Closing Bell - Closing Bell Overtime: Your Year-End Forecast 12/2/22

Episode Date: December 2, 2022

What could be in store for stocks during the last days of this lousy year for the markets? Wharton Professor Jeremy Siegel gives his expert forecast. Plus, Cantor’s Eric Johnston makes the case for his bearish stance. And, we debate the new tech trade playbook.

All right, Mike, appreciate it very much, and welcome, everybody, to this Friday edition of Overtime. I'm Scott Wapner. You just heard the bells. We're just getting started from post-9 here at the New York Stock Exchange. We've got a big show ahead in just a little bit. I'll speak live to The Wall Street Journal's Nick Timoros on what's likely to happen at the next Fed meeting after today's hotter-than-expected jobs report.

Did it just derail the year-end rally? We'll ask Cantor's Eric Johnson that question. He's back, and he has a new call on stocks as well. We begin, though, with our talk of the tape. Your money in the final stretch. What's likely to happen in the last days of this lousy year for the markets? Let's ask Wharton Professor of Finance Jeremy Siegel. He joins us once again here in overtime.

Professor, welcome back. It's great to see you. Good afternoon, Scott. Came a long way from those mid see you. Good afternoon, Scott. Came a long way from those mid-October lows, Professor. Where are we going from here? Do we have room to run into the end of the year, or did today's jobs report derail that? No, I don't think so.

And by the way, I did not regard today's jobs report as hot, hot, hot. I mean, first of all, the household data was negative, minus 150,000. And something else that was just mentioned in the last segment, but it's very important, people ignore the hours worked. And that fell. And even though it only fell a tenth of an hour, that's equivalent of over a 200,000 loss of payroll individuals. I mean, what is the input in the economy is not just the number of people, but how many hours they work. So I didn't regard this as, I mean, it wasn't a terrible report, but I didn't regard this as anything on the labor front as being a

strong report. Now let's go to the wages. Let's go to stocks. No, that's what people are concerned about. Let's go to stocks for a minute, Professor, because we had a pretty nice comeback today, right? We're down 350 at one point after that report came out. And we've come back, right? The Dow closes positive on the day. You've got the S&P 500 above the 200-day moving average. So you think this clears the way for the rally over the next Well, I think what happened during the day was people were beginning to say this isn't that.

And by the way, look, we had 5% year-over-year wage growth. We have 8% inflation. Workers are trying to catch up, and they're not. They're still falling well behind. I mean, you know, it just disturbs me to think that the Fed's policy is to crush wages so they go back down to 2% are basically saying to the worker, you're not going to catch up to inflation and we're going to prevent you from catching up to the inflation. That's an insane policy. And by the way, I mean, I've talked to Bullard about wage inflation. He said, you know, I don't look at that wage inflation when I try to pick, choose, or determine what price inflation is. And he's an Uber hawk. So, I mean, this idea that the worker trying to catch up because he's lost so much purchasing power is something that the Fed has to crush, to me, is extraordinarily bad Fed policy. And I don't think it's inflationary because it's inflationary when wages jump ahead of prices, not when they lag behind prices. And I think what's happened is the market, I think what happened today was big.

And they say is, well, you know, when we look at the price, look what happened to ISM prices yesterday. I mean, that was outside of the few months following the pandemic. That was the first decline in 15 years. And all the other price indexes that we've been taught, all of them are, you know, basically going down. So people are saying, you know, I, you know, you know, despite the wage catch up, the price action is going to be amenable to the Fed greatly slowing down. I mean, my feeling is it's 50.

And, you know, my feeling is, is that that is going to come in that they won't even have any next February. But we'll have to see what happens. They're not indicating that now. But if that does happen, wow, that's good for stocks. Good for bonds and stocks. Yeah. You said a few weeks ago that inflation was basically over. That's what you told me. Yeah. And I still believe it because I don't think this wage, this wage increases catch up. And I don't think that this wage increase by itself is inflationary. Everything else that I see on the price front, everything else. And, you know, I mentioned the the ISM K-shower house index down again, big.

House prices turned to rental indexes are turning negative. I mean, it's not only a slowdown in inflation. It's actually negative inflation on many of these important categories is still coming through. And, you know, we've talked about the fact that, you know, the BLS index and the Fed index lags on the housing. It's going to continue to show those housing increases, which, you know, is going to, you know, if the Fed wants an excuse to keep on raising rates, they're going to point to what I consider a faulty index and not an on-the-ground index of what's happening. And more and more people are, you know, writing me and saying, yeah, I think that that's actually the case.

