Closing Bell - Closing Bell Overtime: Will Earnings Drive or Derail the Rally? 1/13/23

Episode Date: January 13, 2023

Earnings season is about the heat up. But, will it extend this early-year rally in stocks or derail it? Anastasia Amoroso of iCapital gives her take. Plus, 5-star stock picks from Capital Wealth Planning’s Kevin Simpson. He explains the big moves he’s making in his portfolio. And, Tesla shareholder Bryn Talkington of Requisite Capital gives her take on the slide in auto stocks amid pricing problems from the EV maker.

All right, Sarah, thank you very much. And welcome, everybody, to Overtime. I'm Scott Walkney. You just heard the bells. We're just getting started in just a little bit. I'll speak to an investor who tamed this market last year, Capital Wealth Planning's Kevin Simpson. He's back with his latest trades and a strategy he says can be a winner for you.

We begin, though, with our talk of the tape, whether earnings, which are really about to heat up, will extend this early year rally in stocks or derail it. If today's bank reports and stock moves are any indication, it's going to be a volatile ride over the next few weeks. Let's welcome in Anastasia Amoroso, iCapital's chief investment strategist for HerTake. It's nice to see you. Welcome back to our show. Interesting week. Did this change the way that you are viewing the market? Do you think it's a head fake? Is it legit? What

do you think? Well, I think it's going to continue to be a struggle and a tug of war here. And for now, it seems like the bulls are winning out here. But the reason I say this is going to continue to be a back and forth, you know, clearly we do have an inflation easing narrative. The question is, is it easing well enough for the Fed and And are the right parts of it easing? And I think the answer to that for the Fed is probably going to be no, not yet, because we have not seen a meaningful easing in core inflation. So that's one thing that's going on. And then the other thing with bank earnings, I think we're getting a reality check

that this is not going to be a very easy earnings season because, first of all, the guidance from whether it's the banks or any other company is not going to be positive. I mean, how can be when the economists are in their ears talking about 0% GDP growth? So everybody is going to be cautious. And, you know, maybe that's offset a little bit by the fact that we have revised down earnings estimates a lot for this particular quarter. So the bar is set low. So net net, maybe that offsets itself. But I think, you know, what happens is earning season is going to be OK. It's probably net net going to dampen the sentiment. But I worry that the Fed is actually going to short circuit any sort of rally that we're starting to have here. Well, it's interesting. I'm looking at the market, too, as we see the S&P settle out. I was looking to see if we're

going to get 4000 as we head into the weekend, and it looks like we're settling just below that level for the S&P 500. You all see it on your screen here, 39.99. So we'll let that settle out over the next few minutes and see exactly what happens. I want you to listen to what Jeremy Siegel of the Wharton School told me today. He thinks inflation's coming down faster than the Fed thinks.

He thinks ultimately it's going to influence the Fed. And he even went as far as to say this about a bear market turning into a bull market. I think we are because I think that everyone says first half is going to be bad and maybe it's going to be better the second half. And Scott, what does history show? When everyone's on one side, they're usually wrong. How about that, Anastasia? Everybody has been on one side for quite some time. Is it time to change? Everybody is on one side about this being the year of two halves. And, you know, like, I don't know if it's time to change yet, because here's the thing with inflation. If you look at the inflation report this week,

you saw that the headline inflation is coming down. And I think Professor Siegel is right that if we continue to get a 0.1 percent decline a month over month inflation, that we are actually on the path to 2 percent year over year inflation by the middle of this year. So that's great news. But here's the thing. The Fed is looking at the core inflation, which still rose 0.3 percent month over month. And if you project that out, then we're still on the pace of 4% year over year inflation by the middle of this year. So not quite on pace to 2%. And by the way, shelter was still rising 0.8% month over month. So I do worry that the Fed is going to look at that and say, look, you know, the markets may be pricing in one thing, but the core is where we focused on and that's just not good enough. Oh, and by the way, you know, financial conditions are easing across the board

and that's something the Fed has sort of told us again and again they don't want to see. So that's why, and by the way, Scott, you also look at the Fed funds rate and now 5% is not even in there anymore. It's just shy of 5%. So I think the Fed looks at all of that and says, well, maybe we need to reset the expectations. Well, the bond market is clearly saying the Fed is wrong. The Fed is trying to go out of its way to suggest that the market's wrong. These two forces are eventually going to meet somewhere. And then maybe that's the decider as to where stocks go from here, because you know what's going to happen if it turns out that the Fed actually is right. The two year is not going

to be where it is. It's going to shoot higher in the stock market. It's not going to be where it is. It's going to shoot lower. But who wins this fight? I mean, I think you're right. The two year does have to move higher because we have priced out the five percent rate that the Fed has told us sort of again and again. They're trying to get to even even north of five percent and hold it there. So it is a bit of a mystery why we're backing off that 5% just because we're seeing some easing in headline inflation. So I think that part of the curve definitely needs to go up. But if you look at the longer part of the curve, I think the moves there may be somewhat justified because inflation over the next six months to 12 months is set to ease

