Power Lunch - A warning from Microsoft, signs of an inflation peak and gasoline futures hit a new high. 06/02/22

Episode Date: June 2, 2022

Microsoft lowering its fourth quarter profit and sales forecast citing a currency drag. Which companies could be next and what does that mean for the battered tech trade? Plus, the future of Meta now that Sheryl Sandberg is ‘leaning out’. And gasoline futures hit a record midday. Kelly & Tyler ask an energy expert how much higher prices will go this summer. Hosted by Simplecast, an AdsWizz company. See https://pcm.adswizz.com for information about our collection and use of personal data for advertising.

And welcome to never-boring power lunch. Welcome, everybody. I'm Tyler Matheson. A warning from Market Stallwart Microsoft. It is lowering its fourth quarter profit and sales forecast, citing a currency drag. Which companies could be next? And what does that mean for the battered tech trade? Plus, the Fed Vice Chair says it is hard to make the case for a rate hike pause right now.

But our market guest says inflation has peaked. We'll ask her why she feels that way. how she's investing right now. There's some surprises in there. That plus gasoline futures, hitting a record midday. We will discuss it later this hour, Kelly. They just keep going up and up and up.

And I'm talking about gasoline and oil, but take a look at stocks, which are taking all of that in stride. Tyler, thanks. And hi, hi, everybody. The Dell's up 2116 points. The S&P's up 50 to 41, 52. That's a 1.5%.

The NASDAQ up 2 and a quarter percent today. These are big reversals from the earlier losses. InVIDIA, Etsy and Match are some of our biggest movers midday. You can see that there and look at Chewy up 23% now after its unexpected quarterly profit last night. Boeing is the best performing Dowstock. It is up 6% today. That is helping lead the blue chips up. BA, nearly 7% gainer now, Ty.

All right. Thank you very much, Cal. Microsoft, a market bellwether, as you certainly know, but it lowered its earnings and revenue guidance today. the company citing headwinds from the strongest U.S. dollar in two decades significant because it's not the only big tech company with currency exposure. Microsoft shares lower today and off 20% this year. Now, that's slightly better than the NASDAQ 100, we should point out. Here to discuss the dollar drag on Microsoft and other CNBC, Steve Kovac, Steve, exactly what did Microsoft say and how big is the... What's happening over there?

There's a fight between some cameras over there. We'll solve that. What's not me? It was not you. What exactly did they say and how material is this currency nick? Yeah, so, I'll just go down the numbers real quick. So now they're lowering their guidance just slightly, 51.94 billion to 52.74 billion and EPS, $2.24 to $2.32.

Now, what's interesting about that EPS number is they never give EPS guidance. So we're kind of getting some lowered guidance based on some internal numbers they have. And by the way, if you were paying attention to the Microsoft earnings call back in April, this wouldn't be a huge surprise for you. CFO, Amy Hood already warned that, hey, this is our guidance through the month of March and April. This is what we think is going to happen. But we don't know what's going to happen in May. And sure enough, we got this revised guidance.

And they are talking about which quarter, the one we are in right now. This is their Q4. This is their Q4. And it will end on June 30. Yep. And so what does, is this an endemic issue with other tech companies, or is it particular to Microsoft and the nature of their global business? It's hitting a lot of companies in a lot of different ways. So I look back at the other company I follow closely, Apple, and they had a similar warning with their CFO, Luca Maestri, saying, look, we could have a 300 basis point to hit to our revenue and earnings because of these Ford Exchange headwinds.

They're experiencing the same thing. Obviously, they do a lot of business internationally. What interesting to me about this Microsoft got is, though, is it's not about China shutdowns. It's not about Ukraine. It's not about inflation. They're being very specific to the foreign exchange. Yeah, and we were at a 20-year high for the dollar earlier. So it kind of makes sense. Got to be encouraging to see the price action in the stock. It was down. What did you say, 4% earlier? It's positive now. So at least it tells other major companies who I'm sure we're going to hear this theme from. Look, they've already gotten out there. They've put the word out there.

And investors are really not penalizing them for it right now. Yeah, Stephanie Link, our friend tweeted this morning, she's like, this is not the last one. Oh, for sure. I can totally see this happening with so many other companies. I will note I was also looking through IBM's earnings and their call, and they seem pretty protected against us. They have a lot of mechanics kind of in place to protect them from these headwinds, but it's going to be very different for each of these companies with exposure.

