Closing Bell - Closing Bell Overtime: Weighing Market Resiliency 11/7/22

Episode Date: November 7, 2022

The market rallying despite a series of serious risks. Can stocks find some traction for an end of year bounce? Trivariate’s Adam Parker gives his forecast. Plus, Lyft reported results in Overtime. EMJ’s Eric Jackson gives his expert take as a former shareholder. And, Mike Santoli looks ahead to the midterm elections and what it might mean for Wall Street.

All right, Sarah, thank you very much, and welcome everybody to Overtime. I'm Scott Wapner. You just heard the bells. We're just getting started from post-night here at the New York Stock Exchange. Got several earnings reports about to drop, including Lyft and Activision and Take-Two, along with TripAdvisor, our reporters standing by everything you need to know. And we're going to follow the stock moves, of course, as they happen in overtime. We begin, though, with our talk of the tape.

Today's rally and the resiliency of this market, despite a series of serious risks. Can stocks find some traction for an end of year rally? Let's ask Adam Parker. He's the CEO and founder of Trivariate Research right here next to me at Post 9. A big week. We had a big move today. Is this all about positioning ahead of the midterms or something more than that? I think so. I think it's that. I think there's an emerging narrative that maybe the economy is going to slow at maybe a pretty slow pace and not a fast one. And maybe corporate earnings can be okay. Oh, soft landing? Is that where you're going?

That narrative is picking up for sure. You know, my case for a while has been it'll be a slow decline, maybe even 24, not even above 23, just sort of a shallow type of trough. And then maybe you can find either cyclicals that are too cheap or growth companies that power through. And I feel like there's lots of things to buy where I can beat the market. So I'm feeling good about. Wow. I feel like this is a changed man. No, it's the same research that we've been publishing. Cheap cyclicals that don't have inventory where expectations are low, you can buy those.

Energy, metals. Yeah, I know, but your broader sort of market commentary sounds a little more positive than you've been, right? You were making the case for weeks, if not months, earnings are way, way too high. That's a really important point. June of this year, earnings expectations for 2023 were $252. You know what they are now? $231. Now earnings expectations are only for 4% growth this year. They're not as outrageously high as they were. So things have changed in the last few months. Obviously, when data change, you have to

absorb that and react. I don't think the market's ridiculously expensive at 16.3 times those forward earnings numbers. But I think the numbers will gradually come down. I think the real thing will be, is 2024 actually above 23 or not? And so I better buy things that don't have inventory impediment or have margin expansion so I can beat the market. So I'm not, you know, bulled up. It's the same thing I told you a couple weeks ago. I'm not saying you're bulled up, but you're certainly incrementally more positive than you've been. I mean, you sound it. Listen, I don't know here if the next move is down 10% or up 10%. And so I don't like to be bullish when that's the environment.

When I come on here, I'm like, hey, last 10 years mostly bullish. I think it's 30% up 10% now. It's kind of 10-10. We're at 3,800. You sure it's 4,200 before it's 3,420? I'm not so sure. I mean, some are suggesting it's for, there was a note today, I think it was UBS who said 42 before 4,900 on the S&P.

4,200 before 4,900, where it's like 48. Oh, isn't that by definition true? It's got to get to a—I mean, if it's going way higher, it's got to go a little higher before it goes way higher? No, they're suggesting that it goes lower. Oh, before 3,900. I mean, I'm sorry, 32 before 3,900. Forgive me, I misspoke. All right, I got you.

I got you. Well, you know, sometimes there's a double-breaking putt sometimes there's a straight putt, you know, so I don't I don't know what these guys are saying, but that's possible. I mean, I think right now this is short term around the midterm election thing. It'll be a little bit less, you know, restricted policy and people optimistic about that. As you know, the politics always have a short term impact on the market,term, corporate profits, margins, the bond, interest rates, et cetera. As we've talked about every week, and I wasn't on last week, the Fed's going to stay hawkish, man. So I know every couple weeks we like to have unicorns and lollipops and dovishness in the air.

But they're going to stay hawkish for a lot longer than people think because they have to really snuff out inflation. So that sets the stage for CPI. CPI trumps midterms? For sure. What do we need to see for CPI for this rally to get any sort of footing, if you want to use that word? I don't know what the number is. I think you have to believe that we're on a path towards something like five or less by the middle of next year.

I mean, I think that's what you really have to believe. And there's just not a lot of evidence supporting that in the broader market, right? You still have rents that are, oh my God, now they're not growing at one, they're flat. Well, you still have 11, 12 times up. I mean, rents, you know, it's going to take a while for that to trickle through, obviously. Sure, but yes, it's going to take a while to get to the finish line of inflation coming down. But it doesn't seem like you need all that much to get people more positive on the market as long as they believe that the trend is going in the right direction. And we've been fooled many times thinking that until the CPI came out and said,

uh-oh, maybe it's not I think he said was pretty clear I think the Fed they've been very clear we need much lower inflation trends to get dovish I mean it's pretty obvious so I'm not gonna be fooled that to believe in some dovish dream in the near term so I have to find things that can that can earn enough to generate a free cash flow in the intro to be good stocks so the market has has proven, at least lately, its ability to go up without tech participating as it used to. Is that a sea change in the way we need to think about? Is value really overtaking growth or not?

