation for having any buying urgency to play those themes. Absolutely. Look, and I think, I mean, they say that the hardest thing for a bull in a bull market is, like, not to be buying. And the hardest thing for a bear in a bear market is not to be buying. I'm probably more in that bear camp of, like, they think they look cheap. What's going to happen to the earnings? So I think, look, you certainly could be too early in buying stocks. But I would recommend to investors start at least looking at these types of names.

I mean, we run long and short. So we have the ability to, you know, if we get the timing off but we pair well enough, we can navigate through. But I would say also while it might be early and so I caution someone, you caution someone to dive in too much. You do have companies out there that we think are still also misunderstood about how they might navigate through a recession, and that's more interesting to us on the long side. I would also say something that I think is something that really is not well understood or we think about, or we've been thinking about a lot, is we think the markets, the economy has had a meaningful influence from stocks that are, we would call, growth at an unreasonable price over the past five to 10 years. And these companies have grown just driving revenue without profitability. That has been a deflationary force in the economy that we think

is underappreciated. Many of those stocks have come down. They might be rallying today, but many of those stocks have come down, and those management teams are starting to think about profitability. If that continues, they are likely to be raising prices and cutting costs. And that, on the flip side, helps the companies that they've been trying to displace with deflationary pricing to do better moving forward. And so those types of companies that are incumbents that have maybe been disrupted by really deflationary, can you say irrational competitors, we think are potentially more interesting.

No longer subsidizing consumers with venture capital money just to get customers. We're going to put that on hold just for now. FedEx earnings are out. Frank Holland has those numbers. Hi, Frank. Just about 3%. After a miss on the top line, but a beat on the bottom line, EPS 1 cents above estimates. Looking further into the numbers,

the company also providing strong guidance for the full year. Guidance was about $22.50. The estimates were for $20.50 to $21.50, so just over that guidance. Also, some commentary here. The company's saying global volume softness driven by COVID lockdowns, geopolitical uncertainty, and slower economic growth partially offset the year-over-year improvement. We're going to continue to look into these numbers. But again, a miss on the top line, a beat on the bottom line by one penny. Guidance above estimates for the full year.

Back over to you. All right, Frank, thank you. Yeah, stocks up 3%. Actually has sort of come to life very recently, FedEx has, up about 18% off the lows before that move. Let's expand the conversation here with CNBC contributors Joe Terranova of Virtus Investment Partners and Jason Snipe of Odyssey Capital Advisors. Joe, just to have a quick thought here on FedEx or the FedExes of the world, which obviously are global cyclicals that have been beat up a little bit and maybe look cheap. And we'll see what they tell us about the quarter. Well, our good friend Josh Brown is certainly happy right now. That's for sure. I

know he bought it recently. But Mike, this move jumps it above the 200-day moving average. Within the earnings report, they're talking about buying back $1.5 billion worth of stock in the first half of 2023. So the guidance is the key here. And this is certainly a report that's welcomed, given the climate of what the earnings reaction has been most recently for a lot of cyclically oriented businesses. For sure. And Jason, maybe a little more broadly here about the message of the markets today. You know, obviously we got this little bit of a revival

in some of the growth stocks. It seems as if we have this sort of disinflationary playbook coming back into the market. Yields lower, commodities rolling over, and hey, let's go back to the market yields lower commodities rolling over and hey let's go back to the the beat up steady growers is that something that's sustainable is it playable or is it just a little bit of a of a hiccup yeah mike i think it's super interesting to see obviously reflect on the commentary from the fed

this week and how you know clearly it's a sole mandate at this point. Price stability is the focus. And I think with yields, as you mentioned, yields coming back, commodities pulling back. Obviously, we see staples, utilities and health care, the defensive is doing well today. But if I turn back to last week, which was a real washout, I mean, the S&P was almost down 6 percent. I think it's a bear market bounce here, you know, as we focus into the second half of this year. And I do think, you know, some bad news might be good news, you know, as we look to the labor market and see how tight that is. You know, some loosening up there, I think, could be valuable to the market as a whole. So let's see how, you know, the macro factors continue to play

