Closing Bell - Closing Bell Overtime: Trust the Rally? 06/21/22

Episode Date: June 21, 2022

Stocks started the shortened trading week in the green but heightened fears of a recession is still casting doubt over whether this rally can really be trusted. Trivariate’s Adam Parker gives his take. Plus, Requisite Capital’s Bryn Talkington breaks down the crypto chaos. And, our most valuable pick. Bank of America is bullish on a beaten down software name that’s lost more than 50% this year. The analyst behind that call makes his case.

Welcome to overtime. Thank you, Sarah. I'm Mike Santoli in for Scott Wapner. You just heard the bells, but we are just getting started. Coming up, our most valuable pick by one analyst is betting on a stock that's down more than 50% this year. So far, we'll reveal that name later in the hour. A big bounce on Wall Street. Stocks kicking off the shortened trading week with a rebound from the worst week of the bear market. But heightened fears of recession casting doubt over whether the rally can be trusted. Let's ask Trivari. It's Adam Parker. He joins me here at Post 9 about all this. Adam, good to see you. Good to see you. You know, I've been out with Scott a lot recently in the worst days of the market.

He was blaming me for the synergy. He's gone. I'm with you. And we got a great day. So now we know sample size of one. Who to blame? There's no Parker hex. We're in good shape right now.

I guess the question is, maybe we'll have you back tomorrow to test it out. Yeah, exactly. We obviously, we're due for something like this. Everybody would agree, just tactically, down 11% almost in the S&P in two weeks. We get this bounce. Clearly, the market has been working to price in a huge series of things. We know what the Fed's doing. Valuations have come in a lot. And the big question is, what has been priced in in terms of the corporate earnings outlook,

in terms of whether we're in a recession? What's your best guess? You know, if you're just looking at the economic news, it's clearly worse now than it was on January 1st. And in terms of corporate earnings, dollars stronger, commodities are higher. That cocktail is not great for S&P earnings. Yet the 2022 earnings expectations today are for higher earnings than we had on January 1st. So the tension is we know the earnings estimates are too high. We know 10% earnings growth year over year for this year is too high. So will the stocks act okay in July earnings when we see guidance lower? With the stocks reset 20% to 60%, depending on the name and the part of the

market, clearly some of that's in the price. I think what we're looking for in July earnings is any signs that lower guidance is not greeted with commensurately poor stock performance, which we've obviously seen earlier in the year. Yeah. Now, there is some work. I mean, if you look below the surface for the second quarter anyway, you take energy out and there have been some downward revisions. It's been spotty depending on what part of the market you look at. But you refer to the fact that pretty much everybody is acknowledging that the numbers seem too high for the second half of the year, maybe 2023. Is it common to actually have this kind of a break in the stock market and still have analysts either frozen or just not seeing the need to lower guidance? Well, I mean, as a former analyst, I can tell you how it works. I think you don't really react to things like commodities and currency proactively.

You sort of wait for the earnings to happen. I think you generally sharpen your pencils somewhere around Labor Day when you get back from your summer vacation and look at your 2023 numbers and tend to lower things. So I think the numbers will come down. It is common, though, that estimates are too high. If you look at forward earnings data that have existed since 1978, on average, people think growth will be 14% 12 months forward, and the actual has been around 7%.

So I think the market can handle downward revisions as long as people believe earnings will grow in absolute terms and that recession in the economy doesn't necessarily mean a collapse in S&P 500 earnings. And I think that's the tension over the next couple of months. You talk about how it's going to be a test to see how stocks handle what we expect on that front. Are there parts of the market that you feel as if, look, the risk reward has really gotten a lot better here based on what we've already seen? Definitely. I think the most dislocated things I see are industrials estimates look too high.

And so when I look across the market, I think they have the worst relative estimate achievability. So I'm more negative on machinery and capital goods, which have rising costs with energy materials, yet haven't really taken the numbers down. In fact, the analysts have double-digit growth every quarter through this year and 18% next year. So to me, that's the most obvious avoid. I think on the estimate achievability positive, probably healthcare services tend to have pricing power, have some inflationary exposure. Obviously, energy companies have, what, a 0.83 correlation between changing the oil price and changing their net income. So I think you'll see above average estimate achievability there. In terms of the reset on valuation, I think biotech long, software short probably makes sense just because they're both calls on innovation and yet biotech expectations are at an all-time low

and valuation's at an all-time low. If we just get any safer effect of drug in the second half of the year, maybe that risk-reward looks good to me. But I'm too nervous to have a big hyper-growth bet on, so I'm going to be overweight and underweight, something to balance it out. I wonder what we can expect from what you might have considered predictable growth. And it used to be considered things like Google or something, the mega caps, which still seem like they're maybe a little more expensive than their history, even though they've come in a little bit. In a world where it becomes spottier in terms of who's delivering earnings outperformance, does that make sense or is that

