Closing Bell - Closing Bell Overtime: The Soft-Landing Scenario 12/5/22

Episode Date: December 5, 2022

Is the soft-landing scenario becoming more likely even in the face of more fed tightening? Solus’ Dan Greenhaus gives his take. Plus, top financials analyst Mike Mayo is betting on a turnaround for the sector. And, market expert Mike Santoli explains what he is watching after today’s sell-off.

Michael, thank you very much, and welcome, everybody, to Overtime. I'm Scott Walken. You just heard the bells. We are just getting started in just a little bit. I'll speak live to Schwab's Liz Ann Saunders on whether she thinks an end-of-year rally is still on the cards and what 2023 might look like for your money. We begin, though, with our talk of the tape, the soft landing scenario. Is it becoming more likely, even in the face of more Fed tightening? Let's ask Dan Greenhouse, Solus Alternative Asset Management's chief strategist. He is here with me on set.

Is that part of the conversation now? Soft landing is more possible than we thought? Well, I think certainly with each passing day that the data moves in a positive direction, so to speak, then, yes, the odds of a soft landing have gone up. And that's not to say that the data has been good because it hasn't. Well, today was pretty good. I mean, the ISM was pretty good. The factory orders was pretty good. The jobs report was pretty good. Jobs report was great.

All right. So you're contradicting yourself, right? The stuff was pretty good. No, but you also have the ISM manufacturing index moving below 50. This is a crucially important indicator for the economy, for earnings, for the stock market. Obviously, you have jobless claims starting to tick up. And obviously, at a headline level, you're seeing some of those reports earnings, for the stock market. Obviously, you have jobless claims starting to tick up. And obviously, at a headline level, you're seeing some of those reports come out of the tech sector specifically, although it's drifted into one or two other companies as well. So I think on balance, the data is mixed at this point. From a market standpoint, I think you're still wrestling with moving past the days of 75 basis point hikes. And now you're

really focusing on how high do we have to go to bring all the inflation down? Well, that may be what is in the market today. Is this suggestion that, yes, you slow the pace, but you could, as Mike just said, as the Journal was saying today, higher for longer, higher for longer than we expect? Is that a real issue for the market? Is that going to be the overhang? Yeah, because I think part of what troubles the market, and by the market, I mean the people I talk to. I think that's right, though. I think it's like most people are troubled by exactly what we're having. Yeah, because there's a debate about, on the one hand, you have the Jeremy

Siegels of the world who point to, at retail gasoline prices now, about $3.40 a gallon, I think it was. You have a number of commodity prices well off the highs. And so you have a group of people pointing to those prices coming down and saying, what's the Fed looking at? This stuff is moving in the right direction. But then on the other hand, you have a still tight labor market, wages that are running, depending on how you measure it,

or sort of independent in how you measure it, above acceptable levels. And so while the market is focused on the gasoline and the stuff that drops on your foot and hurts part of the market, I think they're part of the world. They're doing themselves a disservice by not focusing on the other side. And the Fed, the other side being labor, and the Fed being focused on that, is now, I think, more aggressively trying to guide the market to, hey, we're not going to stop at $4.75. It might be $5.25, perhaps even higher. So the biggest risk, as you see it, is that the pivot, much talked about pivot, doesn't come. Or if it does come, it's pushed off a lot further

than some think. And by pivot, I don't even mean cutting. I mean just stopping. Yeah. The people in my camp would also historically point out that Fed pivots, if you will, which is stopping. Traditionally is when you start the clock, so to speak, before whenever a recession eventually occurs. The historic reality is that the Fed tightens. Markets do fine. The economy does OK until you've tightened too high. Oh, because the lag effect, they stop and then you have to watch everything fall apart over a period of time. That's right. And then as we've been talking about together for a year now, 12 guys and girls in a room are not going to thread this needle because historically they haven't threaded the needle.

And I don't think they're going to do it again. Yes. But historically, has an economy been as strong as this one was when they started the whole exercise in the first place? That's the pushback to the historical argument saying, well, I mean, it's, you know, history says that their lift is very heavy, which I think we admit that, of course, it is. It doesn't mean, though, that it can't happen. No, that's right. And listen, you know, again, we have the, I feel like we're having the same conversation in the sense that, and now I come back to, and we haven't dealt with inflation to this degree in 35, 40 years. And so there's a lot of uncertainties and unknowns. But what I do know is that what will eventually be called 500 basis points of rate hikes affects the economy in meaningful ways,

granted with a leg. And the bet in my camp is that as the data continues to worsen and spreads into the first quarter, maybe even the second quarter of next year, markets are going to react, the economy is going to react. And the only debate really, well, there's two debates. When the recession starts, because there will be one, whether it's the second quarter or the third quarter, the fourth quarter remains to be seen, and how deep is that recession going to have to be in order to get the inflation out of the system along the lines that's being, I'm sorry, that's being driven by the wage side of things, not necessarily the goods in the supply chain. I'm only suggesting that maybe we're just as a,

