Closing Bell - Closing Bell Overtime: Year-End Rally in Jeopardy? 11/28/22

Episode Date: November 28, 2022

Stocks seeing a big slide as protests in China over COVID-19 lockdowns bring risks back into focus. So, does it doom a late year rally? Trivariate’s Adam Parker gives his forecast. Plus, the social soap opera that is Twitter took another dramatic turn today as Elon Musk takes aim at Apple over its advertising platform. Platformer’s Casey Newton and Big Technology’s Alex Kantrowitz weigh in. And, top retail analyst Matthew Boss breaks down the stocks he thinks will win the holiday season.

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 for post-nine here at the New York Stock Exchange. Coming up in just a little bit, Elon versus Apple. We've got the latest on Musk's mid-afternoon tweet storm and what the Twitter boss is accusing the company and its CEO of doing. Casey and Alex, you know who they are. They're back with us as the social soap opera takes yet another turn. We begin, though, with our talk of the tape. The big slide in stocks today, protests in China over COVID lockdowns, bringing those risks back into focus.

So does it doom a late-year rally? Let's ask Adam Parker. He's the CEO and founder of Trivariate Research here with me on set. I mean, is this—good to see you, by the way. Good to see you. And I hope you had a nice Thanksgiving. Is this China today or a bit of a reality check also that we just got a lot of stuff to deal with before we can think stocks can put anything real together? I think it's a little bit of the latter, right?

I mean, you had a pretty big risk on trade. Market was up 12 percent quarter to date. You know, you had financial conditions loosening some. And yet somehow at the same time, the curve got even more inverted. It's hard for those of us who have been doing this for a while to think an increasingly inverted curve also means everything's awesome. So you get a little bit of a scare in China or a slowdown. I can see people wanting to sell some of the big rally. Yeah. I think it's logical. Most of America was watching football yesterday afternoon. You were sending out research. Inverted yield curve, yeah. Of which you said, quote, the risk on trade's gone too far. I mean, you obviously pointed out the biggest inversion of the yield curve in some 40 years. Right. But the bottom line is you just think the rally went too far. Yeah, I mean, look,

I don't know if the next 10% moves up or down, I could say there's some positives. The public market looks cheaper than the private market. The small cap universe is at 10 times. It's not like things are crazy, excessively valued in equities all over the place. But there's some real reasons to be cautious. The market's rallied a lot this quarter. And there's some concerns that things are going to slow. So I think it's kind of balanced risk reward. And I think there was an excuse with maybe some China slowdown fears for people to collect little profits that they made

in the quarter so far. And see, look, I don't want to downplay what's happening in China at all as having an impact potentially on what we're seeing in the stock market. But really, in the big picture sense, how much does it matter? I think it's bullish for energy. You know that I love energy. And I don't know, 26 times in a row. Why is oil down? Well, what I think ultimately is if China can reopen, like you're looking at oil where it is now without like an incremental demand story from China. So if this is, you know, there's some rumors out or some stories out that maybe by, you know, the early spring, you could kind of get a little bit more relaxed on COVID. You could see sort of a pickup in oil demand.

As you know, that market's so thin, you get another million barrels of demand and we could have incrementally higher oil. So I'm just thinking about medium to long term. If we had this high of an oil environment without a big participation in China, maybe that's kind of an upside scenario in a six, 12 month view. But you're assuming that the protests lead to some sort of meaningful change to a policy? First time I've seen today a story that, you know, maybe they're sort of leaning toward relaxing a little by early spring. I mean, there's, you know, so I hadn't seen anything other than hardline stories on that topic.

So, look, I'm not making a China reopening call. I'm just saying when I look at what's in the prices, I think maybe incremental demand there could be sort of bullish for the demand supply imbalance that's been around and will be around for a decade in energy. I mean, there are important areas of the market that are obviously impacted, right? We saw Apple today seems to be the biggest one, at least, you know, the headline makers. We watched that. But it's metals, it's mining. When you worry about global demand, it's your old stomping grounds, the semiconductors. But a lot of that stuff was, you know, again, 20% plus up quarter to date. So it's a little bit of a what do I sell when I get a little nervous?

The stuff that went up the most that maybe you want to. We talked about it right after. It's funny because Jonathan Krinsky, BTIG, right, I have him on the halftime show a lot. He put out a note suggesting that the chips have gone way too far, and they are so set up for a reversion. Do you agree with that? Everybody I know, and this makes me worried, has some sort of triple-breaking putt call.

You know, I mentioned that in the note. It's going to go up near term, and then it's going to go down median term, and then it's going to go up. And I'm not even good enough to make the first direction of the putt. Forget all three. Like, you can't see all three and get them all correctly. There's such an arrogance in getting that right. So I don't even try. I don't really know. I think if you want to invest now, it's got to be something you believe such an arrogance in getting that right. So I don't even try. I don't really know.

