Closing Bell - Closing Bell Overtime: The Resilient Rally 8/3/22

Episode Date: August 3, 2022

It was a rally day on Wall Street as stocks claw back toward some key levels. But how much more is really left in this run? Trivariate’s Adam Parker weighs in. Plus, Chris Harvey of Wells Fargo Securities says we’re not going to retest the lows until next year. He makes his case. And, Mike Santoli’s “Last Word” on tech’s big move today.

Sarah, thank you very much and welcome everybody to Overtime. I'm Scott Wapney. You just heard the bells were just getting started as always here post-9 at the New York Stock Exchange. More earnings imminent this hour. We are waiting for results right now from Booking Holdings and MGM. Both good reads on the health of the consumer and what's been a very hot summer travel season. The real question now for both, whether that rush can continue in the months ahead. In just a bit, I'll speak to Morgan Stanley's Chris Toomey. He runs one of the most highly regarded private wealth teams in the country. And Chris Harvey of Wells Fargo tells us why we're not going back to the June lows. A big reversal for him, too.

He'll be here to tell you exactly why. We begin, though, with our talk of the tape. This resilient rally as stocks claw back towards some key levels. But how much more is really left in this run? Let's ask Adam Parker, Trivariant Research CEO and founder. It's good to see you back here. Good to be here. A rare update. Yeah, it's nice to be here with you when the market's up. Yeah. What do we do when we have a market that suddenly doesn't care about Fed speak? Right, because Bullard was there today. I think we'll probably have to be higher for longer i remember a day without what is something market yeah

uh... people want to interpret it as more dovish although i don't see it that way i didn't see them saving dovish uh... you know i've been thinking a lot about this in the last week and one thing i think so confusing to people is you can see the real gdp is a little bit negative i can have an 8% nominal GDP. I can have an 8.5% CPI, get a negative 0.5 real GDP.

That, for some reason to me, isn't the same thing as 1 minus 1.5. So I think what's going on in earnings season is maybe there's been some misses, but in aggregate, it's a little bit better than people thought, right? It's been a little bit better earnings season. Companies have generally not tanked like maybe we thought a few weeks ago. And so there's a lot of people willing to believe now, hey, like it's not going to be as bad as I thought. It's a soft landing. That soft landing camp is probably, would you agree, gaining a little bit of steam from where we were three weeks ago? Well, I mean, thanks to a great rally. I mean, it's amazing.

I think it's all momentum. That's my point. I think it's all just you feel better when stocks are up. Do you believe it or not? I don't. I really don't. And I'll tell you why. We made a chart in our research last week, and it's still in my head, okay? 20-year revenue growth for every consumer industry. I know we're going to talk a little about travel, but every discretionary industry, pick one. 6% to 8% growth is basically the long-term average revenue growth. You know what the trailing 12-month growth is for every industry?

It's like 20%, 25%. So there's no way we're not pulling forward future growth today. There's no way that the nominal GDP being high isn't affecting numbers and it's going to decline. So I think we're in a six-month period where the Fed action still hasn't totally impacted the numbers. And the management teams sometimes aren't the first guys to know. I mean, I'm glad you mentioned travel. We do have booking holdings out. Again, as always, our reporters are going through it. We'll bring you the results and really the stock moving. The analysis is what you really care for as soon as we have it. I can tell

you right now, it looks to me like a revenue miss. If you see the stock, it's still showing unchanged. But again, we're going through that. Our reporter is going to pop on in a second, give you the exact details that you need to know. Back to our conversation here. I'm just looking at the stock here, waiting for a move there I just want to look at one more thing while I have you looks like their earnings did be considerably as well so we'll have more on that coming up we knew that travel was going to be strong this is not a great surprise the question is about the consumer are Are you worried about the consumer in the months ahead, or is that overblown, as well as maybe concerns about a hard landing,

as you were suggesting? I don't know whether it'll be soft or hard. All I know is that the public companies can't grow their revenue and consumer at 20%. If the long-term average is 6% to 8% and they're growing 25%, something's going to give. We're closer to a cyclical peak, and it's going to decline. Yeah. Yeah. Let's go to Steve Kovac. You see the stock's up four and a quarter percent. What do we know here, Steve? That's right, Scott. We got a bit of mixed results here. Revenue for booking holdings coming in at four point two nine billion. Street was looking for four point three two billion dollars. EPS, that's a nice beat here. Nineteen dollars and eight cents versus seventeen dollars and fifty seven cents. That's on an adjusted basis. Also, gross bookings here, CEO Glenn Fogle saying

in the release, up 38%. Would have been more like 48% if it wasn't for those foreign exchange headwinds. And you'll remember, Scott, like you're talking about, travel is expected to grow here throughout Q3. They're expecting record revenue in the third quarter. But again, those foreign exchange headwinds, just like we heard with Airbnb, kind of knocking them down a little bit. Scott. All right. Good stuff. Steve Kovacs, thank you very much for that. You know, look, you obviously know travel is going to be strong. We're still waiting on MGM. Caesars was out the other day. You've got like the best season in Vegas in some time. So I'm expecting decent things there, too. There are other things at play, like the China lockdowns, et cetera.