you know, group of market observers too conditioned to the history to say, OK, this is how it happens. Fed starts tightening, Fed over-tightens, economy crashes, goes into recession, wash, rinse, repeat over whatever period of time we're talking about. I'm only suggesting that we had started from a much, much higher level on every metric that there is going in. Maybe the buffer is greater than we think. I don't think maybe. I. Maybe the buffer is greater than we think. I don't think maybe. I think definitely the buffer is greater than we think. And we've talked in the past about the amount of cash sitting in consumer bank accounts, that being exponentially higher than it was pre-COVID because of all the money that we distributed. And while that helped fuel the inflation, it also helped buffer the consumer

and by extension, the economy against the rate hikes that would eventually be needed to bring down the inflation. So undoubtedly, you're starting from a stronger level. But it doesn't mean that the Federal Reserve and interest rate hikes don't affect the economy in the same way that they always have and are likely to continue doing in the future. All right. So let's look at the S&P. Let's call it 4,000 for the sake of this conversation. Tom Lee today said 44 to 4,500 is reachable by the end of the year, not by the end of next year, by the end of the 10 percent rally in December. Yeah. Mike Wilson says sell the rally, sell it today because we've come a long way from the mid-October low, which makes more sort of sense to you. He is decidedly in the bear camp. Tom He is decidedly in the bear camp.

Tom Lee is decidedly in the bull camp. So I'm going to pull a Stephanie Link and say I'm somewhere in the middle. But I feel comfortable with that. I didn't let her get away with that either. And I'm not going to let you do that either, which seems like more plausible. Could we actually rally as much as 10 percent in the next three weeks? I think 10 percent on top of the 12% that's already been realized seems excessive to me. At the same time, I think the seasonality has always worked

in your favor. It's been working in your favor. This hasn't just been a tech-led rally because interest rates have pulled back. You've had consumer-facing companies like Nike, like some of the retailers that have outperformed meaningfully two or three times broad market performance. And so I think, again, the reality is somewhere in the middle that I have felt and sorry, I have felt and continue to feel that the bias for the market is higher for the interim. But sometime next year, perhaps as soon as the February, February 1st Fed meeting, that conversation may have to change. What if Powell signals next week that they are, in fact, near the end? If he lets us believe that you're going to do what you do next week, we think 50, right? And then you start tailing off and that they're, by virtue of that,

by definition, they're closer to the end. But what if he really makes you think that inflation's rolling over, they're starting to see it in areas that were of great concern, rents, et cetera, and that they actually are closer to the finish line. That would be incredibly positive short term for risk sentiment. There's no doubt about it. I don't think that's what he's going to do. I don't think the Fed has any incentive until you get at least until the middle of the year to give the market any clear white flags. You might interpret a white flag, so to speak, but any clear white flags on the inflation front. And let's not forget, by the end of next year, more or less, you're talking about an inflation rate somewhere between two and a half and three and a half percent, depending on

how things progress from here. Even the low end of that projection, assuming I'm right with the projection, even the low end of two and a half percent is above the Fed's target range, if you will. So it's not as if we're talking, there are some forecasters that have inflation coming down sub two, but even if I'm at the low end of my forecast, you're still above. And so again, from the Fed standpoint, you have a lot of cross currents here that are unlikely to contribute to Jay Powell being as dovish, for lack of a better word, as you suggest, as soon as the next meeting. Okay. We're going to see which is the best part of all that. Let's bring in Victoria Green of G-Squared Private Wealth now. Victoria Fernandez of Crossmark

Global Investments. Ladies, good to have you. Welcome to the conversation. Victoria Green, to you first. You're in the Mike Wilson camp, right? You would advise people to sell this rally, correct? Strongly. I mean, nothing changed. We came right like we did this summer. We bumped up against all the resistances. We had a brief break above the 200 moving average, but you still had some retracements and some downtrends. And we really didn't see it be able to get legs and leg above it. So in my opinion, the bear market is still intact. We did this over the summer. We had a great rally up 17 percent from the lows off the June. Wonderful. And then we all came crashing back down. So I look at this and I do agree with Dan that the Fed's going to slow play it because the market gets excited about any type

of deceleration or any type of anything dovish. The market tends to get really, really excited about that. So I doubt Powell is going to want to wave a white flag. So I look at this and I say nothing changed. Yes, the dollar is in a downtrend recently, but that 105, 106 level held and you saw that retrace today. Yes, the markets bumped against their 200 day moving average, a little bit of green shoots and then immediately came right back down. So until I see these patterns invalidated and until I see that EPS has really bottomed out and what earnings forecasts look like next year, I'm still in a bearish camp that we're going to retrace and push lower to that 34, 3200 level. So, Victoria Fernandez, it is is nearing the end