just in the penalty box until further notice? You know, it's probably generally still directionally in the penalty box unless you get anything dovish out of the Fed. But I think that pricing power businesses will start to show. The number one variable to focus on during July earnings will be gross margins. Can they pass on pricing to the customers and what they're selling? We know Azure and AWS have really good pricing power. I'm a small business. I use Azure. They raise pricing. I pay it. We know UnitedHealth has price. We can go through the market and find the businesses that have it. I expect those businesses to start showing better relative best achievability through July and October earnings. All right, let's broaden out the conversation a bit with G-Squared Private

Wealth's Victoria Green and TV Ameritrade's Sean Cruz. Welcome to you both. Sean, love your take here just on today's action, how it fits in with this phase we've been going through, making lower lows. We've had, I don't know, five rallies of at least 5% on the way down. Does this one feel any different to you? No, I mean, I think bottoming is going to be a little bit of a process here. It's going to take a little bit of time to play out. I wasn't surprised to see a little bit of follow through today. Just I didn't expect to see a lot of investors, traders wanting to come in and load up going into a long three day weekend. So just because we're such a headline driven market right now, I think I just want to make it wait and make sure there weren't going to

be any major headlines breaking over the weekend that they would have to sit and wait for the market to open and react to. So I think seeing a little bit of follow through here is a good sign. But I mean, the VIX still hovering up at the elevated levels that it's at lets us know we're not out of the woods yet. And you should expect continued choppiness in these markets. I mean, in addition to just having a weekend in front of us, there was a lot going on last week, Sean, that the market had to kind of hack its way through. Right. You had the central bank meetings. It was coming off the hot CPI number. You were adjusting to the new rate path.

And then you had this huge options expiration on Friday. Maybe you cleared the decks. We have month end coming up. So is that why you think that there is potential for some follow through? And you mentioned it's a process. What are the next steps in the process you're looking for? So I think as far as last week goes, there may have been something where with quadruple witching, you may not have seen positions getting reestablished or rolled. You may have seen those positions just being allowed to expire, come off the books, and then reestablish something today. That's just a suspicion I have of what was really behind that tape and what we're seeing today. As far as next steps, we're still waiting. There's two major things that I think investors

are trying to get a feel for, and we're hearing from clients, and that is, one, when is inflation going to peak out? At what levels is that going to be? And what sort of a slowdown are we going to see? Is it just going to be a little bit of a moderation? Or are we actually going to get dragged into some significant negative growth? Because even the last negative GDP print we had, that was really being driven by the net import-export numbers. It wasn't really being driven by a consumer. So I think we're still waiting to see what the consumer is going to do as these inflationary pressures remain elevated. And the sign we got for the most recent consumer sentiment report,

I think, was not very promising. I'm surprised that didn't jolt markets a little bit more than it did. And I realize they were hit pretty hard off of that. So I think getting the final consumer expectation, the consumer sentiment numbers this Friday, definitely going to be an item to keep an eye on. Yeah, it's a tough market when we're kind of every two weeks are in suspense about the university of Michigan consumer sentiment numbers, I guess. Victoria, to some of those questions that Sean just brought up, can we be confident about the sort of peak inflation story and then just how hard the economy has to take it before we do get the inflation under control?

I think you have pretty distinct views on that. What are they? I do. I don't see the economy taking it all. I see it becoming a recession. I think the only way the Fed actually has the ability to slow it down enough is to slow down the economy and take us into a recession. Are we going to see an eight and a half print again? Possibly.

We talked about gas prices. Gas prices moderated. It's only $4.95 now a gallon, not five. So I think you're still going to see a very high print here in June. We're going to have kind of a dead two weeks here before earnings kick off. But look, the Fed has to do something about inflation and they've made it very clear they're willing to sacrifice full employment which they see that as almost over employed right now and they're willing to give up some unemployment to get inflation under control that's their number one mandate

they're so concerned they're focused on it and what that means is that the economy is going to be made to suffer in order to bring inflation in line. And that's never good for growth. Right. Although, you know, Powell in the press conference after the 75 basis point rate hike last week did use the phrase front loading like it makes sense to front load a little bit today or this week. You've had others saying maybe another three quarters of a point next month and the market is up two and a half percent today. So is there any sense out there that you can we can kind of make our peace with that part of the outlook and then just sort of maybe wait and see thereafter what the Fed has to do? And, you know, you talk about gas prices. I mean, we measure inflation month over month. So maybe we're going

to get a little bit of a break. I hope so. Be great for everybody summer driving. But, look, 75 basis points should be expected in July. Then you have a dead month in August and September. They did want to front load because they like what they called optionality, right? So if they load more in here and the data starts to soften, then they don't have as much expectation on the back end. You know, I think we all he didn't lose credibility necessarily. But remember, Powell was saying there's no way we're going to hike 75 basis points about 30 days before we hike 75 basis points. So some of this is a little bit of take that with a grain of salt.