There's more of a not cognizant. So I am not changing my view that, you know, inflation is basically over. This is catch up wages. And the Fed should not be setting policy to go against that. Well, that's fine. I mean, you're not changing your tune, nor does it seem the Fed share really is either. I'm curious as to what you thought about the market reaction to the Brookings speech the other day. Did the market get it wrong? What did he say? Why? Well, I mean, I call it a quasi pivot on Wednesday.

I mean, the fact is he cement basically cemented in 50. And don't forget, we were wavering. You know, Bullard was despite the tighter policy and slower growth over the past year, we have not seen clear progress on slowing inflation. You know, very honestly, Scott, I don't know what planet he lives on. I mean, there's tremendous evidence of slowing inflation. So the rest of that speech contained a lot of information that, you know, I think was discordant with what the data is actually showing. But nonetheless, the market was very encouraged. They said, all right, he's finally beginning to get it. And as time goes on and more data comes in, it appears he's more amenable to either slowing or stopping. I mean, my feeling is you don't need more than this 50 basis points.

This 50 basis points might be too much in and of itself. But let's be thankful for little things. You continue to surprise me in some respects how critical you remain of the Fed. I don't know what planet he's living on. You know, that's a little harsh. When someone says we have not seen clear progress on slowing inflation, I just don't know where that statement comes from. I'm quoting him. I printed out what he said. I bet you did.

I bet you did. I mean, it's everywhere in the data. Yeah, wages are in catch-up mode. That part we know. But every other price you look at, except the super-lagged housing index that the BOS does, which, you know, was way understated inflation in 2020. We had 10%, 12% inflation in 2021, you know, as I mentioned. And now we're slowing down real dramatically with super-tight policy. And, yes, I am. I'm very critical of the Fed. I mean, you know, to be blunt, you know, here the Fed that caused the inflation by expanding liquidity

greater than any other time in history, you know, is basically talking as if to the worker, we're not going to let you catch up to the inflation that I caused. I mean, that's a slap in the face of the American worker, in my opinion. I just don't think that that is justified. You caused the inflation, now you're saying I don't want wages to go up so that you can catch up to inflation. Is that good public policy, Scott? You're making a big statement, Professor. I can tell the emotion that you have behind it.

You know, I'm not going to judge their policy. I leave it up to people like you. And I'm happy that I get to ask you about it, which I want to ask you about yields as well. What do you make of that? The 10 years at 3.49? We're talking about the rate back in the summer. Yeah. What's that about? Why are rates going down? Well, I mean, they jumped because they said, oh, my goodness, this means that he can justify staying up.

And then they looked at the data saying, you know, this wasn't a strong labor market report. And you know what? Everything else is going to be, you know, the kind of that shock wore off. I think it's going to keep on going down because I think we're having slower growth. We're going to have slower growth. This was not a hot report and we're going to have slowing inflation. Those are two good things for bonds and they're also very good for stocks. I'm not surprised at all. Listen, I'm really sticking my neck out here, but I wouldn't be surprised by the end of next year, we have a two-handle on the Fed funds rate. Now, you know, that's way out of consensus. I know that. And I'm certainly not going to bet my life on something like that. But I'm just saying,

when we get this data in, we're going to get that down very quickly. I mean, the talk is not going to be, oh, is it going to be a 25 now or what else? It's going to be when are we going to decrease the rate? That may come as early as the spring. Now, again, that's way out of consensus. But I'm not going to be surprised if that happens. Okay. I want to tee up what I think is going to be a debate, Professor, because I got somebody as part of our panel today. Let's bring in our contributors, by the way.

CNBC contributor Stephanie Link of Hightower, Greg Branch of Veritas. And, Greg, let's just get right into it, because you suggest that we're closer to the beginning of the hiking cycle than the end. How is that possible? No, no, no, Scott. So let me differentiate two things. I'm happy to be with you fresh in from that other planet that I live on with Hal, with Chairman Powell. So what I think the argument misses, and we hear this a lot, that we're closer to the end of the hiking cycle, and which I would admit that, but I would likely say barely, because I'm now starting to think that the terminal rate for next year is around 6%, which implies that we are closer to the beginning of the impact of the Fed moves.

