Power Lunch - A growing red wave, a housing recession and stocks too cheap to ignore. 10/20/22

Episode Date: October 20, 2022

Inflation is the top issue among Americans as the midterms inch closer. Is a red wave on the horizon? Plus, why one prominent economists says there’s more housing pain ahead. And, which stocks are too cheap to ignore? Hosted by Simplecast, an AdsWizz company. See https://pcm.adswizz.com for information about our collection and use of personal data for advertising.

Dom, welcome to Power Lunch. I'm Morgan Brennan. Here's a look at what's ahead. A growing red wave. Inflation is the top issue among Americans as the midterms inch closer and the outcome of the election could have major implications for the market and your investing strategy. Housing hurt. Sales hit a 10-year low. Mortgage demand falling to a 25-year low. We're going to speak with a prominent economist who says there's more housing pain ahead and the carnage will continue into 2023. Dom. All right, big story for real estate there, Morgan. The morning gains have now gone. The Dow was up 399 points at its highs of the session. Right now, the Dow is down 48 points near the lows of the session.

The S&P is 3671 down 23 points, more than 1⁄2% declines there. Similar percentage booths for the NASDAQ composite, 10,619, down one half of 1%. Utilities, industrials, financials are the worst performing S&P 500 sectors, and strong earnings from IBM and AT&T have not been enough to support. the broader market this afternoon, overall, as the focus remains on the Treasury market and inflation, interest rates, the benchmark 10-year Treasury no yield, now reaching levels not seen on this level of the high side since 2008. And it's the economy that ranks as the top concern among voters as the midterms approach, but the results of the CNBC All-America survey also show a

very big divide. Steve Leasman has those details, Steve. Dominic, thanks. I want to show you three things from our survey, the C&BC, All-America Economic Survey. First, what are the top issues for Americans? Second, the division among Americans on them. And third, who Americans think is the best party to solve the problems. First of all, you can see your cost of living far and away. 44% say it's the number one or two concern out there, followed by threats to democracy. Hmm, which party thinks about that? We'll be there in a second. Followed by immigration, border security, crime, abortion, climate change. Look how far down jobs of unemployment is, that's typically a very high number, not when unemployment's

three and a half percent, followed by the war in Ukraine has fallen way down. Now, I want to show you these divisions, because those numbers, they really mask divisions. Take a look here. What we've done here, this is the top three issues for Republicans. 51 percent of Republicans say it's the top number one issue. But go back down. For Democrats, it's at 4 percent. For independence, it's at 22 percent. So that's the top issue for Republicans going down again. their second issue, cost of living. Look how much independence and Republicans are in agreement on that. Democrats, a little less so.

Not that they're saying it's unimportant to Democrats, just not one of the top ones, or it is actually the second one here. Crime, much more important for Republicans than it is for Democrats, less so for independence as well. Now let's look at the top issues for Democrats, and you can see the differences here. Threats to democracy, 46%, actually the number one issue. But for Republicans, that number is 18.

percent for independence, a little bit closer to Republicans on this, 24 percent, followed by the cost of living, abortion and climate change. You see climate change is not important to Republicans at all. Now, which party has the best policies to address these key concerns? You can see here on key economic issues, the GOP has double-digit leads, bringing down inflation 42 to 27, dealing with taxes 40 to 29. That's a plus R plus 11, we'd call that. the federal deficit, 3625.

You have to get down to this issue here, looking out for the middle class to finally see one where the Democrats have an advantage. But that plus four, it was plus 18 back in 2018. Cost of health care Democrats enjoy a big advantage there, but it's not a very big issue. So let me come back, guys, and just tell you that right now, a Republican post, we have a Republican Democrat poster on. He says, if this were an election only about the economy, which they know it's not. There's other issues out there. It would be a shalacking of the Democrats, is what they're saying.

It's interesting. It brings me back 30 years ago to James Carville. It's the economy stupid. And yes, there's other, there's other factors at play here. And certainly people are going to turn out for the midterms with all these different socioeconomic issues. But when you lay out that economic argument right there, it really is fascinating, given what we've seen with inflation

and it being so sticky. And note that jobs and unemployment are not a huge issue. But Republicans still enjoying a 10-point advantage, even though the unemployment rate is 3.5%. So whatever is going on, at least one thing is going right in this economy. That's the unemployment rate. Still not getting any credit to the Biden administration of Democrats for that. Here's my question. There's been a debate about what low-interest rate policy does for the economy versus higher interest rates.

