Closing Bell - Closing Bell Overtime: Starbucks Has Best Day Ever After Announcing New CEO; Dan Niles On How To Play AI 8/13/24

Episode Date: August 13, 2024

Stocks rallied into the close and ended near session highs after a key inflation read came in lighter than estimates. The big corporate story of the day was Starbucks: hiring Brian Niccol away from Chipotle to be the new CEO. Starbucks recorded its best day ever; Barclays analyst Jeffrey Bernstein breaks down what is next for both companies. Tech investor Dan Niles on how to play the current volatility and navigating AI. Evercore ISI Vice Chairman Krishna Guha on the Fed and inflation. Plus, top-rated retail analyst Christopher Horver of JPMorgan on what to expect from Walmart and other retailers this week. 

That's standard regulation. Blackrock ringing the closing bell. The New York Stock Exchange, USA Volleyball doing the honors at the Nasdaq. A softer inflation print sending yields lower, stocks higher. With the Nasdaq leading the gains up around two and a half percent, we just closed at session highs. That's the scorecard on Wall Street, as you can just see right there on your screen, Market Rally. We're just getting started here. Welcome to Closing Bell Overtime. I'm Morgan Brennan. John Ford is off today. Coming up this hour, tech investor Dan Niles joins us

with his take on the Nasdaq's rally today, plus the two MAG7 stocks he likes right now and why NVIDIA could face near-term headwinds, even after a big comeback this week. Plus, Evercore Vice Chairman Krishna Guha weighs in on today's producer price index print and whether it raises the odds of a 50 basis point cut in September. And a latte pressure on his shoulders. Chipotle's Brian Nicol getting poached by Starbucks to try to right

the coffee ship. We will talk about the implications for investors in both companies with big moves in both of those stocks today. But first, let's get to the market action with our panel. Adam Crisofulli of Vital Knowledge and Courtney Garcia of Payne Capital Management and a CNBC contributor. Adam, I'll go to you first. I mean, we closed at session highs here and it was strong across the board, but really tech led the way yet again. What does that tell us? Yeah, it looks like tech confidence is rebuilding a little bit after the, you know, the pretty aggressive slump at the end of July, early August. You know, the broader market of confidence is rebuilding. You know, you had the initial shock with the BOJ hike and then that

July jobs report. You know, I think there's a little bit less concern about an imminent recession. We've had some decent economic numbers. We had another favorable inflation figure this morning. We're coming up on a couple of catalysts from the Fed that should be dovish, including next week's big Jackson Hole conference. And then in September, you know, we're very, very likely to get a rate cut. The debate now is if it's 25 or 50 basis points. So, you know, we're coming up on a very busy July earnings season. We got the first one this morning with Home Depot, which wasn't terrific. Stock initially saw selling, but rebounded. I mean, you can argue either way of the bull bear argument on that one. But we're going to hear from a lot of other retailers, including Walmart Thursday morning, and then a bunch of tech companies with Cisco starting things

off Wednesday night. So, you know, it's going to be a very busy August for tech earnings, and that's going to really play a big role in what happens next. A lot for us to cover, especially here in overtime. Courtney, I want to get your thoughts here. The S&P 500 settling, it looks like up about 1.7 percent, 54.34. It looks like where we're shaking out here. Range bound, or are you looking for a certain catalyst that breaks us out? Yeah, I think the good news is, is after we saw those first couple days of August where the markets had a lot of that volatility to the downside, that's recovered pretty quickly here, which I think is a good sign that a lot of that was likely due to that yen carry trade unwind, as opposed to data showing that the economy is going down, because that

obviously would be a much worse thing for the markets going forward. So assuming we continue to get positive data, which we did with PPI today, I think all eyes are going to be on CPI tomorrow. And then we also need to get those retail sales out. But if all of that does come in to show that inflation does continue to moderate and the Fed is more and more likely to lower interest rates, that all is going to be a positive for the stock markets. So seasonally, August, September don't tend to do a whole lot in the stock markets. But later in the year, especially if rates come down, could mean a lot of that cash starts to come out of money markets if they're not paying that 5 percent any longer and making their way back into the markets, which could mean a further upside.

