Closing Bell - Closing Bell Overtime: The Road Ahead for Risk 11/4/22

Episode Date: November 4, 2022

Is the trading environment getting worse as many suggest or does today’s hot jobs report mean the economy might actually be able to withstand the interest rate onslaught from the Fed. Solus’ Dan Greenhaus gives his forecast. Plus, Vantage Rock’s Avery Sheffield breaks out her inflation playbook. She breaks down the parts of the market she thinks could thrive in this uncertain environment. And, Ed Yardeni is making a bold call on stocks and what might be in store for the rest of the year.

All right, sir. Thank you very much. And welcome, everybody, to Overtime. I am Scott Wapner. You just heard the bells. We are just getting started from post-nine here at the New York Stock Exchange. In just a little bit, I'll speak to famed market watcher Ed Yardeni, who says the bottom is in for 2022, despite a more hawkish Fed and expectations for several more rate hikes. Interesting call. We will test Mr. Yardeni on it. We begin, though, with our talk of the tape, the road ahead for risk. Is it getting worse, as many suggest? Or does today's hot jobs report mean the economy might actually be able to withstand the interest rate onslaught from the Fed? Let's ask Dan Greenhouse, Solus Alternative Asset Management's chief strategist

here with us on set today. What a week, right? Another Fed meeting, pretty hawkish it ends up. The jobs report's out. What do you make as far as how stocks have reacted since, including today with a 400-point move on the Dow? A great day. It looks like we're going out up a percent and a third or so, 1.3 percent for the S&P. That's pretty good. And, you know, I listened to the jobs report, did nothing to dissuade or should do nothing to dissuade the Federal Reserve from its rate hiking campaign. Obviously, the conversation now turns to December and whether they hike by 50 or 75. In the bigger scheme of things, that's largely irrelevant. But I would also add you've got two more inflation reports, including one next week, that will go much further to informing us on that debate.

I guess you look at this, you could look at it a couple of ways, right? It's probably it being the jobs report, a little too hot for the Fed, but also underscores how resilient the economy has been in the face of all of this move from the Fed, right? 300 basis points since the beginning of the year, four consecutive 75 basis point moves, and yet we're still creating a lot of jobs.

Now I get that it's a lagging indicator, but Neil Kashkari sort of weighs in this afternoon, tells the AP, he, of course, the Minneapolis Fed president, that tells me we have more work to do to try and cool down the economy and bring demand and supply into balance, suggesting, to your point, does nothing to take them off their path. Yeah, but mind you, Neil told us nothing today that we didn't already know. Whether it's 50 or 75 in December is largely irrelevant in the sense that they're going to do more. What if it's 25? What if it's 25? The Boston Fed president says you've got to slow the pace perhaps 50 or 25 next time. Yeah, I think 25 at this moment is an outside possibility. I would

not bet on 25, but, the conversation turns towards a slower pace, perhaps 25 at the late January, early February meeting in the beginning of the new year. Listen, again, what we're talking about now is largely irrelevant. Is it 50 or 75? Is it 25 versus 50? The point of the story is rates are going higher. The two-year has priced some of this in. The 10-year, I think, probably has not. And then the question becomes, can stocks or can risk assets in general perform well if you have another 75 or 100 basis points of additional Fed tightening and the commensurate decline in economic activity that's presumably, although not assuredly, going to accompany it?

Okay, so hold that thought because I do have some breaking news that I want to get to related to the Fed. Our Leslie Picker has that. Hi, Leslie. Hey, Scott, it relates to the Fed. Indeed, the Fed releasing their biannual report on the state of financial stability. The overall headline of this very long report is that the Fed believes the financial system is stronger than it was, say, in 2008, and in many ways stronger than in the months leading up to the pandemic. Fed Vice Chair Lael Brainard said in a statement that, quote, indebtedness has remained stable and, quote,

on average, households and businesses have maintained their ability to cover debt servicing despite rising interest rates. However, she added that, quote, rapid synchronous global monetary policy tightening, elevated inflation and high uncertainty associated with the pandemic and the war raises the risk that a shock could lead to amplification of vulnerabilities, for vulnerabilities, asset valuations, borrowing by businesses and households, leverage in the financial sector, and funding risks. They say in the report that asset valuations have come down since the last report six months ago in May and become notably more volatile. The banking system remains well capitalized, as the Fed said during the stress tests over the summer as well. The Fed said short-term funding markets continue to have structural vulnerabilities just given the high uncertain economic outlook, but said funding risks at domestic banks are low at this time.