and the Fed is set to pause. And we're not going to see much in terms of growth this year. In fact, we might see some decline in economic growth. So that's what the 10-year is starting to account for. So I think that move is justified. But the front end of the curve likely needs to come up. Why does it have to go up? Why does it have to go up, though? I mean, if growth is hanging in there, OK, and inflation is falling perhaps faster, as some would suggest, like Dr. Siegel, then the Fed is willing to at least acknowledge now I get the whole jawboning game. But what if inflation is coming back fast enough, coming down fast enough? The economy is holding up better than many people thought.

We actually can engineer a soft landing. And that doesn't mean that the Fed has to go as far as some have thought. Well, here's the question. Are we talking about the next month or are we talking about the next six months? If we're talking about the next month, I don't think we have enough data for the Fed to say this is it. Inflation has convincingly come down. I mean, they use this sentence. They need substantial, significant evidence to see that inflation is on the right trajectory. You know, year over year wage growth is still 4.6%. It's better than it was, but it's still 4.6%. And again, core inflation is not on the path to 2%.

So over the course of the next month, I don't think that's enough for the Fed to say they have the evidence. Now, over the course of the next six months, I do agree that I think we will have enough evidence because, Scott, all the layoffs that are happening, most of them in tech, I think that is dampening the sentiment and it's sort of reshuffling what employers are willing to pay people and what employees are willing to accept. So all things equal, even if we don't see a huge spike in the unemployment rate, I think we will start to see that wage growth gradually come down. But that's not a one month thing.

It is likely a three to six month thing. And that's why, you know, yes, it is consensus. But I would still stick with the outlook that at least in the first quarter, we're going to have this battle between the factors of inflation and the Fed and just the reality of slower growth. What if the earnings destruction doesn't happen as people think it might? Right. And we were talking this in the third quarter earnings as we were reporting them here in overtime as they were hitting the tape. You're like, OK, you know what the message was? You remember it probably as well as I do. Better than feared. And I'm wondering if we have, you know, a repeat of that with fourth quarter earnings. And we just realized that the further that this

alleged deterioration in the economy gets pushed out, maybe it doesn't happen the way that people thought it would. Well, I think the slowdown is trickling down into earnings. I mean, just to put some numbers around it. So, so far from the end of Q3, the estimates for Q4 were cut down by six and a half percentage points. And that is well below what typically are the analyst cuts of about two and a half percentage points. That's a 10-year and 20-year average. So we have reset the bar pretty significantly lower on Q4. And I think for that reason, some of the companies may surprise. But one other interesting thing is that the percentage

of the surprise keeps on coming down. So maybe we do a little bit better than expected, but I don't know if it's going to be enough to put us in positive territory. But the other thing, too, is, you know, look at 2023 earnings estimates where they were three, four or five months ago. There were two hundred fifty dollars on the S&P today. The latest number is two hundred twenty nine. So I think we have actually cut down some of those estimates, maybe not fully, but we've come a long way. All right. Well, let's add two more voices to this conversation. Joining us now is New York Life's Lauren Goodwin, Requisite Capital's Bryn Talkington.

Bryn is a CNBC contributor. Ladies, welcome. It's good to see everybody on this Friday. Bryn, this week, what's your takeaway here? I mean, the two year is telling you the Fed is almost done. And I do believe the bond market. If you go back 40 years, when the two-year has peaked and then fallen by around 50 basis points, historically, that's telling you that the Fed is almost done. And so the two-year hit, what, like 470, 475? And just earlier this week,

we're at about four 12. So you've seen that big pull down in the two year. So if I'm a betting person, I'm, I'm going to bet that the fed is almost done because the bond market is telling you that I don't think that, I mean, the inflation numbers are coming down the month over month. And we talked about this on Halftime last week. The month over month is all that matters. We've had a negative 1.1, 0.1, 0.1, 0.4. That compares to last summer, Scott, of four consecutive months of one handles, 1%. And so inflation is coming down. And so I think the big question is like the Fed has been the visible hand

of the market in 2022. I do think there will be less visible, especially as the year goes around, goes goes on. But the big question is what's priced in and what does the economy look like once they actually pause? Well, see, I love this because Lauren's on the other side. You're betting, Bryn, on the market. Lawrence is not so fast. I'm betting with the Fed, right? I am betting with the Fed and take, I guess I'm betting with Anastasia as well on this one, where because it is not clear to the Fed or frankly to anyone that the risk of a wage price spiral is behind us, those core services segments of the economy where we are seeing the most inflationary pressures, it is too early.

