Power Lunch - A central bank surprise, 2022’s greatest corporate controversies and Rivian’s big comeback 12/20/22

Episode Date: December 20, 2022

The Bank of Japan shifts its policy and it could mean a Fed pivot is further out than many investors had hoped. Plus, the greatest corporate controversies of 2022. And, the bull case for Rivian after a 79-percent drop so far this year. Hosted by Simplecast, an AdsWizz company. See https://pcm.adswizz.com for information about our collection and use of personal data for advertising.

Welcome everybody to Power Lunch. I'm Tyler Matheson, and here's what we've got in store for you today. A central bank surprise. The Bank of Japan, the last holdout on ultra-low rates, shifts its policy overnight, and it could mean a Fed pivot in 2023 is off the table. We will hear the argument for that case later this hour. Plus, the greatest corporate controversies of 2022, from Twitter's chaos to Disney's Florida fight to cutting ties. with Yay. Well, that's Adidas's story. Which stories top the list and what was the one big success of the year? Our power rankings, Kelly, later this hour. Looking forward to it. Tyler, thanks. Hi, everybody. Stocks are just off session highs. We're finally seeing some green here. About a half percent gain for the Dow, only a 13 point gain for the NASDAQ. Now, over in the bond market, yields, which had been trending lower, snapping back higher again after that BOJ cap raised that Tyler just talked about just a hair under 3.7 percent at the moment. And shares of Tesla are sliding again. They're down at almost 6% to date, 27% month to date. The market cap look here is below $450 billion from a peak of what was at $1.1.2 trillion.

We'll have more on that later this hour. General Mills also raising its 20-23 forecast, but saying supply chain and inflation disruptions could last. That's pressuring its shares down about 4%. They're one of a handful of earnings this week that could give investors a sense of whether profit growth is going. going to be as bad as feared. Bob Bassani has more from the New York Stock Exchange. Bob. Hello, Kelly. There is a lot of fear and trepidation about earnings in 2023. Now, three big companies are reporting this week, and we'll get us a much better indication of what we can expect in the new year. First, FedEx is reporting after the bell today. Could there have been a more

epic disaster than FedEx's earnings last quarter? The company blamed global macroeconomic trends for the poor showing and the guidance, and they announced cost-cutting plans. Okay, we're going to find out how that is going after the close today. But many are saying this is a particular problem for FedEx. UPS never fell apart in the same way FedEx did. Nike is also reporting after the bell today. High inventory and margin issues have been an issue in the second half of the year. Analysts have been lowering guidance for months now.

Nike gets about 20% of its revenues from China, almost 30% from Europe. So expect a big focus on inventory issues and that aggressive reopening in China. That may be a tailwind for the company. want to hear more about that as well. Finally, Micron, another big company, different area, also has had a serious haircut in the earnings projections. Earnings are expected to be negative this quarter, actually negative due to concerns about weaker global demand and lower prices for DRAM chips. Stocks down about 30% in the second half of this year.

They've already issued a warning for November 17th. That was on November 17th. So again, the bar here is very, very low. So this process of lower expectations is playing out in the whole stock market right now. Earnings for the fourth quarter are now expected to be down 1% compared to a year ago, but two months ago was expected to be up almost 6% this quarter. That's a very quick move to the downside. The good news here, Kelly, the expectations are very low.

The bad news is we don't know if they're low enough yet. And Bob, when I see that earnings are going to be down year on year, When do we start talking about an earnings recession? Well, yes, typically in an earnings recession, in a severe earnings recession, they can decline as much as 20%. That's the hard landing. Right now, we're kind of flattish at this point. A lot of the strategists on Wall Street, the bottoms of the top-down guys, are expecting earnings to be down about 5%. Let's call that, you know, softish landing kind of recession for earnings.

But you would expect earnings to go down anywhere from 5 to 20 percent in a lot. in a recession in general. All right, Bob, thank you very much. Bob Pisani reporting. So how hard will the break slam on earnings growth in 2023? And what will that do to stocks? To talk about that, we're joined by Lorraine Gilbert, wealth-wise financial CEO.

So you just heard what Bob said there and what lots of people have been talking about. You've got earnings growth slowing or maybe turning negative. You've got the potential for a recession of some severity over the horizon here. and you've got interest rates that are higher and rising and may well continue to rise well into 2023. That does not sound like a recipe for people to make much money in equities. Agree? Disagree. I think we do not have Lorene's audio. I think she was Kelly getting ready to

agree with me. How could she not? I made the case so so trenchantly there. There we got her. Did you hear my question, Lorene? did. I heard it all. Now let's hear your answer. Yes, we know that 2022 has been dismal, both in equities and fixed income. And now as we look to 2023, we know that those earnings per share, they're going to be going down. But what I think people often miss is that the PEs will start to expand and multiply. And therefore, when we really look at next year, we see the potential of the S&P 500 being up by the end of the year, somewhere in the range of 9 to 13%. Why will the PEs expand?

Is that because investors will be in a more speculative mood and will pay more for each dollar of earnings? Well, looking back since 1901, we did a regression analysis and analyzed what happens. And just as those earning per share numbers are coming down, the multiples start to expand and go up. and they go up ahead of what people expect. And that's oftentimes why people miss that rebound in the market. They're going to be focused on a recession.