We all like to say that there's a lag of that. And inflation is sitting at 7.7% on CPI and 5% on PCE4. And these are not levels that are anywhere near the neighborhood of the Fed's target. And so we admit that there's a lag of that. We and that we've been at the level that we've been at the federal hundred-page points to go we haven't yet you know the impact that the feds desire so we naturally must be closer the beginning of what the impact you know when the professor i couldn't be further apart

in your in your view of all of this, really. And, Professor, you know, where you just heard Greg suggest that the Fed funds rate is going to be versus where you just shockingly said you think it's going to be. What's your view of what Greg just said? Yeah, I mean, it's like two points up versus two points. Well, there's a couple things. First of all, I think it's wrong to use year over year. That's really backward looking. You know, Scott, I put the actual rental housing prices in,

the actual case share prices into the CPI index. And guess what? Core inflation, which is what Powell has looked at over the last two months, has been negative. Negative. So, you know, the year over year, yeah, year over year is eight because we had so much inflation. But it is coming down so rapidly.

You've got to be forward-looking. You can't be backward-looking when you implement policy. Greg's forward looking. He sees earnings deteriorating at a much more rapid pace than you do, Professor. And, you know, a lot of people, by the way, are in his camp. And Stephanie Link, I don't know who's camp you're in. You're probably right. Well, I mean, earnings could deteriorate.

But you know what? What's more important for stocks, believe it or not, is that discount rate than the earnings. I mean, you know, we had a tips rate, 10-year tips of minus 1.5% going into this year, and then it went up above plus 1.5%. You can explain the entire decline in the stock market just by that rise in that discount rate. Now, earnings are important, to say the least. And, you know, if the Fed does stay that tight, we're going to go into a recession. Yeah, earnings are not going to be 230. They're going to be 200 or 190 for a couple years, a year and a half. The truth of the matter is, you know, if you do the math, a couple years of even

20% decline in earnings, and I don't think that's going to happen. And then if it jumps up, as you do when you get out of a recession, if you do the math, that means that stock prices should go down four and five percent. Should. Now, psychology will bring them down more. And then they're going to be that great buying opportunity that we all know happens at the bottom of every bear market. But that is an overreaction that you get. But nonetheless, I don't think that scenario is coming true because I think people are going to say, yeah, you know what?

Things are slowing down. The Fed can't be backward looking at what's going on in prices. I mean, that ISM dropping below 50, I think was, I mean, basically saying that firms are saying, I see prices declining of what I am buying as inputs into my production prices, except for the few months around COVID after the COVID hit. We have not seen that for 15 years. Professor, I got I want Stephanie Link to get in. I'm trying to you like a freight train. Once you get started, man, get get off the tracks. You know, they said they had some energy here. I'm adding energy here, Scott. Like you needed a prompt. I mean, come on, Professor. I can always come on, Professor.

I can always count on that from you. Stephanie Link, what side of this argument are you on? Oh, my goodness. OK, I'm somewhere in the middle. The nonfarm payroll numbers I thought were quite strong, but they're a lagging indicator. I much prefer using the four week moving average for initial claims. And, yeah, they're creeping higher, but they're still quite low. You guys have been talking about average hourly earnings.

It was hot. And that's not welcoming to the Fed, right? That's the one thing that we came away with on Wednesday from Powell's presentation, is that he's working and focusing on wages. And if you look at November strength and September and October higher revisions, you're at a 6% annualized rate for that three-month period, right? Even last month, it was at 3.8% annualized. So it's accelerating.

That's number one on top of a core PCE number yesterday at 5%. So any way you look at it, wages are not friendly for the Fed, and the Fed is not going to all of a sudden pivot or pause anytime soon, in my opinion. So I think rates remain higher for longer. The problem is this is right in the face of what Professor Siegel is talking about. The economy is softening, right? Housing jolts, challenger gray layoffs, ISM talking about the prices paid index. That's a leading indicator of inflation by six months. So I get what both sides are saying. But right now, nothing is going to change from the Fed, in my opinion, for the next several quarters. And so we have to live with higher

