Closing Bell - Closing Bell Overtime: Trading the Fed Reckoning 11/3/22

Episode Date: November 3, 2022

Stocks struggled with another blast from a hawkish fed … so what’s next for the broad market? Hightower’s Stephanie Link gives her take. Plus, Cantor’s Eric Johnston is changing his tune on the market after turning tactically bullish just one month ago. And, instant analysis to PayPal and Block’s quarterly reports.

We have a lot of key earnings coming out in just a few minutes. Names like Starbucks, PayPal, and Coinbase. We'll bring you those breaking reports as soon as we have them. Plus, Cantor's Eric Johnston changing his call on the market. He'll join us to explain why. But we begin with our talk of the tape. Fed reckoning day two. Stocks struggling with another blast from a hawkish Fed.

And bond yields pushing back toward the year's highs. As the NASDAQ covers just above its bear market low. So will the broader market have to follow? another blast from a hawkish Fed and bond yields pushing back toward the year's highs as the Nasdaq covers just above its bear market low. So will the broader market have to follow? Let's bring in Stephanie Link of Hightower Advisors. Stephanie, also, of course, a CNBC contributor. It's great to see you. Yes, you too. And a familiar story, I guess, one way or the other, right, that the market kind of gears up for perhaps a little bit of daylight from the Fed. Maybe we can see the destination where we're headed. Jay Powell says not so fast. That being said, today didn't feel like an all-out run for the exits, kind of rotational.

How do you read it? It's a confusing time, Mike, right? We're in this choppy trading range. We've been talking about it all year, $3,600 to $4,200, right? I mean, I kind of thought yesterday when we got the statement, I think all of us were breathing a sigh of relief because it did all of a sudden introduce, hey, we get it. There's a lag impact to higher interest rates by about six to nine to 12 months. So while we don't, so that was the good news. And then we heard from Powell and no pivot, no pause, higher rates, higher terminal rates. I mean, across the board, you guys have been talking

about it all day. And here's the thing. I mean, they can be hawkish because the job market and the job data that we keep getting every day this week has been actually strong or stronger than expected. We had initial claims today down 27 percent on a four-week moving average on a year over year basis, right, on top of jolts, on top of ADP, all of that kind of thing. And at the same time, so since jobs is OK, that's one of their mandates, they're now focusing on inflation and they're behind the curve because I don't care what we say. It could be peaking at this point in time, but it's still awfully high. I mean, look at the unit labor cost numbers from today at six point one percent year over year. And even in the ISM prices paid numbers, which I think you mentioned earlier today a couple of times, that's actually now at seventy point seven.

So going in the wrong direction. So they need to be hawkish. We just don't know the outcome. That all being said, I don't think we collapsed today because we know a lot of these things. The market's down 19 percent. Sentiment is really negative. And seasonally, it's a good time, especially after midterm. So I kind of think we're going to slosh around here, unfortunately. And it's going to be certain sectors that do better, as you guys just talked about, in terms of value over growth. Yeah, the S&P did finish all of maybe half percent above the early morning lows. So really not too much of a victory. But yeah, the typical stock

did better. It really has been more intense selling pressure in the biggest growth stocks. It just doesn't seem like they've found that level where they've gotten sold out. Now, we could say the overall market holding up when mega cap growth has underperformed over the last three months by 20 percentage points or something like that, maybe is a net positive, but for how long? For certainly short.

I mean, like, look, comm services and tech is 35% of the S&P 500. Just by definition, that tells you that they're still over-owned. Energy, even with the rally, Mike, is only 5.5% of the S&P 500. Just by definition, that tells you that they're still over-owned. Energy, even with the rally, Mike, is only 5.5% of the S&P 500. However, add in financials, which have held in, add in materials, industrials, and then healthcare, which is its own animal, right, kind of defensive, and that kind of offsets these technology groups. And that's the good news, right?

And I think the names I just mentioned, the value sectors, they are starting to get popular. But still, I think there aren't a lot of believers because energy would not be 5.5% of the S&P 500 if people actually believed. Yeah, it is a tricky time because even if you think, oh, the industrials start to act pretty well right here, it seems like there's beatable earnings estimates. You're still in a game where the Fed seems to believe they need to engineer much more of a slowdown in the broad economy before we get where we're going. Absolutely. And so between now and the end of the year, I want to own those cyclical groups, the value groups, the industrials we just talked about have the pricing power and

that's and they've had surprisingly decent earnings, right? Energy, we talked about great earnings, great free cash flow. But sometime in 2023, I'm going to use the pivot word. We're going to want to change because we're going to see a lot slower growth in 2023. I don't know if it's a recession or just slow growth, but that's when you could see potentially a rotation back into growth. This is the answer to those who say, why does the market set itself up like this all the time? It continues to have kind of the triumph of hope over experience and get excited. But because there's going to be a time when the leading indicators of inflation actually show up in the numbers, and the Fed's going to be speaking hawkishly until the minute that happens, right? And so then the market's going to try to get in

front of it, right? I would think that the market's going to get in front of it. Every time we get a better number on inflation, it's still high, but a little bit better, you kind of start to see the growth stocks rally, but then they peter out. And I think that people are selling the news instead of buying the weakness. And that's what's different in this part of the cycle. For sure.

