Power Lunch - Apple’s growth prospects, pending home sales slide and should the Fed pause? 12/28/22

Episode Date: December 28, 2022

Technicians say Apple stock crossed key technical levels. With a recession likely, what are Apple’s growth catalysts? Plus, pending home sales drop to the second lowest level on record. Is housing��s winter freeze here? And a former FDIC Chair makes the case for the Fed to pause its rate hiking campaign. Hosted by Simplecast, an AdsWizz company. See https://pcm.adswizz.com for information about our collection and use of personal data for advertising.

Hi, everybody and welcome to the program. Here's what's ahead. A winter freeze, but we're not talking about the weather. We're talking about home sales. Pending home sales down nearly 40% from only one year ago. That is the second lowest monthly reading in 20 years. So who is really to blame? Is it the Fed for raising rates or is it the government for helping spike inflation, which forced the Fed's hand in the first place? Former FDIC chair Sheila Bear is here on that and why the Fed may need to pause sooner than later. That is all ahead right here in the next hour on Power Lunch. Let's find out how your money is doing at this hour. Kelly Evans, long time, no seat. Welcome, Brian. Thank you very much. Hi, everybody. Here's a quick look at stocks. We were down 315 at the lows for the Dow were just under a 200 point decline.

Two thirds of a percent drop for the Dow and S&P. The NASDAQ down about 0.85%. Now, according to Bespoke, if that decline holds, this will be the NASDAQ's worst December on record. Bond yields moving higher. That's been a headwin today. on the 10 years sitting at 3.877 right now, highest since mid-November. And Apple, off the lows of the session, but breaking some key technicals. It's just over 127 a share. It's a 30% drop this

year, loss of $800 billion in market cap. And with Apple now looking down at a potential recession, investors want to know what could the growth catalyst be in the new year. Steve Kovac joins us with these details. Three trillion dollar company 11 months ago, by the way. Wow. Yeah. So those Apple shares. is hitting that fresh lows again today, guys, and wrapping up what's likely going to be its worst year since 2008. iPhone production problems from COVID lockdowns and protests in China, weighing on the stock this year, but some potential growth catalysts coming in the year ahead. Services, that's the important segment to watch in the coming months, and FinTech actually

is going to be the big one. Apple expected to launch its buy now, pay later service, Apple pay later, which will also offer a high-yield savings account for Apple card customers. And while advertising, that's another area we're expecting more from Apple. This year, they launched new App Store ads offering Prime Real Estate on the home page of the app. And Apple is likely to look to other surfaces across its platforms like the Apple Maps app and Apple TV Plus for more ads. Now over to the hardware side, though, are Apple's a hardware company after all?

The big question here, can iPhone demand hold into next quarter after missing all those shipments in time for the holidays this month? We'll have to wait a fewer months to find out if Apple can pick up the slack. We're also expecting that long rumored, augmented reality headset. I know we keep talking about it in the second half of the year. That'd be the first major new product from Apple since the Apple Watch in 2015. But look, there's some more pockets of worry ahead. The dollar is expected to remain strong, at least for the first half of next year.

And that hurts Apple's services business and especially app store spending, which has been falling. Apple blaming that on a drop in gaming sales, guys. I'm going to give a hot take here, Kelly Evans. And a challenge to you, miss. I'm ready. Let's do it. Because you said Apple's a hardware company, and it is.

But they're increasingly becoming a solid. I'm going to issue a challenge to all of our rules. I can't believe Steve uttered that phrase because usually he's telling me that they're a software. Well, they're not a software company either. You know what they are? They are a subscription company now. And I'll tell you why. If you use Apple One, which is sort of their basket, that's $32 or $34 a month now.

Let's say you have Apple iTunes match, which I use to match my library. Then you've got Apple Cloud Storage. Go through, I bet you, many of our viewers are dropping 75 bucks a month with Apple and they don't even think about it. No, no, no, no, no, no. No, Brian, you miss something there too. It's not just the Apple service. But she's saying no and you're saying no, but in a different way. I'm saying no.

I'm saying yes and. How about that? I'm saying yes and. It's always a yes. Yes. Yes and there are these other subscriptions that you get through the app source. So if you subscribe to Hulu, for example, or Disney Plus, that's also within an Apple. takes a slice of all those. So when you go into that subscriptions tab, like you were saying,

that's it. But I mean the one, so thank you, but also the ones that only go to Apple. Correct. And let's say your kids, they buy or rent two movies a month. That's what, you're at a 75 to 100 bucks, maybe a month with Apple. And that's that one's speaking from personal experience. That kind of recurring revenue. Yeah. Is going to be maybe a big new business. Look, this is why we always hear Apple talk about. We have. I have 300 some odd, I can't remember the number off the top of my head, 300 some odd million subscriptions. Those aren't all pure Apple subscriptions like Apple One.