So absolutely, we're optimistic here. And you want to take all of these buying opportunities. Adam bespoke today, putting out a note saying historically the S&P 500's best returns have followed periods where the VIX experienced extreme weekly moves at either end of the spectrum, be it gains or losses. We saw that happen, obviously, last week and is it going to be tech and AI, which has led so much of the market, at least for the first half of the year? I think it's going to be a little of everything. You know, like I think Courtney said, you saw the volatility, but we haven't really seen fundamental data confirm the market's slump. And that's why you've had this rebound. So, you know, we are definitely seeing data slow. It's not collapsing. It's not recessionary. We continue to see disinflation and outright deflation in certain categories. So and corporate America, as we come through the calendar

Q2 season, you know, earnings came ahead of expectations thanks to aggressive cost cutting. The magnitude of upside wasn't as large as it used to be, as it was in prior quarters. And revenue was certainly encountering some some headwinds. So there certainly are fundamental difficulties. But the narrative a couple of weeks ago in the beginning of August when stocks were really witnessing some aggressive selling pressure, it hasn't really been borne out by fundamental information. If that continues, where corporate America continues to kind of fight through this more

difficult environment and we stay on a glide path to Fed easing. I think that's going to help provide talent for equity prices. But all of those catalysts you mentioned are going to be very important. So upcoming labor numbers, CPI tomorrow, and then the July end earnings, you know, especially for tech. It's a very busy tech earnings season for July end companies. So Cisco tomorrow, AMAT Thursday, you know, NVIDIA, Salesforce, Dell later in August. Those are all going to be crucial catalysts. Courtney, can we confidently say the inflation foe has been vanquished here? I know we're awaiting CPI tomorrow, but you look at

softer PPI prints today. Certainly the market is pricing in much more from the Fed come September and beyond. I mean, it's largely getting priced in at this point that rates are coming down because, you know, I don't say it's a foregone conclusion, but most people are assuming that that inflation is under wraps at this point in time. Longer term, I think, is the question, right? I mean, even if rates come down, I don't think they're going to come down to the levels that they were at in the previous decade. I think that's something we need to look at as investors is making sure that, yes, if rates come down, that's absolutely gonna be a short-term positive

for the stock market, but long-term, they might still stay at elevated rates. And so that's something too, when you wanna look at things like, talking about the Magnificent Seven and all of our AI companies have been doing so well, but if we are in this environment where rates are gonna be a little higher for longer,

you wanna make sure that you are staying positioned and really well diversified here. So if we take out the Magnificent Seven, look at the S&P 493, earnings growth is expected to come down about 3.8% this quarter and then grow next quarter to close to 13%. And that's where you want to look at what's not happening today, but tomorrow and outside of that AI trade. I think there's a lot of opportunities here. Okay. Great way to kick off the hour, Courtney Garcia and Adam Christofoli. Thanks for joining me. With all the major averages finishing higher, the S&P and Nasdaq finishing at session highs. Here's a question on investors

minds today. What is a good CEO worth? Well, about $18 billion, according to Starbucks investors, the company adding that much in market cap just today, having its best day ever after naming a current Chipotle boss, Brian Nickel, to take the helm starting next month. Nickel is no stranger to overtime viewers. He's appeared on this show a number of times. We took a look through his past appearances to see what strategy changes he might bring to his new position at Starbucks. I think that's what sets Chipotle up as really a unique company. You know, we've got growth in the restaurant, we've got growth with new units, and then we've got a really vibrant digital ecosystem. We have about 40 million people in this rewards program, and now about 35-40%

of our business is done digitally. So it presents the opportunity for us to be really smart about what we offer up in the suggestive sale. We'll continue to invest and learn about things like AutoCADO, where we cut core and peel avocados through robotics, or Hyphen, where we use some robotics to help us build bowls for our digital orders faster. And we're also using technology like around AI to help us with forecasting and scheduling labor. I got to tell you, our operators are delivering in a big way. You know, we're staffed better than we have been, we're deploying better than we have been. Our turnover is the lowest it's probably been in about five years. So we've got greater stability. Our training is getting back to the basics of shoulder-to-shoulder training. Well, Starbucks investors will be watching how Nickel handles

the relationship with its baristas. Some 450 stores are unionized, along with digital strategy rewards using advanced technology. Joining us now is Jeffrey Bernstein, equity research analyst at Barclays, who covers both Starbucks and Chipotle. He raised his price target on Starbucks today to $110 from $93 a share. It's good to have you on today. I mean, right out of the gate, the fact that the stock surged on this news, what does Nickel bring to the table? And I asked that question knowing that when he took over at Chipotle, that was a little bit of a turnaround story, too. And there was a founder in the background at that company as well. Yeah, thanks for having me. Nickel brings a lot of great things to the table, and you highlighted a bunch of them earlier in terms of the ability to really focus on operations and speed of service and customer