High equity exposures by investors coming into this space probably is part of the reason for that. We do have Expedia earnings out now. Seema Modi going through the numbers. Hey, Seema. Record quarterly revenue for Expedia in the third quarter, $3.62 billion, which is a slight beat on its top line. But earnings coming in at $4.05 adjusted, a miss.

Wall Street was looking for $4.12 adjusted. Gross bookings increasing 28%. So it is seeing that recovery year over year in bookings. But I would just point to Booking Holdings. Its main competitor did see its gross bookings up 36% year over year in the third quarter. CEO of Expedia, Peter Kern, will join me tomorrow first on CNBC on Tech Check. Big question on the earnings call, though, in about 30 minutes time, 4.30 p.m. Eastern, Mike, will be on pricing. Booking Holdings yesterday said that even though travel is getting more expensive, they can hold on to that strong average daily rate.

Airbnb suggested Q4 trends are softening. What exactly is Expedia seeing? And are we starting to see a shift in pricing power towards hotels? That will be the story. Mike, stock down about 6% here. Absolutely. And ticking lower still to a little more than 7%. Seema, thank you.

Starbucks earnings also out. Pippa Stevens has those numbers. Hi, Pippa. Hey, Mike. Starbucks beating top and bottom line estimates for the fourth quarter. Earnings per share coming in at 81 cents on an adjusted basis, which was 9 cents ahead of expectations. Revenue coming in at 8.41 billion ahead of the forecasted 8.31 billion. Now, global same-store sales blowing past estimates, rising 7 percent, while analysts had been looking for 4.2 percent.

The rise was primarily driven by an increase in average ticket. We did, though, see the continuation of a post-COVID trend, which is diverging numbers between domestic and international. U.S. same-store sales were up 11%, while international was down 5%. That was primarily driven by a 16% decline in China's same-store sales. The country, of course, is Starbucks' second-largest market. Now, this is the first quarterly update since Starbucks unveiled its reinvention plan back in September. Interim CEO Howard Schultz saying the company is positioned for profitable growth and value creation beginning in 2023. The call kicks off momentarily, and we'll be looking for more specific guidance, Mike, on how 2023 is shaping up. All right, people, we certainly will. And don't miss the Starbucks CFO on Squawk Box tomorrow morning as well.

Those stock reacting positively, Steph. Starbucks, what were we looking for? What did we get? I wasn't looking for much because they just had an analyst day back in September. But I was looking for the comps. What they came in at was across the board much better than expected. Global comps of 7% versus 4%. And China down 16% instead of down 25%. I mean, that's a pretty good number. It's like less bad, right?

But, you know, you have a very exciting story with the new CEO coming over from Reckitt. When he was at Reckitt, for the years that he was at the company, the multiple re-rated from 13 times to 18 times. He knows what he's doing. The stock actually outperformed substantially. He doesn't join until April. So maybe he'll make a cameo on the call. I don't know. But Howard Schultz is at the helm, and the two are going to be a great combination going forward. So I really like that stock, especially since it's down almost 30% year to year. Yeah, absolutely. It's taken some punishment. Let's now bring in Keith Lerner of Truist, as well as Bryn Talkington of Requisite Capital Management. Bryn, also a CNBC contributor to talk more about markets and these numbers. Keith, love your take on how the market has so far tried to digest what the Fed had to say

after we got a pretty good rally through October. And, you know, today, a little bit of second day unease, but not really falling apart. You know, great to be with you, Mike. I mean, on a relative basis, it held up OK after a tough day yesterday. But taking a step back, as you mentioned, when we came into October, the market was extremely oversold. We were telling our clients that we expected a reprieve. But there was a shift in our strategy last Friday when we had a big market move up. Our view is the risk-reward was less favorable. So we downgraded equities. We upgraded fixed income, moved more towards a value tilt.