rates. We'll have to see if they can navigate this. What? That's not in the middle at all, Stephanie. That's not in the middle at all, Stephanie. That's not in the middle at all. I mean, I like your diplomacy, but, you know, I'm basically in sync with everything you're saying. I'd add to that, right, having a third quarter GDP number revised upwards to 2.9 percent, as well as unemployment sticking at 3.7 percent, and it jumps with everything you just said said gives them the leeway for that additional 300 basis points and if that happens then again the numbers for 2023 are too high they're not going up 250 basis points from here in terms of the fed funds rate they're not not

when you have in the face of slowing a slowing economy and that's where i'm kind of i differ from you but i also hear what you're saying in terms of earnings and that sort of thing. You know, GDP this year is going to be below one percent. It's not storming ahead. First two quarters were negative. We did blip up on the second kind of wiped out the negative of the first two. There's a lot of discussion on what's going to happen this quarter. People I follow says, you know, the you know, the Atlanta GDP now is way too high. I'm getting people are saying it's one and a half to two, which would put this year sub one. That's not

strong, really. That's not a strong economy at all. But it's not a recession. And people are saying that we're in a recession right now. No, it's not a recession. It's not a recession. Not yet. If you go to six percent%, you're going to definitely have it. If you go to Greg's number, you're going to have it. Not yet. I don't think they're going to 6%. I think they stay at about 5%, and they just stay longer, higher for longer. I don't think they go to 6%.

But, you know, this higher for, you know, I keep on bringing up, remember a year ago, September, Jay Powell said no increase in Fed funds will be necessary for 2022. This was in September of last year. So now, I mean, when they increase it all, you know, how many times are we now to believe that they know what's going to happen in 2023? No, they're just going to follow the data. The data is weak. The price index is low. If they say maybe we should use some more current indexes and it's not so bad, maybe wages are just really catching up and not causing this inflation. You're going to see a big change in tone. Greg, Greg, you know, the Fed's not going to be able to get to 6%. No matter what they say. I mean, come on now.

You really think that they're going to get to 6% on the terminal rate? They're going to go, what did you say, 250 to 375 more basis points from here? Come on. 250 to 300. That's my call, Scott. How many times have people said that what I was saying was crazy? I've heard that for a year now. So, look, and I'm going to point something out about what Stephanie said.

Higher for longer poses a problem. Remember, when the Fed talks about battling inflation, what they talk about is battling the structural ingrained notion and expectation of inflation. And higher for longer doesn't help the Fed, right? What the Fed is trying to do, they tried to do with these, what other people call gargantuan 75 basis point raises, is step it up now before it becomes the ingrained expectation. And there's evidence that that's happening. That's why we see a really depressed consumer confidence number for the last few days. And so higher for longer doesn't get us there. I'm going to give you another hot take.

My bet is that we're going to see 75 in December. Do you think we're going 75 see 75. Steph, you know what I don't? You think we're going 75 and not 50 because of this report? I don't think so. I mean, my opinion is 50 is virtually baked in. You never know. They could go 50 this time, and they could go

50 next time, too, which not very many people have. But that's not until February. I don't think you're going to see the hot data that is going to make them go 50 again. I think you're going to see cooling data that is going to make them think of much less. You better hope not, Professor,

because your outlook doesn't work if they do, right? That totally upsets where you think stocks are going to go. No. No. But they're going to see less inflation and lowering the remember, lowering the discount rate is really important for stock prices, because that's a major reason why we had the bear market is that we had the sharpest increase in real interest rates that we've had since World War Two. And that, you know, you just apply a discount rate to cash flows,

and wow, you saw what happened. So if they lower the discount rate, even if we have some slowing in the economy, lowering the discount rate is a better thing for the stock market. Okay. Now, if we cause a bad recession, that's something else. But it's not, don't forget, it's a slowdown in the inflation. You know what I think is going to happen next year?

What are you going to say, Mark? Did you say $190 for next year? Did you say $190 for next year was your expectation on S&P? Did I hear you right? No, no, I say that's a terrible worst-case scenario if they go to your level, Mark.