Those include those other third parties because, look, Apple's whole thesis around the app store and around these services, we get a slice of all the economic activity that happens on the phone. And so that's what they've been doing. They've been squeezing more and more $75 bucks a month, 80 bucks a month, whatever it is, more revenue per user out of the iPhone. That's been the iPhone or the iOS story for the last five or six years. She's old school. She's got baby Einstein VHS tapes at home. No, no, no, no. Our boat is similar, but the place that's going is different. Somehow I'm doing Google photos for all this stuff. I'm doing WhatsApp for all of my messages. So, you know, I take your point. I don't do music at all. I guess we have YouTube music in the house. I mean, so it's, yes, there's a huge number.

Casey, Kemp, and this one goes out to Kelly in Lexington, Virginia. And they don't, I don't use Apple's podcast platform. So some, somehow, even though I have the phone, I use almost any other platform or software available. I don't even use their built-in mail app because I don't think it's that good. But that's the point I'm making. They're still getting slices of that. It's terrible. It's terrible. Yeah, I use the Outlook app. But to my point, they're getting a little bit of that anyway. So they have, this is why they're in so much trouble in the EU, because they have, you know, power over everything that happens on the phone and that power is weakening. And that's, that's the real risk in the services business.

Yeah. It's sort of like they're lose, lose for them. retain the power, they're going to get into regulatory trouble to break it down. And if they lose the power, then they've lost the whole point there anyway. But just go to that iTunes tab. Go to a subscription's tab. Go to account subscriptions and just see what you might have. You'll be horrified. Yes. Yes, I've got like, what is plant snap? And why are we spending $2.99 a month on it? All right, now I got a check. Fair point. Steve, good stuff. Thank you. Thank you very much. By the way, plant snap is a pretty cool out, I have to say. All right, while you may not care about, don't do this.

While you may not care about Apple itself, we are guessing if you're watching or listening to us right now, you either accidentally stumbled upon us or you do care about the broader market. And many strategists and investors say that Apple's pain may be bad news for the macro market. Here's why. According to ETF.com, Apple is in more than 400 ETFs and is more than 6% of the S&P 500's SPY ETF. Let's bring in Sarat SETI, portfolio manager at DCLA and a CNBC. contributor, probably a subscriber to Plant Snap as well. Sir Rob, but before we go into that, let's talk about Apple. How much does, maybe not, does Apple mean to the macro market? So break it down in two ways, Brian.

Apple means a lot to the market. If you are invested in the market, if you're in an index fund or an ETF that mimics the S&P, you have a big, big exposure here. And actually, a lot of funds are overweight Apple. So in this way, you're seeing when the market comes down and Apple comes down with it even more than it, it's a big exposure here. pulling down the market. We had this happen with the big boys, the fangs a year ago. They've all lost a lot of their muster. I mean, Microsoft's still about four, four and a half percent. But Apple is the

bellwether. And if you see money coming out of it as you do now, people are either going to use it for source of funds or they just need to, you know, come out of the market. So here's my hot take, Sarat, which is this is poor Apple. This isn't about their business model. This isn't about the company. This isn't about any of it. It's not about Apple. It's not about meta. It's not about $12, has come out of the stock in crypto space around over the past 12 months. It's no individual stock's fault, is it? It's just a Fed story. They injected huge liquidity along with the federal government. Now they're throwing that process into reverse. That's it. That's the whole story, isn't it? I think that's a big part of it, but it's not the only part of it. I think it's also

when you talk about interest rates, and that's the part when the Fed put all the money in, yes, all the go-go momentum stocks took off. But now what people are looking at, and you guys were talking about the top of the hour. It's where is the growth going to come from? And if people are a little bit scared that, hey, Apple might not be the same company it was two, three, four years ago, couple that with the interest rates, you're going to get money coming out of a stock that's 6%. That has been a winner for everybody. So if you're looking at your portfolio and you're saying, wow, this thing is becoming a really outsized position. I have losers on one side. I can offset them against gains. Where am I going to get my gains? Well, I can downside Apple. And now,

guess what? There are other opportunities in the market as well. I don't just necessarily have to be in momentum, growth stocks, and technology. All right, so let's talk about where we should be. What we're going to do the rest of this week, I think, Sarat has find some opportunity. And you brought some cool new names for us, as you normally do. We all want to smell nice, right? Or we want other things to smell nice. Like the streets of Manhattan to smell nice. Smells like cannabis. But Sarat, international flavors and fragrances, down 30%. They make everything smell better. including perhaps our portfolio next year.