But let's get back to the market conversation. Do we have a market that has priced in the Fed fully at this point? Is that why there's a positive reaction? Or do we have a market that's in complete denial about what's still in store from the Fed, which, you know, Mester, Daley, Bullard, and somebody tomorrow is going to come out and say, we're not near done. Look, one thing I think we can agree on for sure is that all the people who watch the Fed aren't that confident or accurate in what they actually do. We've seen that over many, many years. It's hard to predict what we're going to do. We know the housing market was on fire

while they were buying billions of dollars at MBS. I know, but they're telling you now. I don't see them getting more. What did they say that was more dovish? I don't really see it. Which is my point. They're telling you what they're going to do and the market doesn't seem to care. Maybe it's already in the market. Maybe it's already in the market. Okay, we're sorry about that. Here's what I know. I know the CPI is going to stay elevated for a long time because owners equivalent rents a third and rents are going up 1% a month, 12% annually. You cannot get a CPI of 2 unless you get a massive, massive recession, and that's not what's going to happen. So they're going to raise it, and they're going to keep raising it, reacting late to the CPI.

That's my guess, but I know CPI is going to stay high. Your question on what's in the price is, I think, a really good debate. The consensus now has gone from $250 in earnings next year down to $245. I think the real number is $215. That's my best guess right now. With a multiple of what on that? Okay, so let's talk about that, right? Earnings expectations are probably 13% too high for next year.

It could be a little bit more. It could be in that range. So now that we've crept from, what were we, 34 to 41? I mean, we've moved up a lot. A lot. The multiple is no longer sort of above the long-term average. In fact, it's a little above the long-term average on forward earnings now, right? 17 and change on the actual number, probably 19 and change on what I think the real number is.

So I don't see how anybody could say the risk-reward for equities is better now than it was six weeks ago. It isn't. I think what's better is, you know, fear of missing out. People want to get in. The thing's ripped from the lows. They want to participate. Actually, hold your thought for a second. Phil LeBeau has loosed it another high. We're waiting for that one, of course. Phil, what do you got?

Down almost 10 percent, Scott, after reporting Q2 results that, yes, it was a smaller than expected loss. Revenue, not what was expected. Revenue coming in at 97.3 million. But when you look at the deliveries in the second quarter and the guidance, that's why the stock is under pressure. Q2 deliveries of 679 vehicles. Yeah, that's an increase from 360 in Q1, but certainly not what many people were expecting. The reason production was hit by supply chain issues, chips, especially chips out of China, as well as logistics. We'll talk about that in just a little bit. But here's the real reason this stock is under pressure.

They're cutting their Q2, or I'm sorry, their 2022 full year production guidance by 50 percent. Again, remember, they cut it in Q1. Now they're cutting it again down to a range of 6,000 to 7,000 vehicles. At the end of last year, they were expecting to produce 20,000 vehicles this year. Reservations do rise up to 37,000 from 30,000. Just had a conversation with CEO Peter Rawlinson, and he said, look, when it comes to logistics, our logistics system was immature. They were having problems getting parts into where they needed to be, and then from there to the assembly line. So they have brought in a new head of operations that they just announced from Stellantis.

They believe that they're going to make the moves that will correct things. But that production cut, Scott, that's the reason the stock's under pressure, down to a range of $6,000 to $7,000 this year. At the end of last year, they said they were going to build $20,000 this year. Yeah, I was thinking to myself as I saw the $20,000 number getting ready for earnings, okay, their range, they cut to $12,000 to $14,000 this year. Yeah, I was thinking to myself as I saw the 20,000 number getting ready for earnings, okay, their range, they cut to 12 to 14. I'm like, all right, who knows what the current environment is going to look like, supply chain issues, if that comes down a little bit, but 50%, holy cow. Yeah, well, look, this shows you have a company that is just learning how to manufacture.

And that's not, I'm not overstating this, they are learning how to manufacture. And Peter Rawlinson said, look, we're having problems getting the right part to the right point on the assembly line, and therefore we've got a real problem with our logistics. They believe they're taking the steps to correct that. Now the question is, how much credit does the market give them for the steps they're taking? Or is this a case where people say, you've cut production by 50% twice, essentially? Well, you brought it down dramatically from the end of last year to Q1, but now you're down to 6,000 to 7,000.

You've cut it dramatically. Can you show us that you have stabilized, that you can grow from here? That's the real challenge. Okay. Good stuff, Phil. Thank you. That's Phil LeBeau with that important breaking news for us. I think of these areas of the market, right? It's one of the markets. It's the big fintech, off to the races, cut down to earth, EVs in that same respect.

I want to talk to you about one area, though, that's ripping. I'm looking at Apple, 166. Apple at 166. I'm going to pull up Microsoft here, and I think it's better than 275. 282? As long as these stocks continue to do that, the market's not going down. At $166, I'm going to pull up Microsoft here, and I think it's better than $275. $282? Yeah. As long as these stocks continue to do that, the market's not going down. Well, you know, we talked about this a few weeks ago.

