Power Lunch - A rally on Wall Street, throwing in the towel on housing and Wolfgang Puck 10/21/22

Episode Date: October 21, 2022

Stocks rally, bond yields fall as investors assess the outlook for Fed rate hikes. Plus, why one analyst says housing is in for a hard landing. And Wolfgang Puck on the state of the restaurant industry. Hosted by Simplecast, an AdsWizz company. See https://pcm.adswizz.com for information about our collection and use of personal data for advertising.

Dominic, we thank you. Good afternoon, everyone. Welcome to Power Lunch, along with Morgan Brennan. I'm Tyler Matheson. Glad you could join us on this busy Friday. Stock surging, as Dom just pointed out, but a lot of the action is in the bond market, too. Bank of America's head of rates calls the Treasury Market fragile and vulnerable to shock. He'll tell us what surprises could be lurking in one of the deepest and most liquid markets in the world. And tapped out, housing affordability being crippled by those 7% mortgage. That's the call from a veteran analyst who's moving to the sidelines on the builders and calling a housing recession, Morgan, inevitable. Ah, well, it is an upbeat end to the week. Stocks, as you just mentioned, their recession highs is Treasury's reverse course this afternoon. The Dow had been down 127 points at the low. As you can see right here, we're up 621 or just over 2% right now.

Caterpillar, Goldman, JPMorgan are leading the way higher. The S&P is also up nearly 2%. 37, 36 is your level. They're up 70 points. And the NASDAQ is up 1.8% as well. We're on pace for gains for all the major averages this week. Here's what's driving the surge. Short-term treasury yields.

They're pulling back this afternoon, the one-year and the two-year yields, had been at 2007 highs earlier in the session. Short-term treasury yields, more sensitive to Fed rate hikes. Tyler? All right, those short-term yields reacting to comments from San Francisco Fed President Mary Daley. Daley said she'd like the central bank to, quote, step down from the pace of rate increases, what has been a series of 75 basis point hikes, but added that she isn't sure when that will happen. This follows a Wall Street Journal report that says some officials want to start talking about slowing the pace of hikes,

though they're expected to approve another large rate hike, three-quarters of a point, in November. here to discuss the future of rate hikes and the next move for them and yields in general is Mark Cabana. He is head of U.S. rate strategy at Bank of America. Mark, welcome. Good to have you with us. What does your crystal ball tell you about the path of interest rates and bond yields? Well, first, thank you very much for having me. And as we have long argued, we do think that the risks skew in the direction of the Fed hiking more aggressively and delivering more risk. rate hikes, front-loading, if you will, as long as the data remains strong. Now, we've heard the comments from San Francisco Fed President Mary Daley as well about potentially

stepping down. But we believe that the Fed needs justification in order to do that. Right now, what we have seen is that the unemployment rate is at the lowest for this cycle, and core CPI is at the highest for this cycle. And so it's difficult for us to envision a Fed that feels good about reducing the pace of rate hikes when their monetary policy mandate is still so out of balance, and inflation is still such an issue, and the labor market is still so strong. So where do you see Fed funds a year from now?

Well, our House view is that the Fed's target range will be between 4.75 and 5% a year from now. But the risks, as I noted, are skewed to the high side on that. And the reason that they're skewed to the high side is because the economy, has been so strong. We thought we would see more signs of labor market softening. We thought we would see the consumer begin to pull back as rate levels have increased. But what we've seen is that the labor market is strong and it's strengthening. It's not softening. And so to us, that just suggests that the risks are for further frontloading of rate hikes and wanting to still remain underweight the front end of the Treasury curve. Does 4.75 to 5 percent, does that break the back

of inflation? Is that a number? Well, we previously thought that it would, but incoming data suggests that it hasn't had much of an impact so far. And the market is pricing about something in line with our expectation already. So the market's price this outcome, and we're not seeing the softening in the labor market. We're not seeing the softening of inflation. So again, that's why the risks skewed to the Fed potentially having to do more. But just to play devil's advocate here on Mark. I mean, you are starting to see some weakening and some weakening quickly in certain sectors of the economy.