of the rate hike road enough. Is it enough for the market to put any sustainable move higher, even if they keep rates higher for longer than some expect? The mere fact that they're done hiking and the economy does have the cushion that Dan and I suggested it appears to have. Does that make a difference? I don't think it makes a huge difference, Scott, because look, we have 500 basis points probably of hikes that we're going to have to have work through the economy. We know there's this lag. We've talked about it. You've got yield curve inversion from three months to 10 year. You've got a strong consumer. So demand is not going away anytime soon. So I think just because the Fed gets towards the end, that's not going to

be the all clear sign. You just I mean, look at things like discretionaries versus staples. Look at high beta versus low beta. All of those are kind of in the middle of their range right now. And I don't think anyone is telling us we're going to have this sustainable bull market just because the Fed stops. And I think the surprise, Scott, is going to be the Fed is not going to stop when people think it will. 50 basis points in December, I think that's a given and we know that. I still think you've got at least two more rate hikes in 2023. And that may not be the end because, look, where are we right now with the market, Scott? We're right back where we were at Jackson Hole with everything that's been done. So does that tell the Fed we've got to do even more? I think that's going to be the surprise to the market is that the Fed does not stop and pivot when they expect.

So then, Victoria Fernandez, what does make the difference? If mere stopping isn't enough, do we literally have to wait until the Fed starts cutting rates for stocks to take off? Wouldn't they anticipate that in advance? They will anticipate it. And I think that's why we get the recession probably middle of 2023. I don't think it's going to be a deep recession. I think it'll be probably a shallow recession because we do have the strength of the consumer there. We do have that demand that's still going to filter

through because the jobs market is still strong. But I think we have to work through that recession. We have to have earnings come down. Look at where earnings expectations are right now. The first two months of this quarter, they've come down five and a half percent. That's more than double what we typically see. So I think we have to work our way through earnings, work our way through the recession, through the slower growth, get through some of the issues we're seeing right now with oil in Europe. And then I think the market can start to turn around. But I definitely don't see any rate cuts in 2023. Victoria Green, what do you think the market's pricing in right now? Is it pricing in a shallow recession? Is it pricing in no recession? What do you feel? Well, right now we're starting at

4000. It's definitely pricing in a mild recession. And that's why we think it's going to push lower, because we feel that that's a little bit underestimated. You know, certainly one of the biggest disconnects, I think, in the market is if you look at the swaps curve and what market expectations are for interest rates in 23, it sees cuts in 23. It's not staying at 5 percent. And then you have the Fed speak and Powell saying, hey, we may be higher for longer. So that to me is a big risk to the downside potentially, if the Fed sticks its plan. But we're expecting, you know, jobless rates to come up to 4% or 9%. You know, you're going to have to see unemployment come up. We got to get some of this money out of the system. And all of that's very, very painful. So for us, until we see a true decisive trend

reversal, we are thinking there's going to be a recession, and we think it's just the beginning of the job losses. You have seen that unemployment weekly claims start to inch up a little bit more, a little bit more, you know, and so we look at that and say, I think there's still more downside pressure to come. And I think, yes, sometimes we overestimate what Powell's saying, and this market's done that multiple times this year, where we get super excited about some one or two words we fixate on a speech, and we forget about the big picture. And again, I would look at that and say, I don't think there's going to be a cut in 23 unless it's a very, very large recession. And honestly, the market strength is giving the Fed more ammunition to continue because you have market stability. So why wouldn't the Fed continue to load in some rates, get this inflation under control? PCE is still

really high. Core numbers are high. Yeah, they're trending down. And have we seen peak? Yes. But plateau is a risk. And I think housing market is probably one of the biggest risks in that, because how fast is that going to come down? Is it going to stop or is that going to be a complete bubble? And I think that risk is one that's really hard to put a number on of where does housing come down to and how quickly does housing such a big part of inflation? Well, Powell wants it to come down a lot. I mean, he he used the bubble word, by the way, in the Brookings speech talking about housing in the run up during the pandemic. So, Dan, he understands also, as he suggested in that speech about the dangers of overtightening. So that has to be in his head, too, as he's thinking about what they're going to do and more importantly, what he's going to say and the lag effects, which they admit have yet to even really take hold,

other than the obvious ones in housing, which are more immediate because of the more immediate impact on rates. Sure. But to be clear, Jay Powell and at least one or two other officials in the Federal Reserve, while they've mentioned what you mentioned, they've also said the risks were under-tightening, not over-tightening, letting inflation become entrenched. And so if you're the Federal Reserve, you want your policy, your tightening policy to be fruitful. You want it to bear fruit, not just in the housing market, but in the labor market, but ultimately in inflation measures. And what I think next year will probably be, from a market standpoint, I think the story will be what we call negative operating leverage, which is if companies start losing their pricing power, their ability to raise prices along the

lines of what we've seen for the last few quarters, you're going to be left with margin compression unless you start laying people off. And so to echo Victoria's point, there's a real risk that by the first quarter, probably more like the second quarter of next year, companies are going to have to start shedding some of this accumulated labor in order to hold margin. And that begins the process that that results in ultimately a deeper bear market and a recession, however deep it might be. So, Victoria Green, what I find interesting is that you make you make a case for recession, right? You're negative on the market. You think we're going to have a recession. You think the Fed's going to stay super tight and it's going to take its effects. And then you want us to buy oil stocks. Why do I want to buy that if I think we're going into