They're going to be focused on the bad news that we're hearing. But the markets, as we know, are always ahead of all of that. So I would say for investors to beware and note that next year could see that expansion and could see the market going up. I would say in all of this, immediately we see more than, opportunity and fixed income right now in the shorter term than we do in the equity markets. And that's because rates are higher now and you think you can get between the yields you get and the and the and the and the potential. I mean, if rates keep keep going up, you're not going

to get price appreciation in bonds. But what we do think is we're closer than the end of the Fed raising rates. We're not done yet. They've made it clear, but we're closer to the end than the beginning of rate increases. So with that, I would say that looking at some more duration in fixed income, we're looking a little bit above the benchmark there. And we think that the earnings are about two and a half times on fixed income than what we've seen over the last decade. So that's definitely an opportunity for investors. There is an alternative, as we have been saying, Lorena, to the stock market, but you do still like some stocks. What do WW Granger, Packer, Tyson Foods, those are your picks? What do they have in common?

So one of the things our theme here is on value stocks and looking at specifically industrials where we expect CAPEX to continue to grow. And there will be CAPEX spending. So with that, looking at Granger and people diversifying on their manufacturing all over. And what Granger offers is kind of a one-stop shop for helping project management for companies to get what they need to get and get it distributed. And then with Picard, as well, we look at transportation and looking at how they have been very competitive and looking at their other competitors, their P.E ratio is lower. When we look at their spending, they've spent a lot of money on technology for their future and their return on capital is good. So we see, we like

all of these names being value stock names, and we think that value is going to be the place to be in 23. Larene, thank you. Happy holidays. We'll hope to see you next year. Thank you. Lorraine Gilbert. Thanks. Coming up, the Bank of Japan, Blind Sides Traders, the central bank's policy shift rippling through global bond markets and could have an impact on the Fed strategy in 2023. Plus Wells Fargo makes the case for Disney to spin off both ESPN and ABC. Is that the key to the stock success this year after falling 43 percent? We have the trade in today's three-stock lunch. And as we head to break, look at shares of Wells Fargo. More fines, Tyler, $3.7 billion now to resolve allegations.

Its mortgage and auto loan customers suffered. Power Lunch is back into the stock down 1%. Welcome back to Power Lunch, everybody. The Bank of Japan catching the markets off guard overnight by weakening its so-called yield curve control policy, something it had in place since 2016. It will now let its 10-year bond move forward. 50 basis points, a half point on either side of its 0% target. Now, treasuries and currencies reacted very strongly to the news,

and Rick Centelli is here to put it all into perspective for us at the CME. Hey, Rick. Hi, Tyler. Indeed, if you look at a two-day of U.S. race, you can clearly see how we jumped up. And at the current pace, we're on right now, a 10-year-note yield. This is on pace to close at the highest yield in about three weeks. And the reason, yes, JGB yields. spike, look at a two-day of 10-year JGBs going from 25 basis points up near 45, then closing

at 40 basis points. And do keep in mind that one of the main issues here that many are focusing on is the CPI. Many believe that the Bank of Japan and the head of that, Corota, has been doing some wild central banking encounters to try to raise inflation. They've purchased since 2010, about 7% of the total stock market. in the form 80% of all ETFs. And in 2016, when that didn't make inflation go up, as Tyler pointed out, they went to negative rates

and yield curve control. Their stock market is still well below 1989 highs, which was almost at 40,000. And when we consider that their CPI's the highest since 1991, the question is, is this a Pandora's box? They'll never be able to close. And then finally, if you look at how it affected

the currency side of the equation, Well, indeed, right now the dollar yen is at levels. Well, we haven't seen around since the six months. Let's call it six months. And considering it's only what, 13% of the dollar index, that is a leverage move to pay attention to. Kelly, back to you. And Rick, you're looking at also keeping an eye on whether the Bank of Japan might be selling its holdings of ETFs or bonds. Is that right?

Yes. And many believe that there's no way they possibly can sell. their ownership, especially in the ETF space, is so large, and they probably own almost half of the JGB market. So selling probably isn't an option. The real issue is what happens when the Bank of Japan isn't buying? How do interest rates move? And with CPI now year over year approaching 4%, this is really going to make many investors very nervous as to the ultimate value of the yen. Well said. I have lots of reverberations here. Rick, thank you. Thank you very much. The move by the Bank of Japan says a lot about why our own Fed pivot may still be far away.

Or so says our next guest. Let's bring in Jim Bianco, president of Bianco Research. Jim, what's the big takeaway here for investors? Welcome. That, you know, the Bank of Japan expanded their range that they are trying to target the 10-year yield by 50 basis points to let interest rates go up. They claim it's a technical adjustment. And I guess it is. But the real reason they did It is they've got inflation. Let me repeat that. Japan has inflation. That is the country we've been associated with deflation for the last 20 years.

If Japan is joining the party of raising interest rates because they've got inflation, as Rick said, you know, approaching 4%, doesn't sound like much for us, but for them, it's a, you know, generation plus high, something that they've been trying to do, then it tells us that inflation is a lot more persistent around the world, especially in developed countries. And this whole idea that the Fed's going to pivot because inflation is going to go back to 2% and it's going to be all over with. Even corroded, the BOJ government, the Bank of Japan governor said they might still be above their 2% target through the end of next year. But that's Japan. Jim, is that success?