you like, for example, housing, which we've been talking about all week on this program. So is it really safe to say that you're not seeing signs that inflation in some aspects is starting to or has the potential to start to abate? And I think just as importantly, the fact that that front end of the curve is still so much higher than the back end, and we have this inversion playing out between different spreads along that curve. What is that signaling? So you're right. Some parts of the economy are showing slowdown. But in aggregate, the economy is still very strong. And while the housing market may very well be in a recession, and it's very difficult to think about wanting to buy a new home with 7 plus percent mortgage

rates and elevated home prices where they are today, some correction there seems appropriate and somewhat inevitable. But on balance in the economy today, the consumer is still spending quite healthy in a quite healthy way. Services inflation is is still very high, even though goods inflation appears to be moderating to some extent. And perhaps most important of all, the labor market is so strong. Now, what the Fed would ideally like to do is get to a rate level where they are starting to see that the jobs market is softening and that inflation is coming down. And then they'd like to hold there and let the economy sort of play itself out and let

conditions slow and financial conditions bite a little bit more aggressively over time. But the challenge that the Fed has today is that they're not sure how far they need to go. And the market is certainly pricing a rate level that the Fed has thought would be sufficient to start to slow things down. We're not seeing that yet. And so we do think that the Fed is likely to continue to be reactive to the data. They're data dependent. They're very uncertain about the outlook, just like all of us are uncertain about the outlook. But we don't know that 475 to 5% will be enough. Again, the market's there already, and the economy at large is still quite strong. And there probably needs to be more of a slow down, more broadly spread across the economy to give the Fed confidence that they

really can slow things down. And we just don't know if we're there yet. Okay. Well, Mark Kavana, thanks for joining us. Thanks for having me. Our next guest says he doesn't expect rates to come down substantially anytime soon, and that earnings estimates are too high. Here to talk about what this double whammy could mean for stocks is Carl Farmer, Vice President and Portfolio Manager at Rockland Trust. Carl, talk to me about this one-two punch. What does it mean in terms of further pain from your perspective? Well, certainly. Thanks for having me on today. I agree with the previous guess that the Fed certainly isn't done yet. The one-two punch being that seems like 20-23 estimates for earnings may still be too high.

rates are not, just kind of encompassing what the previous guest had said, what many are missing is that even if inflation is peaked, that doesn't mean interest rates decline soon. If we think about the Fed's long-term inflation target even after inflation subsides of close to 2%, if you add on the 1 to 2% real yield premium that usually is commanded by investors without Fed intervention, that gets you closer to three or four anyway. So the most important takeaway on interest rates is that a pause and rate hikes does not mean a cut. If we look back to how this affects earnings estimate, We've already mentioned kind of in the previous weeks how a stronger dollar has been a headwind, and inflation is making cost, including labor, more expensive.

Falling profits can certainly weigh on the labor market and unemployment through layoffs, but it's encouraging that we haven't seen much of that yet, and the labor market is strong. So does the equity market continue to take its cue from the bond market here? I think they're kind of trading a little bit hand-in-hand if you kind of get the thought that investors are looking to what interest rate to sort of discount future cash flows. And you're going to have to look past the bumpiness of earnings reports and falling future estimates in order for the overall index to move a little higher. It's probably going to be sometime next year before there's a confidence that rates at peaked.

And multiples are unlikely to expand before those estimates at bottom. That being said, it should be a good time for stock pickers to add relative value. It's been a hard year. I've lost money in stocks. I've lost money in bonds. I've lost money everywhere, everywhere, everywhere, everywhere. How can I make a little money over the next year, Carl? Where?

No, sure. You're not alone. I think prospectively, one thing that is good is that if you look back, a lot of savers have previously been punished in terms of what they could earn from the fixed income markets, which was below inflation. Now that inflation is pushed up interest rates, you can even get, you know, one to two-year short-term bond investments that are at least starting to earn an absolute return that's better than the zero to one percent you could have received 12 months ago. There are some stocks we like out there, however, some of them which I'm happy to discuss. Yeah, name them quick, and then we'll come back and pick up on them.