a recession? And, you know, obviously, globally, not just here, demand would be destroyed. No. Yeah, I'm about to utter the four most dangerous words to investors that this time it's different, but really it is. No. So the reason I'm still long oil is I think it's a very constrained supply picture. If you look at how much we're getting out, what's happening with Russia, the Russian caps. I know the $60 cap didn't mean anything. Euro's was already priced under it. But you also have the insurance coming in and that the EU and the UK are not going to insure any Russian shipments that are above the cap. And so I think you have a very constrained supply. OPEC has zero willingness to help out. They want prices back by 90.

Goldman's got like a $100 price target, came down $10 today, but still very, very constrained supply. If you have any green shoots in China, and we see that reopening happen, China is the biggest oil importer in the world. And then you have demand in the United States. Well, typically, yes, recessions crush demand. If you look at what's happening with China and the reopening demand there, if you look at the energy supply imbalance, and I think one of the key themes for 2023 for me is

going to be countries' energy security. And as we have energy security, that's a boon for U.S. EMPs, that's a boon for U.S. oil majors, and it's a big boon for U.S. natural gas exporters like a Chenier that 70% of their product went to Europe now, and they've supplied 25% of Europe's demand. So when I look at this, I'm aware that there is a potential historical bad reckoning here. And I'll buy you a beer if I'm wrong. But I promise you, if you look around, we've got a refill SPR, we have OPEC Plus not helping, we have Russia that may end up not liking the fact there's a price cap at all, and they suddenly start mucking around with supply. And I see that as just an imbalance, and it's hard to shift these imbalances quickly so i am staying long i love my cash flow from my

producers they're very unleveraged and they're not putting it in the ground they're giving it back to investors all right we showed it on the screen but just to make sure for those who may not have seen it and are listening schlumberger chenier american express the three stocks you like now victoria fernandez best part of the market right now for you is what? Well, we've liked healthcare. We like some financials and we like it both in large cap and small cap. We've been taking advantage of that. We've been having client symposiums around the country and we're talking to them about, look, whether the market is going to be just short term or you need to be tactical in short term up markets, then do that. Sell some names. We're selling some Microsoft. We're selling some NVIDIA when they're up double digits over the last month. We're going into some

financial names like a PayPal, like a State Street, going to some cyclical names like Lowe's, and then liking Cigna for a healthcare name as well. So I think you can find components in the market that make sense, that have cyclical components, but you need to have some defense in your portfolio as well, because it is going to be a back and forth volatile market for the rest of this year. And then you have to think long term and be well positioned. A balanced portfolio is the best way to do that. Victoria Green, dollar index lowest since June. You like the gun lock trade is what I like to call it because he was waiting for the dollar to start going down so that he could

buy emerging markets. You like that trade? Well, I think China is very interesting in most emerging markets. If you look at any emerging market funds, it's hard to find one that isn't China focused unless it's a Latin specific. So I think this is all a play on what's happening to China. I think you actually saw a significant policy shift over there on how they're going to handle covid going forward with vaccinations with a little less draconian efforts. You know, I'm not saying this isn't going to have fits and starts, but I think generally you may see a bottoming. And you've seen that obviously the last month you've seen EM stocks roar while the dollar pulled back. I'm not sure the dollar hasn't found some support around 105, 106. So I'm not putting all my apples in that cart, but I think there are certainly some

green shoots. And especially as the dollar pulls back, the EM market should be able to run. All right. Speaking of EMs, lastly to you, Dan, China, is it interesting to you? Because it seems to be one of the biggest stories in the market the last few days, the idea of lowering some of these restrictions around COVID, the ADRs have been running. What do you think? Yeah. I mean, when we look at China, it's typically through the casino names in Macau because that's regulatory. But the truth of the matter is China is really difficult to invest in from a macro standpoint just because you're constantly dealing with intervention from the government. And that's really hard to handicap. All right. It's good to see you. Thanks for coming in here. Thank you. All right. That's Dan Greenhouse. The

