Closing Bell - Closing Bell: Stocks Rally, Mario Gabelli's Top Picks & Hopes For Housing 11/22/22

Episode Date: November 22, 2022

Stocks soar following a batch of strong retail earnings and expectations the Federal Reserve will slow its pace of interest rate hikes. Goldman Sachs Chief Economist Jan Hatzius on why he thinks the Fed will be able to achieve a soft landing and avoid an economic recession. Famed investor Mario Gabelli discusses the market rally, his top picks, Disney's CEO shakeup and why he is betting on baseball. Abercrombie & Fitch shares soaring after reporting strong earnings. CEO Fran Horowitz discusses the state of the consumer and how the company has been able to avoid inventory issues that many other retailers are struggling with. And JPMorgan's Michael Rehaut explains why he is turning more bullish on homebuilder stocks despite so many headwinds hitting the housing market.

Stocks are higher in today's trading as retail earnings give a boost to sentiment. We are sitting at session highs as we speak, up 350 on the Dow. This is the make or break hour for your money. Welcome, everyone, to Closing Bell. I'm Sarah Eisen. Take a look at where we stand overall in the market, up 1% there on the Dow. Nicely on the S&P 500 with every sector now in the green. Energy takes the lead today. That sector up 3% as oil prices stabilize. Materials, technology, communication services, that's all on the top in the green. Energy takes the lead today. That sector up 3% as oil prices stabilize.

Materials, technology, communication services. That's all on the top of the market. It's why the Nasdaq is rebounding after yesterday's weak close. About a full percent right now. Small caps up a little more than half a percent. They're lagging. Treasuries also getting a bid today. Yields are a little bit lower, down to 3.7 on the 10-year.

The dollar is weaker. All of that supportive for the stock market. Check out some of today's big earnings movers. Abercrombie, American Eagle, Best Buy, Dix. They're all getting a lift right now. We've got a big hour coming your way. In just a moment, we'll talk to legendary investor Mario Gabelli about Bob Iger's return to Disney. He's known for his media calls. And we'll get his top picks in the space right now. Plus, Goldman Sachs chief economist Jan Hatzius will be with us to break down the latest signals from the Fed. And we'll hear from the CEO of Abercrombie & Fitch, which is spiking today after posting a surprise quarterly profit. Let's get straight to our market dashboard, though. Senior markets commentator Mike Santoli, what's on your radar? Pretty broad rally.

Thanksgiving tends to be positive, right? Yes. So you do have some seasonal tailwinds there, no doubt about it. But we've been talking in recent days about how the market was having this very sort of orderly, low drama consolidation of that rally. Not any selling pressure coming in. Very modest pullback. And it's gone sideways. Now, where we sit right now, right at this level, just under 4,000, this is slightly above the closing high for this rally, which was a week ago Friday. We also did get above 4,000 intraday a few times. 40.28 is the high for this move. So it's kind of inching in that direction.

But you see what, you know, since the low in October, you've seen a series of these sort of higher lows. It's the stair-step type action you want to see. Now, of course, the big test comes a little bit above here when you're going to have to challenge the overall downtrend. So just strictly on a tactical basis, that's where, you know, if the market is going to go to that point of kind of maximum mutual frustration or suspense, it's going to be more like 41, 42, 100. You're going to make the bulls and bears both make a decision as to whether this is sustainable or not. But so far, pretty constructive. Take a look here, though, at economists' consensus expectations for the probability

of recession in the next 12 months. Most notable, this is a very long-term survey of the Philly Fed, goes back more than 50 years. By far, the highest percentage probability of people saying we're going to have a recession in 12 months. Now, still less than 50 percent, but it never gets to 50 percent. What I find interesting is how much lead time there has been to prior recessions when you got one of these spikes, often very long, often more than a year. And people think we're in the clear and then we get the recession. Right. That was actually the unusual part when it was right up against the 2020 covid recession. So the point being, we're pretty braced for it. We already got the 27 percent peak to trough decline in the S&P. You often get with a bear market related to a recession. So

I guess my point being, Sarah, is if we get the blow, it's not going to be unanticipated. Maybe it just sort of doesn't come on time or maybe the Fed's been so explicit about how it has to cause pain to the economy that we've gotten the message. It's one of the most telegraphed recessions I can remember. And it's a very compressed cycle too, right? Because we kind of stimulated our way up into it and now trying to suppress it. Although not as compressed as the COVID recession,

which was like a minute. Well, I'm saying the cycle going from that point on. Yeah, exactly. Mike, thank you. Mike Santoli, talk to you later. Disney's Bob Iger already making changes at the company after taking back the reins this week, including a restructuring plan and firing a top executive.