If you're a pensioner, if you're a retiree, those higher rates are actually good. They help you kind of be able to fund your life a little bit more without active retirement. So on balance, are Americans feeling better off because of higher rates or worse off because of higher rates? What a wonderful question. And we actually have data on it. It's 43% say that they're hurt by interest rates. And 47, I want to say, say they're not hurt by it or have no impact. Dom, I'm going to help I'm not insulting you on this. To what extent was that question born of an old idea that older Americans have more fixed income in their portfolios? That's a good question.

My dad, may he rest in peace, had a portfolio that reminded me of a 24-year-old. Sure. I used to say, dad, get into some fixed income, take it easy. He had this crazy portfolio. I mean, he had good stocks, you know, Nike, he had no fixed income. I'm wondering the extent to which people who are on pensions and retirements, because they live through the period of low interest rates, and by the way, a surging stock market, don't have those portfolios anymore, but you ask a good question.

I think what we're talking about now, Dom, is a return to that world where people are going to look more seriously at fixed income instruments because there's return there that if they bring inflation down, return upon which I can actually retire and live. But not before. The simple reason, guys, is that the simple fact is people are living longer. They need more returns. And they need more returns. Right, exactly. So the old, but it would be, like, I'm thinking like the two-year note at, what is it, four and a half right now. it doesn't seem that crazy unless, of course, it goes to five, in which case, but over a two-year

period you can afford to take the loss if you have the time. But I think portfolios are changing. I will tell you just from our poll again, some of the worst views about the stock market that we have registered in the 14 years we've been doing this poll. In terms of the percentage, you think now is a good time to invest. It's, I believe, the second lowest we've ever seen. Wow. Okay. And we get an FMC meeting right before the midterms.

Right before the midterms, right? Okay. It's going to be exciting. Steve Leesman. Thank you. All right. Well, 34 states have Senate elections, and our next guest says the odds of a Republican sweeper are actually improving with key races moving in the GOP's favor here with more on what a potential red wave could mean for investors. Brian Gardner, Chief Washington Policy analyst at Steefell. He's also a co-host of Potomac Perspective podcast. Brian, do want to get your thoughts on this idea of a red wave sweeping through both houses of Congress. What are the data points you're looking at that suggests that? And just as importantly, if that were to happen, what is that going to mean for the market?

Yeah, so, you know, poll similar to the CNBC poll that Steve just described and analyzed. Harvard Harris put out a poll last week, people talking about their financial situation, very negative. Just the moves in the generic congressional ballots, both real clear politics and 538, they may differ on where each. party is right now, but they're in total agreement. The momentum is in the Republican direction. So, you know, we had the narrative over the summer that Democrats had a bounce. That was arrested probably right around Labor Day. You had the CPI reports in mid-September of last week. Inflation remains high. People are pessimistic and who they trust, which party they trust. They are registering their views, at least in polling data, with Republicans. And so I think there is just this growing body of data and evidence that a Republican wave is regaining strength after it subsided a little bit over the summer.

When we talk about things like inflation and the state of the economy and how voters are viewing some of these aspects that hit directly into their pocketbooks, I mean, what is the key demographic that is going to decide these midterm elections? You know, I don't know if there's a key demographic. I think it's across the board. Maybe a demographic problem challenge for Democrats is that younger voters that they rely on may be less engaged. Certainly seeing some movement, depending on what part of the country, but some movement among Hispanic voters towards Republicans, especially in the south, less so out west, but definitely across the board. And then how engage are black voters? Black men.

That may be enough to turn some really close races in a state like Georgia. So again, I think demographics across the board are tough for Democrats, but I would just point out a couple of examples of where they have acute problems. Brian, it's Tom. I wonder, as you kind of take a look from a strategy standpoint, on what matters the most and what types of issues are going to swing states one way or the other, what exactly is going to be that pivotal issue or those pivotal sets of issues that are going to really kind of change the focus and the outcome of this election besides just what's happening

with the economy and inflation? Yeah, well, I mean, it is gas prices. You know, they did let up a little bit over the summer, but they have resurged or started to spike back up a little bit over the last couple weeks. That's why you saw the announcement from the administration this week about releases from the Strategic Petroleum Reserve, which I think is, you know, too little too late. There are cultural and social issues that work too. Crime is a big issue and is going to move voters in places like Pennsylvania. So it's a combination of economic issues, of gas prices, but, you know, worries about crime as well. So what does this mean? We see a red wave manifest in both houses coming into next year. What is that?

mean in terms of policy approach? And what does that mean in terms of markets' reaction to that policy approach? So I think the first reaction is a relief rally by the markets. I think markets rally on divided government, on gridlock, on the prospects of more tax hikes coming and probably lower growth rate in the level of spending, not lower spending, lower growth rate. So that's the first market reaction. And then for policy longer term, because it is gridlock, there are going to be fewer solutions coming out of Washington. There is the heightened prospect of government shutdowns because the two parties are going to have a tough time agreeing with each other on the levels of government funding. The debt ceiling has to be increased in 2023, probably the second half of the year. Republicans are going to try and use that as leverage to get concessions on policies.