I think they go another 75 in July. I see nothing that's changed in this picture. I mean, yes, we'll get some data between now and then. But if they hike 75 in June because of the data, I don't see the data changing all that much for them to not go again in July. And then that does give them a little Bit of time to see if we get a little moderation But if you look at some of these inputs, the only thing is maybe we'll see rents come down But you saw some crazy year-over-year rent prices data come out like Miami is like 41 percent more expensive than it was a year ago

So you're still seeing rent inflation You're seeing food prices still very high and you're seeing gasoline prices definitely still elevated over their May levels. So I see it difficult for them to not go, but I feel like they're trying their best to communicate with the market and not take it and catch it by surprise. Right now, we're pricing at about a 3.5% year-end rate. I mean, that's about 2% to go, and that gives them wiggle room of how they get there. Adam, I mean, look, if nothing else, you can look and say yields are off the highs over the last week or so. Commodities, especially outside of energy, have rolled a little bit. Do we take heart in any of that?

I just, you know, there's a guest on last hour said, hey, this inflation looks to me like a 4% 10-year yield. And, you know, I was shaking my head off there to you saying, like, I don't see how that can happen at all without much better economic growth. And I don't think that's the base case. I think what happened last week and the week before in the sell-off is the probability or risk of stagflation grew. I think inflation already peaked, personally. You see it with used car pricing.

You see it with housing. You're seeing it a little bit in other areas. But you can have lagging data for two or three months. We could get a high print. And the question is, how much does it come down? And does it stay elevated for a while? And I think the risk would be you have slowing economic growth, which we have. It's decelerated across industrial activity, consumer activity, et cetera.

And you have inflation that persists a little. And that's a bad outlook. That's why the stock market's down 20%. And growth, your names are down 50 60 70 so I think a lots in the price I think it's really going to be a great stock picking market but I say low low probability the 10 year

yield backs up a ton from here unless the economy improves so does that suggest Adam that- that we might get a little bit of break on one side of the other with the stocks bonds portfolio because it's been the worst start by far of a year

ever right in terms of that balance mix. And as inflation goes up the correlations between stock values and bond the stocks bonds portfolio because it's been the worst start by far of a year ever in terms of that balance mix. And as inflation goes up, the correlations between stock values and bond prices do rise. So we've been there. Do you think at least that creates a little bit of leeway? It should. And I think it should be a duration argument on the bond side. I mean, I know for me and others looking at the two year yield looks attractive for the first time in years. You know, if you're one of those people who laddered CDs to beat the two-year yield, now you can just go by the two-year and hold it for duration without a ton of risk. I think going

out farther, you know, the five-year, five-year break even would say is a little bit riskier. And then within the equity market, there's tons of opportunities. I think you're going to see a lot of dispersion, more company-specific risk take hold as we get farther from the bottom. In some weird way, you know, you have COVID in March 20. So all the data anniversary, it looks like it's exploding positive and all the data anniversary that looks like it's negative. And you're going to start getting, I guess, the pig through the snake or whatever here, you know, 24 to 30 months afterward. I think we kind of are slowing a little bit in a more softer trend. And I think that could be good for stock picking. So I'm very optimistic you can pick winners from losers from here. Victoria, given your view and given the fact, let's say, you know,

energy did have a pretty stiff correction off overstretched levels. What would you be looking to do right here in terms of, you know, sectors or picks? Sure. I'm not chasing growth yet. I think that the inflation story is not done. And until inflation peaks and shows a good peaking and the Fed turns a little bit dovish, it's going to be hard for a growth company to outperform a value company. I still like energy. I know last week was where the last two weeks you had basically a 20% pullback. You had a bear market in two weeks in energy almost, even though oil and gas prices only came down to about 110. Look, a lot of the EMPs we like are extremely profitable. They're pushing their cash flow back to shareholders with fixed plus variable dividends.

I think it's a good place to hide. I know the demand story is what worried investors last week. Are we going to see an impression influence demand pullback? But right now we're not seeing that in the numbers. You know, we scoured the numbers this weekend saying, did we hit peak oil? Is this it? Is this an 08 where we're coming back down just as fast as we went back up? But we have such constrained supply.