I think there's a very good argument for that. I don't think tech, look, tech's 25% of the S&P 500. So you can't have 25 go down a ton and everything be rosy, but I don't think tech has to be the leader. We even wrote a couple months back, I think we talked about it once or twice. I think it's healthcare this cycle, right? That you have a lot of demand growth exceeding supply growth, whether it's in services, you could maybe have some innovation in biotech, you could maybe have pharma look a lot more attractive than Staples. So I think it could be interesting to see if healthcare is a leadership sector, you know, over the next couple of years. I'll tell you what's interesting is Lyft, which has just reported. Hang on for two seconds, because let's go to Deirdre Bosa. The

stock's down 10 percent. It looks like they reported a loss when the street was looking for a modest positive on EPS. And revenue looks like a minor miss as well. Do we have this right? That is right. However, in terms of EPS, we're using adjusted. So what we have here is a small beat. But what is really sinking the stock right now is using adjusted. So what we have here is a small B, but what is really sinking the stock right now is the outlook. So let me break that down first. Q4 revenue range seen as light here. The midpoint of its adjusted EBITDA range is better than expected. The margin on adjusted EBITDA, however, is light. Q3 active riders coming in nearly a million short of estimates. And that's key because we know that the competition with Uber has been intensifying.

In terms of the top and bottom line, revenue did come in a little bit light. Let's call it in line, though, because 1.05 came in versus 1.06 expected. But the story here, Scott, is kind of what I was talking about right before these results came out. If you're comparing Uber and Lyft, the street sees Uber as executing better in this current environment than Lyft has. So you're seeing shares down 7, 8 percent now. We'll see how they do once the call kicks off in about 15 minutes from now. And I know we'll hear from you again. But I'm trying to think of what really separates these two companies because Lyft has dramatically underperformed Uber. It must go beyond execution.

No, is it more diversified revenue streams from Uber relative to Lyft because of Uber Eats and some of the other metrics? What is it really when you distill it down? So Uber is more diversified. It's certainly global. Remember that Lyft only operates in North America. It also has that Uber Eats business. But if you think about it right now, the Eats business isn't supposed to be doing as well as the ride hailing business. This is, you know, in a demand economy when you see services hold up a little better. Lyft is the pure play. It should actually be doing better here. However, like I said, this active riders number is really important because there may be a notion

that Lyft is maybe losing market share. Remember that note that Uber CEO Darwaka Azar Shahi sent much earlier in the year. He was one of the first CEOs to identify the softening macro environment. He said they were going to be more selective about hiring, more selective about investments. We just heard last week from Lyft that they're cutting 13% of their workforce. There was a little bit more before then, but it feels maybe to investors that they're taking the steps a little bit late and underperforming. So that's kind of what these results are confirming as well. Remember, the bar was so low, it's been underperforming Uber all year. So, you know, there could have been some optimism, but I just don't think it delivered here. Yeah. All right. Good stuff.

Holler, if you get anything else, and we'll throw you back on. That's Georgia Bosa with the latest there on Lyft. Let's go to Seema Modi, who has TripAdvisor, which is out as well. I should also tell you that John Zimmer, the Lyft president, is going to be on 850 tomorrow morning. Forgive me for that, but that is a reminder of that. Seema, Trip, yours. Here we go. TripAdvisor, a miss on earnings, Scott.

Non-gap, 28 cents. The street was looking for 38 cents, and that is why you were seeing the stock move here in the overtime. Revenue did top street expectations thanks to a rebound in experiences. That includes tours, cooking classes, photography lessons, among other initiatives within its experiences category. Revenue of $459 million. That did top Wall Street estimates.

Conference call will begin soon, but shares are moving lower by as much as 13%. Bigger perspective here, Scott. We've seen a big run-up in a number of travel names, including TripAdvisor is up about 40 percent from its 52 week low. So the fact that it not did not beat on its bottom line, that's weighing on the stock right now. Back to you. All right. Good stuff, Seema. Thank you very much for that. Let's get back to Adam Parker. Our conversation is centered around value versus growth. And I'm wondering whether the market, if we say, can we have a year-end rally without mega cap tech being a part of it? Does it work or not? I mean, you could. Mega cap tech. You don't

sound convinced. It's possible. You can 20%. I mean, anything's possible. Yeah. I mean, the market's going to rally 5% or 10%. I don't think those stocks are going to go down very much. You need to believe that they're reasonable value there. I was just listening to the comments there. Words like adjusted EBITDA, non-gap earnings, macro and micro problems. Those don't sound like incredibly good piece of information. I do think relative to the mega cap tech, a lot of those companies are actually reasonably priced on gap earnings. So the question is, do people look out and say, you know what, Google actually earns, like, a decent amount of money and actually is reasonably priced. So it depends on the market psychology, but I don't think that that's the base case, to be honest with you. I don't think the base case is market rallies and mega cap techs down some.