engagement and loyalty and whatnot. But to your point, Chipotle was recovering from a food safety issue, so it was a pretty linear recovery. Here with Starbucks, there's a variety of headwinds going on, both in the U.S. and international. But as you mentioned, based on the stock performance today, you could tell investors are excited to have a restaurant executive who is well-known join the helm. And it does open it up to large-cap growth investors that I think have been hesitant to buy up until now. So you did have a kind of a fear of missing out throughout the day today where people wanted to get in on what still is a tremendous long-term growth story. What's the first thing he should do at Starbucks to right the ship? Yes, hopefully spend some time in the restaurants just to fully understand what it means to wear the green apron and how to deal with customers in a very busy environment. But otherwise,

the first thing he needs to do, I think, is really focus on operations. He doesn't want to necessarily come up with a new marketing campaign that's going to drive in a ton of traffic if the stores aren't ready for that traffic. So first and foremost, it needs to be all about speed of service and operations, making sure you can get the customers through the line, at which point then you turn on more aggressive marketing and focus on the loyalty program, bring more people into the stores. There are a lot of levers for Brian to pull. I'm sure he's super excited about the opportunity. Chipotle sold off a bit on this news, but there's a COO that's going to take the helm there as well. And you've got longtime CFO Jack Hardtongue has basically agreed to come on into a new position, shift into a position as well. So what does the bench look like at Chipotle?

Yeah, I'm surprised with the sell-off in Chipotle today. I guess to be fair, though, when you have a CFO recently announce his retirement and then a surprise CEO departure, you know, nobody likes to see that level of instability. But with that said, Chipotle's got incredible momentum, very strong brand appeal, fighting through a very difficult operating environment. We don't think they're going to skip a beat with their interim CEO, who I'm sure will be considered for the potential full-time position. And with Jack Hartung, he has been around a long, long time. He knows the CFO role. He will help in terms of still overseeing and helping the new CFO while at the same time sitting in a president role. So he's a tremendous asset for them.

We don't think Tripoli shares should be under that level of pressure. You had multiple activist investors piling into Starbucks. When you look across your coverage universe, are there other names, maybe storied names that are in need of a turnaround or fresh leadership that we could see a similar dynamic now play out? Because it does seem like they're, at least in this particular case, it's a strategy, it's an investor game plan that is yielding results. For sure. I mean, if you just look back to Chipotle, they had, you know, Bill Ackman from

Pershing Square, who was an activist before Brian came in, Brian Nicolay. So Brian's used to working with activists. We have a number of names that in the past few years have already had activist investors. So it's a very popular sector for activists. We've got a couple going on right now. So we expect to hear more from shareholders who have been frustrated with the rate of change or the success of the brand. You know, it's just a difficult time right now because you are dealing with a slow economic environment. So no brand is immune.

You're likely to see, you know, industry trends continue to slow as they have in recent months. But again, having an activist investor, oftentimes they don't even have to ruffle a lot of feathers, but just being there to offer the opinion of shareholders and work with the board, you can definitely see the fingerprints of change.

All right. Jeffrey, thanks for joining me. Major move in the stock for Starbucks today, up more than 24%. Well, let's stick with Starbucks and bring in Senior Markets Commentator Mike Santoli. He's looking at another company, speaking of, that has fallen on hard times, Nike. Yes, Morgan. Well, take a look at Nike relative to Starbucks. And this, by the way,

is a pair that I've looked at in tandem in the past. It's kind of like the United States brand exports to the world starter kit for a blue chip portfolio. You can add Disney. They've also traded together. It's a 10 year chart. You can see that obviously Nike had massive outperformance during the pandemic, but very similar cadences and total point to point action until Starbucks. Big game today. That is. Now, you also have a iconic founder of each company sort of in the background now. Maybe has some influence. Maybe doesn't. You have a current CEO that's somewhat embattled in Nike as well. China driven growth that's also hit the skids to some degree and many other things that are kind of synchronous here. Nike shares, by the way, have 5 percent.

