Closing Bell - Closing Bell Overtime: Time to Bet with the Bulls? 8/8/22

Episode Date: August 8, 2022

Are the bulls winning the battle for where the market is headed next or could some key economic data this week bring the bears roaring back to life? BMO’s Brian Belski gives his take. Plus, top chip analyst Stacy Rasgon weighs in on Nvidia’s big revenue warning. And, Ed Yardeni says the recent bull run could stall this week. He explains the reasons why … and what is at stake for stocks.

Welcome to Overtime. I'm Mike Santoli, in for Scott Wapner. You just heard the bells, but we are just getting started. In moments, we'll get quarterly results from Take-Two Interactive and Upstart, the breaking numbers and stock reaction as soon as those earnings hit. Plus, more on that bombshell out of NVIDIA, the company reporting a big revenue miss. Starship analyst Stacey Rascott is standing by to break down the fallout. But we begin with our talk of the tape. Are the bulls winning the battle for where the market is headed next? Or could key economic data this week bring the bears roaring back to life?

Our first guest is betting with the bulls. He sees more than 15% upside for the S&P 500 by year end. Let's welcome in BMO's chief investment strategist, Brian Belsky. He joins me here at Post 9. Brian, great to see you. Great to see you. Thanks for coming by. So you're running with a 4,800 S&P target.

That gets us back to the high, essentially. It's a round trip since January. Part of that puzzle, I guess, actually, is the way the market reacted to the earnings we just saw. Yeah. That's mostly through, I guess, what's next in terms of the hurdles and the tests the market's going to face? Well, when we revised our target from 5300, Mike, quite frankly, and humbly, we were wrong at the beginning of the year to be that bullish. And we didn't see inflation being as sticky as it was. So we'll take that.

But also, we kind of coined it as flat is the new up, flat is the new up. And when you take a look at the market right now, obviously it's all about what happens Wednesday, but then really the CPI and PPI readings in August and September. I think those are gonna be the big ones, especially considering no Fed meeting in August. We have Jackson Hole. I think September is a very important meeting in terms of the direction

with respect to what the Fed is saying. But I think what's going on in the market is the two E's, I like to call it the two E's. It's earnings and employment. Now, Friday, obviously, was a blowout employment number, which really speaks to the strength of the economy. And we saw that coming. Why did we see that coming?

At BMO, we have the very good fortune of having our kind of hands in a lot of the different lines of businesses. One of them is the commercial banking business. And we've had a lot of meetings with small and medium privately held companies, and they're very bullish on America. They're very bullish on domestic growth, and we knew that they were trying to continue to grow. And so that really made us feel very good. You know, a lot of people talk about the backbone of the U.S. economy is the consumer, but it's really small, medium companies. And that's showing actually in the public markets as well.

Small, mid-cap stocks have dramatically outperformed, and we think that really speaks to the added maturity, cash, and actually discernibility, I'm sorry, of earnings of small, mid companies. So the other part of it's earnings. Now I've been on this program, been chastised about being bullish on earnings. Second quarter earnings so far, 90% of the companies that come out have come ahead 250 basis points, so 2.5% above what was

expected. I think that also talks about the underperformance, underdelivered culture of corporate America for 20 years now, right? But also says that earnings are much more sustainable and stable than I think most people think. So we have not changed our tune. We're very bullish, and we think the fourth quarter in particular could be very strong. You know, the obvious pushback that you're hearing on this is that's all great, but we have not yet really seen the lagged effect of what the Fed has already done in jacking interest rates since March. You obviously have a lot of these forward-looking indicators,

whether it's the ISM or others in manufacturing that say look usually stock prices earnings estimate revisions follow to the downside typically. And then I guess you also point to valuation and say did we really get cheap at the lows for overall equities. And where does that leave us now. We'll kind of take those one at a time. We'll go kind of in reverse because I'm Polish. So on the valuation side, you know, by doing this for a long time, and we were talking before we got on air, I think we met each other 25 years ago when we were both eight years old. But valuation and especially price to

earnings is not a great future predictor for performance. From a longer term perspective, it is, but not in the near term. I think too many people said, well, it's 16 or it's 14 and they're throwing out this $200 earnings number. Remember, the earnings number on the market is an academic practice. So be very careful on that. Also, everyone looking for capitulation. What we've learned in this market, if anything, especially the last two or three years, this is not an easy market. It's not an easy business. So the easy thing from the textbook would say capitulation. On the other things, I really think that people are missing the fact that the stock market is a market of stocks. And there's always going to be names that work. Even in a bear market, there's going to be names that work. And remember, stocks lead

earnings which lead the economy. So the stock market had its big bear market. But the key thing about the forward indicators, the bond market told you that the Fed had to be more aggressive. So the Fed got more aggressive. Now the bond market's saying, whoa, whoa, whoa, Miss Lippy. It's giving you one of those situations. So we're starting to slow down again because they're worried about potential growth slowing in the economy. So I think continue to watch the bond market with respect to the ISM. Remember, in 2014, we had an earnings recession within industrials.