Sure, absolutely. So we like West Pharmaceutical Services, which is a dominant player in packaging and delivery components for injectable therapeutics. We actually still like Copart, which is a online vehicle auction platform and remarketing services connects buyers and sellers. It's a strong network effect. And if you can stomach it, we also like the artist formerly known as Facebook, commit it's like Kanye it's yay now it's meta I want to turn to Morgan now who wants to bring us up to date on the markets yeah so before we dig into those a little bit further carl i mean just to just to take a moment here we are at session highs with all the major averages on this friday afternoon which makes it notable given the fact that the last several Fridays haven't been so strong

we've got all the major averages up more than 2% right now the dow is up 665 points the smp is up 76 points 3742. The NASDAQ is up 2% as well. Every sector in the green, in the S&P right now. It is options expiration today. To Carl, to go back to Meta, as we do look to another week of earnings, why? Why do you like this name? Is it because it's so beaten down? But certainly one reason that makes it more attractive, I think, than certainly it was at the beginning of the year. It's already dropped 60%. While there is competition, they still possess one of the most widely used social applications in the world. The addressable audience is still expanding, although certainly slower than it used to. And although you saw some weakness,

certainly today from the SNAP-related news, if you read through their press release, you noted that the quarter was still tracking with a positive 9% growth, though they were budgeting 0% internally. The transition from traditional marketing to digital is not over. And you're right, the valuation is kind of simply too cheap to ignore. If you're looking at 12 times earnings estimates for META for next year, which is offering a below market multiple and above average growth. And we like that combination. Okay. Yeah, SNAP is having a very rough day in the market.

We're at a new 52-week low down 30%. Whoa. Carl Farmer. Thank you. All righty, coming up, housing affordability is in uncharted territory. Why? Because of 7% mortgages, that's why. And that is prompting one analyst to downgrade the sector to new street lows.

You will join us. Plus, Huntington Bank shares up about 8% today. The CEO coming along shortly to discuss his better than expected results and what the rapid rise in rates means for small business lending, auto financing, mortgage demand. Before the break, though, let's take a look at a handful of stocks hitting all-time highs. SIGNA, Northrop Grumman, Exxon, more power to you in two.

A big call on the builders, the parabolic spike in mortgage rates, now above 7%. Putting home ownership further out of reach for many people, according to Raymond James at current prices, a home would cost nearly 42% of a median family's gross income. That's above the 40% peak back in 2006 when housing was going down in value. Our next guest, downgrading KB home, Lenar, MDC, Pulte, Toll, and cutting earnings estimates to New Street Lowe's. Buckhorn is a housing and reet analyst with Raymond James. Welcome. Good to have you with us. What makes you very much? What makes Buck so sad? Well, not sad, but it is a bitter pill to swallow for us. We still absolutely believe that housing is in a structural supply deficit situation.

There's still a tremendous pent-up demand among particularly young millennials starting families for single-family homes. But this affordability picture, what we've seen over the past few weeks, and really the last two and a half months in particular, it's driven mortgage rates north of seven percent. now. That's unprecedented in terms of the magnitude of that rise and like you just highlighted 42% of gross income going to you know finance the median existing home payment is just too far too fast and what it means is home prices are going to have to adjust downward and downward significantly what we did with our piece having to step back from the sidelines is just the recognition that it's going to be hard for builders to outperform as home prices are adjusting

downward and that estimates need to come down dramatically. What we tried to do was kind of kitchen sink these estimates, throwing out a 2011 type scenario, which was the worst year for housing in the past 60. I still think the builders maintain profitability, but estimates could be down anywhere from 50 to 70 percent from last year's run rate levels. So let's put some numbers on that house price decline that you are forecasting here. And is this a number? national event or is it more regionalized and specifically more regionalized to those areas where house prices had risen the most over the past decade? It's going to be a national event, but I think you're correct that the Zoom towns, if you

will, the Zoom boom, will certainly see the effects probably more pronounced. Certainly we're seeing more dramatic price declines already happening in the western region at the moment, particularly the southwest. Parts of the southeast and Florida are holding up better, but we do anticipate nationally home prices are going to be down substantially. And to quantify that for you, if we're going to hold rates at where they are today, notwithstanding the comments of your prior to, yes, that Fed funds could go even higher still, but at today's rates, today's prices, and today's household income levels, it implies that certainly new home prices probably need to come down 20 to 25% to restore, just to get us in that, that historic bandwidth of normal affordability.

I do want to dig into that a little bit more, but first, just looking at the home builders that you cover. They've all been downgraded from either strong buyer outperform to market perform. The exception is DR Horton, which is lowered to outperform. They're already down anywhere from 30 to 50% on the year. Why are you just making this move now? Well, it's a great question and be remiss to say, you know, hey, we didn't anticipate 7% mortgage rates this year. We were probably too hopeful for a soft landing scenario. That soft landing scenario, I think, is off the table now. I think we have to brace for impact.