Who knows what the market might be sniffing out there. Here's the valuation of both, too. Always have traded at some kind of a premium to the broader market. But that premium has really become compressed. And then you see today's action. You have Starbucks catching up to Nike out there. Some other stocks you've heard in the same breath here with this type of dynamic, maybe Estee Lauder, another stock that was up

pretty nicely today, Morgan. That's really interesting. I mean, in the middle of all this, we do get these 13F filings. So does this make those filings that much more important to watch, given some of the reporting we've had come out, Tryon today, for example, in Starbucks, but also this idea that maybe the consumer sector is ripe for more pressure? Sure, I think it's a perpetual in this area because you have a lot of difference of opinion on what the right strategies are,

and a lot of these companies get stuck into one mode of growth. So I do think it's always important. It's also, by the way, I guess a little bit of a question as to how much the activist pressure directly had to do with the ceo change at starbucks but it didn't certainly hurt for them to be there uh sort of with an extra set of eyes and a potential uh kind of carrot and a stick approach to uh to you know to what might be happening at the company all right mike thank

you we'll see a little bit later this hour. Mike Santoli. Well, Flutter Entertainment earnings are out. Contessa Brewer has those numbers. Contessa. Morgan, it's a blowout. It beat expectations on every front and Flutter is raising guidance. Revenue coming in at $3.61 billion versus the consensus expectations of $3.4 billion. Adjusted earnings per share, $2.61, though not a lot of analysts put out expectations for that particular metric. When you break it out by the region, Flutter beats in UK and Ireland, in Australia, in international. In the U.S., its adjusted EBITDA, that key earnings metric, is up 51% over last year with $260 million. The street was expecting $191 million. Margins increasing. Average monthly players up 17%. So not just in the lead with market share, but just owning it. The sportsbook

segment, 47% market share. iGaming, 25%. And Flutter is raising its revenue guidance by 3%, which would mean 20% year-on-year growth. Guidance also increases here for adjusted EBITDA by 4%, which translates to 34% growth over last year. And Flutter will not match DraftKings' new fees on winning bets in high-tax states. I should say FanDuel here, for which Flutter is the parent company. Instead, FanDuel says it's going to mitigate half the cost of Illinois' tax rate hike by optimizing promotional and marketing spend. That's a big deal because that could put DraftKings at a competitive disadvantage in states where it's going to tack on the additional fees.

As you can see now, Flutter shares up 10% after reporting earnings, DraftKings down by two and a half percent. Morgan. Fascinating, especially a time where we're focused on whether consumers are just spending less or spending differently. And this signals maybe maybe spending differently might not be traveling as much, but they're gambling. Right. All right. Contessa Brewer, thank you. Ibotta earnings are out as well. Kate Rogers has those numbers. Kate. Hi, Morgan. And yeah, the stock is higher on this report. So a wider loss that, oh, excuse me, down now by 9.2 percent, a wider loss than expected here, $1.32 loss, worse than the 85-cent loss that analysts were looking for. Revenues, though, do beat here, 87.9 million, better than the 85.7 million that analysts have been looking for.

In addition to its earnings, the company also announcing in a separate release a strategic partnership to provide Instacart's customers with access to its catalog of digital coupons. But as we said earlier, the stock is down by nearly 10 percent on this report, Morgan. Back over to you. All right. Kate Rogers, thank you. Well, the Nasdaq jumping today, adding to solid gains over the past week. But tech investor Dan Niles says it's time to get more conservative. And he has a warning about NVIDIA specifically for the near term. He's going to join us next. Stocks rallying today with the major averages all firmly in the green, led by a solid boost for tech.

The Nasdaq climbing more than 2%. One of the biggest winners on the Nasdaq was NVIDIA, up 6.5% as investors await the company's earnings report later this month. Well, joining us now is Niles Investment Management founder and portfolio manager Dan Niles. Dan, it's great to have you back on Overtime. Welcome. Thanks for having me on. So let's start right there, the tech rally. We teased it before the break. You said you're getting more conservative. Do you buy into this rally or no, not so much? Well, it's managing through the risk profile, right? So for us, we put out a post on July 11th and said, you know what, be careful of earnings season because you've got all this spending on AI, but people now want to start to see some revenues. And what you saw during earnings season was that other than Apple, which is not an AI play right now in the sense of the traditional hyperscalers.

Meta, which isn't either, they use AI internally. If you look at the other four that reported, Microsoft, Amazon, Google, Tesla, all the four numbers went down, every single one. And each one of them was talking about spending a lot of money. And you saw that reaction in the stocks, where if you take the six of the magnificent seven that reported the stocks were down four percent the day after. So some of this is just trying to rationalize this. You know on Monday you know last Monday

when the market got crushed we put out that we thought the stocks would bounce in the near term they have. And I think with this move up where you now got back all of that carnage from that Monday drop, you got to think through, well, ultimately fundamentals drive stock prices. And when