Stocks were still up on the aggregate. So what we're telling clients is stay more domestic. Those areas that are focused on international investments in terms of international revenue. We know Europe's in trouble. We know emerging markets in trouble. We know China's in trouble. Focus on Fortress America and Consistency Canada. What's the risk that the Fed does not sort of listen, so to speak, to what the bond market

is saying? And they say, look, we have to overcorrect for the fact that we missed the inflation story and we're going to have to actually do 75 in September, maybe two more 50s, 50 half percent raises after that. Does that leave the market flat footed? Well, I think what's really interesting is the Fed has received a bit of a blessing that they don't have a meeting in August and they can talk a little bit about the numbers. And I'm hopeful that we see some sort of a trajectory change, second derivative, less

positive or some even trend change in inflation this week that could carry over. Obviously, with gas prices and lumber prices and other commodities being very soft, that's a big deal, a big part of the inflation story. So, too, are the supply chains opening and China open. So, there could be a very good chance that we could see a surprise. Now, is that going to be enough to catapult things? I think we need to see a couple of readings with respect to the trend change in inflation for people to feel better. But on the Fed, right, they probably shoulda, coulda, woulda raise rates last year.

We already know that. Now I think going forward into the fourth quarter, they really have an opportunity to see this inflation environment change, have earnings stabilize, and, of course, the employment picture remains very robust. Well, that's why I guess the premise there is we're going to see inflation come down in the next couple of months in order to enable that type of a shift. Let's expand the conversation here with Sean Cruz of TD Ameritrade and CNBC contributor Shannon Sikosha of SVB Private.

Good morning or good afternoon to you both. Shannon, let's talk a little bit about the action today in the market and what it tells us, if anything, that the S&P did have this early morning pop. There's been a ton of short covering. A lot of people may be feeling like they got left behind. The S&P peaked right above those June highs everybody's been watching and then backed away pretty quickly. Do you take anything from that or are we all just waiting for Wednesday? Yeah, I think the market is going to be looking ahead to Wednesday. I would actually say you don't want to overreact to what we hear Wednesday. You're going to want to digest that alongside what we hear Thursday out of producer prices because you might get a sense for how margins could develop.

I think by and large on a macro level, we're going to focus in on those headline numbers, but you might want to go into the internals and actually get a sense for how things are developing and how certain items in those report may give you a little bit of an indication around one, cost, input cost for some businesses at the industry level, but then also their ability to say pass that on to consumers. I think when we're looking at the outlook for earnings for the rest of the year, that might be an important piece in terms of just framing profitability for a lot of these companies, because that is something that investors, maybe the worst case scenario, has been pulled off the table.

But I don't think they're seeing smooth sailing ahead just yet. And they're probably going to wait and get some more data, get a better feel for how things are going to develop moving forward before we really see aggressive buying. Shannon, what's your premise here in terms of whether, in fact, we've seen a low in June? And what are you looking for, I guess guess for the market to tip its hand here we are right at the upper extent of what a typical bear market rally would look like if that's all this is yeah I think it just comes back to what we're seeing in the economy and if you look at

the consumer confidence numbers you I mean you're getting this expectation that inflation is coming down. Gas prices down seven weeks in a row. We're seeing input costs come down. You know, look at the PMI last week. Prices paid off 20 points. So I think what we need to be sure that we're anchoring to is this idea that we were fearful of a recession in June and then we were fearful of a really aggressive Fed in May. And now what are we fearful of? We're fearful that the economy is going to slow too quickly. We're not seeing evidence that the economy is slowing too quickly.

We're looking for that inflation number over the next couple of months to point us towards not a pivot by the Fed in September, October. I don't think that's important. I don't think you should be focused on that. But focus on is three and three and a quarter to three and a half where we end up in the in the in the Fed funds rate at the end of the year. And if that's so, I think that we've priced that in. And I think that's the catalyst for the back half of the year

in that we've already priced in that expectation at the end of the year. Upside to that was the risk. I continue to think that that risk is off the table. Yeah, the bond market has priced it in. The debate's about the first half of next year. We'll come back to that. Meantime, Take-Two earnings are out. Steve Kovac has the numbers. Hey, Steve. Hey there, Mike. Yeah, Take-Two's falling about 5% here after a slight miss on revenue, $1 billion versus the $1.09 billion expected. EPS, 76 cents. We're not comparing that to the Wall Street estimates. And then guidance is pretty much in line here. We got $1.5 billion to $1.55 billion for the current quarter we're in.

