Closing Bell - Closing Bell Overtime: Time to Get More Positive on Stocks? 1/12/23

Episode Date: January 12, 2023

Another CPI report shows that inflation is cooling … and the Fed is still talking tough. So what’s next for stocks? Charles Schwab’s Liz Ann Sonders gives her take. Plus, Wells Fargo’s Mike Mayo breaks down what investors should be watching from big bank earnings. And, Solus’ Dan Greenhaus gives his forecast for earnings season.

All right, Sarah, thank you very much. And welcome to Overtime. I'm Scott Wapner. You just heard the bells. We're just getting started from post nine here at the New York Stock Exchange. In just a little bit, I'm going to speak to star analyst Mike Mayo on which bank stocks going to do best after their earnings tomorrow morning and which ones, of course, might struggle after those reports hit the tape.

We begin, though, with our talk of the tape. Now what? After another CPI report shows inflation is cooling, the Fed's still talking tough today, but stocks rising anyway, especially into the close here. Is it a sign to get more positive on the markets? Let's ask Lizanne Saunders. She is the chief investment strategist for Charles Schwab. Welcome back. Happy New Year. It's nice to see you. Happy New Year to you, too. Thanks, Scott. All right. So what do you think about the report today and the way stocks reacted here? So I think it was less about the headline.

Pretty much every metric that came out in the release was in line with expectations. I think what what generated a lot of enthusiasm were the variety of three month annualized trackings that people calculated on everything from just overall CPI, core CPI, and in particular, services x rent, where that three-month annualized move now has a one handle on it. So even though a metric like OER, which is an imputed value, is not yet following the real economy metrics like Zillow or Apartment List or Redfin. It's coming. It may not be in next month's report. So I think it's that look ahead and the trend move down highlighted by the three month annualized change, I think, is probably the basis of the enthusiasm we're

seeing today. Yeah. You know, you're starting to hear that G word Goldilocks, right? Fed near done inflation, cooling economy, holding up. Maybe it means soft landing. You agree or disagree with that? It may be a little bit, Pat. I think that right now, anyway, the Fed is to some degree fighting the market. It's not really that the stock market is fighting the Fed. It's the bond market sending a very different message than what the Fed is telling us, either that the terminal rate is going to be lower or that the economy is going to be weaker, hence the steep, you know, the sharp inversion in the yield curve. And I think the stock market is sort of following along with that somewhat benign message coming from the bond market. But we don't yet know whether the Fed is ultimately going to heed the market's message of one or two rate cuts happening.

Our contention has been all along that based at least on what the Fed is telling us, that the conditions under which the Fed would have a green light to pivot to actual rate cuts, not just pause, probably is a steeper deterioration in the economy and in particular the labor market. So how we skate through and maintain a Goldilocks environment and what that means for financial conditions probably means the Fed's not done yet. So I'm not sure that neatly fits into the Goldilocks narrative. You think their bark's worse than their bite, though, right, that they're jawboning as much as they have to do because that's what they have to do. But ultimately, they may not have to do. They may not have to do as much.

And the greater tendency is historically is for the Fed ultimately not to buck the message of the market, particularly if the market's message is quite consistent and in line with the economic data. I just think it's premature at this point to make that call. In addition, we can't really look at, say, the past even 30 years as a proxy for what the Fed might do. Is it the market that's more powerful than the Fed and their rhetoric? Because we're dealing with 70s-era type inflation and the Fed knowingly behind the curve and their rhetoric because we're dealing with 70s era type inflation and the Fed knowingly behind the curve and maybe willing to risk going a little bit too far. But I do think your point is right. Jawboning rhetoric, forward guidance, whatever terminology you want to use,

they know it's a powerful tool and they're using it at this point to kind of go against what the market is saying. Ultimately, what they do will probably be very much driven by the market. But it's it's a pretty it's almost more of a of a of a fine tuned instrument than just the more blunt instruments of actual rate hikes or balance sheet shrinkage. Of course, part of that, though, is that you you hope that they don't have such tunnel vision, right, that they continue to do more than they have to do, that they actually live up to the hype that they're talking about and send the economy into a real tailspin. Well, we also don't know what the secular trends are for inflation. Yes, we're seeing disinflation already in the good side.