And timing is not on the market side to suggest that the Fed will see enough evidence to not get past the 5% mark. And so I do expect that we have to believe the Fed. Whether you agree with them or not, you can believe them. OK. Bryn, what's your retort to that? Yeah, no, listen, I'm a big believer, as you know, Scott, don't fight the Fed. And from a positioning perspective, which really at the end of the day, at the beginning of the day, that's all that matters. Our portfolios have been very defensively positioned because I don't want to fight the Fed. That being said, where we are now, I just don't think we're in an environment where the Fed is going to continue to have the rate of increases, 75 basis point increases every single time. And I don't think the quickness. So I do think there's going to be rhetoric from the Fed that we're seeing month over month come down.

Inflation is slowing. We do have a strong economy. And so if they do a 25 and 25 and then pause, well, the market's going to price that out. And the market probably goes higher from that, from that alone. Lauren, you're still obviously then negative on stocks, right? If you think the Fed's going to go as far as they're talking, then you must be underweight U.S. stocks still. I do see the difference between the market pricing of Fed activity and what the Fed's saying as a major risk for equity, but we're neutral U.S. equity in our portfolios, and that's an accumulation of some strong overweights and some strong underweights. On the underweight side, duration-sensitive equities, growth sectors still in that component of our underweights. We're also very hesitant on companies that can't self-fund, can't pass

higher costs on to consumers, because that represents a quality lag that we think is really important in what we expect to be a range-bound and volatile market. But even if you expect the market to be range-bound and volatile like we are, these moments of positivity that we've seen over the past several months, whenever there is an expectation that the Fed is reaching its peak, and by the way, the difference between 5% and 5.25%, we're getting closer. We're almost there regardless. That means that there are going to be days, moments, where we see big up days in U.S. equity. And so staying invested in those more resilient names and resilient sectors of the economy, we view as being very important to success in this next quarter.

Oh, I find it peculiar that you say that, the resilient names. Anastasia, because one thing that's jumped out is the fact that last year's losers are thus far, at least in the early part of the year, clearly, winners, having a pretty good go of it. Are those not the names to stay with because they have been anything but resilient of late? I think there is some rotation that's happening in the markets and there may be some rotation that has to happen in portfolios. First of all, to agree with Brandon and Lauren, I do think that we're approaching the end of the tightening cycle and that is ultimately a very, very good thing. But that also means that investors right now have this luxury of where they can be defensive and they can earn the yield. But at the same time, they should also think about

being opportunistic. If we're, in fact, approaching the end of the tightening cycle and if we are about to have a soft landing, then chances are the valuations that you're seeing now and, you know, maybe a little bit lower over the next few months, those are going to be pretty good opportunities and pretty big bargains. So I do think, Scott, that some of the sectors that have been hit the most, you know, whether it's semiconductors, whether it's software, whether some of the, you know, real estate, I think you want to add that to your portfolio throughout this year. Don't do it all at once, but commit to an approach, a method, and be deliberate about it. And I think if you do that over the course

of this year and perhaps the first half, you will pick up some pretty good valuations along the way. Bryn, what about this idea, losers to winners? Does that have staying power? Is that just a reversion of the mean, a head fake? We're going to revert back to what we know is going to work, at least what we think so? It's a gravitational pull to the 200-day moving average of the NASDAQ. I mean, we still have about 5% to go on the upside until the NASDAQ touches that 200-day. So I think that's what you're seeing. The S&P hit it today at that 4,000. I think the NASDAQ probably follows through. Earnings for tech companies are probably a couple, I think they're a couple weeks out. And so I think that's really going to be the test, Scott, is can we break through that really bright Sharpie line

of the 200-day for the NASDAQ? Because tech is still such a big part of the S&P. If Apple and the big names come out and the market doesn't like what they have to say, we're going to be, go right back down all over again. Yeah, that's for certain. Lauren, 5% in a week as I look at it for the NASDAQ. And the that's that's for certain. Lauren, 5 percent in a week as I look at it for the Nasdaq and the Russell's even stronger than that. But what about this idea of putting money now in tech? Because clearly some people are. That is not a strategy that we're condoning or using in our portfolios. And the reason why we're seeing, I believe, so much lift in cyclical sectors of the economy, duration sensitive sectors of the economy, duration-sensitive sectors of the economy, is that the market has embraced a soft landing narrative, the Fed is

almost done narrative. And as we look later in the year and think about historical experience, that's not unusual. Typically, we don't see the majority of earnings revisions downward until we're already inching into recession. We also historically tend to see nonfarm payrolls still growing until right about the time that we head into recession. And so while I do see reasons why the market prevailing narrative is supportive of growth names, when I look ahead, I see two years of strong earnings pulling forward, perhaps 10 years worth of earnings in some of these sectors because of the changes we've seen in the pandemic. And not liable to be able to maintain that earnings growth as the economy slows.