It's going to be a hard landing for housing. We think that the builders that can be most cost efficient will take market share. D.R. Horton is the one name that we maintain an outperform rating. We do think they are the most cost-efficient producer of single-family housing. They have a fortress balance sheet, tremendous liquidity, and they're going to meet the market. They also have an advantage and a head start in single-family rentals. We think the builders are going to have to pivot hard into the single-family rental product, and we think Horton has got a great opportunity there.

So if you have pricing poised to crater, you've got interest rates that have been essentially, mortgage rates that have been essentially parabolic this year, and you still, And I realize some of the commodity prices have come off, but you still have building materials and labor at elevated costs right now. What is that going to do to this inventory picture that we've been hearing is still so small? I'm sorry, I missed the last part. The business, what is this going to do to the inventory picture for housing here in this country? When we know that there's still not enough homes, not enough properties out there in general looking at growth trends? Yeah, well, we think inventories are going to get tight.

We think the builders are going to rapidly try to burn through any unsold inventory that is currently in production right now. Fortunately, we're not seeing a lot of pressure in the resale markets. A resale inventory is, you know, people are staying put. They're not adding a lot of inventory to the market. So that does give us a little bit of a backstop in terms of home prices. We don't see a lot of distressed selling taking place or shaping up anytime soon. but it's going to exacerbate the inventory situation as we come out of a recession. But in the near term, in the near term, unless we get some rate relief, home prices are coming down.

And I've got to tell you, I mean, across the economy, we're seeing a rapid deterioration already happening across the housing continuum in terms of not only home prices but rental rates. We think the Fed is in real serious danger of overshooting very quickly here by rates. raising too far too fast. Some strong words from Buckhorn. Buck, thanks for being on with us today. Up next. Breaking down the sectoromics, today we are diving into energy. It's a group whose fortune depends on the crude realities. We'll take a look at names that are most and least correlated to oil prices. Plus, restaurants, reservations and signs point to a resurgence in restaurant activity, but those businesses still have a lot of uncertainty as inflation and recessionary risks

remain high. We're going to speak to famed chef, Wolfgang Puck. All the major averages are higher. Stay with us. Welcome back to Power Lunch. Energy is by far the best performing sector in the S&P 500 this year. It's up 56% while all the other sectors are negative. These stocks are all tied to the price of oil, but some more than others. Dominic Chu is looking at that in today's sectoromics. Dom. It is all about relativity to your point, Morgan, because when it comes to oil and gas company, these, they're all pretty much tied to the price of oil and gas. Some, though, more than others. If you look at the energy sector overall versus crude versus the energy stocks, you can see here the orange and white lines, okay, the ones that track the energy stocks and oil kind of trade

together up until a little bit of a discrepancy and divergence in the early part of the spring this year. If you take a look at some of the stocks at play, the data team at Y charts took a look at some of the correlations or trading relationships between stocks and the sector, and oil prices. And what they found was pretty interesting. Among the names that have the least amount of correlation or trading relationship over the past three years to oil prices are names like pipeline operators, Kinder Morgan. Also look at Kota, look at EQT on the natural gas side of things, much more perhaps tied to natural gas prices. If you look, though, at some of the ones that have the highest correlation. We're talking about names, and maybe the exploration and production side of

things. You look at EOG resources, you look at Diamondback Energy, and then Marathon Petroleum as well and the kind of refinery side of things. Those tend to have a higher trading relationship up or down to the price of oil. So when traders are looking at some of these names, yes, oil and gas prices factor very much into these stocks, but some of them trade closer to those prices of the underlying commodity than others. And the Whitecharts team took a look at those names. Those are, by the way, Tyler Morgan, some of them are correlated or closely tied names up or down. to oil prices. All right.

Dominic, thank you very much. Let's stick with the energy theme and look at how those ETFs did in the past week. They brought in $267 million in net inflows over the latest week. This according to our friends at Track Insight. The big energy ETS posting nice gains, the XLE sector spider, up more than 6%. Take a look there. But if you look at specifically oil services and equipment, those names gaining double digits this week. For more, please visit the F.T. Wilshire ETF Hub.

Let's get to Frank Holland now for a CNBC News Update. Hey there, Tyler. Here's your CNBC News Update at this hour. The January 6th House Committee investigating, issuing a subpoena. The former President Trump demanding he appear for a deposition testimony beginning on November the 14th. The panel also outlined a request for a series of corresponding documents in addition to that testimony. It's now unclear how Trump and his legal team will respond to that subpoena. The FBI is warning that an Iranian government-tied hacker group is active in posing a threat to the U.S. midterm elections. Federal agencies believe the group is currently running operations to hack and leak classified materials of American organizations.