This, of course, comes after Iger replaced his successor turned predecessor, Bob Chapek. The stock pulling back a little bit today, giving up some of yesterday's big gains. Joining me now exclusively on this and many other stocks, GAMCO Investors Chairman and CEO Mario Gabelli. Welcome back, Mario. Good to have you. Great to be with you, particularly on a robust day and just before Thanksgiving. So I can wish you and all the traders and investors the best. Happy Thanksgiving to everyone. So what about Disney, Mario? Clearly, this was celebrated by the markets, Iger's return yesterday. Do you share that optimism about

his return? Great question. You go back when Eisner left, he wanted Frank Wells to succeed him. Frank died in an airplane crash. Mike Ovitz was hired. Mike Ovitz left very quickly. So then Eisner took, Iger took over and now you have a similar change. And from my point of view, the franchises are terrific. The stock is interesting. And obviously, with a market cap of $220 billion enterprise value, that's the same enterprise value as Comcast. But when I look at this whole ecosystem of entertainment, aside from, you know, we can talk about streaming music later, but independent of that, you have a company called Paramount. Paramount has almost $20 billion of content spend, and that compares with $30 billion

for Disney, and it compares with similar amounts, smaller amounts for Netflix and so on. And so when you look at a company with an enterprise value that is 661 billion shares times $20 approximately, and then you add the debt of $11.5 trillion, a billion minus what they're going to sell Simon & Schuster for, and then you look at the cash flows and you look at Bob Bokish doing a very good job. You know, I've got a double or a triple. And yet it's selling at a fraction, a fraction of the market value of Disney. So I like the ecosystem. I give the viewer what they want, how they want it, where they want it, when they want it, the lowest cost.

And they'll all do that. Meanwhile, we're talking about sports and entertainment. I don't want to get into, but, you know, baseball. I knew you were going to bring this up. Wait, wait, Mario, before you move to baseball, because I do want to talk to you about that, I just want to zero in on something you said. So you're more excited about Paramount than Disney. I know you're a shareholder of both stocks, but it sounds like you took that question

and you said Paramount's trading in a better spot for you. Oh, and by the way, Warren Buffett's been buying it. Sarah, if you're Amazon, if you're looking at how much you're spending on content, Amazon is spending like $17 billion. You can buy all of Paramount. Now you'll have to pay up, but that's not the point. The point is that which is going to be successful? Both. But if one is more successful, do I get a double or a triple out of Paramount? All they have to do is eliminate the dividend, do a few other minor financial engineering, you know, and it works. So don't ignore Paramount just because short-termism is having a challenge. Don't forget in 2024, linear television, including the O&Os at both Paramount and if they sell those or spin them or do something else that would be more interesting to an Amazon or an Apple. But basically, you're going to have a tsunami in political spending.

And that's not baked into these companies. And in addition to that, the debt will the amount of losses in the direct to the consumer will start coming down. So you've got to be positive. Yeah. So quite the opposite is being baked in right now, Mario. There are concerns about a recession and about a big slowdown in advertising spending, layoffs, belt tightening. Yeah, we got all of that. How bad is bad? How long is it going to be bad? What happens when it's good? I'm very optimistic in 2024 about what China is going to be doing, what Europe is going to be doing, what the United States is going to be doing prior to the... Now, give me some examples. I like baseball. It's not going to have an impact. The Atlanta Braves are selling at 33. Malone and Maffei just said they have an active trade of business.

They're doing financial engineering. The LA Angels are up for sale. We'll see. I think you're going to get a mid-40s type price, so play ball. Secondly, you've got the aerospace and defense industry, and there I like a couple of companies like Aerojet. The Justice Department turned down the deal. This time around, they'll probably

approve whoever they come with because of the hypersonic capabilities they have. You know, there's a lot of stocks that you want to own despite an economic contraction. Give you another example. Farm equipment. John Deere is reporting tomorrow morning. Yes. The American farmer, the American farmer works fence the plows, fence the fence, and they are going to get $525 billion of cash flow from livestock and commodities here. Last year, they got like 400 odd. And so where are they going to spend the money? Are they going to be equipment available? Will they be able to do automated farming? Will they be able to do other things? And so I like Case New Holland. The stock's

15. They're going to earn a buck and a half, 1.3 billion shares. And, you know, it's a very attractive company run by a new guy. Scott Viner came out of Polaris. So there's a lot to do. And then, Sarah, I covered the auto industry for a long period of time and I've gone through these economic cycles. And so the question is, when will the market discount that? Now, tomorrow, the FOMC minutes will come out. You'll figure out what they're doing. And that's another telltale. You know, if I'm Powell, I want to go down.