We're going to see companies come out and say, or analysts come out and say, here are the companies least exposed, here are the companies that might benefit from a strong dollar, but that trend seems well in place at least. for now. Absolutely. All right, Steve Kobach, thank you very much. We appreciate it. And Microsoft, far from, as we were just saying, the only company that could face these currency headwinds as the dollar rises. Let's take a look at some other companies with potential exposure. And here's Sima Moni to take us through it. Sima. And Tyler, Steve mentioned a couple of them. Microsoft certainly joining a string of tech giants that have blamed the stronger

dollar in his latest earnings report, Apple, saying it expects foreign exchange to weaken its revenue growth for the third quarter by nearly three percentage points. Meta said it assumes a three percentage point impact on second quarter results. Technology companies have expanded aggressively overseas. That gives them access to new customers, but it also makes them more vulnerable to these ongoing currency headwinds. Just to put this into perspective, on average, the S&P 500 tech sector makes up about 56% of revenue outside the U.S.

But even beyond tech, the number of companies mentioning the negative effect of the dollar has grown exponentially this year. Netflix, McDonald's, Procter & Gamble, Coke, one slice of a market that tends to be shielded from the stronger dollar, small caps, which are outperforming large caps slightly this year, and names with domestic exposure are performing vastly better than names with higher foreign sales. Take a look at that chart.

But Chief Investment Officer Mark Heffel at UBS Global Wealth Management thinks the dollar rally is short-lived, as other sources. central banks like the ECB start to consider raising rates. While the currency is trading at a 20-year high right around there, it's worth noting. It's down about a percent over the past four weeks. Kellea, as we look across sort of the landscape, we are highlighting tech, highlighting Microsoft because they're kind of the first ones. But that's not the industry for me that would usually come to mind. I'm thinking more of the industrials, even consumer staples, those kind of multinationals would have big exposure here.

Absolutely. While industrials do have that strong exposure to international sales, Kelly, technology still on average has a higher percentage of sales made outside the U.S. names like Microsoft, Apple, Google, with over half of their sales in foreign sales, semiconductor stocks, even higher than those three names. Now, on the flip side, if you look at the S&P 500 sectors that are less vulnerable to these currency headwinds, you'd look at the S&P financial sector with about 77% of their sales inside. the U.S. and another one, which is quite obvious, is the S&P real estate sector. Again, one of those more domestically prone sectors, Kelly. Great point. Great point. Although there's other reasons people might be wary about those stocks. Seema, thank you very much, our Sima Modi. Microsoft is one of the names our next guest is watching, in part because of that Fortress balance sheet. If they're sounding the alarm, should it change the way investors look across the rest of the tech space? Megan, she was head of investment strategy at Wilmington Trust. Megan, it's great to see you. And again, the stock price reaction tells us investors don't seem overly concerned about this.

Should other companies look to get the bad news out about their dollar exposure? Yeah, I think that this has been somewhat expected. I mean, we knew that the dollar was up about 10% year over year. When you think about currency headwinds, it's not only the magnitude, but it's also the speed with which the dollar appreciates or depreciates if it becomes a tailwind. companies are able to hedge. You've covered all of the important highlights very, very well over the past few minutes in terms of the exposure to the tech sector. And I think it is really important to note that we did see the dollar peak in May. And we've done a historic level in terms of adjustment to Fed pricing.

And I wouldn't expect the dollar strains to continue from here. So I think it's going to be more about the fundamentals, you know, cash balances, the balance sheet, the low level of leverage for the tech sector broadly, and CAP-X intentions from small businesses, which still remain healthy and are very important for the tech sector. I see in my notes that among the sectors that you like or at least are looking at right now are U.S. small-cap stocks. Seema just mentioned them as more insulated than large-cap multinational companies against dollar fluctuation.

Is that one of the theses that is behind your thoughts there? Yeah, so we are still neutral to U.S. small cap, but I think it's an area that investors have to watch and look for in terms of picking their spots. Because clearly one way to play the slowing economy and the recessionary risks is to pile into defensive sectors and defensive asset classes, but many of these are pretty bid up. When you look at asset classes like U.S. small cap, we've already had a huge correction that goes back to the fourth quarter of last year. And valuations are very attractive relative to their own history and relative to the U.S. Now, one of the risks there is inflation, where smaller companies are less able to pass through those costs as well as supply chains. But we do believe that inflationary pressures have peaked and are going to come down fairly rapidly over the next few months. Well, that's nice news.