And Pfizer is planning to charge between $110 and $130 for a dose of its COVID vaccine once the U.S. government stops buying those shots. Executives believe the commercial pricing for adult doses could begin early next year. However, the drugmaker expects many people will continue receiving the vaccine for free. That's the very latest. Tyler, back over to you. All right. Thank you very much, Frank. Ahead on Power Lunch, we are hitting Main Street.

Three important stories that investors need to know about. First, we'll speak to the CEO of Huntington Bank shares to how a rising rates affecting lending and borrowing. Plus, changes to the 2023 tax season could offer a big break to new and younger investors. But it seems many retail investors might actually be. sitting out this market right now. Sentiment hitting the worst levels since 2020. 90 minutes left in the trading day and we want to get you caught up on the markets. Stocks, bonds, commodities, a look at the economy with the CEO of Huntington Bank, which is the best performer in the S&P right now. So let's begin with Bob Pisani as stocks are closing out

a strong week. Bob? Oh, very strong. About 4% on the S&P. The important thing with what we're seeing today is the earnings are, while there are a few disappointments, there's not wholesale cutting going on. So that's good news. That's helping support the market. We're really getting smacked around by the macro, the higher rates that are moving things. Aside from the earnings, I want to point out that energy stocks are having a very good week. We've got new highs, a bunch of new highs, Exxon Mobil's at a new high, Schlumberger, Hess, Conical Phillips, all at new highs. And we haven't even gotten really major earnings from these oil companies. We have from some of the oil services company, but not from some of the big names. We'll get that shortly

here. Meantime, earnings aren't really helping the banks. We've got an awful lot of earnings that have come in from the super regional banks, and yet a lot of them, while they're up a little bit today, they open the day essentially at 52-week lows. So fifth-third, Zion's Comerica, Truist, which is one of the old banks that merged a few years ago, BB&T. They are also sitting near 52-week lows. So a lot of dispersion here, very high, between high, and lows for some of the big companies. Where are we with the S&P? We have for the last month, essentially been between 36 and 3,800 in the S&P. This is rather surprising to a lot of people, because remember a month ago, a lot of people were anticipating that earnings were going to be

slashed, and so people had estimates on the S&P between 3,000 and 3,600. This has not materialized because the earnings situation, while it's lower than it was a couple of months, the estimates for the third and fourth quarter, they are not being slashed. So again, that's a key point with the earnings holding up. At the same time, if you look at the VIX, we've been coming down for, oh, several weeks at a time here. Look at that. That's still be the lowest close there since the start of October. And essentially, it's been coming down since the CPI, October 13th.

That was a big event to get out of the way. This VIX, remember, it measures expected volatility in the next 30 days. And with that CPI out of the way, the new numbers that we're going to see, the big issues will be November 2nd when the Federal Reserve meets. and then the elections. We already believe the Federal Reserve is going to raise 75 basis points. So the only wildcard still left in the VIX is that election. Guys, back to you. Bob Pisani, thank you. Well, oil is closing for the day, slightly higher. Let's get to Pippa Stevens at the commodity desk for more. Pippa. Hey, Morgan, oil prices finishing the week here modestly higher with WTI right around the $85 level. But the action is in natural gas. Price is tumbling below the $5 level and sinking to the lowest level.

since March. It's now on pace for a ninth straight week of losses for the first time since 1991. Now, a combination of warmer fall temperatures in parts of the country, rising production, and rapidly filling storage have all pressured prices, and we're still in shoulder season, which is when demand for gas is at its lowest. Now, turning to energy stocks, which are the top performing group this week, a notable mover today is Schlumbergerge, surging after beating top and bottom line estimates. The company also raised its full year guidance with the CEO saying that while concerns remain over the broader economic climate, energy industry fundamentals are constructive. Morgan? Pippa Stevens, thank you. It is now time to turn to the bond market,

where girls are actually pulling back a bit today, given some of the Fed speak we've gotten. San Francisco Fed President Mary Daley saying she is worried about the Fed over tightening, saying she wants to slow the pace of hikes from three-quarter point increments. The 10-year yield had hit 4.33 earlier in the session. And as you can see right now, we're at 4.215%. Check out the move in the Japanese yen, a big turn lower, on concerns that the Bank of Japan has or will intervene to support the yen as well. We've seen some pretty wild moves the globe over in recent days and recent weeks.