We know the supply driven components of that are starting to kick in a more favorable way. We can anticipate what's happening to rents. But inflation, we often talk about it in level terms, but inflation is a rate of change. And we might be in rate of change terms heading back down to the Fed's target. The question is, has the level elevated because of some of these secular forces of some component of deglobalization? You know, there was sort of this gel effect, as I've been saying, of the pre-pandemic period where you had incredibly cheap labor, you had incredibly cheap energy, you had incredibly cheap goods because of demographics, because of the nature of globalization, what China coming into the world trading order

meant. Those are really not forces anymore. So we don't have that gel factor like we have had for the 20, 25 years or so pre-pandemic. So I think there's yet an understanding of what the longer term inflation picture looks like. And frankly, I think one key metric to keep an eye on to gauge the answer to that is the relationship between bond yields and stock prices. We've talked about it before on this show. You went 30 years from the late 60s to the late 90s, where you had an inverse relationship between bond yields and stock prices. It was more of an inflationary backdrop. Bond yields would go up. Stock prices would get hurt. The 20 years subsequent to that, up to the pandemic,

it was the opposite, because bond yields, when they were going up, it was typically more reflective of stronger growth, not an inflation problem. That's nirvana for equities. Now we may be shifting back more toward an inflationary backdrop or more volatility in inflation may be the better way to put it. So there's the thing that is not just speculation, the actual metric you can keep an eye on. If it stays sustainably negative bond yields versus stock prices, that may be the tell as to whether we're in the beginning of a secular shift. Oh, interesting. The conventional view, I think, is fair to say most recently has been first half could be rough. Second half could be a bit better. If the market is going to be able to eke out anything, it's going to come later in the year, though the market's off to a pretty

good start this year, which is forcing some to rethink that and think that perhaps it's backwards. What's your view on that? It could be very right. And then what we put in our outlook is that, yeah, I think the base case was maybe a tougher first part of the year, a better second part of the year. But I would always remind investors that the economic cycle or the market, either the market cycle or the economic cycle, cares a lick about the calendar. We have to frame outlooks in calendar year terms and in quarters or halves. But right now, the market is keying off of lower inflation and stability in the economy, and in particular,

stability in the labor market. If that persists, I think that's a positive backdrop for the market. And from a breadth perspective, as was touched on in the lead-in to this program, you have seen less bad breadth numbers. Each of these sort of retests looked better under the surface than what happened when you came up off the June lows. Those are the kind of positive divergences that you want to see. The question is, has the market now priced in too much of

either an improvement in growth or just stability in growth? And what happens if you get the deterioration in the labor market that some of the underlying indicators are suggesting? And to some degree, the Fed may want to see to cement this idea that inflation is not just coming down, but it's going to stay lower and not run the risk of accelerating rate back up again, which happened several times in the 1970s, as everybody now knows. You mentioned the relationship between bonds and stocks. And frankly, I can't think of anybody better to answer this next question than you in the seat in which you sit because of the relationship that Schwab has with the retail investor. This idea that Jeffrey Gundlach put forth this week, forget 60-40, it's 40-60,

right? Or even 40-25-15. The implication is more bonds than stocks. And that goes against conventional investing wisdom. It goes against history. And I'm sure you have a perspective and point of view on that. Well, the first perspective I have is and, you know, I think Jeff's great. I know him and I don't think he's saying that that's an allocation that's appropriate for anybody. But shame on anybody that puts out a numerical allocation as if that's an allocation that's appropriate for anybody. But shame on anybody that puts out a numerical allocation as if that's appropriate for every investor. You know, there are older, less risk-tolerant investors who have a retirement nest egg and need to live on the income associated with that. Well, what you would tell that person is entirely different. And yes, you probably want

to overweight bonds. You actually get yield now. There's income and fixed income. That's wonderful. That's not necessarily what you would tell somebody who has a long time horizon. They don't need any income. They want to as aggressively grow the principle as they can. So who's the investor as to what the right answer to that? But in our outlooks, my colleague, Kathy Jones, who I know you know, very optimistic on the bond side of the equation, the very unlikely occurrence of another brutal year for both stocks and bonds, and that there are opportunities now that have been created in bonds. And there are things that investors can do. They can be active in the fixed income side. There really are opportunities right now. But that doesn't translate into some, you know, numerical percent

in either bonds or stocks that's appropriate for every investor. Yeah. And it just speaks, if nothing else, to the fact that there is a new game in town after years of it being a stock world, an equities world, that now there finally is some competition. Lizanne, there's competition from outside the U.S. too. So this is not just a domestic story anymore, too. No, and I'm glad you went there. In fact, we can expand on that before we broaden the conversation, because that's another gunlock idea. Right. And it has been this idea that the dollar was going to weaken and that the, you know, multiples have been so depressed in Europe and the emerging markets that now is that moment to go there.