Yeah, it's not a household name. They bought DuPont biosciences. They merged the two companies. They're the ingredients that go into perfumes, the ingredients that go into your food, and even into pharma. So they're like the area that will grow with the areas that we think will do well

when the economy is slowing. It's a company that trades at a market multiple. What they're doing is they're deleveraging. And they're spinning off different divisions that aren't going to be added, adding value to the core of the business. And we think this is kind of one of these unloved. It's not sexy, but it's a cash flow company that's going to pay down debt. It's doing its own LBO. It's got a 3% dividend yield. And guess what? It is providing essentials to people that want to go out and buy products and buy food in pharma.

The other pick we didn't have time to get to is GE, old General Electric. We got international flavors and fragrances and a little GE Sarat SETI. Thank you, my man. Appreciate it. We'll see you soon. Thank you. Now, the one major issue hanging over the market and those growth stocks is the Fed and its fight against inflation. Our next guest says it's time for the central bank to take a pause and assess the impact of rate hikes. Here to explain is Sheila Baer, the former chair of the FDIC. She's also founding director of the Volker Alliance. Sheila, it's great to see you again. Welcome back. Thanks for having me, Kelly. Nice to see you.

I appreciate that you are just coming right out and saying they should stop hiking now. what gives you the confidence to say that that's the right thing to do here? Yeah. Well, I'm saying hit pause, not necessarily stop, but I do think, look, you have to look at where they started, which was near zero, over 4.25. That's a 6,000 percent increase. It's a pretty dramatic increase in borrowing cost, and we have an economy that's much more leverage than it was back in the Paul Volqua era when he was fighting the great inflation. It was a different, I applaud their emulation of his courage, but I do think that, There's some different circumstances that need to be taken to account.

So, yeah, I do think it takes a while for these increases and interest rates to flow through to the economy. We don't know the full effect yet. We're seeing some positive signs. I do think it would be prudent to hit pause and wait several months and see what the impact is before they go further. Do you think they need to pay more attention to things like yield curves and what the financial markets are telling them? I mean, should Chair Powell basically couch what he's saying? And yes, I know the CPI's at 7%. but I pay attention to these forward-looking markets, and they're telling us that we're going to be in a deep recession within maybe a year.

Yeah, well, I think you should worry about that. You know, the yield curve is traditionally has been a pretty good indicator. And the Fed's focused on short-term rates. That's another difference between now and the great inflation days. They're basically paying banks and other big financial intermediary is not to lend. So if you park your money in a reserve account or a reverse repo with the Fed, you're getting an increasingly higher rate, nice juicy returns. You're just risk-free. You don't have to lend into the economy anymore to earn a decent return.

And I think that is a very powerful tool that they're using now that they weren't using back then. Another reason to stop and pause and evaluate the flow-through effects before they go further. But talking about the yield curve, there's but tremendous pressure on short-term rates, which is why I think you're seeing these very significant yield curve inversions over the past several weeks. And, yeah, he should be troubled by that. So what happens if they don't pause right now, do you think? Well, you know, it depends. If they do another 25 basis points the next time, maybe that's okay.

I do think there are fragilities in the system. I cited the elevated levels of debt we now have in our economy, but that doesn't even count the tens of trillions of debt you're not seeing. Liabilities that are based on derivative disposures, that are balance sheet that reside in the shadow sector, another difference between now and back during the great inflation days. So I think they need to see, look, I don't have, private funds take losses, fine. But all the college endowments and pension funds and others who have gone into those risk, investments because they couldn't get a good strong yield on lower risk investments, they could get hurt to. And that's another thing that I think argues for going slower.

How much? Because the blame game's already beginning. Sheila, as you know, we've seen politicians going after the Fed. The economy will probably go into recession. The finger pointing will accelerate. But to my intro at the top of the show, how much is, and not on one party or the other, because they both passed the original bills, how much was government spending stimulus, PPP loans, etc., in your mind, responsible for the current inflation? Yeah. So I don't look, Washington has an inflation bias, and I don't think you can really have a clean separation between fiscal spending

and monetary policy. The Fed bought trillions and trillions of federal debt. They monetize that debt. They don't say they did, but they really, in fact, did to feed all of that deficit spending that, yes, fed into inflation. So I don't think you can separate the two. look, you know, everybody wants to be a crowd-pleaser, make it cheap to borrow, spend money, can increase more subsidies, forgive student debt.

You know, those are crowd-pleasers, and because of these very long protractive period of low interest rates, the government's been able to get away with it, but they can't anymore. So I would say apox in everybody's houses. You know, there's just an inflation bias in Washington. Well, you're right. Listen, you get elected by promising to give people things, not to take things away, and there was huge amounts of need for all the COVID relief at the beginning. but a year later when half the country was basically operating almost as normal,

and we did a lot more than any other industrialized nation in the world. So forget about just blaming the U.S., Sheila. We can look around the world and say, why did we do so much more than the other nations? That had to have played a major role. And now the government is trying to do things to, quote, combat inflation. You just wonder if spending more in an inflation Reduction Act is going to actually reduce inflation. Right.