I don't think that's a reasonable base case. I think to your point, I think, you know, you're reacting to some of the commentary that we've heard from Deirdre Bosa and from SEMA. I mean, corporates are going to be de-risking to some degree. They're trying to get a little leaner, not en masse. And that's why the job market has held up to the magnitude that it has. But we mentioned this 13 percent of the workforce at Lyft. And you're seeing it really, I think, more broadly across tech. Is that trend likely to continue? Meta was another one today with the reports out. Look, our work shows at Trivariate 43% of all software companies

that have $500 million or more in revenue still lose money. If you and I started a software company, we would make money at $500 million in revenue. I'm pretty sure. So these businesses have a long way to go- Who's operating it, you or me? It doesn't matter. Either one of us. I trust you. Okay. And the point is that there's still a lot of fat that can be trimmed. If you look at the financial industry, I think you'll see some rifts. I think you'll see wage pressure there into the first quarter. So I think there's a lot more of this coming. I think wages will roll over. Maybe that helps your inflationary story on the peak,

but I think it's still six months hence. Okay. Let's broaden the conversation, bring in a couple more guests. Brenda Vangelo of Sand Hill Global Advisors, Emily Rowland of John Hancock. Brenda is a CNBC contributor, as you might know. And Brenda, I go to you first. This move in the market that we're seeing here, do you feel like it's sustainable or is it a build into the midterm and a sell on the other side? Yeah, I see a lot of similarities to Q2 earnings season here in that earnings have, by and large, been better than feared, although we have had some big disappointments this time around, but nevertheless better than feared. We still have this backdrop where inflation is stubbornly high. The Fed has been more hawkish.

So I think in order for this rally to continue, we not only need to get through the midterm elections, but we need to really start to see some improvement on the inflation front. And if we don't, I think it might be a worry that it'll be a repeat of what we saw over the late summer, where the hawkishness sinks in. There's more growing concern about potential earnings next year, and that perhaps we give back some of this rally that we've seen so far. I think we probably have seen the lows, however, but nevertheless, it does concern me that I don't feel like a whole lot has changed other than that we've heard from a lot of big cap tech companies now that their businesses are slowing and it's natural. They had two years

of really outsized growth and now we're on the other side of that. So things are normalizing. Okay. Emily, I mean, Brenda just said, I think we've seen the lows. Do you think we have? Yeah, that's a tough one. You know, I think markets here can continue to do okay heading into the remainder of the year, but the leadership might change. I think one of the most notable things about these big market bounces that we've seen in recent weeks and months is that the leadership has been highly cyclical. You're seeing high-yield bonds outperform high quality bonds. You're seeing small cap equities rally, industrials, financials, higher beta areas of the market, international international stocks that is not normally

what you see heading into a global economic slowdown or recession and we do believe that's where we're heading we're looking at you know leading economic indicators which are clearly in negative territory right now and i think right now the markets are reacting to coincident data and to lagging data which to the point of the other panelists has been okay, or better than feared. And I think that we really need to think about recalibrating those expectations heading into 2023. Everybody hold their thought for a second. Steve Kovac has Activision, Blizzard, and Take-Two Interactive, which have reported just now as well. Steve? Yeah, Scott, let me start with Take-Two because that's falling quite a bit here after hours

because of lowering their guidance for the rest of the fiscal year. But first, let's go top line. We got revenue here. It's a slight miss one and a half billion versus the one point five five billion dollars expected. EPS coming in at a loss of a dollar fifty four. But we're not comparing that. Now, it's the revenue guide that's really hurting the stock here and down 9 percent. They lowered their guidance for Q3, the current quarter we're in right now, up to $1.46 billion in sales versus $1.69 billion expected. And then for the rest of the fiscal year, they're predicting up to $5.5 billion in sales versus the $5.89 billion expected. And now they're blaming a lot of things for this, Scott.