I think if you want to invest now, it's got to be something you believe will be there in the long term. I think some of the quality semis will, but I can't make the up-down, up-call. I just think right now we've gone too far. It makes sense to take a little risk off just because you can't have an increasingly inverted curve

and looser financial conditions at the same time for a sustainable period. That's just illogical. Explain this language from your note. Your ability to pick winners from losers should improve with dispersed valuations. This means either increase your position sizes and begin to run slightly less diversified and or increase your gross exposure. Can you explain that to people?

Yeah, I love you reading Trivair Research on there. I appreciate that. I was reading it today, believe me. I wasn't taken away from the football to watch. I love you reading Trivair Research on there. I appreciate that. I was reading it today, believe me. I wasn't taken away from the football to watch. I love it. Look, what we're telling people is just because you get a little more cautious on the market, maybe you want to take your net exposure down, doesn't mean that your ability to pick winners from losers is going to be impaired.

It might be a better stock picking environment now because you actually have to produce fundamentals that beat a slowing economy. So I actually think we came through a period where it was risk on and kind of everything worked. The low-quality companies did just as well as the high-quality. Everyone thought they were hiding, and it didn't really help. Now I think as we kind of get a slowly unfolding and eroding economy, a slowing consumer, et cetera, I might be able to pick winners from losers better. So it's a little bit of saying I had to run, you know, diversified.

Now I can maybe run a little more concentrated, make my bets where the fundamentals are there. So it's we call it, you know, low net, high gross. I mean, I can maybe take up my position size a little here. And maybe that's a little counter to to some people. They think I want to get a little more negative. I sell everything. Oh, you can maybe make your bets that make sense and make them bigger now, because if you're right on the fundamentals, you'll probably get paid in that six, 12 month view. Six plus minutes in, we haven't even mentioned the Fed. Is that because we know what's coming? I mean, Powell speaks on Wednesday. It's likely his last commentary. Well, not likely. I think it is his last commentary before the meeting because of the

blackout period. But are we in a good place at this point with knowing what's coming or what? I mean, I don't know. It's the definition thing over there they're going to be hawkish i don't i don't i get we get a cpi 30 bps light and we get every you know dovish thing going up 15 percent for in 15 minutes but there's no way he's going to get dovish uh and you can see dovish language in the near term in my view so we had a fake dovish rally, but we're not going to get, you know, we're pivoting here and we're slowing. There's just too many places where they've got to try to control inflation and get people believing they're on a path toward four or five on the CPI. So I would be surprised if they got dovish. Let's welcome in our other guests

today. Kristen Bitterly of Citi Global and Nicole Webb of Wealth Enhancement Group. Both are here on set with us. Ladies, it's great to have you as part of this conversation. So what do you think about what lies ahead for the final five weeks of the year? Are we dead in the water here? Do we have a chance? Look, we're defensively positioned, and we have been for the past couple of months. We're overweight fixed income, quality fixed income, not stretching on the credit side. And we have exposure in equities, but we have exposure in those areas, the sectors that have been able to consistently grow their earnings throughout recessions. I think that there's just too many catalysts to really go in and call either a bottom because, as you were mentioning earlier,

equity markets have never bottomed before a recession has actually begun. So if you are in the camp that all of this tightening, of which we haven't actually seen the full impact, is going to lead to a recession in Q1, Q2 of next year, then here it's good to play a little bit of defense. It would be strange to try and call a bottom before you even know if we're going into a recession or not. Exactly, exactly. And when we look at the types of drawdowns that we've seen

in bear markets that are recessionary bear markets, they're actually in excess of 30 percent. And so I think what the market right now is trying to grapple with is we have some really important data points. I think the action that we're seeing today is we have a number of things that are going to happen just this week which are going to reinforce some of the hawkish positioning which is in line. The Fed has told us what they're going to do, and they've told us numerous times.

So to believe anything in contrary at this moment in time that there's going to be a pivot, we just don't buy it. Yeah. We'll see, Nicole. She makes a lot of sense. I mean, invite her back more often. I mean, I think I agreed with everything you said. That never happens.

I think the point being, Nicole, it's hard to argue in anything but defensive sort of case or posture for all of the reasons that Kristen and Adam suggested, right? Absolutely. I think the one the one thing that we think may happen would be this validity pop, this validation of the Fed moving 50 basis points in December, truly, you know, showcasing or bringing light to this tapered down and the reality of it. Does that mean we don't believe there will be a revision to earnings, that there might even be some earnings shock come Q1, Q2 of next year? No. But through end of the year, could we squeak up those last 2.5% to 4,100? hundred it's possible does that change our long-term outlook absolutely not uh... the treasury market is screaming recession and and and we're not we're not fighting that right away well look i

mean an inverted yield curve doesn't always lead to a recession let's just make that clear the forefront now the problem is you've never had a recession without an inverted yield curve so it it works both ways but you gotta be a little bit careful to think that it's a foregone conclusion that we're going to have a recession. We started out at a very high base. That's why the economy is holding on now the way it is, no? Yeah, I agree. The nominal GDP is super high.