And we think that's the right way as we think about the next six to 12 months. Because there's so much discussion about this Fed pivot. And I think the more important issue is, is the economy going to recession or are we going to see a slowdown next year? And regardless of a pivot, I think the more likely scenario is that we do go into a recession and at best earnings are flat to more likely down. And you're already, you know, even today after this pullback from yesterday, you're still trading at a 16% multiple or 16 times multiple. The 10-year average is 17. But those earnings likely come down. And the other part of this, Mike, is over the last 10 years, the 10-year treasury yield has

averaged about 2%. We're more than double that today. So at this point of the equity cycle and where we're at, we just don't think the risk-reward is that favorable for equities. And we would use balances to become somewhat more defensive. And then just the last point, Mike, you know, under the surface, we are seeing more opportunities. The equated S&P just made a four year relative high. So we are seeing some opportunity below the surface in areas like industrials, energy and health care at this point. Yeah, for sure. I mean, the weakness has absolutely recently been driven by the very top, the largest stocks. Meantime, Coinbase earnings are out. Kate Rooney has those for us. Hi, Kate.

Hey there, Mike. That's right. Coinbase here with a miss on revenue and a wider than expected loss for Q3. The company attributing that to the crypto trading slowdown. Total revenue coming in at $590 million for the quarter. That was shy of expectations. The street was looking for $654 million. EPS, this was a

loss of $2.43. Street was looking for $2.40 there. Transaction revenue also a miss. It was down 44% sequentially from the prior quarter. Again, because of that trading slowdown, margins were lower and thinner than expected, about 20% versus 32% expected. Subscriptions and services here were a bright spot. Analysts have been looking for this company to really diversify away from that transaction-based revenue. $211 million interest income, made up about half of that at $102 million, so getting a boost there from rising rates. Monthly transacting users, $8.5 million.

That was down 6% from the prior quarter. They also talk here about bringing down expense guidance from prior quarters. And so a little bit on the expense side, paring back there. They also expect to bring down sales and marketing as well. Stock here dipping slightly, more than 2% after hours. Mike. Kate, thank you very much. Yeah, relatively modest loss, but not a whole lot of

great stuff to work with in the quarter. Bryn, on Coinbase, what are we looking for here? It's been a theme to see, you know, people are going to get leaner on the expense side of things when you have these very fast growth stories that have decelerated. Is there a way the company has to navigate around just a general overall volumes in crypto? Well, I think, first of all, Brian has to do a complete pivot from this time last year when, you know, in the fourth quarter of last year, they were hiring so many people. And so I think on the earnings call, we want to have him continue to say they're going to be fiscally disciplined while continuing to try to build out the platform. Right now, though, Mike, the platform is very highly concentrated with transactions,

and that's not going to change anytime soon. I think the BlackRock announcement, as well as the Google announcement, that Google was going to work with Coinbase for their payment rail for crypto on their cloud is positive. But once again, that's not going to be accretive this or next quarter. So there wasn't a lot to like about this earnings report. I wasn't expecting anything great. What I will want to see though is tomorrow when it opens. The stock has been trading since May between around the mid 50s to the 70s. If it can stay in that range and consolidate, to me, that would be a victory right now. While crypto is still, I feel, in this purgatory until we get some more regulation around the space.

All right. Yeah, it is, yeah, some 30-some percent off of the lows Coinbase is. We also have DoorDash numbers. Deirdre Bosa has those for us. Hey, Deirdre. Hey, Mike. Those shares popping more than 9% after adding 5.5% in today's session. And this is really on resilience and delivery and the guidance. Total orders and revenue growth

accelerating on a quarterly basis. Better than expected outlook. Let me give you the numbers. Losses wider than expected. 77 cent loss versus 60 cents expected. However, adjusted EBITDA coming in better than expected. And the difference here is EBITDA doesn't take into account those stock-based compensation. So adjusted EBITDA, 87 million above 58 million expected. Revenues growth 33% year over year, $1.7 billion versus 1.63 expected. As I mentioned, upbeat guidance also sees Q4 adjusted EBITDA of 85 to 120 million dollars versus 91 million expected by the street. Marketplace GOV, these are gross order volumes, 13.9 billion to 14.2 billion dollars. That's better than the 13.7 expected. So, Mike, good

results and shares now up more than 13%. As I mentioned, they were already up 5.5% in today's session. Back to you. Yeah, bit of relief on that guidance, no doubt. Don't miss the DoorDash CEO on Squawk Box. That is tomorrow morning. And Block Earnings, meantime, also out. Back to Kate Rooney for those. Hey, Kate. Hey, Mike, that's right. Block with a beat on the top and bottom line. It looks like Cash App, that's Square's Venmo competitor, was better than expected here. A bright spot for the quarter. Revenue coming in at $4.52 billion. That was better than expected. Adjusted EPS of $0.42. Much better than expected. About $0.20 better than the estimates here. Gross profits $1.57 billion. That was up 38% year over year. It looks like GPV, gross payment volume, was a miss at $54.4 billion. Street was looking for about $55 billion on that. Cash App, again, the revenue side of that, pretty strong here, $2.68 billion.

Better than the Street was expecting. It also looks like Cash App has 49 million monthly transacting users, so some strong growth there. Also strength on the seller side. That's more of the restaurant and payment terminal side. Let's see here. No guidance yet. Mike, we may get some updates.