I think they will be unsuccessful. but they see it as leverage. And so we could be going back to, you know, kind of 2011-ish with a standoff over the debt ceiling. Now, we're not going to default. That's not going to happen. But the market volatility combined with some government shutdowns, I think we see a more volatile situation from Washington in 2023 that kind of weighs on markets at given times. It's also going to make, it would make for an interesting lame duck session, too, with some of the We have picking around. Absolutely.

Brian Gardner, thanks for joining us. Thank you, Morgan. Well, coming up, the housing recession will get demonstrably worse, quote-unquote. That is the outlook from a prominent economist who will tell us just how bad it might get. Plus, a retail bear is starting to turn a look at the stocks, he says, are in better shape now than just three months ago. And before the break, shares of all state on pace for their worst day since March 2020 after that company warned of a financial hit from Hurricane, E.N. It's leading the S&P lower. Welcome back to Power Lunch.

New evidence today that the housing market is undergoing a massive reset. Now, existing home sales for September falling to a 10-year low, marking the eighth straight month of sales declines. Housing starts out earlier this week, fell to its lowest level in more than two years. Homebuilder's sentiment at levels not seen since at least around 2012, with the exception of a brief drop at the start of the virus pandemic. And then mortgage demand dropping to a 25-year low. This is the average rate on a 30-year fixed-rate mortgage soars to 7.37 percent. So how deep a housing recession are we in? Let's welcome in Diane Swank. She's the chief economist over at KPMG. And I guess, Diane, the big question is, are we currently

in a housing recession, or are we going into one? I think we're already in a housing recession. The housing market is the most interest rate-sensitive sector out there. And what's been so unusual about the run-up in mortgage rates is how rapid that run-up has been. And we know there's a lot of asymmetry in terms of demand when you have a rapid increase in rates happened over in the UK in a different way. But I think that's very important to understand is that these rapid increases have really taking a toll on demand. We're going to be seeing the housing market, the worst performer in the

GDP data as it comes out for the third quarter and going to be a continued drag from the second quarter on as we get into the fourth quarter and into 2023. I think we're going to continue to see double-digit declines in home sales and in overall housing construction. But as we get into next year, you're also really going to see the national pressure on prices. And that is despite still tight inventories. We've seen some of the hottest markets come off their highs in terms of prices, but you're going to really start to see a depreciation in housing assets. And even though that doesn't mean a repeat of 2008, 2009, this isn't a subprime crisis, a lot of people are locked and loaded on those low mortgage rates, and they have a lot of equity in their homes. It does have a wealth

effect that will, I think, slow down the economy even further into recession, and we'll see a much more broad-based recession take root as we get into the turn of the year. So, Diane, is in this case here, is the housing and real estate economy a leading indicator for the rest of the broader economy? And I ask that vis-a-vis this point that the Fed has hiked interest rates markedly since the beginning of this year. And it seems like those interest rate hikes are starting to actually have a real effect on real economic conditions, certainly in real estate.

So how long does it take for that real? estate effect to happen everywhere else in the economy? Well, that's obviously the million dollar question or trillion dollar question at this stage of the game. The Fed is clearly, you know, at this moment in time, locked and loaded in terms of another 75 basis point hike and even another one after that and potentially further after that. I do think they're going to have to stop around 4.5% on interest rate hikes because they're also reducing their bloated balance sheet at the same time.

