Closing Bell - Closing Bell Overtime: Your November Playbook 10/31/22

Episode Date: October 31, 2022

The Dow had its best month since 1976 … but is the rally really sustainable? Trivariate’s Adam Parker, CIC Wealth’s Malcolm Ethridge and Jessica Inskip of Options Play give their forecasts for the month ahead. Plus, top-ranked financial advisor Richard Saperstein is breaking down his strategy for stocks. And, NXP reported results in Overtime. Shareholder Jim Lebenthal gives his instant reaction – and what he’s looking for from the rest of the semi reports.

All right, Sarah, thank you very much, and welcome, everybody, to Overtime. I'm Scott Wapney. You just heard the bells. We are just getting started from Post 9 here at the New York Stock Exchange. In just a little bit, I'll speak to one of America's top-ranked financial advisors on where your money is likely to work best in the months ahead. We've also got NXPI earnings about to hit, giving us the latest read on the state of the semiconductor industry. Our Christina Partseneva loves standing by, of course, with that breaking news. We begin, though, with our talk of the tape. The

best month for the Dow, as Sarah said, since 1976. And whether that rally is sustainable or not, especially as the Fed gets set for its latest meeting over the next couple of days. Let's ask Adam Parker. He is Trivariate Research CEO and founder with me here on set. What a month. It's good to see you. Yeah, good to see you. What happens now? You know, I think after such a historically bad Q2 and Q3, it's not surprising that you can get a pretty strong countertrend rally. You weren't expecting this kind of a move, were you? For sure not.

For sure not. I think we did talk about rhetoric maybe was more negative than positioning. Everyone knows the obvious. Inventory is built. Earnings are too high. There's quantitative tightening. I think this rally was more about people thinking the Fed is getting closer to pausing or speculating on when they get directionally dovish than it is fundamentals. What I've been talking most with my clients about in the last few days is this thing I started socializing with you a month or two ago. Could this just be a very slow decline, kind of an erosion, not an implosion? And then I can then look and say, you know what, there's things that are probably on sale if that's the case. Cyclicals that are so cheap, they're discounting an implosion that's not likely. Quality businesses that are now barely above where they were before 2019, yet they can probably grow through this decline.

And so maybe 2024 earnings are below 2023. But maybe there's a bunch of businesses that I still think are a decent deal in that light. And I think that's been kind of dominating my investor conversations in the last few days. To your point about how negative everybody and everything seems to be, Lloyd Blankbein tweeted something a couple of days ago that I want your reaction to because it speaks very much to that. He, of course, the former Goldman Sachs CEO, seems everyone, all caps, negative on the market with sticky inflation, more rate hikes, other bad stuff ahead,

yet inconceivable for all pundits to be right, but often all are wrong. Positives may be lurking. Fed pause, Ukraine truce, China lockdown end, et cetera. Sentiment can shift suddenly. What do you make of that? It can shift suddenly. I mean, I think we have a very high nominal GDP starting point, the result of, you know, it's pig through the snake on COVID, so to speak. So that's going to work its way through slowly. I think what could surprise people is, you know, we just have a little bit of a decline and it takes longer to totally decline. And then there's businesses that are pretty good companies. Like we were in our research,

I think you saw it this morning, homebuilders trade somewhere between two and five times earnings. So let's say they're 30% too high, 40% too high. Can I still buy best in class homebuilders at five times earnings if the real number is nine? Maybe. I know, but you've... In the past, I haven't been there. Now they're down a lot. And I think maybe it's more interesting, right? I mean, it's always entry point, right? As you know, I love energy and I love metals. They're really cheap. They're embedding a massive earnings decline, and it might just be an erosion and not a massive decline. But I feel like you have been talking about more of an implosion over these last many weeks, at least in earnings. Aren't you looking for earnings that come down like 30% to 50%?

No, no. How much are you looking for them to come down? I think around 220 is reasonable. The streets are 235, so you're kind of in that 12% too high range. I'm warming to the fact that maybe that'll be, it'll be seven or 8% too high, but then 24 will be below 23. We've never posted a number like that. No, I think it's just that the multiple is the hard part for me, right? The volatility of that price to earnings ratio, it's far greater than the volatility of the underlying earnings. So when the Fed gets anything dovish, we know the multiple's

going to expand. What I don't know is, are the earnings going to be a little bit lower? That's the tension. And if I have a two-year yield that's well above 4%, it's hard to think the multiple's going to expand a ton. I think that's the tension. Do you think the Fed's going to expand, extend the rally, or kill it this week? If I were guessing and, you know, I don't like I'm not good at that, but I would say they're going to model in certain things. You're good at that. I think they're going to kill it. I think they're going to be a little bit more hawkish than the last couple of weeks of sentiment would otherwise dictate. I think they're going to say we still have some inflation issues in certain areas and we want to get it

under control. But listen, that would just be using the prior 10 conversations to lead to my 11th conclusion. I mean, Shepardson of Pantheon Macro says the conditions are falling into place for potentially the Fed to do its last hike in December. Unambiguous signs of weakening labor demand, falling business investment intentions, falling rents, collapsing support for overstretched profit margins. Change is coming, making it much more likely that the Fed's final hike will be in December. Is that like a tremendous outlier view? Can you get your arms around that? I don't think that's an outlier view. I think the consensus has moved toward some pause at some point in the next six months, and it's moved there pretty quickly. I think they've been consistent that CPI is one of their main governors.