So that's right. So Washington still isn't showing much restraint. No, they're spending more. Let's spend more to combat the problem that's spending more created. Exactly. No, I'm not disagree with you, but I think there are things that don't cost money that do to help with inflation now, housing inflation. I was watching your show earlier, you know, zoning restrictions, permitting bureaucracy,

why don't we get on that and build more housing to bring those prices? down as opposed to putting it all on the Fed. Immigration is another third rail, but, you know, if you're worried about labor costs, little more immigration could help there too. So I don't, there are things that don't cost many that we could do from our elected officials. We're just not getting any kind of a leadership or focus. It's all on the Fed.

And the Fed's got a big role on this, but they shouldn't have to do it all. We just say, we'll leave it right there, you know? Okay, great. Yeah, we'll leave it right there. Sheila, thank you so much. We really appreciate it. joining us today. Sheila Baer. It's like she's right on the point. It's like we talk about renewable energy and hitting climate change, but it's hard to get a wind farm built because

nobody wants the power lines or to look out and see a windmill 20 miles at sea. Or grid scale batteries and stuff like this. It's hard to find places to put it. What did Pippa tell me what something? You've heard of NIMBY's not in my backyard. The new one is bananas. You've heard of this? No. Build absolutely nothing anywhere near anything. That's banana. That is. That is. is bananas, but that's why it has appeal. Coming up, is a housing, I'm sorry, is a housing collapse coming for much of America, the big bad numbers on home sales ahead, plus some good news. That's right, good news on gas prices.

Gas Buddy is coming up. And as we roll to a quick break, here's some of the S&P 500 stocks that are down the most right now. EQT, your buddy Toby Rice, he was on last night, down 7% solar edge, VF. We've got backpacks, solar panels, and natural gas gambling. Stick around. Welcome back to Power Lunch from Red Hot to Ice Cold, the housing market seeing a brutal end of 2022. November pending home sales were down 38% year over year, the second lowest monthly reading in 20 years. Homebuilder stocks down today, down 20% or more this year, is higher mortgage rates and weakening demand have taken a toll.

Let's discuss what's in store for next year with George Ratu. He's senior economist at Realtor.com. George, it's great to see you. And this report really surprised people. Is it overstated? Kelly, I think that in many ways what the report highlights is, the housing market is definitely in the throes of a winter freeze. In fact, when you look whether it's pending home sales, existing home sales, you're seeing demand from homebuyers really plummet.

And it's not surprising. We started the year at about 3, 3.10% for the 30-year fixed mortgage rate. We hit over 7% October, November. we've pulled back a little bit. But bottom line, for the typical home buyer today, their monthly mortgage payment is about $7 to $800 higher than a year ago. And the key here is inflation has eroded even what otherwise would be outstanding pay increases to the point when adjusted for inflation, most people's wages are actually negative. So that combination is not surprisingly impacting housing markets. And George, here's the thing.

you know, we'd be one thing if we said, well, you know, this data was horrible, but hey, rates have come down since then. No, rates, the 10-year yield has been going the other way to close out the year. We're going to see the mortgage rate surging again. I don't know what kind of shadow that's going to cast. We're going to start to head into the spring selling season here pretty soon with a pretty grim picture. Well, and to your point, Kelly, not only is the 10-year Treasury obviously rebounded, so mortgage rates are likely to see a rebound as well. When you look at the fundamentals in housing market, right? On the supply side, we started this year already undersupplied. Given population growth, given construction, we don't have enough homes really to satisfy how many

households have been born over the last decade. More importantly, since about the late summer, homeowners who might otherwise have sold, have in a sense gotten worried. They missed the market speak and they've pulled back. Realjo.com, we've been tracking new listings weekly. And we've seen this pullback, double-digit pullback, week after week after week for several months. So it's obvious that homeowners who would contribute normally to the supply are also spooked by these rates. Naturally, some of them have, you know, 2.5, 2.8 mortgage rates right now. They don't want to trade those for a 6% mortgage and a higher home price. So where does it go, George, in two years? How does the American housing market look? Well, we have civil forces really

working right now in the market. Number one, we're seeing prices come off the peak. And I think that's key. Since the peak of summer, we're down roughly 10% for sales prices. What to me that says is we are moving away from the feverish price of the overcompetitive markets of the last year. Number two, on Realtrow.com, we track listings with price reductions. And we've seen that share hit 20% in the last three months, which tells me we haven't seen that number since about 2017 when the market was decidedly very different. That tells me the market is already beginning to rebalance. The trouble is we definitely need more supply. And there's no getting around this.

We simply have more people in the country, and most cities around the country of the last decade have sort of taken a, you know, not in my backyard. Speaking of the NIMBY, you know, mentioned you made earlier. Bananas. But I like bananas even better. I think that's, you know, perfectly seasonal. But the trouble is there's no getting around it.