Square and Block now tends to do that. On the analyst call, we'll bring you any updates. But stock, wow, up more than 15% right now here after hours. Back to you. Yeah, it was pretty close to a low, but really bouncing hard there. It looks like between DoorDash and Block on the spending side, things look okay in the past quarter. Thank you, Kate. Twilio earnings also now out. Frank Holland has those. Hey, Frank. Hey there, Mike. Shares of Twilio down more than 14% after mixed earnings, a beat on revenue and a smaller loss than expected. The loss of $0.27 a share above the estimate of a loss of $0.36 a share.

But when you look at the forward guidance, it's pretty light. Light when it came to revenue, but slightly better when it came to EPS. When you go back to this report, again, it was pretty mixed. Active users were under the estimate of 282,000. They reported 280,000 active users. But it was a slight beat when it came to gross margin and operating margin. In the release, the CEO said, like many companies, we're facing some short-term headwinds, but the long-term opportunity remains strong as companies continue to build their customer engagement strategies,

become more efficient. Twilio also having its investor day at 4.30 Eastern time, where it's expected to lay out more of its vision for the company going forward. With the end of cookies, Google deciding they're going to end the use of third-party cookies at the end of 2024. It's expected to be a big opportunity for Twilio. But earlier this week, a big downgrade, a double downgrade from Bank of America, cutting the price target from $175 to $85, weighing on the stock. A lot of questions about how this company is going to compete as other large players like Salesforce and Microsoft try to get into the customer engagement space. Again, shares of Twilio down 13 percent. Back over to you. All right, Frank, thank you very much. Yeah,

at that price, with the reaction to the numbers, it would be a new 52-week low for a stock that's already down 80 percent. And Steph, this was a little bit of a tour through the old growth favorites of 2020 and 2021, in a sense, right, with DoorDash and Block and Coinbase and Twilio. Is the world safe to be shopping in this category of stocks yet? I'm not comfortable with it, honestly. I mean, they were good numbers, but these stocks are down so much. I mean, with 60 to 70 percent headed into the print, right? So I think that you can trade them for sure.

But I think that until you have earnings and good valuations in a higher interest rate environment, it's going to be challenging. I think at best you chop around at these names. But I was really pleased to see the Starbucks numbers. That actually was a good one. They are standout at this point, too, in terms of the reaction. Now, Bryn, with something like Block, you know, clearly there's multiple pieces to that story with the Bitcoin commitment, as well as just, you know, competition on the core. Numbers look like they were probably better than feared, if nothing else. Sure. And we'll see what happens on the call. But

I think that bodes well for PayPal, whose earnings are, you know, eminent. And I think that between Cash App and Venmo, those rails of transaction, how people are transacting going forward is just going to continue to strengthen. That's why I like PayPal over Block just because I feel like it has a much larger user base. And I like with Venmo what they're doing with Amazon as well. Sure, yeah. And certainly a company with a lot more heft to it in terms of with Amazon as well. Sure. Yeah. And certainly a company with a lot

more heft to it in terms of market value as well. Keith, you mentioned earlier you expect there to be further downside to earnings into next year, just in aggregate. How much do you think we have to brace for at this point? Because as you say, we're in the zone of fair value, let's say, for the S&P if the numbers hold up. obviously, if they fall away, not so much. Well, that's right. And that's the way we're looking at it. I think the first thing is, are the expectations or is the likelihood lower or higher? We think lower. And even if you just assume that, I think, you know, stocks are not compelling, given, you know, all this global central bank tightening in there.

And historically, around recessions, you go down about 20% in earnings. Maybe because of inflation, you don't go down as much. That's what happened in the 70s. You didn't have as much as far as an earnings decline. But again, if you look back at the big picture, fair value isn't compelling at this point of the cycle. So I think it makes sense to be somewhat more patient. Going back to the Equal Weight Index, Mike, which I know you look at it as well, we're trading around 14.5.

So a bit more reasonable there, pricing in some more bad news. And I think this is going to be an area at the headline market that's going to be tough to make a lot of traction. One quick point on technology, Mike. You know, as much as it's down this year, the technology sector has outperformed the broad-based market uh by over two or about 200 percent the last 10 years it just made a big relative breakdown this week and i think there's a lot of uh investors still locked up in there because they've had so much gains that they don't want to sell so i think you're going to continue to see a drip in that sector and we think it's likely at best to be neutral to more of an underperformer as we look forward yeah there

was some numbers out this morning about how there's some retail net buying and some of the big fallen tech names. So it seems like the muscle memory is still there. We do want to get to PayPal earnings, though. They are now out. Hi again, Kate Rooney. Hey, Mike. That's right.