Greg. Then we go to your level mark greg yeah then we go to one yeah i'm not saying no no i think it'll probably be around 220 um maybe yeah you by the way let me say something we have this is the last word professor professor i've given you so much leeway please let me give you the last word and then we'll wrap it up. OK, please. OK, go ahead. One last word. We had four and a half million new workers, almost no GDP increase. I think next year, I think what we're going to have is much lower payroll growth and much better GDP because that record decline in productivity that we had this year,

I think is going to reverse in 2023. People are going to start working again and saying, you know, you can't fire me anymore. People, firms are going to be firing people who don't work. Productivity is going to go up. That improves margins and is good for profits. All right. We're going to make that the last word. All right. I love that conversation. Spirited for certain. Thank you so much, everybody. Stephanie, I think you're coming back a little bit later, thankfully, too,

because you deserve your voice to be heard more. Professor, thank you. Gregory, thank you as well. You guys have a great weekend. Steph, as I said, I'll talk to you again in a little bit. Let's get to our Twitter question of the day. We want to know, did today's jobs report dash hopes of a year-end rally? You can head to at CNBC Overtime on Twitter to vote. We'll share those results a little bit later on in the hour. Do not go anywhere.

We are just getting started here in overtime, as if that wasn't spirited enough. Up next, bracing for a big reversal, Cantor's Eric Johnston is back, and he's sounding the alarm on stocks. We'll talk to him coming up next. The S&P 500 closing out the week in the green, adding to a near 16 percent rally off the intraday lows from October. But our next guest thinks the recent rebound is set to reverse into the new year.

He's back with his bearish view. Joining me now is Eric Johnston of Cantor Fitzgerald. Welcome back. It's good to talk to you, Scott, how are you? Good to see you. I'm good, thanks. And look, I want to get right into this because I'm confused, okay? I'm confused. The last time you were on with me, you said your conviction for a rally was very high. And one reason you gave, if I recall correctly, and I think I do, that Powell was going to signal that the Fed was done in December. We haven't even had the meeting yet. Has that view changed? And if it hasn't changed, then how has your market view changed? Sure. So, you know, as you know, we are not going to apologize for the fact that we, you know, called thepoint sell-off in the S&P, and then at 3,600, we closed out our bearish view and turned tactically bullish. We're now about 10% higher

than that. And based on a few reasons that I can go through, we're now turning bearish and quite bearish. For the December 14th meeting that you're speaking about, I think now that the Fed is either, after the 14th meeting, 90% or 100% of the way done, and that the market is going to move away from, is the Fed going to 475, 5.25, or 5, to what is the growth outlook going to look like over the next 6 to 12 months? And I think that growth outlook is going to look very poor. But I think the news is really out. The Fed's going to stop somewhere around 475 or 5%. And that's what the market is now pricing in. And I think that the Fed has done narrative, is now more than priced into stock prices. So is December 14th the last hike? I don't know. There could be another 25 bips maybe

after that. But but for all intents and purposes, I think that they are close to done after that meeting. So what do you make of the move? Now, what do you let me ask you about the price action, for example, today? OK, because you're a tactical guy and you follow day-to-day moves closely in the way that helps you formulate, you know, part of your thesis to make your calls. Market had every reason to be ugly today. And it was early and it fought its way back. It also rallied off the Fed chair who really didn't say anything new the other day. And then bond yields fell later on in the day too. What if those have peaked? How does all of that, if you mix it up into your, put it in your blender, what comes out? So I think the move in the 10-year yield that you spoke about is interesting

because for most of this year, higher bond yields have been bad. Lower bond yields have been good for stock prices. If you look at the yield curve right now, and you look at the three-month, 10-year yield curve, it's inverted by about negative 82 basis points. The last two times it was inverted by this much was 2007 and the year 2000. And the reason why it gets this inverted and why the Fed funds rate is going to 5%, yet the 10 years at 3.5%, why is that happening? Because the bond market is pricing in that we are going to have a significant slowdown in the economy, that inflation is going to come down, but it's going to come down because the economy is slowing. And that ultimately, because of that, the Fed's going to need to cut rates.

But when the Fed is cutting rates, that's not a good thing for equities. They're cutting rates because the economy is very poor. And when the economy is very poor, earnings estimates get hit hard, which is what we think is going to happen. So the market is changing. And that's why now lower bond yields. And I understand today we had a big rally and close close to unchain the day. But I think lower bond yields are now going to be looked at almost

as a negative because the real concern going forward, we think, is going to be that about the economic growth outlook and not what the Fed is going to be doing. Well, let me ask you this. Why be so time frame tactical in the way you're looking at the market? I'm looking at at certainly some of your calls have been obviously correct. But but if I look back and I say, well, on October 3rd, you know, Johnson turned tactically bullish. And then on 11 three, like a month later later, you closed out the bullish call. The S&P was up 1% from turning tactically bullish to bearish. Why not just stick with a longer term view of the market rather than being so tactical?