I mean, they spent so long years and years and decades trying to get inflation back up to target. Now it's over target. So isn't this what they wanted? Wasn't this the whole point of their policy? Yes. but it's not necessarily what we want. We want to see our inflation rate go down to 2% and stay there. Europe wants to see its inflation rate go down to 2% and stay there. Well, you're not going to do that if Japan's going to be a 2 and a half. You did that in the past when Japan was near zero.

So if Japan has gotten success and their inflation rate is hundreds of basis points higher than it used to be, then to make the case that, but that doesn't matter to us, we're going to go back below Japan's inflation rate, that's a tough argument to make right now. So the takeaway that I saw from this was Japan is joining the inflation flight because Japan has an inflation problem. On one respect, that's okay for Japan. But for us who are desperate for the Fed to pivot and see inflation go down, that can be problematic. Isn't it ironic, Alonis Morissette, that you've got a situation where both central banks in Japan and the United States, not so long ago in the United States, were troubled by the fact that they couldn't get inflation up to their 2% target.

Japan, the same thing, couldn't get it up high enough. And now it has overshot. And so you have both of those central banks taking action aggressively to address that. It is. It is. And you could also throw in the ECB, President Lagarde, which she spoke, was very hawkish last week and even the Bank of England. What it tells you is that this inflation problem we're seeing is global. And if it is global, it is much more intractable and probably more persistent than we think. Then one country can fix. Then the Fed alone can raise rates to cause inflation to go back to 2%. They're going to need help.

They're going to need everybody to join in on the party. and Japan just did yesterday join in on the party. And remember, too, this also might mean something about the end of cheap money. We for 15 years have talked about zero interest rates and quantitative easing. Where did that all start? It all started 20 plus years ago in Japan. And now Japan might be exiting that era of cheap money as well. And if that is the case, that era of, don't worry, we'll cut rates to zero and we'll quantitatively

ease on the next downturn. That era might be over with right now because we're in an era of more. persistent inflation. So you make the case that this action in and of itself is a strong signal that the U.S. Central Bank is not going to be inclined to or maybe able to do what is described as the pivot, and that is to turn the other way sometime in 2023. Explain the nexus or the connection between what Japan did and the fact that you think this stays the Fed's hand so that even if it slows its interest rate hikes or holds rates for a long time, you're ways away from any point at which the Fed actually turns the other direction and begins to lower rates.

Explain the connection. Yeah, first of all, the market really, what it's focused on is what we call the pivot. It's not that the Fed might hike rates to 5% in the spring or early summer. It's that the market believes it will only be there for a temporary time, and then it will turn around and start cutting rates in the second half of the year. That is what is that question. Not how high we go, but when do we start cutting rates? If Japan is joining the case that they've got an inflation problem,

if ECB is being very worried about an inflation problem, the Bank of England has already said that their inflation rate could go well into the teens, if not higher. Germany's got to produce a price inflation rate in the 30% range because of energy prices. then if the Fed is waiting for signs that our inflation rate is going to go to 2%, and you recognize that inflation is somewhat global, it can only go to 2% when everybody else goes there. And not everybody else is going there right now.

So our rate's going to stay high. So yes, those that think that the Fed's going to start cutting rates in the second half of the year, even if the economy were slow or the recession forecast come through, might be disappointed that the Fed might be very slow to do that if, at all. And so Japan joining the case that they've got to worry about inflation, I think weakens the case that we're going to see our rates cut because of a downturned economy. Yeah. And as you point out, the Fed is under no obligation to go from raising rates to immediately in the next meeting starting to cut them. They can sit there and let those rates linger

at a higher level for a long time, for a year, maybe longer. Who knows? But that's all we have time for right now, Jim, I know we're going to return to this topic. I have a strong feeling over the next few weeks and months. Jim Bianco, thanks. Happy holidays. Same to you, sir. All right, coming up, losing charge, a new report shows auto execs, a losing confidence in EV adaptation, or adoption, I should say, but that's not stopping one analyst from getting bullish on a struggling EV maker. Further ahead, we'll take a look at a fast-growing startup that helps businesses build their e-commerce systems. That's in today's working lunch. We'll be right back. All right. Welcome back to Power Lunch, everybody. The calls to ban TikTok. They're growing louder

once again. The massive federal spending bill to be voted on this week in Washington includes a proposal to ban TikTok on government devices. 19 states already have bans on the app on state-issued devices. Louisiana, West Virginia joined that group yesterday. And Senator Marco Rubio now leading the push for a nationwide ban on the app for everyone. The issue is fears that using the app will give the Chinese government, which is a big stake, I guess, in TikTok or its parent, give the Chinese government information

about American citizens. But here, Kelly, I, I want, the Undersecretary of Agriculture can't get TikTok on his phone or her phone. That's not a big thing, but I suppose it's a toe in the. I just wonder at the margin if every user who's not gonna be able to use TikTok is a user for meta, is a user of Instagram Reels, Facebook Reels of that platform.

It drives people there away from TikTok. Yeah, I mean, there is an alternative now. It's not as good. I've tried them both. You know, the algorithm needs to get better. But it seems inevitable that as they deploy this technology on meta, much like they did with stories, there's a risk it could cannibalize TikTok even if nothing happened. There's especially a risk if we start seeing these bands either for state and local or

eventually for something more broad. You know, I think it's a reasonable bull case for exposure to shares of meta. Of other, of their competitors. Absolutely. Absolutely. It's still the most addictive, enjoyable kind of social media video type of content that's out there. Yeah. All right.