I remain pretty high conviction the CPI will remain elevated. So whether they're waiting for some five-handle or I don't know to really get dovish, we'll see. If I'm guessing, the current consensus is a little too dovish relative to what the Fed's going to deliver. Hold your thought for just a second because NXP is out. In fact, Christina Partsinovalos has the details for us. Well, what we're seeing is the company did beat on revenue, a slight beat at $3.45 billion, with earnings coming in at $2.79. We wanted to see what was happening with the guidance, so Q4 guidance. The company did put in a range of $3.2 to $3.4 billion, which is a little bit light compared to what the street was anticipating at $3.41 billion. The company did say that they were impacted by the weakening macro environment in their consumer-exposed Internet business.

We know consumer end products, PCs, smartphones, have not been doing well. And obviously they were affected as well. But they did say demand in both automotive, a very resilient sector, as well as industrial markets continues to be resilient. Keep in mind, NXP has over 50% of its revenue coming specifically from auto. And then I'll end with this, just because management seems to be a little bit more concerned. They say, quote, we are cautious in the intermediate term due to the uncertainties in the macro environment. So again, company beat on revenue, slight beat.

EPS came in. We're not going to compare $2.79 with revenue guidance slightly lower than what the street anticipated. The stock is down over 2%, Scott. All right, Christina, thank you. Christina Partsenevel, let us know if there's anything else you hear that we need to know. You used to be a chip analyst. Do you like this one or not?

Well, I think everyone knows this one has a high auto exposure, and everyone knows auto has been the most resilient end market where it's hardest for production to catch up to consumption. If you look at the other companies that reported Texas Instruments and others that are broad industrial indicators, they've told you things are slowing. So I'm not surprised their revenue is still in a little bit better shape because of the auto mix. You don't like semis in general, though, right? As a former semi analyst, you don't like the space now, even as it's come down a lot?

We've told people, and this was in our note we mentioned to you about quality businesses that could look better in 20 through 19. We did have a couple chip makers on there. LAM, which we talked about, where even if the numbers are 20%, 30% too high, things are still cheap and the world kind of needs them. I think this one here is probably fair value to me. It doesn't get me super excited because I think what's coming in December is the slowdown in autos. It's kind of lagging the slowdowns in other end markets. Let me talk about with you an area that you've recommended to our viewers on numerous occasions. I think every time that you've been on, you and others have as well, I mean that's

energy. Yeah. Okay, how do you put forth the thesis that energy is still cheap or cheap enough to buy after the kind of runs that we've had in some of these stocks? I mean I looked at Chevron before we came on, stocks up like 50 some odd percent year to date. I mean, are we really still in the buy zone of those names or should we take advantage of the move that we've had to take some profits because of what might be coming? Here's what I think. And if you're watching this and you're paying attention, I think equities go up 5, 6, 7 percent per year for the next 10 years. That's like the long-term S&P average.

Could be a little bit less with rates high, whatever. I think energy is up 15% to 20% per year for the next 10 years. Am I smart enough to know exactly which quarter to get out? I don't know. Sure, I'm worried about maybe some more supply short-term in a mid-term. We'll see. Ultimately, demand is going to be way above global GDP. Supply is not going to catch up.

And energy, oil, gas will take share of consumer spend. It's a fact. And if you're not positioned for it, you're not going to make as much money as you could. That's it. So that's my 10-year framework. So recession for the next 12 to 18 months, it doesn't matter to your long term. It doesn't. It doesn't because peaked oil demand will be 10 years from now.

We've been talking about this since I launched my business in May of 21. Top sector, I love it. We're getting pushback. At the end of the day, remember we were on the air together, terminal value was zero, somebody said, and I said on the air, terminal value zero, probably outlast Facebook. I didn't know about the meta thing, but that's kind of my point.

Demand's going to be steady for a long time. These stocks trade 10, 12 times earnings. Look at the free cash flow. Chevron and Exxon. Exxon generated more free cash flow this quarter than Apple. So I'm not saying you should pay for the same amount as Apple. I'm just saying the amount of money they're making with prices this high, the stocks are very cheap. Political punching bags, be darned, it doesn't matter.

Sure, we've got a big demand. I think the president's literally going to speak in 20 minutes, I think, about big oil. Making too much money, giving it to shareholders rather than consumers. You know what he means by that. I guess the question is, what would make you demand less oil? Do you think that 10 years from now you're going to be demanding less? I don't know. And so I think that's the issue.