PayPal out here. It is looking like a beat on the top and bottom line and mixed on guidance. There is some news here about a partnership with Apple. I want to bring that to you first. It looks like they're bringing Apple Tap to Pay to PayPal merchants. So essentially merchants that use PayPal will be able to accept Apple Pay without extra hardware. PayPal adding Apple Pay as an option in its merchant platform. So that's what they call Braintree, those unbranded merchants.

And then next year they're adding PayPal and Venmo-branded credit cards and debit cards to Apple Wallet. So it adds on a string of big partnerships for PayPal. We had Amazon out just a couple of weeks ago. But as far as the numbers here, Mike, on revenue, we've got $6.85 billion. That was a beat. Adjusted EPS, a beat by $0.12. That was $1.08. Active accounts for PayPal in line here, $432 million. They added 2.9 million accounts in the quarter. Total payments volume slightly below expectations coming in at $337 billion. That was up 14% on an FX neutral basis. It looks like the take rate is slightly higher than expected than Wall Street was looking for. And then mixed here on Q4 guidance, EPS is pretty much in line.

Q4 revenue guidance looks to be slightly lower than what the street was looking for. Back to you. Kate, thank you. And that's knocked down now 10 percent. Bryn, you know, partnerships, they've been kind of rolling a lot of these out, but a lot of them seem like it's just going to be one among many options. What about the core business performance here at PayPal? Well, I mean, just at the headlines, they added, what, 3 million users. They want to add 10 million new accounts for the year. I think on the call, what I want to hear is, you know, last quarter,

they announced, obviously, a very large buyback, $15 billion buyback. But I think more important, they are cutting costs. And they announced about $900 million in costs. I think more important they are cutting cost and they announced about 900 million in cost I think for full fiscal year they want over a billion three in cost I think in this environment as a fintech anything with tech in it people want to hear that you're cutting cost and being fiscally disciplined and focusing on your business and last quarter to me was the first quarter and many that Dan Schulman in the c-suite really seemed focused of not trying to be everything to everybody, but really trying to focusing on that payments rail of Venmo, Venmo and just the PayPal ecosystem. So, you know, after the market trading can be very different than how it opens tomorrow.

So we'll wait to hear after the call where the stock opens up tomorrow. You know, Steph, we're talking about a stock in PayPal that had traded as high as about 65 times earnings a year and a half ago. It's down to a market multiple roughly of 16. So it really is all about do we think that they have a path to regrow? Yeah. And maybe they're being conservative on the guidance for 4Q. Everybody was worried about 4Q. And that's why the stock is down, right? Because the overall quarter for 3Q was pretty decent, right? And they have been doing a good job on cost. There's a lot they can do. I think everyone is excited about Elliott and the involvement there.

And so I think there are higher expectations. Even though the stock is down 58% in the year, I think there were higher expectations for a better quarter, better outlook. But let's just see about 2023. I have not owned it in years. It's getting very interesting, though. Yeah, and that buyback is now a significant percentage of the market cap. So we'll see if they get that out there. Steph, Brent, Keith, thank you very much. Appreciate it. Let's now get to our Twitter question of the day. We want to know what is the next big catalyst for stocks?

Is it the midterm elections? December's Fed meeting? Seasonality? Inflation data? Head to at CNBC Overtime on Twitter to vote. We will share the results later in the hour. And we're just getting started here in overtime. Still to come, much more on this busy afternoon earnings session. But first, Cantor Fitzgerald's Eric Johnston joins me here at Post 9. Just one month ago, he got more bullish on stocks. We're very bullish and our conviction is very high.

We think the Fed's last hike is going to be December 14th. So we're a mere two months away from this Fed hike cycle being over. But now he's changing his tune. He explains why after this break. We're live from the New York Stock Exchange. Overtime is back in two minutes. We are back in overtime exactly one month after one of our most bearish guests turned tactically bullish. He's closing that call now turning neutral on equities here with me now at post nine is Eric Johnston of Canterford. Cheryl, Eric, good to see you. Mike, thanks for having me. So I would characterize you as being kind of, you know, in a core bearish stance most of this year.

A couple of times you said, OK, it's time for a tactical rally. Things have gotten oversold, washed out. That's worked a couple of times, including early in October. Got an 8 percent rally yesterday, yesterday afternoon. You said enough with that neutral. Why is that? So a lot of our thesis had played out and really become consensus in the market. So our expectations were that earnings were going to be better than expected, which they which they were better than feared.

They certainly were. The conditions a month ago were very oversold. Sentiment was very negative and positioning was extremely negative, including CTAs that were very short. That has now been a big part of this rally. And then we also thought there would be an expectation that the Fed, the market would think the Fed is almost done and that that would cause a rally and that people would think, OK, and we might be able to have a soft landing in that scenario with unemployment rates still at three and a half percent. And so here we are fast forward a month. We got the 8 percent rally. A lot of those things became consensus.