Our rig counts only at 740, which is still well below pre-pandemic lows. I think energy is still a good place to hide. You're going to have volatility. I hate to tell people, but you don't make 50, 60 percent and then not have a little bit of a breather pullback. So some of this stuff, you have to be wary. There's going to be this volatility, especially over the summer. Sure. Yeah. And,

you know, when you've been up that much, 20 percent decline is you're still in a bull market for a longer term until further notice. Sean, final word here. You did mention the VIX, the volatility index having remained elevated. And it just sort of tells you the level maybe of unease that's still in the market. Even today on the day we're up a good deal in stocks, it's the VIX futures didn't really move that much. Yeah, I think you're going to have to wait and get just historical volatility itself to come down. So you need some tighter intraday ranges,

I think would be the first thing. Some consolidation around a significant price level, that would be the first shoe to drop. And I think once you get that, you'll start seeing the VIX slowly but surely drift its weight lower. And that usually is accompanied by some more buying activity. I do think it's interesting that last month we actually saw our client base, they were actually net sellers of equities for the first time all year, which shows that there

was a little bit of a capitulation there. We also saw at the FINRA industry level, the margin debit number keeps coming down, dropping, dropping, which shows that there's also been a lot of deleveraging across the industry so far this year. So I think as long as you have this elevated volatility, you have the VIX up at this level, you're going to see a lot of that cash and that buying power that was moved to the sidelines stay there until we get a little bit more clarity around, like I said, inflation and what's going to happen with growth. Yeah. Although ultimately that tends to be a good thing if you see that caution continuing to build up. We'll have to leave there, guys. Adam, Victoria, Sean, thanks a lot. Appreciate it.

Thanks, Mike. Thanks, guys. All right. Let's get to our Twitter question of the day. We want to know, is today's bounce a sign of a near term bottom? Yes, no or maybe so. Head to CNBC Overtime on Twitter, cast your vote, and we'll bring you the results at the end of the show. Up next, the crypto chaos. Bitcoin has been feeling some major pain over the last month, but got a bit of a bounce today. We'll talk to one money manager with some skin in the crypto game after the break.

Don't go anywhere. Overtime is back in two. The recent rebound in the hyper growth trade gaining a bit more traction today with the ARK Innovation ETF gaining nearly 11 percent over the last five trading days. So is the tide starting to turn for this trade or is this just another bear market bounce? Let's bring in requisite capital management managing partner Bryn Talkington here on set. Great to see you. Welcome. You too. Great to be here, Mike. You know, we've asked this numerous times.

Look, that category of stock peaked way before the overall market. They led the way down. They've kind of taken their pain. Do you have a sense of whether it makes sense to think in those terms of the tide having changed or how would you treat it as part of a portfolio? Right. Well, as asset allocators, we actually went into the strategy back in March of 2020. OK. And so we wanted to have a long-term thing. We wanted to have some innovation, some non-mega cap stocks, but we had a long-term lens that we didn't want to have to pick the stocks ourselves. So we entered it in March of 2020, but clearly you saw so many assets came in. And so we actually started to reduce that in December of 2020. And then again, in February

of 2021. And so I think that as an asset allocator, you have to understand the space you're investing in. There's a very good analog between those companies and the tech bubble bursting. And so if you lay those charts over each other, they're very similar. So if you continue with that, I think you're going to see over the next few years,

those stocks, the ones that actually were real, will double and double, we'll say, and potentially do what a lot of those stocks did in the early days. But also you see, you know, Peloton is at $9. But Zoom's actually seems to have found a base. You know, it hit the low 80s and then now it's like 115, 116. So I think you're going to see a bunch of Pelotons and a few Zooms. So I would dollar cost average if you don't own it. But once again, we're in uncharted waters because of what the Fed is doing.

For sure. And yeah, the Nasdaq chart 2000 to 2002, I mean, peak to trough was down about 75 percent. ARK's basically down 75 percent peak to trough. And then you did have a lot of bumping around and the winners from the losers from there. Crypto, similar story in terms of it being a long term bet, kind of a moonshot type of philosophy behind it. You're seeing a little bit of an attempt to stabilize today. How does that seem to you? I think that, you know, I don't know if it's Mike Novogratz has said it, that crypto is having its long-term capital management moment. But if I take that narrative and play that out, the difference, though, is that the Fed bailed out with the bank's long-term capital management. Crypto is going

to have to bail itself out. I think right now it's still in the penalty box between Terra Luna, the 3AC implosion, and then Celsius, which we still don't know. I think that right now, crypto looks a little bit like old school finance at its worst versus decentralized finance and the promise of that. So I think once again, going back to asset allocation, people really learned if they had too much of it or not in this sell-off. And I think just when you're going to invest in a nascent new technology or asset class, better to have it on the small size than the big size.