Demand grows pretty well and supply can't catch up. And so you're just talking about structure. We had a big fear of demand recession in Q3. Oil got to 80. In prior demand fear cycles, it would have been, what, 30? So I think that just speaks to we're going to have higher troughs and higher peaks, probably for a decade. We'll see. I mean, look, part of the blank fine tweet, again, is the Ukraine truce. Now, that's a development that could wildly impact the energy market. Get a big two-week move, for sure.

And I think, unlike other things, I will be very aggressively buying if it dips on those two weeks. Other things, when they go down, they're for a real reason that makes you afraid. In this case, you know demand's going to be there, and you just get more bullish. Okay, let's expand the panel. Bring in Malcolm Etheridge of CIC Wealth, Jessica Inskip of OptionsPlate. It's good to have you both with us. All right, Malcolm, we're putting in the best month since 76. Where do we go from here in your estimation?

Yeah, I actually think that we've gotten past peak pessimism that we all were looking for, right? Everybody's trying to find the bottom. Where do we finally start to turn the corner? I think we've actually gotten past that. I think, and I know you're probably surprised to hear me say this, Scott. I think we're finally getting to a place where investors are saying enough is enough. We saw those two negative quarters that did equal a recession, whether the gang of eight decides that they want to call it that this year, they'll look back next year and finally say there it was. I think that we've gotten there already. And what

what that means is November is going to be choppy dealing with the midterm election. But following that, I think we start to continue to we continue to chug along. I think that we do actually start to see us in the year with a little bit better sentiment and we start to move more positively going into Q1 of 2023. Interesting. Jessica, have we turned a corner like Malcolm suggests that we might have? Well, I think there's a lot of open macro headwinds that need to be resolved, and they're certainly not going to be resolved at the same time. So think about the earning season where we're at right now within the cycle. There is so much pressure on profit margins. And so it seems like demand is absolutely cooling off, but prices are peaking,

yet they remain sticky. And so I'm wondering how that's going to translate into the next earning cycle. And I expect to see the next earning cycle actually come down, which I think would drag the overall market down. So I do think there's room to actually go lower just in the short term at a stalling place, But in the longer term, it makes sense. You know, Malcolm, I looked at the notes and, you know, you're putting your money where your mouth is. I suppose if you suggest enough is enough, you thought enough was enough as it related to Amazon and the big decline. You bought it. Yes, Scott, I was on a few weeks back and I told you that I thought we were gearing up to get a second chance at buying some stocks that we were going to wish we had bought at the end of this decade.

In 2020, the pandemic brought us an opportunity. A lot of us, myself included, didn't buy certain names that we didn't think were going to be positively impacted. We turned around and looked and said, man, there it was. There was my shot. And Q3 earnings brought us an opportunity to buy a company like Amazon, sub $100, which made absolutely no sense to me. I think it's completely overblown that it sold off 10% following its earnings. The last time Amazon traded sub $100 on a split adjusted basis was back in 2019, pre-pandemic. And since then, they've drastically increased their prime subscribers, bolstered the delivery network and added thousands of drivers and added several fulfillment centers in key parts of the country.

So if you just think about how much stronger Amazon has gotten since the pandemic, save for that demand pull forward and how much they got beat up over it for overbuilding in response to the pandemic, it just looks to me a company that's responsible for 40 percent of the overall e-commerce market has a lot of room to go from here. And buying it below $100, getting a second bite at the apple was just too good to resist to me. All right, Adam, what do you make of that?

He's not throwing away his shot, he said. No, I think Malcolm had a really good call. we were on together a few weeks ago when he said that. And it kind of catalyzed me actually to do that work we were talking about comparing fall of 19 and the forecast of 23. Amazon didn't make our list only because we overlaid a governor of price to forward earnings. And obviously that one is one that could probably earn more if it wants to. But I think it does embody the spirit of our research as well, which is there are businesses that are just, Amazon's a good example, Malcolm, what are they going to have, twice the revenue in 2023,

$600 billion or so versus 2019? So there are definitely businesses that are in way better shape that the market isn't giving any credit for. And if this erode, non-implode, macro backdrop unfolds, I think you'll find these businesses are worth a lot more six, 12 months from now. I'd like to know. We're in alignment, alignment. I'd like to know what Jessica thinks as it relates to big tech, mega caps. Are we in the mid-stage of an implosion, to use those words, or is this simply just a near-term erosion? These things had just gone too far. They're overvalued, a little too expensive. They need to just get more attractive, like Malcolm thought