But let me just quote from the press release saying, quote, the reduced forecast reflects shifts in our pipeline, fluctuations in foreign exchange rates, and a more cautious view of the current macroeconomic backdrop, particularly mobile. And the mobile thing really sticks out to me, Scott, because we've heard warnings last week from EA about mobile gaming falling off. And before that, App Store sales from Apple, again, blaming fall mobile gaming, Scott. But the pipeline's been the biggest issue based on what I've read leading up into the earnings, right? Lack of new releases. That's right. Has plagued this stock. It's down some 20 some odd percent year to date. Now you can tack on another 9 percent to that. But

the pipeline, while it's lumped in with all of the other excuses, if you want to call that out of the release, that's been the most significant, I think, concern for investors, especially going into the holiday quarter where we're in right now. They don't really have one of those big blue chip games to lean on in the holiday season, like some of the rivals like Activision does, which I'll get into right now. So Activision, 68 cents EPS, not comparable. Revenue was $1.3 billion. That's a slight miss of the $1.69 billion expected. And then we're not looking at the guidance right now.

But look, this trades purely on any news we get out of the Microsoft acquisitions. The shares are flat-ish right now after hours, Scott. And by the way, Call of Duty is just crushing it in sales up to over a billion dollars. That's exactly where I was going to go. It's the best debut for a Call of Duty title to date. And to your point, that's why it's beaten the market on the year up 7% year to date relative to what Take-Two has done. When I said it slid more than 20%. Steve Kobach, thank you for that. You got it.

Do not miss an exclusive interview, by the way, tomorrow morning. The Take-Two CEO, Strauss Zelnick, he'll be joining Squawk Box. So let's get back to this conversation about what's going to work and what's not going to work, because I feel like we have a debate that's ready to happen regarding this idea, Adam, and I'll throw it to you, that Emily has put forth, that it's time to fade the cyclical rally that you have been suggesting is the place you want to be. Industrials, energy, and some of those other areas, maybe it's time to fade it. You know, there's some really interesting things going on, right? Like, let's say we have a slowdown in the economy next year.

I think that's everyone's base case. Some people think it's a recession, some don't. No matter what, auto SAR is going to be up, right? Go back and show me in history when you had a recession that autos did well. Right. We have my point. We just had a Q3 where oil was down 25 percent and energy equities outperformed. Right. So there's some different things going on in this cycle as a result of COVID, as a result of supply chain disruption that I think are going to make what transpires in the next 12, 18 months a little bit different than history. Our call for cyclicals has been own cheap cyclicals where estimates are down and there's no inventory problem. That's been energy and metals, which

we've liked for 18 months. And as of last week, we throw home builders in the mix. We are not a fan of some of the over-earning industrials, machinery, capital goods, where we actually have an underweight recommendation because some of them have high expectations for earnings, have growing inventory, and they're not cheap. So I'm really playing that expectations, valuation, and inventory game to try to parse within the cyclical. So I don't know if we have an exciting debate that you want or not, but I'll let Emily make fun of me if she wants to. I will. Please do. All right. I encourage that. All right. Are we ready for that now? Yeah. Yeah. Yeah. You got the ball. I mean, yeah. Get to it. Great. All right. Great. We don't know each other well enough yet, but hopefully we will. You know, I think that there's something to be said for the

more cyclical names right now. And Scott, you asked a question earlier about can the market continue to rally without technology? And I think we've got to remember that maybe we should give tech a little bit of a breather right now. You know, the tech has been the driver of economic growth, of earnings growth over the last decade. And while tech companies are still growing, especially the higher quality ones. You know, it's at a low single digit rate. You look at Q3 earnings and the baton is being passed right now to sort of the old economy. You look at industrials, railroads, machinery, railroad earnings are doing better than Apple earnings right now. And I think that there are some powerful tailwinds in that part of the market right now. Onshoring, we think these companies

are huge beneficiaries of supply chains being brought back to the U.S. So I agree with the point that it's OK to own some of that. We like mid cap value as offense in a portfolio, but we want to pair that together with areas that are going to do well in this decelerating growth climate. So I think it's value, defense and quality. Brenda, you know, Emily thinks that earnings have a long way to come down from here. Adam and I began our conversation by him suggesting that, well, they've reset quite a bit to this point. Are we underestimating the magnitude of the yet to be. Decline in earning earnings growth. That obviously you know I think in our in our view

in order for Emily scenario to play out we would really have to have the fed over do it which is entirely possible that that happens we don't believe that what will happen we think we're likely to get a pause here. Perhaps the end of this

year or early in Q one. That nevertheless you know what we've seen this year is pause here perhaps at the end of this year or early in Q1. But nevertheless, you know, what we've seen this year is that we came into the year and everyone was really pessimistic about earnings. And things have actually been better than expected. And earnings have held up well. Companies have been able to, by and large, pass along higher costs. But now we're seeing a lot of these larger companies with decelerating trends simply because the last few years have been so exceptionally strong. So I don't think that means a disaster for earnings going forward. You know, I think in a worst case scenario, we could look for a double digit decline in earnings

next year. And at certain points, you know, especially during the market bottom in October, it seemed like that was almost all priced into the market at that point. So we think even if earnings estimates do come down a little bit from here I don't think it's going to necessarily be disastrous for the market. Okay last word quick to you. Yeah I guess I'll I'll push

back on that if there's a double digit earnings decline next year. Meeting from low two twenties this year to something like two hundred or less. I think the market's going way way lower. So I don't see like 200 or less, I think the market's going way, way lower. So I don't see those two things as possible.