And I'm not, it's not clear to me that those won't have amplifying effects. said, I think we're starting to already see some of the effect in overall consumer spending. Consumer spending in the third quarter is running at its coolest pace so far this year. And that's with the pivot away from goods, housing related, all the stuff we bought to deal with the monotony of quarantines, a pandemic-induced bubble we saw in housing into services. And you can't replace services the same way. Of course, you can, you know, a holiday party canceled due to the pandemic is not recouped. And I think that's important as well, but we're really going to see some real weakness as we get into the turn of the year from the consumer, I believe, as well. Yeah, I mean, I think about

Union Pacific, the CEO Lance Fritz was on with me on Squawk on the street just this morning, and that was one of the things he talked about was that they are seeing a softening in terms of some of those consumer-focused goods that they move on the rails. Do we know yet whether we're looking at the beginnings of a recession that the consumer is engaged in right now? from an broader economic standpoint, versus a normalization pre-pandemic to those spending patterns? That's a great question. And, you know, right now we're still in a normalization. And even though the consumer is really cooling off and really showing a slowdown, I think it's a pretty sharp slowdown in consumer spending that we're seeing about 1% in the current quarter on an annualized basis,

that's close to flatlining it. So I am worried about that. That was in, I'm sorry, the third quarter, we're now in the fourth quarter already. October. The world seems to be going awfully fast these days. But I think it's important to remember that, you know, it doesn't take much for the consumer to sort of fall on its back and flatline or even go a little negative and then have other negative aspects of the economy, like housing, going further negative, and investment, which is sensitive to interest rates. That's going to be the real one to drop. I think we're going to see a bigger contraction in investment in the U.S. economy in the business sector and in the drawdown in inventories. All of those things together

are going to get us into a recession in early 2023, late 2020 to early 2023. And that's not great. The only sort of softening effect is that we have such a shortage of workers and unemployment rate is so low, it's not going to spike really high. And that's as long as the Fed can sort of at some point in time get to a high level and stop, or at least a sudden. where they are. My own preferences, they get there a little sooner rather than later, because I think keep going up at the kind of pace we're seeing and amplifying rate hikes with reductions in their balance sheet as it's happening around the world. Even though they feel pretty confident, they're not going to break something in financial markets. I still think that it's worth

going a little cautious now that we've gotten into what at least the Fed believes is tight monetary policy. And there'll be a little doubt about that with their next 75 basis point hike. But I guess from your lips to Fed officials' ears, we'll say. Diane Swank, thanks for joining us. Up next, semi-circling consequences. The U.S. aiming to choke China with export controls, but there could be unintended long-term consequences for some chip makers. That's next.

Plus, the M-I-S-I-P-I indicator. I get it. I see what you did there. Yeah. Just the supply chain snags are clearing up. there is a new problem growing on the Mississippi that could drive shortages as well as prices, even higher. Shares of lamb research gaining today after a beat and raise in its earnings report,

but the company could be caught in the middle of the ongoing chip battle between the U.S. and China, which may have long-term consequences. Christina Partsenevolous is here in studio to explain that. Well, a loss of almost literally $2.5 billion for lamb, considering 30% of its revenue comes from China and a possible $400 million quarterly hit to both applied materials and NVIDIA because of these said export curves that aim to choke China of the ability to make advanced chips. So we know it will cost these companies in lost revenue, but what about the unintended consequences for American chipmakers?

Other chip companies could stop using American tools to circumvent the rules. ASML already pointed out that they have few U.S. parts in their machines, allowing them to continue shipping certain machines to China. Business could shift to other countries, for example. TSM is considering Japan because of geopolitical risk, not the United States. And lastly, if China can't make advanced chips, they could focus on low-end chips, making it hard for companies like Intel to compete on price. For now, China still lags behind Taiwan, as well as S.K. Heinex,

or I should say South Korea and the United States in manufacturing, the most high-tech chips. But a new Bloomberg report says Chinese ministers and semiconductor firms are hosting emergency meetings to address these curves. Retaliation could deal another blow to the sector. All right, Christina Parts of Nevelas with the state of play right now on computer ships. Thank you very much. We appreciate it. All right, let's get now to Bertha Coombs for a CNBC news update. Good afternoon, Bertha. Hey, thanks, Dom.

Here's what's happening at this hour. As an outbreak of Ebola spreads through Uganda, CDC officials are confident the virus can be convinced. As of Tuesday, there were six-week confirmed cases and 24 deaths since the outbreak began last month. Experts say the risk to Americans is low, but health care providers are being advised to remain on alert of Ebola systems, symptoms rather. SpaceX launching a Falcon 9 rocket carrying 54 Starlink satellites today. That marks the 10th time the booster rocket has flown a mission and the 46th mission this year from the Kennedy Space Center. Today's mission continues Starlink's plan to expand its broadband network linking countries around the globe.