you've got four out of the seven magnificent seven that are reported so far taking down numbers, and they're in the AI space, you got to think about that as how much do you want to play this going forward? Because they went down for fundamental reasons, not because of a Yen carry trade. So how does that set us up for NVIDIA later this month? Well, NVIDIA is a tricky one because we own it. It's one of our bigger positions along with Apple and Meta. And so we have those three. But I think it's going to depend on what the setup is into that print. If analysts are universally bullish and think that, oh, you know, with all of this spending, the numbers are up and to the right forever, that's a problem. And so some of this is going to be how rational are they getting? Now, the good news is we have

over the last few days seen some analysts push out numbers because of the delays in their newest chip called Blackwell. You know, Some are thinking through what we've seen with some of the hyperscalers and what they've talked about. Because anytime I hear a company say, well, the biggest risk is under-investing or under-spending versus over-spending, that tells me they know that they're spending a lot more than they probably should be. And don't forget, these hyperscalers were the same companies that caused NVIDIA to negatively pre-announce in the first half of 2022 before we heard of this thing called generative AI and chat GPT. And investors just, you know, obviously you don't want to spoil a good story, right? NVIDIA's stock's done great.

Got generative AI. But these big companies like Amazon, Google, Microsoft, they do go through digestion periods. And that was pretty clear that they're spending all this money, but the revenues aren't necessarily there, which is why all the forward numbers go down. And at some point, they're going to go, you know what, we need to digest some of this spend. So what are your thoughts then on Alphabet specifically? They had this Google event, launched its first AI-powered Android update. We've got the new Pixel 9 phones. I realize hardware is not typically the thing that moves Alphabet stock, but AI was a big part of the

talking points and the messaging today. Well, you have to ask yourself one simple question, Morgan, which is, do you think all this money spent on AI by the likes of Microsoft and OpenAI will affect Google's over 90% share in search? If your answer to that is yes, then from a longer term perspective, Google's got an issue. And it was troubling to me that they had a problem with their YouTube business and meta was absolutely fine. So I don't like Google. We're short it in full disclosure. And I like that match versus a meta where meta is using AI to help recommend videos that

you want to watch and then using AI to help show the ads that are engaging and they didn't have any problems whatsoever. And so I think that's a pretty good pair in that sense. So given this entire conversation we're having, then does it make sense to be investing in another 493 stocks in the S&P 500? I mean, can we can we argue? Can we, I guess, aggressively say, yes, growth is slowing for the Magnificent Seven and it's time to diversify? Yeah, I mean, one of the things we did when we got that nice sell-off a week ago Monday is we went ahead and started over that week to get involved in a lot of other areas. I mean, we bought names in financial services. We have a

basket of consumer staples stocks. We've got a telecom services company. So names that benefit if rates start to come down in various different manners. And because, you know, we've spent the last really since the end of 2022 and we heard of this thing called OpenAI and ChatGPT, et cetera. It's been magnificent seven, 24-7 news cycle. And the other 493 stocks have been sort of forgotten about. But I would be stunned if we didn't get three rate cuts. The market would be two, obviously, before the end of the year. That's going to benefit certain types of stock. Why are we getting those rate cuts? Well, the economy's slowing. And so you need to

work through that. And we continue to hear about the consumer slowing down, whether it's from the airlines, the hotels, the online travel agents, a home improvement company this morning. You're hearing this across the board. And so you want to think about, well, where could rate cuts have some kind of benefit? And so I think you're exactly right. Look at the other 493. Yeah. OK, Dan Niles, thanks. Appreciate it. Thank you. And that's certainly something we've been doing here on overtime with some of the companies and names we've been bringing, bringing you. Well, after the break, Inflation Nation, no more. Well, Evercore's Krishna Guha says the game has changed for the Fed from inflation driven policy to something else entirely.

He will join us next to explain and later forget concerns about a slowing consumer. We will talk to an analyst who says there is a positive catalyst awaiting short term investors in one retail stock. Find out what it is when Overtime returns. Welcome back. Stocks rallied to the close on the back of the morning's producer price index, which came in lower than expected. Tomorrow, we're going to get CPI for July. But do these reports have less bearing than they used to on the Fed's decisions? Well, joining us now is Christian Guha, Evercore ISI vice chairman. It's great to have you back on. I want to start right there. What's going to matter more this week, CPI tomorrow or claims on Thursday, since we know the labor market is softening? I think it's all about the labor data at this point.