So maybe we don't have a great historical analog. Our work shows there's been five times in the last century where you were inverted for more than a year. So the 2-5-10 inversion started July 1, the 2-10 April 1. So we're somewhere four or five to eight months into this inversion. It looks like it's going to last for a while. And if you look at those five, it was really just 2008 and the 30s. So we don't really have a perfect analog to study and say, hey, this is exactly what's going to unfold in this sustained inverted yield curve environment.

I don't really know, but it's hard for me to think that as I increase the probability of a near-term recession, I should get more excited about buying risky assets. I just wonder, Chris, based on what you said, whether now I should think that we're going to be in no man's land for six to 12 months, because we can't call a bottom until we know whether the economy is bottomed. That's I mean, then that's the call that we're going to see volatility. I think there's a number of other signs, though, in addition to the yield curve inversion. So the data is about 90 percent of those observations that where we saw the yield curve inverted. And by the way, 75 basis points

and on a forward basis, over 100 basis points is actually pretty extreme. But when you look at the money supply, that's another thing that is showing us that the economy is slowing down. We saw 28 percent growth at the beginning of last year. This year, it's 2 percent. And if you look since March of 22, it's actually declining. So we have money supply declining. While that's good for inflation, it's actually really bad for growth. And the last point that I have to bring into the conversation is just the housing market and home sale declines. We're seeing over 40 percent declines in new home sales. Resales are declining by 33 percent.

And what is that going to do? We're going to see the layoffs in residential construction that haven't even begun yet. with the lag that everybody talks about, obviously, Nicole, with what the Fed has already done, is first going to show up in the places that are the most rate sensitive that we have, obviously housing. The question is, can the rest of the economy pick up where housing is going to drop off and save us in some respects from having a full blown recession? You may have a recession in housing and you probably will, but that doesn't necessarily mean you have to have it everywhere else, does it? I actually don't think so. I don't see this. So there are certain indicators that, yes, are screaming recession, but there's also other indicators to us when we look at the credit market, when we know the amount of liquidity that the Fed can pump

into the market. You know, we just see dampened growth, but perhaps not this full blown catastrophic profits recession with earning shock all over the place. So while I think the housing market matters, is it something that we're hanging our hat on independently? No, because we do see strength and resilience in industrial development, other pockets where we see undervalue and opportunity for onshoring and investing in the U.S. Where is it safe to go swimming in this market ocean now?

Well, I just I agree with that point. I think just finishing that thought is I just don't think this is going to be V-shaped. All of us have gotten used to crash, fiscal monetary stimulus, V-shaped recovery. And this one just feels like we talked about it a lot. Maybe 2024 is kind of flattish with 23 and it's a high nominal GDP, and it just kind of slows as opposed to like cratering and then massively recovering. So I think when I think about investing, it's got to be what can I underwrite that's going to probably grow and have 2024 fundamentals above 2022 and 23 with confidence. Or it's just so

cheap that balance sheet repair will happen in the interim. So I'm back to energy. I do think even if there's a bit of a fear, some of these things like copper and aluminum are just too cheap. Or, you know, some of the quality names, I think we've mentioned some of the, like a Visa, where, you know, their fundamentals on free cash flow and net income are going to be higher in 2024 than they were in 22. How can you confidently suggest that people buy, let's say, you know, metals-related stuff, free cash flow and net income are going to be higher in 2024 than they were in 22, almost without any kind of debate. How can you confidently suggest that people buy, let's say, metals-related stuff like a copper play when, as we already suggested, we don't really know where the economy drops?

I think it's hard because historically you would say recession, you want to sell these things. That's my point. But what's different this time, maybe, is I have very low valuation. I have improved balance sheets. I have negative estimates already embedded in the outlook. And I don't have some humongous inventory burden. There are other cyclicals where I don't want to be there despite them looking optically cheap

because I think the inventory is still a problem. The estimates really aren't that low. So maybe machinery is more important. You've got to be hedged. Even when you think about China, you don't want to have a huge risk on or risk off bet. So if you're overweight energy and materials, maybe you're underweight industrials so that you're kind of balanced on the cyclicality as you try to beat the S&P. And so that's where, you know, a lot of the strategy. What about fixed income strategy here relative to stocks?

So we're overweight fixed income, as I mentioned, but it's important to stay within quality as well. So this is we're looking at government. I mean, we've seen massive inflows into even six-month T-bills. And this is about just creating incrementally better outcomes. If you're someone who's been sitting on the sidelines in cash, how do you do that? You're not going to dive into risk assets here.