President Joe Biden arriving in Pittsburgh to promote the recently passed bipartisan infrastructure law. Biden will also meet with the Democratic nominee for Pennsylvania Senate, John Federman, for a closed-door reception ahead of next month's midterm elections. Dom, back already. All right, Bertha Coombs, thank you very much for the news update. Ahead on Power Lunch, the retail end of decline. Retail getting hit hard by recessionary and inflationary fears. The XRT ETF is down 34% so far this year, but our next guest is getting less bearish. He'll explain why, Morgan.

Plus, today's three-stock lunch. We're going to take a look at some nameset to rally that you could get a discount on. Power Lunch. We'll be right back. Welcome back to Power Lunch. We are 90 minutes left in the trading day. We started the day higher with the major averages. now we're lower. We want to get you caught up on the market action. Stocks, bonds, commodities,

whether retail is ready to rebound. So let's begin with Bob Pisani, who is at the New York Stock Exchange, where this morning's gains, as I mentioned, have evaporated. Bob. Yeah, you know, we had Morgan a very nice little rally going, and then Patrick Harker had to say something. You know, inflation's too high, rates higher for longer. That was the implication. And, well, we were 50 points higher on the S&P 500, just about noon. and you can see we're lower. However, the earnings saga is pretty good overall. Look at AT&T. That's one of the best days AT&T's had in a while. That's the biggest mover on the S&P, 7%. Their numbers were good. IBM, very good numbers, above consent. Second quarter guidance, also doing well. That's a nice move. That's the big mover on the Dow. Lamb Research, big semiconductor company, also doing very well, pulling up some of the semiconductors that are out there in Las Vegas Sand. So even though management had some of cautious, comments on what was going on in China, that stocks also rallying. This is washed out activity,

somewhat cautious comments by some of these companies and the stock still going up on a down day. That's what washed out activity looks like. Same in some of these metal stocks. Steel dynamics had very good comments overall. New Corps had a nice beat. It has somewhat cautious outlook. But again, you see up 2% with a cautious outlook, free point, everybody else moving along with that. We did have some misses out there. Night was a big one in the transportation sector following on FedEx. a downbeat comment. That's down 6%. And curiously, some of the super regional banks, fifth third and key corp, had very modest misses of a few cents, but you see here, very modest misses can translate into big decline. So I think the big story here right now is, yes, down day,

but earnings not falling apart. And you see there, third quarter estimates still up 3%. Fourth quarter still up nearly 5%. That is not recessionary earnings activity, at least. not yet. Guys, back to you. All right, Bob Pissani, and of course we know that there is a push pull right now between earnings and rates. So we now turn to Rick Santelli, who is watching bond yields jumped levels. We haven't seen in a long time, especially that 10 year. Rick, talk to me. Absolutely, Morgan. As a matter of fact, 2s, 3s, 5, 7s, 10s, 20s and 30s all have a higher yield lower price than yesterday, which means something quite simple. Every one of those maturities is going to make another cycle, high, yield.

closed. And in the case of two-year, let's look at a one-and-a-half-week chart, you can clearly see. We're on about one-third past the beginning of that chart. There's a volatility area there. That was CPI on the 13th. I will continue to show that. You can see the way we elevated the minute we traded through some of those yields a couple of sessions later. August 2007, last time two-year closed at these levels. Here's a 10-year. June 2008's last time we're at these levels. Same thing, week and a half chart. And once again, the volatility about one third through the way of the chart, you could see we've taken it out. The only one that hasn't is the next chart, the dollar index, hasn't traded above its intraday high from CPI Thursday. And that's significant.

And we're all talking about Liz Trust and the charts don't lie. Listen, there's a lot of political issues there. But when it comes to the market, well, you judge for yourself. Here's a year-to-day chart of the pound versus the dollar. Okay? It's settled at the end of last year at one, 135. When Liz Truss took over on the 5th, it was hovering around 115. Okay? Next chart. Here's the guilt. Year to date, it ended last year under 1%. 0.97%. And on the 5th, it was at 3%ish, a little lower. So you could see what was Liz Truss, at least under her tenure. The point of this is those glide paths were well established, whether it was the pound going down or guilt yields going higher.

Morgan, back to you. Big moves in a short amount of time. Rick Santelli, thank you. Oil closing today slightly higher. Pippa Stevens has more on crude's move. Hi, Morganwell. Oil is right around the flat line, giving back a 3% gain from earlier in the session.

Reports that China could ease lockdown measures had lifted crude. And this, of course, follows yesterday's rally, even as the White House tried to put a lid on prices. Brokridge PVM saying the price response is, quote, further evidence that the U.S. has lost its influence. influence over global oil markets. WTI for November delivery is at 8571. That contract does roll today.