I was pitching you on triple long, the semiconductor ETF. I mean, things got from like 10 to 21, right? The conditions aren't really underlyingly better, right? It's just that they got oversold. People know you need them, kind of grow above GDP in the long term. We talked about the ones with good business models. So I think you're just getting a trade that will probably last for another few weeks. But I think ultimately when people sharpen the pencils in September, I think news will slow. I don't think that we're going all the way back to low.

I don't know. Who knows? But are conditions better for earnings now than they were two months ago? Not really. Financial conditions are tight. Maybe they don't have to be that much better. Maybe they're just not as extremely bad as people thought they were going to be. Yeah, I think right now, again, I think we're in this respite lag period where people still think the

consumer is going to hold up more than they will. So when we sharpen the pencils on our work the last couple of weeks, my view is the consumer numbers are way too high to bet in the consensus. All right, let's broaden the conversation out. Let's add Marcy McGregor, Maryland Bank of America Private Bank, and Keith Lerner of Truist Advisory Service. Good to have you both with us. I hope you heard our conversation. Marcy, do you agree with Adam Parker about what his outlook is for the stock market here?

So I think this is a market that's going to try to test 4,200. We're getting some relief on earnings that are less bad. But ultimately, we have no resolution on the big macro issues. We haven't seen data, at least, that tells us about peak inflation. I agree that Wall Street consensus earnings are just too optimistic for 23. Those are going to be revised lower. I think until we have a Fed that's on pause and market expectations for earnings that have been reset, I'm not comfortable saying that we've seen the bottom just yet. Keith,

what do you make of this ability suddenly of the market to look past this bullish Fed speak, right? Bullard, you know, Bullard's one of these guys who used to set the market on fire. Now he comes out and says we'll probably have to be higher for longer, and stocks go up near 500 points. Yeah. Well, Scott, great to be with you. I think the big story in the market right now is a lot of bad news was braced in coming into this month. Don't forget, we had the worst six months to start the year in several years. And, you know, coming into July, our main thesis was the biggest asset for the market was depressed expectations.

And what we've seen is a little bit of good news go a long way, not only from the Fed is not hitting the market like the way it did before. And also earnings. Earnings misses this earnings season actually reacted positively the first time in five years as well. But our message, you know, in mid-June, we were with you, Scott, and we were leaning against. There was so much selling pressure. The market was moving down and we were saying that we wouldn't be selling this market. Our message now has shifted. We're basically saying as this market has risen, we think the risk reward is less favorable. And this is more an opportune time for investors to trim back equities, especially those that are over allocated to equities, because we think the upside is probably capped in the 42 to 43 on your level. You have a confluence of valuation resistance and technical resistance there. So we just don't think the risk

reward is too compelling at current levels. I got you, Marcy. So it's a sell the rip market from Keith. It's a, you know, risk reward, no better now from Adam Parker. Do you agree? I'm on guard. So I think we use this wide trading range that we're clearly at the top end of right now to rebalance. I would be looking, if you haven't already found a balance of inflation beneficiaries like energy as a sector with more defensive sectors like utilities to give you some earnings stability, I would use this window to find that balance, find that diversification within a broad portfolio because I think once earnings are over, and again, they were less bad, we're going to get back to the big issues, which are inflation and a Fed that's removing liquidity.

Yeah, I was just typing in the Texas Instruments calculator here, 42, 4,300. That's 1% to 3% upside from here. I'm not good enough to know. Well, I mean, how much more upside? Could be, we could be there tomorrow. I mean, so to me, I think- Why does that mean though that we need to fall apart? It doesn't. Maybe we just need to trade around a while for the rest of the summer until we figure out

what they say in Jackson Hole and what they do in September. What I think would be the worst thing for investors, which typically is what happens for a chunk of investors, is they start chasing in and adding in here to tech that's rallied a lot, and then that really corrects again in September, October, and then they're left doing as poorly as possible. My suspicion has been that that's actually what's going to happen. I think we could rally for another few weeks. I have no idea. Come on.

It's flows. It's sentiment. Who knows? People are in the Hamptons. I don't know where they are. But I think when they come back in September and sharpen the pencils, they're going to realize things are not as good. And so I would look at next year's 245 consensus number, take 215.

It's at 19 times. You can find some stocks to own. It's not like apocalypse. But I don't see how you could say you like stuff now better than you did six weeks ago. The prices are up between 10% and 40%, depending on the part of the market you're in. And the earnings conditions still have to come down quite a bit. Marcy, what about this idea of the growth trade? What's, you know, in large part gotten us here? These stocks have done incredibly well. I'm not just talking about the mega caps. You can look at, you know, across the ARK spectrum, for example. A lot of those stocks have rallied a tremendous amount. But,

you know, again, mega caps, Apple, Microsoft, on and on and on and on. You don't like those stocks here? I like the mega cap tech. Their earnings were, you know, better than feared. But I would fade this growth rally right now. I think it's going to still be about value growing forward, especially with growth moderating. I think it's going to continue. We're going to continue to see value

and quality outperform in the big picture. So I agree. I would fade this rally as we get past Jackson Hole and into the fall. Keith, what about your view on tech? I just can't get by. I mean, I remember when Microsoft was 275, then it had the big sell-off. Now here we are, you know, north of 282. Yeah, and here we are. You know, we were underway tech for most of this year. About two weeks ago, we upgraded tech to a neutral. And our point of view is this. We think that the global economy is going to continue to slow. We have a tremendous amount of tightening in the pipeline, the highest global monetary tightening we've seen in 30 years. The Fed just started raising rates in March.