That's for, I'm sorry, strike that, $1.5 to $1.55 is a little light, actually, correction there, versus $1.59 adjusted. And then for revenue for the quarter, $1.74 billion versus right in line $1.74 billion expected here, Mike. And then also one more figure here I want to point out. Net bookings up 48 percent. These are the recurrent net bookings for people spending in game. A really good, healthy sign that people are still spending inside video game after all these fears here, Mike, that video game spending is going down this year. Mike, back to you. For sure. Steve, thanks. Yeah, obviously, it's been an area of focus as a little bit of a hangover effect. Shannon, just a quick reaction. I wonder just about the video game space in general, of course, also was sort of the culprit with regard to the NVIDIA guidance miss as well today. Yeah, I mean, gaming was the bright spot

here over the last couple of years. We saw it in chips. We saw it in some of these franchises. Take-Two has absolutely underperformed the S&P this year. It's also underperformed EA. And you think about franchises. Take-Two went out and bought Zynga. They need to start monetizing on that because they are trading at a significant discount to their peers. They're trading at a discount to the S&P 500. This lagging effect of potential, this hangover from gaming. We had a lot of spending during the pandemic. I actually think it comes back to the franchises, which is why we own EA over Take-Two, because I think you're going to see that those franchises are going to be imperative. If you start to see a lower spend, it's going to come to those well-known, well-trafficked franchises. Yeah, Take-Two, obviously,

it's got the Zynga acquisition it's trying to integrate and plenty of other factors here probably we're going to hear about on the conference call. Sean, wanted to get your take on this little sub-theme that's been emerging over the last couple of weeks. One, heavy short covering across the board, a lot of the sort of higher risk, lower quality stocks flying, which really culminated a bit today, especially this morning in the meme stocks flying again. What are you seeing in terms of investor activity and what would be your read on that? I mean, so we actually saw over the July time period that particularly for AMC, there was some net selling going on. But I think in general,

when you're looking at our clients, there's the worst case coming off the board did lead to some opportunistic buying you saw across the board semiconductors being bought names like Nvidia which isn't having the best day but I think you got to keep in mind the semiconductor industry as a whole the SOX index is up about 25% from its bottom that it had so I think it makes sense you, it didn't take much in terms of a cautious or even a negative outlook like we got to cause clients to take some profits. I think what you're getting is as the market stabilized,

the worst case scenario for the rest of the year, I think has been brought off the table. And you probably saw some profit taking on the short side where maybe they were in some positions that had already pulled back quite a bit. They didn't feel like there was enough juice on the the short side where maybe they were they were in some positions that had already pulled back quite a bit They didn't feel like there was enough juice on the downside to justify maintaining those positions So you also have them closing out on the back of that and in that in of itself can just drive a lot of buy Side activity which can push markets higher. Yeah, I robot being taken over

That was a crowded short and some of these biotechs that have been acquired, too, probably has created a little bit of caution among people leaning against some of these smaller stocks potentially. Brian, just in terms in general of positioning and sentiment, because that gets to it a little bit. Professionals really have been sitting this out. They got their exposures to equities very low at the June lows in the market, haven't necessarily rushed back in. Is that a piece of the book case, or do you think it's all about how the economy plays from here? No, it really is, Mike. And it's a great point because the majority of our institutional clients that are long only,

not hedge funds, completely missed June and July. And they have not come back in because they're very wary of this bear market bounce scenario. With respect to the short covering, I call it the four horsemen of the apocalypse. The market took out SPACs, memes, Bitcoin, and high multiple Cathie Wood stocks. If you had the short covering there, I think that's where you want to now take your profits if they've had this big bounce. I think the secular winners in tech that have cash and earnings, I think they can continue to bounce. But I think the key thing is the long-only money is waiting.

They're waiting. They have cash. And I think they're going to put that money to work. That's why I think the next two or three months are very critical. Shannon, if you think the fourth quarter is when maybe we get this realization moment that things might be more resilient in the economy and therefore, you know, earnings don't have to come down very much. Are you positioning for things right now? Are you already set up for something like that? Or where would you be looking, let's say, on pullbacks to add?

Yeah, so I think there are two things that you want to think about. I do think that the resilience of the dividend factor and the quality factor, I actually think those are going to persist. I think there is going to, even if we start to see the economy as more resilient, Mike, you aren't going to go back to wanting to pay for a lack of profitability. And so I would be positioned in companies that can do well in a slower growth environment because it's definitely going to be a slow growth environment. We're not getting an inflection point here. This isn't a V shape in terms of GDP growth. And so enterprise spending is not going to decline as much as everyone expects.