The more actively contract for December is right around 8460. Now energy stocks are mixed. Kinder Morgan is the biggest drag down more than 5% after an earnings miss. The pipeline company's management did point though to future upside from Kinder's LNG operations. Also wanted to point out the OIH in the green again today and now up more than 9% for the week. Over the last six months, it's lagged the XOP, which has more direct exposure to commodity prices. But now the services companies, Morgan, are starting to catch up.

Back to you. All right, Pippa Stevens. Thank you. Well, now to retail and hints of a rebound, our next guest has been bearished on the sector, but it's starting to soften his stance. Joining us now is Ike Borchow, Wells Fargo Securities Senior Equity Analyst. Ike, great to have you back on the show. Why now?

Yeah, well, thanks for having us back. Look, I think that our view is that things are stable, right? That's a great word to talk about when, you know, we saw demand trends kind of fall up a cliff this summer. So definitely more stability in foot traffic, more stability in web traffic. And I do think that this Q3 earning season will be much more fruitful and eventful on a positive side than 2Q was. As a reminder, in 2Q, 80% of our company's lower numbers.

I don't think you're going to see something to that extent. However, while we are less concerned, less bearish in the near term, it's still very hard to want to jump in full-fledged optimistic here. Holiday, holiday is going to be tough. I think the things that keep us kind of concerned in the near term remain inventory levels, I think they're still going to be very elevated coming out of Q3. That's going to be a promotional holiday. For the multinational guys, Europe is decelerating.

You've seen negative callouts from some of the footwear guys. Adidas today, Levi's last week. In the U.S. wholesale channel, we're hearing order books are coming down. We're hearing the wholesale guys are going to get ordered down. So all this is to say is we're not bad in the near term, but I don't think we're out of the woods just yet. Yeah. I mean, you said the magic word inventories, which we've certainly been hearing more and more about in recent weeks. So given this scenario and given what you think about retail, at least in the near term, what would you be buying as we do see those earnings start to come? Yeah, look, so what we would do right now is we're trying to look for 2023 visibility.

I think this year 2022 is almost a wash. We all know it's not going to be the year that we all wanted it to be. So where do we see some reasons for optimism into next year? I think you have to start to look at the off-price sector and really give it some real thought on the long side. We recently named Burlington one of our top ideas. I think the off-price sector has a lot of industry tailwinds at their back. Remember, trade down is a big thing that happened after 0809. I think we're going to be in a weak economy for the next several quarters.

I think inventory dynamics will be much cleaner coming out of Q4, and that's really going to allow the trade down consumer to see value in the off-price channel. There's some other tailwinds to margins in their business, but I think off-price is actually going to become much more interesting after underperforming for much of the last two years, to be honest. And Burlington would be the best way we think to play that. So, Ike, it's Dom here. I mean, you look at a name like Burlington, and I can buy the thesis that you're saying there. There will be a trade down. The economic concerns will be there and play out in that kind of a buying trend. But you've also liked tapestry. That's arguably not at all, like on the low end side of things. You also like bath and body works. That's also not exactly on that kind of lower tilt side of things. What exactly is the common theme, if you will, that kind of links those three top trades of yours together? Sure. So I think the common theme, and I now would add farfetch in the digital channel to complete the four top ideas that we have.

I think there's one common theme you see across all four of them. You're not really playing in the apparel space. You know, the apparel space is challenged right now. The apparel vendors are going to be under pressure because there's going to be lower order books at department stores and retail partners. I think the apparel vendors also all have geographic exposure to Europe in a big way, which again, we talked about. going to be an incremental problem. And a lot of them have exposure to China where things are still remaining pretty volatile. So I'd rather stay with a cleaner story in the off price space. But tapestry and Bath and Body Works are also great ideas, high margins, high cash flow, cheap multiples, businesses very fundamentally sound. We like those as well. I just think if we're talking about new money looking for inflection stories, I do think off price for a subsector

that's been under a lot of pressure for the last two years. I think this is a very important. one where you see a big rate of change in 23. All right. Ike Boruchat, Wells Fargo, thank you very much for the picks. We appreciate it. All that scented hand sanitizer. I know. We have little girls.

You get to know it really well. Path of bodyers. All right, coming up on the show here, another stick in the mud for our supply chain woes. Low water slowing down barges on the Mississippi. Jane Wells at one point was in a news van. Down by the river. Jane. Oh, boy.