Let's go and get our news update. It's not Christina Parts and Nevelace. No, no, no, no. It is Brian Sullivan. It is somebody exactly a little taller. Yeah, a little taller. Here's what's happening at this hour, Tyler and Kelly. the city of Buffalo, New York is suing parts of the gun industry.

Buffalo's mayor calls it the first lawsuit of its kind. The lawsuit targets manufacturers and gun shops that have allegedly fueled the gun violence crisis in Buffalo. The Masters tournament will allow live golf players to compete at Augusta National next year. Club chairman says he is disappointed by recent actions that have divided men's pro golf, but they will not exclude players taking part in the Saudi-funded. Gulf League. And in Afghanistan, the Taliban has banned women from attending universities. Taliban had previously banned girls from middle school and high school. U.S. and British officials have condemned the move, and the U.S. ambassador says the Taliban cannot expect to be a legitimate

member of the international community until they respect the rights of all Afghans, especially women and girls. I don't think anybody is surprised by this move, guys, from the Taliban, not known exactly to be a warm and inviting group. Right, but it's always painful to watch the clock kind of spin in reverse. Disaster. No question. And it's so self-sabotaging to leave half your population out of education. Of course.

And to do so, again, on the national, we're all on the international stage watching this play out. I had on Power Lunch, looking back at this year, it seems that corporate America's new full-time job is dealing with controversy. And business is booming, by the way. FTX crashing. Tritter drama. Adidas fighting with Ye. The list goes on. We're going to take a look at the biggest controversies, as well as some moments when corporates manage to come out on top.

Stay with us. All right, we got 90 minutes left in the trading day, and we want to get you all caught up on the markets. The stocks, while they're higher across the board for a change, though off the highs of the session. Right now, the industrials, up about a half percent. Smaller gains in percentage terms for the S&P and NASDAQ. Energy, the leading sector, the only sector, up more than 1%. SLB, Halliburton, Slumberger, or the old Slumbrgett, Haliburton and ConocoPhillips, all up more than 2%. Oil, slightly higher today, back above $75 a barrel. Negative analyst comments weighing on Tesla today, the drop bringing the market cap down to about $450 billion.

Now falling behind Johnson and Johnson, now the eighth largest U.S. company by market cap. That is quite, Kelly, another decline for Tesla today, but I read something over the weekend that even at its now reduced market value, it is still larger than X many of the other traditional automakers combined. Exactly. Ford, GM, Chrysler, so forth. I mean, and while those legacy automakers are trying to pivot, we all acknowledge we're heading into a future that's going to be more powered by EVs than not, so they have that to contend with. It's just going back to the Tesla Twitter price drama, you know, David Faber this morning reporting that Musk is really trying to find another CEO at Twitter. We have, you know, you go on Twitter and there's still people like the Arizona Senate, Blake Masters, who has been mooted as a possible CEO contender explaining, you know, no, I don't want that role, but here's what I might do if I were in charge of the company. So Musk is not out of the picture yet.

and the amount of wealth that he's lost in Tesla while trying to fix Twitter and make it successful is an incredible, it brought the market capital back to where it wasn't. Elon Musk to be your boss? Well, I mean, because he's still going to be the controlling owner of the company and the chair of the board, I would assume. Right. The question now, I guess, is what can he get for the company for Twitter?

So the problem, as we all know from, you know, he overpaid. And he's overpaid. It's going to take years to figure out how to monetize that. And it's collateralized, obviously, by what happens with Tesla. So I think the most important thing for him to figure out is how does he make it more profitable? How does he try to recap and recoup what he paid? And then turn his message back to Tesla. How does he make Twitter something that is truly vital or entertaining and not tinged with the sort of anger that I think it is?

Twitter seems very important to us in the media. We talk about it, we use it, and so on and so forth. But it is, what is it, the fourth or fifth place social media platform? Exactly. I mean, it's not. No, and that's why its valuation had been struggling when he bought it. And he had argued Twitter kind of put itself into this box, it was just talking to itself and not as relevant as it could have been.

But I will say the one thing that a lot of observers say is make people use their real names and real identities on Twitter. And that's something that obviously around Facebook has taken. so many others. If you then are able to pull back a lot of the negativity, perhaps more people would get on to it for the truly kind of fun serendipitous and educational kind of platform that it really can. It could be.

I mean, right now it feels more toxic and angry than to me. I don't know. I'm not a player there. When Tyler gets on. That's clearly either the peak or the bottom. Speaking of Tesla's fall from grace, our power ranking series continues today with a look at some of the biggest controversies, mistakes, and successes in business during a very challenging 2022. So from Disney's fight with Florida, remember that one, to Adidas and Gap breaking up with Kanye

West, Live Nation and Taylor Swift catching heat from fans. Companies have never had to be more careful and political. Here to discuss the year in branding and corporate controversies is Ameriress Reid. He is Wharton School of Business Professor and a CNBC contributor. America, KISS, great to have you. I mean, what really jumps out to you as kind of the peak of corporate battlegrounds this year? I appreciate the opportunity. Happy holidays to you, Kelly and Tyler. I think a couple of things jump out to me.