I agree with Brian, love big tech from that perspective. But also areas of industrials, areas of health care that are innovative, that can grow their earnings without a secular tailwind. That's where you should start positioning now and take advantage of any pullback that we get over the course of the next couple of months based on Fed narrative to do that ahead of 2023. All right. We'll see if we get those opportunities coming over the next few months. Brian, Sean, Shannon, thanks a lot for the time today. Appreciate it. Now, upstart earnings are also out. Kate Rooney has those numbers. Hi, Kate. Hey, Mike. Yeah, shares of upstart are halted at this point. The lending company with a miss on the top and bottom line and weaker than expected guidance.

Total revenue coming in at $228 million. That was a miss. Earnings per share also a miss. Second quarter profit of a penny per share. That's the adjusted number. A nine cent miss there. And then third quarter revenue also a significant miss. Revenue of approximately $170 million.

The expectation was for about $250 million. That revenue miss was expected. Executives got ahead of this about a month ago and lowered some of that guidance in the pre-release. The number we got today, though, appears to be lower than what they said a month ago. So disappointing guidance number there. Inflation, lower loan origination volumes, and some apprehension from credit investors were some of the things executives had talked about when it came to these weak results. We're seeing it play out here in today's numbers, and stock had been up, popped about 10 percent earlier, heading into earnings, again halted here after hours. Mike, back to you. Yeah, very tough part of the market

there. Personal lending in this space, stock down more than 90% from its high. We'll see where it opens up in the after hours. Kate, thank you. Up next, NVIDIA's big miss. Shares of the chipmaker selling off on revenue concerns. We'll break down the fallout with top chip analyst Stacey Raskin. We are live from the New York Stock Exchange. Overtime is back in two minutes.

We are back in overtime. Nvidia shares plunging today after the chipmaker preannounced second quarter revenue of $6.7 billion. That's down sharply from the $8.1 billion the company had previously guided. Joining me now is Stacey Raskin, Bernstein Research Senior Analyst for U.S. Semiconductors. And Stacey, what's relevant here in terms of the market reaction to a really big revenue miss and, you know, arguably not that profound, a stock decline of more than 6 percent? And also what it means going ahead. Is this kind of a one-time shock or we have to worry about numbers coming down next year? Yeah, so you're right. It's not that big of a one-time shock or we have to worry about numbers coming down next year? Yeah, so you're right.

It's not that big of a stock reaction in the wake of a fairly sizable cut. And the reason is most investors have been waiting for this. The signs in GPU land have not been all that supportive recently. Everybody can see the weakness. They can see the retail prices coming down. We can see crypto imploding and all of this. So I think investors have been broadly expecting a cut. The question was, were we going to get it like now or are we going to have to wait till the earnings call, which is in a few weeks? I'm actually happy to get it now. I think if you're

going to clear the decks, just go ahead and clear the decks. And it is a very sizable cut to your second question. I think the hope is that hopefully the bottom can be in. It was very similar to the flush that we saw at the end of calendar 18 on the prior crypto bubble bursting. I think at that point their gaming business was down 46% sequentially. It looks like now it's down 44%. And that last cycle was the bottom. It actually grew sequentially off of that. It took about four quarters to get back to where it had been sort of pre-flush. And we't have the the follow-on gaming cycle that back then ampere which is their next gen was still 18 months out we've got another gaming cycle for these guys coming in the relatively short order it'd be called lovelace i don't know end of the year maybe in the next year um but they're just clearing the

channel out in front of it they're just clearing the decks i think taken in that context this is a good thing better to do it now than later and the stock reaction I think taken in that context, this is a good thing. Better to do it now than later. And the stock reaction today kind of supports that. Are those fully distinct product areas, gaming and crypto? You sort of seem to blend them together a little bit there. Do they move in a similar cadence because of how people use these chips? Well, crypto is probably a component of the gaming business. We don't actually know how much. Neither do they. So we've had weaker demand for GPUs. I'm sure that crypto is a piece of that.

But it was going to go away anyways, even if crypto had not imploded. Ethereum is moving from what's called proof of work, which requires a lot of compute power to do the mining, to proof of stake, which does not. And it's been pushed out, but it's going to happen before the end of the year. And at that point, any crypto demand for the gps was going to go away anyways this is actually one silver lining we still don't exactly know what the real run rate of gaming is going to be going forward but whatever it is this is the last crypto cycle for nvidia we shouldn't see any more after this because you won't be using gpus to do the ethereum mining after this and data center which actually was data was a little weaker on supply chain issues,

but it's still objectively very strong, much bigger than gaming. This is no longer going to be a gaming-driven company. It's going to be a data center-driven company. You were, I think, penciling in what you thought might happen to consensus for next year in the $5 share type range, five and a half, something like that. Where does that leave us with evaluation? I mean, the stock's been cut in half, but obviously the forecasts

have been declining alongside it. Yeah, so if you were just to annualize the cut and just reduce everything going forward by the same amount, you'd get an EPS, a floor EPS of probably five bucks. That may be a little too aggressive because it's likely that some of what we're seeing is inventory flush there,

by definition under shipping. And you do have some product cycles coming along. So call it like maybe mid fives might be something that's realistic. And the stock's probably trading low 30s on that number, which is not cheap. But at the same time, like low 30s for NVIDIA on what's likely to be a trough earnings number with the long term story around data center and like auto is killing it now and software and everything else, it's not an egregious multiple to pay off for a trough earnings number for this stock. So it's not cheap, but it's not egregious either. And I assume that if this is a rerun to some degree of what you saw in late 2018,