And you agree? Yeah, I think this could be a cycle where not and this is not a message to, you know, dump all your domestic equities, back up the truck and load up on everything international. But some of the shifts we're seeing within the U.S. market away from tech leadership, more toward leadership driven by industrials and basic materials and energy. That represents a higher share of markets in places like Europe and places like many of the emerging markets. And that helps to explain why they're doing quite well relative to the U.S. And I think it just reinforces the benefits of diversification and not letting either because you're purposely gearing yourself all toward U.S. equities or via lack of rebalancing that now more and more of your eggs are in the domestic equity basket. And I think there are opportunities from a valuation perspective, from a bias toward industries perspective outside the U.S.

OK, let's add now a couple more voices to our conversation. Stephanie Link, Hightower Chief Investment Strategist. Greg Branch, Veritas Financial Managing Partner, both CNBC contributors. It's great to have everybody take part in this conversation. Greg, I read your notes. You said you still think we're going to put in a new low for stocks. Is that true? I do think that.

And while I agree with most of what Lizanne said, you know, she hit some of the high points that I've been harping on for months, right, which is that the Fed likely won't change their course unless we see a major contraction in the economy, unless we see a major deceleration in inflation, or unless we see either of those things happen. We haven't seen those things happen yet. So I don't expect them to fully change course. And I think you used the word jawboning, Scott. The reason they have to continue to jawbone is because when they look into the markets, the markets are not articulating what they said they're going to do. At the end of the day, any bull case that has been built since the June rally of last year must rest on the hypothesis that either they are wrong or they are misleading us in terms of their intents.

And so at the end of the day, what they've told us, right, most recently with those Fed notes we saw last week, was that there's not going to be any rate cuts this year. Was that it's likely, in fact, that the terminal rate is going to be closer to six this year was that it's likely in fact that the terminal rate is going to be closer to six than it is to five uh even in the most dovish presidents uh neil kashkari in fact penciled in 5.4 percent and so the fed has to continue to hammer on the message but so well i get it i get it they they do but but they're still data dependent, allegedly, right? And maybe they're not going to have to do what they say. Their principal job right now is to speak and speak loudly because that's what they do. But there's no indication that they're going to have to get as high as they suggest just because, Greg, they suggest it. And that is fair.

But, again, I don't think we've seen any data to suggest that they need to pull off the gas at this point. Look, it's encouraging that the services inflation number came in. That was to be expected, I think, when we saw wage growth come in to that 4 percent number. You know, we know that there's a tight correlation between those things and we'll see if that continues. That will give them pause for thought because maybe we don't need to get up to a 4.5% unemployment rate if services inflation is going to see some meaningful retraction. But we just haven't seen any actual hard data yet, Scott, to suggest that they can either pivot or whatever you want to call it, pull their foot off the gas. And so I think that'll be the so what to me when we start to see data, meaningful data, right, dislocating data that says, OK, there's been a major movement here and we have to change course. And that matters because of the earnings. Think about the fourth quarter. We're now at about a negative four point eight percent. When we were talking

over the summer, we were looking at an eight percent gain in earnings growth for the fourth quarter. And so we've seen a major turnaround there and i expect to see something similar for the quarters of 2023. steph you agree or disagree with greg uh well i mean i i kind of agree with in part some parts um with lizanne as well as greg i mean i think that today's inflation number, we made some progress, but the Fed is focusing on core inflation. And while goods inflation fell, services inflation rose on a year over year basis from 6.9 percent to 7 percent and services a 73 percent of core CPI. So that's an important number. And that's what the Fed is focused on. And even if you got to zero percent in goods inflation, you'd still have a 5 percent services number

well above the 2 percent the Fed is looking for. So I agree with Greg. I don't think they change anytime soon. I don't necessarily think you're going to see a pivot and an ease. What I want to focus more and more importantly on, Scott, is in the last week, the global growth estimates around the street and also from some of the central bankers has actually improved. Right. So we saw

the Goldman data in terms of them raising their numbers on Europe in terms of the economy a little bit better than expected. We know what China did. They totally pivoted on their COVID. So growth there is biased towards the upside. That actually helps Europe. BOJ last night increased their outlook a little bit for their GDP. And then, of course, the Atlanta Fed here in the States is looking at a 4.1 percent GDP number for 4Q. I know that number gets revised. It's going to get revised further and probably fall in 2023 as we move throughout the year. But no one's talking about that there could be actually upside to growth versus all this doom and gloom and why that's important is because earnings expectations are for negative four point one percent for the fourth quarter. And think,

given the resiliency that we've seen in the consumer driven by real incomes going higher because of jobs and wages and lower inflation, as well as dollar, as well as supply chain, as well as input costs being lower, I think earnings are going to be better than expected. Why does that matter? Because stocks follow earnings. earnings i hear you and and lizanne this idea that stronger growth stronger gdp is a bad thing because that's going to keep the fed not only more engaged but tighter for longer maybe that's not true either as long as inflation is actually coming down at the clip that it seems to be now it only adds that belief that the economy is strong enough to withstand anything that the Fed has already done and what they may