We're trying to solve a problem when the solution is rather simple, fix in a sense the zoning. Look at lumber prices. They've already retreated. They were $1,300 per thousand board feet in March. They are under 400 right now, more or less in line with pre-pandemic prices. So construction costs have come down. In a sense, supplies many ways artificially constrained by zoning.

And it's kind of hard to get around given how many municipalities control the codes directly. And that brings it all together here, doesn't it? from housing to the Fed, to the economy, and all the rest of it. We'll see if they're listening. George, thanks so much. We appreciate it. George, right to you. All right, coming up on Power Lunch,

trip to pain and no, we are not talking about more stuff in your Christmas turkey. We're talking about flight disruptions, hitting travel stocks. We'll get much more on that. But first, Instacart's valuation, getting absolutely whacked, according to some new reports. And this is not even the first cut this year. What is happening with Instacart and delivery? We'll tell you, coming up. All right, welcome back. Grocery Delivery Startup, well, not a startup, 10-year-old company, Instacart is worth a lot less than it once was. According to The Information, which is a paid

research company, Instacart's internal valuation is now about $10 billion. That is a decline of about 20% from Instacart's $13 billion valuation in October. But it was worth roughly, 39 billion last year. You see the trend of 39, 13, 10. Ouch. The startup had confidentially filed documents for an IPO earlier this year, but those plans were scrapped due to market uncertainty. The Renaissance IPO ETF, by the way, portfolio of the listed newly largest companies, down 58% this year.

You just wonder, is it down or should have never been worth what it was? Right, right. I mean, you... So you have Instacart, not the Renaissance. Well, both. I mean, for Instacart, these are the companies. I remember so well the previews we did last year. Here are the big IPOs that are going to happen this year, and the market basically peaked to the day it opened this year and has come down ever since.

And they're probably kicking themselves now for not having gotten out that door. Because is it closed for a while, probably? What do you do now? How do you liquidate? What if you've already borrowed against the value of those shares? I know, you know. And your employees expect to be paid in a red-hot equity, which may never happen. Exactly.

Exactly, exactly. And, you know, I, listen, I've used it with Costco primarily. Instacart? Yes. How do you Instacart with Costco? So because Costco's like such a pain, right? Getting there, you have to put it in the bags, the box, get into your car. So Instacart does deliver from Costco even without a membership. But if you're a member, like I am, same-day.cosco.com, powered by Instacart, saves you the fees that you hate so much for Instacart. Is that true? It's a, it is, but you have to be a Costco member to use it. So you just- Yes. It's like a backdoor, power. It's the same person.

I think so. Just one, or, you know, same pool of people. But to your point, a lot of people look at those high fees are really turned off by them, while the other half is thinking, I don't know how we could ever live if we had to go back to the grocery store again. And therein lies Instagram's, Instacart's quandries that tries to figure out how it's in the idea. The only way I can get Miracle Whip into my house. My wife hates Miracle Whip. I love it.

And so I always, like, substitute the mayonnaise for Miracle Whip. Because I can't buy it in a store myself. But you don't put, like, tuna fish with Miracle Whip. They're not, okay. You're not substituting the usage of mayonnaise for Miracle Whip, or are you? Feeling really judged right now. By the way, either one is no dirky's sandwich spread. That's a whole thing.

I'm going to say it if you don't. Let's get to Sima Modi now for the CNBC News Update. Seema. Take note, never go to Brian's for dinner. Here's what's happening at this hour. President Zelensky says Ukraine's flag has become a symbol of courage around the world. He made the comment during his annual. speech to Ukraine's parliament, Zelensky also credits Ukraine with helping the West, quote,

find itself again as it came together to oppose Russia's invasion of Ukraine. Now, in California, prosecutors have tied four more slings to a suspected serial killer. Wesley Brownlee is now charged in the deaths of seven people since April of last year. A lawyer for Brownlee has not responded to a request for comment. And the man accused of being the mastermind behind the plot to kidnap Michigan's governor has been sentenced to 19 years in prison. The judge described Barry Croft Jr. as the idea guy who convinced others to join the scheme to kidnap Governor Whitmer.

Croft's attorney says he will appeal. Brian and Kelly? You weren't invited anyway, Sima? Okay, there you go. Thank you. By the way, that's my dip. My wife's a fantastic cook. That's my preference.