And then cyclicals have absolutely ripped on the thought that maybe we can get a soft landing. So it really all played out. So now we're taking a step back, went to a neutral view, and now we're going to reassess. And I do have, you know, overall a negative bias overall, but we are neutral right now. Weren't those conditions a month or so ago extreme enough that it would give some conviction that we could carry through past the midterm elections and typical seasonal tailwinds might kick in and you might actually have a little more to it than just an 8 percent oversold balance? So I think that that's one of the reasons why we went neutral, because I think those dynamics are still in place where you still do have seasonality. Positioning overall is still very light. The issue is that the Fed funds rate right now is

expected to be 5% for all of 2023. That is a massive headwind for equities, right? The two-year yield is now at 4.7%. Money market rates are going to be 5%. And so I don't think, I think when you look at what the ceiling is for equities, the ceiling has now moved down, where I think the upside in a really rosy scenario now, based on where rates are and what the Fed is saying, is probably between $3,900 and $4,000 in a very rosy scenario. And then, of course, on the downside, we can talk about that. There's plenty of potential downside. Yeah, we were showing you had thought perhaps you'd get to a point where the December hike by the Fed might be the last one,

and that does not seem what we're set up for. It does not. So part of the rally was people thinking that they're almost done or maybe that would be the last hike, and we thought that that's—we no longer think that that's going to be the case. I mean, the key from yesterday with what Powell said, the one line is he's rather would over tighten and be able to repair that later because they have those tools. Well, if he's in a situation where he has to use those tools, that means equities are much lower. Right. So it's not a good not a good place to be.

Most likely. Now, you mentioned cyclicals have ripped. We've been talking about how there's been this huge downside momentum in the largest Nasdaq stocks. But you were just saying you actually like those names. We think right here they look extremely attractive relative to cyclicals. So what's happened is you've had this massive rotation really quick in the last week out of Meta, Google, Amazon, and into industrials, energy, and financials. And we think that has extended far too much. And if you look at 2023, the big concern now, especially with rates at 5%, is that the likelihood now of recession is now going up based on where rates are. So if we're going into recession, do you want to own levered companies that are cyclical at high valuations? Or do you want to

own these mega cap names that are now beaten down? Valuations are very attractive. They're cheaper than industrials right now with great balance sheets and business models that have much more secular growth that should do much better in a recession. And you're getting these right now at these extreme levels. And so at minimum for a short-term trade, we think that there's big reversion to come in the coming days and weeks. All right. Would be an interesting turnabout and definitely a contrarian take. Appreciate it, Eric. Thank you. Absolutely. Thanks, Mike. All right. Well, some news of our own today.

The news with Shepard Smith is ending its daily newscast on this network. Shep and his team delivered the highest standard of journalism in a fact-based, nonpartisan broadcast right here at 7 p.m. for more than two years. We thank them for their dedication to that mission. You can expect in the new year, including on CNBC at 7 p.m., we will continue to bring you all the day's most important business and markets stories. And we will have more on the latest earnings and market moves right after this quick break. Major averages posting their third straight down day. Our next guy says while the bear bounce could have more to go, there are still new lows ahead. Joining us now is Evercore ISI senior managing director Julian Emanuel.

Julian, I guess we're still calling it a bear bounce. We're up a bit off the lows of a few weeks ago, but certainly held in check in the lower end of this range. What do you think the market is most acutely kind of challenged by right now? Is it just what the Fed said yesterday, or the earnings also something that we're going to slip on? Well, we'll start with the earnings. It's a little bit less of an issue, Mike, actually, because if you think about it, this quarter is shaping up a lot like the last reporting quarter in July and August, which is part of the reason that you had this rally. We know downgrades were coming. They arrived. And in fact, the last several days

have seen a little bit of stability to those earnings downgrades. But again, it goes back to this entire thing. And today is a perfect microcosm of the fact that, you know, the Fed basically came out sounding more hawkish than expected. You had the move higher in bond yields. You had the stronger dollar reaction. And, of course, in this year, where you've got an almost perfect correlation between stocks and bonds, you had the sell-off led by the more yield-sensitive growth sectors. And to us, it's the right time of the year to expect that to come to a halt and perhaps have a rally, a continuation of this bear market rally. But we still have some uncertainty to get through, again, the reverberations of the Fed and the elections next week. The elections next week, and yet that's something that people have been putting in the bear category.