This is a tough market to be tactical in, isn't it? Very tough market. And just to be frank, I mean, for the last two and a half years, we've nailed it, right? I'm not sure what exactly you're referring to, but if you go through our record, the reason why we're tactical is because we're trying to make people money. We were bearish from $4,700 to $3,600. Let's be clear. Let's be clear. No, let's be clear. And I want to make this perfectly clear. I am not questioning in any way your long term record. I don't have the statistics back to the last couple of years.

And I'll give you obviously the benefit of the doubt. And I trust what you're saying. I'm and I'm not in any way calling B.S. on any of that. I'm simply suggesting more recently it is an incredibly difficult market to try and tactically call. We've had a hell of a rally off of the mid-October lows. And maybe that's reason enough to be negative in thinking that we just came a little bit too far too fast. But when the last time you were on suggesting that one of the principal reasons that you were as bullish as you were was that the Fed chair was going to say or signal, more so than say, at the December meeting that we're done. And that was a key reason to be

bullish, but now turn negative two weeks before the actual meeting is confusing, I'm sure, to some people. And I just wanted to give you the platform, frankly, to clarify that, because people talk about it. They ask, like, well, last time he said this, now he says that. Sure. So one big point is we were at $3,600 and now we're at $4,000. And so that's a 10% swing in the market. And when I think that the upside from $4,000 or $4,100 is extremely limited, the risk reward in being long equities at $4,000 or $4,100, we're trading at 18 times earnings, is very bluntly is terrible. And so you have a situation right now where there's no upside. And we think that there is an easy way to get a fair amount of downside in the market because we do think that in January, estimates will come down.

So I told you that in the October reporting season that I did not think that earnings estimates were going to come down during that season. And that was accurate. For the January season, which is the first month of 2023, I think companies are going to reset earnings expectations and we're finally going to see that big drop in earnings estimates. And I think if you look at the 2023 versus 22, the environment, you're going to have a higher Fed funds rate. You're going to have a higher 10-year yield. You're going to have QT versus QE in 22. All these factors, and I can go on, are going to be much worse in 23.

It's going to be a very poor operating environment. And one more point about today's employment report is a good example. Margins are going to get hit hard in 23. Wages are higher and the goods prices are coming down. That's very bad for margins. I feel like I have a much better idea and understanding. I think our viewers do, too, about the kind of calls that that you make and why you do it. The facts on the ground change. I get it. The markets rallied a lot. I get that, too. And maybe it did. Maybe it did a little bit too much too quickly. But we'll see. I appreciate the conversation, your time as well, Eric. Thank you. Thanks, Scott. All right. That's Eric Johnson

from Cantor joining us here. Time for a CNBC News update with Contessa Brewer. Contessa. Well, Scott, President Biden met with Prince William at the John F. Kennedy Presidential Library and Museum in Boston today, and the two exchanged pleasantries, as they might, posed for the cameras outside the museum. It's the last day of a three-day trip for the Prince and Princess of Wales and the royal couple's first visit to the United States in eight years. Brazilian soccer legend Pele remains hospitalized in stable condition in Brazil after a respiratory infection.

The 82-year-old was admitted Tuesday, and he's got to stay in the hospital for the next few days to continue treatment. In an Instagram post, Pele said he was at the hospital for a monthly visit, and he thanked his supporters for their positive messages. And if you're looking to book a visit from Father Christmas this season, or if you want to see him at the mall, you might want to pack your patience and expect longer lines. You also might be too late if you want a personal visit. Hire Santa says demand for St. Nick is up 30% compared to last year and 120% from before the pandemic. And this company says the U.S. has more than 2,250 positions open for that role.