We'll discuss this later on, Evans. All right, ahead on Power Lunch. Could we see gasoline prices fall below $3 nationwide? They already are in many places? Will they happen everywhere? Gas buddies Patrick Gahan will join us next. Plus keeping up with the rule of threes, three stock new year, just three days left in the trading year. And today we'll take a look at three month to date winners. Stay with us. Less than 90 minutes left in the trading day. And we want to get you caught up on the market, stocks, bonds, commodity, gas prices,

and apparently my lack of a future. Let's start with Christina Partinevolus, who is at the NASDAQ. Christina rescue the program. What's going on in Texas? technology land. Well, like a band-aid, let's rip through these negative statistics. The NASDAQ right now is tracking on for its worst year since 2000A. And look at the disparity that we're going to show you right now among the NASDAQ versus other averages in December. The NASDAQ is double the Dow's drop right now. Even worse, year-to-date, more than triple the Dow's losses. The NASDAQ right now is seeing its biggest underperformance versus the Dow and S&P 500 since the dot-com bubble burst at 2000. Nasdaq stocks are more. more likely we know this to have debt and therefore be negatively impacted when yields rise. And lately just over the last few days, we've seen the industry get hit hard as 10-year yields have gone up. Today's biggest movers, EB makers, Lucid and Tesla after Tesla made yet another 52-week low yesterday. By the dip action today, you could see Lucid and Tesla over 2% higher.

Chinese tech names like Pinduodoo and JD.com are the biggest laggards despite easing of COVID restrictions in China. And then I wanted to focus on this. You got a little rebound from Nvidia today after it's. 7% plunge yesterday, still on the red today, but semis are on watches investors focus on an oversupply of chips. Oh, how far we've come, Brian. Oh, yes. And we're stock in the S&P 500 this year. It's not Tesla. It is Lucid Group. Christina, thank you very much. All right, now let's get to the bond market. Some of the word on rising yields is find out what is driving it. Rick Santelli. Is that the

CME with Moore? We've got the China Factor. A lot of stuff going on, Rick. A lot of stuff. And I'll tell you what, when we talk about all the issues, speed should be the one we concentrate on today because yields have gone up, but they've gone up quite fast. Look at a two week of 10-year note yields, as you see there. We've basically gone from under and right around 350 up close to 390, 391. And you talk about a quick 50. Okay, the low yield close, the recent low yield close, was December 7th, Pearl Harbor Day, where you closed at 341. Boy, what a quick 50 basis. from December 7th to today. As a matter of fact, that low that I just pointed out from December 7th, that was the lowest level opened the chart up since mid-September. So you can see how quick this has all occurred.

And part of the reason of the selling in 10-year is reversing the yield curve spreads. Look at twos versus tens. It is the least inverted in two months. And remember, that started inverting in March of 21. So it took a long time to get that inverted. Think about how many purchases of tens and sales of two-year were mixed in with that. And finally, when we talk about our two-year and 10-year, we know that rates have gone up. But look at how fast they've gone up in Europe. Their two-year today closed at a 14-year high, and their tenure at an 11-year high yield. That's called fast sell-offs because the two-year was negative not that long ago. Brian, back to you. Amazing turn there, particularly in Germany, Rick.

Thank you. Oil, it is down a little bit for the day. Let's find out what is going on in the commodity complex. Pippa Stevens. Says that. Pippa High. Hey, Brian. Well, oil is falling alongside the broader market here. Now, if we take a look at Brent specifically, the front month contract, which rolls tomorrow, is trading at a discount relative to the March contract. And trading firm, Ritterbush and associates saying this reflects the fact that Russian crude is still being absorbed into the global market, but that the sanctions and price

will begin to bite in a couple of months. Natural gas, though, is today's big mover tanking about 9.5% as the cold snap ends and forecasts call for warmer temperatures. That contract also does roll today. Meantime, Exxon in focus after two of its European affiliates sued the EU over the windfall profits tax. The company saying the tax will, quote, undermine investor confidence, discourage investment and increased reliance on imported energy and fuel products. Exxon adding that future investment in the region will depend on a stable and predictable investment climate. Brian, back to you. All right, Pippa Stevens. Thank you very much. So with crude oil prices down again today, although they're up a little bit from where they were, gasoline prices

are sitting at their lowest levels of the year. But what will next year bring to consumers? Patrick DeHan, head of Petroleum Manals of Gas Buddy just published their outlook for last year. Patrick, long time, no see. It's been like 12 hours, by the way. But in that time, you have the outlook, what are we looking at for, I don't know, maybe the first three months of next year? Well, Brian, some good news on the totality of 2023. Consumers going to spend close to $50 billion less on fuel we project in 2023. But as you mentioned, gas prices right now hovering at some of the lowest levels in 18 months, we could drift a little higher into the new year as China starts to reopen their economy, more oil consumption likely occurring, that pushing oil prices up.