You're going to dive in something that's going to help you combat some of the impact of inflation. So whether that's governments, whether it's munis, whether it's even preferreds, preferreds are offering a pretty attractive yield. And if you talk about financials, equities versus preferreds, we're much more comfortable in preferreds. When we talk about equities, the kind of places you like right now

are what? A couple of spots. Where I believe that real return is going to come from in the coming year, you have to look for kind of your stable free cash flow, able to pay your dividend. That becomes more of kind of the opportunity set in the year ahead. But then also when we look at some of the really beat up technology names, so you look at PayPal, DoorDash, or even the likes of Airbnb. And just I do believe they will survive. Will they come back to those highs? Probably not. But is there incremental positive return there from where they're trading

today? I believe so. Retailers, you like some of them? I do. I like the excess inventory play. So when you think about your TJ Maxx, I like the stable cash flow of Costco and their membership structure. And I actually think going back to your point about kind of forward looking late 2023, 2024, Amazon, Amazon, I think, is is primed for success. It's just going to take a bit of time to get back. Yeah. We got Matthew Boss, by the way, number one rated retail analyst coming up later in the show, since we'll expand a little bit further on retail. Should you bet on the consumer here or no? In aggregate, I think it's tough. I think haven't they proved a little more resilient than people think to this point? I think it's been mixed.

Whether it's on plastic or cash? I think if you look at the volatility of consumer stock performance during the last earnings season, it was incredibly wide. There were some that were up 20% and some that were down 20%. The KPI is definitely inventory, right? And we'll see. We have a couple other big prints coming. Lulu is coming. First time in a while they're, you know, putting stuff on sale on their website for the stuff that is

gold. So we'll see. I think the consumer is slowing a little. I don't think it's, again, fall off the cliff. I think we're in some agreement, but I think you're seeing some signs of people not being able to pay their 90-day credit card delinquencies and the like. I'm sure that information is housed in the building in which you work. But, you know, so I think it's slowing. I don't think it's a crash. The thing that I noticed during earnings, Scott, is the stocks that were really cheap, they still went down a lot if they missed.

So I think the problem with consumer discretionary in particular is valuation is not protecting you in those areas. So that's why I didn't pick that as a cheap cyclical I'd go for, because I think if they miss, you're down 20 when the stock opens. Yeah, we will see. It's going to be a busy week again. Fed chair speaks on Wednesday. It's really, I think, the last time we're going to hear from Jay Powell before the meeting itself in a couple of weeks. So we got a lot to chew on and we'll see what happens in China as well. Everybody, thank you so much. Good to see you, Kristen and Adam Parker sitting here with me at Post 9. Let's get our Twitter question of the day. Now, we want to know, could the unrest in China derail a year end rally? Head to at CNBC Overtime on Twitter. Cast your vote. We'll share the results coming up a little

bit later on in the show. We're just getting started here, though, in overtime. Up next, Musk versus Cook. We got some new drama today as Twitter CEO takes aim at Apple. The details of the brewing battle and what's really at stake for these companies. And later, Wall Street's top-ranked retail analyst. As I said, Matthew Boss is going to join us. We'll get his top picks this holiday season. We are live from the New York Stock Exchange. Overtime is right back.

We are back in overtime. The social soap opera that is Twitter taking another dramatic turn today as Elon Musk takes aim at Apple over its advertising on the platform. It pits the world's richest man, the world's most valuable company against each other. Joining us now, platformer editor Casey Newton and big technology founder Alex Kantrowicz. Both, of course, are CNBC contributors, have been with us every step of this drama in which it took, as we said, another turn today. It started, Alex, today with this tweet storm, I think we can call it.

Musk said the following. Apple has mostly stopped advertising on Twitter. Do they hate free speech in America? Question mark to which you said Elon versus Apple is going to be fun to watch. A ripe target. Why so? I is going to be fun to watch, a ripe target. Why so? I think it will be fun to watch. And the thing with Apple is that if you're going to take Apple on, you have to be sizable.

They do have these high taxes in the App Store, 30 percent in some cases, of all the revenue coming in from a company. And so who's going to be able to take them on? It's not going to be the companies bringing in a million dollars or two million a year. You need someone with the size of Elon Musk to push back and say, hey, that 30 percent is unfair. The only way there's actually going to be meaningful progress there is going to be if a Twitter goes out and says, we're not paying this anymore and maybe inspires others to. And that's why I think it's going to be fun to watch. And I think it's a good target because, frankly, I don't think that 30 percent tax is a good thing for the Internet.