Amazon got at a hundred bucks. Sure. And I love that narrative that we buy on these declines, and it's a great way just to add to your longer-term portfolio at lower valuations, even if you don't call the bottom. That's very logical and a great perspective. I do think those macro headwinds, though, could translate. And that's what I'm concerned with, with those type of big tech and mega cap. Is the dollar actually peaked? How restrictive is Powell going to tell us he's going to be on Wednesday? And I think he's going to reiterate that he is restrictive nonetheless. But it still doesn't mean that you shouldn't buy those type of securities. I think there's lots of opportunities. There's ways to hide in technology, like we've discussed before with automation and some of the issues that face the labor market. So I think

there's absolutely opportunities that are all over this market. So, Malcolm, you know, when we think of tech, we're worried about rates. We're thinking about Wednesday, what the Fed chair is going to say. Do you think that he is going to hint at December being maybe the end of the road for a while? I don't. I don't think that Powell is going to give the markets, the broader markets, the satisfaction of confirming what has been out there probably the last week or so in the news. I think that what's going to happen is we'll get the 75 basis points. It'll be business as usual. And the market will try and parse every single word, um, ah, and everything else that comes from Powell for some sort of indication that confirms the thesis that everyone already has. And so that's, again, why I say that we've reached already peak pessimism.

The market is showing that it obviously just wants to go higher. If you just consider the fact that I was on, I think last week saying that following big tech earnings, the market is going to get crushed. And what ultimately ended up happening was big tech got sold off. However, the rest of the market just powered along saying, well, that's them in a silo and a vacuum. And that's not the whole market because the market is giving us signals that despite the headwinds that we all know are coming for us, it just wants to go higher. And so I just feel like sentiment is shifting here. And we all know that the markets tend to lead what happens in the overall economy by a few months. And so

this could be a thing where the market is telling us where we're going and the economy will just have to catch up four or five months from now. Jessica, the more they hike, the closer they do get, though, to the pause that some are trying to game out, whether it's December. And I think Goldman Sachs has added an extra 25 basis point hike to their forecast. but the more they do and the bigger they do it, the closer they get to smaller in both scale and the number of hikes that we have to think about. Yeah, that's absolutely true. And I want to go back actually to Malcolm's comment about tech. I think the big surprise was Apple beating because they make up such a huge component of the market. And you're right, that is the market trying to push it up.

But I think that's the important thing that we need to take away is a lot of tech missed, but Apple didn't. And Apple is a huge percentage of the market. And you are right, Powell is going to have to slow down at some point. But I don't think he's going to give us, I completely agree, he is not going to give us any inkling or any data that he is going to do that. He's going to tell us he's data dependent. He's going to reiterate that he has, he says, imbalance in the labor market consistently. So I expect him to say, we'll rely on that data and not

give us an indication of a pivot that far in advance. Last word to you, AP. It's interesting to hear the sentiment shift. I think when prices go up, we all feel a little bit better. If I had to guess, we probably go up near term, then we come back down again. I don't think it's, I know you like to ask this, if we hit the bottom, is it all clear? I don't think so. I don't think so. I think unless you think that, you know, the inflation numbers come down really materially, I think they stay hawkish. Some do. And I think earnings. Some do think that inflation is going to roll. And some think that it already has rolled and it's not even in the data. Yeah, I think rents have peaked and plateaued and rolled over and you can find that data. It's out

there. But whether the CPI comes down enough for the Fed to get dovish, I doubt it. So I'm looking at the two ways to make money. Sickle goals that are too cheap. Businesses that look good 23 versus 19. And I think we're largely in agreement. There's lots of stuff you can own under those scenarios. All right. We'll make that the last word. Thank you. That's Adam Parker here on set. Malcolm and Jessica, thanks to you as well. I'll see you soon. Let's get to our Twitter question of the day. We want to know which of these October losers has the most upside by year end. Is it Meta, Tesla or Amazon? You can head to at CNBC overtime on Twitter to vote. We'll share those results a little bit later on in the hour. We are just getting started here in overtime.

Up next, the setup for a huge week ahead. More earnings coming your way, plus that critical Fed decision on Wednesday. iCapitals' Anastasia Amoroso tells us how she is positioning. We're live from the New York Stock Exchange, OT, right back. All right, we're back in overtime. The Dow closing out its best month since 1976, its best October ever. So will the rally continue in the year end? Joining me now at Post 9, Anastasia Amoroso of iCapital. It's good to see you again. Good to see you. You were expecting a good October.

Were you expecting this good? No, probably not. But to be fair, I was also not expecting that bad of a September. But yes, the call for October was that we should reverse some of those losses. Yeah. So what do we do now? I mean, where are we likely to go, given that we poured a lot on this month? Yeah, we did. But I do think that the setup is a lot better for the rallying tier and that it was some time ago. And I think the big pivotal point here is that the Fed is likely to begin to talk about the end of the tightening cycle or at least stepping down the pace of purchases. And I know you probably hear that and say, well, we've heard those before in July. Why now? And what I would say to that is, first of all, they've done a lot in the last few months. We're now going to be at 4 percent, presumably, upper rate by the end of the week.