Oil prices next year, likely to be a little bit lower than what we saw this year. But again, for consumers, the yearly national average next year in 2023, likely to be 50 cents a gallon or so below 2022. So that's going to amount to about $50 billion at sticks in Americans' wallets that they don't have to worry about spending. If it sticks, Patrick, what happens if the China reopening pushes oil and gasoline prices higher again? Well, certainly part of China reopening is a factor in our forecast, but the biggest factor likely is a boost in refining capacity, not so much in the U.S. where we're going to add close to 280,000 barrels of refining capacity as ExxonMobil's Blade Project opens this year, but

more so refining capacity coming online in Africa, Asia, the Middle East, that will provide badly needed diesel and gasoline supplies in the months ahead. Right. So I guess the question is, again, does if we see, there are sort of two big possibilities for next year. And Bob Bassani talks about this a lot. He's like, I know people who have forecasts of $120 a barrel oil. And I know people who have forecasts of $60 a barrel oil. Are we just going to have to be beholden to that? In other words, if the worst case scenarios don't pan out and China comes online, then all of a sudden oil spikes again. And if not, and we're going into a recession, well, then I guess you have the answer there. Yeah, certainly a lot in store with China reopening. I think they're going to go through what we saw here in the United States. That is COVID cases could surge into the spring, and that could keep oil prices under some selling pressure for the next couple of months until they get that under wrap. Now, of course, Russia producing and exporting oil is a key element to this as well. As long as those exports continue to countries like India and China and Turkey, that could keep oil prices under pressure. But if China suddenly reemerges at full force here in the next couple months, then we could see certainly upside risk in oil prices hitting the triple digits yet again.

So that combined with OPEC plus policy are going to be the key elements driving prices. And there certainly could be some upside risk if the optimistic situations pan out with China. But certainly I don't see it. I think we'll see a slow reopening. COVID cases will surge. And that could keep Chinese demand a little bit less going into the summer month. All right. It would be great. Like you said, great news for the consumer. Maybe a win-win even. Patrick, thanks so much. We appreciate it. Although, if we talked about last night, you could make a case for $50 oil as easily as $150. It is spectacularly confusing out there.

And you wonder if that means that we won't get the psychological benefit of consumers going, well, what if this goes back up again? You know, if we don't get quite the confidence boost that we could have. I don't want to make, listen, it's great gasoline prices down, saving some money. I'd venture to guess the majority of our viewers are spending a lot more in their home. heating bill than they are on whatever they're saving on gasoline. Bingo, absolutely. Maybe not in Phoenix. Right. Not yet. Could flight and travel disruptions permanently change how consumers book vacations? We'll discuss that in the stock implications next. Plus AM seeing the light. The company's CEO asking the board to freeze his salary since shareholders are hurting.

Details when Power Lunch returns. Welcome back. Frustrated travelers say they will never fly Southwest again. The shares are down 4% today, 10% this month. The CEO says he's optimistic. They can get back out in track before next week as they draw more scrutiny from Washington. The stock is down 18% this month. But the holiday meltdown is also having a broader impact. Sima Modi has a look across the travel sector for us, Sima. Yeah, sort of this rolling effect, Kelly. If you can make it to your destination, that means you're not checking into your hotel, your vacation rental, or able to jump on a cruise ship for that matter. One silver lining, Hotels in close proximity to major airports typically see a boost in occupancy when disruption occurs.

According to SDR, there's some preliminary data that shows just 16 of the 56 U.S. airport submarkets are seeing slightly elevated levels of occupancy on December 25th and the 26th. JFK specifically hotels around there up 16 percentage points from two weeks ago. So there are some areas where you're seeing more demand. Going into the new year, though, truest analyst Navid Khan, he's bullish on booking holdings. and Expedia with a buy rating on both of these stocks. He's got a hold rating on Airbnb as rates are expected to decline next year, along with the broader economy.

This holiday season, though, will be crucial really for the cruise lines that have been seeing their stock prices come under pressure this year. Carnival on pace to close the year down. About 61 percent, that is the worst year on record. Brian Kelly. Wow. That is rough. We'll see if it turns around.

See Momody. Thanks. Back off a flight recently yourself. Thank you. I don't think it was southwest, though. No. Thank you. First of all, I love these people to say they're never going to fly an airline again. You're forced to fly an airline depending on where you live. Exactly, right? Seema, like these regional monopolies. Travel is essential, not a luxury. People need to understand them.

Yeah, you live in New Jersey. You're probably flying. I'll never fly United again. Okay, guess what? You're hitchiking. You're going to walk. All right. Seema, thank you. All right. Still to come. A rough month for stocks, just a few trading days left. We'll trade some of the outperformers in today's three stock funds. It's time for today's three-stock lunch and a look at some of December's outperformers. There have been a couple. Remember, Nike, everybody, that feels like ancient history. But Boeing and Nike are both up about 5%.

Southern company up 6% month to date. Let's trade them. Todd Gordon joins us today. He's founder of New Age wealth advisors and he is a C&BC contributor. Good to see you, Todd. And let us begin with Boeing. Do you like the stock here? Hey, Kelly.