Victorias. Thank you as well. Green and Fernandez. We'll see both of you soon. Let's get to our Twitter question of the day. We want to know if you think China is investable again. You can head to at CNBC Overtime on Twitter. Cast your vote. We'll share the results coming up a little bit later in the hour. We're just getting started, though, here in overtime. Up next, betting on a bounce. Financials having a tough run lately. Top banking analyst, though, Mike Mayo says get ready for a rebound. He's here to make his case. And later, Schwab's Lizanne Saunders breaks out her 2023 playbook, what she is expecting for your money as we head into a new year. OT right back. All right, welcome back to Overtime. Bank stocks falling nearly 5% today,

the sector underperforming the broader market in the fourth quarter. However, our next guest says the group could be gearing up for gains heading into 2023. Mike Mayo is with Wells Fargo Security. He's here with us on set. Welcome. It's good to see you. Before you get to the prop, which I see you over there that you have, just answer this question. Soft landing or recession? We're assuming a soft landing. Why? Look, that's not my day job. Yeah, but it has to be your day job if you're picking bank stocks, doesn't it? Well, from a bottom up perspective, I'm going with this from bottom up perspective. You're not seeing it at the banks. You're not seeing a hard landing. You're not seeing some kind of global financial crisis. You're not seeing a credit crisis. Credit quality is good. Loans are still growing. Spread revenues are back. I mean,

you're escaping from 14 years of zero interest rates. So the escape velocity from that puts the NIM back into the bank equation. And that's a tale when the banks have not had for any recession in the last half century. Also, I mean, any corporate that was able to, which is almost all of them, refinance their debt to much longer maturities. The consumer has a lot more cash. And again, in the data itself, the micro data, it's not supporting some big macro smack across your face. Why did you bring the Grinch? Is that the Grinch?

OK, you ruined the punchline here. Here's the Grinch. This is the Grinch who stole the bank stock rally. And it's exactly what you're talking about right now. The fear of the recession. Like, a lot of investors have seen one economic recession. That was the global financial crisis, 2007, 8, and 9. But all recessions are not a credit crisis, and all credit events do not involve banks. Banks are

one-third of the banking and financing. Look out for the other two-thirds, the private capital market, the fintechs, the others out there that have been taking the risk that banks have been pushing off and banks have been pushing off that risk because it's been mandated by regulators with the Fed stress test and capital requirements and everything else that's taken place last 15 years. This is the moment when banks finally have their chance to shine. OK, so bank balance sheets are great, right? Give you that. I mean, obviously they've they've they've done they've grown by leaps and bounds. Let's say that since the financial crisis. But better balance sheets alone, banks being in a better situation doesn't mean that bank stocks are in a better situation

for your portfolio, does it? Look, over the next 12 to 18 months, high conviction that bank stocks will outperform. And just like going back to the Grinch analogy, it's sad for a while. It looks like you won't get your presence. But in the end, and here's a spoiler alert for you, Scott, in case you don't know the end, you do get the presence and bank stock investors will get their outperformance. Unless you have a recession. A soft recession is very manageable. Banks are recession ready. They've been preparing for this moment for over a decade. What if rates have peaked and rates come down more than they've already come down from the peak that they were at?

Is that good for banks? Good for bank stocks? So then you're penalizing banks for what they're not getting credit for in the first place. The NII to this guy theme, the net interest income growth, is the strongest you're almost ever seen in our lifetimes over the next few quarters. It's not like you have a long time to wait. So look at the results the next few quarters, and you're going to see revenues doing better, positive operating leverage, good credit quality.

And it's really about the concern about what happens a year from now if we have a hard landing. And it's hard to disprove a negative. And what happens between now and year end, you know, it's a coin flip. You give us a good CPI number and a good Fed comment, and then we're off to the races. If not, it can be delayed. But I was on your show in October. Bank of America was below $30. And I said, make sure you have me back on your show a year from now. Well, we upped, you know, four or five points since then. And Bank of America is still my number one pick, I think can still hit an all-time high over the next 18 months. And by the way, when you get to the other

side of this recession, I know that's looking a little longer term, but if banks actually prove the improved resiliency that regulators have mandated for the last 10 to 15 years, then there's a chance not only for a re-rating back to historical levels, but a re-rating above historical levels as banks prove their more defensive nature and also a little bit of extra, you know, tailwind behind their Main Street banking growth. But in your view, the, I mean, because I'm looking at the one month performance of most of these stocks, they being unfairly punished because of concerns about a recession. The market rallied a lot

off of the mid-October lows. What about these? It's like Pavlov's dog. You hear a recession and you sell bank stocks. But that's because every recession is not the global financial crisis. Banks have reduced leverage by about half.

They increased their cash assets by about half. The average consumer that banks lend to is much higher quality. Remember the subprime crisis BANKS HAVE REDUCED LEVERAGE BY ABOUT HALF. THEY INCREASED THEIR CASH ASSETS BY ABOUT HALF. THE AVERAGE CONSUMER THAT BANKS LEND TO IS MUCH HIGHER QUALITY. REMEMBER THE SUBPRIME CRISIS? THAT'S MINUSCULE NOW COMPARED TO WHERE IT WAS. CONSTRUCTION AND DEVELOPMENT LOANS ARE A LOT LESS. SO BANKS HAVE GOTTEN THEIR ACT TOGETHER. SO BACK TO THE GRINCH. THE GRINCH STOLE THE BANK STOCK RALLY, BUT IN THE END THE GRINCH WILL GIVE THE PRESIDENT'S BACK.