And, you know, we have made some progress that they have to acknowledge. For example, on the labor market, we have seen the number of job openings that is now down 2 million, if not more, from a couple of months ago. We've also seen wage growth that has tapered off. And just the path of job creation that we'll likely see on Friday is almost half of what it was three months ago. So the Fed is likely to look at that and say, we're seeing softness in the labor market that should eventually lead to softer inflation prints. And by the way, we have done a lot. The financial conditions are a lot tighter today than they were back in July. So I think you put all that together and they start to talk about some moderation. There are some suggestions,

though, they could take the terminal rate to five. And that I mean, that there's very real belief that they may be willing to do that. Does that upset your view? I don't think it does. And by the way, I mean, that's what the markets are absolutely pricing in. And I think we do eventually get to five. It's just that how we get there is likely not going to be in another 75 basis point chunks. It might be 50. It might be another 25 and 25. So, no, it doesn't change the near term rally view. I'll come back to that in just a minute. The other reason I say that is I just think the seasonals are a lot better and the markets are a lot better positioned into year end. You've got the CTAs that are likely to be chasing.

You've got the buybacks that are really coming back full forth, really starting after today. So you've got the technicals that are also working in market's favor. But to your point, Scott, no, 5% terminal rate changes a lot of things. It changes the outlook for the economy. It changes the outlook for what investments have to do because they have to overcome this high hurdle rate. Why would he show his hand this week? Why wouldn't he, given that inflation is sticky, at least according to the data, why wouldn't he say, OK, they're 75, and we're just going to see. More large hikes may be appropriate down the road. I'm trying to think of the kind of language in which he generally speaks. Why would he show his hand? He may. But look, this is the fourth 75 basis point rate hike. That is a

lot that the markets had to process. And I think the reason why he would show his hand a little bit is because if you look at the Goldman Sachs Financial Conditions Index, for example, it is a lot tighter than it was back in June and July. So this argument that, well, you know, maybe the financial conditions are not tightening enough to their liking, I don't think that really truly holds water. And by the way, the labor market this Friday, we're expecting 190,000 jobs created. That's nothing to write home about. We've heard so much caution from the CEOs throughout the earnings season. So I think

he's already seeing some of the slowness in the economy. And that's why some moderation rate increase is likely appropriate. You see better opportunities right now in stocks or in credit? It has to be credit. I mean, anything that we look at right now has to be this hurdle rate of right now four, four and a half percent on cash. So what can do that? Parts of the credit markets can do that. And so one of the really interesting charts that we looked at the other day, you look at the leverage loans market, you look at high yield, you look at private debt, and they've all converged to have a yield of 10 or 11 percent. You can't get that in equities. And by the way, our expected return for equities is probably not even 10 or 11 percent. But you can get that in terms of yield in parts of the credit markets. But I will say, Scott, the leveraged

loans trade has worked well this year. It has held up. Maybe it's down a little bit. But guess what? A lot of those companies are going to have to pay up a lot more in debt service. And I'm actually quite concerned about their credit quality. So my rotation trade is to get out of some of the leveraged loan funds that have done so well and look at high yield and look at private credit that I think are a lot more resilient. All right. We'll leave it there. Anastasia, thank you. That's Anastasia Amoroso from iCapital joining us up next. Your November playbook top ranked financial advisor, Rich Saperstein, tells us his strategy as we gear up for a new trading month. Don't go anywhere. We're right back on Overtime. Welcome back to Overtime. It's time for a CNBC News update. Now with

Shepard Smith. Hey, Shep. Hey, Scott. From the news on CNBC, here's what's happening. The man accused of attacking the House Speaker Nancy Pelosi's husband, Paul, hit with federal charges this afternoon for attempted kidnapping and assaulting the family member of a federal official. According to police, the attacker told officers he wanted to take Speaker Pelosi hostage and threatened to break her kneecaps. The San Francisco D.A.'s office expected to file attempted murder and other charges as early as today. And former President Trump asking the Supreme Court to stop the release of his tax returns to the House Ways and Means Committee. It started investigating Mr. Trump's finances after he refused to make returns public during the 2016 election. Several lower courts have sided with the committee. Tonight,

the new details on the suspect's possible motive in the Paul Pelosi attack, plus the Supreme Court's skeptical arguments on affirmative action in college admissions, plus the latest from Twitter on the news. Right after Jim Cramer, 7 Eastern, CNBC. Scott, back to you. All right, Shep, thank you. This is Shepard Smith. Wall Street handing in a monster month. Our next guest, though, he is one of Barron's top-ranked financial advisors and says you

should use this rally to lighten your exposure up. Joining us now, Richard Saperstein, Treasury Partners' chief investment officer. Welcome back. It's good to see you again. Likewise. So I think the last time you were here, you said you had more cash than you've ever had before or thereabouts. Are you still there? Absolutely. Why? Look, the lag effect of the Fed policy hasn't really set in. So we expect to see that occur in Q2, Q3 of next year. Think about this right now. The plumbing in the system is slowing down

dramatically. Banks are reducing risk-weighted assets. Loan growth is slowing. Mortgages are down. Business confidence is down. You name it. Things are slowing that it's not really reflected in stock prices right now. So we think there's a wave coming in 2023. What do you make of this incredible move that we had in the month of October? Well, I think it's great for investors who are overweight equities and want to lighten up. Think about it. We've had 15 years of financial repression. And investors and their asset allocations have over-allocated to volatility.