pressures are also showing signs of peaking. That's nice news. Inflation has peaked in your view, and I see that you're not terribly worried about a recession in the near term. You do say, however, that you're cautious on the consumer. Why? Yeah, well, one of the reasons why we think inflation is coming down is because we expect that consumer demand will slow. So if you're going to expect inflation to come down, I think we're going to have to see some weakness from the consumer. So we're more cautious there. We've already seen the person. savings rate drop below the 20-year average. Cash balances more broadly for consumers are still elevated, but if you look at lower income tiers, they're below pre-pandemic levels. So we are

focusing on the polls of the consumer, if you will. We still expect luxury to continue to do well. We expect discount, dollar store type of retail to continue to do well as supply chain pressures improve. Off-price retail is also very interesting with a lot of these companies. adjusting to consumer preferences shifting and being left with excess inventory. But that middle of the spectrum when it comes to consumer spending, we are a little bit more cautious on. Final comment on energy, Megan, that is a sector you still like? We do. So it's clearly had quite a run and valuations have adjusted from being extremely attractive to still attractive, but we've had a lot of price appreciation there. Our thesis is more long,

term where we see the oil market still incredibly tight. We have China reopening and we think that that will continue and we think that there's upward pressure there. Energy companies are still managing their balance sheets and capital discipline quite well. So when it comes to energy and materials, that is a sector that we still have an overweight to. All right, Megan Chu, thanks for your time today. We appreciate it. All righty. Coming up, Cheryl Sandberg, built Metas or helped build Meta's ad business, growing the company's annual revenue from 153 million to about $118 billion. That's a big game. Now she's leaving what's next for Meta and the stock that's down 40% this year. Plus OPEC plus raises output faster than expected what this means for energy

investors. And does it substantially change the outlook for supply and demand the answer when power lunch returns after this quick break? Shares of META are up about 3% following Cheryl Sandberg's decision to step down as the company's number two. During her tenure, she oversaw much of Facebook's growth. Its employee base went from 450 to more than 77,000 employees. Today, annual revenue, now near 118 billion, monthly active users, close to 3 billion. And META's market cap is more than half a trillion dollars, though not as big as it used to be. Her time at Meta, though, was not without controversy.

The company is facing privacy issues, the spread of hate speech, misinformation, and investigations by government agencies here and around the world. Let's bring in Casey Newton with editors on Platformer and Inna Freed, Chief Technology correspondent with Axios. Ina, let me begin with you. Did Cheryl Sandberg just leave the company either at its top or just after it? It's peaked a little bit. What do you think of her timing here? Well, I think certainly she wanted to leave at a time where it didn't feel like she was leaving for this reason or that. So I think Facebook certainly has had its share of scandals over the last month, year, et cetera.

And I think she picked a time probably where she felt like it wouldn't be tied to a specific thing. Whether Facebook's at its top or its bottom depends on really whether you believe in the metaverse, I guess. Yeah. Do you think she did? You know, I don't think her leaving was really related to that necessarily or not. I think, you know, it certainly remains to be seen. I'm not sure how big a believer she is or isn't. But certainly she's been able to build Facebook's business against every other type of product.

So I have no doubt if she wanted to stay, she could have built a business against what Facebook wants to do in the metaverse. So, Casey, why did she leave now or why did she leave broadly, number one? and number two, in some of the reading I've done, it appears that her role at Facebook had been shrinking. Why? That's right. If you look at what was part of her purview as the chief operating officer, it used to include all policy, communications, a bunch of business functions. And starting at around 2018, she started to give some of those things up. I think some of those came willingly.

I think some of them were sort of strong suggestions from her boss, Mark Zuckerberg. But by the end, she was really only focused on promoting small businesses, which is a pretty limited line of work for someone whose title is C-O-O. So I think that she'd been looking to leave for a long time. And eventually she decided, you know what, this is as good a time as any. I don't know how exactly, Casey, to put this. But is Facebook a riskier company without Cheryl Sandberg? You know, it's hard for me to argue that it is, if only because I do believe her influence has been shrinking for some time now.

She has not been particularly interested in this pivot to the metaverse. She hasn't ever had much to say about the company's hardware initiatives. So if you look at where Facebook wants to be in five years, Cheryl Sandberg hasn't had much to say about it. And so for that reason, I think there are a lot of risks associated with being a meta investor right now. But whether Cheryl is there or not, I don't think is. one of them. You know, how do you react to what Casey just said and and just contextually what he just said, but also to the question is, is, I always want to call it Facebook, is Meta a riskier place now that it is more, even more completely

the purview of the founder and largest shareholder, Mark Zuckerberg? I tend to agree with Casey. I don't think that it's specifically riskier because Cheryl's not there. I think there were a lot of years. if we were having this conversation five, 10 years ago, the answer would have definitely been yes. I mean, Cheryl's job initially was kind of the adult in the room, and she really built the discipline in business for meta. I think what she added in those moments exists and will continue.