The Fed also included a survey of 26 outside experts for what they see as the biggest risk over the next year and a half. The top-sided risk was persistent inflation and monetary tightening, Russia's invasion of Ukraine, and volatility. So perhaps some signaling to the Fed in that survey, Scott. Yep. Leslie, thank you for that breaking news, Leslie Picker, on that for us. So back to you. OK, we know consumers are borrowing more. They're spending more on their credit cards. So far, the debt service, not much of a problem. And one reason could be, as Axios tweeted today, Americans still collectively sitting on $1.7 trillion in excess savings built over the pandemic.

That's one reason why the economy has been able to maintain its resiliency in the face of 300 basis points worth of hikes from the Fed. I mean, listen, when you listen to the companies that have reported that are consumer facing, Yum Brands said basically globally we see no issues with respect to the consumer. American Express said, hey, we hear everything you guys hear, but we see no change in behavior. Visa said we see something of a change in behavior, but total spending is doing fine. Booking holdings and Live Nation, which obviously the stock didn't have a great day, but average ticket prices are up 17% and they're selling more tickets than they ever have before. The consumer, by almost all accounts, is doing phenomenally well. It's an important part of why the economy is holding up as well as it has.

But again, going forward, as this continues to worsen, that is the labor market, we're probably going to see a shift in that narrative. And what happens if we're on the precipice of a Fed fight? Every decision of late has been unanimous. What happens if you start to get a real contested decision in the room. Boston Fed president, I mentioned today. You've got others who are saying, hold the line. This is evidence, the jobs report today, and maybe to some respects, the rally that we see in stocks, evidence that we need to keep the pedal on the floor. Any implication for how investors should be thinking of a more contested room? No. Listen, to borrow a phrase that's used way too much, I mean, the easy money has already been made, so to speak.

You knew you had to get the Fed funds rate up. You knew you had to tighten financial conditions and contract credits somewhat. The easy work has been done. You couldn't be at zero. You couldn't be buying mortgage-backed securities. Now the hard work begins. How much pain are we willing to tolerate? How much pain are we willing to tolerate? How much pain are we willing to cause in order to help bring down inflation to the extent that we think that the Fed actually can bring down inflation? Yeah, but you may have differing views in the room. Some people who say, you know what, you're going to have to inflict more pain because it's the only thing that's going to bring inflation down. To the others who suggest you've already done enough, let's sit back and see where the dust settles.

And on that note, let's expand the conversation. Lauren Goodwin is here of New York Life Investments. Greg Branch of Veritas. Greg, of course, a CNBC contributor. It's great to have both of you with us. Lauren, you take everything into context of what happened in a busy week. You know, a few weeks into earnings season now. And where do things lie as you see it?

Well, there's a couple of things driving the markets right now i think first and foremost as you've been discussing is multiple compression just the sheer gravitational force on the market lately as a result of what the fed is doing with respect to interest rates what we haven't seen yet the second factor has more to do with as as dan was very astutely pointing out the slowdown in economic activity that's yet to come. I think we still have major downward move in equity markets related to revisions in earnings that we just haven't seen over the course of this year. And the stronger that this economy is, the more resilient that it is, the harder the Fed's going to have to work. And I think that just means more volatility from an investment perspective. So, Greg, I feel like we have a battle coming up between besides what I just suggested could be happening in the room with the Fed

is seasonality versus reality, right? Seasonality, people say, oh, well, it's a good time for stocks, generally speaking, historically. So they're going to do well between now and the end of the year versus the very reality that we just had a conversation about,

about what lies ahead, not only from the Fed, but the way earnings need to come in. And then you need to process all of that and think about where stocks can go from here. Right. And I would say anyone voicing that argument of the seasonality overpowering probably hasn't looked at the fourth quarter estimates in a little while. Remember on June 30th, estimates for earnings growth of the fourth quarter were 9%. Today, that number is negative 1%. We're in for a fairly gloomy fourth quarter, Scott, and we're hearing that anecdotally from the companies as well. I disagree with Dan. I think we'll start to see some cracks in the

consumer. We're sitting at about $40 billion shy of the record credit card debt we set in 2019. So yes, the consumer has been spending, but the consumer has been spending by levering up at a time where we're approaching a historical expensiveness for that to happen. We're approaching the historical highest APR we've seen. We've had set records every quarter for credit card openings. And I think that all of that comes home to roost as we're in the midst of an ever-increasing interest rate environment. The macro challenges my colleagues have already gone through, I would simply say this, the earnings for 2023 still sit at 6%. So we're still going to undergo pretty significant downward revisions in the next quarter.