That is going to continue the way the economy, as the economic data slows, we think that will provide a bid for tech. But as you mentioned, on a short-term basis, we've moved a long ways in a short period of time. So some consolidation. We're still neutral there, but we're looking for an opportunity to potentially move to an overweight position, just not at this point today. All right, so I've got crude oil. I'm staring right at it, threatening to break 90. Everybody loves crude oil. Parker loves crude oil. Energy, I mean. Marcy likes energy. Keith

likes energy. These stocks came down a lot. Why should I still like energy, Adam Parker? Well, I mean, again, all these things are your time horizon. I think the only real answer I could give you in the medium to long term is you believe demand growth is going to exceed supply growth. And it takes a long time to get supply growth on. It's weird to me that there'd be recession fears in the oil price, but not in the consumer and the tech market. If there's going to be a recession, sure, demand for oil is going to slow. But darn straight, it's going to affect the consumer spend, too. There is kind of recession in certain parts of the tech market. It's just in, like, PCs.

Yeah. And maybe there's some in mobile. Stuff where there was pull forward from COVID and everyone, you know, retrofitting their home offices and stuff. But, look, at the end of the day, I think demand growth will exceed supply growth. I don't see a ton of capacity in oil. The stocks are cheap. They generally are returning a lot to shareholders. It could get wrecked if we get a total different outlook from the politicians on the ability to drill and extract.

But in the interim, I think it's a pretty good risk-reward. The stocks are pretty cheap. So I have the perspective to be positively biased in the long term. Okay. Last comment, Marcy, from you and Keith on energy. Why now? Why now? Why now? Two reasons for me. No quick fix to these supply issues globally. This is a problem that's going to drag on. And I would also say energy companies have built up significant operating leverage.

And I think ultimately shareholders will be rewarded for being patient with energy after this reset. All right. Keith, quickly from you. Yeah, for me, the stocks actually got cheaper this year. They had the strongest earnings revision. And oil prices don't need to go up from here. They just have to stay around the current levels. And you're still getting good relative value in that sector. All right, guys, good stuff. Hang on, AP, real quick.

Marcy, thank you. Keith, thank you. Contessa Brewers got MGM. Let me go to you now. Hey there, Scott. MGM Resorts International beats top-line expectations with revenues of $3.26 billion. Consensus was $3.04 billion. Earnings of $0.03 per share and whopper headlines coming in here. MGM sets an all-time record for Las Vegas Strip. Adjusted property EBITDA.

Now, that's the key earnings metric for these casinos. $825 million in the second quarter. The street was expecting $691 million. It's an increase of 108 percent from the same time period last year. I cannot stress enough the earning power that we're seeing from Las Vegas. And remember, second quarter last year of 2021 was all that pent up demand and the reopening and incredible property results there. All right. So let's talk about the regionals here. Second quarter adjusted property EBITDA comes back in of three hundred forty million dollars. That also beats expectations. We heard from Caesars yesterday that that regional properties were softening just a bit, but still above the 2019 levels. MGM topping that by setting a second quarter record here, Scott.

I'm also seeing MGM China misses expectations. Not a big surprise there. Also, bet MGM with EBITDA losses of $71 million. That's barely more than we heard from Caesars reporting yesterday. So looking for more on that on the call. Let me just ask you real quick. I'm sorry. I'm sorry. Let me just ask you real quick. I mean, the problem, if you want to call it a problem, you have to figure that a lot of that's already in the stocks, right? MGM's up 14% in a month. And then the fear is that eventually consumers are going to get up from the tables,

so to speak, and they get tapped out. Although I heard from Bill Hornbuckle directly when the last time I was in Las Vegas and he said we are just not seeing it yet. What we heard from Tom Regan Caesars yesterday is the consumers are not showing the impact of the rising gas prices that in Las Vegas in particular. The room rates are at historic highs. They've never seen it like that. Occupancy of 97 percent. that in Las Vegas in particular, the room rates are at historic highs. They've never seen it like that. Occupancy of 97%. The senior citizens are coming back to levels that we haven't seen since 2019. And international travel is back.

So is it coming down the pike? Nobody can say for sure. They're just not seeing it yet, Scott. Okay. Good stuff, Contessa. Thank you. Good perspective from Contessa Brewer, who covers that beat. Last word from you, Mr. Parker.