I mean, the estimates are for 4% growth now. If they're going to double-digit decline, 23 versus 2022, you're going way lower. That'd be my interpretation. But I don't think that's going to happen to earnings, but if it does, we're going lower. All right, we'll leave it there. By the way, the average bear market sees a sees a earnings decline of 24 percent. We're not even close. Market will go way lower if their earnings are down 24 percent. That's right. Yeah. On that happy note, we're going to leave it there.

Brenda, Emily, I appreciate it very much. We'll talk to you soon. AP, always good to have you here on set with me at Post 9. Let's get to our Twitter question of the day. We want to know which part of the market could see the biggest impact from midterm elections. Oil, clean energy, semiconductors or financials? You can head to at CNBC Overtime on Twitter to vote. We're going to share the results later on in our. We're just getting started here in overtime. Up next, trading technology.

That sector getting slammed in recent weeks. Our next guest, though, is highlighting the two FANG stocks he would own into the end of the year. We'll reveal those names after the break. We're live from the New York Stock Exchange today. Overtime's back right after this. Back at overtime, where Lyft shares are dropping and dropping severely, down more than 13%. Company missed on revenue. Joining me now, Eric Jackson, EMJ Capital founder and president. Had you on. It's good to see you to talk about technology. You used to own this name. I suppose you're happy you don't today.

Yeah, definitely. I still own Uber. And actually, these results, you know, make me incrementally more bullish on Uber. But I think the biggest concern for Lyft investors out of the whole report was the fact that they missed active riders estimates by almost a million. That says to me that they're losing market share to uber especially and if you look if you compare uber's results of last week a second quarter in a row of strong free cash flow growing their business growing active riders they're taking share from lyft so lyft is a pure play obviously ride sharing only uh so i just i just like uber uh you know it's still growing out of the, you know, out of the pandemic above kind of pre-pandemic levels, has a more diversified, more global business than Lyft. So you wouldn't buy Lyft again, based on what I hear you telling me now? I think all those things were true before,

right? When you made the decision to buy Lyft over Uber, Uber had always had a more diversified revenue stream. They're always more global than Lyft is Uber, Uber had always had a more diversified revenue stream. They're always more global than Lyft is domestic, et cetera, et cetera. Right. Yeah. You know, the reason why I owned it is that if ride sharing was going to make a comeback, you know, Lyft should outperform Uber because it is a smaller business. It's it's it's more volatile on the way up as well as on the way down. And so it should have bounced back. But there are just many more risks attached to that business. And they've yet to prove management has that they can really kind of navigate out of this problem. So there's nothing in this report that would make me say, hey, I want to jump in to own these shares today. It's more concerning than it is

comforting. You want to jump in, speaking of using those words to some of these tech stocks that have gotten hit because tech has not done well lately. And I'm wondering how broken you think that space is. Well, it's definitely broken. It's definitely been a terrible year for tech overall, Scott. You know, when I was with you a couple of weeks ago, going into the kind of the big week of tech earnings, you know, the only one of the big fangs that I really like was Apple. And that's still, you know, it's really last man standing from the whole fang complex coming out of that. It is a name that I still like into the year end. You know, even on a day like today, when we know from the headlines last night that they were slowing iPhone volumes to finishing the day positive by almost half a

percent, it continues to be the bellwether for tech. Are we close to a bottom in some of these spaces? I'm looking month to date, right? The XLK itself is down five and a half percent, but software, the IGV is down nine and a half. Cloud is down 16. Some of those SaaS stocks have gotten absolutely annihilated. I'm thinking of things like Twilio lately, which someone on halftime today told me that they bailed on and they used to love the stock. Are we near a bottom or not? It's really tough to say. I mean, you were asking on the last panel, you know, can we get a rally into year end and can, you know, can we get a rally into year end and can, you know, is tech going to sit that out or is it going to participate? I mean, if there's

truly a rally broadly in the markets, you know, sooner or later, tech is going to participate and all these names, oversold names, and whether it's big tech or growth tech are going to participate. But this, this, the last few weeks feel different from June of earlier this year, where we sort of went down quickly, hit a bottom. Tech had this big bounce back into early August. We've been oversold now for weeks in tech, and we're sort of searching for that catalyst to drive things up. Maybe it's going to be the midterms, and we'll see. Some might argue that there's going to be tax loss selling ahead and many of these tech names into the year end as well. So we're due