So we're focusing much more on income generating names and on value names. So one of those income generating places to look, utilities, you don't think they're too expensive now? Sometimes things are expensive for a reason. And I do see durability in defensive sectors, not all defensive sectors, but utilities is one of them, in part because of the income that they generate for a portfolio and the low revenue variability that we see out of utilities names. again, so important in a time when there's so much uncertainty about the path of the economy ahead. Anastasia, small caps, back to those. You believe the hype? Because I have more people coming on the programs these days suggesting small and mid cap is where you want to be.

I mean, I don't know if I ever did. I mean, yes, they are cheap, but they're also going to be some of the companies that are more sensitive to the economic cycle. And I just don't know if that's where you want to be at this part of the economic cycle. So I would find better value elsewhere. I mean, you know, to pick up on what Lauren said, I actually do find value in parts of the technology sector. Look, there's been a massive reset in valuations. And I agree that some of the companies have pulled forward a lot of the growth they borrowed from prior years. And that's likely not to be repeatable. Some of the

companies have banked on multiple expansion and we can't bank on that going forward. So those are not the tech names that I'm talking about. But if you have a software name or, for example, the software index that went from trading at 20 times enterprise value, you know, times revenue to now trading at 5.5 times. That's a huge reset in valuations. A lot of the software names have very attractive cash flows and they're growing those cash flows. If you look at semiconductors, massive correction in valuation and also massive just correction period. And at the same time, if China picks up this year and maybe if we do manage to softland the economy, I think that space can do better as well. So that's where I would be finding value. All right. You know, go ahead. Finish your thought. Finish your thought. Just a quick thought.

You pick up utilities. You know, I do think that some of those sectors are expensive and maybe they are subject to a rotation. But I want to go back to fixed income, right? If we think that rates may be close to peaking and you can get 5% or 6% in investment grade corporates, that's great value for investors. Yeah. So Bryn, lastly to you, where Santoli left off before the handover to our show, the VIX, does it make you want to relax or run from this market? Barely at 18. I mean, this time last year, you'd be running right that 20 to 34. So let's see what happens next week. But right now, I think if you're going to play the VIX, I would stick with what happened, what worked in 2022. And you'd be fading the signal here.

All right, guys, you'd be fading equities if you're going to follow the VIX right now. All right. Have a great long weekend, everybody. See everybody soon. Anastasia, Lauren and of course, Brennan. We'll see you back in a bit for some halftime overtime. Let's get to our Twitter question of the day. We want to know, was this a week? Was this week a turning point for investors and has the risk reward improved? We want to know what you think. Head to at CNBC Overtime on Twitter. Cast your vote. We share the results coming up a little later in the hour. We're just getting started, though, here in overtime. Up next, five star stock picks. Top fund manager Kevin Simpson, he is back. He is making some new moves in his portfolio. We'll tell you all about that, including a tech stock he is ditching and an energy name he is adding in a big way. That is next. Later,

more on Tesla's tumble. Bryn Talkington, as we said, coming back with some HTOT. She owns that stock. We'll get her take on that sell off. We're back right here. Two minutes. We are back in overtime. The major averages notching their second straight positive week with the Nasdaq up nearly six percent to start this year. But our next guest believes the market's newfound optimism on the back of December's inflation report might be premature. Let's bring in Kevin Simpson of Capital Wealth Planning. It's good to see you again. So you're not you're not swayed by this early year move, this drop in inflation again, because the feels to me like the tone of this market has suddenly changed a bit. Yeah, absolutely, Scott. And that's the beautiful thing about stock markets.

They can get a life of their own and run on momentum, which I think we're seeing here this week and out of the gate, which is wonderful. I mean, the service PMI number was good. CPI was good. You know, everything we wanted to see. Wage prices were coming down. That's not going to cause the Fed to stop raising rates. They're still going to raise rates at the next meeting. It's not going to accelerate a pivot because we're so far away from it. So as good as this week has been, as good as the start to the year for two weeks have been, I just think we may want to temper a little bit of that enthusiasm and just slow the roll a little bit here. What if we think that a pause is coming? Forget the pivot. And maybe the pause is a pivot, right? You get 25 next meeting, you get 25 after that,

and because inflation is doing what it is, and some would suggest it's falling even faster than the Fed would acknowledge or is showing up in the actual CPI data, that that's good enough, that a pause is good enough. So let's play that scenario out, because I think that can happen. I think we could have two more 25 basis point hikes

and certainly a pause, but we're going to stay data dependent. This Fed last year absolutely was data dependent. You know, they told us maybe there'd be two rate hikes in 2022. But when they saw CPI going up like crazy, they reacted to it. Now rates are at 4.6, which is a lot higher than they thought. What they're telling us they're going to do now is they're going to run this thing up over 5%, 5.25%. And they're going to keep it there for a long time.