SCOTT, YOU CAN HAVE THIS IF IT HELPS YOU SLEEP AT NIGHT. Oh, it's all good. OK, you need a new Grinch. So that thing looks like you drop it out the window on the West Side Highway on the way here. You need a new Grinch. Maybe I'll buy it for you. Mike Mayo, thank you very much. Thanks for having me. All right. That's Mike Mayo joining us up next. Schwab's Lizanne Saunders is here. Her take on today's pullback, plus her outlook for stocks as we close out the year, head into 23. Overtime is right back. Time for a CNBC News update with Bertha Coombs. Hey, Bertha. Hey, how are you, Scott?

Here's what's happening at this hour. Iranian activists and state media denying reports that suggest that the country is planning to abolish its morality police. This comes after a press conference yesterday when Iran's attorney general gave a confusing answer about the enforcement agency's inactivity during the ongoing protests. State media saying any outlet that says the morality police has been abolished is publishing, quote, fake news. And first, gentleman Doug Elmhoff planning to hold a White House roundtable on anti-Semitism later this week. Elmhoff, who is Jewish, is holding the event to counter the rise in anti-Semitic hate speech nationwide. The White House said a full list of attendees will be available later. Meantime, CDC director Dr. Rochelle Walensky says the organization is looking at possibly recommending masks in certain counties based on the overall spread of respiratory viruses. Walensky said RSV appears to be slowing around the country, but that flu hospitalizations remain at a decade high.

Walensky also said that there are signs of rising COVID cases since Thanksgiving. Scott, back over to you. All right, Bertha, thank you. That's Bertha Coombs joining us. Stocks pulling back, as you know, today. Rough day for the Nasdaq, dropping nearly 2%. So what can investors expect as we close out the year and head into 2023? Joining us now is Schwab's chief investment strategist, Lizanne Saunders. Welcome back. It's nice to see you again. Nice to see you too, Scott. Let's talk this year before we go next. Are you expecting a year-end rally? Well, I think we've had certainly a decent amount of that potentially, whether it carries in. I think positioning might point in that direction. You still have some of the big institutional

speculators and hedge funds more on the short side, at least on the S&P. But as we see, particularly on a day like today, every day we're still at the mercy of the data. So I think there are some better breath conditions. Sentiment is not quite as good a setup. We started to see some froth build back in the market. And I think that also contributed to some weakness like today. But I think positioning is probably the strongest support for the remaining three weeks know, three weeks or so in the year. Still at the mercy of the Fed more than anything else, though, right? I mean, you see the data today was pretty good.

It raises concerns that, you know, of course, the Fed is going to be tighter for longer. And maybe that's what was in the market today, too. But that's the whole game still. That is absolutely the whole game. And we've got the Fed meeting next week, and it will bring with it a new batch of SEP, Summary of Economic Projections, as well as a new dots plot. I wouldn't expect anything terribly wow coming in the statement, but I think the press conference, as always, is going to be interesting. And I wouldn't be surprised if Powell got peppered with not just questions about the terminal rate and timing, but maybe starting to get more questions of what the background conditions would need to be for the Fed to consider going from pause, whenever that

might be, to pivot. And I still think there's a bit too much optimism around the time span between pause, whenever that is, and pivot, given that the market has an expectation of two rate cuts by the end of 2023. And it's our view that the conditions would have to get a bit more dire than what they are right now for the Fed to see a green light to start cutting rates. And it wouldn't just be inflation continuing to come down. It would have to be more significant weakness, either in the broad economy or maybe more importantly, specifically in the labor market. What would you have to see before saying that a soft landing was was more possible? Because, you know, theoretically, as the strategist at Schwab, you'd have to make that call and have a subsequent view of the market long before it was

absolutely clear. I don't think this is a cycle that we might define as simplistically recession versus soft landing. We've been talking about this notion of a rolling recession for many, many months now. And that's just the unique nature of the pandemic. When we were in the stimulus part of the pandemic and that caused a huge surge in demand, that was at a time where there was no access to services. So all that demand and stimulus funneled into the good side of the economy. That not only represented the lift for the economy coming out, but it was the breeding ground for the inflation problem with which we're still dealing. That has now morphed into recession conditions in many of the goods segments of the economy, certainly recession conditions in housing and things housing related. But we've now and disinflation, by the way, in many of those categories within

metrics like CPI. But now we're in the pent up demand on the services side, the breeding ground for some of the stickier inflation components on the services side. So I continue to think best case scenario is not so much a traditional soft landing, but maybe just a continuation of the rolling nature of this such that maybe ultimately the NBER doesn't have to come out and say, OK, it was a classic technical recession. Here's when it started. Here's when it ended. I just think this is not a typical cycle. Recessions tend to be everything sort of falls all at once or lands softly all at once. This is happening over an extended period of time in a role with a rolling nature to it. It's fair to say, though, your outlook for next year can be sort of bottom