I mean, the bull category in terms of once you get past it, historically, it tends to be a pretty decent little trigger for a year end seasonal strength. The other thing I wonder if people are going to be pointing to is, look, we're talking about a retest of the lows. It wasn't October, a retest of June. We haven't gotten downside momentum from there. The volatility index was actually down today after we got past the Fed. Yeah, it's interesting because when you think about the volatility indices, all the volatility itself is actually being felt in the fixed income markets. Extremely unusual. And for us, when you think about a year like this year, the ups, the downs, really the roller coasters centered around these macro relationships, you mentioned that it is our view that you're likely to get a new bear market low at some point in the next six to 12 months.

But given the volatility that we see and the potential for a cessation in the uptrend in yields sometime as the Fed backs away. They will eventually back away. You could actually get a good market next year because history says that post-midterms tend to be very good for stocks, among other reasons. And how would you, I guess, tactically navigate around these issues right now in terms of the kinds of things to emphasize? If you think yields are about to peak or or in the process of peaking, is that is that speaking in favor of a fixed income or bond like stocks? Or, you know, is the cyclical trade still OK? So we do think yields are interesting here. This is the first time we've felt good about longer durations since 2019.

But that having been said, if you think about it again, the Fed will continue for a time pushing up the short end at the same time that even though inflation is going to start coming in a little bit, it needs to. That is still elevated inflation, good for the value trade. So we think there's a bit more room in terms of value outperformance, financials, health care. Energy has obviously been a standout the entire year. Interestingly enough, it still trades cheap on 2023 projected earnings so for us that's where we see market leadership evolving big picture julian if you do think that there's a pretty high likelihood of further bear market lows we've been in this for let's say over 10 months in terms of when the markets and when valuations peaked if we're getting lows maybe sometime into next year is this

going to start to look and feel like one of those prolonged multi-year bear markets like in the markets and when valuations peaked, if we're getting lows maybe sometime into next year, is this going to start to look and feel like one of those prolonged multi-year bear markets like in the early 2000s or to some degree 08, 09? We don't think it's 08, 09 simply because there aren't the stresses in the financial system by any stretch of the imagination. And it's not 0-0-0-2 because you don't have, although growth is arguably still overvalued relative to value, it's not nearly the extremes that we saw. So from that perspective, the P.E. compression that we've seen this year has really done a lot of damage or corrected a lot of the excesses. Now it's more of a wait and see as to whether we are going to get that recession that the majority of the people that we speak with believe you're going to get. Ed Hyman views it at basically a 50-50 probability. If you get that

recession, there is a further leg down. But as a long-term investor, you need to be prepared to buy down another 10 percent and then another 10 percent after that, because, frankly, you've been rewarded for 40 years doing that. And we think that mantra continues. Yeah. And when the turn comes, it often is quick at the beginning. So we'll see how that plays. Julian, thanks a lot. Appreciate it. Good to talk to you. All right. Up next, check out shares of PayPal and Block moving in opposite directions after reporting just a few minutes ago. We'll get instant reaction to those numbers from an analyst ahead of those conference calls. We'll be right back. Two fintech stocks moving in opposite directions right now in overtime. Block soaring while PayPal

under serious pressure right now. Both companies reporting earnings just minutes ago. Joining us now is Argus Research Director of Financial Institutions, Steve Bigger. Steve, let's start with PayPal. In terms of the reaction, what are we seeing in these numbers, which, you know, on a surface level looked OK, but the market not so much liking it? Yeah. Hi, Mike. I think, look, the revenues did come in about as expected. And, you know, and so the payment volumes were like gross payment volumes that come in a little bit lighter here. And I think, you know, the guidance, if you look at the fourth quarter and full year here relative to the earnings beat was also a little bit disappointing.

I think virtually all of the upside in that was accounted for in the earnings beat. So that's one thing. But on the positive side here, it does look like within the earnings beat and revenues in line was that they must have pulled some expense levers in a pretty significant way to get that outperformance in the earnings feed. So so I think that is a positive here going forward. There has been some strategic concern, I guess, among investors about, you know, the mix of revenue, some of the lower margin offerings by PayPal? Is it a matter of them, you know, not necessarily having as strong a franchise in the payments ecosystem as was previously believed? Or are we just talking about, you know, valuation compression that's

happened to a lot of growth stocks? Well, I think there's an element of that, perhaps. You know, PayPal did not do themselves too many favors in the first couple of quarters this year where they continually guided lower. And so that led to some concerns. But they have looked at focusing on more profitable customers. I did notice that the take rate this quarter did bounce up, which is also encouraging. So I think it is that element of focusing on the more profitable customer that, you know, again, is a positive. What's the main takeaway from Block?

This is a stock down almost 80 percent from the highs going in, getting some relief in this bounce after the results. Indeed, yeah, I think the, of course, in the case of Block, the out, the versus the consensus, it was a much broader beat. Again, gross payment volumes came in a bit later. Revenue is about in line with expectations. So I think you've got, again, another expense lever story here. And I think the big difference between these two companies with Block is who focuses on the small and even micro merchant. And held up a little bit better probably in this.