Somebody who's good can apparently, Scott, pull in 20 grand in one season. I know we don't have a lot of kids in our audience, but still I feel like I'm very carefully walking a tightrope in how I deliver this story. I think you did a great job, Contessa. Thank you. That's Contessa Brewer. OK, up next, stocks falling on the back of today's jobs report. The Wall Street Journal's Nick Timoros, he is with us after the break. What's his outlook now

for the Fed? He's going to tell us next. All right, the countdown is on. Less than 12 days to go until the next Fed decision is announced. But given today's hotter than expected jobs report is a 50 basis point rate hike still the expected move. Let's bring in Nick Timoros, chief economics correspondent at The Wall Street Journal. Good to see you. Welcome back to Overtime. Thanks for having me, Scott. So does this do anything to that conversation about 50 next couple weeks? You really haven't heard anybody talk about 75 basis points for this meeting, Scott. So no, I don't think so. The committee has been communicating quite a bit about stepping

down to 50 basis points. You saw in the minutes from the last meeting, which came out last week, a substantial majority arguing for a step down after that November meeting. So I don't think there's a lot of suspense here. We do have that CPI report in two weeks on the first day of the meeting, December 13th. But it is hard to see what could change them at this point because they've just been so clear in their communication about why they are stepping down to 50. There's a lot of conversation, obviously, this week about the market reaction to the Brookings speech, in which Jeremy Siegel, certainly the esteemed professor of the Wharton School, told me a little while ago in this program today that Powell did a quasi-pivot.

Did you see that? Was it a quasi-pivot? How would you characterize what he said? I don't know what people are talking about when they talk about a pivot, you know, these pre-pivots or pre-pre-pivots. Sure, if you want to call it that. But, you know, I think a lot of people were struck by the fact that at the November press conference, he had said, you know, we can't make the mistake of underdoing it. And then on Wednesday, when he was asked about risk management, he said, well, we don't want to over-tiden. I think the two things can be true at the same time. But people were struck by the fact that he emphasized maybe the more dovish version of that on Wednesday, when he had emphasized the more hawkish premise around risk management a few

weeks ago. You know, I think it's early innings here. You still have to see what the data is going to show. This was not the wage growth jobs report that the Fed wanted to see today. And so it's just early innings. And I think trying to predict what's going to happen beyond December is very, very difficult. You could have, you know, a 25 basis point increase. You could have a string of 25 basis point increases, and they could do 50 in February and then do 25 basis points after that. It's just,

there's still a lot of data to come through. But given what you just said, that it's early innings, what do you think the Fed chair himself thought of the rally on the backside of Brookings? You know, it's hard to say. I think when you look back at July and August and you had the easing in financial conditions there, you had a much lower federal funds rate and you had barely positive real rates. So there is a difference right now if financial conditions are easing because people think that the inflation picture is getting better. You know if they're misreading the Fed's reaction function that could be an issue for the Fed but there will be a new summary of

economic projections in two weeks and so there's an opportunity there for them to show you know they're slowing down because they think they're getting closer to their distance. When I go driving down the freeway, when I think I might be getting closer to my exit, I get out of that far left lane, I turn on my turn signal, I get over a lane or two, you know, I'm not stopping the car when I do that. And I think that's what you're seeing right now. The committee thinks they're getting closer to their destination, even though they're not there yet. So they're getting out of that high-speed lane, and you run the risk that you're going to miss your exit if you keep going down the highway at 75 miles per hour. Lastly, and I do got to run, I mean, bond yields are down.

The yield curve is massively inverted. How concerned are they about that, even if they are far from finished? Well, I don't think the yield curve inversion matters as much as it would have, say, four years ago, because inflation is a huge problem right now. And so if that's the market saying that they think the Fed's going to get on top of inflation, and then that means the Fed still has to follow through on what's priced into the forward curve. So I think it's a different situation. You can look at how inverted the yield curve is compared to the last two times, as your last guest did.

But, you know, inflation wasn't a big problem in 2000 and 2007. Appreciate your time so very much. Have a good weekend. That's Nick Timberlake, Wall Street Journal, joining us there. Yep. Up next, tech stocks taking a beating in 2022. Altimeter's Brad Gerstner, though, outlining a new way to trade that space. He did that yesterday right here in OT. We'll debate it in today's Halftime Overtime next.

We're back in today's Halftime Overtime. The Gerstner guidelines with the Nasdaq down 27 percent in 2022 and pacing for its worst year since 08. There are questions about whether tech can work in the new year. According to Altimeter's Brad Gerstner, the tech playbook for investors requires a newfound focus on the bottom line. I think that you, you know, you can either fight the last battle, which will be pretty painful, right, or orient and position your portfolio for 2023. I think the things that you want to own to the extent you're going to be in technology, need to be those beaten up names with real free cash flow support. There are big cap names trading at historical lows. All right. Hightower Stephanie Link is back with us.