Living on government cheese, Dom. Where I am right now, the river is almost negative 11 feet. The water should be going up over five feet over my head. These barges over here have been sitting here for three days with nowhere to go. Not a lot is rolling on the river when we come back. Welcome back to Power Lunch. If there is one thing, one thing the U.S. economy does not need right now, it is another inflation-causing event.

But the low water levels in the Mississippi right now, are making it difficult, if not impossible, to ship some goods. So other ways, usually more expensive ways, need to be employed. Jane Wells is in Tennessee right now on the banks of the mighty Mississippi River with that story. Jane. Hey, Dom, yeah, the river is shut down about five miles north of here because you can't get through. And these barges have been sitting here for at least three days. They're waiting for a dredging boat to come out here and clear the path. Now, up and down the river here in the southern part, thousands of barges have been. and stuck. In parts of here, like here near Memphis, the river is hitting a record low of minus

11 feet almost. It's messing up the movement of commodities. Half of U.S. grain exports leave America via the Mississippi. Pete Chiamotaro runs a towing operation and says you need a whole lot of train cars and trucks to replace these barges. If the river had, say, another 10 feet of water in it, you'd be seeing barge stoves that were six long and eight wide coming down the river that could they would have the equivalent of something like 2,600 trucks on one barge stow now also impacted is the riverboat cruise industry the American queen is the largest inland river boat in the country and it is now upriver captain Greg brown talked to me from the ships bridge this morning outside Dubuque iowa later this fall early this winter we would

be probably more focused on the lower routes down to new orleans but we'll probably reroute of those to alternative places. We'll probably spend more time on the Ohio and the Tennessee while the lower Mississippi is getting sorted out. At least he has options. He can go north. The farmers trying to get their grain out of here have to go south. And you can see what's happened with barge rates during this.

I mean, they're up a whopping 2,000% above benchmark, which is good for towing operations though. Pete Chimotaro says he'd rather still have a full river. Guys. So Jane, just to talk a little bit about where you're located, I mean, you mentioned the fact that the river where you are is closed right now, but the barges behind you, what are they filled with? Is it grain? Is it other stuff? So these barges are trying to head north, and they're probably carrying something like fertilizer,

maybe some chemicals. One of Pete Shimitaro's tugs was towing a chemical barge. It's the grain. Then where the river is closed, five miles north on the other side of that trying to come south, that would be the grain. You also have oil trying to get back and forth and steel. So it's amazing to me, and I did not realize that one single barge equals about 15 rail cars and 38 trucks, which makes it much cheaper until rates jump 2,000 percent. Wow. Those are some staggering numbers right there. I didn't realize that either. Jane Wells, thank you. Coming up. Trading some heavily discounted, names which stocks are set to surge. We've got three stock lunch next. All right, time for today's

three stock lunch. Are some names maybe just too cheap to ignore? CNBC.com screened for stocks with single digit price to earnings ratios that could grow earnings per share by roughly 10% or more. Three of the names that passed that screen are Pfizer, D.R. Horton, and Westrock, drugs, homes, and cardboard. So here to trade them is Art Hogan, Chief Market Strategist with B. Riley, Wealth Management. Let's start up first with Pfizer-Art. What do we say? Pfizer, I think it's a buy here, Dom. Pfizer's been treated like a pandemic darling or a one-trick pony because of their COVID vaccine as opposed to the company that's been around since 1850 and has 95% of their business in biopharma in six therapeutic areas. But on evaluation basis alone,

if you look at the dividend, it's 2x, it's competitors, it's multiple at seven times. It's about six multiple turns cheaper than its history to itself in about half of what its competitors are trading at. And if you look at the chart, which I think is interesting, it just put in a inverse head and shoulders and there's no resistance between what it's trading now all the way up to 48. So we really like Pfizer here, and we think it's been thrown out with the bathwater here. Okay. So next up, a contrarian pick, if you will, given the conversation we had just earlier this hour about housing, D.R. Horton. Yeah, it couldn't be any more contrarian than that, Morgan. And I agree with you there. But if you look at the space as being washed out, if you look at the potential for any new

supply in the housing market coming from new home sales, not existing home sales, because no one's moving out of the house. D.R. Horton really jumps out at you for a lot of reasons. First and foremost, the broad distribution, their geographic distribution, their entry level cost in the single family home is the lowest of all the home builders. Clearly think that this is a company that has been washed out. It's based at 68 on the chart, has been at that level for about three months. A breakout could take it to 76. We think if you're going to take a shot at the homebuilders, D.R. Horton is the way to go. All right. And finally, let's go to West Rock. a name that's very well known for pandemic people who played those derivative plays.