still do. That's a possibility. And then that could be the setup for a pause. I just think that the big kind of disconnect that's happening right now is what happens after the pause. And I don't think there's any reason not to take the Fed at their word that they don't anticipate rate cuts. They could pause at a terminal rate that's lower than what the Fed is saying right now. But what I think they really want to avoid is the fits and starts of monetary policy that led to the multiple outbursts again of inflation. So I think that's the more important calculus, not what is the terminal rate? When do we get there? When does the Fed pause? I think it's their inclination, not just because, hey, this is what we've said, so we're going to stick to it, but the lessons learned from the 1970s. The inflation backdrop

is quite different. Yes, the numbers that, you you know nine handle on cpi that hit last year you can liken that back to the 70s the underlying conditions are very different but what they clearly are looking at in terms of playbook from the 70s is not repeating the premature hanging of the mission accomplished banner and the allowance of inflation getting out of the bag again, ultimately leading Volcker to have to pull a Volcker in the early 80s. Let's talk positioning before we go. And Lisanne, I'm going to start with you because of a tweet that you had, I believe it was many hours ago today, about small caps. We're going to show it and talk about it because there's considerable chatter these days about whether we should be in small caps. Not always the case, you said, that small cap earnings weaken relative to large cap earnings when small business profits tank.

But drop in ladder has been massive since COVID peak. Are small caps a place I would want to be right now if I think the economy is going to slow? As you know, Scott, we've been very factor focused, saying this is an environment where active is doing better relative to passive. Equal weight is doing better relative to cap weight. We've got the return of the risk-free rate. That means price discovery, reconnection of fundamentals to prices. I think in general, yeah, there are opportunities in small cap, but here's a little tip. There are two well-known small cap indexes. Russell 2000, probably the most common as a benchmark, doesn't

have a profitability filter, has a much larger percentage of what we could think of as zombie companies. S&P 600 has a profitability filter. By the nature of those filters and the different construction methodology, you get a higher quality bias in that index. So I would say as a starting point, you could go there, but I'd still screen for factors like strong free cash flow yield, healthy balance sheet, not the zombie companies, positive earnings revisions, et cetera. I think that's a way to approach across the cap spectrum, certainly in small caps by staying up in quality. Steph, how would you address that same issue? Yeah, I mean, I haven't changed my thoughts or how I'm positioned into 2023 versus where I was in 22. Cyclicals, I think, are going to benefit.

I think you have pricing power at a lot of these various different industries, like energy, like materials, like industrials. Pricing power, lower input costs, and a little bit better demand globally. I think that sets up well for those sectors. On the margins, Scott, I'm more bullish on discretionary because, as you know, they lagged a lot. And in fact, I added to win resorts back into the portfolio today based on the recovery happening in China, but also because the stock is still down substantially, even though it's had a nice bounce off the lows. But I am looking for opportunities within discretionary because, as I mentioned, consumer, I think, is going to remain resilient. Gregory Branch, you get the last word. Go ahead. And this is where Steph and I have disagreed. I'm very curious to see what the

banks say about the consumer. Recall that we were all a little bit surprised. Well, most of us were a little bit surprised when they kicked off a provisioning cycle a quarter or two ago. Most people were surprised with what Jamie Dimon had to say six months ago about the health of the consumer and you know we have some data we we see the credit card openings record highs every quarter we see that at an almost historical average apr and so i'm still keeping my eye on the consumer but like lizanne and steph said the key here is earnings growth we saw that perform in 2022 where you see consistent earnings growth and maybe some structural dislocations like in energy setting up for that earnings growth.

And I think 2023 will be much of the same. Well, the market will reward consistent, durable earnings growth and inelastic demand. All right. Good stuff, everybody. Appreciate the time. Thanks so much, Lizanne. We'll talk to you soon. Greg and Steph, you as well. Let's get to our Twitter question of the day. We want to know how many rate hikes will we see this year? You can head to at CNBC Overtime on Twitter to cast your vote. Share those results. You see right there, one, two, three, or more than four. That seems unlikely, but nonetheless, give us your view.

We're just getting started here in overtime. Up next, bracing for the bank's earnings season officially getting underway tomorrow. The big banks kick things off in the morning. Top bank analyst Mike Mayo here tonight with the setup into those reports. We're live from the New York Stock Exchange. OT is right back. We're back in overtime. Earnings season getting underway in a big way tomorrow with the banks kicking off things in the morning.