out. We've got PCE next week. We've got GDP numbers. So we're kind of in no man's land until earnings starts three weeks from now. But I think that's a playbook as we're looking forward into the next couple quarters of this year. Yeah, it does seem, Joe, like we are somewhat in between the big catalyst clusters here. But we do have the calendar. And it's hard to see what's happened this week and say that has nothing to do with it. We obviously have quarter end month end equities of underperformed dramatically very depressed sentiment you

got this little bit of a left you would expect some reallocation. Back into stocks in fact I know some people who even look at the twenty third of the month at the end of the quarter. As somehow being being when the big mechanical money starts to rebalance. So I don't know if that's all that's happening here, but what do you think about the field position with all that taken into account? Yeah, the other day I said we've got a John Mayer market where we're waiting on the world to change until in July you could get earnings and CPI and another Federal Reserve meeting. But Mike, I think we've got a little bit of a welcome surprise here.

And Avery really was spot on in identifying it. And that's the disinflationary conditions that really have kind of come out of nowhere. If you think about the price of natural gas, which was $9.66 earlier in June, it's now trading at six twenty three. Lumber back in March was a little bit south of fifteen hundred dollars. Now it's six hundred dollars. So it's really broad based on the commodity universe. It's copper. It's wheat, which are down 20 percent since March. It's the price of oil, which was one twenty three and it's down to one to 104. So I guess with those disinflationary conditions, you combine that with this overall maximum pessimism that was prevailing in the market,

everyone out there racing to buy puts. And I think what that allows for is an opportunity where you're able to remove some of that pessimism here over the coming weeks and days and that disinflationary pressures. And I think, Mike, lastly, it goes back to the growth strategy. Quality growth, growth at a reasonable price. If you're sitting back waiting for further declines, what else do you need to see? How much more in price declines are you actually going to get if these disinflationary conditions are going to continue to persist? Yeah, in terms of in terms of valuations, I suppose, on the more predictable growth stocks, they have been reset a fair bit. You know, Avery, it's interesting if we do get this disinflationary impulse that continues to wash through, it suddenly starts to feel like a

more familiar type environment from the prior decade where it was disinflation. Sure, the economy might be at stall speed at times in real terms. Yes. But we kind of know how that is. But coming into this, the prevailing opinion was no, no, no, no, no. Different rules now. We have inflation. We have a Fed that's not going to bail out the market. And we have, to some degree, a lot more work to do on that front. So it seems tricky. It is. I think it's very tricky. And I think it's almost like they're algos that are trading anything that had worked when rates were going down before is going up. And I think what we're going to see is over the course of the earnings seasons ahead,

those more quality growth companies really bifurcating from companies that have traded with them historically, but the fundamentals are clearly melting down. And we've already even just seen that a bit in the semis. They were trading with growth and their valuations still reflect secular growth. But people are starting to be aware of the cyclical pressure there. And there are other companies also that are trading up with, but they're still trading up with growth, where I think you'll see that pressure. And that's where I'd be more conservative.

And then on the flip side, kind of speaking to these disinflationary benefits, I mean, this morning, you know, KB Homes, I think, said that they expect a potentially 300 basis point benefit to gross margins once the new inflation, sorry, the deflation in lumber rolls through. It's down 68% from the peak. So that is a benefit to potentially offset declining house prices. You had Darden this morning talking about, you know, their food inflation. They're expecting to be up 6 percent of the next year, but they felt like the risk is to the downside on that, which would be positive for restaurants and anyone producing food. So, again, I think that this disinflationary benefit, I think that there are companies that have been beaten up that are really going to benefit, but there are companies that are moving up you should be careful about.

Really just focus on the fundamentals, and I think over the medium to long term you should do well. It feels like what you're essentially saying in part is this bounce in maybe everything that did well when we were in slow growth is giving you an opportunity to maybe reshort some bad business models. Right. Yes. Yes. Yes.

That makes sense. Jason, big question that everyone keeps pointing to that we don't yet have a verdict on is what it all means for earnings. We are weeks away from getting the real rush of earnings right now. Prevailing thought out there is, well, the estimates probably have to come down, but they are coming down outside of energy to some degree. How do you think, I mean, as you kind of assess your companies, how are they positioned and has the market already essentially gotten there in terms of, you know, depressing expectations for earnings?