I think the risks now are much more along the lines of anti-trust regulation, privacy regulation. Those are some of the risky things, plus this whole bet on the metaverse. I don't think it's the same. as she would have been, her departing five or ten years ago would have meant in terms of a specific risk from her leaving. Casey, any thoughts on the stock today, popping 6%. You know, that one is kind of hard to tell. I mean, look, that stock, I think, was starting to look pretty cheap for a while, right?

Like, this company, for all of its struggles, is still a pretty incredible advertising business. And I wouldn't be surprised if investors were just kind of coming around on the idea that there was still a lot of money to be made in that kind of core business. And same question to you, Ina, you know, is this a moment where, for whatever reason, liquidity, you know, you name it, the stock is experiencing a little bit of a bounce? Or what do you think is kind of the underlying trend here that investors need to stay focused on? Well, I mean, I think it's still the case that Facebook and Google largely divide the online advertising market with everyone else fighting for the scraps. And so, you know, Facebook's still a tremendous business. I think it faces the same risks with or without Cheryl, and there are some near-term macro headwinds.

There are the long-term bet on the metaverse. But when it comes to just pure making a ton of money off of a very healthy ad business, which Cheryl deserves a lot of credit for building, I think, you know, there's no question that Facebook's core business continues to be very strong, even despite some of the changes Apple and others have made, that have made life a little more tricky. Let me get quick answers from both of you. what does your gut instinct tell you her next move will be?

She could do practically anything. She can come here and be a CNBC contributor. That's the invitation I'm putting out there right now. She could be the president of Harvard. She could run for office. She could head of philanthropy. She could go back and run a company. What do you think she's going to do, Ena, then Casey?

I think in terms of her, I think it will be something likely more in the political sphere. I think, you know, if she wanted to go run a company and be CEO, she's had many, many opportunities over the years to do that. I think she has a very strong political voice and I'd expect to see her use it in some fashion. Interesting. Casey? I'm betting more on philanthropy. Her foundation just did some new job postings, which suggests that she's going to be paying more attention to that. She's also talked about wanting to work on women's issues and she'll have a lot to work on there. So that's where I'm looking for her to go in the next six months to a year. Interesting. We shall see. Fascinating personality. Casey Newton, Ina Freed. Thank you.

Coming up, credit cars. New data showing a big spike in the amount of money borrowed to buy new and used vehicles. We have those details and the implications next. Plus, back to Bentonville. Walmart having its first shareholder event there in three years. How is the company done against rival Amazon and what are their plans for the years ahead? Power lunch will be right back. Anyone who's tried to buy a car recently knows that prices are astronomical. If you can even find a car to buy, those high prices are leading to a huge jump at the amount of money people are borrowing to pay for them. Phil LeBoe has the latest numbers for us. Phil? Kelly, there was a day when not too long ago when you said to somebody, hey, I'm going to borrow about $40,000 to buy a car and they thought, that's a lot of money. Not anymore. That's the average. Take a look at the latest numbers for the first quarter from Experian,

which crunches all of the auto loan data for both new and used vehicles in the first quarter. The average amount borrowed for a new vehicle, just under $40,000. That's up $4,000 year over year. Your average monthly payment, and this is really what drives what people buy when they're at the dealership. $648, not quite an all-time high, up $71 compared to a year ago. Obviously, the extremely low inventory at dealerships. By the way, go to a dealership, try to find a new vehicle that's just sitting there. hard to do these days. That is one reason why you're seeing higher prices and more money being borrowed.

The other factor is that the automakers don't have to offer big incentives anymore. Unless it's a real dog of a car that can't sell well, and there aren't many of those left, you're not going to get a good deal from the automaker in terms of an incentive. And then if you go on the used side, it's not much better. The average amount borrowed now almost $28,000. Look at that, an increase of almost $5,600 year over year. And the average payment for a used vehicle is not. Now over $500 a month, up almost $90 year over year. The last three years have been great for the auto dealership stocks. Take a look at whether it's Auto Nation, Group 1, lithium, Sonic, all of them have had really

nice moves in the last couple of years in part because they're much more profitable than they were, let's say, five or six years ago. And for the average mom-and-pop dealership guys, they had record profits last year, may have record profits again this year. Bottom line, it's not changing anytime soon. Yeah, we highlighted last week, Phil, the increase in defaults and delinquencies we've seen with some subprime borrowers. Is there a concern about a ripple effect?

They're still within the historic averages, historic norms. So in other words, it's not a huge spike like we saw back in 2008, 2009. That's when you saw a number of people who got way over extended and probably shouldn't have bought the vehicles they were buying. We're not seeing that yet. Yes, there has been an increase, but it's not yet to the point where people, People are saying, uh-uh, cut it off here because these people are getting way too overextended. Are we going to see some people who are underwater on their loans, either use car buyers or new car buyers?