We are in the year of crisis, clearly. And from my perspective, one of the things that's really important is that now companies are getting involved in these political, partisan, ideological components to attempt to try to build purpose into, what they're doing. So when you look at, for example, some of the biggest controversies of 2022, you have to, I think, start with Florida and Disney, a venerable brand, absolutely iconic brand, really coming out and mishandling a kind of important kind of aspect with respect to taking a very sort of strong stance on the LGBTQ plus laws that were kind of coming around with DeSantis and others and really sort of misplaying that. And I think, the biggest controversies come about when brands are not really sure about what they're trying to do

and not really focused on coming out with a clear message. And I think you saw that with Florida and Disney going back and forth with respect to this battle now of trying to maintain a kind of corporate culture, but also be very clear about signaling to employees and the world about what you stand for. I think that's a big component of what we're seeing around a lot of controversies, Kelly and Tyler, and that's the idea that companies are basically going on and saying the decision calculus is quite clear, and we need to take a stand on these issues, and we need to be very clear about what that stand is from jump. We don't want to wait until the votes are in, if you will, to use a pun. We want to be able to be very clear about our mission, our values, our statements, all of these things,

and we can avoid situations like Disney saw in that. particular instance. I guess what's running through my mind, America's here, is a question of whether silence is an option in these cases, where a company like Disney is pulled into a legislative controversy like what took place in Florida. And so is there an argument that companies legitimately can say, well, we're just not going to get involved in this discussion, or must they, because of the nature of their constituencies, whether it, and stakeholders, whether it is employees or shareholders

or customers who are impacted positively or negatively by a law like the one that was in Florida. It's a great point, Tyler. I think the answer, we're in a new world, a new playbook. The answer is you can't be silent because what's going to happen is

your rivals are going to fill that silence with information about you, that probably is going to do more damage than just coming out and being forthright and being very clear about what it is that you stand for. So I think the research is very clear on this, Tyler, and that's the idea that you're better off. Even if you come out and you go in opposition to very clear political and ideological lines, that's better than being willy-nilly and sort of wishy-washy and not really trying to hide behind the scenes. And I think especially consumers now are demanding to know, you know, what do you stand for and they want to know and they don't want

to wait around to see what happens? They want you to be very clear for better or for worse as to where these lines are being drawn and where the company comes out on those issues. I don't know. Call me old school, Marikis, but I worry about if all companies feel like they have to make a choice that fundamentally comes down to painting themselves kind of red or blue. And maybe that's culture we live in, but I hate to see it sort of proceed further that way. Let me ask you, I mean, what do we learn from the Adidas example here? Just is it a case where they should have moved more quickly or do you think they're applauded for kind of going one way and then pivoting the other? And I don't know if we want to sort of talk about that one or to move on and talk about what Elon Musk should do here in the next chapter of Tesla and Twitter because that one's just such a unique situation.

I'm not sure there's any larger takeaways to glean from it. Yeah, it's a great point, Kelly. I think that, you know, yay, unfortunately, didn't have a good yay year. because of what's going on. And I think Adidas was very clear on, you know, it seemed like it was a late move, Kelly, but I think what was going on there was, in that situation at least, was that the lawyers wanted to make sure that when they dropped him, that this was going to be airtight and all that the contractual aspects of the relationship

were really buttoned up. So I think that was, I think it was very clear early on that once things went way sideways in this anti-Semitic sort of perspective, that there was really no choice, no degrees of freedom for Adidas to change, but to change and to sort of get rid of a yay, so to speak. And, you know, when you're talking about the personal brand, that's billions of dollars that disappear overnight. And so you've got to be really careful about that. Well, yeah, that you're exactly right. I mean, that was, I think I forget what it was. It was $2 billion or 20 percent of their revenue came from, yay, yay, but yay, as you point out,

yay gets a boo. Anyhow, America's Reed, have a great holiday season, my friend. Thank you, sir. I appreciate the opportunity. You bet. So what do you, the viewers, think was the biggest corporate controversy this year? According to our, yes, Twitter poll, FTX takes the top spot, followed by the months-long Musk Twitter drama. Well, holiday shopping may be coming to a close. I'm just beginning. I went last night. But even if shoppers have stopped clicking, retailers can't stop clicking.

John Fort is going to bring us his interview with a company Revolution. e-commerce logistics. That's in working lunch in just a minute or two. All right, we got 90 minutes left in the trading day, and we want to get you all caught up on the markets, the stocks, while they're higher across the board for a change, though off the highs of the session. Right now, the industrials up about a half percent. Smaller gains in percentage terms for the S&P and NASDAQ. Energy, the leading sector, the only sector, up more than 1%. SLB, Halliburton, Slumberger, or the old Slumberger, Haliburton, and Conoco, all up more than 2% oil slightly higher today, back above $75 a barrel.