Well, the good news is that the data dependency will still be a reality in 2023. So I definitely see a scenario where that could play out, where you're getting the pause that we're looking for. But a pause isn't a pivot. A pause is good. It's exciting. But if they're wrong and they have to reignite the engine, we're back in that pickle of inflation. A pivot is when they push us too far. Maybe we go into that probable recession and they've got to be accommodative to help get us out of it. And the bond market is saying that

will happen this year. The Fed's saying it's going to happen next year. You know, we'll see who's right. So I think the last time we spoke and I'm trying to remember correctly and you correct me if I'm wrong, I think you told me you have about 13 percent cash, which is much higher than you you normally would. Is that true? And are you swayed at all to start putting some of that money back into stocks? Yeah, we have 11 percent, Scott. So we have been nuancing back into the markets, but we're always doing something. And I think this is a great lesson that investors can learn from us, which is it's all nuance and risk risk management. So on Friday of last week, we trimmed our Merck position. It's one

of our favorite stocks. We love health care, but it's been doing so well that we took some profit there. We still own five percent, but we allocated some of that money into Amgen. We actually bought some Apple last Friday at one twenty six. Your memory is better than mine. You remember a couple of months ago, we were selling it at 157 and 160. So it felt good to pick up a little bit more here at 126. We're using this opportunity to write covered calls. We've got seven options written on the portfolio. We're bringing in great premiums. We added a little bit to Nucor this week. So even yesterday, we added to Schlumberger. So there's opportunities here, but we're just being really careful. We're remaining defensive, kind of keeping on the belt and the suspenders. All right. You just rattled off a bunch of names. I want to go one

by one for a change for right now. Apple, all right. Apple 126, you picked it up. I mean, here we are at 134. We're a few weeks ahead of earnings for Apple. I mean, what do you really think about this stock's direction in the next, let's call it, couple months? Yeah, well, lower. I mean, for the next couple months, it's going to be tough. I think the markets are going to be down, but I want to keep picking it up on that weakness. We like the stock. The multiple is still a little bit higher on Apple than they are on some of our other names.

But I wouldn't look at this as a new trajectory into Apple hitting a new stratosphere. But we have 2 percent position now. We're just slowly building it, building it on pullbacks. We'll continue to do it. The best thing about my thesis is if I'm wrong, you know, we're equity investors, we're active managers. We benefit from all of these markets in these days that go up. But I'd still look at it the way I'm doing it, a nuanced, slow and careful way. And what about this SLB move? You mentioned a slumber jam.

Looking at it here, 58. That's where you bought more. And it's become a fairly sizable position. I mean, where energy once was in terms of the S&P 3%. It's obviously bigger than that now. But why increase the size of that stake? So we bought more yesterday at 58. Our average cost now is 53.

That dividend raised last time at a pretty good clip. And I'm expecting for the service sector in 2023 to be very, very profitable. And I'm really looking for this company to just dial up that dividend. You know, everything we're doing is cash on cash distributions to shareholders. We love dividends. We love special dividends and we love companies that increase their dividend. Schlumberger is definitely a stock that's doing that. We have it at a three percent position now, Scott. Five percent is kind of where we cap out. So on any pullbacks, you know, we'll continue to add to it. But I like the service sector now specifically within energy. And yeah, it's been on fire, hasn't it?

You see, it has obviously been a huge winner last year, the only sector in the green. UnitedHealth, you sold calls against a position. I mean, I know you like the stock. Was that to try and protect yourself ahead of earnings? Yeah, absolutely. You know, we set the bar so low every quarter for every company so that we can surpass it. But you want to look at this earnings season with a little bit of a more careful eye than usual. And it might not even just be the earnings that we're seeing reported, but more so the forecasting moving forward. So we love health care. It's one of our favorite stocks. We probably own this name for 10 years. We're going to continue to own it.

But writing a covered call on it brought in a 7% annualized premium just for a couple of weeks. And we still have 7% upside capture it expires on the twentieth so. It's it's it's maybe just a few sessions on the option trade but when you can bring in a 7% premium writing calls on top of the dividends that you're collecting you're so much the heavy lifting is already done. I'm thinking of Microsoft to because yesterday you sold calls against that what's the expiration on that I have? I have an obvious thought that it's around the earnings as well. Yeah, same thing. So February 3rd, the option expires. We have 10 percent upside capture. So if the market goes up another 10 percent from here, we're participating in it. And the annualized premium is 10 percent as well. So

we've got really good income and we've got good upside capture. And, you know, if the stock goes up 11 percent by February 3rd, you can have it. We'll buy it again cheaper. All right, Kev, we'll see you soon. Enjoy the long weekend. That's Kevin Simpson, Capital Wealth Planning. We'll talk to you again soon. It's time for a CNBC News update now with Frank Holland. Hey, Frank. Well, there's Scott. Here's what's happening at this hour. The White House's top covid scientist is now stepping down. David Kessler helped coordinate the distribution of vaccines in efforts to convince Americans to get their shots, a program that began as Operation Warp Speed.