But ultimately, you know, we're in the space. I like Coinbase, Bitcoin long-term because I think they'll ultimately be winners, but definitely you have to size that appropriately. What else during this period of upheaval in the markets has come to you in the way of being an opportunity or say, let's rebalance into some areas of the market. Let's take the opportunity to either buy bonds or in cash, whatever it might be. Well, so what we're looking at right now, we haven't bought it, but we have our buy list. I do think the home builders, it's too early, are starting to get

really interesting. And some of the other areas around the home builders, it's too early, are starting to get really interesting. And some of the other areas around the home building, if you read Lenar's earnings this morning or listened to him, they had wonderful earnings. Like on every metric. They had good gross margins. They have a good backlog. But I thought it was so prescient what the CEO said. He said, we can't give guidance because we would just be guessing. And I think that narrative is going to be continued this earnings season, where you're going to have great earnings, but the CEO is going

to say, how can we give guidance right now because we'd just be guessing? So I think there's areas like homebuilders that are really low PEs, have sold off, I think, probably too much. And as we get more insight of what the Fed's going to do, I think there's going to be some really good opportunities in that homebuilding space. You mentioned a couple of times, you know, what the Fed's going to do is being this huge swing factor. What do you expect they will do? And I guess, is it already accounted for in the market at this point? So maybe it's contrarian or not, but I think that the Fed's going to be lucky to get one more rate hike in. And I feel that whatever rate hikes we get over the next one or two times, they'll be taken back within a year.

Because we do understand we need to have an economic cycle. The Fed just can't mitigate the economic cycle and we're always in good times. And so I think the Fed made mistake number one by ignoring what was happening in the economy and inflation and not starting to do QT last year. And they're going to make mistake number two, I think looking at the backward looking data. I mean, there's 450 PhDs at the Fed. I swear they're all looking at data that we all have access to. So I think that, you know, we'll be stopping with the Fed sooner than later, but that's definitely not necessarily priced in today. Right. And is the recession no recession you mentioned? We need to have a business cycle. I mean, it's the way it is. Is that paramount in terms of your positioning or is that just kind of an academic discussion at this point?

I think it's kind of an academic study. But also, if you go back to 1913, how many times has the Fed engineered a soft landing? It's less than 10 percent. So just like mathematically, it tells you it could happen. But then you have to ask yourself, well, what type of recession? And we're already, I still think we have PTSD from the great financial crisis. We could have a recession like the early 90s, which was very shallow. And so I just think that you want to stay invested, be defensive, and not try to be all in or all out. Because if the market does go

lower, no one ever buys at the bottom, right? They buy one system, stock market's up. So I think it's about positioning, being defensive, but also being opportunistic going forward brent great to see you you too thanks for coming by all right up next your volatility playbook our next guest is finding opportunity amid all the wild market swings how she's playing the market and her And her recession predictions are ahead. Overtime will be right back. Time for a CNBC News update with Shepard Smith. Hi, Shep. Hi, Mike. From the news on CNBC, here's what's happening now.

The January 6th committee focusing today on former President Trump's constant pressure on state officials to overturn the 2020 election. Among them, Georgia Republican Secretary of State Brad Raffensperger and the Arizona Republican House Speaker Rusty Bowers. Bowers told the committee how he reacted when then-President Trump asked him to replace the state's electors for Mr. Biden with ones favoring Mr. Trump. I've never heard of any such thing. And he pressed that point. And I said, look, you are asking me to do something that is counter to my oath? Bowers says he asked for evidence of voter fraud but received nothing but vague allegations.

On the massacre in Uvalde, Texas, the director of the Texas Department of Public Safety now says the police response to the Uvalde massacre was an abject failure. In testimony today before the state senate, the director Stephen McGraw said there were enough officers on scene to stop the gunman just three minutes after he entered the building. He singled out incident commander Pete Arradondo, who said that he waited for a key to that classroom door behind which the gunman was shooting students and teachers. McGraw says the door was apparently unlocked the entire time, despite previous reports that it was locked. Tonight, a complete recap of the January 6th testimony

and the Uvalde hearings on the news, right after Jim Cramer, 7 Eastern, CNBC. Mike, back to you. Shep, thank you very much. Citi says the odds of a recession are rising despite today's rally in the stock market. Joining us now is Citi Global Wealth's head of North America Investments, Kristen Bitterly. Kristen, great to see you. Odds of recession being higher, I mean, seems like that's certainly coming out of both the data that we've seen,

the market action, and I guess just the knowledge that, you know, what the Fed's already done is working its way through the system. What is the bottom line and what that should mean for an investor today? I think what it means for an investor today is that we're going to see volatility over the next couple of months. So the market is going to debate whether or not we're going, whether this is a recessionary bear market or whether it's a non-recessionary bear market, we have the probability of a recession at about 40 percent going into next year. We wouldn't see that until next year just because the tightening that we're seeing from the Fed generally takes around 12 to 18 months to really show up in economic conditions. Our base case is actually to see some resiliency at about 45 percent. But that's going to require some some