We're talking corrugated cardboard products amongst other things. Yeah, Tom, you know, talk about pandemic plays, but also talk about commodity prices coming down, and that includes corrugated cardboard. We've seen a significant drop in those prices. They expect that to go down another 11% this year. Westrock, unfortunately, is very correlated to online commerce. And as we know, consumers have shifted their consumption patterns away from goods into services. So Westrock, while a very well-run company is a company that finds itself in a very difficult industry,

they're reporting on November 11th. They've missed four of the last eight quarters that they're reported, and I would suspect that this will be no different, and they'll likely have to guide lower as corrugated cardboard prices are coming down. All right. Art Hogan with the three-stock lunch on Pfizer, D.R. Horton, and Westrock, thank you very much. And for more on stocks that this bear market may have made too cheap, be sure to go and visit cnbc.com slash pro. subscribers can get the full story Morgan coming up over there. Well, up next, side hustles and extra shifts. Why a growing number of Americans are looking to get a second job.

Come back to Power Lunch. Let's get to some other stories that we are watching. I'm watching defense stocks, seeing big gains this week with the I shares aerospace and defense ETF, the ITA on pace for its best week since November 2020. It's up about 7% for the week. It's just turned negative in this past hour. some of the big winners. Lockheed Martin, which is up double digits this week after an earnings speed in that big $14 billion stock buyback announcement. Another defense prime, Northrop Grumman,

also up something like 10%. Supplier Curtis Wright, HII, 9% gains there. You've got a number of factors that play, Don. You got Lockheed results that are not as bad as feared, given the supply chain pain, which sets the stage for more A&D names to report next week. You got defense budgets that keep clying, given all the geopolitical risks, so the latest coming from Japan, will, according to reports, undertake its biggest arms build up since World War II and upbeat earnings and commentary from the airlines so far, which is signaling more demand for aircraft. So that might be good on the commercial aeroside. So, I mean, the whole idea of global conflict, right? This is the whole idea of aerospace and defense, is that when conflict

arises and keeps going, you have a lot more of demand for that stuff that goes into conflict. So I guess it's tough to get behind it, but you know that this is the world that we live in between Russia, Ukraine, China, Taiwan, North Korea, Japan, and everything else, there is a more aggressive stance towards protecting oneself, I guess, these days, and it has been in years. That's right. You're seeing those defense budgets, the world over increase, long lead times. So it's going to take a couple years for some of this increased demand to actually translate

to sales, though. I mean, it's going to be one of the, but like you mentioned, the primes. They're the ones we watch, right? Because they're the biggest defense contractors out there. It's the Lockheed, the Northropes, the general dynamics, people like that. All right. So what I'm watching right now, Morgan, is a survey showing just how much inflation is hurting the average American. Prices aren't going up. I mean, they're going to go up and you can't control that. But if you can try to bring more money in from an income side of things, here are some of the numbers from the Qualtrick survey of workers. Fifty-seven percent of workers say they want the opportunity to work more overtime or pick up extra shifts to make extra money. 37% have said that they have looked for a higher paying job, and around 52%, more than half of workers

polled, Morgan, said that they have looked or will look into picking up a second job in order to deal with the rising cost of living. So you've got a bunch of workers out there who don't feel as though the job that they have can actually support their cost of living anymore so they want to go and try to find extra work. That's what it's come to, and that's how bad. And I mentioned this only because earlier in the show, we did a whole segment about the midterm elections and what's resonating with people right now. The reason it's resonating with people a lot more these days in the economy is that it's hitting just about everyone out there. Yeah. But wait, I thought the consumer is still so strong. Isn't that what we're hearing?

It's conflicting signals depending on the data that you key into and the surveys that you pay attention to. But this to me sounds a lot more like reality what I'm seeing on mainstream. And it's not just that, too. Here's the other thing. We talk about whether or not we're in a recession or not. The one thing that we don't see yet is job losses. But the fact that people can actually go out and try to find other jobs maybe means that there are still jobs out there to find.

So that's a good sign that the workforce is still largely intact. We hope it stays that way. That's right. Well, Dom, it's been a pleasure to do Power Lunch. Yeah, it's been great to be here with you guys too. All right. So thanks for watching Power Lunch. Morgan and I are signing off right now.

You'll see here tomorrow. Closing bell starts right now.