Remember TINA, okay? So asset allocations have to shift back. And now there's an opportunity in bonds as a result of the rise in yields. What if you're too negative? What if things, as Lloyd Blankfein suggested in the tweet that I read a little while ago with Adam Parker, that he sent a couple of days ago, that things could turn, that we could be nearing a turn? What do you make of that? And if that happens, by the way, it's all stimulative

for stocks. Sure. Do you believe that or not? No, because I've heard that for the last six months. And think about it. EPS estimates for 23 started the year at 255. It's now 235. Everyone has to ask themselves, will next year be higher EPS than 22, given the rate environment is 400 basis points higher? Why does it have to be higher than this year?, given the rate environment is 400 basis points higher. Why does it have to be higher than this year? Maybe it's not as bad as some people think. Well, even if you get 220, 225, we still have an elevated multiple in a higher interest rate environment

and one bred with uncertainty that we're going into a recession. Over the last six months, though, how many times have the Fed hiked, right? They've hiked a lot. Right. So we're not in the same place today than we were six months ago. They've already done a lot. What if they signal this week or give us the idea in some form or fashion that they're, if not very close to the end, they are certainly nearing it. In that environment, the market will continue to melt up. If you look at a two year Treasury, it's really expecting a terminal rate of somewhere around 475, 5%. So we'll see a melt-up when the

Fed signals they're pausing. However, that doesn't mean pivoting. Pivoting will occur when a couple of things happen. Either we start seeing massive slowdown, we start seeing inflation being reduced. Lots of things have to occur for a pivot, but not a pause. Well, why isn't a pause enough? Why isn't an end to the rate hike cycle enough? Are you saying you're only going to get bullish again on stocks and deploy some of this cash that you have in equities if they signal that they're going to start cutting rates? We're really past thinking about the Fed right now. We have a playbook, which is first, housing goes down. Housing is already starting to drop.

Second is earnings per share and margins. That's what we expect to occur largely in next year in estimates. And finally, we'll see unemployment go up. At that point, then we see the market hitting a bottom. So you may be holding this level of cash for, I mean, I guess I'm not crazy to suggest six to 12 months from now. Well, we're earning money on it. But I know, but you know what I mean. You're not going to put it into equities for that long of a period of time. Is that sort

of what you're thinking about? Totally comfortable because our clients are wealthy and they want to stay wealthy. And our job is to keep them there and avoid a lot of excess risk, given that we might be going into recession. I have to believe that you are trying to keep them there and avoid a lot of excess risk given that we might be going into recession. I have to believe that you are trying to keep them rich in ways that extend beyond just piles of cash. So where? Where are the opportunities? Okay, so right now we're seeing absolute opportunity in the municipal bond market and rates have

gone up to roughly four and5% tax-free. And for investors in a highly taxed state, that's roughly 9, 9.5% pre-tax equivalent. The long-term returns in the market are 9 to 10%. So we can basically own bonds, get pre-tax market returns without the volatility, but there's an added benefit. If we go into recession, the economy slows,

what happens? Rates go down and bond prices go up. So a total return on immunity today, if rates drop 200 basis points, is over 25 percent. You don't like the two-year, which seemingly everybody likes, and you've urged people to stay away from one of the more popular trades. Yeah. Why? Well, it's a dark era to begin because if the Fed tightens too much and the economy slows, when will it probably get to its bottom? It's somewhere around the end of 23 or 24, right when these bonds are maturing. So investors that have maturities in 24, two-year paper, they're going to be reinvesting at a horrible time. We're looking past that and saying, look, I want to get out there, longer-term maturities, prepare for a

slowdown. If there isn't a slowdown, we're earning four and a half percent tax-free. Didn't you like big tech as one of the areas in the market? You did. Sure. Let's talk about it. Let's talk about it. I mean, okay, you liked an area of the market that's gotten beaten up pretty good. Yeah, we're still doing well with it. What did you like? How are you doing well? Okay, so our largest overweight is oil.

All right. After that, it comes to large cap tech, Apple, Microsoft, and Google. Apple is the metaverse. Everything that we do is already on the phone. That is the real metaverse right now. You don't have to go any further. Google and Microsoft are the greatest superhighway of the world. It's the cloud. Microsoft's revenues, 50% come from the cloud. Google, 37%. These companies have grown their cash flow since 2019 at 75 percent and market cap is only up 63 percent. They generated two hundred and thirty seven billion dollars of free cash flow in the last 12 months.