very strong finesse, I think, from the Fed and some abatement of inflation over the next couple of months. So expect volatility. And so it seems as if there were would be almost two different playbooks if you were to say we think the Fed is going to be successful, inflation is going to moderate, the Fed can back away and successful, inflation's going to moderate, the Fed can back away, and maybe you can buy things that are more cyclical or vice versa, if in fact it's going to be more persistent. And it's a tricky one here because things that do well with inflation, in theory, would not be the things that would do well in the old days when you were expecting bad economic outcomes. So which way do we go? And what does it mean specifically? I think you have to prepare for both. Actually,

you have to prepare for either this resilient scenario or the recessionary scenario, because effectively what we're looking at is the difference between where we're trading right now in equities versus where we could be if we tip over into a recession. You could see some downside off of the all-time highs of an additional 10% or even 15%. If we're not in that recessionary scenario, a lot of this has already been baked in. And so we're doing two things in our portfolios. One, in preparing for both of those things, we've been adding fixed income exposure. We feel confident that we're going to hit peak rates within this year and that we will see some of the cracks in the macroeconomic backdrop could give the Fed some pause. And so we've been adding

quality fixed income exposure, municipal bonds, investment grade debt, treasuries. The other thing is actually monetizing some of this volatility to build positions at a discount where you're actually able to take in some yield and then buy into the market if we do see a continued pullback. Yeah, that's an interesting way to go tactically using the volatility that's kind of priced into the market to one's advantage. When you say going into quality fixed income, would that be in theory out of cash or would you be kind of reallocating from equities, which are already down most likely from your weighting into bonds? So what we're actually seeing within our investors' portfolios is so a lot of people have been

significantly overweight cash to the tune of about 30 percent of their investment assets. So with the conversation around cash, you always have to separate out the fact that you have operating cash, what you need for household expenses, and then you have cash as an investment in your portfolio. Cash is an investment, given the inflationary environment that we're in. We know what the outcome is going to be in terms of that deteriorating value. So we see value in actually taking out some of that cash, some of your cash balances, and then investing. Again, we're not going down in credit quality. We're sticking with some of the higher quality parts of the fixed income market. And depending upon what state you're

living in, look at some of these taxable equivalent yields and munis. You're reaching levels of 7% to 8%, and we're comfortable adding that exposure there. When you talk about quality in equities, and it certainly makes sense at this point in the cycle by, you know, a lot of lights. But often that takes you to things like the very large, you know, tech stocks that led the way up and still are kind of in retrenchment mode at this point. Is that someplace that would qualify in your book? I think for long term holders, absolutely. at some of these names that have sold off 30, 35 percent, looking at the opportunity to build positions over time or use some of those monetization strategies of volatility that I just went through. But I think to have a really meaningful turnaround in tech, you're going to need a pretty strong pivot from the Fed or some signal that inflation is abating and that there

is some type of pause. So we like parts of the market where, for example, health care, investing in longevity in terms of some of the quality positions, looking at, again, these large cap, durable demand type companies. Even if you go back to the 1970s, these types of companies were able to double their share prices over that decade, even in spite of those inflationary pressures. So those are the parts of the market where we've been investing. Kristen Bitterly, thanks very much. Appreciate the time today for City Global Wealth. All right, still to come, a pair of under-the-radar auto plays for your portfolio.

We'll reveal those names in our two-minute drill. But first, we're tracking the biggest movers in overtime. Christina Partsenevelos, what's on deck? We've got shares of Lazy Boys surging right now, a management shakeup at Amazon, and Facebook parent company Meta reaches a settlement with the DOJ. Lots of news and I'll have all the details coming up after this short, short break. We're tracking the biggest movers in the OT. Christina Partsenevelos is here with that. Hey, Christina.

Hi, Mike. So I want to talk about shares of furniture retailer Lazy Boy surging right now up over 11.5% after posting what they call record sales and record operating income. However, the company does expect demand to remain volatile going forward. They did do really well with their direct to consumer brand Joybird. Switching gears, there is a lot of pressure another round of pressure against gaming publisher Activision Blizzard over alleged mistreatment of employees. Shareholders have just approved a proposal just a few hours ago for a public report on the effectiveness of the company's attempts to reduce employee abuse,

discrimination and harassment. The report will show how much money the game publisher has spent to settle cases involving harassment incidents, as well as how many cases are still pending. We can see that right now shares did rise, but are flat in the OT. And it's time for change. Senior VP who oversaw Amazon's logistic warehouse and the VP of transportation services are both exploring new opportunities and leaving Amazon amid a management shakeup. The departures come as Amazon CEO of Worldwide Consumer actually just resigned about two weeks ago. Shares, though, are up there. Yeah, no, they changed. They are slightly negative in