Better than 8% where they were, right? They've started to come down. I mean, that's made you a little more positive in the framework of things, hasn't it? It has. Look, at the beginning of the year, Scott, recall that I was at mid to low single digits. The street was at 20%. We were just on different planets. And until we actually joined the same universe, it's really hard for me to think that the market's functioning properly or that we can continue to actually value stocks properly. But when I see consensus for the fourth quarter

at negative 1%, finally, we're on the same planet. We're talking about the same things. And we need to have a shared mutual vision of what a reality or at least a realistic goalposts look like in order to talk constructively about valuation. Lauren, your whole argument is that earnings estimates need to come way down from where they are even now. If they've come down slightly, it's just the beginning as far as you see it? That's exactly right. I think that we have potentially 20% more room in the S&P 500 before this recession is over, as the recession comes. And I do expect that the Fed's policy at this point is recession. I think that instead of a downside scenario,

that's what we need to expect. Because in order to bring inflation lower, they're going to have to keep rates high or at least restrictive for longer. And that's a story that leads to significant volatility for the equity markets. Now, it's not all bad news. There are elements of resiliency that we can find in the market. And for investors, perhaps most importantly,

being all cash when inflation is 8% is potentially not the wisest approach. But in terms of what to expect for the markets moving forward, volatility, bear market rallies, as we've been seeing when we see moments of reprieve in that narrative, but recession is the narrative. Is that your base case, recession? Yeah, I mean, I brought a quote.

I don't know if we can call it up. We'll call it up. Because Leisman talked about this, and I think it came up at the I watched the halftime show, as you all should. And this conversation came up about whether Jay Powell is willing to push us. Oh, there it is. Great. If we were, I can't say it. If we were to over-tighten, we could then use our tools to strongly support the economy. Whereas if we don't get inflation under control, next slide, please. Because if we don't tighten enough, now we're in a situation where inflation becomes entrenched

and the costs, the employment costs in particular, next slide, please, will be much higher potentially. So from a risk management standpoint, we want to be sure that we don't make the mistake of either failing to tighten enough or loosening policy too soon. You're really good at that. Well, we've got to work on the smoothness of the slide transition, but it's my first time doing it. But that said, that's Jay Powell, to Lauren's point, effectively saying, guys, listen to what I'm saying. I'm more likely to cause a recession because I want to be sure that I choked inflation out of the system than I am to take my foot off the brake too soon and risk this getting out of control again. So then given all of that, I think we all sort of know about where the Fed thinks it can get to.

Whether it can actually get there, we're going to find out. But we know where they think they can get to. The question is, the best opportunities, if they don't lie in equities, according to you, where within the credit space if they don't lie in equities according to you where within the credit space do they exist jeffrey gundlach whom i spoke to out in denver has been buying longer dated treasuries for the first time in a while i want you to listen to what he told me and then we can react on the other side because both lauren and greg have ideas related to how you can make some money here spreads on non-treasuries have widened.

Spreads on guaranteed mortgages have widened by 100 basis points. So their yields are up 450 basis points. Junk bond yields got out to 600 basis points. They've come in to about 480. When you tack that on to a 4-plus percent tenure, you're starting to push 9.5%. You've got emerging market debt that's up with those yields. There's things in the single B, triple B category in fixed income

that are asset-backed securities or different parts of the credit market where there are yields of 12%. Now, to take those yields, you've got to take risk and you've got to be aware that you could have some bumps along the road. That's what the treasuries do for you because the treasuries will yield over four. All right, so that's Jeffrey Gundlach, who obviously is a bond guy,

with some very specific ways that you can both make and hedge your risk to, even as you take on more. Yeah, really interesting ideas. I do want to say, I actually think there is some opportunity in equity markets. I think this has been an incredible earnings season in defense of value equity. The sectors that are outperforming and also the reason that they're outperforming the quality, the low sales variance, the high margin that those companies are printing. That's a resilient play again, especially when inflation is running 8 percent.

But within the credit space, I love high yield as an asset class. I do think we have a little bit of spread widening to go from here. We're not in recession yet. But as soon as we get that number, that's an area where we're going to be adding aggressively. And the reason is that this is a completely different asset class than it was in the last economic cycle. Huge improvement in quality, in part because so many of the middle-of-the-road borrowers within high yield have moved into the leveraged loan or private credit space. So that's an area in which we have really high conviction.

And then across asset classes, love some durable themes. Infrastructure, both in equity and in the municipal bond space, as an example. Lots of funding already there and more to come. See, Greg, I know you have some ideas about credit, too. I asked Gunlock specifically about munis, which many people have been picking both on halftime and in overtime. He said, yeah, the opportunities were great, but now they're a little rich. What do you think? I would disagree with that. I'd also disagree with him in terms of the duration. At the end of the day, you know, we've been doing

more short duration stuff because we want to be well positioned when we can find a bottom somewhere in 2023. In terms of high yield, there's lots of high yield out there that we like as well. Although we would lean towards quality, because at the end of the day, that's one of the reasons we're skewing equities, is are you being compensated for the risk? And so the short end of the curve, munis, investment grade. In terms of equities, I do agree that there's probably some opportunities. Remember, we used to talk about this six months ago, Scott. I had a few safe havens. The island of safety has gotten much smaller.