Citi, Bank of America, J.P. Morgan and Wells Fargo all set to report before the bell. Joining me here at Post 9 with the setup is Mike Mayo. He's the head of U.S. large cap bank research at Wells Fargo Securities. Good to have you. Welcome back. Where's the bag of props? You forgot at the office. You left it upstairs on the balcony. Where is it? I can't spoil you too much, Scott. I brought the content.

Okay, all right. Well, let's get there then, because it's been a pretty decent little start here to the year for the banks, right? Citi's up 8%, Goldman's 7%, you know, and on and on. Can it continue? Well, our base case is for bank stocks to be up 50% this year. Oh, 50%? That's our base case. We've been talking to Tom Lee too much. I mean, he thinks Fang's going to be up 50 percent. That's now the magic number for the

bulls. That's simply going back to historical valuations. And it has banks growing earnings about 14 percent this year, twice the pace of the S&P 500 at a time when the bank price-to-earnings ratios are at a 20% discount. So you get that re-rating back. You get that earnings growth. There's nothing fancy here. Now, if we have a hard landing, it could be down 30%. But our base case is... That's a wide range, Mayo.

I mean, up 50 to down 30? Well, if it's not a recession, we have up 66%. So weighted average return of about one third, which isn't bad. You know, that would be a pretty good year. And I think the one word that sums up bank earnings, what you're about to see and for the year is resiliency, resiliency of the bank deposit basis, especially at the largest banks like Bank of America, U.S. Bancorp and PNC are favorites, and that's going to lead to higher Main Street banking revenues or net interest income.

Resiliency of the business models, as you have more business volume, you're going to see scalability like you haven't seen it before. So I'm a little bit above consensus on revenues. I'm a lot more above consensus on pre-tax earnings because of profit margins. And then most importantly, resiliency of the balance sheet in the wake of slower economic growth. I think you're going to see credit costs contained. This should wind up being the best performance of banks through a recession in the modern day. But I mean, the economy is the biggest wild card, right? So it's kind of dangerous to make such a overwhelmingly bullish call on the banks in the face of headwinds that are likely to be talked about in the morning, right? What do you think, Jamie Dimon's going

to show up and say the hurricane's gone out to sea and that it's just blue skies ahead? Well, I mean, it's hard to be a bank analyst without also forecasting the weather. So I agree, whether it's just simply storm clouds or rain or gale wind or a hurricane. But that's why we do our weighted average scenarios. I will say I do think after tomorrow you're going to see like it's the shoes not falling yet. It's not like it's you're not going to see the big damage. If you see damage, it's going to be more outside of the U.S. banking industry. That's where banks have pushed off the risk. The regulators have required it.

The banks have wanted it. And face it, if you're a bank CEO, as long as you don't blow up, you're likely to still have a job. And so their incentives are aligned with making sure that the de-risking leads to controlled credit costs. So even if it's a bit worse than I expect and the economy goes a little harder than I expect, we still think bank earnings grow through this recession. That's what's different. And they grow through this recession so long as loan losses do not more than triple. Who's got the best story to tell tomorrow? Well, I think I've said it before,

and I was on your show when the stock was under 30. Now we're at 34. It was just a few months ago. Bank of America is a microcosm of that resiliency. We think that is a battleground stock for a battleground industry. Battleground stock, Bank of America, it comes down to net interest income. What is the number? What's their guide? What's the stability of that over a trillion dollars, trillion and a half of deposits, those relationships? How sticky are those? I think this year you see $10 billion in revenues, $1 billion in expenses. That's called operating leverage. And we think their credit quality remains fantastic. Okay. And I know you can't talk about Wells for obvious reasons, right?

Who has the most potential downside of the groups that of the of the stocks that you cover? Who would we be worried about the most? You know, I think you need to be worried about non-bank financials. OK, so the big category of private capital, loan funds, some of the fintech firms, that's where a lot of the subprime loans have gone. That's where some of the loans that banks are no longer allowed to make has gone. So I think the risk this earnings period is less with the banks than someone outside of the banking industry that has some sort of problem. And then everyone's running around who's exposed to that problem. I understand. But if everybody if everybody in the group so great, why do you have equal weight ratings on JPM and Morgan Stanley?