Yeah, it's a great question, Mike. Obviously, you know, we saw some pre-announcements earlier this quarter, right, with FX, with Microsoft and some inventory news with Walmart and Target. So yes, you're right. Some estimates have come in. Some, I think there needs to be a little bit more there to kind of quiet some of the volatility that we're seeing. And in fact, it will probably increase volatility to a large degree. But I think it's all about managed expectations going forward. But I do think, you know, as Avery mentioned, I'm looking at some of the commodities coming in and all these macro factors that we're seeing in yields, as I mentioned earlier, you know, these could play well into growth going into this next quarter and

the following. But I do think these are just such important points to really pay attention to as you're kind of really looking at how should I invest in this market? How am I barbelling it? And for us, it's been the defensives on one side, the health care, the utilities, you know, and some of the staples mixed with some discretionary tech. And I think that's kind of the place we are and how we're playing it going forward. Yeah, I mean, health care has pretty quietly been a leadership group outperformed quite a bit in the last several months. Joe, I wonder when it comes to the whipsaw moves in energy, how you would read it right now, because I know you were focused, as I was, on the fact that the momentum factor strategies really swept into energy,

staples to a lesser degree. But basically, that's what the rules tell you to do, is to chase what's working. And energy, to the exclusion of most else, had momentum. Just as that happened, you have this huge kind of gut check in energy energy stocks are we extrapolating the decline in energy stocks and oil prices and natural gas prices a little too much in the short term. I mean a lot of people got bullish you wonder if they're going to say this is my

chance to reload. Yeah that's such a great observation and my response to that would be and Jason cited volatility is not going away it's going to be elevated it's going to be elevated. It's going to be persistent, even when markets begin to kind of recapture the losses. So I think you want to avoid concentration. You want to be diversified. And if you look at what the Momentum Fund did,

it took its energy exposure to where you could argue it was diversified, and it concentrated specifically in that direction. The overall weighting went from around 6% to slightly less than 19% towards energy. That's not the type of strategy that you want to have in this environment. Overall, for the S&P, you're talking about energy exposure somewhere around 5%. I think you want to maintain that. If you want to go slightly above it towards 6% or 7%, that's what thee t etf quality momentum has it has a six or seven percent weighting because mike i do think the fundamentals that are in place we're going to feel further stress and strain as we move into the winter months for both natural gas and heating oil that second derivative uh of oil itself so maintain a diversified exposure to energy don't

concentrate that's the mistake and that's been a lesson of 2022. two days into summer we already have to start trading next winter this is why it's a tough game um Avery we haven't mentioned financials which I guess you could place in any of a variety of buckets which is either value or it's kind of in the penalty box because it's a cyclical, maybe there's a macro fear out there. How would you think about them right now? So, you know, we don't have that much exposure. The exposure we have in financials on the long side are companies more in the insurance space that are really not that cyclical, that are pretty inexpensive. And we think that that headwinds are removing and each company has an idiosyncratic dynamic. We are and we're actually looking into some of the consumer finance

financials that have gotten so beaten up. Are things really going to be as bad? But we're not positioned there, but we're looking. But we are positioned on the short side on some financials that have, again, it's this theme of companies that have been really loved. People think they're secular growers. We think there's some cyclicality. So we're negatively inclined towards financials that have had a lot of leveraged exposure to venture capital, to private equity, like those types of dynamics we're still concerned about. Like we might get a bounce, but when we think it's going to be tougher slogging ahead for those types of names. And then the money center banks, they'll probably be fine. I don't have a strong view on them.

Gotcha. We'll leave it there. Avery, appreciate it. Joe and Jason, great to talk to you as well. We will get you again very soon. Let's get to our Twitter question of the day. On the back of FedEx's results, we want to know what's the best way to play the transports, package delivery stocks, the airlines or the rails, or I guess planes, trains or automobiles.