I mean, that clearly was a great time to enter. It was, actually. The stock sort of treaded water for a little while after that in the beginning of the first half of 2019. What actually started running again was when data center looked like at the bottom. Because you've got to remember, during the last cycle, we had a data center cycle as well. It also rolled over. At this point, data center growth slowed a bit, again, on some of these supply chain issues. But it was still up 60% year over year.

It still looks okay. As long as data center is holding in, and I think it can, especially with some of the product cycles that are coming, I think this could be a good opportunity. We'll see what they have to say in a couple of weeks when they report. Yeah, we sure will. Stacey, thanks a lot. Stacey Raskin, appreciate it.

All right, let's get to our Twitter question of the day. We want to know, what is the best chip stock to own right now? AMD, Intel, NVIDIA, or Texas Instruments? Head to at CNBC Overtime on Twitter to vote. We will share the results later in the show. Up next, hitting the pause button, longtime bill Ed Yardeni changing up his market forecast while he sees the bull run stalling out as soon as this week. He'll join us when Overtime returns.

Welcome back to Overtime. Let's get a CNBC News update with Shepard Smith. Hi, Shep. Hi, Mike. Thanks from the news on CNBC. Here's what's happening. Ceasefire holds in Gaza. It follows three days of fierce cross-border attacks between Israel and the Palestinian Islamic group Islamic Jihad.

Humanitarian quarters are now open and no further violence. An abduction investigation in Northern California after a 16-year-old girl went missing from a party on Saturday night. 16-year-old Kylie Roden's car is also missing, a 2013 silver Honda CRV. And Olivia Newton-John has died. The star singer and actress played Sandy in Greece opposite John Travolta in 1978. Her string of hit songs included Physical. In 1981, it was number one on the chart for 10 weeks. Her representative didn't give a cause of death,

but we do know she's battled breast cancer for years now. Olivia Newton-John, we're told, died at her ranch in Southern California, surrounded by friends and family. She was 73 years old. Tonight, the great Florida python hunt. Our Perry Russom spent all night long in the Everglades with an Indiana real estate agent turned pro python hunter. Her story on the news right after Jim Cramer, 7 Eastern CNBC. Mike, back to you. Chef, thank you very much. Well, stocks finishing the day right near the flat line,

but our next guest says look out because the recent bull run could stall this week. It's a pretty big call because he's been a staunch bull. Joining me now is Ed Yardeni, Yardeni president and chief investment strategist. Ed, great to speak with you. How are you doing? So, you know, we've had a good run. We're, you know, close to 15 percent off the recent lows. Everyone pretty much feels as if this is the sort of fulcrum point between, hey, it's just another failed bear market bounce or the start of something bigger. Are you tipping your hand one way or the other on that or do you just think we need a breather?

Well, I think we did make a low in the bear market back on June 16th at three thousand666 on the S&P 500. Just happened to be 3,000 points higher than the intraday low back in March 6th, 2009. I just thought that was kind of coincidental. But at any rate, ever since June 16th, the market has rallied on the perception that we're going to get a good CPI number on Wednesday, which I think we will. But I think it's been largely discounted. What hasn't been discounted is Friday's employment report certainly suggests that the Fed is going to have to continue to raise interest rates. And 75 basis points is probably in the cards at the end of September. So the bottom line is, I don't think that the PE has a lot more upside than it has gone through right now from 15 and a half to roughly 17 and a half. And at the same time,

forward earnings look like they're going to be kind of flat for a while. So I think it's going to be a range bound market around here. All right. So range bound, obviously, that that multiple for sure is not really look cheap from a top down perspective, although some of the very largest stocks seem to be inflating the S&P index valuation at this point. Would you say that it's an opportunity to to rotate around within the market or you just have to be on alert for the fact that we've gotten ourselves to a point where the surprises might just come to the downside when it comes to the Fed. I'm all for stock

picking here I don't think that. Kind of taking a general the big picture position on the market going up a lot or down a lot. Is going to matter very much I think what will matter is a stock selection. And so I think we've. Gone from an