I should tell you also CNBC has reached out to Apple for comment. We have not heard back yet. But of course, if we do, we'll let you all know. Casey, how about that? It sounds like Alex is suggesting that he's using this beef allegedly over advertising to get at the heart of the matter, which he has a real problem with. And that is the App Store and Twitter's presence on it. Well, I don't know that that really is the heart of the matter here. What started this whole thing was Elon noticing that Apple, which has historically been Twitter's number one brand

advertiser, has mostly paused its ad spending. I'm told that in some countries, Twitter was making more money off Apple than it was making in entire countries, you know, revenue-wise. So that's what he's really mad about. I'm sure he's going to throw in the kitchen sink if he decides to escalate this view. But I'm also pretty sure he's going to find he really doesn't have very much leverage here. I mean, it's kind of an interesting strategy, right, to to take on or, you know, in some ways insult the very, you know, advertisers that you need to to be on your platform. Scott Nover of Quartz tweeted earlier, and this sort of alludes to that, Elon Musk absolutely cannot afford to pick a fight with Apple. Twitter's new owner is already

blowing up its advertising business. 92% of revenue and staying in Apple's good graces is, quote unquote, life and death for Twitter. Is that accurate? Do you agree with that? I don't agree with that. Why not? I think Scott's right. Elon's done a terrible job with the advertising business so far. I mean, there's a reason why so many advertisers have flocked away from that company. But I also dispute the idea that this is entirely about advertising. I think we see that Elon is trying to move this company from advertising to subscription. What happens when you do subscription?

You're going to come through Apple's system. And if you come through Apple's system, you're likely going to need to make those payments. So that's why I think it's more than just an advertising thing. And this isn't playing well at all on Madison Avenue. But if you're going to successfully move from advertising to subscription, you need to fight back against these App Store taxes that are going to take a good chunk of the money. Casey, is staying in Apple's good graces life and death for Twitter at this moment or not? Yes, absolutely. The iPhone is the gateway to Twitter for the vast majority of its users, certainly in the United States and maybe even in most parts of the world. So, look, I think Tim Cook and Apple will give Twitter a lot of room to run here. They're going to let Elon shoot his

mouth up on Twitter all he likes. But at the end of the day, if he really does, you know, eliminate even more content moderation than he's done so far, if he lets more of these people who've been banned back on the platform do a bunch of terrible things, then I do think Apple is going to take a look at it. And man, I would not want to try to run Twitter as a business if I were not allowed on the iPhone. What's wrong with that perspective? Don't underrate the fact that Elon Musk can win this battle. Why does Apple have that percentage priced at 30%?

That is the optimal percentage it can take from developers where they won't rebel. Now, if you have Elon Musk and you have, we already know Epic Games is in this fight. Imagine some others join in, Netflix, Spotify, others have had concerns. If all of Apple's developers say, hey, wait a second, your policies are overbearing. We're not playing ball anymore.

Then it's possible that Apple will have to make a decision to decide what's more powerful. What is the thing that people are buying for? Is it this phone or is it the apps within it? And I think that Casey's right. He's going to get a lot of latitude here because Apple doesn't want to put that to the test. Casey, what happens if these large businesses just don't want to advertise on the platform and don't come back? What are the big picture ramifications of that? We've seen developers come together, Epic included, file lawsuits, you know, say we're not going to take it anymore. And in some

cases, they have won victories in countries, including Korea, to begin to reduce some of those fees. I think all of that is well and good. But at the end of the day, if we've learned one thing from Elon Musk over the past few months, it's you give a mouse a cookie, he's going to want something more. So I don't think Apple is eager to be taken hostage by someone who's shown that he's going to make even more demands. And who knows what those might be in the future? Yeah, but I think I'm asking about the broader advertising question, right? If Apple, look, this is Musk suggesting that Apple has, you know, almost mostly stopped advertising on Twitter. That's what he said. And again, we reached out to Apple for comment. We haven't heard back, so we don't know the validity of that claim or not. But what happens if the companies

that we know of to this point that have left don't come back? What are the broader ramifications for Twitter's business as Musk? You know, can they become the juggernaut he envisions without it? I don't think they can. We know that Twitter earned 89 percent of its revenues from advertising in the last year. Musk has said he wants to shift Twitter's revenues to 50 percent subscriptions. But even then, ads were supposed to play a huge role. So I don't know what planet he's on that he thinks you just insult all your top customers and it makes them want to spend more with you. But sooner or later, he's going to figure out that alienating all of your best customers

is not a way to make money. Yeah, we'll certainly see. Casey, thank you. Alex, thanks to you as well. Both CNBC contributors joining us once again for this developing drama coming up. A roller coaster to nowhere. That's how Neuberger Berman's Jason Tauber

is categorizing this market. And he's still finding pockets of opportunity, though. He'll tell you exactly where he sees them next. All right, welcome back to Overtime. It's time for a CNBC News Update now with Julia Borsten. Julia? Hi, Scott. Kellyanne Conway left Capitol Hill this afternoon after testifying for five hours in a closed-door session with the House's January 6th committee.