You know, we worry about COVID rebounds, okay? You take a Paxlovid, you're going to get, you have a chance to rebound. Well, inflation could rebound. So he's got to stick with rates. He's got to stick with the runoff of the amount of four billion dollars that a trillion dollars that he's put on the balance sheet. He's taking down about ninety five billion now versus putting in one hundred twenty five negatives and so on. And he's got to keep the rhetoric up. So you've got a lot of things going on. You've got a lot going on. And you've got a lot going on in your head.

So I want to hit a few of those stocks that you threw out there. Maybe we'll start with Deere. Because as you say, they report tomorrow. The stock has actually been really strong over the last year or so. It's sort of bucked the market trend. Farm incomes, as you say, are very high. But can they deliver the equipment for the demand? For today's purposes and for your listeners, I'm picking Case New Holland. And John Deere is like $415 with 300 million shares.

You're talking about, you know, $120 billion market cap. This other one here is like $20 billion. So when I look at the morsels that can do significantly better with a new management, you talked about Iger coming back. Well, they've got a new management at Case New Holland. I think he's going to put them into more automated equipment. He's going to do a lot of things. And you've got to earn $2. So I like that. I like American pharma working. I think, unfortunately, we have a crisis in the world on food and we have to figure out how to allocate it. We have to bring it to the farmer. We have to deal with water, another crisis.

And then you've got an energy crisis. I mean, just think about the headlines yesterday, Sarah, about the Saudis cutting production. Well, the Americans have been taking a million barrels a day out of the Strategic Petroleum Reserve. They got to stop. That means the supply is reduced by a million barrels. So, you know, there's a lot going on. It's all so much fun. It's so exciting. And so you like energy. Are you adding to energy exposure? Yes. The amount of money in CapEx has been chill relative to four years ago. The amount of CapEx by the majors and the independents, both in the United States on a global basis, is still materially lower. And with prices of oil at $70, $80 a barrel, you start having to think about replenishing those locations and that equipment.

So the Schlumberger's, the Halliburton, the drill quips, I like that sector. And I think they're going to benefit from this significant tailwind. And you can't keep part. You can't take any more. A million barrels a day for the last six months out of the strategic patrolling reserve. That's not going to you can't do it anymore. It's supposed to be, I know, for emergency reserves. And I think they're going to have to answer for that that soon enough. But back to the emergency reserves were for political reasons as well as practical ones. Well, the midterms are over. So Mario, just on the media stuff, let's just go back to that for a second, because the Disney story is obviously a big deal. And you kind of downplayed your

excitement over Disney. I think that the presence of a new investor, Tryon and Nelson Peltz, is interesting as it relates to this story. Do you think that he should get a board seat? Do you think that Iger should work with him? I applaud anyone that has proven ideas over an extraordinarily long period of time. You have to listen to them. If Nelson's got a billion dollars worth of Disney and he happens to like Cinderella, you know. But when you think about the A's, I gave you agriculture, I gave you aerospace and defense. I gave you Atlanta Braves and Avatar. The market's going to be excited when that movie breaks in a couple of December 15, whatever that whatever today is, you know, less than 30 days. So you have a lot of pluses in Disney. And Iger is, you know, less than 30 days. So you have a lot of pluses in Disney. And Diger is,

you know, going to have a solid hand. But when I look at where I can make a higher percentage return, risk adjusted for my clients, and I look at Paramount, and then I have the family controlling 30 million of the 40 million voting shares, and my clients own four of the 10 million, you know, I have to applaud the efforts of, of like Warren Buffett has owned 92 million shares now, you know. So there's a lot of interest. And in addition to that. What? What about deals? A lot of people look at Paramount.

A lot of people look at Warner Discovery. His valuation has been cut in half this year. Well, yeah, that's a great. Sarah, that's a good point. I left out David Zasloff. He had 700 million shares outstanding before he did the deal. He added 1.7 billion that was given to AT&T. They dumped it on the market. ETFs couldn't own it. Individual investors are taking tax losses. The stock's 10. So you multiply 10 times 2.4 billion is 24 billion. And then he's got 50 billion in debt. But the smart guy, I may have that maybe 45 billion, but that he has 80 percent of the debt fixed at four percent interest.

So unlike others that did transactions. So Zaslav is going to work his way through these potholes. He's going to do quite well over the next two or three years. And at some point when this tax selling is over, which is going to happen shortly by individuals, you know, five weeks more, then you're going to have basically fundamentals come to the forefront. And it's going to be a slog. And he's got his job cut out, but he's going to pull it off. Which he's got his job cut out, but it's going to he's going to pull it off. Which do you think is a more likely acquisition target? I got this company that's going to try to merge. You have a lot of props. What?