Digital advertising is off that island. Cloud is off that island and you know all those businesses that gave us persistent persistent earnings growth inelastic demand are seeing their own headwinds now it's been one of the worst weeks for the cloud software businesses we've seen cyber security it's been a really bad week thank you twilio right but but but the underlying concerns are that the it budgets are coming in companies are talking about cutting their CapEx. Companies are talking about layoffs. It's hard to preach a growth story when you're talking about freezing your hiring.

You can't have both those things. And so at the end of the day, the one that remains, the one that I still feel secure in is energy. Energy is the one sector that we saw in the third quarter that grew its earnings 100 percent and going into the winter heating months and going into the standoff that europe's having with russia i believe that there are structural and political elements that is really setting up for the mother of all supply shocks and so i think that that will remain a safe haven for the next couple quarters we will leave it there gregory thank you we'll see you soon lauren thanks for being here dan greenhouse thank you as well well. And for the graphic thing and everything. It's my

favorite time of the day right now. All right. Have a great weekend. We'll see you guys soon. On the other side of that, let's get to our Twitter question of the day. We want to know which of these names are you betting on ahead of earnings next week. Is it Disney, AMC, Roblox, or Lyft? You can head to at CNBC Overtime on Twitter to vote. We'll share the results coming up a little bit later in the hour. We are just getting started, though, here in overtime. Up next, your inflation playbook. Vantage Rock's Avery Sheffield is back with us where she sees upside in the market if, in fact, inflation does remain red hot. And later, the big call from Ed Yardeni. We referenced it at the very top of the program. He says the bottom is in for

the year. He will be here to make that case. We're live from the New York Stock Exchange on this Friday. Overtime is right back. Welcome back to Overtime. We have a news alert related to Netflix. CNBC.com's Alex Sherman reporting that Shonda Rhimes and other Netflix creators are unhappy with Netflix mid-video ads, which launched yesterday. Alex Sherman joining us now with those details. What's going on? Yeah, so this is a bit of a mixed issue depending on which side you come from, the creator perspective or the Netflix perspective.

On the one hand, you've got Netflix that announced its advertising tier just yesterday, $6.99 per month. And Netflix's take on this is, look, we own all of our original content. We've decided to put advertisement in the middle of that content, and that's our prerogative. On the other hand, you have a group of creators that kind of run the gamut from what I'm told, but they include Shonda Rhimes and Intrepid Pictures, which has several executives that make horror films, that don't like the idea of putting advertising in their content because they think, A, it interrupts the storytelling, and B, when they signed on originally with Netflix,

Netflix didn't have any advertising. So that was sort of part of the pitch. So there's not much the creators can do at this point. Netflix does own the content, other than kind of, you know, voice their displeasure and maybe get some of the guilds to work on their behalf. But, you know, it is notable as creators sign deals with Netflix moving forward that Netflix is no longer this only game in town that doesn't include advertising. You know, I feel like, and I want your comment on it, that we are entering this brave new world, if you will, of ad-supported content and the push-pull that we're just going to start seeing from the content creators, the Shonda Rhimes of the world and others and the advertisers themselves. Not only this story, but the news of the day related to Twitter and the issues that Musk is finding with advertisers related to his platform.

Can you speak to that? Well, look, there's there's always been a general media business decision when it comes toward, do I want to be a subscription business? Do I want to be an advertising business? Or do I want to be both? And there are many companies historically that have made the decision they only want to do subscriptions because they don't want to deal with sort of the potential externalities, positive and negative, that come along with either catering to advertisers or the ramifications that come along with advertising in general. You know, should it be attached to certain content, that type of thing. So it's easier in many ways for companies to just say, look, we're not going to do advertising. We don't have to worry about any of those considerations. The problem is when you're a publicly traded company like Netflix and your growth eventually stalls out and you see a

major pullback in your stock, then you need to start thinking about, well, look, I'm leaving all of this money on the table by not doing advertising. Maybe it's time that I weighed in there, even if I have to deal with some of the consequences that come along with it. Yeah, these different revenue streams come with different ramifications. Alex, I appreciate it very much. That's Alex Sherman. You can get the full story, by the way,

and I urge you to on CNBC.com. Investors, they're looking ahead to next week and another critical CPI report. My next guest, laying out a few places you'll want to put your money if inflation continues to run hot. Joining me once again, post-night, Avery Sheffield of Vantage Rock,

a part of Rockefeller Asset Management. It's good to see you again. Welcome back. Good to see you. Is that our expectation that another hot CPI report is coming? I mean, it certainly could be. Look, at some point, though, this is going to fade. And I think what's really important is that, you know, Jerome Powell is acknowledging that there are some real-time indicators that are starting to fade.