The former advisor to Donald Trump tells reporters she appeared voluntarily, did not plead the Fifth Amendment, and is not working on Trump's 2024 campaign. Eight people are dead and five are missing after a landslide on the Italian resort island of Ischia. Officials are blaming climate change and excessive development, much of it illegal. And Mexican police dismantled a migrant camp with about 600 people, mostly from Venezuela, on the Mexican side of the border, just yards from the U.S. border wall. Mexico has detained more than 16,000 migrants over four days. Back over to you, Scott. All right, Julia, thank you so much. Tech stocks

slipping today to start off the week. My next guest is staying defensive. Let's bring in Jason Tauber of Neuberger Berman. He manages the firm's Disruptors ETF. It's good to see you again. Welcome back. Hey, Scott. How are you doing? I'm good, thanks. I hear, you know, Disruptors ETF, and I obviously think of growth stocks, maybe a large portion of which are tech. I do know from looking at your holdings here that you have some exposure in the chip space. I also have some news that just crossed a few moments ago that microchip technology has apparently reaffirmed their Q3 2023 revenue guidance. It's just interesting to note when there's debate over that space right now, it's run too far too fast and what the future holds for it what's your outlook for the amds the nvidia's and the like you do hold those two stocks sure yeah i mean i think the good news there is that we've already seen pretty significant estimate reductions you know thinking about amd

specifically uh you know the pc market has been abysmal on just a complete COVID hangover and NVIDIA. Similarly, in the computer graphics chip side. So multiples are getting pretty reasonable on estimates that are considerably lower. So we can think of these names as sort of ones that have bottomed more early than others. There certainly continues to be risk. But in terms of our overall portfolio positioning, we own more health care than we've ever owned before, over 30 percent of the portfolio. We're interested in owning businesses that either have significant free cash flow support

or that they're less cyclical businesses. And obviously, health care fits the bill. And there's a lot of opportunities there while still staying within the disruption and innovation framework. So are you, is it fair to characterize you as more defensive growth oriented now, just given the environment that we're in? Yeah, I think that's fair. I mean, I think the reality is that the Fed is in a pickle and that sort of, you know, your previous segment where you were talking about how we're just in really murky waters. I think that's absolutely true. This is going to feel like a roller coaster to nowhere. The issue is the labor market is just, you know, it's a real intractable problem where the Fed is going to have to kind of break the economy in order to fix the labor market.

You've got small business surveys which say that finding workers is the hardest it's been in over 50 years. So it's unfortunately going to take some more pain in order to fix that. Inflation will come down, but it's not going to come down enough to really get to the Fed's target. And so rates are going to stay higher. So in that context, you're going to have issues getting multiple expansion for stocks. You're going to see a weakening economy. So the E is going to start to fall. I think that what you're seeing right now is the beginning of softness in the business-to-business economy, right? So companies are looking for ways to grow earnings, and they're finding that the best way to do it is, frankly, to cut costs. So you're

seeing that in advertising. You're seeing it in white-collar layoffs. You're seeing it in software spend. You can't find a software company that's not saying it's taking more approvals to get a deal done. So in that context... You know, please finish your thought. I apologize. No, I was just going to say, in that context, you know, like I said, we want to own companies that generate a lot of free cash flow. They're still within that disruptive context. And we want to own businesses that have less cyclical exposure. And there's a lot of really interesting health care names out

there. Sure. But I couldn't help but notice when we were showing a chart of the ETF, it is down 24 percent year to date. Some of the larger holdings are some of the ones that are more susceptible to the kind of environment we're not only in now, but might continue to be in. I'm talking about, again, I mentioned NVIDIA again. Alphabet is on the list. You know, some of the Palo Altos of the world, the, you know, cloud stocks or cyber stocks. It's just some of the other Adobe's of the world. There's questions about sort of where software is right now. Is this environment for those kinds of stocks likely to improve anytime soon, despite the fact that you have a heavy orientation towards health care? Some of the larger holdings are right in the spectrum of getting, you know, hit pretty hard.

Sure. Well, I think what's important about those names that you just mentioned is that they do, you know, all of them, frankly, have pretty significant free cash flow support and have already corrected pretty significantly and have a strong secular growth outlook. You know, we're not talking about companies that are trading at, you know, 10 to 15 times revenue when you run through that list of names. So you couple those businesses, which generate a lot of free cash flow, have really strong economic moats around their business, and then a pretty healthy exposure to less cyclical business. And we think we have a recipe for good performance. Of your ideas that you have today, I want you to leave us with one.