You have a lot of props. What are you holding? I'm holding annual reports that came out within the last three weeks of Fox and News Corp and trying to figure out how they should make love to each other. From my point of view, if I were Murdoch, I would take one share of Fox and give it to News Corp, and I'd give a contingent value right, saying that the combined merger will have a Fox over 35 or 40 within a certain period of time. And they're going to have six times EBITDA, and they're going to have X dollars of debt. And they're going to have six times EBITDA, and they're going to have X dollars of debt, and you're going to have sports and news, and maybe you'll spin off something in the interim. So there's a lot going on in the M&A,

in the entertainment business, and what does Iger do with Hulu, and how does he pay for that, and what does he got to pay, and how does he negotiate with Comcast? Yeah, so you've got a lot to talk about over the next 18 months. You've got a lot to talk about over the next 18 months. Mario, we're lucky to have you. Thank you very much. Again, thanks to all. And, you know, a couple of years, not a couple of days.

Goodbye. Thank you, Mario Gabelli of Gamco. Take a look at shares of Abercrombie & Fitch. They're soaring today, gaining back some of the big losses they've seen over the year as the company posts an unexpected profit for the third quarter. Solid outlook as well. Investors excited about inventories and margins. We've got a lot to talk about with Fran Horowitz, the CEO of Abercrombie, on that 19% spike in the stock today. What's she seeing for the holiday season? You're watching Closing Ballot. Session highs here.

Dow's up 380. We'll be right back. Stocks are holding near session highs in this final hour of trading. Take a look at Abercrombie & Fitch surging after beating top and bottom line estimates this morning. The company did see a spike in demand for jeans, tops, dresses, thanks to consumers returning to the office and getting together more. Joining us now for a Closing Bell exclusive interview is Abercrombie & Fitch CEO Fran Horowitz from Columbus, Ohio. Fran, nice to see you. Hey, Sarah, nice to see you as well. Thanks for having me today.

You're welcome. So sales and margins looks like came in better. What was the big surprise that caused the improvement this past quarter? You know, a great day for the team here on campus. Our Q3 results beat our expectations on the top line and the bottom line, to your point. Abercrombie's momentum is terrific. 500 basis points better than last quarter. We saw a nice improvement in Hollister as well. In fact, it's even given us the confidence to raise our outlook. The consumer is responding so nicely to our product. The weather turning has been very helpful, seeing great response to our cold weather categories.

Lots of exciting things happening. And it sounds like you expect the improvement to continue into the holidays. As you said, you raised guidance. How should we look at that in the context of some of the other warnings we've gotten from other retailers, including, I'm thinking, Target, especially warning on the big slowdown in consumer spending, especially on discretionary items like apparel? So we're seeing an interesting thing from our consumer. We're actually seeing a little bit of a bifurcation from our consumer. Our Abercrombie brand, our adult brand, the consumer is not feeling as pressured as our Hollister consumer is. But when we had our, you know, a little

step back during back to school, we got very close to our customer. We really understood what they were looking for. We were able to shift our receipts to make sure we leaned into the categories that they were looking for. And additionally, we also were able to reduce our receipts relative to trends. We feel our inventories are really in line and ready to go for the last quarter. Yeah, and analysts were happy about the healthy inventories. So, Fran, what does it mean for pricing? Everybody's talking about how this holiday is going to, every holiday is promotional. But this one is going to be even more promotional because all that inventory needs to clear out and the supply chain is finally improving. What does that look like for you?

You know, it's interesting, Sarah. Right? I mean, inventory has been such a topic all year. And the real question that you have to ask is, what is the value and the content of that inventory and how current is that inventory? And our inventory is current. It's 92% current. We are very pleased with the way and healthy that it is by brand, by gender, by category. So the real issue is, what is the content of that inventory? We've cleared through these things all year that haven't been working, and we are well positioned as we're heading into the fourth quarter. One other thing I sort of jotted down that I heard you say on the call today was that you are a net

store opener for the first time in a decade. And it just strikes me that, remember the death of the mall? How many malls are you guys in in America? And what has happened to mall traffic post-COVID? Is it back? I'm so glad you brought this up. So stores matter. I say it all the time. In order to be a successful omnichannel retailer, you've got to have stores. The stores and the digital combination make the magic that we're all looking for. We are a net store opener, first time in 10 years, 60 stores that we're going to open this year. In fact, last weekend I was in Roosevelt Field taking a look at our four new stores that we're opening, all new concepts and fresh stores in one of the most important malls in the country.