But now we're going to move on to a regional bank that is on the move, and that is Huntington Bank shares trading sharply higher today, best performer in the S&P after reporting strong third quarter earnings. The bank also seeing a 3% jump in average total loans from last quarter. So here in a Power Lunch exclusive, Stephen Steinhauer, chairman, president, and CEO of Huntington Bank shares. Stephen, great to have you on the show today. And I do want to start with net interest income.

You had a big beat on that, and then you raised the forecast for that for the year. So walk me through how you're navigating this interest rate environment and what it means for the economy, since you do sort of sit at that intersection between Wall Street and Main Street. We do. We're very much a Main Street bank. And so very, very relationship oriented. Our net interest income is expanding simply because the Fed's raising interest rates and we're asset sensitive. So our loan portfolio yields are increasing. We're managing very well. We're getting a good loan growth, just about 10% for the year, annualized. And it's all sort of coming together after a combination with a company called TCF about a year and a half ago. So the fact that you're still seeing good loan growth, even though we are in this rising rate environment, what would you attribute that to? Well, we have a very strong equipment finance group. The commercial bank's doing very well. That group in particular has gone from number seven nationally to number five. We do a lot of asset-based lending. So in this type of a moment where general unsecured lending can be a little bit constrained as companies try to lever up and use their balance sheet, we've got a great team that does that. We're one of the top 10 to asset-based lenders in the country.

So our niche businesses are performing very well. And then we're in new markets, and we have scale in certain other markets. We're new to Minnesota and Colorado. We now have scale in Chicago, a great market for us. And we're a factor in Michigan in addition to the core franchise, especially Ohio. Talk to us a little bit. We were speaking earlier about housing and how interest rates in one analyst's view is going to depress the house price gains and actually lower the transaction prices of houses. You're big not only in mortgage lending,

but also in auto financing. And I'm wondering whether interest rates and the prices of new and used cars are so high that that market is going to begin to suffer a little bit. Are you seeing that? Are you making plans for that, or am I off base here? No, you're exactly right, Tyler, on the home side, right? Seven plus percent mortgage rates today, and it was three plus at the beginning of the year. So there's a sticker shock phenomena that's occurring, and yet housing supply is very, very low. We've got just a couple of weeks in many of our markets of new homes on the market. So a very strong housing market, unlike either coast, we don't get a lot of inflation here in the Midwest.

And so we don't have the highs, but we also don't have the low lows. And so there's a stability, and certainly in many of the markets, especially here in Columbus, where I am as we're headquartered, we've got population growth. We've got a lot of economic activity. The Intel announcement just a couple of months ago is a big deal here. Last week, we had a Honda announcement of about $3.5 billion with retooling their plants and putting in battery plants with a partner. So there's a lot of growth, core growth and growth in population, and that's going to inevitably

mean housing stock increasing here and in other markets here in the Midwest. Okay. So we're seeing American Express trade lower in part because of those loan loss reserves. We've heard some of the big banks talk about setting more reserves aside as well. And talking about the big banks and the CEOs coming out in the last week or so and being a bit more cautious about the economy as we go into 2023 and the rising risk. of recession, based on what you're seeing from your vantage point, are you as cautious? Well, the sentiment is certainly changing. The rate of increases in interest rates are causing

businesses to revisit plans for 23. I think there's an inevitable impact in terms of when we talk to many of our business customers, their year-over-year pipelines, their sales activities, a bit lower, you know, 10, 20 plus percent lower. So that's a slowdown. But they're coming off a a very strong run, and they're in great shape, and their margins may get crimped for a year or two, but they have plenty of room for that. Many of them do. There's still, after inflation, the number one issue, there's still a fundamental labor shortage, and most of these businesses that we have as customers are actually looking for employees now, and they have been for several years. So we've constrained growth. That should give us a nice long-term economic run.

Okay. Steve Steinhauer. Thank you for joining us today. Thank you, Morgan. Huntington are up 8.5% right now. All righty. A major change to the 2023 tax season could create an opportunity to pay zero in capital gains. What capital gains after this year, especially if you're a younger or first-time trader? Those details are next. We'll tell you how to pay zero capital gains.