But we still are lapping so much inflation that we're going to need to be more aggressive. And I think that's kind of like the key takeaway of all of this is that even if we start to see some inflation subsiding a bit, it's probably not going to be enough to stop the Fed from its course. OK, so then if that's the view you have, what does it mean for where you think the markets go from here after what was a pretty busy week? We still have earnings to think about. We've got the CPI. We've just had economic data.

You know we're going to get more. We're going to get more Fed speak. It's likely to be hawkish. What does it mean? Yeah, so I think what it means is that we're likely to be in this somewhat higher interest rate environment for longer, right? So where you want to go with your money is like you want to own stocks that had business models designed for higher inflation and for a higher cost of capital. And you want to be very cautious on those that were not designed for that type of environment. Well, let's talk about the difference then. The ones that were

designed for these sort of choppy waters or what? Yes. I mean, more kind of traditional companies. They tend to be value companies now, companies that are cheap and often priced for a recession, right? So you have, you know, traditional retailers on the one hand, which we've talked about before, gotten very beaten up. And we are starting to see names that have strong branding and or strong, really strong operations and inventory control kind of having bottomed out and then actually going up on earnings, even sometimes when earnings are disappointing and sometimes they're not

disappointing. You have, you know, we've talked about this before, kind of some of the conservatively managed banks like Wells Fargo, you know, which we own, really providing real opportunity for value. You have some insurance companies. You, of course, have energy. Now, if China is going to, China's, I think, the big wild card there because supply is so constrained. But if China is reopening even on the margin, if things aren't getting worse there, like that's another opportunity. And then you even have in the industrial space, even some in auto supplies, for example. You even had a company, Magna, this morning, which we like and we own, you know, reporting. It was a little bit disappointing, but the stock was up because it's just cheap enough and things aren't that bad.

What am I to make of what's going on in tech? I asked a guest earlier on the Halftime Report as to whether this was a real sea change in the way that investors need to think about that group of stocks from the, let's say, from the top down, the biggies to the, you know, the more high flying or even some of the sort of old tech kind of value plays? How do you think about the whole space? I mean, I would apply the same framework. So the issue with tech is that many of the companies have traded and traded on a 0% cost of capital, right? The metrics people are paying attention to are adjusted EBITDA, where there's no actually real net income.

All the free cash flow is coming from stock options and contracts being paid in advance for their customers. Those types of companies in this type of environment, I think, will continue to be weak, right? I mean, you might look at them today and say, oh, my gosh, these stocks are down so much, even on today, this week, over the past several months. But I don't think there's a bottom in for companies that don't have a business model if you actually just evaluate them on net income. What about for even the mega cap techs? I mean, they've had a horrible week. Yes.

Their earnings weren't great. I mean, their earnings were okay. The outlooks weren't great. Right. Has that changed for them? Well, look, I think most of the mega cap tech companies actually trade on, you know, are not infinitely expensive on net income, right? But they're not cheap.

We're going into a tougher environment. Certainly, probably the ones that are less expensive, a better place to be than others. But I don't think that's where you find value. And I think that that's, there's still downside because they're just not cheap enough yet if this somewhat inflationary, somewhat kind of tough economic environment continues. All right. We'll talk to you again soon. Thanks so much for coming by. That's Avery Sheffield joining us from Vantage Rock once again here on this Friday in overtime. Coming up, giving the all clear. Ed Yardeni is out with his big call on stocks today, where he sees the market going from here, why he thinks the bottom is in despite

all of the risks that still lie ahead. We'll do it next. All right, we're back. It's time for a CNBC News Update now with Kate Rooney. Hi, Kate. Hi, Scott. Here's the news at this hour. National Security Advisor Jake Sullivan has made a surprise visit to Kyiv. Sullivan reaffirmed U.S. support for Ukraine in a meeting with President Zelensky and announced an additional $400 million in military aid. Earlier today, G7 foreign ministers issued a joint statement repeating their, quote, unwavering commitment to Ukraine's defense. In Florida, police found three women and a four-year-old girl fatally shot in their home. They were responding to a 911 call from another shooting victim who managed to escape. Police say they also found the shooting suspect in the home,

a 23-year-old man who had turned the gun on himself after shooting the others. He has been hospitalized and is undergoing surgery. And Brooklyn Nets star Kevin Durant said his team could have handled the Kyrie Irving incident better and could have, quote, stayed quiet during the uproar over Irving's social media posts about an anti-Semitic movie. Durant later clarified on Twitter that he does not condone hate speech or anti-Semitism. And this just in, the former CEOs of MoviePass and its parent company have been charged with securities fraud. Prosecutors say they misled investors as part of a scheme to artificially boost the company's stock price. Back to you.