lined in clouds and rain for the first half is forecast, but the sun may actually come out at some point next year. It could. In fact, you almost want to hope for sort of conditions sooner rather than later that reflect what the Fed is trying to do, which is a bit more weakness in the labor market and maybe more general weakness in the economy. That's kind of the medicine that I think needs to be taken. I think that would then provide the better setup for the second half of the year. Cheering for very strong economic data as a backdrop for, hey, maybe we can avoid recession, I think keeps the Fed's foot firmly on the economic break for longer. And that would make the sort of sunnier outlook maybe get pushed further out. So not that we all want to cheer

for negative economic news, but I think given that what the Fed is trying to engineer, and I think they'll probably get their way, I think it would be better for the market if it happens sooner, not later. And lastly, then under that scenario, you think the opportunity then would still exist in bonds into next year? At this stage, we think there's some interesting opportunity in bonds. And, you know, my colleague Kathy Jones, our chief fixed income strategist, her outlook comes out this week, which will be concentrated on the fixed income side. But a bit more optimism, at least near term in terms of opportunities in the fixed income market on the fixed income side, but a bit more optimism, at least near term, in terms of opportunities in the fixed income market. On the equity side, we still think you want to take more of a factor-based approach, concentrate on factors around the macro conditions

that are struggling right now. Look for positive earnings revisions, strong net interest coverage, strong balance sheet with lower debt, higher cash flow, shorter duration characteristics. And I think that's how to focus within the equity side during this near term period of uncertainty. All right, Lizanne, appreciate it as always. We'll talk to you soon. Good to see you. All right, you as well. That's Lizanne Saunders from Schwab. Coming up, Netflix on a tear this quarter, rallying more than 30 percent. So is now the time to lock in some of those gains. We debate that in today's halftime overtime.

In today's halftime overtime, hitting the sell button on Netflix. Those shares are falling today, still up more than 30 percent so far this quarter. And according to Bill Baruch, the big move higher into the end of the year is giving the green light to get out of that stock. I'm looking at this big gap from August. It's three. I think it's August 330. And that's just a tremendous amount of technical resistance where I'm a little cautious the market right now. So I'm trying to find out where can I raise some cash? We had some. You know, we got we added to Netflix at a really good level. So kind of rotating a bit. May look to Disney if market comes in a little bit, kind of move that cash there.

All right. Steve Weiss of Short Hills Capital joins us now. You got out of Netflix in November. What did you see then? You know, I saw what went from one of the more hated stocks to one of the more heated stocks- to one of the most love stocks seems like everybody and their own tire also came out and said we love Netflix we got to buy it. And if you go through the market and when you see those stories start to

start to materialize. Then there's no. There's no marginal buyer left and the expectations of really rocketed up. So for companies to meet those expectations. Checking Netflix which which has had a jaded history of reporting quarters, one quarter of the report like the last quarter, it comes in better and you expect that to continue. That's always the case. And this is the market where you have to take profits.

Let me ask you that. That's where I wanted to go next. This is a market where you have to take profits. Where can I raise some cash? That was the question that Bill Baruch raised. Is it time? Because a lot of stocks have rallied a tremendous amount from the mid-October lows. Is it time to do some little line-by-line checking in your portfolio to see which ones have done the best and get out of those? Without a doubt. Without a doubt. Unless you intend on holding those for years and years to come, which I do with some of my positions, but less of them, I think now is when you've got to ring the cash register.

Look, everybody's looking for a year-end rally. I've sort of cooled on that a little bit, given what the market's told us. So I think where you have profits, take them. Look at Microsoft. You can buy it back down. I'm pretty sure I'd get Microsoft back down around 220 again and then write it back up. Netflix, I should be able to get that a lot lower as well. So, yeah, take profits where you can. Absolutely. Is that was that where you would I mean, in some of these tech stocks have done a fair amount from the mid-October lows.

But there are so many sectors that you've seen a lot of stocks run an awful lot. I mean, you really have to do some good combing through your portfolio to find some of these things to get out of. And then take the risk, though, as you said, Steve, of missing a year-end rally, which a lot of folks think can still happen. Yeah, and the calendar still has 31 days in it. So that's growing shorter and shorter for the rally. We've had a big move to now through November.

I just don't think it's going to continue if it does continue frankly it's going to be a small kind of muted rally because we've seen most of the fat of that rally and then if you go to next year i'm very negative on the first quarter definitely maybe the second quarter so rather than trying to time it with precision take the profits when you have them rather than being piggish about it. At least sell some of it. Maybe you don't want to sell the whole position, but take some off the table. All right. All right. Good stuff, Weiss. Thank you. It's good to see you. That's Steve Weiss, Short Hills Capital. Coming up, we're tracking some big stock movers in overtime. Pippa Stevens standing by with that. Pipps? Hey, Scott. Well, another big brand is reportedly cutting workers,

plus a software stock that is surging on earnings. Your overtime movers are coming up next. We've got the biggest movers in overtime now. Pippa Stevens here with that. Pipps? Hey, Scott, a report out just minutes ago. PepsiCo is laying off workers at its headquarters in its North American snacks and beverages division. That's according to the Wall Street Journal. The story indicates hundreds of jobs will be eliminated.