Hi, Steph. Good to see you again. No distractions. No other voices. Good to see you. I see you. I see you added to meta this morning, which really is interesting to me. It seems to speak exactly to what Gerstner, who is a big Meta shareholder, is talking about.

Yeah, I've been suffering with Meta, as you know, all year long. But I do agree with with Brad. I think that free cash flow in general for any company, any industry is super, super important. And I think with Meta, and by the way, I did add to it, it's not my largest position in the portfolio. With Meta, I think people think the entire business has gone south, right? And it really hasn't. They have a legacy business and they have Meta. And we don't know what about Meta, and I know they're spending a ton of money on it, but they do have a strong legacy business. And they do have size and scale in terms of monthly active users, daily active users. They're making tremendous strides in reels with three billion dollar revenue run rate last quarter alone. So they are making they are making some progress there. I think they can monetize WhatsApp. And he even alluded to it. And then you have this big cost

cutting story. Right. So they're going to cut 13% of their heads this year. And so expenses are going to go from 22% year over year growth to 12% next year. That has really positive implications, I think, for margins. And their CapEx is also going to go from 9% this year in terms of growth to 6% next year. So there's a lot of things that they can do to try to stem the tide, if you will, on the legacy business. So I think at 11 times earnings, the stock is super cheap. You know, I want your broader view because I know that we have a lot of viewers throughout the last year or two, perhaps even a little bit more, who got into a lot of those high growth,

high flying, high valuation tech stocks that have gotten absolutely creamed because many of them are unprofitable. I thought it was really an eye-opening statement to hear Brad Gerstner, who lives in this world of technology investing, suggest we are in the midst of a sea change where it's about positive free cash flow. And the other kinds of stocks, those stories are kind of done. They may never get back to the levels they were and probably won't either from a price or valuation standpoint. Your view on that is what? Yeah, no, I mean, positive free cash flow and also earnings and earners, right, and earnings growth.

And so to me, that's what I focus on in general. It's very hard to value companies that don't have earnings And when you start looking at price to sales and peg ratios and this and that it's very complicated momentum on the way up is Phenomenal right but on the way down there's no valuation support for companies that don't have earnings So I think he is right and I think that some of the names that he highlighted yesterday were interesting Some are still too expensive for me, Scott. In fact, most of the FANG names are too expensive. Meta is the only one that I think is interesting. We talked about Alphabet, too.

That one's on my radar. But again, you know, I think you just got to be careful in terms of long duration assets, because if you think like I do, that rates are going to stay higher for longer, that's going to be hard for long duration assets, technology in specifics, as well as growth stocks. I appreciate your patience so very much, Steph. When the bullet train is on the track, just get out of the way. That's the lesson for today. I got a great weekend. We'll see you soon. That's Stephanie Link. Hi, Tara. We're closing the books on another big week for your money. Your rapid recap is coming up next. We're back in overtime as we wrap up another big and busy week.

Let's get to Seema Modi with your rapid recap. Hi, Seema. Scott, despite today's losses, markets closing higher for the week, the week second in a row, led by communication services and consumer discretionary. We also saw names like Monster Beverage and Gilead Sciences trading at new 52-week highs. Within tech, the story once again dominated by Chinese tech stocks. Pinduoduo gaining 31% this week. Baidu, JD.com all seeing double-digit percentage gains as investors continue to bet on a reopening. On Monday, we will get manufacturing data from that country. And some nice price action and commodities ahead of OPEC this Sunday.

Oil seeing its first positive week in four as the dollar weakens. And gold hitting its highest level since mid-August on hopes of a slower Fed rate hike. That's the Rapid Recap. Scott, back to you. All right. Good stuff, Seema. Thanks so much. Have a good weekend. Coming up, the answer to our Twitter question. And coming up on Fast Money, what they are calling the chart of the quarter. That's at the top of the hour. OT right back. All right. Weigh in on our Twitter question. Did the jobs report dash hopes of a year end rally? Yes or no.

The results are next. No, is the answer to the Twitter question. Have a great weekend.