All right. Kate, thank you. That's Kate Rooney with the news. October 12th. That's the day the S&P 500 bottomed. At least that's according to Ed Yardeni. He joins us now to make the case exactly why he thinks that. Ed, welcome back. One week we've had and pretty gutsy after this week, frankly, to say that stocks bottomed. Why do you think they have? Well, I've actually been saying for the past few weeks, I actually thought the June 16th low of 3,666 was the low. Obviously, we fell below that. But it seems to me that we're in a bottoming process. I think that the market has certainly discounted a great deal of what the Fed is going to do. I don't think the Fed is going to go as far as has been talked about following Powell's press conference. You yourself made a good point that I think there could be some pushback among other Fed members,

as there was actually last Friday, where we heard from some Fed officials suggesting that at some point they may want to step down the tightening and at some point they might want to pause. Jim Bullard being one of the most vocal on that view. I agree with Jim Bullard. They're going to do 75 basis points in December, and I think then they're going to pause. I think inflation is— Wait, wait, wait. Hang on a second. Hang on a second. And forgive me for jumping in. You think they're going to do 75 basis points in December and you still think that stocks have

bottomed? Yeah, absolutely. I think the market actually discounted that. I don't think the market's discounting that we're going to go to 6 percent, but I think four and three quarters percent to 5 percent of the Fed funds rate is in the market. The two-year is at 4.7%. I mean, that's really not news. The Fed has been lagging behind the markets. And the markets have been ahead of the Fed because the Fed's communicated what it's going to do. And they just have to wait between meetings to do what they're going to do. So I think the markets have actually discounted that pretty well. And look at today's action. Look at this week's actions. Not really

that horrible, given what the shock effect that we had from Fed Chair Powell. Powell turned more hawkish than he's ever before. I think we've got peak hawkishness coming out of Powell right now. And I think you're going to get some pushback by other Fed officials. But the most important though, I still feel like where we're underestimating the fortitude, if you want to use that word, of Powell and the Fed. The market had seemingly got its arms around this idea on Tuesday that on Wednesday Powell was going to have some sort of dovish you know wink and a nod that we're we're nearing the end and it sure as heck sounded like that in the statement until he actually started talking himself where his you say he sounded more hawkish than he has ever sounded before, which leads me to suggest that people are in denial. Well, I might be in denial for sure. I mean, it's happened before. But no, my feeling is

Powell is a pivoter and he's pivoted before he'll pivot again. And I would not at all be surprised if they moderate their tone at the beginning of the new year, maybe even by the end of the year. I think you're going to see some real moderation in the inflation rates. We're seeing that in the PMI indexes, both for manufacturing and non-manufacturing. So I think that's going to help quite a bit. Meanwhile, the economy is going through what I call a rolling recession. It's already in a recession. It's in a soft landing recession as opposed to a hard landing recession just to be clear i'm i'm in the soft landing camp and i'm giving that subjective probability of 60 percent so i'm not denying that things could be a lot worse than that most likely scenario based

case which is what i'm looking at it could be 40 percent that it's a hard landing but at this point i i think we're going to make it. I'm going to make that the last word. I'll make that the last word. Ed, I appreciate it very much. My pleasure. That's Ed Yardeni making a big call on this Friday in overtime. Up next, turmoil, drama. Pick your word because all seems to be happening at Twitter from mass layoffs to blowback reportedly coming now from advertisers. We're breaking down the latest takeover drama that is straight ahead. And later, a betting beatdown, the big headline that had DraftKings investors cashing out and running for cover. Overtime's right back.

It's only been a week since Elon Musk formally took control of Twitter, but already plenty of plenty of drama from today's controversial layoffs to reported pushback on the platform from advertisers. Let's bring in Alex Kantrowitz of Big Technology and Casey Newton of Platformer. Both are CNBC contributors. The band is back together, which is always a good thing. It's good to see you guys. It's been a crazy week, Casey. It feels like a year, but it's only been a week. What do you make of what we've learned so far? Well, you know, I really don't think we've ever seen a 24 hours like this in Silicon Valley. You have thousands of people who are just watching themselves being disconnected from Twitter, Twitter Slack and then