the OT. And then lastly, the Department of Justice has reached a settlement with Facebook owner Meta over allegations that it engaged in discriminatory advertising. The investigation looked into whether Meta targeted users with housing ads based on algorithms that relied on characteristics like race, sex or national origin protected under the Fair Housing Act. The settlement still needs to be approved by the court, but would require Meta to stop using its special ad audience tool for housing ads. And you can see shares flat to the upside. Back over to you. All right. Yeah, but Meta down 4 percent in the regular session. That was a conspicuous underperformer today, Christina. Thank you very much. Up next, our most valuable pick, Bank of America getting bullish on a beaten down software

name. We'll reveal the name with the analyst behind that call next. But first, a message from former pro soccer player Thomas Beattie as CNBC celebrates pride. I came out two years ago and it was something I wanted to do. I didn't need to do necessarily, but I wanted to be visible. I wanted people who, specifically athletes, the younger generation, to be able to look at another example and try and resonate with that because it was something I never had. You know, I looked around me and I never quite saw somebody from our community which I could resonate with and it left me really confused. It was important for me to go through that process in order to find purpose in something that was a little bit bigger than just my everyday life I was living. It's the most liberating, fulfilling feeling I've ever had.

Time for today's MVP, most valuable pick. And today it's software company Palantir. The stock closing 6% higher today after Bank of America initiated coverage of the stock with a buy rating. Joining me now is Ron Epstein. He's Senior Aerospace and Defense Analyst at Bank of America Global Research. It was his call. Ron, good to see you. Yeah, good to see you too, Mike. Tell us the thesis behind this. I mean, it seems like kind of an opportunistic call.

Obviously, the stock down a lot from its highs, some 70 percent even after today's move. But what are the key, I guess, longer term drivers of value that you see? Yeah, so when you think about what's going on in the market, we've been very bullish on defense. If you look at where the defense budget is going to come in this year, it's going to come in at probably $850 billion. And we think it's going to be close to a trillion when you get to 2026. And we've seen the defense stocks, the big defense names reflect that, but that revaluation in defense has not been reflected in Palantir. And Palantir is a great way to get at it. If you look at Palantir, about two-thirds of their revenue is government. About half of that is national security. That's about

one-third commercial. So when we see the defense budget have that kind of growth, this is a way to get at it. And I think broadly, the way to think about it, data is the new bullets, right? And these guys are all about artificial intelligence, data, data organization, and how to see trends and bigger pictures in the data. And, you know, from all the companies we talked to, they're working their way into more and more customers in the national security space and think about it as sort of a palantir inside, the palantir data operating system living in a lot of other systems that are fabricated or are put together by a lot of the other companies we cover. So we think this is a really nice way to get at an increase in national security spending where it hasn't been reflected yet in the multiple of the company or the stock performance.

And I would argue most of the analysts who cover it today aren't looking at that. I think a lot of the people that are looking at it aren't really giving them full credit for what's going on in national security. The stock trading today around $9, that just barely gives them credit for the defense piece. Or a way to look at it is they're pricing in defense but not giving them any credit for commercial right i mean it's interesting because i guess shortly after the ipo there was some concern that maybe the skew toward government customers was going to prevent it from expanding more on the commercial side you don't think that's a risk no no i mean a lot of the technology if you think about how they've organized their business, they've got three product silos and one that's specifically set up for the commercial markets.

And like what we've seen in some other businesses, there are technologies that you can develop for a government customer that you can use in commercial markets. So I don't think it impedes it at all. Not at all. And broadly speaking, if you can have the U.S. government pay for a lot of your development, it's a great way to fund what you're doing. Yeah. And you got a $13 price target, which is well below the highs, but it's up almost about 50 percent from from today's close. Ron, we've got to leave it there. Appreciate you taking the time. Ron Epstein. Yeah. Thank you very much. All right. Up next, it was an up update for stocks, but what could be next? What could be next for markets? One money manager gives his forecast for the rest of 2022. Over time,

we'll be right back. Time now for the two-minute drill. Joining us now is Mike Binger, Gradient Investments president. Mike, good to have you on here today. How are you feeling about today's bounce? Just kind of a reflex, reflex snapback move or the start of something better? No, I like the bounce. You know, I really think that the market is going to base for the next couple of months of summer. And by what I mean by basing is that it's not going to go down much, but it probably won't make a big move upwards. But I still think that this