for a rally. But, you know, it's anybody's guess if it is going to happen. So you have to be very selective and take things on a name by name basis. And I mean, look, I think like Twilio, you got burned in that stock, too. So, I mean, you understand the pain of thinking that these things may be better positioned than they otherwise are. I got to let you go. But before I do, best name right now to make money in tech between now and, say, the end of the year at minimum is what? And I know it's not a long time frame, but what is your thought on that? Big cap, I'd say Apple. In smaller cap, growth cap, I would take a look at Friar Battery. It's going to have earnings next week. It's going to announce

probably before year end a gigafactory built in the U.S. that's going to benefit from the Inflation Reduction Act. And that's that we're talking the benefits of that IRA are 30 to 40 percent cheaper to build a gigafactory in the U.S. versus in the EU or anywhere else in the world. So these benefits are going to be substantial. And I think those catalysts can drive those those, you know, that stock higher and Apple should continue to do well. All right. Good stuff. We'll leave it there, Eric. Thank you. That's Eric Jackson joining us once again in overtime today. It's time for a CNBC News Update with Deirdre Bosa. Hey again, Scott. Here's your CNBC News Update at this hour. Just a day before the midterm

elections, a close ally of Russian President Putin admits that he has interfered in U.S. elections and that he will continue to do so. Yevgeny Prigozhin was charged in the U.S. with trying to influence the 2016 election. The White House says it is not surprised by Prigozhin's latest comments. Police have released a booking video of Tyson Foods' CFO after he was found allegedly drunk and asleep in a stranger's home. That is 32-year-old John R. Tyson in orange shorts. He is the son of company chairman John H. Tyson. Tyson Foods said it was aware of the incident, but calls it a personal matter.

The younger Tyson has not responded to a request for comment. And the Indianapolis Colts have fired head coach Frank Reich. This after a third straight loss, a 26-3 drubbing by the Patriots, where the Colts posted fewer offensive yards than in any game in the last 25 years. Ouch. Filling the Colts' top coaching position will be former All-Pro center Jeff Saturday. He is well known to Colts fans but has only coached high school football. Why not? Give it a try, right Scott? Back to you. Hey, why not? Why not? We'll see where it goes. Dee, thanks. That's Deirdre Bosa. Still ahead, no signs of a bottom. That is what our next guest says, why he's

remaining cautious into the end of the year and where he sees some opportunity right now. We'll be right back in overtime. Markets ending today in the green. However, our next guest says he's seen no sign of a bottom yet, and earnings estimates remain too high. Joining us now is Jason Trenner. He's the chairman of Strategas Research Partners, a Baird company. So you're pretty negative, it sounds, still. Yeah, I think, Scott, I think a good portion of the decline in the market so far has come really from expectations of higher inflation, which have proved to be true, and also expectations of higher interest rates. But if you look at the aggregate

expectations for earnings, they're still showing a 6% growth rate for next year. Lower than what they were, right? I think we were at 8 or 9. That's right. So you were at, to use the notional numbers, you're at 252, and now you're at 233, off a base of about 220 this year. But if you think there's going to be a recession, as we do, there's never been a recession without earnings being down and down significantly. Well, when do you think the recession is going to be? Because that makes a difference on the time frame of when you think that earnings really have to be adjusted far lower than what you're saying.

Well, we're using $200 for S&P 500 operating earnings for 2023. And I think we're really on the cusp within a quarter or two of, in some ways, you could have said we've already seen some of, a little bit of a recession, economic recession. That's debatable. But I really think that next year. Not that debatable. I mean, the labor market is strong enough that, how can you suggest that we've had, and earnings have held up better than expected. It certainly doesn't feel or look like a recession yeah you might i guess what i'm getting at is you might it's going to take a lot longer probably to deflate the inflationary pressures that you've seen and uh this is this was one year that was a part of it but i think it could last

quite a bit longer some of it may berenched, but what happens if inflation rolls over faster than we think? If the economy started at such a high base that there's enough of a cushion to stimulate a soft or soft-ish landing, that deflects away from some of the more dire projections, doesn't it? And maybe it's not as far-fetched as we think. It might not be, but I would say since the 30s, the average decline in earnings during a recession has been 30%. That would take you down to 170 on the S&P 500 for earnings. The median is down 20%, and our forecast is down 10. So I don't think $200 is particularly aggressive. It's actually a somewhat mild recession of $200.

And then you would have to put the multiple on. And I think given where inflation is likely to be a year from now, maybe 16, maybe four or something along those lines, you would probably think that multiples should be about 16 times. You think inflation will come down to four in a year or so? I think so. I think so. I think it's going to be hard. Isn't that a win? That's a big win, except that multiples are lower and earnings are lower. So it would be a win to the extent to which you don't have a market a lot lower than that. But it wouldn't suggest that you've seen the bottom yet. What makes you more bullish then? What just turns the tide? Yeah. So I think there's a couple of things that could make you more bullish. The first would be one of two things.