Negative analyst comments weighing on Tesla today, the drop bringing the market cap down to about $450 billion. Now falling behind Johnson and Johnson, now the eighth largest U.S. company by market cap. That is quite, Kelly, another decline for Tesla today. But I read something over the weekend that even at its now reduced market value, it is still larger than X many of the other traditional automakers combined. Exactly. Ford, GM, Chrysler. I mean, and while those legacy automakers are trying to pivot,

we all acknowledge we're heading into a future that's going to be more powered by EVs than not, so they have that to contend with. It's just going back to the Tesla Twitter price drama, you know, David Faber this morning reporting that Musk is really trying to find another CEO at Twitter. We have, you know, you go out of it. Twitter and there's still people like the Arizona Senate, Blake Masters, who has been mooted as a

possible CEO contender explaining, you know, no, I don't want that role, but here's what I might do if I were in charge of the company. So, Musk is not out of the picture yet. And the amount of wealth that he's lost in Tesla while trying to fix Twitter and make it successful is an incredible, is brought the market cap of Tesla back to where it wasn't going to the USMP. Would you want Elon Musk to be your boss? Well, I mean, because he's still going to be the controlling owner of the company and the chair of the board, I would assume. Right. The question now, I guess, is what can he get for the company for Twitter? So the problem, as we all know from, you know, he overpaid. And he's overpaid. It's going to take years to figure out how to monetize that. And it's collateralized, obviously, by what happens with Tesla.

So I think the most important thing for him to figure out is how does he make it more profitable? How does he try to recap and recoup what he paid and then turn his attention back to Tesla? How does he make Twitter something that is truly vital or entertaining and not tinged with the sort of anger that I think it is? Twitter seems very important to us in the media. We talk about it. We use it and so on and so forth. But it is, what is it, the fourth or fifth place social media platform? Exactly.

I mean, it's not. No, and that's why its valuation had been struggling when he bought it. And he had argued Twitter kind of put itself into this box or was just talking to itself and not as relevant as it could have been. But I will say the one thing that a lot of observers say is make people use their real names and real identities on Twitter. And that's something that obviously around Facebook has taken so many others. If you then are able to pull back a lot of the negativity, perhaps more people would get on to it for the truly kind of fun serendipitous and educational kind of platform that it really can. It could be. I mean, right now it feels more toxic and angry than to me.

I don't know. Especially these days, by the way. Player there. When Tyler gets on. That's clearly the either the peak or the bottom. Speaking of Tesla's fall from grace, our power ranking series continues today with a look at some of the biggest controversies, mistakes, and successes in business during a very challenging 2020. So from Disney's fight with Florida, remember that one, to Adidas and Gap breaking up with Kanye West, Live Nation and Taylor. Catching Heat from fans, companies have never had to be more careful and political.

Here to discuss the year in branding and corporate controversies is Americus Reid. He is Wharton School of Business Professor and a CNBC contributor. Ameriress, great to have you. I mean, what really jumps out to you as kind of the peak of corporate battlegrounds this year? I appreciate the opportunity. Happy holidays to you, Kelly and Tyler. I think a couple of things jump out to me. We are in the year of crisis, clearly.

And from my perspective, one of the things that's really important is that now companies are getting involved in these political, partisan ideological components to attempt to try to build purpose into what they're doing. So when you look at, for example, some of the biggest controversies of 2022, you have to, I think, start with Florida and Disney, a venerable brand, absolutely iconic brand, really coming out and mishandling a kind of important kind of aspect. with respect to taking a very sort of strong stance on the LGBTQ plus laws that were kind of coming around with DeSantis and others, and really sort of miss playing that. And I think, you know, the biggest controversies come about when brands are not really sure about what they are trying to do and not really focused on coming out with a clear message. And I think you saw that with Florida and Disney going back and forth with respect to this battle now of trying to maintain a kind of corporate culture, but also be very clear about signaling to employees and the world about what you stand for. And so I think that's a big component of what we're seeing around a lot of controversies, Kelly and Tyler. And that's the idea that companies are basically going on and saying the decision calculus is quite clear. and we need to take a stand on these issues,

and we need to be very clear about what that stand is from jump. We don't want to wait until the votes are in, if you will, to use a pun. We want to be able to be very clear about our mission, our values, our statements, all of these things, and we can avoid situations like Disney saw in that particular instance. I guess what's running through my mind, Americas here, is a question of whether silence is an option in these cases, where a company like Disney is pulled into a legislative controversy like what took place in Florida. And so is there an argument that companies legitimately can say,

well, we're just not going to get involved in this discussion, or must they, because of the nature of their constituencies, and stakeholders, whether it is employees or shareholders or customers who are, impacted positively or negatively by a law like the one that was in Florida? It's a great point, Tyler. I think the answer, we're in a new world, a new playbook. The answer is you can't be silent because what's going to happen is your rivals are going to fill that silence with information about you that probably is going to do more damage

than just coming out and being forthright and being very clear about what it is that you stand for. So I think the research is very clear on this, Tyler, and that's the idea that you're better off. Even if you come out and you go in opposition to very clear political and ideological lines, that's better than being willy-nilly and sort of wishy-washy and not really trying to hide behind the scenes. And I think especially consumers now are demanding to know, you know, what do you stand for? And they want to know and they don't want to wait around to see what happens. They want you to be very clear, for better or for worse, as to where these lines are being drawn and where the company comes out on those issues. I don't know. Call me old school, Maricus, but I worry about if all companies feel like they have to make a choice that fundamentally comes down to painting themselves kind of red or blue.