Head to us at CNBC Overtime to cast your vote. We'll reveal the results later on in the show. Still ahead, finding opportunity. Aperture investors Peter Krause is with us where he sees upside potential in this market. Plus, we're awaiting the results of the Fed's bank stress tests. We'll have instant expert analysis as soon as that news breaks. Don't go anywhere over time. It's back in two minutes. Putting cash to work over the past month has mostly resulted in investors getting burned in the short term. But our next guest says there are some pockets of this market that could help protect against inflation. With us now is Peter Krause, CEO and chairman of Aperture Investors.

Peter, good to see you down here. Good to see you, Mike. It's great to be here. Just this environment, you know, it feels like it doesn't know what temperature we're going to be at for a while. Or to change the metaphor, you know, hard versus soft landing. Each day, it seems like leaning in one direction or the other. Where does that leave you in terms of the outlook and how you would want to play it? I'm not a fan of soft landings, meaning I just don't think you can engineer them. The markets tend to overcorrect. They don't smoothly go down or smoothly go up.

So you have to sort of expect that we're gonna attack inflation the feds been completely clear about that we're repricing assets for repricing equity assets for repricing debt assets and the move is not going to be smooth and so they'll be volatility which we're seeing and you're gonna be confused you know if you look at every day and try to figure out where the trend is in some respects I mean I mean, based on all of that, this is the intended consequence of what the Fed wants to happen and where we are in the cycle. I guess really the critical question is where are we in that process? I mean, how much of it will be closer to the end, the beginning or not? Well, I'll just give you a point estimate. We're probably two thirds of the way there.

I think that we're likely in some kind of recession, certainly an economic slowdown right now. We don't see the numbers yet, although the leading indicators today were much lower than what had been anticipated. So there's some evidence that that's the case. Oil prices are elevated, but they're not continuing to go up. So my guess is that the economy is slowing down and consumers are spending less. And we could actually, in retrospect, look back at this and say we had a modest recession. So we're probably there. And in terms of two-thirds, you know, the market may have another third to go.

But it's tough to be smart enough to know when you're at the bottom. Exactly. Along the way, on the way up, a lot of people went in a lot of different pockets, private markets. You heard a lot, love private credit. That was a mantra for a long period of time, private equity even. And so there's some unwind there, but it's not really as obvious as to how it's happening in real time. And so what about that world? Well, the great thing about private markets is they are a little bit slow motion. And so, you know, that allows them to be take a little more risk and to be a little less susceptible to market volatility. Having said that, when you're in a regime like this, where you are literally repricing interest rates, this is not like interest rates go up 25 or 30 basis points.

This is we are repricing the entire interest rate. Mortgage rates doubled, basically. We're repricing the entire interest rate. Mortgage rates doubled, basically. We're repricing the entire interest rate complex. So when that is happening, assets have to get revalued. And private assets have to get revalued. Private credit has to get revalued. And private equity has to get revalued. The revaluation process in private assets is always slow. It lags. It's usually three months to six months. And if markets recover quickly from here, you won't see that much of an effect. But markets may not. And markets may continue to be languishing for the next six months. And if that's the case, you're going to see marks

on private equity and you're going to see marks on private credit. And where there's leverage, there'll be some stress. That would suggest being a little bit patient, maybe just sort of keeping cash in reserve. But what about real estate? Is that someplace you feel like isn't out? Well, I think real estate's very interesting. I've said on your program before that multifamily real estate,

where you get rent increases and you have pretty good vacancy or low vacancy rates is a good inflation hedge. Office properties are challenging because of COVID and nobody knows what the marginal use of the office property is going to be. But multifamily is a pretty good bet. Hotels, because people are going back and traveling. So hotels, less of an inflation hedge. But in the multifamily space where you have rent increases, that's an interesting inflation hedge. Yeah, it's considered a problem for the Fed, but it could be good if you actually own the assets, I guess. Yeah. When it talks, we're talking about multifamily. Peter, great to see you. Excellent. Thanks for being here. All right, Peter Krause. Up next, we're just moments away from breaking news on the banks. The Fed about to release its latest stress test