I like the cash flow story. I'll probably own them for another decade, having been in them since the 90s. Well, why didn't you buy more when they dipped last week than if you love them so much and you're holding all this cash? We'll have lots of opportunity. You think they're going even lower? I think the market generally will go lower. And so if we think about entry points, take a multiple on expected earnings for next year, and I think we go lower, whether it's $3,300, $3,000. We'll have opportunity to add to these names, but we're not doing it yet.

We do like oil. Oil is a great sector for us. And last question, because I do have to go. And I asked Adam Parker the same question. You like oil after the stocks have rallied. I mean, I know you've liked it all along, but now the stocks have rallied a lot. You still like it here? You'd put you'd put money to work. You'd urge our viewers to do that? Yeah, because the free cash flow on these companies are anywhere from 8% to 25%. You can't find that anywhere. And so they're going to return it. Immunis. Well, yeah. You find it in immunis. Look, broad asset allocation is important. Have good quality equities. But now's the time you can go back into the muni market.

We'll leave it there. You let us know when you go back into those big cap, big cap techs. We'll do. All right. That's Rick Saperstein joining us here at Post 9. Be sure to catch tomorrow's CNBC Your Money event. Learn how to maximize your finances with top financial experts. You can register, register, he tried to say, at CNBC events dot com slash your money up next. Shares of NXP. Let's take a look after reporting just a few moments ago. Well, they were down and now they're virtually flat. We'll keep our eye there. We'll get instant reaction from a shareholder, too, after this break. Get another check of NXP semi. See, their shares are fractional. Let's say losers close to close to the flat line.

That's after the company reported a revenue beat, gave cautious fourth quarter sales guidance. It's one of the first chip stocks to release earnings this week. Serity Partners, Jim Labenthal, he owns NXP, joins us now. I know you're bullish on on the auto group. You've made that perfectly clear over the last many months and you are an investor in General Motors and you've articulated that perfectly clear over the last many months, and you are an investor in General Motors, and you've articulated that there as well. But what about this with a stock that's down some 35 percent or so year to date? Yeah, very frustratingly so. And it's emblematic not just of this particular chip company or the automotive sector, but the markets overall. By that, I mean

this is a company that for the third quarter this year has beat estimates. And yet the stock is down, as you pointed out, pretty meaningfully on the year. And Scott, when I say it's emblematic of the stock market, it, like the whole stock market, is waiting for a recession that has yet to appear. I mean, you see where GDP was third quarter. We see where the Atlanta Fed estimates are for this year for this quarter still positive we heard from General Motors last week and Ford. Pretty positive commentary about demand still being there. So I think the question for all of us whether it's NXP or the markets overall is how long are we going to wait for Godot. Or put another way what if we don't have the recession.

Because if we don't have the recession and you're looking at a stock like this at 10 times earnings with a projected multi-year long term growth rate of 16 percent in earnings, that's a pretty tasty treat to snap up at this price. I'm just thinking, you know, auto sales have been strong, as you have noted, and you still have a stock that sells right into that business. Now, I understand chip shortages and things like that remain an issue, as both General Motors and Ford told us. But if you can't do well during a period of booming auto sales, when can you? Yeah, so it's a great point when you say can't do well. The actual operational performance of the company is great. I mean, they've beat on the top line. They top line they had better I don't care if I'm an investor in the stock who cares right stocks down thirty five percent.

Scott I got you hit five thousand home runs who cares. I got you but no at the end of the day and the day might be longer than some people would like to wait at the end of the day the share price does catch up with the operational

performance. Not so far this year and it's pretty darn frustrating Scott- however eventually the share price does catch up with the operational performance. Not so far this year, and it's pretty darn frustrating, Scott. However, eventually the share price does catch up with the operational performance. You just got to be patient. All right. We'll try to be. Jimmy, we'll talk to you soon. That's Jim Labenthal joining us there. Coming up next, we're tracking some big stock moves in overtime. Christina Partsenevelis is standing by with that. Christina. Scott, I actually wanted to stick to what you guys are talking about, autos, because inflation may be hurting our wallets, but we're still willing to travel.

And one company is soaring. The stock is soaring on that trend. And more semiconductor names out with earnings. The auto biz continues to grow. All the details next. We're tracking the biggest movers in overtime now. Christina Partsenevelos is here with that. Christina. Well, semiconductor names front and center this afternoon. Shares of Latisse Semi up about, oh, four and a half, almost five percent on record quarterly revenue and an earnings beat. The company says much of that sales beat had to do with the ever so resilient segments of industrials as well as automotive.