Happy New Year. I do accept we've moved into resistance. here. It's had a great run from October, like 55%. We have $180 price resistance, a little trendline from March 19. So we need to get through there. Like plenty of good news, right? 100, 787 order from UAL, an option to buy another 100. You know, the problem is, though, also they've taken on a lot of long-term debt due to the max shutdown here. So I also fear, with the big move, it's kind of a buy the room or sell the news with China reopening, right? They lifted travel restrictions. and you have carriers like UAE saying they're cautiously assessing the scene where I think

Emirates said earlier in the month they're, you know, expect a full-on surge. So, you know, on top of that, you know, we're worried about a continued supply chain. Airbus announced that they were going to miss their year on deliveries. So I really think it's all down to China. Further, we're waiting for China to approve that 737 max and like one third of the inventories at Boeing holds is headed to China. So I think it's all dependent on that with that technical. resistance, I'm going to say sell or don't touch right now. Okay, let's move on, Todd. Stock number

two is Nike. Real nice pop off some better than expected earnings, better than lowered expectations we might add. What is the longer or medium term trend like on Nike? Yeah, hey, Sally, big, big beat EPS was like 33% above consensus, but margins are squished here. Inventories have been increasing. And I don't think Nike has as much pricing power, some of the other other retailers is I would say kind of high end. Technically speaking, the stock is below $118. That's resistance from August. If it can manage to get through that,

they have another set of resistance, about 123 from June. Plus the stock, I think, is expensive. They're expected to make about $3.11 in fiscal year 23, of which they're already in. That puts them at 37 times forward earnings, and I think analysts are expecting him to grow at about 6.6% revenue. So for me, it's a little expensive.

My clients know I'm more of a crox kind of guy. That's a stock that I own in the growth portfolio. I like that one better. Before dwelling on that, let's move along, Todd, to the utility. Southern Company. Thank you. I appreciate you. Do you like this sector?

Feel free to show us your footwear now, by the way. Thanks for it. And, yeah, my trading crox under there. Yeah, no, I like it. A good rotation into utilities with obviously this big move into Valley. you. Interestingly, as rates have moved up, long-term treasury yields have moved up, we haven't seen as much of a responsive utilities as we'd expect. Southern Company, I don't own this one. Personally, I own Duke and Exelon in my dividend portfolio. They serve three states, about 9 million customers,

electric utilities. They have natural gas, Sully I'm sure knows about it. They have two power plants, nuclear power plants expect to come online in 23. The reports I read probably not till 24. So Maybe that gets pushed out a little bit. And also this one's not cheap. 20 times extra earnings. So a little expensive for a utility. So again, I prefer to air on Duke and X-Lon. All right.

Todd, thank you. We appreciate it today. Enjoy the Crocs. Todd Gordon. All right. More power lunch. Next. That's a tease.

Yes, it is. More. Just wait. More miracle, but. Welcome back, everybody. Another story we're watching today. AMC's CEO, Adam Aaron, asking for a pay freeze next year after a painful year for the movie theater stock. It's down more than 76% year to date.

He's also calling on the company's most senior employees to forego a pay raise in the new year, saying no increase for those at the top is the right thing to do. Also, AMC got a credit downgrade today. S&P Global downgraded it to double C from triple C minus. What does that mean? Double C sounds better than triple C, but it's not worse. This is basically near the bottom of the credit barrel. So also, I believe Adams made something like $18 million in salary or total comp in the past. You know, this is a gracious move, but perhaps a hardly going to be one of his choosing if this company's fortunes don't turn for the better soon.

And they end up having to find what we call, Brian, strategic options to explore. You just wonder how long some of the loyal traders that are out there that have been powering this revolution are going to hang on? It doesn't matter anymore. sub $4? It doesn't matter. Look at the stock. They didn't do enough to hold it up. Well, that's because the thesis was heavily shorted.

You're going to squeeze it. It's going to go up. How many shorts are left in a $4 stock? I'll look at the data, but it can't be nearly what it was. Yeah, absolutely. By the way, about an hour to the close. Here's how stocks are faring. The Dow is down 201 points.

The NASDAQ is down 1%. You got names like Apple, which, by the way, some are saying breaking key technical levels. Apple, a major, big, important stock. It's also the worst Dow performing stock down 2%. And Apple hitting another 52-week low. We talked about it earlier, $800 billion in market cap loss. Speaking of Tech, Kelly, last night it was energy. Tonight, taking stock is about tech.

We'll talk Tesla, Musk, Apple, and some other stuff that's not Tesla Musk Apple. Sure. And watch Apple. I think it's around the $125 level. It falls below $2 trillion market cap. So just tons of wealth that has evaporations. and vanished from the stock market from the world of crypto this year. It's actually amazing. There haven't been more blowups.

Didn't you write about it, Robert Hum, the $10 trillion? Yes, yes. Ten trillion in U.S. market cap. There were a couple trillion of crypto. There you have it. Well, it's a trillion among friends. Yeah. We'll watch that later, Brian. Thanks for watching, Power Lynch, everybody.