I think there's a difference now between good reopening and bad reopening. A year ago, it was like, let's buy everything reopening because the world's going to open. Now I think you're realizing there are businesses that are going to beat on revenues and those that aren't, and you're seeing that bifurcation. So I think that's an important differentiator. I'm glad you made that point as well. It's good to see you again. That's Adam Parker, Trivariate, with us once again at Post 9. Let's get to our Twitter question of the day. We want to know, what will be the best performing sector in the market in August? Will it be tech, energy, financials, or health care? You can head to at CNBC Overtime. Please cast your vote. We'll

share the results coming up later in the show. Up next, retesting the lows. Our next guest would not bet on it. Wells Fargo's Chris Harvey making the bull case for your money when overtime returns. We're back in overtime stocks rallying today, the Nasdaq gaining more than two and a half percent. Our next guest out with a big bull call for your money, saying we're not going to retest the lows until next year. Let's bring in Chris Harvey. He's Wells Fargo security head of equity strategy. It's good to see you again. I feel like every time I see you now, we're just pushing off what you think is the inevitable, right? Last time you thought it was going to happen soon. Then we're like, ah, we'll push it off till September. Now we're into 23.

Now we're into 23. Scott, listen, what we've said is and what we think this the floor is now higher. The cost of capital has come down. Earnings not as bad as feared. But most importantly, the one thing we wanted to see, we wanted to see the Fed toggle things down. The Fed hasn't pivoted. They've toggled things down. They're going from 75 to 50 to 25. And we kind of know when that end is. And since we have all these things, we think the floor is higher. And now we think you can sustain the gains. This won't be a straight line up, but we think things can be better. The reason for 2023 is that's when we think multiples really start to compress. That's when things get a little bit sloppy. So I'm trying to figure out how so many different people can have so many different reads on what

the Fed said last week. You know, there's this prevailing thought that they pivoted, that somehow that Powell signaled that we're near the end and the market has ripped for the most part ever since and carried on this rally. Yet so many different Fed speakers have come out and suggested we did no such thing. And yet you're in the camp of the former. Where's the disconnect? So we listen to what the Fed says. But what we really do is we look at the capital markets. What are the bond markets saying to us? What are we seeing? What's the curve saying to us? What's longer-term interest rates? What are Fed fund futures doing? And what are break-evens doing? And what we're hearing,

what we're hearing very loudly, or what we're seeing is we're seeing a curve inverted. We're seeing the back end come down, and we're seeing expectations for Fed fund futures also come down. What that says to me is, hey, we front end loaded this. Things are working. Now we're going to normalize rates, Fed funds, but we're going to do it at a slowing pace. In that environment, that's a very good environment for growth. As rates come down, the economy slows down and inflation or break evens continue to come down, you can make money from the growth side. We think a lot of the cyclical trades are over. You're too late in the cycle. Many of these companies are trading at mid-single digits. And the earnings you expect

or the earnings that you see today are not the earnings you're going to get in 6, 12, 18 months. But what the bond market's saying is the Fed's getting close to the end. And if you look back to that 1999-2000 cycle, it's very similar. Are we talking quality growth or any growth? Because you could suggest by the move in, look, some of those higher valuation stocks from the ARK complex, which some question their quote unquote quality. Everybody, everything's been going up. Does everything stay up or do you have to really now discern between the two? So Scott, a couple of things. I think it was back in May. We took our short off of these high flyers. We didn't say these are the things you want to buy, but we think

this could be a short covering rally. We think these things could do better. And they were down 45, 50% of that time. They were exceptionally oversold, right? But those are not the names. Those are not the core names we want people to get involved in. We want people to buy secular growth or fallen growth at a reasonable price. And you can get a ton of those names in the tech space, in the fintech space, in the consumer space. There's been a lot of pain taken on the growth side, and that creates opportunity. All right. So lastly, before I let you go, this, again, pushing off what you say is, I suppose, the inevitable. Last time your headline talked about a soul-crushing sell-off. I think soul-crushing literally with the words that you used at that time. That's right. Is that still what's going to happen? It's just going to happen in 23?

Or is it even when we sell off in 23, it's just not going to be as bad as you once thought? No. So we're looking at 23 and we're really worried about margins. That's also the time when there's a lag effect to monetary policy. That's when the lag effect kicks in. Also, the consumer is getting stretched. The thing about the consumer being about the great thing about Americans, we love to eat, we love to spend, but we don't stop spending until our credit cards get declined. We have the capacity to spend. The average consumer has the capacity they're going to spend. But by the time we get to the first half of next year, that capacity is going to be pretty thin. And so that's when we start to have to pay pay the piper. That's when things get sloppy. And that's what I think we can retest the low.