Kessler may be better known for trying to regulate cigarettes during the 1990s when he was the head of the FDA. Well, rescuers are still looking for survivors from deadly storms that tore through Alabama and Georgia. The region around Selma, Alabama, suffered some of the worst damage, including seven of the nine deaths reported. Uprooted trees were sent crashing into buildings. Thousands are still without power.

And in Buffalo, New York, a hero who helped rescue 24 people during December's deadly snowstorm is now being honored by the city's football team. Jay Withee broke into a high school and he led stranded drivers to safety, saving them from freezing inside of their cars. Now he's going to the Super Bowl thanks to the Buffalo Bills and Highmark Blue Cross Blue Shield. Bills legend Thurman Thomas surprised Withee at work with tickets and a big thanks from the city. A real hero. We need more people like that. And then he's going to be at the Super Bowl to see the Eagles win the Lombardis. So a really great opportunity for him, Scott. Probably going to say something like that. I was going to say

when the Bills hoped that they're going to be there, too, without buying tickets. So we'll see. Maybe it'll be a Bills-Eagles Super Bowl, Frank. We'll have to wait and see. Fingers crossed, but Eagles still win. Yeah. Floor manager over here is a Cowboy fan. He chuckled. Yeah, terrible. He was a nervous chuckle when he did that. I heard it. Up next, your recession playbook. Our next guest bracing for a big downturn. We'll find out how he is hedging those risks over time. Right back. Well, from the perspective of long term investors, I see 2023 to be enormously opportunistic. Actually, maybe the hardest years for investing for the long term were the last few years because of negative interest rates. Well, you heard the words enormously opportunistic.

That from BlackRock CEO Larry Fink on CNBC earlier today. Well, my next guest is taking a opposite approach, decidedly opposite. He's hunkering down for the year ahead. Let's bring in Sebastian Page, T. Rowe price head of global multi asset and the chief investment officer. Well, I mean, you guys couldn't be more opposed. What what Mr. Fink had to say. And when I when I look at your positioning, wow, you're underweight stocks, your neutral bonds and your long cash. What's coming this way? Look, we're playing defense for sure. We're still diversified between stocks and bonds. I wouldn't

argue to go all in cash. In fact, I wouldn't argue to do that in any market environment. But look, Scott, the yield curve's inverted. PMIs are dropping like a stone. Recession risk is there. It's rising. We have to deal with the lagged effects of Fed tightening. We're predicting a drop of about 7% in house prices for this year. So there are reasons to play defense. Now, I got to say, though,

the nature of defense is going to be different in 2023 versus 2022. I do think bonds have a role to play in defense in 2023 because we're more worried about a growth shock than a rate shock. I mean, there are some who would suggest that bonds not only have a role to play, that they have a starring role. They're not a supporting actor. They're the lead. Right. That's one thing that Gundlach said earlier this week. Forget 60-40. Go 40-60. Yeah, well said on bonds. The role of bonds right now is more important than it has been in many, many, many years in the portfolio. Look, here's one way to think about this. Stocks, relative to rates, right now are actually more expensive than they were before the 2022 sell-off. So that's if you compare, say, the earnings yield

on stocks, which has gone up, right, by about 100 basis points because the price earnings ratio has gone down. But the yield in a 10-year has gone up by 180 basis points. So there are reasons to play defense. I'm not an uber bear. I know, Scott, we're trying to say like completely opposite view of your previous guess. It's more subtle than that. We're actually playing offense under the hood. No, we are positioned mainly for defense. I hear you, of course. But when you are underweight stocks, neutral bonds and long cash, I mean, it projects a fair amount of negativity towards your current view, at least to the market. Is that because you believe the Fed? Right. We do have this battle right now. And I think that's the conversation in the market is the bond market

versus the Fed. And, you know, people thinking that the bond market's going to win, some suggesting, including the Fed, that it's going to win. You must be siding with the Fed. Look, the Fed's tightening has been so drastic at 450 basis points in 10 months. A lot of that shock is already priced in, right? We've had the rate shock now. Rate volatility will remain high. But yes, I go back to the lagged effects of Fed tightening on the economy. And I give you the example of housing prices, which, by the way, are dropping, have dropped, even though your

CPI print is showing shelter inflation going up. That's just because of the lag. Right. Our models are showing like if you look at the houses that are listed on Redfin for sale, like sitting on the markets and you build a model off of that, it it'll it'll predict a drop of seven percent. That's not small for the housing market in the U.S. Of course not. But but I would, I guess, counter by saying, well, of course, the real estate market is going to be the most hard hit by what's happened. And that's not even that much of a lag effect. It's been immediate and dramatic because of the move higher in rates and what it's done to mortgage rates. But other parts of the economy are, I think we would both agree, surprising in their resiliency, no?