One is, as you say, inflation comes down much faster than people expect. I think that's unlikely personally because 60 percent of our budget is indexed to inflation. So in some ways, fiscal policy is going to be fighting monetary policy as we move forward. But don't you think the midterms play into that? No, I mean, it doesn't even I move forward. But don't you think the midterms play into that? No, I mean, it doesn't even, I doubt it, because you don't even have to pass any new legislation. Just Social Security, Medicare, and Medicaid are indexed to inflation. Social Security cost of living adjustment was 8.7% this year moving forward. So it's very tough. The Fed has a tough job ahead of it.

But it's possible that that happens. The other thing that could happen for the Fed has a tough job ahead of it. But it's possible that that happens. The other thing that could happen is the Fed could change its target. You know, the Fed could just say this is too painful and we're going to say three and a half will be close enough, something along those lines. And then then I would say that would change everything. And then I would I'd be so bullish. I'd get so bullish if they change their target and said, listen, you know, 2% is too aggressive in one business cycle to get there. It might take us several years. We understand that this is a process. And that, I would say, they don't.

Isn't that likely? They may not come out and tell you explicitly that they changed their target. But the idea is that they'd settle for around the level that you're talking about without expressing it literally. I would say it's possible. Having said that, you've seen no weakness. I think there's two things the Fed has to see to really get to that point. One is you'd have to see positive real rates, which means you'd have to see the Fed funds rate above the inflation rate or some inflation rate. And right now you're nowhere near that.

And you'd have to see meaningful weakness at the labor markets. And I think right now the labor markets are simply too tight, it strikes me, for the Fed to say anything, any sort of kind word in the direction of inflation. Now, ultimately, as we're saying, they could change their mind,

but I think they would have to see real signs of those changes before they change at least their rhetoric. Welcome to Overtime. It's good having you here. Good being here. Thanks a lot. That's Jason Trenner joining us here on set at Post 9.

Up next, breaking down Buffett's biggest bets. Five stocks occupying more than 70% of Berkshire's equity portfolio. We're going to debate the strategy and the names in today's Halftime Overtime. And tonight, tune in to CNBC's market special, Taking Stock, heading right into Election Day. We'll debate the battleground issues facing American investors and consumers. We'll do that right here on CNBC 7 Eastern. Don't miss it.

In today's Halftime Overtime, Buffett's big bets. The Oracle of Omaha revealing over the weekend that nearly 75% of Berkshire's equity portfolio is concentrated in just five stocks. And according to Joe Terranova, Buffett's picks are exactly where investors want to be in this market. There's no extreme valuations in any of these names. You don't see emerging software. You don't see the hope and dream stocks. And I think that's exactly the type of holding that the viewer wants to have going forward. All right.

Serity Partners, Jim Labenthal joins us now to assess. So do you agree with Joe that this is exactly the kind of portfolio you want to have in this current environment? Not exactly, but close, but close. And the reason not exactly is because Coca-Cola kind of stands out like a sore thumb. You know, in a good year, Coca-Cola is going to get what, you know, two percent sales growth. That's not very exciting. But we have to understand that Mr. Buffett has owned these stocks for, in some cases, 30 years plus. I started in this business professionally 25 years ago.

And at that time, he owned Coca-Cola and American Express. He may well have owned Bank of America as well. So some of these things just are not going out of the portfolio in his lifetime. Now, where I agree with Joe, though, Scott, is some of these things are going to have decent growth going forward. You know, Apple, from where it is now, Chevron, Texco, obviously, we see what's going on with energy. And Bank of America, American Express, as the economy picks up, you know how I feel about supply chain onshoring and infrastructure spending. That needs financing, which both of those companies are going to be in. So not quite exactly in agreement with Joe, but the sore spot is Coca-Cola.

I mean, it's funny you say Coca-Cola because, you know, part of Buffett's expertise has been weathering the storm. Right. And that's a stock that is, let's call it flat on the year in a decidedly down market. So I think anybody would be fortunate to be sitting in shares of Coca-Cola, certainly this year at minimum. So, Scott, I'm not going to take shots at Warren Buffett. That's just not not what I'm going to do. I do have to point out that if you look over the last, say, 10 years, you know, Coca-Cola has been less than half of the return of the S&P 500. Now, what that may be indicating, Scott, is just how badly value has underperformed growth during that time frame until the last year or so. And maybe Coca-Cola will be fine as value resumes its leadership, which is what I think is happening. That said, you know, there's different types of value stocks.