I bet you we will. And you know why? The average, I shouldn't say the average. Well, the average is just under six years for a loan, but the percentage of loans that are now greater than six years, Tyler, more than a third of them. More than a third of the people who are out there borrowing to buy a new car are taking out six and a half, seven-year. sometimes even eight-year loans. Wow. I didn't even know. They had those. Phil LeBoe. Thank you. Well, let's get to Frank Holland for a CNBC news update. Frank. Well, here, there, Tyler and Kelly. Here's your CNBC News update at this hour.

San Francisco Bay Area residents that got woken up by a jolt this morning. A small, relatively small, magnitude 4.1 earthquake struck northeast of San Francisco shortly after 5 a.m. local time. No reports of major damage, but that tremble was felt throughout the Bay Area and all the way up to Sacramento. Two manhole explosions rocked downtown Boston earlier today. One woman suffered burns and injuries. She was transported to a local hospital. Two buildings were also evacuated due to carbon monoxide concerns. The cause of that explosion remains under investigation.

And tip off, again, one of the NBA finals is tonight, but if you're watching the Warrior Celtics telecast, you may notice the absence of some very familiar voices. Color commentator Jeff Van Gundy's out after testing positive for COVID. Play-by-playperson, Mike Breen, could remain absent. And two, he missed Sunday's Eastern Conference Finals telecast due to COVID. An ESPN NBA insider, Adrian Wurginowski, will not be on site after he tested positive for COVID as well. For all your NBA fans, that means no woj bombs.

That's when he breaks some big news during the NBA finals. Who does that leave? Mike Jackson of the three? Mark Jackson. I think it is Mark Jones who stepped in the other night for Mike Breen, who is really the signature voice of the NBA. That's interesting. Frank, you, Kelly, and I will raise our hands. We'll go do it.

I love that. Nothing. I'll be watching, so if they want to fly me out to the bay really quick, I'll be right there. You'd be ready, man. Thanks a lot. It should be an interesting series. I'm looking forward to it. All right. More power lunch ahead. Slow and steady stocks. We're going to show you some of those. We'll speak to an analyst who says, buy telecom, buy boring. Even if Wall Street thinks it's boring. Plus, our three stock lunch will dig into three names that could offer a smoother ride in volatile markets. Tortoise and the Hare. We'll be right back. Welcome back, everybody. 90 minutes left in the trading day where we've seen losses turn into gains as we move throughout the day.

But let's get caught up across the markets on stocks, bonds, and especially commodities where we're seeing some consistent pressure in oil and gas. Let's begin with the Dow up 289 points right now after a couple hundred point drop earlier on. NASDAQ leading the weight today up 2.5%. Microsoft, which warned of a hit from the stronger dollar today, bouncing back from its sell-off on that news. it's positive by a third of 1%. Also seeing some big gains in software, cloud, cyber, pure storage, MongoDB. They reported last night, look at those increases, up 18%. CrowdStrike and Octa on deck, but they're already up 8 to 10% today.

And it's actually a good day for Kathy Wood. Her ARC Innovation, the ETF is up 8% back to almost $46 a share, some of its top holdings, Tesla, Roku, Block, all seeing 5 to 7% gains today. Some other fintech names also rallying the likes of PayPal, a firm, and Coinbase. Of course, a firm just had a tough session earlier this week. Coming back with an 8.5% gain, though. Now let's look to the bond market. Rick Santelli joins us for that.

Rick, tomorrow, the Big Jobs Report. Yes, the Big Jobs Report, and we should all keep our fingers crossed that today's ADP report does not correlate or even remotely rhyme with tomorrow because it was a weak report. We had horrible productivity. We had a jump at unit labor costs. But the only thing that really was good today was initial job was claim in continuing claims. They delivered the goods, but it is all about jobs, jobs, jobs, especially if you're monitoring the consumer.

Look at a week to date of two-year note yields, basically unchanged on a day. But holding the week's gains, the week, we've had low to high yield of 252 to 267 as we trade at 264. And if you look at tens, 280 to 295 has been Tuesday, Wednesday, Thursday. does far low to high yields, also trading very close to unchanged. But when you look to overseas, you really understand why the dollars had a problem. Boy, you look at these yields in the Boone market and the Eurozone, they are skyrocketing. If you look at this chart, this is Boone's going back to 2014, because over 120, they're now at eight-year high yields. And if you were to look at their two-year known as the shots, it closed at 63 basis points, and that is an 11-year high.