results. The late breaking details after this quick break. We are just moments away from breaking news on the banks. The Fed about to release its latest stress test results. Standing by with instant expert reaction is David Ellison of Hennessy Funds and Hightower's Stephanie Link. Welcome to you both. Steph, obviously, banks have struggled here. Nobody necessarily thinks it's because of systemic reasons. But what would you be looking for maybe in these results and what it might mean for sentiment toward the banks? Yeah, I mean, I don't think we're going to see a lot of surprises. We're not getting the dollar amount the banks were approved for. We are only getting

the minimum capital levels that the banks need to hold for the next 12 months. We also won't get the bank's plans in terms of what they're going to use for the excess capital. So they've changed the strategy and the test measures. So I don't think you're going to see a lot of stress in the stress tests, pun intended. But I do think the stress capital buffer will be on average probably 20 to 25 basis points higher year over year. And that is a function of weaker GDP, weaker unemployment, housing, and the reserve bills that we have been seeing. So I don't think you're going to see a lot of market-moving things. But I've got to tell you, I mean, these stocks act horribly,

and the expectations are so low and the valuations are so cheap that I think you want to be taking a look at some of these names on further weakness. Yeah, there's no doubt about it. They're building in certainly some bad news, if not the adverse scenarios that the stress tests imply. We do have the results of those stress tests. The results are out. Leslie Picker is here with those. Hi, Leslie. Hey, Mike. Yeah, no surprises here. All 33 banks tested this year remained above their minimum

capital requirements, as was expected. This, despite a hypothetical $600 billion plus in losses under the scenario outlined by the Fed, thanks to the banks going into the test with high capital levels by historical standards. Now, the aggregate common equity capital ratio, that's a metric that represents the financial health of the banking system, declined to 9.7% under that stressed scenario, but that's still more than double the minimum regulatory requirement. Among the largest banks identified as Category 1 by the Fed, State Street and Morgan Stanley demonstrated the highest ratios under the stressed scenario,

while Bank of America and Goldman had the lowest, below the aggregate, but well above the Fed's threshold. This year's stress test scenario comprised a severe global recession alongside turmoil in the commercial real estate and corporate debt markets. It was tougher than the 2021 test, with a peak 10% unemployment rate and GDP decline and 55% slump in equity prices. The Fed's stress tests were established under the Dodd-Frank regulations with the goal of ensuring and GDP decline and 55% slump in equity prices. The Fed's stress tests were established under the Dodd-Frank regulations with the goal of ensuring that banks

can adequately support the economy. During downturns, they helped set a floor for the amount of capital banks can distribute to shareholders. The firms are expected, although not required, to announce their specific plans for buybacks and dividends on Monday after market. Mike?

Yeah, Leslie, and that obviously will be tuned in for closely. Let's now bring in Hennessy Funds Portfolio Manager David Ellison and, of course, Steph Link still standing by. David, no big surprises, no big surprises expected. It shows you there is still quite a large systemic capital cushion out there. But what does it mean, I guess, in terms of the banks as investments from here? I mean, is it really going to reassure anybody when we're really more worried about maybe a more routine recessionary scenario? Well, I think that, you know, I'm sort of always amazed at $600 billion in losses and everybody's fine.

It's not a big deal, which is sort of, in the old days it was like that was the whole industry was $600 billion. But I think what it tells you is the banks have obviously played the game of being part of the regulatory structure and the Fed doesn't have to worry about them and they've got them kind of corralled, at least the top 30 or 40, in terms of a quasi, you know, sort of regulatory framework. So I think that's good for the economy. It's probably helped the economy weather this decline in the market and the rise in rates.

But I think this, you know, I think the guest that was on prior to us coming on or me coming on talked about the sort of the change in the rate structure and that rates are up. And if that's a more permanent thing where we do get rates, let's say the short end of two to three and the long end of four or five, six, that's going to be significant for the banks for the next four or five years because they've been struggling with very low rates, as you know. And because of inflation, because the feds need to fight that, I think if we do get rates that stay here for a prolonged period of time, you're going to have a slow, upward-sloping margin and you combine that with some loan growth and a few other things, and I think