Well, we've all been dealing one way or another with the pain and expense of inflation, but there may be one bright spot, a break on your taxes. Sharon Epperson has that little ray of sun. for us. Jared. That's right, Tyler. Some investors could qualify for a zero percent tax rate on long-term capital gains next year. That's thanks to the IRS for making some changes due to inflation. Most investors focus on the 15 or the 20 percent capital gains tax rates for assets held longer than a year. But there's the zero percent tax rate too, and that could impact more Americans in the year ahead. Rates are based on taxable income and the thresholds to qualify for the

0% long-term capital gains tax rate will be higher in 2023. You could qualify for that rate with taxable income up to $44,625 for single filers, and that's a nearly $3,000 increase from this year. And the income limit for merry couples filing jointly will go up to $89,250 and almost $6,000 increase. Now, the IRS is also raising the standard deduction for next year to $13,850 for single filers, up $900 from this year, and $27,700 for couples filing jointly, an $1,800 jump.

Once deductions are taken into account, a retired couple with a six-figure income could be in the lowest tax bracket, and that means they pay no tax on profits from their investments. Tyler? So let me make sure I'm understanding this, and then I got another question for you. If I earn below those, my regular income is below those thresholds, any, capital gains income I have is taxed at 0%. 0%. Okay. All right, let's talk about retirement. The IRS has also made some changes to contribution limits on 401Ks and IRAs. What's the outlook for next year? Well, the IRS just put

this out that the 401K and IRA changes for 2023 would increase limits to 401Ks to $42,500 from $20,500 this year. And the catch-up contribution limit for people over 50, 50 and over will rise to $7,500. That's up from $6,500 this year. That makes it possible for older workers to contribute up to $30,000 into a 401k in 2023. Now, also, the IRA limit is going up $500 to $6,500 in 2023. And for those ages 50 and over, they can contribute up to $7,500, thanks to the catch-up contribution. Tyler.

Thank you very much, Sharon Epperson. Some good news there. Up next, famed chef Wolfgang Puck joins us live to talk the state of restaurants. Are consumers once again taking a seat at the table or are prices keeping them home? That's next. Welcome back to Power Lunch, everybody, from inflation to labor, to food costs and consumer spending. The restaurant industry can be considered a proxy in many ways for the economy, and our next guest operates restaurants around the globe.

Let's bring back and welcome back Wolfgang Puck, chef and restaurant tour, entrepreneur as well. Chef, welcome. Good to have you with us, sir. Good to be with you. Thank you. Before we get to the labor issue, which I know was something we talked about the last time, are you seeing as you buy the food commodities that you have to buy for your restaurant? It was the eggs, the butter, the cheese, the meat, the fish, the shellfish, the poultry, the game, the pork. Are you seeing any of the price inflation recede or come off the boil? You know, so far the inflation is really hitting us really hard. Food cost went up probably 15%.

Some things like restaurant equipment went up 20%. I bought the other day cutting boards, like 15 cutting boards. They were $1,500. Then the next day we bought some for another restaurant. The next week, it was $2,000. So I said, what happened in this amount of time? You increase the prices? They said, well, it's supply and demand.

We don't have enough, so they just charge more. So you're not seeing any restraint in those inflationary measures, whether it's equipment or food, still going up? No, the prices are still going up. It's still really difficult. You know, labor is going up because it's supply and demand. We still have a labor shortage, and so the prices of labor go up. If you want to retain people, everybody is opening new restaurants after the pandemic.

so the labor market is still very, very tight. So we have to be really, really on our balls and make it really a way that our employees feel great when they come and work. Are you able to push those prices, those cost increases out to consumers? Are consumers remaining resilient and still coming in despite that? I really believe the customers still come to the restaurant.

They want to go out. They want to spend the money. but we have to give people great service, great hospitality and great food, and people feel good when they leave the restaurant. They don't mind to spend the money. So we have to be extra careful and we have to be better than ever to make all our guests feel great when they leave the restaurant. So they come back, you know. For example, reservations are up in our restaurants like Hatspago in Beverly Hills. Reservations are up, but we always keep 15% of the table.

for last minute callers because I think at the end of the day, we have so many regular customers. If we all of us tell them, okay, Saturday we are booked totally, they're going to say, what, I'm coming to your restaurant for 25 years. Now we can go anymore. So we have to operate really better. Now, one thing which is really up this year, you know, Spago is open 40 years, is private parties. We're going to have the best year this year in private parties, which is really an important. important part in the revenue also. It's a good profit center for restaurants.