You give us three, but I want you to give me some details on the one you like the most out of Massimo, Dexcom and Edwards Life Sciences. Sure. I'll talk about Massimo just because I think I spoke about Dexcom the last time I was on. This is a real battleground stock. It's a founder led company. The CEO and founder still owns a high single digit percentage of shares. It's historically been extremely well regarded, innovative company leading in hospital patient monitoring, primarily in pulse oximetry. They have a technology that can measure hemoglobin levels non-invasively. But what they did is they've always had aspirations in consumer health. And they did an acquisition earlier this year, a billion dollar cash acquisition of a premium audio company.

And the street just hated it, didn't understand it, didn't see why it was necessary. The stock's down 50 percent year to date. Fast forward to today. You've got activists involved. The CEO just bought another $5 million in shares, and they have a very big analyst day coming up December 13th, where they're going to lay out all the products that are going to come out of this combination. So think hearing aids, biosensing earbuds, high-end health fitness watches, bringing premium audio into the hospital. And so the onus is on them to sort of prove it out. And we have a pretty high degree of confidence that they're going to have a good story to tell.

All right. Appreciate the knowledge on that one. Jason, thank you. That's Jason Talbert again, Neuberger Berman, joining us. Coming up next, retail's a rough ride. The sector's seeing some steep losses this year, but could holiday shopping give the stocks a bounce? The street's number one ranked retail analyst, Matthew Boss, joins us with his top picks in that space. Overtime is right back. All right, we're back in overtime. Retail stocks falling today, the holiday shopping season kicking into high gear.

Let's bring in J.P. Morgan's Matthew Boss. He is the number one retailing and department stores analyst by Institutional Investor. Welcome back. It's good to see you. Thanks for having me on, Scott. Yeah, record online for Black Friday. What's the takeaway for you for that? Yeah, look, we were in stores over the weekend. I was impressed by stable mall traffic. And then at the same time, you had e-commerce holding.

We're up against 35% two-year stacks on e-commerce and digital trends held the line. In fact, we think digital grew and brick and mortar was stable. So relevant brands and value and convenience, I think, really stole the show over the weekend. So it sounds to me like you're suggesting we are getting maybe back into balance a little bit more than we have been in the past? Yeah, I think some of the headwinds that we've seen for retail are actually starting to turn to modest tailwinds, meaning freight is now down 80% year over year. A year ago, a lot of companies that I cover were far too lean on inventory. We had supply chain constraints. We had out of stocks across outerwear. The other thing that I think is now moving in the right direction is input costs. Cotton is down 50%. So some of the

raw materials, as well as some of the costs of doing business, are starting to stabilize. The consumers employed, look, there's obvious inflationary pressures that the consumer is facing, but they're choosing strong brands. I think they're gravitating back to value and convenience. So for us, that's off price discounters and global brands, which have stronger total addressable markets on the other side, which is basically athletic and handbags and accessories. Off price and discounters. Is that because the margins of the other players will be eroded more by having to discount more to clear some of the inventory or what's the discrepancy there? Yeah, it's a good call out.

I think 2022, especially the second half, there was a call to action with the excess inventory in the marketplace. So a number of full price retailers became more promotional and it disrupted the value spectrum. So the call to action in terms of the discretionary or the treasure hunt was off the table, meaning TJX, Ross Stores, Burlington, and even some of the discounters faced promotional activity that was abnormal given this glut of inventory. I think what you're seeing is that inventory cleaning itself up. 70% of companies that we cover have cited clean inventory exiting holiday, which I think

sets up for value and convenience, which would be off price. And then the dollar stores, Dollar General, Dollar Tree, Five Below, I think set up very well into next year where low income consumer will have a job. Wages are up double digits relative to 2019. And I think some of the inflationary shock that you had in 22 is starting to stabilize, namely gas prices, as you look at the move that we've seen recently in oil. You do like, you know, a higher end retailer, Lulu, still one of your top picks, right? Yeah, that fits right into the total addressable market. So two things,

health and wellness coming out of this pandemic, no question elevated. And then secondarily, hybrid, hybrid wardrobing. So if you think about return to work, return to normal, it's definitely casualization. So I think Lulu fits into that. I think Nike, on the other side of some of these inventory actions that they're going through, sets up well for that as well. All right. Good stuff. Matthew, thank you. Matt Boss, JP Morgan, joining us in overtime. All right. You bet. Coming up, we're tracking some big stock moves in overtime. Christina Partsenevelos is standing by with that. Christina.

Well, we've got a home builder warning of weakness in the construction and remodeling housing market for next year. And UnitedHealth sharing some mixed guidance for also next year. I'll have all those details coming up next. We've got the biggest movers in overtime now. Christina Partsineva is standing by. Again, with that, Christina. Let's start with shares of UnitedHealth moving lower after issuing their full year 2022 and 2023 financial outlook ahead of their annual investor conference tomorrow. The health care group's full year revenue should be about $324 billion.