narrating their experiences on Twitter for all of us to see. So there's a lot of sadness coming out of that company. And I think there's a lot of confusion and uncertainty about what it's going to mean for the future of this company. Alex, what do you make of the way all of this has gone down, you know, from the layoffs to the other issue, which we're going to get into in a moment with the advertisers. But you've got I've seen New York state lawmakers tweeting about the way that these employees were allegedly let go. The layoffs were handled terribly. I don't think there's much debate about that. This is going to be a case study in business schools for years about the way not to do it. No communication for management from the moment they took over. And frankly, you know, layoffs

that hit core teams that Elon Musk is going to need. So it's bad for the business as well. Some of those layoffs came in sales and advertising. You know, so it's no wonder that advertisers who have little clarity about what the content policies are going to be for this new leadership inside Twitter, it's no wonder that they are now trying to hold back their ad spend. But this remains what clearly seems to be the largest issue moving forward, certainly from a business standpoint. Let's take a look at this tweet from Elon Musk this afternoon regarding the advertisers, in which he says, quote,

Twitter has had a massive drop in revenue due to activist groups pressuring advertisers. And though nothing has changed with content moderation and we did everything we could to appease the activists, extremely messed up. They're trying to destroy free speech in America. Casey, I'd like your reaction to that first and what the broader ramifications are for the vision and ideas that Musk and company had for that side of the business? Well, look, I sort of laugh at the idea that Elon has tried everything he could to appease advertisers when just a few days ago he was

tweeting homophobic conspiracy theories, right? So I think it's only natural that during a transition like this, advertisers are going to want to pause and see what the new lay of the land is, because brand safety is very important to them. Now, for Elon, this is a real problem because Twitter makes 89 percent of its revenue through advertising. And so if he doesn't get this handle, if he doesn't get a handle on this in a hurry, you know, this is going to become even a worse deal for him than it already is. Is it going to be a heavier lift, Alex, do you think, than he thought for even somebody like Musk, who's obviously proven that he can run multiple businesses successfully at once? Absolutely. It's definitely going to be a heavier lift than he thought. And you hear people around him talking about how it's going to be easy to turn this company around. And I think that's the first warning side. When people say trying

to fix Twitter is easy and it all feels easy to us as users, that sort of gives you an indication that they haven't thought through the problems as well as they should have. And I think that goes for Musk. I think that goes for the people that he's listening to. And I think I was feeling a little bit more optimistic at the beginning of the week, but now seeing the reckless nature of this layoff, the fact that how can you know who to cut? You've been there for six days and you make your list. Like, it doesn't make sense. The traditional playbook here is you spend two months learning the business.

Then you make your decision. You do it in a day. And this has just been so messy. It's going to make the hill much harder for Elon Musk to climb going forward. Casey, I'll give you the last word on what was the biggest issue, this idea of charging verified users $8 a month before this sort of ad storm blew up in Musk's face. And we're talking about that as the principal issue because it's the key business issue. But what about this idea of what seems to be a fair amount of pushback on the idea of $8?

Yeah, look, I think it makes sense for Twitter to shift more of its revenue mix to subscriptions over time. I think there's a lot of low-hanging fruit there. I think charging users for features, including at least some forms of verification, probably makes sense. But when you look at how much they can make off of $8 a month with the relatively low penetration they're going to get at that price. And you compare that to the size of their current advertising business. There's no comparison. That's a drop in the bucket. So Elon's getting a lot bigger ideas if he wants to make his money back on this company.

Guys, as always, I appreciate it and enjoyed it. That's Alex and Casey joining us once again on All Things Twitter. Up next, we're wrapping up another big week for stocks. Christina Partsenevelos is standing by with our rapid recap. Christina. And tech having a rough go this week. I'll tell you which mega cap names are close to two-year lows and whether Boeing's outlook could turn things around for the stock. Details right after this short break. We're wrapping up a very busy week on Wall Street.

Christina Parks and Avalos is here with our rapid recap. Christina? Well, Scott, we managed to eke out a rally today, but it wasn't enough to end the week positive as investors digest the latest payroll numbers and what it means for future rate hikes. The S&P 500 and the Nasdaq both broke a two-week winning streak with the Nasdaq's worst weekly performance since early January.

More specifically, Apple's worst week since February 2020 and Alphabet since March 2020. Energy, industrials and materials, the only S&P sectors closing out the week in positive territory. Abiomed, the biggest gainer, up 44 percent this week because of news that Johnson & Johnson wants to buy it. And then Boeing having a very strong week, up about 11 percent. The company forecasts a jump in deliveries and higher free cash flow next year. And that's the Rapid Recap. I can't even say it properly. Rapid Recap. Bye, Scott. Good weekend to you. All right. You have a great weekend, Christina. Thank you. Up next, DraftKings getting destroyed in today's session. We're digging in on that big drop. We'll do it next. Shares of DraftKings plunging in today's session.