Why don't you have those at overweight also? You know, our favorites, Bank America, U.S. Bank Corp, and PNC, were most positive about the NII growth growing and their scalability. JPMorgan has been spending more money than any time in their career. They're gaining market share, but now they're doing it by growing expenses very quickly. We wonder if they might be doing that, spending too much too fast. You saw that with one of their acquisitions. They're in the middle of a lawsuit right now. And to us, it smacks of being a little sloppy, even though it was a small deal. So we want to see what they have to say about what's been in the news recently and what kind of spending they're going to have. And with regard to Morgan Stanley, the valuation,

you know, relative to Bank of America, Morgan Stanley is trying to combine banking and wealth management. Bank of America is five to 10 years ahead of Morgan Stanley, yet they traded a big discount to them. So Bank of America over Morgan Stanley, Bank of America over J.P. Morgan. All right. It's good to see you. Thanks for being here. Thanks for having me. Speaking of Bank of America over Morgan Stanley, Bank of America over J.P. Morgan. All right. It's good to see you. Thanks for being here. Thanks for having me. Speaking of Bank of America, CEO Brian Moynihan is going to be on closing bell tomorrow, three o'clock Eastern time. It's an exclusive interview with Sarah.

So check that out. You can hear right from him on how the quarter was and what the outlook is through his eyes. All right. Let's get to Bertha Coombs with a CNBC News update. Hi, Bertha. Hi, Scott. Here's what's happening at this hour. The White House says President Biden and his team are confident that a probe of classified documents found at his home and a think tank office were inadvertently misplaced. The White House also says Biden does not know what is in the documents

now under investigation by a special counsel, but he is willing to be interviewed about them. A new study finds ExxonMobil funded remarkably accurate research about global warming starting back in the 1970s, even as the company contradicted its own scientists' conclusions. The study says the Exxon-backed forecasts were as precise as those from governments and academics, and sometimes even better. ExxonMobil says its understanding of climate change has evolved over time and says critics are misunderstanding its earlier research. And there's a bit of a silver lining to all of those deadly storms that have been drenching California since the end of last year, they've dropped a full winter's worth of snow and begun raising reservoir levels.

Drought levels have also eased significantly, though experts say it will take much more precipitation to make up for years of low rainfall. But Scott, hopefully spread out over time. Yeah. All right, Bertha, thank you. That's Bertha Coombs. Up next, going for growth. Solus Asset Management's Dan Greenhouse is back with us. He gives his forecast for earnings season. See if he's, he looks dour in that picture. I don't know.

Maybe that's a tell on how he feels about earnings. We'll have to ask him. He's waiting in the wings next. Earnings season kicks off tomorrow with consensus calling for the first year over year decline in more than two years. But our next guest believes the chances of a weak first half for earnings growth is looking less likely. Let's bring in Solis Alternative Asset Management Chief Strategist Dan Greenhouse with me here at Post 9. I was joking in the tease. I mean, the picture, you look like you're expecting bad things.

I'm generally in pictures unhappy. But when I'm here with you, I have a big smile and I'm ready to go. All right. Well, there it is. Is this picture worth a thousand words or you feel better about earnings than this? It's worth one word. And that word is horrible. Serious about earnings. Do you think they're going to be as bad as people think? I don't. You know, I know the consensus is calling for a negative year-over-year headline and a

negative year-over-year growth rate, and the headlines are all this will be the first. But everybody understands at this point that there is a normal beat rate that you can incorporate into earnings of a couple of percentage points. And assuming that's the case, you're probably going to end up with a low single digit number for the quarter. Is that good enough? Yeah, I don't think the issue at this point is, and you've made this point, I think today, but in general, that like right now, it's all about guidance. And in general, it's always about guidance. So how companies have prepared for and how they're going to guide under the assumption that growth is going to slow and earnings are going to slow over the course of the year, that's much more consequential than whether earnings are down 2% or up 4% or whatever it might end up being.

It all depends on who you talk to as well, right? A Satya Nadella of Microsoft who says tough two years is not the same as maybe the CEO of an industrial company or a more cyclical economically sensitive business. What do you think about that? I mean, the other funny thing about about the the index level earnings growth rate, as always, is it is it hides nuances beneath the headline. And so I can slice up that number any which way I want. So the top line growth rate is going to be in the low negative in the low single digits. But if you take out, let's say, technology shares or you take out financials, that number is going to look much better. Obviously, it's going to look much worse if I take out energy where earnings are going to be exceptional. But obviously, the experience that tech is having right now is very different than, say, most consumer companies or even the industrials, let's say.

How do you feel about the market right now going into earnings? Yeah, so, like, I've clearly been one of the more bearish guests that you've had for the better part of 12 to 18 months now. I don't know. Everybody's bearish. I mean, you've been in the camp with most everybody else. Sure, although I want to give myself credit in saying I was one of the first ones there, but I want to be brave. You're a king bear. Well, I'm not the king bear. It doesn't matter. You know, where are we now? I think the problem you run into now is, A, things are going along much better than I think I would have expected six months ago, let's say. The economy is not doing great, but neither

obviously has it broken down to any meaningful degree. Obviously, the labor market is holding up very, very well. And inflation has come down along the lines of what I forecast, but pretty dramatically. And so when you put that all together, you have to say on balance for now, things are going pretty well. And you see that reflected in the stock market, which is up, call it 10, 12 percent off the October. Is that the appropriate reaction in the stock market, you think? It is appropriate when you look at what the dollar has done and what interest rates have done. And when you put that together in conjunction with the seasonality trade, I don't think you're you're off base here. If you're the market, the problem you run into if we look at, like, let's say the 200 day moving average, which has proved to be a ceiling for the S&P 500.