And maybe that's culture we live in, but I hate to see it sort of proceed further that way. Let me ask you, I mean, what do we learn from the Adidas example here? just is it a case where they should have moved more quickly, or do you think they're applauded for kind of going one way and then pivoting the other? And I don't know if we want to sort of talk about that one or to move on and talk about what Elon Musk should do here in the next chapter of Tesla and Twitter, because that one's just such a unique situation. I'm not sure there's any larger takeaways to glean from it. Yeah, it's a great point, Kelly. I think that, you know, yay, unfortunately, didn't have a good yay year because of what's going on. And I think Adidas was very

clear on, you know, it seemed like it was a late move, Kelly, but I think what was going on there was, in that situation at least, was that the lawyers wanted to make sure that when they dropped him, that this was going to be airtight, and all that the contractual aspects of the relationship were, were really buttoned up. So I think that was, I think it was very clear early on that once things went way sideways in this anti-Semitic sort of perspective, that there was really no choice, no degrees of freedom for Adidas to change. but to change and to sort of get rid of a yay, so to speak. And, you know, when you're talking about the personal brand,

that's billions of dollars that disappear overnight. And so you've got to be really careful about that. Well, yeah, that you're exactly right. I mean, I think I forget what it was. It was $2 billion or 20% of their revenue came from, yay, yay. But yay, as you pointed out, yay gets a boo. Anyhow, America's Reed. Have a great holiday season, my friend.

Thank you, sir. I appreciate the opportunity. You bet. So what do you, the viewers think, was the biggest corporate controversy this year. According to our, yes, Twitter poll, FTX takes the top spot, followed by the months-long Musk Twitter drama. Well, holiday shopping may be coming to a close.

I'm just beginning. I went that night. But even if shoppers have stopped clicking, retailers can't stop clicking. John Fort is going to bring us his interview with a company revolutionizing e-commerce logistics. That's in working lunch in just a minute or two. Welcome back, everybody. It's still a challenging environment for startups, but it's a good time of year to be in the shipping business.

And this week, John Ford brings us up close with the CEO of a company trying to simplify e-commerce shipping by focusing on shipping labels, John. Yes, Laura Barron's Wu, is co-founder and CEO of Shippo. It's a late-stage startup that reached unicorn status during the pandemic's online shopping boom. The company helps small businesses offer, the most affordable and efficient shipping options and makes money on business subscriptions and usage volume. Laura and her co-founder started the company after their first idea, an online store showcasing

designers flopped. Like, can we build a curated marketplace for people to discover those products? And, yeah, it didn't take off. But as part of that, we did a lot of shipping ourselves. We were taking on the inventory risk and shipping out of our own living rooms. realize just that shipping is really hard to do. Like, you have to stand in line at the USPS store. It's only open at certain hours. You don't get a ton of advice there either. And then we were faced with this problem ourselves, and suddenly it clicked.

Shippo is now adjusting to the turbulent economy. The company laid off 20% of the workforce last month and is focusing on helping its core North American customers now save money instead of surging larger customers, serving larger customers, or expanding overseas. This year, it is really much more about cost saving and making sure that, you know, like shipping costs are reasonable that there's, yeah, our customers are focused on that part significantly more than, I don't know, expanding into another country or adding another functionality. So that's been a big change in our, in our value prop that resonates with our customers. Everyone was operating under the assumption that capital is changed.

sheep, grow at all costs, grow as fast as you can. And that's been, like, a big reset, just like we're trying, I think everyone in tech is making sure that they have enough capital to last until early 2025, much more focused on efficient growth and a path to profitability. And Laura also told me Black Friday and Cyber Monday shopping was strong, which was a relief for her and others. But like you heard her say, she's preparing to survive two plus years without raising new capital, and I just heard from John Thompson, the investor who's also on Microsoft's board, Rubrics board, same thing. He's expecting startups to be able to survive for two years without raising more capital. Didn't they just recently raise $150 million in capital? They did. They did. So they

may be able to ride that way. They can't make sure I understand correctly. Is there bread and butter providing for small businesses the technology to create shipping labels? It's shipping labels and options for the most efficient type of shipping for the area where that small business wants to ship. So kind of making a marketplace of here's exactly how you want to get at there. You should use this provider, the USPS or UPS or FedEx for this and so on and so forth. Lowest cost, fastest delivery. And I suppose integrating with the payment platform or the ordering platform is a big part of this, which is why a shipping label company gets a billion dollar valuation, which sounds on its face

preposterously high. Right. But when you look at something like Shopify, which has become this platform where small and medium businesses can offer their services more broadly. Okay, you've sold it. Now you've got to get it there. What's the most efficient, reliable way to do that and continue in your business? So Shippo is one of those providers layering on top of that SMB revolution that's happening now where they're able to get more enterprise grade tools to get their smaller business growing. I love it. You know, this is my favorite segment, but do they have a moat? I mean, are there other shipping label startups that are trying to, trying to do the same thing?

There are some, but their moat is that deep relationship with the shipping providers also and the technology on the back end that allows them to be reliable, the apps that they've built that work on top of these platforms. Fascinating. I'll be thinking about that when those packages come at the door. John, thank you very much. Still to come, three calls, three trades. Today's three stock lunch is next.

Three big calls, the focus of today's three stock lunch. We've got Wells Fargo calling Disney a top pick and making the case for an ESPN, ABC, spin-off. We've got Jeffreys removing Amazon from its franchise pick list, the stock losing all of its pandemic gains, and JPMorgan naming Bank of America, a top 2023 pick. Let's trade them all with Jeff Mills. He's Brinmark Trust's CIO and a CNBC contributor. Jeff, let's start with Disney. Want to know both your take on the stock and this spinoff idea. Yeah, hi, Kelly. You know, the spin-off is something we've looked at, and I don't know really what it does long-term. I don't know that it drives as a catalyst for the stock in the near term.