Within very broad tram lines for inflation, it's going to be the labor data that decides how many cuts we get from the Fed this year and whether the Fed will have to move past our baseline of 325 basis point cuts. That's a quarter point in every meeting to deliver one or more of those big 25 basis point cuts. That's a quarter point in every meeting to deliver one or more of those big 50 basis point cuts. It was an inflation first Fed. It's now a labor data first Fed. So in light of that, I realize that unemployment is still pretty low, but it's been moving up and moving up quickly. So how much does the velocity of that

move factor into that decision making? You're absolutely right that as with most pieces of macro data, you're looking at both the level and the delta, the speed of the change. Now, unemployment has been moving steadily up. That has now gotten to 4.3% in that last print for July that triggered so much market turmoil. I think the Fed takes the view that, you know, 4.3 plus minus, not a terrible number, but they don't want that number to keep moving up. So their challenge is to try to arrest the softening in the labor market. And it feels like they are going to have to get their skates on in terms of rate cuts to make sure that that happens, that they're able to stabilize the labor market rather than risk

the softening turning into something more severe, more worrying, more potentially likely to be associated with the onset of some kind of recession dynamic. Meantime, we're in election year. We're sitting as a country. We're sitting on a giant mountain of debt. We have geopolitical tensions that are simmering in the background as well. You're already seeing shipping rates, for example, perk up. We've seen some movement in oil, although albeit some selling today, perhaps, with no new headlines propelling the concern. But how real is the risk that these types of activities or these types of dynamics could actually push inflation higher again? Well, you're absolutely correct that this is a very complicated moment with a lot of geopolitical

tensions. And absolutely, if, God forbid, the conflict in the Mideast were to escalate out of control in terms of Iran-Israel direct conflict potentially drawing the U.S. in, then we'd be looking at an energy price spike, maybe more disruption to shipping as well. I do think, though, that fundamentally, the US economy, it takes a lot to knock it over. I'm focused more on the domestic dynamics here. And this question as to whether what we're looking at is just a somewhat bumpy soft landing. That's my baseline case. Or whether there's something more dangerous underway. I don't think that's right, but I'm going to be very focused on looking for signs. And the Fed should be, too. It's about managing risks at this point.

And the risk management has shifted from being upside inflation risk to downside employment risk. It's going to make the comments we get from Powell and Jackson Hole next week that much more important, not to mention the minutes that get released just ahead of that. Krishna Guha, thank you for joining me. Anytime. Still ahead, the deficit at a tipping point. What good news, why good news for workers surrounding proposals for tax-free tips could be bad news for the federal debt. And check out the big drop for Viasat today. That stock's sinking after a number of major shareholders filed to sell significant stakes

in the satellite operator. Shares in the satellite communications company had spiked last week after earnings, but today's move erases those games over time. We'll be back in two. Welcome back. Is it time for the Fed to start paying attention to softening economic growth? Well, Mike Santoli has some answers. Mike.

Yeah, Morgan. Well, Wall Street has certainly pivoted toward worrying more about economic softening than about the path of inflation. Here's the city U.S. inflation surprise index, which shows one reason why, which is that the direction of the inflation data has actually become much more friendly, undershooting forecasts more often than not recently. You see that little spike in the first part of this year? That was what got the Fed worried, pushed off the potential for rate hikes. Now we're down below that. And the other pattern has been it's been coming in relatively close to estimates. In other words,

yeah, a little bit softer than expected, but not radically, which gives economists confidence that we have some kind of decent fix on the on the trend here. So just one more reason, of course, Rafael Bostic, Atlanta Fed president today, was unwilling to declare victory on inflation, said we want more data. But guess what? There's going to be more data, whether you ask for it or not, between now and the September Fed meeting, which is five weeks away. So you might as well say we're still going to wait and see, even if you think a cut is in order. Mike Santoli, thank you. Up next, the top retail analyst on what today's earnings and guidance from Home Depot could mean for Walmart when it reports on Thursday. And check out shares of Dell rallying after Barclays upgraded the stock to equal weight from underweight on valuation. The stock is down roughly 40 percent since closing at a record

in late May because of concerns about its AI business. Welcome back. It's time now for a CNBC News update with Julia Boorstin. Julia. Hey, Morgan. President Biden is in New Orleans today to promote his Cancer Moonshot initiative to reduce cancer deaths. In a few moments, the president will announce $150 million in grants that will help eight research teams work on ways to help surgeons remove tumors for people facing cancer. Before he leaves office in January, President Biden hopes to move the U.S. closer to the goal he set two years ago to cut cancer deaths by 50 percent in 25 years. A Jewish former employee sued Intel today, claiming he was fired after complaining about an anti-Semitic superior. Intel did not comment on the lawsuit. It did say it does not discuss pending litigation.