you're probably in pretty good shape. So yeah, it's sort of funny. Yesterday, you know, the testimony in front of the senators yesterday, I sort of came away saying, you know, the story is, you know, inflation is bad. A recession is worse. So don't put us into recession. And so I think that's the reason why the market has sort of come back a bit. Steph, the credit piece, right? So if rates are a little friendlier up at these levels, if we manage to stick here and obviously they can kind of expand margins and maybe get some loan growth, the economy stays OK. Does the credit piece have to, you know, how much can it erode and I guess keep things intact for the bullish story? Oh, I mean, you're at record low levels in terms of delinquencies, non-performing assets, non-performing loans. And so I think there's a lot of room to go. And in

fact, we do get monthly data from some of the companies in terms of all those metrics, and they have been very, very strong. So, yeah, I think there's certainly a concern. I worry about that. But we're off such low historic low levels. And again, I think that the capital piece is so important. These companies do have a lot of flexibility. Of course, we are seeing some reserve builds, I think, on conservatism. I'd rather that. Right. So so so I think, yeah, I mean, look, these stocks are trading like a one times book. I mean, Wells Fargo is a point nine times book. Right. And and Morgan Stanley is rarely do I trade a Morgan or look at Morgan Stanley on a book. It's at one point four. I mean, some some of these things are getting a little bit silly.

And I think that's why I said before, you want to be taking a look on this pullback. David, on the buyback piece of this or the capital return piece, it seemed like there was some, you know, disappointment earlier this year because of, I guess, the banks essentially taking marked losses on their treasury holdings. And it maybe reduced the amount available for buyback. Are we going to get clarity on on how how beneficial the capital return piece is going to look? Well, hopefully we'll you know, we'll see that come Monday or Tuesday in terms of what they announce. I suspect that what I'm hearing today is that, you know, buybacks are going to be fine. I'd like to see higher dividends. You know, buybacks don't really help you if you if you want to go into this space.

It doesn't really you know, I don't think I've made a lot of money buying bank stocks because of a buyback. So I'd rather see a higher dividend. But my sense is that, you know, this is a big rate increase with the mark-to-market views. You know, you go back to Bear Stearns, that was really a credit mark to market, not a rate rise mark to market. This is a rate rise mark to market alone. There's been no real credit deterioration. And so the question is that unwinds here, that puts capital back in their pocket, but it also maybe doesn't help the margin that much. So I would like to see rates stay here and maybe even

go a little higher just because that helps them longer term. I don't care about the mark to market because they can deal with that. Credits, the big negative, as I always say, 2008 is always last week in this space. Everybody's worried about getting caught in that 2008 downturn again. And a lot of us lived through that and a lot of the CEOs are still there. So, you know, once we can work through that, then we've got some clear sailing in terms of earnings. But we need rates to stay up where they are. We can't go back to the zero bound and expect the financials to do well. It's a good point about the CEOs being in many cases the same, Steph. You know, which particular names would you think the market has made

more compellingly cheap at this point of the ones that you like? I mean, they're all really, really cheap. The one that's cheap that I wouldn't buy is Citigroup. I think JP Morgan is still too expensive. But I do like Bank of America. I do like Morgan Stanley. And I own Wells Fargo. And they're all kind of for different reasons. I mean, Bank of America has made $30 billion in investments in technology in the last decade alone. And I think this iCapital

investment that they just announced is certainly interesting. They've done a great job in terms of expense control. And they're rate sensitive. They have a trillion dollars of sticky deposits. Morgan Stanley, I just love the diversification strategy with all the M&A that they're doing. And I mentioned before, the valuations is kind of silly and it has a 3.6 percent dividend yield already. And Wells Fargo is a restructuring story, but also a rates story. 50 basis points of Fed funds. Any change in Fed funds is equivalent to 17 percent to earnings and 6 percent to net interest income. And so I like that. I mean, the 10 year started this year at 151. Even though rates have backed down in the past week, it's still it's still a nice leverage point for the banks.

Yeah, it's a lot more movement than we we'd seen in a long time. Steph and David, thanks a lot for breaking it all down for us. Appreciate it. Thank you. Thanks, Michael. Still ahead, the big warning from Intel. The chipmaker says its new Ohio factory could be delayed if Congress doesn't move fast on a key piece of legislation. We'll break down the implications with the top chips analyst. Overtime, back right after this. Time for a CNBC News Update with Seema Modi. Hello, Seema.