environment where passive investing, putting all your money in kind of different kind of broad ETFs. I don't know if that's going to work so well anymore. I think one really has to start doing some serious homework and pick stocks that are actually quite cheap here, but at the same time have a good prospect for earnings. You know, the jobs number on Friday, it sort of confounded a lot of the presumptions out there that really good economic data would immediately be on a reflex basis bad news for stocks. You got a very brief sell-off, then recovered in the market. Does it tell you anything in terms of were we bracing for more of the recession is here type scenario and therefore there was some relief in there? Or should we not really draw too much of a message out of it? Well, you know,

the message in the first half of the year that we were all telling ourselves is there's an increasing risk of a recession. I think we've basically experienced what I would call a growth recession. There really hasn't been any growth in the first half of the year. And that might be the case for the second half of the year. I think the key is inflation. It's less important as the labor market than is the pricing environment. And the pricing environment, there's some indications that things are moderating. I think today, for example, we saw that the Federal Reserve Bank of New York put out its July survey of consumer expectations for inflation, and they moderated quite significantly for both the one-year and the three-year-out forecast, but not enough to really dissuade the Fed from responding to the big wage increase that we saw on Friday's number with a 75 basis

point increase. And by the way, last week, we had five Fed officials basically walk back Chairman Powell's implications that we're getting close to the end of tightening. Yeah, that's a big question out there, right? I mean, the idea that Fed officials don't want to stray from, you know, the framework that they've built to this point, they've said they want to see the numbers really go in their direction in a persuasive way. And arguably, when stocks go up, when credit spreads come in and financial conditions therefore get looser, they might see it as an opportunity to do more on the tightening side. I think that's true. But at the same time, let's keep in mind that quantitative tightening

is basically started already, but will be much more aggressive in terms of reducing the size of their balance sheet starting September. And that, I think, is equivalent to a tightening. So I know there's been some controversy about Powell's comment a week and a half ago that we are at neutral at 2.5%. The Fed funds rate is neutral. And he may not be that far off, since I think QT is equivalent to at least a 50 basis point hike in the Fed funds rate. And the strong dollar, same thing, at least a 50 basis point hike. So I don't think the Fed's going to have to go that high. I do expect one more increase of 75 basis points at the end of September, and that's when they might pause.

Yeah, well, he did say they'll try to be nimble. We'll see if that comes through. Ed, thank you very much. Good talk to you. Thank you, Mike. Ed Giordani. Up next, finding opportunity in small caps. Why this corner of the market could be a safe haven despite recession fears. Bank of America Securities' Jill Carey Hall makes the case straight ahead. And don't forget, you can catch us on the go by following the Closing Bell podcast on your favorite podcast app. Overtime, we'll be right back. We are back in overtime. The Russell 2000 small cap index outperforming the S&P 500 over the last three months.

And our next guest says, while recessions are typically bad for small caps, this time things are different. Joining us now is B of A Securities' Jill Cary Hall. Jill, great to catch up with you. What might be different about the setup here when it comes to the small versus large equation? You start having me. Well, I think, you know, recessions overall are not good for equities, but I think there's some supportive fundamental factors for small caps this time around. And I also think that you've largely seen the risk get discounted into small cap valuations, at least more so than we've seen for large caps. Small caps right now are

extremely cheap versus history on a bulk of the valuation measures that we look at. The forward price to earnings ratio is trading at similar levels to prior recessionary lows, even some of the more severe recessions. We're trading at about 12 times forward earnings for small caps right now. You look at the S&P 500, obviously not even cheap versus history. The relative discount of small versus large caps is almost as large as we've ever seen. So I think from a from a multiple perspective and when you look at how much small caps have typically declined during recessions, the recent peak to trough decline we saw was, you know, almost typically what we see. Obviously, we've seen a risk on rally since July. So, you know, if recession becomes increasingly priced into the market, we do think there's more downside risk to equities overall.

But we think there could be more downside risk actually to large caps than small caps at this point. And I think that what's been fundamentally supportive is that small caps are more exposed to services than goods spending, so similar to the makeup of the U.S. economy. And that's where we've seen the relative strength recently with more upward revisions to services, exposed areas generally since March versus downward revisions to goods. And you've seen the upside surprise in the ISM services. So I think that's one fundamentally supportive factor. The other surprise that's come out of earnings season has been CapEx spending has held up very well and CapEx guidance

has been relatively strong. And small caps generally tend to do better in terms of how correlated their sales are with U.S. CapEx cycles than large caps, they tend to be relative beneficiaries there. Yeah, smaller companies, essentially often the vendors for very big ones, I guess, in that case. You know, I was thinking about prior market cycles when we talk about how small caps behave in recessions. And, you know, the early 2000s bear market, which did have a recession associated with it, small caps really did outperform quite a bit. I wonder if that was mostly about the very largest, I guess, kind of overvalued stocks underperforming in that downturn, or if there was something similar going on there where small caps had just kind of discounted the worst. I think, you know, there were a number of parallels between