Yeah, I'll concede that absolutely. Consumer is strong. Leverage is low. Expected default rates on high yield are very contained compared to pre-recession environments. If you look at the employment picture, you know, the employment picture is remarkably strong. It's not even flashing pre-recession. But just go back to the PMI, look at the trend. Like they're dropping like a rock. The trend is not your friend here. And the probability of recessions have come down in Europe, but they're still above 70% in my mind. And they're above 60% in the US. And so that's where we are. You know, we got to play defense. And I don't like I'm a reluctant bear. I don't like to play defense like this because I'm a long term asset allocator and I like to be invested. And I do think we should

all be diversified. But, you know, play defense as you get into 2023. Right now, the bullish narrative is running. It's running a bit hot in my mind. We'll check back with you. I enjoyed our conversation. I hope we do it again. Sebastian, thanks. Thank you. All right. Be well. Sebastian Page, T. Rowe Price. Coming up, auto stocks hitting the skids as Tesla slashes prices. Bryn Talkington back. She owns Tesla. We're going to get her take on today's sellftime overtime, pricing problems. Tesla closing lower today, dragging down the other major automakers, too, after another round of price cuts in the U.S. and Europe.

But despite the decline in General Motors today, Serity Partners' Jim Labenthal staying bullish on that name. He says he'd be a buyer on the dip. I believe more in GM because of the things besides internal combustion engines they've going on. The Ultium platform is very important. What they're doing with bright drop fans and then the cruise autonomous vehicle unit. There's a lot of things to like at GM. All right. So says Jim Labenthal, Brent Talkington. She's right there. She actually sold GM at the end of 2022 and bought Tesla with that money. And she's back with us now. OK, so what do you make of this move?

Right. The cutting prices yet again. And it dragged on the whole space today. Well, I think, you know, Elon Musk has been clear. He said a few weeks ago on Twitter spaces that they're going to focus more on volume than margins. I think this he's doing the right thing at the right time. It's like he's concerned we're going to go into a recession or a slowdown. And so he's using those levers to cut prices. So then you now have the Model 3 and Y that can qualify for the tax credits. He did the same thing in China.

China's incredibly important. 60% of global EV sales are in China. And so I think when you look at today, when we closed, Tesla was down less than 1%. Ford and GM were down close to 5%. And the reason I think is that all of a sudden, Tesla becomes more competitive. I mean, in Q4, Tesla sold over 400,000 cars. Last year, GM sold like thirty thirty three thousand, thirty four thousand EVs and they're losing money. They're going to lose money. And so if you want to buy a company, which I did, that has earnings, cash flow, can start buybacks, has so many levers. I just think that at this price here, you know, Tesla is going to have to bottom out for a while.

I think I prefer it handsomely over over GM, which still is going to lose money for years on all of those innovative things that, you know, Jim was talking about. Stocks obviously had a nice move to start the year. I mean, at least a bounce back from the depths of where it was. Right. I'm looking at the low one oh one thought thought it might break one hundred didn't one twenty two is where it's rebounded, though. What makes you think this is anything other than, you know, the so-called bombed out names that got crushed last year? Just getting some love to start this one. I think Tesla is unique in that in September it was at 300. And then to your point, it got as low as 100, you know, just just a few weeks ago.

And that was really surrounding Twitter, in my opinion, was around Twitter. And so I think that if you look at netflix last year had a very similar move it bottomed at 200 and then investors need to realize stocks go down on an elevator and they move back up on an escalator and so i felt comfortable doing buying tesla at 120 as i told you i sold the 150 calls and collected 10 so in essence my cost basis is 110. I would find it highly probable that Tesla, like a Netflix, take some time to find its bottom and then slowly move back up. But I think with a company that's trading now in a 20 multiple, that's going to be in Europe, China, and in the US, clicking on all cylinders, I want to own this company for the next

few years. So I think it was a good entry point, especially selling GM, which they are losing money, by the way, on all the innovative spaces that that people want to invest in them for long term. So you intend on being a, you know, not a fly by night shareholder here that you could be in this name for a couple of years. Well, I would like to. Right. So at the same time, I would like to, but I did sell the 150 April calls. So what that means in April, I think April 20th, if it's at 150, that stock's going to get called away from me. So I will see what happens. I'm in that trade only with covered calls. I mean, with the stock and sold calls, I would like to be in the name long term. If it's sold off, I would be inclined to buy some more of the stock and then not sell calls against it so I could own it long term if it starts to move back higher meaningfully.