I think that having streaming become net cash flow positive is what's going to move this stock over the next couple of quarters. The company finally starts to pay a dividend again. Iger mentioned this during the town hall he did about a month ago. And the pieces are in place for that. You know, the ad tier service, that's higher revenue per user, the increase in subscription fees. Even if that comes at the cost of slower subscriber growth,

that's what the market's going to be looking for. I think we see some pull forward in the Disney Plus profitability estimates. If there is clear evidence of that, I think the stock moves higher, especially given the current valuation. All right. Let's move to Amazon. And do you say buy? Why? Yeah, I'd push back against this one being a sell. You know, profitability has been a disappointment, Tyler. But, you know, I think more than anything, Amazon really never manages to the short term. We've learned that over the last number of years. And the key to the story is gross margin expansion, the growth in services subscriptions. This is not Walmart post-190, where the stock had a massive run. And then it was.

flat. Amazon is a much more dynamic business and the growth in these non-merchandise businesses, AWS Prime advertising and the better margins associated with that. That's why you've seen close to 4% gross margin expansion since about 2019. I think in many ways it's more like an Apple story where it's transitioning from sort of the hardware to the services, that becoming a bigger piece of the pie. And again, with that price to sales back in that range from sort of the early to mid-2000s, I do think there's value there for a patient investor. Oh, that's a very comprehensive. argument. All right. So what would you do with Bank of America at a time when banks have had a tough year? People are pretty sour on their prospects for 2023. What would you do with B of A?

Yeah. So I agree with J.P. Morgan in terms of credit quality. So, you know, relatively speaking, in terms of banks, I think Bank of America is interesting. But it was also a J.P. Morgan top pick, I think, overall, going into 2022. And one of the things that they said was they're especially rate sensitive. So I think that that's true. And I think a lot of the rate tailwind is probably behind us, if anything, we probably have a continuing flattening yield curve, at least in the first part of next year. And look, I just don't want to be heavy into bank exposure, heading into a recession, which is our base case. You know, if you get 6% unemployment, we've never had a recession without 6% unemployment. J.P. Morgan, they themselves said that in that scenario,

loan loss reserves go way up. Loan demand goes way down. That's a headwind to earnings, even with valuations where they are. So I just don't think it's a place for good relative performance. All right, so joining the choir there, I'll say, and kind of some down feelings about the banks. Jeff, thanks for all your picks and for your time today. We appreciate it. Jeff Mills. Thank you.

The glasses are in. Coming up, Rivian getting a bullish call on Wall Street, but the stock is still down for the day is the EV market losing a little spark. That is next as we bring it across the finish line. The push for automakers to go all-electric may be losing a little bit of its charge. A new CNBC.com article says global auto executives are less confident about the rate of adoption than they were just a year ago.

According to a KPMG survey, the median expectation for EV sales is 35% of the new vehicle market by 2030, down from 65%. But there's one EV stock that our next guest says is worth buying despite the chart you're looking at right there. He says Rivian's 79% decline this year offers a, quote, good entry. point. Let's bring in Andre's Shepard, senior analyst at Cantor Fitzgerald. You've just initiated this stock with an overweight rating. Make your case for it, Andres. Yeah, thanks. And good afternoon. Thanks for having us on. So we initiated coverage of Ribian this morning with an overweight rating and a $30 price target, as you alluded. We see that 79% underperformance this year as a good entry point for new investors who have a long-term investment horizon and who are comfortable taking on

volatility. The thesis for this name is for those. Number one is we actually do expect strong customer demands. The company has over 114,000 reservations currently available. They are on pace for producing 25,000 vehicles this year, and we expect that that capacity will increase to about 150,000 by next year. As you know, they're making the pickup trucks and the SUVs, which are two of the most commonly sold types of vehicles in the U.S. at starting prices of 73,000 and 78,000 respectively. The company also has, on the commercial front, a strong partnership with Amazon, who is a 17% stakeholder in the business. And the two companies combined have agreed on delivering 100,000 electric delivery vans for EDVs over the next 10 years, which is a great way for the company

to ramp up revenues faster. Andres, I feel bad for Riviam. And this funding environment, this capital environment, this landscape is totally different from the 2010s when Tesla still had to fight hard to get as big as it did. How are they ever going to scale profitably? Yeah, it's great question. Thanks for bringing that up. So the company currently has over $13 billion in cash on hand. Management has gone off and reaffirmed that they believe that that cash on hand is sufficient to fund the business through at least 2025.

As you alluded to raising capital in this environment, has. become incredibly difficult. However, again, we see that partnership with Amazon that strong demand for those vehicles and the company, and this is our view now, the company is developing its own proprietary charging network, which we expect they will open up to the public as a way to qualify for the Nevy funding that's provided us from the Infrastructure Investment Act. And so that's money that the company will be competing for and bidding for. And that's a great way for them to fund that additional rollout of their charging. Clever if it works.

All right, Andres, thank you very much. Have a good holiday season, my friend. Thanks very much. Take care. All right. Thank you. And thank you. Yes, thank you for watching.