And the Olympics were a ratings hit for CNBC's parent company, NBCUniversal. The Games averaged a combined 30.6 million viewers across the daytime telecast and the nightly primetime show. That's more than an 80 percent improvement over the last Summer Olympics in Tokyo, which were held in the midst of the COVID-19 pandemic back in 2020. Back over to you, Morgan. All right, Julia Borsten, thank you. Well, the first 13F report on the season is out, and it's from Bowpost. Contessa Brewer has the details for us, Contessa. And Bowpost has significantly reduced its shares in Alphabet Class C shares by 63.8%.

So as of the end of June, June 30th, end of the second quarter, Ball Post held about a million shares of Alphabet. We've also learned from the 13F that it has completely dissolved its stake in Warner Brothers. So that's the news from Ball Post, Morgan. Contessa, thank you. We got our first retail read of the week this morning with Home Depot's earnings. Shares eking out gains despite initial sell-off due to cautious forecasts for the rest of the year. Walmart reports Thursday before we get more of the big

box retailers next week. So joining us now is J.P. Morgan senior analyst Chris Horbers. Horbers is institutional investors number one ranked broad lines and hard lines retail analysts. It's great to have you on, Chris. I want to start right here with the fact that we saw Home Depot rally on these results because they did cut their forecast. They missed on same store sales. What led to the gain? You know, for all those retailers like Home Depot and other hard goods retailers that really benefited during COVID and have suffered since then with share of wallet headwinds and higher rates on the housing side. We've all been waiting for the bottom of the earnings revision cycle. So they cut the back half of the year. The numbers start to look beatable, so you could have upward revisions. And then ahead of that, you have a Fed where our economists are expecting a 50 basis points cut in September. You know, historically, retail stocks outperform the market ahead of the

first rate cut. And so you're having some of that. So basically, the multiple is going up because the numbers are now troughing and starting to look beatable, especially if the Fed comes in and delivers over the next year. All right. So before I move on to Walmart and the other names in your coverage universe, do you buy Home Depot at these levels then? I would definitely buy Home Depot and Lowe's. We upgraded Lowe's. We've had a buy in Home Depot. It's a best-in-class long-term holding. We upgraded Lowe's earlier this year on the expectation that we're coming through the bottom of this cycle. So we would buy both. You are still about 15% off of what would be a true peak to trough re-rating,

peak multiple on trough earnings. So, you know, we think Home Depot could get to, you know, close to $400 by the end of this year and lows up to into the high 200s. Okay, so how does this set us up for Walmart, which is the biggest U.S. retailer and which the street is currently expecting, I think a three and a half percent increase in same store sales. We know they've been bringing in not just lower income consumers but higher income consumers as well, launching more of their private label offerings. What do you expect? Yeah, I think with Walmart it's interesting because what we've

learned from a lot of retailers, including Home Depot today, and I think you will hear from Walmart on Thursday, is that the consumer sort of paused in July, whether it was, like I think Amazon CFO, you reported on it, saw some dislocation, whether it was the election uncertainty, the attempted assassination of former President Trump, watching the Olympics, traveling on vacation, whatever it was, the consumer paused. And that's how Home Depot referred to it. You know, since then, Home Depot seems says that, you know, trends have picked up. And so while the consumer is weakening, it's not as bad. You know, I think Walmart will talk about that.

Certainly the low end consumer is weakening. Now, on the other side, like you talk about or like you spoke to, Walmart is gaining a ton of shares. So I think you'll get some continued cautious optimism. We expect them to beat earnings and be able to raise the year. But I think they'll splash a little bit of caution on the consumer, but not enough to really disrupt people's view of what's going on at the company. Okay. Chris Horvath, thanks for joining me.

Thank you. We have a news alert on Alphabet. That's moving lower right now in overtime, and that's after a Bloomberg report said the Justice Department is considering breaking up Google following a judge's ruling that the company illegally monopolized the online search business. The report cites people with knowledge of the deliberations and notes there are other options on the table, including forcing Google to share more data with competitors and a ban on certain types of exclusive contracts. You can see shares are down about one and a half percent right now. Up next, why proposals from Donald Trump and Kamala Harris to end the taxing of tips could add an eye-popping increase to the nation's deficit.

Plus, check out shares of Baxter International. This is one of the biggest losers in the S&P 500 today. The medical device maker selling its kidney care unit to Carlisle for nearly $4 billion as it tries to pay down debt. That business brought in $4.5 billion in sales last year. Stay with us. Welcome back. They may not agree on much, but presidential candidates Donald Trump and Kamala Harris are now both proposing to eliminate taxes on tips. Robert Frank joins us for a look at how that could impact the national deficit and so much more. Robert.