today's market backdrop, you know, going into the recent recession fears versus what we saw during the tech bubble period with obviously a lot of the tech-related types of stocks, non-profitable stocks. We saw the IPO boom last year was really the 2020 to 2021 IPO boom was similar to what we saw back then. You know, a lot of non-profitable companies going public. There are a number of the democratization of investing, as we've called it. So I think there's been a number of parallels to the market then versus now. And that ended up, you know, being a great decade for small caps from, you know, the kind of the tech bubble period in 2000 up till the global financial crisis, small caps significantly outperformed large caps. You know, and that was really the only other time that the valuations on a relative basis were as cheap as they are today. So, you

know, the fact that small caps are cheap valuation, we found us to tend to tell you too much about what, you know, an index is going to do over the next several months or next year. But if you're a long-term investor, we found a very high predictive power of what the P.E. ratio is today to what returns are over the next decade. So for long-term investors, we think certainly valuations would suggest you could see better annualized returns over the next decade for small caps than large caps. And what would seem to be a good vehicle or style to pursue if you wanted to capture the parts of small cap that seem like they're well set up? Yeah, I think even though last month in July, it was definitely a risk-on

rally and lower quality stocks outperformed for most of the past year, year and a half, what we've seen in the market has been a focus on quality. So, you know, like I was speaking about earlier, how we've seen a lot of, you know, non-profitable companies going public and getting out of the index. Stocks that have earnings that are higher quality, more stable earnings, the ones that have generally been rewarded within the market. And that's one of the reasons that healthcare, which, you know, is a lot of that is biotech, has been one of the reasons that health care, which, you know, is a lot of that is biotech, has been one of the biggest underperformers within the Russell 2000. You

know, there's still a lot of non-profitable companies within that sector. So small cap health care still screens relatively weaker in our work versus focusing on quality areas that have more stable earnings. I think dividend yield, which is something that may often be overlooked within small caps. Investors may not typically be buying small caps for their dividends, is a factor that has been strongly outperforming within small caps over the past year, year and a half and this year. So especially if you're in a backdrop of lower price returns, focusing on total return and dividends is important. And then lastly, value. I think, you know, small cap growth still looks a little expensive versus small cap value. Value tends to fare better than growth within small caps during economic recessions if there is risk that we are going into one.

So we'd focus on value stocks with strong free cash flow and quality. The S&P 600 index, which is higher quality than the Russell 2000, has been outperforming this year. Yes, absolutely has outperformed. It is the quality, profitable stocks within small cap. Jill, thanks very much. Appreciate it. Thank you. All right. Now, check out shares of Upstart. This stock resuming trading in overtime. It was down as much as 20% at one point in reaction to those numbers. Now down just less than 11% off the lows after missing both top and bottom lines in the latest quarter and giving weaker than expected guidance. Now, we are tracking more of the biggest movers in overtime.

Christina Partsenevel is all over that action. Hey, Christina. Well, I've got a pharma theme coming up. Novavax shares plunging over 30%. And there's lots to frown about with Smile Direct Club. And good RX shares weaker on lower outlook. I'll have all of those details right after the break. We're tracking the biggest movers in OT.

Christina Partsenevel is here with all that. Hey, Christina. Well, we're seeing Novavax shares plunging right now. They were halted. Now they're down over 30% after it posted a huge loss. And the company is cutting its full-year revenue guidance in half. And that's because of a loss of demand for its COVID vaccine from an international initiative that's specifically to vaccinate lower-income countries.

And that's why you're seeing the stock plunge. Let's take a look, though, at some well-known direct-to-consumer brands that are moving right now in the OT. Allbirds, the maker of sneakers worn by a lot of people in Midtown here, posted a smaller-than-expected loss, but adjusted gross profit took a hit from a write-down of inventory. The stock, you can see, is plunging almost 14 percent. Then you got Smile Direct Club, also down over 8 percent. The company revised its full-year guidance because of, quote, challenges to consumer spending that accelerated faster than they expected. And then you've got HIMS and HERS.

They sell, you know, over-the-counter drugs, hair loss things, and other personal care products. The stock is surging after the company raised its full-year, oh, surging, up 5%, I shouldn't exaggerate there, after raising its full-year 2022 outlook. And since we're sticking with prescriptions, good RX shares are surging right now, higher on a revenue beat. The company reaffirmed its third quarter guidance after resolving some marketing issues with the chain's pharmacies, aka Kroger's as well. So that's driving the stock higher. There's a new user adoption and they believe that they

could return to the previous user levels. And the stock is up, what, over 33 percent. There you have it. Now, quite a move. Christina, thank you very much. Thanks. Up next, our two-minute drill. One money manager is making the case for a key chipmaker. We'll reveal the name ahead. Overtime, we'll be right back. It is time for the two-minute drill. Joining us now is NFJ Investment Group Senior Portfolio Manager Burns McKinney. Burns, good to see you.