Coca-Cola doesn't thrill me. But as you point out, it's stable. Something like Bank of America, American Express, Chevron. Yeah, those are more thrilling in the value space. And maybe it's a hedge versus some of those other perhaps more volatile positions. Jim, thank you. That's Jim Labenthal, Serity Partners, joining us at Halftime Overtime. Coming up, we're tracking some of the other big movers in overtime. Christina Partsenevelos is standing by with that. Christina.

Hello. Well, the boost in renewable energy use in Europe has helped send shares soaring for this one solar company, while a cloud computing company is actually joining the chorus in warning revenue for the fourth quarter of this year is going to be weaker. Those names after the break, I promise. We're tracking the biggest movers in overtime. Christina Partsenevelos is here with that. Christina. Well, let's start with software firm Five9 seeing its shares plunge down 15% right now. They had better than expected results, but the guidance came in weak. The company says revenue

did grow thanks to their enterprise business and subscription revenue, which was up 37% year over year, but its Q4 earnings per share guidance came in at a range between 40 and 42 cents a share versus the 51 cents the street was estimating. Big miss there. And then we got Mosaic, which mines potash as well as fertilizers, posting in earnings and revenues miss. There was no quantitative guidance provided, but the company said the grain and oil seed markets

are expected to remain tight into next year because of the war in Ukraine and poor growing conditions in certain parts of the world. The stock was down, but now it's come up to be slightly in the green right now. And then SolarEdge Technologies shares also moving higher on a revenue beat despite missing earnings

and moving higher to 10% higher, I should say, in the OT right now. The company says they saw extremely, quote, strong momentum in Europe where revenues grew 90% year over year, allowing them to post Q4 revenue guidance that fell in line with what the street was hoping for. And that's why shares are up 10%. Scott. All right. Good stuff. Christina, thank you. That's Christina Partsenevelos as always. All right. Up next, we are counting down to the big report of the week. It is Disney, the top key themes every investor needs to know. We'll do it next. All right. It's time for our two minute drill now. Disney's results are on deck, hitting the tape in overtime tomorrow. We'll, of course, have that

live. CNBC.com's Alex Sherman breaking down the top things he thinks investors need to focus on the most. Alex. Yeah, three things for you, Scott. First one is last quarter, Disney made a slight change and said it was going to announce what they call core Disney Plus subscribers. That's their higher paying, more profitable subscribers outside of India. Previously, they had included these Indian hot star subscribers in this number. Now they're excluding them to focus investors more on what Disney considers to be sort of their better subscribers. So analysts looking for a number about between 8 and 10 million there. We'll see what comes through.

Second thing, any color on Disney's advertising tier, which launches in the United States on December 8th. So that won't be a part of this past quarter's earnings that we'll learn about. But as always, Disney will future guide. And any indication we get on average revenue per user for these ad customers will be of value. It's $7.99 per month for the ad tier, but in addition to that, it's all the revenue that comes along with the actual commercials. Last thing is just macroeconomic impact on both the parks and advertising revenue throughout the entire Disney

empire. So that's not just the ad tier, but all the linear cable networks. Certainly Disney, one of the biggest companies in the United States, and it's impacted from a macro perspective throughout all elements of the company, including the parks. All right. We will see what happens again over time tomorrow. That's all going to drop. Can't wait to do that for you.

All right, Alex, thank you. Santoli is next. To the results of our twitter question we asked which part of the market could see the biggest impact for midterm elections the majority of you saying oil near 52 percent of blowout let's get to mike santoli for his last word um so we talked at half today in your midday word about this being a run-up into the the midms? It feels like at least people are allowing the market to run up. It was really light volume today. It was kind of a drift higher. You definitely saw not even a billion, just sort of a rebound in the most stretch to the downside big tech stocks. That being said, I don't think you can ignore the seasonal patterns

around the midterm elections. I don't think it has anything to do with the policy path, right? There's not a lot of suspense about some economic agenda that's either on or off based on the real, mainly because we think it's going to be some form of split government between the parties, no matter what happens. It's much more about people taking some comfort in the precedent, which is it's the market's never been down six or 12 months after a midterm election year. As I keep saying, there's only been 18 of them since 1950. You can say that that's either irrefutable evidence we're going higher or that it's a small sample size and there's some randomness in there as well. OK, so get that out of the way. And then I don't know, when do we start talking really heavily about CPI and what's on the line on Thursday?

I mean, I think 30 seconds after. I mean, I guess we're not going to necessarily have full results of the election right after that. But it is all about that. It's about the CPI path. And will that be benign enough to allow the seasonal factors and the kind of, you know, positioning, you know, elements start to come into bear to get the market higher? You do see signs of traction. You see signs of the market unwilling to fully let go of the better economic scenario that could be waiting out there, even though it seems like the odds are relatively long. Maybe it just needs to eliminate 75 in the December meeting. That's a start for sure. Absolutely. All right. We'll see you tomorrow for your last word. That's Mike Santoli. It does it

for us. I'll see you then. Fast is now.