So we have said consistently stores matter and our customers back out shopping in them. What about Hollister? That's the one that obviously is lagging and investors are looking for more progress on. What is the plan to turn things around there? Sure. So we did make progress. We saw a sequential improvement, you know, from heading from the second quarter to the third quarter. We do see that consumer being a little bit more pressured than the Abercrombie consumer from a spending perspective. Inflation is definitely more challenging for them. You know, last year they had a lot of money to spend coming off of stimulus.

But we're focused on what we can control. We're controlling our inventory. We're leaning into the categories that are working. And we expect to see continued improvement quarter over quarter. Fran, appreciate the update. Thanks for joining us. Big move for the stock today. Thanks, Sarah. Have a nice Thanksgiving. Thanks for having me. You too. Happy Thanksgiving. Fran Harwitz, CEO of Abercrombie & Fitch. Take a look at where we stand. We continue to accelerate here on the gains, up 1.3 almost percent on the S&P 500. Again, every sector higher here. It's being led by energy, materials, and technology. It's why the Nasdaq is rebounding today up 1.1 percent.

The small caps are lagging a bit, but also up nicely. All the big cap tech is helping the NASDAQ, in particular Apple, Nvidia, Best Buy. Also, with better reception to earnings there, reinstating their buyback. Still ahead, Goldman Sachs chief economist Jan Hatzius joins us ahead of tomorrow's Fed Minutes with his latest thinking on interest rate policy and whether he expects a recession in the year ahead. But first, lawyers for FTX are meeting in a Delaware court today for a bankruptcy hearing on the collapse of the former crypto giant. We'll bring you the highlights when Closing Bell comes right back. We have a news alert from Washington on student loans. Contessa

Brewer with the details. Contessa. Sarah, President Biden has announced that the secretary of education will pause the requirement for people to repay their student loans until June 30th, 2023, as the Department of Justice applies to the Supreme Court for a decision about those student loan debt relief. Remember, the White House had announced that $10,000 worth of student loans could be wiped out. The president just tweeted out a video where he put blame squarely on Republicans for suing over this plan. The courts have paused those plans for the student debt relief to move forward. So now an application to the Supreme Court. And until then, the president says students can have some relief from repaying their their student loans until summer of next year. We'll keep our eye on the next step here, Sarah. No, this is the

one that keeps getting delayed and delayed and delayed from the from the pandemic. Contessa, thank you. Contessa Brewer. Sure. Well, it's been about two weeks now since the epic meltdown of FTX rocked the entire crypto industry and the fallout continues to grow. Today, The Wall Street Journal reporting that Sequoia Capital apologized to its investors for that $150 million loss on FTX. Meantime, lawyers for the exchange met in Delaware in a court today for bankruptcy proceedings. Eamon Javers joins us from Delaware with a look at what we learned today, Eamon. It did not sound pretty. Sarah, that's right. You know, this was the first day of these bankruptcy proceedings here in Wilmington, Delaware,

and it was a chance for the lawyers for the new management of FTX under new CEO John Ray, who replaced Sam Bankman-Fried last week, to argue their theory of the case here. And they did not paint, as you say, a very pretty picture of this company. They say this is one of the most abrupt collapses and difficult collapses in the history of corporate America. They say when it comes to the previous management under Sam Bankman-Fried, SBF as he's known, that the emperor simply had no clothes. And there are a lot of problems here with the way that this company has been running. So we're getting a peek under the hood, so to speak.

Attorneys here in Wilmington suspect that this process is now going to take years to unwind, as all of the different creditors sue, counter sue, argue with each other over who gets whatever remaining assets are inside this firm. FTX said it is experiencing cyber attacks on an ongoing basis. They've hired a cybersecurity firm to protect the company. They won't even name which firm they've hired in order to protect the firm that's protecting the company's assets. They say substantial assets were either stolen or are just missing now from inside this company. They're trying to hunt for those as they go along here. And we had a dispute here about the customer names inside this company, Sarah.

One of the questions is, will you get a big list of all the individuals and all the entities that had assets on the exchange here? The judge ruled in favor of the company, and that means that the client names will remain confidential for now. So there's some question about whether we'll ever learn who all the customers of this firm were. But for now, those names will stay confidential. Sarah, back over to you. Yeah. And then the question of what money is left and can anybody get it back? Can anybody retrieve it? I think that's the biggie. There's going to be a lot of litigation around this. You bet. Unbelievable. Stunning fall from grace.