You know, I remember, Chef, when you were starting out 40 years ago and I would see you on some of the TV shows. And so you've built your business the old-fashioned way, sort of one bricks. You've made money, you've made money slowly. And it's really a testament and a tribute to you and your work ethic. Let's talk about your international business. We just showed, we're looking at map here of some of your U.S. locations. But I wonder if you're seeing the same propensity to spend in all of the markets in which you operate around the globe. And there is that from London, and we know what's going on in England right now, to Budapest, to Istanbul, Bahrain, Doha, and Singapore. Is the propensity to spend over there still as robust as it is here?

Well, in England, really, with all the crazy things going on with the government, you know, inflation and everything, I wonder how the holiday seasons will turn out. I'm actually going next week to London to work a little bit there and see how it will happen. So far, the fall is actually really good. But I don't know if in between Brexit and the government not being in control really and people are uncertain about the future, what will happen. You know, I think that's really a difficult market then. And in Budapest, for example, we do very well.

But we are really the only, really upscale restaurant there. You know, they come to Spargo. If it's the prime minister or some tycoon from anywhere, they go to Spargo. Istanbul is always on fire. You know, in Istanbul we do better than anybody. Why? Because the labor cost there is really great. So we make actually more money in Istanbul, except the exchange rate is terrible, you know.

Used to be three. Now it's 18. So I might as well not change the money. Yeah, very quickly, just to bring the labor conversation back here, state side, the tip credit, it's on the ballot in a number of states and a number of jurisdictions come midterm elections next month, including D.C., where I know you have some restaurants as well. Yeah. Where do you stand on this debate?

Well, I really believe, you know, the salary distribution in between waiters and back of the house, chefs and dish versus is not really equal, you know. So we need great cooks to serve great food. Yet, the labor costs in the kitchen cannot be the same as in the dining home. So I think dip credit for me is an important part, especially for upscale restaurants, where the waiters can take home $500 a night, you know. But I think coffee shops or if you work in any of the chain restaurants, that might be a different story.

Where the average check is $6 or $10. You know, you don't get a lot of tips then. But I think in our restaurants, hopefully we can get tip credit everywhere. So that way we can balance our labor and get people the amount of money what they should. And we are doing some things in Spargo and Beverly Hills, for example. The waiters contribute 5% of their tips to the kitchen because the kitchen is just as important as the front of the house. It's like a football team with a great offense. you don't have a defense, you're not going to win the Super Bowl.

And I think that's really important. But what I also love, like cut in New York, for example, the bar business is up a lot. People come to the bar, even single diners, they know they can get the steak with french fries or tuna tartar or some macaroni and cheese and go home and spend $30. You know, so that's really a good way to defend against inflation. It's making me hungry, this conversation. It's making me hungry. Wolfgang Puck. Thank you so much.

for being with us. Up next, why the retail investor has gone missing. Power Lunch, back in two. Welcome back. We're starting to see signs of market risks weighing on retail trading volumes, and Kate Rooney has that story for us. Hi, Kate. Hey, Morgan, that's right. Individual investors are showing some signs of fatigue lately. The latest signals are coming from the major brokerage firms, which reported this week. Charles Schwab reported the lowest trading volumes since buying TD Ameritrade back in 2020. Morgan Stanley, which bought e-trade.

Around the same time, saw about a 16% slump view over a year. It's also its lowest level in about two years. And Robin Hood, which is especially indexed to those retail traders, has warned against a similar trend. Some alternative data from Schwab now shows retail investors are the most bearish they've been since March of 2020. That can be measured by clients' cash as a percentage of total assets. Banda research this week highlighting a slowdown in retail stock purchases, individual investors have reduced net buying and were, quote, reluctant to raise their risk exposure or chase any of those rebounds after that CPI number. This group had been strong buyers heading into the print.

Vanda says retail not throwing in the towel completely. They haven't seen what they call full capitulation. They expect some strong retail buying and bids in the next couple of weeks. This cohort moving into money market funds, still buying Tesla, Netflix, and Roblox this week. Back to you. Kate, thank you very much, folks. They're playing our song, Morgan, the mute. You hear that thumpa, thumpa, thumba.

Happy Friday. Happy Friday. Thanks for watching, closing belt right now.