Bryn, we'll see you soon. Thank you again for sticking around. That's Bryn Talkington. In halftime overtime, we are wrapping up a big week for your money. Christina Partsenevelos is standing by with our Friday Rapid Recap. Christina. Well, the Nasdaq 100 had its longest winning streak since November 2021, while the S&P was oh so close to 4000 points today. Talk about a rebound. And why? Why is the number 19 so special for two major assets?

I'll explain after this break. We are wrapping up another busy week on Wall Street, looking ahead to another. Christina Parts and Nevelos back with our rapid recap. Hello. Hello. It looked like it was going to be a red day, but indices all closed higher today and on the week, pushed higher by the notion that inflation might be tapering off. Discretionary and tech were the biggest sector winners this week, driven by cruise lines.

Norwegian, for example, up almost 20 percent. Royal Caribbean over 15 percent. A lot of that was driven by China's reopening. And you had some bullish notes, too, from analysts on travel like Expedia. Amazon, though, was another big winner this week, driven by the expansion of its Buy with Prime program for merchants. You can see it close up 14 percent on the week, over 3 percent today. And then Staples was the worst sector, with names like McCormick and J.M. Smucker down over 5%. And that's as investors moved into more risk on assets. Today, we did get a batch of bank earnings, many putting aside more money for bad loans.

But it's got no repeat of the hurricane comments about the economy from J.P. Morgan's Jamie Dimon this time around. Bank ETFs had their fourth straight week of gains. And 19, that special number, did you guess what I meant? Gold crossed the $1,900 threshold for the first time since April, while Bitcoin crossed $19,000. It's at $19,000, $19,800, the best week since July 21st. There was my theme there, my connection. All right. We like it. We like it. Thank you. That's Christina Partsinevelos. All right. Up next, Santoli has his last word. We'll get his key takeaways as earnings season gets underway in a big way. OT is back after this. It is the last call to weigh in on our Twitter question of the week.

We want to know if this week marked a turning point for investors and has the risk reward improved. You can head to at CNBC Overtime, cast your vote. We'll bring you those results. Plus, Santoli's last word is next. All right. So the results of our Twitter question, we asked, did this week mark a turning point? Has the risk reward for you improved? The majority of you saying yes, in fact, near 57 percent. Mike Santoli joins us now for his last word. I mean, the tone has changed. It feels like we fought back pretty well today.

Yeah, there's no doubt the market action this year. I mean, it's only been, what, nine trading days. It's been really tough to quibble with in terms of the character of it, the fact that you had dips being bought. It has been a broad rally. It's been triggering some signals that suggest the market is on firmer footing. Clearly, we've gotten greater comfort that inflation is pretty solidly on the downswing. Now, that being said, it's three months ago today was the low of this bear market, right? It was October 13th, that intraday morning low

on a bad CPI number. And you're up 14, 15% in the S&P since then, right? So the question of has the risk-reward gotten better after a 14% move is exactly the way the market goes because we sort of are never convinced that each rally is more than just a reflex bounce until it carries on to a certain degree. And I think we are right now at that sort of fulcrum point of trying to figure out if the market has more than just this in it. These markets are funny. You know, it feels like there's, you know, someone behind the curtain.

Nope. Thirty nine ninety nine. That's where we're going to stop today. We're not going to get to four thousand. Well, exactly. I think it sort of gets to a point where it could sort of maximize the uncertainty on either side of the trade. And it's it's not purely either manipulated or random. It is because of you have people willing to allow the market to get to a certain point. And that's where the buyers sort of back off and the sellers are not yet getting too aggressive. We are also at that longer term moving average. So, yeah, we're at this this nice spot right here during earnings season. And what happens during earnings season? You have a lot of company by company movement back and forth, cross currents.

The index usually doesn't necessarily get whipped around by the results because you have offsets. So maybe it's just the volatility index going to a new like 12 and a half month low is essentially telling you that or 12 month low is sort of saying, you know, maybe we have a moment of stability here because we're going to get into micro versus macro. We're a couple of weeks away from the Fed. Earnings are going to get real, too. And I'm thinking of like Netflix. You know, you've used the term bombed out for some of the losers of last year that have had a nice little run here. And, you know, this is going to be a good test this week. Right. A good test of whether it was more than just pure kind of mean reversion and snapbacks

and the typical kind of seller's vacuum that meets a new year in some of the more punished stocks. So, yeah, that'll be absolutely interesting. And if they're going to respond to fundamentals or if we're just talking about flows and risk appetites and animal spirits as we make our way through the first month. Yeah, probably the latter. But we shall see. That's what makes the markets interesting. Have a good long weekend. We'll see on the other side of that. All right. You too. All right. All of you as well. Fast money begins now.