We're right up all year long. You are right there, so to speak. And so technically you have a bit of a headwind here. You follow the bond market, obviously closely. What do you make of the message there versus what the Fed is trying to tell us? So with respect to the credit market specifically, which I know not every viewer cares about, you're getting a similar message to what the market, the equity market is telling you right now. There's not a ton of concern. There's ways to slice this up. But at a headline level, the spread between what you might earn in the investment grade or in the high-yield

bond market is not particularly at levels that would be worrisome or signaling a worrisome level. Spreads aren't blowing out. They're coming in, if anything. But I mean, the bond market is telling a different story. The Treasury market. The Treasury market is telling a different story than what the Fed is telling. Yeah, well, I guess- Ultimately, there's going to, they're going to have to come closer together at some point. Yeah, but I guess, much like you said before, it depends on who you talk to.

What messages the Treasury market sending right now depends on who you're talking to. On the one hand, inflation has peaked out on a year of year basis for sure. The month over month number, which is 99 percent more important than the year of year number, is going up at a reasonable pace over, let's say, on a three-month annualized basis. So on the one hand, the Fed may not have to raise as much as perhaps the feared, may not have to keep it there as long as feared. And the result of that you see in the two-year and to a smaller degree in the 10-year, you could look at it that way. Or you could say the ISMs are both under 50 and housing market is imploding and this is going to start spreading. And therefore, recession concerns are going to be amplified over the next six to nine months. And therefore, the Treasury market needs to come down yields.

We'll see. Thank you. Great. That's Dan Greenhouse, Solace, right here at Post 9. Up next, a Dow double play. Disney and Nike both off to strong starts this year. So are more gains ahead? We debate that in today's halftime overtime next. In today's halftime overtime, a Dow double play. Disney shares finishing the session higher after try and partners officially nominates Nelson Peltz to that company's board. And just in the last hour, Nike CEO John Donahoe telling our own Sarah Eisen he remains optimistic on the consumer in both North America and China.

Hightower Stephanie Link, a shareholder in both stocks for that reason. She's back with us now. It's good to see you. Let's start Nike first, because that was the most recent today. Donahoe was pretty he was pretty upbeat, you know, relatively speaking. What's your take here? Yeah, I think he has every reason to be upbeat. Even with China barely opening, they had a great report last report a couple of weeks ago where China grew 6 percent constant currency, the best number since the first quarter of 21. And then you switch over to North America and total revenues as a whole. Numbers were fantastic.

I mean, total revenues last quarter grew 17 percent, constant currency 27 percent. North America grew 30 percent. These are outstanding numbers in the face of what people are thinking the consumer is kind of rolling over, which, you know, I do not believe. In addition, it's a DTC story. So DTC grew last quarter 16 percent, about 25 percent constant currency. Why that is important, Scott, you know, I've been saying this for years. It has very positive margin implications. So the only thing that's still kind of a problem is inventories. But that we've heard across the spectrum, Scott. We even heard it from Lulu earlier this week. Right. And we heard from Macy's and and even Costco. So it's not a demand

problem. It's an inventory problem. And I think that's going to get resolved in the next couple of quarters. And then you set yourself up for some pretty easy comparisons. OK, let's go Disney, which, incidentally, you added to yesterday before the Pelts news broke. Tell me about that. Why did you do that then? Now we can talk about Mr. Pelts. It was really it's kind of like luck on timing. You know, I instituted a position a couple of weeks ago and I always start small. And I just think that this is a store I want to own and want to be bigger in the portfolio within the consumer. So Nike, Starbucks are my top two. Disney's now my number three position. But I got to tell you, I mean, I totally agree with everything that Peltz said today, that they have a great consumer brand and they have a great consumer in general,

right, that likes their products. They just had poor profitability. The 1, 3, 5, 10 year underperformance relative to the market is staggering, right? So you have someone that's going to come in and help. And SG&A, since 2018, Scott sorry, up 85% since 2018 or up $8 billion. So there's certainly things they can do in cost cutting there. And of course, you've got to get profitable on streaming. And I think Iger will be able to do that. So I like all the things he's talking about. And I think you're at kind of trough earnings. But I mean, you know, Disney's essentially giving him the Heisman, right? They say they don't support him to come on the board. It sounds like you say he should be on