Before we get to some of the names that you've brought with you today, what do you read right now on the state of this rebound rally? The market sort of peaked above these levels everyone was watching today and then got a little bashful, came back down. Does that mean anything to you? In the near term, it probably tends to be noise. The thing that we really believe investors should be focused on more than anything is the inflation print that we're going to be seeing coming out on Wednesday of this week. It's really a lot of a lot of strategists have talked about should we be focusing on peak inflation or recession talk?

And you can't really separate them because if we do, in fact, get some some indication that we might be at or near a peak inflation, then that gives the Federal Reserve more tools to, in fact, fight a possible recession, at least have a better chance of engineering a softer landing. Yeah, it certainly refreshes consumers ability to keep the economy growing on their own with gasoline prices coming down. Let's get to some of the names, though, that you like in here. Texas Instruments, we obviously see a little bit of stress in the rest of the semi space today, but Texas Instruments has actually held up better. What's the story there? Well, you know, any chipmaker right now feels a bit like a contrarian play.

They've all been out of favor, but TI is a little bit unique. First of all, you have valuation on your side. The stock is trading at about a 20% discount to the S&P Infotech Index. Usually it trades at a premium. So you've got the discount there. They have a dividend yield of nearly 3% that they raised by 13% last year. And that's supported by free cash flow that's gone up by double-digit rates for nearly two decades. And really what they do is it's a little bit of a simpler story than some of the rest of them. They're the leader in analog chips, which is kind of the blocking and tackling of the chip world. They collect data from everyday devices and convert it to digital form, which makes it a play on the Internet of Things, and as well, the type of name for which you can take advantage of increased infrastructure spending that we expect to see going forward.

Let's talk about quickly Stanley Black and Decker, obviously, along with the housing related group has really gotten hit pretty hard. Yeah, that's another one that it's a name that's been out of favor, but you're looking at a stock right now that's trading at only 11 times earnings as a result, whereas their peers are 18 or 19 times earnings. They also have an attractive dividend yield that's twice that of treasuries. And it's also one that they raised it last year, which indicates management's confidence in the business. You've got great brands. There's Stanley and Black and Decker, obviously. There's DeWalt Tools. And one that's really interesting is Craftsman Tools. They bought that from Sears a little while back. And they have a legendary reputation for quality. The first thing, when I bought my first home, my father bought me a set of Craftsman tools. And when Stanley Black and Decker acquired that, they've been able to increase the number of distribution points and

really revitalize the brand. And it's just, it's a misunderstood name. It tends to get lumped in with industrials, but really this is a consumer brand company. And as a result of their great brand names, they have good pricing power. Yeah. Long term sort of quality management and things like that as well. Burns, thank you. Appreciate it. Thank you for having me. All right. Up next, we're counting down to Coinbase earnings. That stock has been on a tear heading into tomorrow's sprint. We'll drill down on the key themes and numbers to watch. That's after the break. Let's get the results of our Twitter question. We asked, what is the best chip stock to own right now? The big winner, AMD, 42% of the vote. That stock down just a little bit on NVIDIA's warning today. Now, looking ahead, Coinbase gearing up to report results tomorrow right here in overtime. Let's bring in Kate Rooney with what to watch when those numbers hit the tape. Kate.

Hey, Mike. Yeah, first, watch user numbers. Wall Street's been pretty worried about customer attrition with more competition among crypto exchanges. Last quarter, Coinbase did see a drop in monthly users trading volume. That's key. It's also expected to follow along with what we've seen in crypto prices lately. The lion's share of Coinbase's revenue still comes from transaction fees. But part of its long-term strategy and plan has really been to diversify away from just trading. So any bump in subscription and services revenue would be seen as a positive. Also, a lot of talk about that NFT business. We'll see if that's made any progress. The institutional side of the business may also get more attention after Coinbase's partnership recently with BlackRock. And finally, guys, regulation. Any comments from executives

on the SEC's investigation into Coinbase potentially listing unregistered securities? The stock's been up more than 60 percent in the past month. Quite the rally there. Even with that, though, it's still looking at about a 60 percent drop so far year to date. Back to you, Mike. Absolutely. Got that bounce along with a lot of other high growth names. The institutional business, Kate, is BlackRock. Do we know the terms of that deal? We don't.

We'll see if we get any information on that. And it's pretty common that they have different rates for the institutional side of the business versus retail. The institutions tend to get a better deal. We'll see if we find anything out about margins or kind of the share of revenue there. But we'll keep you posted. Nothing yet on that, Mike. All right. We'll talk to you in 24 hours or less on that, Kate. Thanks very much. That does it for Overtime. Fast Money begins right now.