Now, back to the foreign exchange market, we could talk about how hard dollars giving up major gains, how companies are still stuck in the pre-May peak, trying to explain away some of the issues with their earnings, especially multinationals. But boy, oh, boy, the markets have ramped up pressure on many central banks like the ECB. Look at the euro. Now, this is a 20-year chart because not more than a month ago, we're at 20-year lows against the greenback. But, boy, how things have changed. where now, as you see, hovering near a five-week high on the Eurovers of the dollar.

And if you look to other areas like China, we've seen the dollar give up some hard fog gains there as well. We all know tomorrow's important. But boy, especially after today's ADP, everybody better tune in at 8.30 tomorrow to watch the gang bring out the big report. Kelly, back to you. I won't steal the show by asking for your guest, Rick. I always say that's my favorite part of the morning. All right, let's turn now to oil and commodities. Oil closing for the day, higher this afternoon after dropping in the morning, making the markets rebound all the more noticeable.

This is WTI crude almost $117 a barrel. OPEC plus agreed to increase production in July and August, but it's not tamping down oil prices. They're adding almost 650,000 additional barrels per day as well, and that was a larger boost than expected. Little relief for WTI, little relief for gasoline futures hitting a record high themselves today. They're called the R-Bob. It's up 90%. It's basically doubled this year. $4.20. That was the high watermark earlier.

You got to wonder if pump prices are going to five bucks in the weeks ahead nationwide. Our next guest says getting these prices under control won't be easy. They're likely to go higher. Joining us as Stacey Morris. She's head of energy research at VitaF. I hope I said that correctly, Stacy. How much higher are pump prices likely to go? Well, it's hard to say exactly how much higher they can.

go, but I think directionally, the biases to the upside, unfortunately. You know, we're now just getting into driving season. Oil prices are moving higher. You mentioned the OPEC Plus agreement. It sounds very good on paper, but unfortunately isn't actually going to result in that many much more volume coming into the market. So I think prices are going to stay high, and inventories in the U.S. are going to stay very tight.

Yeah, we're seeing so much tightness that people are worried about shortages. You probably saw the comments from Fatis. Birol this week who told Der Spiegel that we're not just facing an oil crisis, we're facing a gas crisis and an electricity crisis, and none of this is very reassuring. Yes, I mean, unfortunately, there's widespread problems kind of across the board. U.S. natural gas prices have been at multi-year highs and very strong counterseasonally lately. So there's a lot of pressure here in the U.S., but a lot more pressure abroad. unfortunately, it's a kind of messy situation that there's no easy fix to today.

Who has the spare capacity, Stacey, and what are they likely to do with it? Sure. So the spare capacity really sits with Saudi Arabia and the United Arab Emirates. And combined, they probably have about 3 million barrels per day of spare capacity. So that equates to roughly 3% of global supply. And they've been reluctant clearly to kind of bring that spare capacity back online. So while that's there, I think they're trying to avoid tapping it as much as they can to just keep that as an option in case things continue to get even tighter. And in case things get even tighter, what does that mean? Is that mean that the demand continues to go up or that Russian supply is effectively cut out of global markets or, well, the European market, let's hasten to add.

It's not cut out of all markets around the world by any sense. Right. And to some extent, you know, the barrels that are moving to Europe today or that have been moving to Europe maybe rerouted to China, to India, to other parts of Asia. So there's some flexibility there. But there's a lot of cross currents today. And so, you know, Russia supply is certainly one of those. And how does that, you know, get rerouted over time? On the demand side, you know, what does it mean for China to lift some of the?

their COVID restrictions, do we see demands start to come back more meaningfully there? I mentioned driving season here in the U.S. So barring a global recession, demand trends should continue to be pretty positive. And so there's just not a lot of cushion in today's market. And if we see an unexpected interruption, you know, think something like a hurricane in the Gulf coast that knocks out a significant amount of U.S. energy production, that would only make the situation worse. So that's why I say, you know, I think the bias still continues to be.

the upside here. Is the only thing that could bring gas prices down effectively a recession? It's probably not the only thing effectively, but I don't think there's any quick fixes. The administration has looked at different options, restrictions around exports. There's been talk of trying to return, you know, idle refining capacity, you know, maybe, you know, alleviating some of the requirements around gasoline for this summer. That could have. help and is probably more low-hanging fruit. But some of these other options are just not, you know, going to be quick fixes. And so unless we see oil prices come down, which could help gasoline, I think, you know, gasoline prices are going to stay high.