That's ahead of estimates, but next year's guidance is what looks a little mixed. 2023 full year revenue is coming in a little higher than what the street had anticipated, but the full year, 2020 to, I'm stumbling today, 2023 adjusted EPS is what's falling short. And Scott, you talked about this earlier, but semiconductor firm Microchip reaffirming its Q3 guidance of a growth between 3% and 5%, citing strong backlogs, supply chain improvements, and resilient end markets. But keep in mind, Microchip has greater exposure to the industrial segment, which is holding up better than end consumer markets like PCs. The stock is trading a little bit higher, two-tenths of a percent higher. And then shares of AZEK moving 7% lower right now,

despite its Q4 revenue beat. The company known for their decks and porch products is warning the next year there will be declines in new construction and remodeling markets, resulting in a potential 10% decline, a year-over-year decline in volume for the firm. And that's why you're seeing the share price decline. Scott. Christina, thank you very much. Christina Partsenevel is still ahead.

Santoli's last word. And coming up on Fast Money, why U.S.-China relations are going from bad to worse. The warning from top economist Stephen Roach is ahead. Overtime is right back. We're back in overtime to the results now of our Twitter question. Could the unrest in China derail a year-end rally? And the majority of you saying yes, two-thirds, in fact, say yes, in fact, it could. Let's get to Mike Santoli for his last word. Maybe some of today was worries about China front and center again, but we're kind of stuck in a bit of a rut. Yeah, I don't think the China fixation helped.

But what was interesting is the rest of the day after we opened up didn't necessarily fit with an idea that you have these big, overwhelming global growth concerns or supply chain issues that are going to undercut the rally or the economy here. You saw signs actually of oil prices refusing to go lower. They actually bounced over the course of the day. You saw the dollar and Treasury yields do the same. So I don't think it fits together that neatly as a reaction to what was going on in China. It, to me, is a lot of separate things going on. Havens, recent havens, like energy, like Apple, for their own reasons, backed off today, right?

So energy, massive outperformance versus crude oil seems very extended in that sense, probably has more to come in. Semiconductors were overbought. So I think a lot of things sort of piled on at a time when it just makes sense after a 15 percent rally in six weeks to take some off ahead of these known catalysts for the rest of the week. Did that rally that you just mentioned just come too soon? That seasonality alone is just not enough at this point in time. It's not all seasonality. And when it's when you say come to you soon, the market's going to go for it when it sees it's oversold, when it sees that you have a few things lining up and people got expectations too low. So I don't think that you necessarily use up the capacity for the rally. Every time I've thought that every time I've thought, oh, you pulled it forward, even the magnitude by which you pulled

it forward. Right. I think rally it, you know, it was big, but it also was exactly in tune with the rallies off of prior October bear market lows. I'm not saying it was the bear market low, but if it was, it was nothing out of the ordinary and it would have fit the pattern. The other thing, and it alludes to the conversation we started the program with our market guests, is how can you declare a low or a bear market low when you don't know where the economy troughs or whether it goes into a recession or not? That's why we're kind of in this no man's land. I would say you can't declare it, but you never know. So in other words, every time there's been a market low, it wasn't because the consensus

decided, hey, we're out of the woods and we actually know that we're not going to hit a recession or we know that we're, you know, it's only getting better from here or the rate of change is improving. So I don't think you can be confident in calling it, but you can say, well, this is not inconsistent with the way markets bottom. We've seen it go this way before. The market is higher than it was when the Fed was 300 basis points lower on the short. You know, so you can construct the storyline for how it does fit together. Also, even the inverted yield curve. I know that. I was thinking of the inverted yield curve.

The widest in 40 years. It's the one thing that you would sort of wield if you wanted to say, don't get optimistic here. And I think it makes sense to be aware of what the history says about it. However, as I keep saying, when the yield curve has gone negative in the past, stocks were at a high. Stocks rallied into it. This time we're down 20 percent into it or 15 percent into it. Also, Jim Bullard today, St. Louis Fed president, mentioned something that said, look, let's not take the yield curve set up right now as an absolute, clear, unequivocal statement that the recession is coming. He said it could just mean the market thinks inflation is actually going to be under control over the beyond two year period.

And that can account for a lot of it. So it's the final point. We inverted the yield curve in late 2019. Are we given the bond market credit for calling the covid crash? Because that's what caused the recession. So it's very tough to know exactly what it's telling us. I've got 30 seconds left and we have the Fed chair in a couple of days. The last time we're going to hear from J-PAL before the meeting itself, before the next CPI and the meeting. No doubt about it, he will say there is more to do. And that's what every official has been saying. I don't think the market is going to be surprised by that because we know there's more to do.

It's about how much, how fast. And we're kind of moving on to, I think, what you're saying, which is what's the economy going to show us, not how much more does the Fed have. Well, you better not go all Bullard, 5% to 7% on the terminal rate. I really doubt it. The market's not going to like that. All right, I'll see you tomorrow. All of you as well. Fast as now.