Hey, Mike, good afternoon. Here's what's happening at this hour. At today's January 6th hearing on Capitol Hill, a former Justice Department official recounted how acting attorney General Jeff Rosen responded on a call with Donald Trump in December of 2020. You also noted that Mr. Rosen said to Mr. Trump, quote, DOJ can't and won't snap its fingers and change the outcome of the election. How did the president respond to that, sir? He responded very quickly and said, essentially, that's not what I'm asking you to do.

What I'm just asking you to do is just say it was corrupt and leave the rest to me and the Republican congressman. The Justice Department says it respectively disagrees with today's Supreme Court ruling that Americans have a constitutional right to carry a handgun outside their homes. In its wake, the DOJ is promising to use all legally available tools to tackle gun violence. And the FDA is taking Juul e-cigarettes off the U.S. market, saying they may have played a disproportionate role in the surge of vaping by teenagers. Tonight on the news, how Texas Democrats are trying to get the state's governor to support stronger gun restrictions. That's at 7 p.m. Eastern. Mike, I'll send it back to you.

Seema, thank you. Up next, we're breaking down the biggest stock moves in overtime. Christina Partsenevelos is tracking the action. So, Christina, what's on deck? Well, we've got a lower guidance from a fintech firm that is causing shares to plunge. And McDonald's in the hot seat yet again. All those stock movers and much more after this short break. We're tracking the biggest moves in overtime.

Christina Partsenevelis is here with more of what's moving. Christina. Thanks, Mike. Shares of online lending marketplace LendingTree are plunging in the OT, down about 9% right now off of its lows, which it was down almost 15% just a few minutes ago. The company updated its Q2 guidance and expectations are lower. The company lowered its revenue guidance from a $283 million range to $259 to $264 million range. So that's almost a $30 million drop. Lots of numbers there. Its Q2 adjusted EBITDA is also lower than previously anticipated, but no update on its

annual guidance. It's still under review. Novavax shares, though, are also moving in the OT a little bit lower in after hours, and that's after surging almost 14% today. The company just received emergency use authorization in Taiwan for all individuals 18 and older. So this news came out maybe about 20 minutes ago, and this follows news earlier today when the biotech firm said they got its vaccine, Nuvaxoid, that received conditional approval to be marketed in the European Union for people aged 12 to 17. So again, Taiwan and the EU. And lastly, shares of McDonald's lower in the OT right now. The company is making changes to how it awards franchises in the hopes of attracting more diverse candidates.

Previously, McDonald's would give preferential treatment to the children and spouses of current franchisees. But black franchisees have sued the chain in recent years, alleging racial discrimination. Starting next year, 2023, it will evaluate every potential new operator equally. In 2023, shares are down a little bit. Christina. it will evaluate every potential new operator equally in 2023. Shares are down a little bit. Christina, thank you very much. Thanks. Up next, pressuring Congress.

Intel warning its new Ohio factory could be delayed if lawmakers don't pick up the pace. I'm passing a key piece of legislation. We'll break down what's at stake with the top chips analyst. And coming up at the top of the hour on fast money, treasury yields in free fall. So what impact will it have on stocks? The fast traders are breaking down what it means for your money. Don't forget, you can catch us on the go by following the Closing Bell podcast on your favorite podcast app. Over time, we'll be right back. We're following a developing story on Intel, the chipmaker warning it may need to scale back or even delay construction of its $20 billion Ohio factory. The company says the expansion relies heavily on the CHIPS Act, which has been stalled in Congress for months. Joining me now to discuss is Stacey Raskog.