Stacey, thank you very much. Stacey Morris. We appreciate it. Thank you. All righty. Before we head out to a break, check out GameStop. The mean stock hired today reporting a $158 million loss and a decline in hardware sales. Up next,

We'll speak to one Wall Street analyst who says investors should not focus on high risk and growth and stop overlooking safety trades like telecom. Power Lunch will be right back. Welcome back to Power Lunch with the growth trade down and out. Our next guest says investors should buy boring stocks to ride out the volatility. So he's looking where else to telecom. Let's bring in David Barden, senior telco analyst at B of A Securities. All right, so you have to look at Telco if you're a telecom analyst, David. It's great to have you here. And by the way, your space has been far from boring. I mean, the changes at AT&T and others, questions about, you know, who's raising price and what that's going to mean and T-Mobile's competing with Comcast.

Maybe it's just me that finds this fascinating. But what do you think are the best bets for investors right now? Thanks, Kelly. Thanks for having me. Look, we agree. You know, growth has really had this moment. We've all been whipsawed with the reversal in a lot of the high growth trades. People have kind of soured on the faith in the future of a lot of the tech companies in particular. So what we've been watching happen is investors have been shifting to value and income as a focus. And there's a couple reasons to do that. Number one, they've been out of favor. So they're under owned. Number two, there's a lot of value there relative to history.

And number three, in a lot of cases, there's a lot of recession resistance in these businesses. Remember, telecom is a subscription-based business. You start the month at 100 and you end the month at 100. In tech, it's a lot tougher. You start at zero and you have to sell your way into the future. And if the recession hits, it could be a problem for them. So we do like AT&T Mobile as two big stories. I think it is the second half of the year that can withstand recession.

Why do you like those two, but not, why doesn't Verizon become sort of the third, I don't want to say oligopoly type pick, but why not Verizon? Look, Verizon is absolutely in that mix. But I think that these two stories are interesting because there's a lot of change agents. Let's start with AT&T. AT&T is the 10th highest yielding stock in the S&P 500, even though they cut their dividend related to the Warner Brothers Discovery spinoff. And it's trading an eight times PE multiple, which is very near its all-time low,

seven PE multiple. It trades it a six times cash flow multiple, which is almost half where Verizon trades. And there's been a lot of negativity around AT&T and all the kind of changes in their strategy, and they've really simplified the business. There's about 90 stocks that are over $100 billion in market cap in the S&P 500 today. And of those 90, AT&T is 89th in terms of. of long-only ownership. So we've seen AT&T outperform about 33% year-to-date relative, but that's all been on the heels. We think of retail money, some hedge funds who are forward-thinking,

and we think the long-only money is going to come in as we get more familiar with the new ATS. So you basically like the three major carriers. You say also the towers are holding up reasonably well. S-back in CCI. They're only 10% off their highs. But I think it's interesting. You're not recommending all of the yield plays Lumen. You're saying this stock is a sell because its business is an unrelenting decline. Look, the management team at Lumen has done a lot of good things to try to arrest the rate of decline. They've invested in people, new services, in increasing their footprint. But the industry in which Lumen operates, which is primarily the business enterprise service sector,

is in about a 2% rate of secular decline. CenturyLink, what used to be called, CenturyLink, now Lumen, is the second largest player in that business. and so they've been largely a share giver in that marketplace. So we've got the number three yielding stock in the S&P 500, and that's why a lot of people are attracted to it. But they're going to sell a lot of their businesses in the second half of this year. They're going to try to pay down some debt. But next year, they're going to spend 100% of all the cash that they make on investments

and dividends, and that doesn't leave a lot for debt. And if you take a look at how their debt's been trading, their yields on their bonds have almost doubled year-to-date. Their debt is on a downgrade watch. So they've got a lot of issues that they need to address. And the thing that would solve all those problems would be cutting the dividend. And that's what we're concerned about. David Barden, far from boring and far from good news for our cell phone bills as well, by the way.

Thanks for joining us. Thanks so much, Kelly. Appreciate it. All right, folks, after the break, Jamie Diamond says the market and the economy could be heading for a hurricane. Yep. So we have three names that could provide smooth sailing even in a perfect storm. That's next on today's three. stock lunch.

All right, we've got them stacked up. Welcome back. Time now for three stock lunch. CNBC Pro highlighting stocks that offer a smooth ride and cash payout in this turbulent market, meaning low volatility, strong dividend yield, positive returns and so far this year. And among the list, we've got Kinder Morgan, M&T Bank, and Bristol Myers Squibb. Here to trade them is CNBC contributor Steve Grasso, CEO of Grasso Global. Steve, welcome when I say Kindermorgan.