Contessa Brewer, our expert on all things gaming, is here with me now. What's going on with this? I mean, this is a drop the likes of which, and this stock has had a lot of drops but you don't often see this well i think that it's an unfortunate issue of timing because what happened was caesars and penn reported earnings before draft kings and though the trajectory for profitability from these other competitor competitor companies was similar what we heard from those ceos is hey we've had an october that is profitable where football has gone gangbusters. It's all in our favor. And oh, by the way, Vegas is crushing it, as you've said yourself.

Yes. And in fourth quarter, both Penn and Caesar said we could be profitable in our sports betting and our digital division, depending on what happens with the mattress Mac bet on the Astros. So all of this, they're so close to profitability that whether they make it or not, could be riding on what happens with World Series. Jason Robbins came out today and said, DraftKings CEO, we plan to be profitable in the fourth quarter of 2023. So there has been no pivot. There has been no adjustment where his competitors have moved forward dates to profitability.

He wasn't able to do that. Because are they still caught in what they were, and maybe caught is not the right word, but having to spend a lot. I mean, they're marketing spend to try and, you know, they're promotional. You've got to get users to come in. Are they still in that world of having to do that? Yes, although he says, look, where we've been in business for a while, we're pulling back on customer acquisition costs.

We don't spend as much. However, the monthly users, and they reported a big increase, double-digit increase for monthly unique users, but it wasn't enough to beat Wall Street expectations. So it was just basically a disappointment on a lot of metrics that Wall Street was looking for them to achieve. Saw this massive move, said, we got to get Contessa to tell us what's going on. Thank you. Sure. That's Contessa Brewer. Don't miss DraftKings CEO on Mad Money tonight with Jim. Get right to the source, exactly what's going on from Jason Robbins himself.

Last call, weigh in on our Twitter question. You can head to at CNBC Overtime Vote. We'll bring you the results coming up right after this break. To the results of our Twitter question of the day, we asked you which names are you betting on ahead of earnings next week. The majority of you saying Disney wins 67 percent of the vote. It is a big week for the markets. Midterms, key inflation data. We do have those key earnings we mentioned. Joining us now with your setup is CNBC contributor Gunjan Banerjee, lead writer for Markets Live at The Wall Street Journal. It's good to see you. Welcome to Overtime. Thanks for having me, Scott. So top of mind, CPI, CPI? Definitely. I think it's all about inflation. The bad news for traders is that though these economic data releases

have been getting more important for investors, they've been getting harder to trade. Think about what happened the last CPI release. Who would have expected that huge rally and a strong October 1st stocks? Even this morning, that jobs data, you know, all week I kept hearing good news is bad news, good news is bad news. That is not how it panned out. So good luck to traders trying to position around CPI next week. Well, as I said, you've got some earnings, too. Always Fed speak, which moves markets by the minute, too. We're a very headline driven market right now as well. It seems like that. And, you know, we have midterms next week. I think one bit of good news is, as we at the Journal recently reported, the S&P 500 has a basically spotless record of rising the year after midterms. But what we've been hearing from investors is, will this year be as cut and dry? Because as you said, it's such a headline-driven market.

It's such a macro-driven market in which the Fed really seems to trump absolutely everything else, as we saw this past week with the meeting. You've been writing a lot recently about the future of the tech trade. Megacap tech's had a terrible week. Where do you think it's going from here? Is it, are we at the cusp of a real change from these stocks, which were the ones that everybody piled into in good times and frankly bad, right? They were viewed in many respects as safety trades, defensive plays. Where does it go from here? I mean, that whole idea of tech being the defensive trade has completely sputtered and we've seen the kings and queens of the stock market dethroned. I think the shocking thing for me when I speak with investors is, you know, I ask them, look, Meta is off $800 billion in market valuation.

Is it a value now? There's no resounding yes there. You know, I have investors telling me I still don't think this company that's down 50, 60 percent is a value, which is pretty shocking. And that's bad news for the tech trade moving forward. These valuations have come down a lot from where they were. And you still have, to your point, some suggesting they're still too expensive, many of these names. Totally. And, you know, their spending, you know, is still seems out of hand to a lot of investors. Think about Meta. You know, Zuckerberg was pressed on CapEx,

topping $30 billion next year. He said, investors who stick with our shares will be rewarded, who are patiently rewarded. The next day, the stock fell 25%. So that tells you where investors' minds are at right now. It's been a really tough week for most. Not Apple. It's hung in there.

It's great to see you. Welcome to our show. Thank you. And we'll see you soon. That's Gunjan Banerjee joining us again for The Wall Street Journal. Hope everybody has a great weekend because we got to buckle up for next week as well. Fast Money begins now.