Eamon Javers in Wilmington. Up next, Goldman Sachs chief economist Jan Hatzius explains why he thinks the U.S. economy might be able to avoid a recession. We'll be right back. Stocks are rallying today. In fact, we're just hitting new highs for the session as we speak up nearly 400 points on the Dow, more than 1% gain, 1.3% for the S&P. Yesterday, we spoke with Cleveland Federal Reserve President Loretta Mester on this show. I asked her whether she sees recession ahead for next year. Here's what she said. I don't have that in my forecast. I do think, though, that growth is going to be well

below trend. And when you're in that kind of very low growth environment, there is a risk that a shock could send you into negative growth for some, you know, for a few quarters. So again, I don't have that built into my forecast, but I think we have to be attuned to the fact that there are risks out there. Let's bring in Goldman Sachs chief economist, Jan Hatzias, who also does not have a recession built into his forecast. And I guess I'm just wondering why, if we're seeing the fastest, biggest tightening that we have seen in decades, to literally put pain and pressure into the economy, how do we avoid recession? Well, I think we do need a period of below-trend growth. And we probably do need loosening in the labor market. The labor market is overheated.

That's why the Fed is tightening so aggressively. But there are also other factors that are important. Income in particular. Real income was very weak in the first half of 2022, but it's now starting to grow again. And I think that's going to be a source of support next year. So you have those two factors. When you put them together, I get below-trend growth, but I don't get negatives. Does that mean that you think the labor market can hold up? We have the labor market holding up as far as the unemployment rate is concerned. You know, that goes up by about half a percentage point in our forecast. We do see a very significant labor market adjustment when you look at job openings or quits or wage growth. And I think all those things

have started to show up in the data. And there's a lot more that I think we're going to see. But that's fundamentally, I think, a healthy development. That's what we need to get back to an environment where inflation can come back down towards 2%. So you think the Fed can pull this off, a soft landing? That's our baseline forecast. I mean, we do have a 35% probability of a recession. So that is a higher number, of course, than normal. Normal might be 15% for any 12-month period. But we still think it's more likely that growth is positive. Even though you did recently raise, I think, what, the terminal rate, the peak of how high

the Fed is going to go. Why did you do that? And where do you think it's going? We have lifted it further. We're at 5 to 5.25 percent now. The reason why we lifted it is that we have become more optimistic on the income side. And again, real income is a source of support, but the Fed still wants below-trend growth. They still want an adjustment, and so they need to lean against it. And that's our expectation. 50 basis points at the next meeting, and then 325s at the first three meetings of next year. Yeah, Krishna Guha, ISI, published today that they are sort of coordinating this hawkish slowing of interest rate increases, and he's paying more attention to the slowing part.

In other words, we're going to get smaller increases. But, you know, last meeting, the market focused on Powell's hawkishness as it related to smaller increases. So which is it going to be? Well, that was the new news at the meeting in November, right? I mean, he basically said, we have added to our cumulative increases, and that's what the market responded to. I mean, I think we'll see a similar type of message. I wouldn't expect anything dramatically different from what we, you know, from what the message was. Our current forecast

is, you know, does imply that the terminal rate in the dot plot goes up and, you know, in our forecast by 50 basis points. Do you think they're going to raise that as soon as December, the terminal rate? Yes, because the September number now is stale. There was a meeting in between. Their views have gone up, and that's going to show up in the dot plot in December. Market expects that. It really just depends, Jan, on what happens with inflation numbers. Sure. Do you expect that we will continue to move south in terms of these headline numbers? Yes. Headline, I think, more sharply than core. Headline, I think, is going to come down a lot.

We're at 7.7% for the CPI right now. We have that coming down to about 3% by the end of 2023. And we've got core PCE also at about 3%, but that's at about 5% at the moment. So that's a more gentle pace of decline. And it's partly just because commodity prices were a major inflation driver and the level has come down somewhat. The increases are coming down substantially, and that's going to mean a lot of disinflation. Supply chain as well. Supply chain on the core is a very important

part of the story. Wage growth is an important part of the story. We have seen some deceleration, not as much in the employment cost index, but if you look at the average hourly earnings numbers, those have slowed. And then rents, I think, are obviously a very important part of the inflation numbers. And as we go through 2023, that's going to come down, we think, substantially. We're seeing that in the more leading indicators of, you know, median new rents. But only a small part of that has so far shown up in the CPI. Even if the U.S. can manage to get through it, given we have strong fundamentals here, globally, it's sort of a mess. China is in and out of the zero COVID policy. Europe and UK

are dealing with serious stagflationary forces. So at some point, isn't that going away as well? Well, it certainly weighs on Europe. I mean, you're right. Europe is in a tougher spot because in addition to all the post-pandemic issues that we're dealing with globally, they also have the gas shock and the Russia shock. And so we do think recession is likely. That said, we actually think the recession might be somewhat milder than it looked a few months ago. We've seen declines in gas prices. so that shock isn't quite as large. And Europe's actually managed to economize on energy without a huge hit to activity now. So I think recession is still likely,

but to me it looks like a mild one. Jan-Atis, good to get your view. Thank you very much for coming in. Thanks very much. Cutting through all the Fed speak. Chief Economist at Goldman Sachs. Take a look at where we stand right now. We're still going strong here, up 380 points or so, 17 minutes into the close.