Morgan, you say. Yeah, I'm going to say sell on that one. And I understand every reason why it would be a steady, eddy, consistent earner. But if you look at it, the performance year to date is up 25%. The energy ETF, the XLE, is up 60%. So if you're going to take that single stock risk, why is the question for me? And if you look at the longer term, Tyler, it's an infrastructure plate. It's pipelines.

It's not where the puck is going with the politics of this country. It's a sell for me. It's a sell for you. Somehow I'm not surprised. But what about a name like M&T bank, Steve? What would you do there? Well, I think, Kelly, if you're looking at financials, financials had their run when we were looking at higher rates. And if you look at that stock chart, Kelly, it looks like an EKG to me.

That's volatile as well. Now, why wouldn't I be in financials now? They've already had the tailwind of higher rates. Higher rates are okay if we have higher growth. What is Jamie Diamond talking about? I heard the intro. He's talking about a recession. I'm thinking about a recession.

If the Fed does its job, there's going to be a recession. If they fail, there won't be. They're hoping there's going to be a recession right now. That's my base case. You don't want to buy a financial when you're looking at a recession lower business activity. Very interesting argument there, Steve. And let's move on finally to one that might do better theoretically,

even if the economy slows. And that's Bristol Myers Squibb. Yeah, for that, for that one, this is a buy for me. And if you look at the stock, it's very close on technicals to me being a little more aggressive on a buy. It's outperformed, it's peers. It's up basically 18%. If you look at Pfizer, which monopolized all the headlines during the vaccine craze, that one's down 12%.

If you look at J&J, I think that's right around flat for the year. And if you look at a Merck, that's up 16%. So it's more equivalent to a Merck. Having said that, they derive their revenue sources are from cancer drugs. It's not from the vaccine craze that has dominated the headlines for this one. So people are going to be, investors are going to be rotating out of certain sectors and rotating into others. I think pharma and biotech have been ignored. And if you look at the biotech industry, they've been decimated.

I think pharma is an extension of that. I think new money will come into play here. I think Bristol-Myers above $76 right around the 50-day moving average is actually a great buy. Steve Grasso, thank you as always. Fascinating stuff. Thanks, Steve. And for more stable stocks to ride out the market volatility, be sure to visit cnbc.com slash pro. And a quick programming note, Bristol Myers Squibb CEO, Dr. Giovanni Kaforio, will join us right here on Power Lunch tomorrow at 2 p.m. Eastern to discuss his company's drug pipeline, advancements in its cancer treatments, and more. Don't miss that. The CEO of Bristol Myers Squibb.

Good thing Steve thought it was a buy. Yeah. ahead on Power Lunch for the first time over the past few years, Walmart holding a major investor meeting, shareholder meeting. It's investing big in its digital platform and delivery to put a dent in Amazon Prime. Will inflation spoil the fight? Find out next. All right, welcome back, everybody, to Power Lunch. Walmart shares down 17% in the past month as the stock got crushed after its earnings report. Today, the company is once again holding its shareholders week in its hometown for the first time in three years. Courtney Reagan is back in northwest Arkansas with a look at what has

changed since the 2019 meeting. The birds are singing, Courtney. Yeah, a lot has changed, though, Tyler. We've got inflation and fuel prices at record highs. We've seen shortages on everything from toilet paper to baby formula, even at Walmart, which arguably has one of the world's most sophisticated supply chains. So if economic growth slows from here, will Walmart be a beneficiary? Not only are consumers paying higher prices. for nearly everything, but Walmart's costs for fuel, for freight, for wages, that's all pressure and profitability, which was detailed in that recent earnings report and then triggered a broader sell-off. Walmart shares are still off 15%. Now, its comparable sales do continue

to grow as shoppers return to stores while digital growth slows of just 1% year-over-year over the last two quarters. Walmart's online membership program launched in September of 2020, but it's been light on the detail since. Consumer Intelligence Research Partners, estimates that Walmart Plus has about 11 million members, possibly plateauing or even falling slightly in recent quarters. The group does estimate that Amazon Prime has 172 million U.S. subscribers. And while Walmart was widely viewed as a pandemic winner, shares are up just 23% since last meeting with shareholders here for this big week compared to the broader S&P 500, which is up 48% in that same period of time. Tyler and Kelly? When are we going to hear from the CEO court?

So that's going to be tomorrow. Tomorrow is the big arena event, Kelly, where they gather you the associates from around the world, celebrate the accomplishments, and then we have a chance to talk to the CEO at the very end of the week's events. All right, exactly. The tail end. Courtney, thank you very much. All right, thanks for watching, Power Lunch. Closing bell starts right now. See tomorrow.