market is going to produce a positive return in the back half of 2022 from this point here. And the main reason I think that is I think inflation is going to peak. I think we're already starting to see prices start to decelerate a little bit in autos and housing and lumber and some of those areas. By the end of the year, I think oil prices will be below $100 as these high prices start to, you know, destroy a little bit of travel demand out there. You know, so for those reasons, I think the economy will bottom out here and earnings are not going to be cut as much as people think. You know, so I really think if you you know, you hear a lot about shopping lists being put together right now, but at some point in time,

you got to buy those lists. And we're starting to do that today. I was going to say, I mean, you lay out a scenario it sounds like a fairly soft landing and yet a lot of stocks have discounted something worse. So what are some of those areas that you're actually pulling the trigger on? Yeah one of the areas is really a value in the value sector it's the auto parts retailers. You know we've recently been buying advanced auto parts and O'Reilly auto parts. You know, we're seeing new auto sales decelerate. We know what the price of, you know, of a used car has been. It's been very expensive.

So I think the average age of the existing auto fleet out there is going to expand. Repairs will be necessary. These companies are a lot less cyclical than you think. They can pass on costs. I mean, if you need brake pads, you're not going to balk at paying an extra $10 than you would have last year. Valuation is cheap. They're above both around 12, 13 times earnings for double-digit growth this year and next year in earnings. So the recent weakness, in our opinion, is an opportunity there. And they have been very good long-term plays prior to this downturn. Lulu, quickly, what do you like about it at these levels?

Yeah, this is a high quality growth retailer. I mean, it's sold off as investors have compressed growth multiples, but they just beat their quarterly estimates. They just raised guidance. It now trades at 25 times, so it's not cheap, but you're going to get a 20 percent tagger in the next couple of years. X technology, there's a scarcity of high growth. They have a men's category that's killing it, bringing on shoes. I think this is a high quality name you can own and it'll expand valuation and earnings, will drive the stock price higher

in the next couple of years. All right, Mike, appreciate it. Thank you. Thanks for those picks. Up next, home builders seeing gains on some positive data and there's even more earnings on deck. We'll wrap it all up and break down the key figures you need to be watching as we head into a fresh trading day. Overtime, we'll be right back. Welcome back. Big interview tomorrow on CNBC.

Meta CEO Mark Zuckerberg sits down exclusively with our own Jim Cramer on Mad Money. That is tomorrow at 6 p.m. Be sure to tune in for that. Don't see him around very often. Now let's get to the results of our Twitter question. We asked you, is today's bounce a sign of a near-term bottom? 28 percent saying yes, 55 percent no, and 16 percent maybe so. 16 percent. I mean, I think the only answer is really maybe so. And yet nobody seems to want to take that one. Shares of Lenar rising today on revenue strength. Diana Olick is here with more. Hey, Diana. Hey, Mike. Yeah, Lenar reported a stronger than expected Q2, but Chairman Stuart Miller did not mince words in saying that the market really turned in June. That's when rates moved even higher and headlines about inflation hit home. He said it caused buyers to pause and reconsider.

It's natural that there'd be a little sticker shock, a little bit of a pause, and there'll be some reconciliation. At the end of the day, we have a housing shortage across the country. We're going to continue to build homes and we'll adjust price as needs be. Realtors today reported a drop in May. Existing home sales, which are based on contracts signed in March and April, low supply, continued to keep pressure on prices. The median home price was over $407,000, the highest on record. Supply is improving, but still very low, especially in the more affordable ranges. The realtor's chief economist said he expects sales to fall further as interest rates rise faster than even he expected. Tomorrow, we'll get another earnings report from KB Home. Their price point is slightly lower than Lennar's, but we're still watching for further commentary on this quick turnaround in the once hot housing market.

Back to you. You know, Diana, it's really a fascinating moment here because as everybody acknowledges, there's still a shortage of homes. You need to build more. And yet you have this very sharp drop in traffic and demand. When Sue says that, you know, we price as needs be, as you know, as demand adjusts, do they have the flexibility to be profitable at lower prices given what's happening to their own costs? Well, he said they do have the margins to do that, but you got to wonder how much given the inflation we've seen for land, labor and materials, which he also noted in the conference call. So it's going to be a tough one for the builders, but they're going to need to keep prices slightly

lower to get more demand in. Yeah. And do we have a sense? I mean, what are the projections for how much prices are going to be coming in the near term? I'm not going to I'm not going to game that one. I mean, I've heard anywhere from just the gains should ease, maybe go back to a normal historical two to four percent annual appreciation level, too. I've heard others say prices would go negative. But remember, negative nationally only happened during the Great Recession and the Great Depression. So we'll wait and see. We do remember all of those assurances in 06 and 07 that had never happened before, Diana. Thank you very much. Appreciate that. That does it now for Overtime. Fast money begins right now.