Every sector again higher right now. In the S&P 500, it's energy, materials and technology. Real estate and industrials are lagging, but they're all up today. There's the Nasdaq up one and a quarter, a rebound from yesterday. Apple, NVIDIA, Microsoft, and Alphabet are the leaders. Homebuilders are also outperforming the broader market today. Coming up, a top analyst on why he just upgraded the outlook for the industry,

despite so many headwinds right now for housing. As we head out, check out GameStop. It is moving higher today, even after news that Carl Icahn has been short the stock for some time. Our Scott Wapner reporting today that Icahn still has that short on. It's up 3.4%. We'll be right back. We are now in the closing bell market zone. CNBC Senior Markets Commentator Mike Santoli here to break down these crucial moments of the trading day. Plus, Melissa Repko is here on retail movers and J.P. Morgan's Michael Rehart on the homebuilders. Big call today. We'll kick it off broad, though, Mike, because the Dow's up about 400 points here.

Home Depot, Chevron, UnitedHealth are adding the most to the Dow. I don't know if you just heard Jan Hatzias, chief economist of Goldman Sachs, laid out why he thinks the Fed can achieve a soft landing, even as he is raising the rate that he expects them to hit to 5 to 5.25 next year. And it does feel like that's kind of where the market is as far as the Fed and the expectations for the economy. Yeah, I agree. The market is certainly building up that probability to a greater degree than it was willing to do a few months ago. There's no doubt about that. So I've been pointing out like the S&P 500 is not down on a six month basis. It's

absorbed the last 300 basis points of Fed rate hikes and a big jump in Treasury. It's gotten some relief on those fronts right now. Fed speaks no longer really being taken as toxic. The market kind of gets it. And the current state level of economic activity is healthy enough that you still have to see the wear and tear on a lot of demand areas before you can say we're definitely going to not be able to hit a soft layer. We're definitely going to hit a recession. So I do think it's not a done deal. Housing is in the tank. There's a lot of parts of the economy that are struggling. More to come. But it doesn't seem as if we have that scenario baked just yet. The market is reflecting that S&P a little over

4000. Investors digesting another big batch of retail earnings today. A lot of winners in this group. Best Buy, Dick's Sporting Goods, both beating Wall Street's earnings estimates, raising their full year guidance. American Eagle reporting stronger than expected revenues. Burlington stores missing on both the top and bottom lines. But shares, they're also rallying. Look at that 19 percent after management says trends were improving late in the quarter. And then there's Dollar Tree reporting strong earnings, but shares are slumping because its full-year outlook came in at the lower half of its prior range.

Melissa Repko joins us. Melissa, a lot to go through here. Basically, what are retailers like Best Buy and Dick's doing so well or differently in this environment as opposed to a company like Target that continues to struggle with discretionary spending? Hi Sarah, I guess a lot of it boils down to both inventory and execution. For Best Buy, their inventory has been well controlled. Their inventory is actually down 15% year-over-year,

which has helped because the the market for consumer electronics has softened and it's been able to better hold the line with promotions. For Dick's Sporting Goods, it has a really wide array of name brands that people are still seeking out and willing to pay up for, one of them being Nike, one of them being Titleist. So a lot of these brands have allowed it to have some pricing power in this tougher environment. And when it has had extra merchandise,

it's actually moved that out to its going-going-gone stores, which are kind of, it's off price, which has allowed it to also kind of clear out excess merchandise, keep everything looking really sharp, really fresh, keep those higher price points front and center. The other thing, Melissa, is I feel like the common thread between all of these that had better reactions to their earnings and better numbers than expected is that they've all been really poor performers this year. Best Buy, everyone was anticipating weakness. And it's not like we're

seeing strong sales growth here. We're still seeing sales declines. They're just not as bad as feared. So I feel like that has to be a theme here is that expectations were really low and things are just coming in a little bit better because some of these companies are executing. That's a great point. I think that Best Buy lowered its own bar this summer by cutting its forecast. So it beat that and was better than feared. With Dick's Sporting Goods, it's a little bit of a different scenario. It actually hasn't seen any trade down, not like Best Buy was talking about today. I spoke to Corey Berry of Best Buy, and she did say that there was some trade down among lower income

consumers to things like cheaper TVs. Dick's Sporting Goods, on the other hand, is really not seeing that show up. It's finding that there's a lot of strength in the category still. Yeah, well, yeah, that athleisure or sporting goods continues to be, I guess, a bright spot as well. Melissa, thank you very much. Melissa Repko, let's look at the homebuilders because those stocks are also having a strong day, adding to gains over the past month or so. The group shaking off higher mortgage rates, weaker activity in the housing market. Our next guest is getting more bullish on this group.