All right. Good stuff. Chris Harvey, thank you very much for your point of view. I appreciate the time. Thank you. Talk to Chris again soon. All right. It's time for a CNBC News Update now with Shepard Smith. Hi, Shep. Wow. sounded like the judge had already ruled on that one from the news on CNBC. Here's what's happening now. The former White House counsel, Pat Cipollone, subpoenaed by a federal grand jury investigating the January 6th insurrection. This is a big one. He's the highest ranking Trump White House official that we know about who's been called to testify in the Department of Justice's criminal investigation. The man accused of killing seven people and wounding dozens more in that 4th of July shooting massacre in Highland Park, Illinois,

he pleaded not guilty to all charges today. In a brief court appearance, he told the judge he understands the charges against him and the potential that he'll serve the rest of his life in prison. And the Senate is now scheduled to vote this afternoon on whether to approve Finland and Sweden for NATO membership. It's expected to pass easily. All 30 NATO countries must independently approve those applications. Both countries invited to join after Russia's invasion of Ukraine. The move ends decades of military neutrality from Sweden and Finland. Tonight, the fallout from Speaker Pelosi's Taiwan trip, critical issues with U.S. organ transplant network, and saying goodbye to the legendary Vin Scully.

On the news, right after Jim Cramer, 7 Eastern, CNBC. Scott, back to you. Oh, man, one of my all-time favorites. I wish you a good afternoon wherever you may be. Yes, sir. All right, Shep, thank you. Shepard Smith. All right, up next is big money buying the bounce. Chris Toomey runs one of the top-rated private wealth teams in the nation.

What he is seeing in the markets right now. And don't forget, you can catch us on the go by following the Closing Bell podcast on your favorite podcast app. Overtime right back. Is the big money buying into the bounce in equities? Let's ask our next guest. He runs one of the highest rated private wealth advisory teams in the country at Morgan Stanley, Chris Toomey here at Post 9 with me today. I feel like we should cue that sound effect like wah, wah, wah, because that's like your view on the market you've been cautious we've been cautious and you still are yeah i mean i look i think when we last were here was after the fomc meeting uh sentiment was horrible and we were concerned a bunch about a bunch of different variables you know one economically two inflation uh three the fed and four consumer confidence

and um but the thing is is we thought the mark was oversold. And so one of the things that we thought we would want to do is take advantage of the fact that as the market recovered, we could use that as an opportunity to start taking down risk. And that's what we've been doing for the last couple of weeks. Selling the rips. Selling the rips, building out a cash position based upon the fact that if you look at those fundamentals, they've only gotten worse, right?

So if we started the year, global GDP was supposed to be at 6%. It's now sub 3%, right? We were getting the inflation number. Everybody was hoping inflation was going to peak. It hasn't peaked. And the move isn't necessarily a move from transitory. We're now looking at structural issues around inflation. But the market went down a lot, right? I mean, didn't the market price in a lot of what you're

talking about? I mean, it was expecting the fundamentals to get worse, which is why the S&P went down 20 plus percent. Right. No, I mean, that's where you had that PE multiple contract, right? And that leads you to the other side of the equation, which you really focused in on is earnings, right? So we're right in the heart of earnings. And earnings have actually been not as bad as everybody feared, which is part of the reason why we've gotten this lift, right? But in reality, if you look at cycles, right, and you look at the Fed over the last 40 years, every time they've raised rates and gone through a rate hike cycle, estimates have come down, right? 2022 estimates for earnings are up 15 percent, next year up 8 percent. We just don't think that's possible.

One of the things in your view that I thought was really interesting is that you say hard landing or soft landing, either scenario, at least in the short term, isn't good for stocks. Right. How so? So, I mean, if you have the soft landing, right, we still have to see earnings come down. So maybe they come down five or 10 percent. We still have a resilient balance sheet with regards to the consumer and with regards to corporate America. We're still in a situation where interest rates have been going up, but they're not out of control right now. So you get a five to 10 percent pullback. You get a multiple going back to where it should be. You could still see equities come down 10 or 15 percent So you get a 5% to 10% pullback. You get a multiple going back to where it should be. You could still see equities come down 10% or 15%. We get a hard landing, right?

Well, and all bets are off. You get a hard landing. You're going from, you know what, 225, 228 on the S&P down to 195, right? That's going to be a big difference. You've got the PE contracting, and then you've got earnings coming down even more. You're seeing kind of a 20 to 25 percent pullback. You're not believing that speaking of pullbacks, you're not believing the drop in oil either is sustainable. No, I mean, look, I think one of your other guests brought it up in the fact that, you know, look, it's going to take time to get supply back into the system. Right. I think the issue is, is you're in a situation where China has basically pulled back demand because of the zero COVID policy. They're reopening. Demand is going to increase.

You've got this issue with regards to Russia and the Ukraine. And there's just not as much you can do with regards to meeting that demand. Yeah, I mean, but if demand slows here because of recessionary fears, doesn't that affect the supplyand equation in a classic economic way? Well, the thing is, you don't necessarily need growth to continue to move higher. Growth can stabilize and stay flat, and you're still in a situation where you still have strong demand for oil. What is intriguing to you now? We pumped you up in suggesting you run this highly successful and well-thought-of group at Morgan Stanley. I mean, what are you doing right now?