Comments echoed by NXP management earlier in the show. Medical manufacturers Stryker in over time right now. Shares are down over 5% after Q3 numbers disappointed the street. Despite beating on revenue estimates, investors tended to focus a little bit more on the light full-year earnings guidance. The CEO saying strong dollar and inflation hitting key components of the supply chain and that hurt earnings. Shares of rental car company Avis up over 5 or almost 5% right now on surging profit and better than expected revenue. This shows that people are still traveling despite high gas prices and high inflation. Total rental days, which is a barometer for consumer demand,

was up 17% across the Americas and internationally for the latest quarter. Happy Halloween. I'm going as a spotted lantern. Goodbye. Very nice. All right. We'll see you next. Counting down to key reports from Uber and Airbnb. We've got you set up in our two minute drill and coming up at the top of the hour, China ramping up COVID lockdowns. So is there any opportunity abroad? The Fast Money team lays out where you can put your money. Don't go anywhere. Overtime is back right after this. Welcome back to Overtime. Uber and Airbnb both gearing up to report their results tomorrow.

So what is at stake following last week's mega cap tech reports? Deirdre Bosa here with that setup. Dee? Well, so these are both sharing economy companies, but they're in very different financial positions. Remember that Airbnb has achieved profitability on a net income basis. Uber still working to get there, still notching losses for the year. So that's expected to continue this quarter. The question is, how has demand held up? We spoke to both Airbnb CEO Brian Chesky and Uber CEO Dara Khosrowshahi earlier this year in September, and they said that demand was resilient. They hadn't seen any slowdown yet. So has that continued? Scott, you remember Amazon earnings when the company said that they saw a slowdown in the second half

of the third quarter. Did that happen for Airbnb and Uber? These are services companies, so we're not sure. That's going to be key, what they're expecting for the one that we're in. Feels like Uber had turned a corner last quarter, both from a business standpoint, a balance sheet standpoint, and also from a stock standpoint. Is that correct? So it has outperformed its other gig economy companies like Lyft, like a DoorDash. It is still lower over the last few years, but it has been relatively resilient this year. Turn a quarter, it is achieving free cash flow. You got to account

for stock-based compensation, which makes up a lot of that, however. But yes, I think there is this general thought in the market that Dara Khosrowshahi is maybe slowly turning this company around. Big thing to look out for tomorrow, Scott, is their advertising business. I mean, it has grown pretty quickly. It's higher margin, but they also have to be careful not to turn off riders with push notifications, too much advertising. So it will be interesting to see. It's certainly separated itself from Lyft, which now reports a week later it is seen as being a lot more resilient. Airbnb, though, continues to sort of perform really well and deserve that premium to some of the other OTAs. Will it keep that? Will that demand stay strong? That's a question. All right. We'll find out the

answer. Deirdre, thank you. That's Deirdre Bosa. Don't miss Uber CEO on Squawk tomorrow morning as well. Up next, Santoli's last word when we come back. All right. To the results of our Twitter question now, we asked which of these October losers has the most upside by year end. Amazon today was the big winner over Tesla. All right. Let's get to Mike Santoli for his last word. How are you feeling about this? Great month, and what lies ahead?

Incredible month. It's interesting. There is no bid for Meta right now. So you've kind of broken the buy the favorites on the dips thing. I think it's interesting that ahead of the Fed on Wednesday, we do get some numbers tomorrow. So you've got the JOLTS report, and you've got ISF. Well, probably it's preliminaries.

You know, we're not really trading on the real stuff when that comes out. But the projection is for job openings to come down. Market wants to see them come down a lot. ISM is supposed to be right at 50. I think we're probably still in rally on bad news type of mode. Feels that way. Feels that way. And not because, and I really don't think anybody is saying an outright Fed pivot from hiking to cutting is in the cards or even desired.

And I don't think that Powell is is supposed to all of a sudden turn dovish after going 75 basis points Wednesday. But some moderation in the view and some acknowledgement that we have noticeable slowing in parts of the economy. The housing market is at a standstill and you do have some deceleration in the labor market. At the same time, you have to acknowledge that policy is getting restrictive and they said it's going to get restrictive. So the message might turn to higher for longer, but not much higher from here. So is that going to be good enough to extend the rally into November? I think if it comes in exactly as I just described, it's probably good enough for the market to stay supported, to grind higher,

to basically capitalize on some of the seasonal tailwinds. And, you know, we still do have relatively defensive positioning out there, not by retail necessarily, but in general by bigger money. Did you just put forth sort of your base case of what you expect or is this a likely scenario? I think that is roughly a base case. Look, there's no incentive for there to be an outright dovish message. The message is still going to be we have more work to do, we can take nothing for granted on inflation, and we need the numbers to come down before we really do say mission accomplished. But I think the way the market is going to squint and try to read between the lines

might give clearance to say that he's acknowledged we're almost there. I think Paul McCauley was saying something similar. It's going to be consistent with a step down to half percent hike in December. How do you think they view the best month for the Dow since 76? I think as far as it goes up to this point, not terribly. I think that basically it's a matter of where it came from, which was a new bear market low, basically. We're at the minus 20 percent level in the S&P right now.

We were also there before the September meeting. The September meeting to me was not he wanted to club the markets over the head and say things have to go lower. All right. Well, we start tomorrow and we'll see what happens. I appreciate it. I'll see you then. All right. That's Mike Santoli with his last word. Fast money begins now.