J.P. Morgan, senior analyst. Michael Rehart joins us. Just upgraded Toll Brothers to overweight. Already had an overweight rating on D.R. Horton, Pulte and KB Home. Why now when we don't know how high rates are going to go yet? Great. Thanks for having me on. So, you know, we've been less constructive for most of this year

and really one of the key concerns has been the rising rate backdrop. I mean, as we look into 2023, our economics and rate strategy teams are expecting the Fed fund, the Fed tightening cycle to end in the first half. Historically, towards the end, following the end of a rising rate period, that's been a very positive catalyst for the stocks. In addition, you know, we think a mild recession is something that the stocks today are already pricing in. And absent a medium to large recession, you're looking at pretty solid book value growth alongside very strong balance sheets over the next two years. So is it all just a rate-driven move in the stocks and the lower sales activity?

You know, the way we're looking at it is more of a positive risk reward. We think that, you know, at this point, the stocks are baking in a lot of negativity, a lot of soft fundamentals over the next six to 12 months. On the flip side, there's still a lot of upside to the extent that we do reach the end of that rising rate period. Rates certainly can go higher from here- but you know again absent a medium to large recession- we see valuations pricing in a lot of- of downside risk in fact. Our

earnings are down almost 50% in twenty three versus twenty two- yet- again I think the real dangerous scenario is if. We're in that medium to large recession- standpoint another key part of our view here. Is Yet, again, I think the real dangerous scenario is if we're in that medium to large recession standpoint. Another key part of our view here is that structurally, the housing market is in significantly better shape than it was going into the great financial crisis. You had at that time a third of the mortgage market being very adjustable rate know, adjustable rate mortgages and, you know,

all sorts of problematic loans. Today, arms are only about 5% of the outstanding mortgage market, while in addition, the builder's balance sheets are in a much better position to withstand, you know, weakness over the next six to 12 months. Well, thank you for joining us, Michael, on the call. It's a notable one, given all the pressure we've seen all year on the homebuilders. Michael Rehart from J.P. Morgan upgrades toll and the group. That's that group is up. Mike Santoli, 2.4 percent home improvement.

Stocks are doing really well, but there are a lot of winners out there. Best performing subgroup now is computer and electronics retail, which shows you a lot of the tech stocks are rebounding today. That is true, although Best Buy is a huge part of that particular subsector, and that is very strong. Consumer related is doing okay. We'll take a look at that in a second. Actually, relatively strong day in terms of the breadth of the market, more than 2 to 1 advancing to declining volumes. Definitely not an overwhelming buying stampede,

but certainly pretty strong as the market levitates here. The S&P again over 4000. We have not closed above there on this rally since October. Take a look at consumer discretionary relative to consumer staples over the last six months. This is the equal weighted versions neck and neck, actually discretionary now outperforming on a year to date basis. Staples is trouncing discretionary. But there's been a little bit-to-date basis, Staples is trouncing discretionary. But there's been a little bit of traction here in the consumer cyclicals, and that's been reflecting what we were talking about before, Sarah, about the soft landing scenario is not completely off the board. The VIX certainly under some pressure here simply because we've got the holiday coming up.

Only one and a half days of trading over the next five in terms of the market being open in the U.S. And so maybe it has a date with 20. That's been about the bottom of the range for the year, Sarah. Thanks, Mike. As we head into the close up, 400 points right now on the Dow Jones Industrial Average. Almost every Dow stock is higher. It's Home Depot, UnitedHealth and Caterpillar that are adding the most to the Dow's rally. The only losers today are Amgen, Disney given a little back from yesterday, and Boeing, which is barely lower. S&P 500 is up 1.4%, which means it's now up a percent for the week. So we erased yesterday's losses and then some. NASDAQ comp up 1.4%. You've got every sector closing out in the green. So overwhelmingly positive day. Bonds are catching a bit. The dollar is weaker. All very supportive right now. And some of those big cap tech stocks are rebounding like Apple, NVIDIA, Microsoft, and Alphabet in a big way. There goes the bell. That's it for me on Closing Bell, everyone.

Now I'll send it into overtime with Scott Wapner.