the board because you like the ideas and things that he needs to do. And he says that they've got poor corporate governance, poor strategy and operations, poor capital allocation, et cetera, et cetera. Yeah, they do. It's all very, very true. So I think he should be on the board. And I think he should get a vote. And he has such a great track record. You know, he's on the board of so many companies, and they tend to outperform a 900 basis points annually when he's on the board. So why wouldn't you want to have him on the board? And even I even we listened to the interview today. And it does sound very simple, like that the company wants to have him on the board. And we listened to the interview today, and it does sound very like that the company wants to have him involved, but not a vote. Well, you're not going to be involved like that and not get a vote.

So I think eventually it works. All right. So proxy comes in the mail. You vote for Peltz? I sure do. Okay. Thank you. We'll talk to you soon.

That's Stephanie Link. Coming up, we're tracking some big stock moves in overtime. Seema Modi standing by with that. Hi, thank you. We'll talk to you soon. That's Stephanie Link coming up. Thanks, Scott. We're tracking some big stock moves in overtime. Seema Modi standing by with that. Hi, Seema. Scott, Virgin Galactic soaring in the overtime as the company speeds up its timeline to going to space. We are all over the moon on this one, but we're back in two here on Earth. We're tracking the biggest movers in overtime. Seema Modi is back with that. Hi, Seema.

Let's get to that Virgin Galactic story, Scott. The stock is skyrocketing after revealing that its commercial service to space remains on track to launch in the second quarter of 2023. The company also announcing some leadership changes, including that its president of aerospace systems is departing. That is effective immediately, but will remain as an advisor to CEO Michael Colgazer. You can see the stock is up 12% in the OT. Let's switch to Vici. Shares are falling in extended trade after the Casino Real Estate Investment Trust announced a public offering of 24 million shares. That's not really what the market wants to see. And you can see shares are down about 2% in the OT. Let's look at Hanes Brands moving higher right now after saying it expects fourth quarter net income, net sales, excuse me, to come in slightly above its initial outlook. The retailer also announcing its CFO is departing. It's begun its search to

fill the role. Stock up 8% here, Scott. All right. Seema, thank you. Seema Modi. Still ahead, Santoli's last word. Overtime is right back. All right. To the results of our Twitter question, we asked how many rate hikes will we see this year. The majority of you saying 2. 40% on that vote.

Up next, Santoli's last word. Mike Santoli's here for his last word of a very interesting day. What do you make of it? Things falling into place. I would say we're in the proving ground for the market to maybe show us that it's more than just a little bit of a relief rally. I would say another three or four percent in the S&P in relatively short order. And you have to start asking the question of whether, you know, the bear market is basically culminated late last year. You see nobody you see nobody saying and this is comforting. Nobody is looking back and saying we had a cyclical bear market that bottomed right before a midterm election in textbook fashion as inflation and Fed hawkishness peaked. That's basically if we could,

in theory, look back and say that's kind of how things went. Now, nothing, again, is in the bag because we've stalled in this general area before S&P 500. We've talked about the 200 day average and 4100 I would target as an upside area that says maybe it's more make or break as to whether this is more. But I pointed out before, the equal weighted S&P 500 blasted above its 200-day average. It's above the December highs. It's like 4% above the 200-day. So, in other words, the core of the market is starting to round into place. And, you know, obviously the tricky part comes because the market often celebrates a Fed pause when the economy hasn't yet fallen apart, but the economy is about to fall apart.

Right. So we've had this before. People talked about soft landings in 06 and 07 and all the rest of it. So I'm not declaring anything, but I think it's refreshing that you don't hear people talking about this. Yeah. Fed speak doesn't really scare the market anymore either. You know, and you don't get the the top dog, the Fed chair himself speaking for a while. That's true. We have a window here. It's three weeks before we got the meeting itself. I do think that the Fed has the capacity to assert even more hawkishness from this point forward and say, you know what, we don't care. We're going to wait for 2% or whatever it is. But I don't think you would want to bet that that's going to be the case just because they don't necessarily need to. If inflation does have more downside push to it, they don't necessarily have to say, well, we're not going to let you

guys celebrate premature. Also, the meme stocks running, the speculative stuff waking up, it's going to be a negative if it goes too far. But it's too early to say that that somehow is already overshot. Does it feel like there's a whole bunch of conviction behind that at all? Not yet. Yeah. You never know. Good bill. All right. Good stuff. We'll see you tomorrow. All right. That's Mike Santoli. He'll be with us, of course, tomorrow for his last word that does it for us. I'll see you then. Fast monies now.