Meantime, GitLab jumping after third quarter results beat on the top and bottom line, according to estimates from Street Account, the software company saying quarterly revenue rose 69 percent year over year. GitLab also lifting its full year guidance, and the company noted an increase in large customers, a 49 percent growth in those spending more than $100,000. And sticking with tech, Sumo Logic also jumping after its third quarter results. The cloud name posting a smaller than expected loss for the period, saying it's targeting efficient growth as it drives towards future cash flow break-even. Stock up about 9% right now. Scott? All right, Pippa, thank you very much. That's Pippa Stevens still ahead. Santoli's last word and coming up on Fast Money, economist David Rosenberg.

Find out if he sees a soft landing in the cards. Overtime is back in two minutes. Do not miss tomorrow's CNBC Financial Advisor Summit. I'm speaking exclusively with DoubleLine CEO Jeffrey Gundlachach and it's not too late to register scan the qr code on your screen to do just that look forward to having you there and don't forget to vote in today's twitter poll we want to know if you think china is investable again head to at cnbc overtime to vote the results plus santoli's last word is after this quick break all right welcome back to. Let's get the results of our Twitter question now. We asked you if you think China is investable again. The majority of you saying no. 72 percent saying no. In fact, let's get to Mike Santoli for his last word. It's good to see

again. I feel like maybe somewhat of a holding pattern for the most part until CPI and the Fed. Yeah, I think that would actually be pretty bullish if all we do is kind of hold and churn and go sideways until then, because it does seem as if there's a there was a lot of kind of pent up selling interest in in seeing if we get a replay of the exact same magnitude of S&P rally into the August high, then it made sense to actually get bearish again. I think it's a little too cute to think it follows precisely the same script this time. But today, clearly, there was some interest in trying that trade. You know, the volatility in this got down below 20. The whole

thing lined up. What's interesting this time is, you know, I know you were talking about soft landing, no soft landing, but there's so many iterations of that. And it's such a delicate sequence of things that have to happen in the right way for people to get comfortable that, in fact, we have the right type of soft landing. Right. So it can't be things stay really strong for a while and then the soft landing comes the hard way because the Fed has to go farther. And I think that's the delicate calculus that we're in. No, I think you're right. It's like good data like today versus the prospects for a tighter Fed and then plug in the soft landing possibilities because the data is good. So it makes you think that, OK, maybe we can have a soft landing.

But if the data is good, that means the Fed needs to stay more aggressive, which diminishes the hopes for a soft landing. But if the data is good, that means the Fed needs to stay more aggressive, which diminishes the hopes for a soft landing. Right, exactly. And the other piece of it is there is this scenario where we're not really familiar with the type of environment where nominal growth stays OK, earnings hold up, inflation is still too high, but it's below the peak. Rates still have to go higher. So it's just sort of struggle between the overheating elements and the elements that have already shown the negative effects of the tightening campaign. And just a very kind of choppy economic environment where we already have manufacturing and housing, you know, showing the full effects and other parts of the economy not yet falling into line. You know, I'm trying to think of two listening back to the Fed chair and, you know, a couple of the past press conferences. It's you know, they've gone out of their way to underscore the fact that the real risk is is doing too little, not too much,

even as, you know, they suggest that they don't want to do too much and push the economy over the edge. Yeah. So they're trying to have a little more of a just sort of a balanced take on things, but not really to say mission accomplished, of course. And so, you know, Powell described risk management as just going slower. So that way you can move in either direction from there as the data come in. Not, oh, we have to be careful that we don't tighten beyond where we are right now, because that's going to be the, you know, the straw that breaks the camel's back. So I think that's why it's always a little bit uncomfortable when it's the, you're trying to guess the Fed's

reaction function to data you inherently don't know how it's going to go. And they're leaning on the side of trying to, you know, do more than too little on tightening. So, yeah, that's the tricky spot. I mean, given all that, you know, you can't really complain about how the market has held up, right? We're at S&P 4,000. You know, you're kind of where we were six months ago before you had a lot more of this tightening. And does that mean that the street's deluded about, you know, what next year can bring? Or does that just show you that there's just enough staying power in this very unusual cycle that we don't have to pre panic ahead of the recession? So it is very tough to figure out just exactly how the sequencing is likely. Well, look, I mean, Tom Lee today, you know, and talking about how bullish he thought you could still be between now and the end of the year. You know, we'll see. I mean, positioning is still so negative and up against seasonality.

Is that enough to carry you? You got a lot already in the books. I mean, I think it's a coin flip. I'm not going to argue against the fact that the back half of December is usually strong. I just think it's a matter of just how high is the ceiling in the next few weeks. I'm not sure that's the answer. Yeah, it's going to be interesting. I'll see you in the next few weeks. I'm not sure that's outside. Yeah, it's going to be interesting.

I'll see you tomorrow. That's Mike Santoli with his last word. Fast money begins right now.