I know you said you're selling the RIFs. What's attractive to you to put money to work in? Look, I think we want to be patient here. We don't necessarily want to be a rocking chair investor. We're moving back and forwards and going nowhere. We're in a situation where we own a lot of good companies. We're hedged. We're in a situation where we've got a lot of income coming off of our portfolio

and our alternative side of the business. But we don't necessarily need to be investing just to invest because everybody else is investing. If you look at what's happened today, right, you've got a situation where you've got a technology company that's laying off almost 30 percent of their workforce and the stock's up 30 percent. You've got a consumer staple company that has great earnings, but does it really need to be up 30 percent? Obviously, something's going on in this market right now that isn't necessarily based upon fundamentals. So let's do last before I let you go. What gets you more bullish? Like what what's that signal you're looking for? Is it really firmly for a Fed to to pivot? Is it a definitive sign that inflation is coming down? Is it no hard landing? Is that the kinds of things you're looking for?

I mean, honestly, it's about price. I think what we need to do is come to a realization that earnings are going to come down. If you look at earnings, earnings are good. But if you read through the comments, you're seeing things like in financials where they're taking more reserves, expecting the consumer is going to be in trouble. All of that has to push the price down where we've got a real margin of safety where we could be feel comfortable putting money. You know what I'm writing down is you're saying it's about the price. It's your guy, Mike Wilson, right? And Morgan Stanley says the price is wrong. I think that's exactly what he says, right? The price is wrong has been the principal part of his argument as to why he's been negative the way he has. No, I think he and he's

right. I think the fact of the matter is, I think the market is too confident with regards to the fact that the Fed is pausing or that earnings are going to be better than they will be. And in reality is, if you look back at history, we're in a situation where the Fed has to continue to be aggressive and earnings have to come down. And that is going to push the market down. So from our standpoint, be cautious, build up cash, and wait for that opportunity to put the money to work. All right, we'll make that the last word. I appreciate the time, as always. That's Chris Toomey, again, of Morgan Stanley Private Wealth, joining us now. Up next, cashing in on the payment stock shares of PayPal getting a big boost on the back of its earnings.

So is now the time to get back into fintech? We will debate that in today's Halftime Overtime. And it is that time of year again. Do not miss CNBC's Delivering Alpha conference. Man, it's going to be here before you know it. It's in person again, too. September 28th. You can scan the QR code on your screen to register or head to deliveringalpha.com. Overtime. We'll be right back. In today's halftime overtime, a big trade out of PayPal. Kevin O'Leary selling out of his position ahead of the earnings print. Look at the moves in that space today, though. A number of names are up double digits on the heels of strong results from PayPal and SoFi, along with Elliott Management's big PayPal stakes. So joining us now on the phone is Steve Weiss of Short Hills Capital.

Steve, look, these stocks were all high flyers. They got cut back down to earth. Is now the time to get back into fintech? You know, it's really a mixed bag, Scott. And today was driven by not only PayPal, but you also had SoFi come out. And they beat the top line. They missed from the bottom line.

But the markets in the mode and they beat the top line. They missed on the bottom line, but the market's in the mode where they're optimistic about everything. Look, to me, with the exception of SoFi, we take some of the others like Affirm and the buy now, pay later companies. They all had major moves there. Affirm was up 13%. So it takes not the time to get in because they're still not making money, and the market will eventually focus on that again short term there also are despite rates going up rates are still historically low and right now there's no real moat uh in the business furthermore the banks have recently said they've said it long term but now i think they it, is that they can compete with these companies.

And then when you take companies like Celsius and Voyager and some of the others that filed for bankruptcy, it gives you pause, or it should give you pause, if you're a consumer, about going with companies that haven't been around for a long time, that are losing money, that have upside- down balance sheets, and just may not be there when you come to collect your dollars. You're talking about some, you know, highly selective ones that, you know, I think we could say may have had overexposure in the crypto space. And that's in part where I wanted to go, in that maybe these stocks just needed, you know,

to get out of the froth get the froth out uh from the top and also the the crypto crash is actually going to be good it's going to focus more of these companies on where the real money is to be made not the more speculative sides of the of the business which obviously have have had their moment here in the big crypto pullback. Maybe it focuses them more as they need it to be. Yeah, and I think we're seeing that in Robinhood. But Robinhood, which made a lot of money from crypto and from stock trading, I wouldn't touch that stock right now.

I think that was short covering. Where I would go to your point is if I've been looking at it and PayPal, I still may buy it here, and you'd say, why? Well, they're making money. It's very profitable, number one. And number two, I've got a $15 billion buyback and an investor, Elliot, who can go in there and tell them what they've been doing wrong, which I think they realize at this point being more efficient.