He's Bernstein Research Senior Analyst on the semiconductor. So, Stacey, build some context around this a little bit. I mean, is, first of all, the CHIPS Act kind of a make or break for this project? How important is the project for Intel? How should we read it all? Yeah, so I think Intel is not stopping their plans for the initial phase of this, which was the original $20 billion. It's two facilities in Ohio. What they're saying is they need the CHIPS Act for the expansion phase. They were looking, remember, ultimately to build

up to eight fabs and spend like $100 billion in the region. And so they're saying for that expansion, they need the CHIPS Act. Now, it's a lot of money they're spending. People have to remember, the CHIPS Act itself is not actually that much money. It's $52 billion over five years for the entire U.S. semiconductor industry. So in terms of Intel actually needing the CHIPS Act to make that broader expansion viable, my guess is that they do not need it. It's more going to be a question, do they have the demand to fill it? But obviously, if they can get those dollars, that would be good. And they're certainly trying to put pressure on Congress, as we can see right now, to actually

get the legislation passed so we can go along with this. But it doesn't sound like they're stopping the initial phase. What it did sound like is they were stopping the groundbreaking ceremony, I guess, to try to apply that pressure. Sure. Obviously, if there's going to be public money available, you might as well fight for it sooner than later. And just in terms of this initiative in general, I mean, $100 billion over how many years for Intel? And is this a kind of a bet the future of the company type of move? And is it going to work? Well, obviously, it's a bet the company kind of movement. And we'll see, actually, if they wind up spending this or not.

I mean, Intel's sort of running all over the world, building fabs everywhere in some sense, where they can get paid to do it. So they're looking to build, obviously, in Ohio. They're building in Arizona. They're building some packaging stuff in New Mexico. They're building out in Germany. They're going to get billions of dollars potentially to build out in Germany. So they're building everywhere. But I mean, the broader state of the strategy for Intel is a bet the company strategy. They are betting on growth. They are betting on building out a foundry business in order to compete with TSM. And the targets that they've given the street incorporate

those kinds of numbers. And so certainly, Intel, if they succeed in this, it's going to look very different in five or ten years. And frankly, if they fail, it's going to look very different in five or 10 years. And frankly, if they fail, it's going to look very different in five or 10 years. The Wall Street right now doesn't really know which way it's going to be, which is why the stocks had issues. No, exactly. I was going to get to that. I mean, you know, you've I think have been cautious and, you know, correctly positioned on the stock. It's cracked through 40 to the downside. That had been a sort of seeming floor for a couple of years here. Where does it sit right now in terms of valuation?

What's priced in? It's hard to talk about valuation with Intel because it sort of looks kind of cheap on earnings, although not necessarily cheap relative to its own history, cheap versus the sector. But there's no free cash flow. All of this stuff, even with the subsidies, basically takes all of their cash

and puts it into the ground. The guidance they've given on this have actually incorporated subsidies, by the way. But their CapEx or their free cash right now is zero to negative. And so on that basis, it's effectively like infinitely valued, right? There's no free cash to value on it. So if you're buying the stock today, you're not buying it for the trajectory this year or next year, even in the year. But you're betting that in five years or 10 years, they can turn the ship around. They can actually execute on the strategy. They can drive growth. And ultimately, these investments will turn into real earnings and real cash flow and bring them back to the dominant

position that they used to have. But that is a huge unknown right now. And right now, the current level of execution and the trajectory of the showing is not going that way. It's actually going the other way. Yeah, it's a lot to look through, especially when the overall sector's also, you know, come down by a third or so off its high. So, all right, Stacey, great to talk to you. Thanks very much. You bet. Thank you. All right. We are going to hear much more about this next week when Sarah Eisen sits down exclusively with Intel CEO Pat Gelsinger from the Aspen Ideas Festival. He is just one of the many big guests joining this year. Catch that interview Tuesday at 3 p.m. Eastern on Closing Bell.

And last call to vote in today's Twitter poll. We're asking what's the best way to play the transports right now? Head to at CNBC Overtime to weigh in. We'll bring you the results next. Let's get the results of our Twitter question. We asked on the back of FedEx's numbers, what's the best way to play the transports? Really, 34 percent of you said package delivery, about 25 percent saying airlines, 42 percent like the rails. Instead, they have been strong for years now. A check on where stocks finished the day. The S&P 500 gained just about 1 percent, just below that 3800 level,

which has actually kind of capped the market for a little while here last week or so. Bank stocks after the Fed stress test results taking them in stride. No real surprises there. Not too many changes. FedEx, though, as we said, just reported it was a beat on the bottom line. Pretty strong guidance. Stock up 2.4%. That does it for overtime.

Fast money begins right now.