And their take rate is quite a bit higher as well. So, you know, more profitable customer for every gross dollar that comes in. PayPal, obviously, much larger merchants, lower take rate there. It's a little bit more of a headwind than Block faced in this quarter. Absolutely. Steve, thanks very much. Appreciate the update. Thank you. All right. Coming up, we're tracking some other big stock moves in overtime. Christina Parson-Neville is standing by with them. Hey, Christina.

Hi. Well, it looks like fans around the globe were itching to go see concerts in person and Live Nation reap the benefits. And a new report says the CEO of a major pharmaceutical company is out just hours after announcing a big settlement over the opioid crisis. I'll have all those details next. We are tracking the biggest movers in the OT. There are a lot of them, Christina Parsonevalos. Yeah, there are a lot. I had to pick only three. Carvana, an online marketplace for used cars and its shares right now are plunging 8% after revenue fell short of expectations. That's an actual 8% year over year decline in Q3. And then the company that says used cars are actually depreciating at a faster rate and that higher interest rates are impacting demand and profitability. The company plans, which, sorry, they're saying that they plan to rapidly decrease expenses. No details on how they do that. No 2023

guidance either because forecasting in the coming months, according to them, is very difficult. Live Nation is one of the top overtime S&P gainers right now after reporting a year-over-year increase of 63%. Fans clearly want to go to shows. The company had the highest quarterly attendance with over 44 million people across 11,000 events. Sponsorship also had its biggest quarter driven by festivals and online partnerships. The street likes the news to talk up 4% right now. And we have the Dow Jones reporting that Teva Pharmaceuticals is replacing its CEO, Kerr Schultz, who's been at the helm since 2017. So just today, New York State reached a $523 million settlement related to Teva's role in fueling the country's opioid crisis.

The stock was down now up 1% in the OT. Mike, back over to you. Christina, thank you. We have a news alert on Twitter. Julia Boorstin has details. Hi, Julia. Hi, Mike. We're getting a report from The Wall Street Journal that General Mills, Audi, Pfizer and a growing list of other companies are pausing their ads on Twitter. We have previously reported that General Motors, as well as the IPG Interpublic Group, are among those that are IPG telling its clients it's an ad conglomerate,

that they are going to wait and figure out what's happening with Twitter before they move forward with advertising. This latest report talks about how Musk sought to reassure advertisers in a meeting, but that advertisers are concerned about Musk's plans for content moderation. He's described himself as a free speech absolutist, and also about the departure of so many of those top executives. So this is one to watch. We are reaching out to Twitter for comment. We will also reach out to those big brands. But certainly it will be interesting to watch how Musk retains those key advertisers. Back over to you. Interesting for sure, Julia. Thank you very much.

Up next, Expedia's conference call underway. We'll run through the big headlines right after this break. A quick check on shares of Expedia. Our Seema Modi has been on that company's conference call. She joins us now with some highlights. Hey, Seema. Hey, Mike. And CEO of Expedia, Peter Kern, says he really hasn't seen any material signs of a fall off in travel demand or consumers trading down,

though he did cite some macroeconomic uncertainty and the short term impact of Hurricane Ian, though he did reiterate that average daily rates remain substantially elevated. Expedia also has further deleveraged its balance sheet, paying down more debt, improving loyalty membership as well, following that big revamp of its platform that we saw this summer. Kern mentioning increased engagement and higher revenue per customer. So the sense I got on the call, and it's still ongoing, is that Expedia's investments are showing up in higher repeat customers, though I think it's just becoming a much more competitive landscape, Mike. We're seeing this recovery in travel, but gross bookings, growth of 28% year over year. That is impressive, yes, but it's still lower than what its competitor

booking holdings brought in, which was growth of 36% year over year. Expedia turning around here. It was down as much as 6%, right? And extended trade now up fractionally. Mike? Little comeback during the call. Seema, thanks very much. Last call to weigh in on our Twitter question. Head to at CNBC Overtime to vote, and we will bring you the results after this break. Overtime, we'll be right back.

PayPal shares dropping. Kate Rooney just off the phone with CEO Dan Schulman. Here's what he had to say. Hey, Kate. Hey, that's right, Mike. The stock drop appears to be about the cut in revenue forecast. There's also lower payment volume guidance. In light of this economic climate, Dan Schulman just talked about this.

I just got off the phone with the PayPal CEO. He says, quote, clearly, if you look at both the lower income and even the medium income segments, they're cutting back on their discretionary spending. He says the higher end consumer is still spending quite robustly, but almost two thirds of them are now feeling the pinch. He says they're starting to take on more debt. He says we have to be prepared for all economic cycles. And that's exactly what they're doing, he says. Back to you. All right, Kate, appreciate it. That'll do it for overtime. Fast Money begins right now.