Morgan, good to see you. Well, Vice President Harris and former President Trump both now proposing an end to taxing tips. Harris announced at a rally in Vegas on Saturday that she would, quote, continue to fight for working families by raising the minimum wage and eliminating taxes on tips for service and hospitality workers. Now, Trump first proposed his plan also in Vegas in the swing state of Nevada. In June, neither candidate has said, however, how they're going to pay for it. The Tax Foundation estimates it would cost at least $100 billion in lost revenue over 10 years. Others put it closer to $200 billion. Analysts say companies might have an incentive to structure more pay as tip income to reduce taxes for the

workers, and it could create a two-tier labor market where service workers who rely on tips make more in after-tax income than those with ordinary wages. It could also weaken Social Security since income taxes on tips contributes to Social Security and to Medicare. Now, the IRS has always had a tough time collecting and reporting tip income. Yet, reported tip income increased by 50 percent between 2012 and 2018 to $38 billion. Any change here, Morgan, would have to be approved by Congress. Why did we see such a big jump during that period? Well, it's sort of gone up over time. And as the service part of the economy, leisure, hospitality has become more important. That grows. And also, as you know,

everywhere you go now, you see tips, tip for this, tip for that. Used to be mainly just servers in a restaurant. Now it's like you go to a grocery store and just for the checkout, please tip us. So please tip your reporter and your anchor if you enjoyed this report. Yeah, exactly. Well, so this is what's interesting to me. You've already got a bill that's been proposed legislation that's been proposed on this by the current Congress. You have the White House coming out, the press secretary coming out and saying President Biden would, quote, absolutely sign legislation ending

taxes on tips. It's clearly popular. So are we going to see this actually come to fruition, perhaps even before the election and you get a new government in place? Unlikely, simply because the big tax package that has to come up is at the end of next year. And that's, of course, the expiration of the 2017 Tax Cuts and Jobs Act. So I think what they're going to have to do is to roll it into one giant tax package. Because look, as I just pointed out, you've got to figure out a way to pay for it, or at least explain to voters why you're adding to the deficit by cutting tips for a certain kind of wage earner.

And I think that's why they have to roll it into a bigger package. And as you and I know, we don't know what the makeup of government is going to be at that time. And the bargaining over that giant tax package, which includes salt, it includes the top income rate, includes the corporate rate. That's going to be a bigger discussion and that's going to take a while. Yeah, I think we're going to be talking taxes much more than we have, at least in the last couple of years. That says something here on CNBC. Robert Frank, great to see you. Thanks for joining me. Another big reading on inflation and earnings from a Dow component could be the keys for tomorrow's trading day. We've got your Wall Street look ahead next. And if you love the show and want even more overtime, I know you do, scan the QR code on your screen. Follow us on LinkedIn where we'll post exclusive content as well.

Overtime will be right back. Welcome back to Overtime. Tomorrow will be another big day of earnings. Cisco, UBS, Brinker International, Cardinal Health will all report their latest results. And on the economic front, it'll be another key reading on inflation when the July Consumer Price Index is released. Investors will also be watching the weekly mortgage applications data. Mike Santoli rejoins us. Mike, what are you watching? I do think CPI has to fit into the

script, Morgan. That's now pretty confident about not just the September cut, but a good chance of 50 basis points. So as I was just saying, the inflation numbers have been generally coming in in a friendly way, probably has to continue given how the bond market has repriced so aggressively in the last couple of weeks here. I mean, I'm watching Cisco, Dow Component, going to report results here on overtime tomorrow. It's the latest name that we get a read on AI for. They're also working down inventories. They've had some challenges in the networking part of the business. And we know last week there were reports that the tech company was cutting.

But they also, I realize, are absorbing Splunk after that acquisition. But it does seem like at a time where tech is rallying this week and AI is back in focus, that's going to matter. Yeah. And just in general, business demand for general investments in IT, whether it's AI or not, you know, Cisco is way beyond its kind of hyper growth phase. So therefore, it looks a lot more like technology GDP, plus a little bit, minus a little bit. So I do think that's where the clues come in. VIX back below 20 today. What to make of that? Yeah, it's playing right along. You know, the S&P 500 has rallied right up to its 50 day average.

So it's constructive. I'll say it again, but not yet decisive. All right. And of course, the S&P did end up 1.7 percent. Mike, thank you. That does it for us here at Overtime. Fast Money starts now.