So to me, that's the most attractive of the lot and a much different model than those that have been from crypto. You know, PayPal also will have, I wouldn't call them real partnerships with NASCAR, but these are other credit cards. You can link them. So they have multiple levers they can pull to drive their business versus some of the others that lead with losses. So a lot of these are no different than the online gaming companies where they have high CAC, customer acquisition costs. And I just don't think the way it will hold on to. So the answer to your question is you have to be very, very selective. But as a group, I think that you're not going to see these moves going forward. Weiss, I'll let you bounce. Get back out at the pool. I appreciate it. That's Steve Weiss

joining us in Halftime Overtime. Up next, we're all over the big movers in overtime. Christina Partsenevelos is standing by with that. Christina? Well, we've got another major retailer announcing hundreds of layoffs and then shares of a cybersecurity firm, Fortinet, plunging even though they beat on earnings and revenue. So I'll break down those details in just a few minutes. We're tracking the biggest movers in overtime. Christina Partsenevel is on the case with that. Christina?

Well, we're watching shares of Walmart right now down about 50 cents. The Dow Jones is reporting the retailer is planning on laying off hundreds of its corporate workers. The move comes after Walmart warned of falling profits just last week. So you can see shares are lower right now in the OT. Clorox also moving lower, even though the company's earnings per share came in line with expectations, but it missed on revenue. And you can see shares are down 6%. Gross margins were flat versus last year due to ongoing high commodity costs, as well as higher manufacturing costs. Health and wellness sales actually fell 5% in the quarter. And then full-year EPS guidance was also a big miss, at least a buck off the estimates.

And then you've got cybersecurity firm Fortinet moving on a two-cent beat with revenue in line. Q3 as well as full-year guidance also fell in line, and yet the stock is plunging over 10% right now. The company is burning through cash, free cash flow dropping substantially this past quarter compared to last year at this time. And then you've got eBay moving higher on a 10-cent earnings beat, Q2 revenue also higher. The midpoint for its full-year outlook also above estimates. A key metric, though, is gross merchandise volume,

so that's the total value of merchandise sold during a certain period. And that came in at $18.5 billion, higher than estimates. And you also did have a three percentage point impact on revenue for foreign exchange. But you can see shares climbing over 2% higher on all this news. Scott. Christina, thank you. Up next, it's our two-minute drill. One money manager makes the case for a key chip maker. We reveal it next. The results now of our Twitter question. We asked, what will be the best performing sector in August? The big winner is tech. A lot of believers, 66% of the vote.

Mike Santoli here with his last word. That's interesting considering the run that tech has had to this point. Yes, some of that was reflected without a doubt in today's action. It got a little bit grabby. I keep pointing to Apple being up almost 4% on really not a lot. I mean, just some reiterating of the bullish call at Morgan Stanley. And that's kind of the indexing move. It's a sort of we need to get exposure.

And part of this, and by the way, impressive in terms of the breadth, in terms of how many Nasdaq stocks have kind of gotten back above their 50-day average, a lot of the stuff you'd want to look for to say this rally has some sponsorship behind it. It also, though, has a mechanical aspect to it. Volatility coming in, a lot of the macro stresses get set aside, and systematic quant investors found themselves underexposed to stocks in mid-June. So we're chasing it up. We're going to find some sellers pretty soon. I mean, halfway between the high and the low. I talked to a few of them during. Exactly. And so that sentiment's out there because it's been smart to fade a lot of the aggressive moves, getting a little bit overbought in the short term. To me, the question is how the market absorbs that.

If you hang on to more than half of this 14 percent gain on any pullback, that might be a kind of victory. This poll, in some sense, shows you a shift in sentiment because you can't think that tech is going to be the best performing sector of the month and think that the market is going to go back and retest the June lows. It doesn't work that way. It almost can't mathematically. I do think a lot of it is about recency bias. Look, it felt like tech obviously was a lot of dry powder there that's been ignited in the last few weeks.

There is going to be some commentary. I guarantee it tomorrow. You and I are going to come in. You're going to see the technical assessment of this rally and say, you know what? It can't be the old leaders. The old leaders are not going to be the ones that are going to take us out of this into a new bull market. Just because that tends to be not the way it's gone. So I do think there's a genuine debate that's gotten set up right here. You can have June be a real low and also not really have a lot of upside opportunity in the short term. Those two things can coexist. Something's going on, right? The ability to look past very hawkish Fed speak, the VIX at 22. I don't even know where it firmly finished up the day, but that just speaks to volatility and where it's gone. Something's going on.

Well, without a doubt, we've been living with these issues for so long. You can plausibly say it's peak inflation. You could plausibly say it's peak Fed hawkishness, even if the Fed speakers are out there trying to remind everybody that they can't really concede that they're almost done. But, you know, beyond that, are there other shoes to drop? Did we just get lucky with this reporting season and benefit from very low expectations? All those things are in this mix. I feel like everything's in the market. I mean, you could make the case that everything is in the market except for a big recession.

Oh, for sure. Massive hard landing. I think at the lows, you had the average decline you get with a kind of garden variety recession. I think it's going to be a very odd recession if we get it statistically, just because as we've been saying, nominal growth has been high. You've got no real consumer excess out there in terms of balance sheets.

So all those things, I think, complicate the picture. Yeah, and we still, we know we get more earnings that seem to confirm that narrative that people want to tell. Not as bad as we thought it might be coming in. I appreciate it. Have a great night. That's Mike Santoli, last word.

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