Power Lunch - Bad News Is Good News? 5/3/24

Episode Date: May 3, 2024

Stocks are rallying to end the week, as the jobs number came in short and the unemployment rate rose, leading some to believe the Fed could start cutting rates soon . Markets seem to be going with “bad news is good news.” We’ll discuss what it all means for you and your money.  Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Welcome to Power Lunch. She's Leslie Picker. I'm Dominic Chu, and stocks are in rally mode to end the week. Bond yields falling as the jobs number comes in short of estimates and the employment rate rises. But markets seem to be going with bad news is good news if you want to call it bad news, Leslie, I guess. Exactly. And two stocks accounting for a big portion of the Dow's gains, Amgen soaring on its results, and maybe more importantly, positive comments about its version of an obesity drug, And Apple hire as well. A lot of focus on that buyback, that record buyback, is the company using $110 billion to wallpaper over some weakness?

Or were the results not as bad as feared? Steve Kovac covering Apple for us from San Francisco. Hey, Steve. Hey, Leslie. Yeah, so look, last quarter of revenue for Apple was down 4%. iPhone sales down 10%. But no one really seems to care because Apple gave it shareholders the biggest stock buyback in corporate history, that's $110 billion, increased the dividend 4% to 25 cents, and guided towards

modest growth for the June quarter, which was unexpected, as some analysts have been trimming their June quarter estimates in recent weeks. Also easing some fears around China. Greater China's sales were down 8%. That's an improvement quarter over quarter from 13% in the December quarter. CEO Tim Cook also telling me in an interview yesterday, iPhone sales in mainland China grew. That's countering the narrative we've been hearing over the last few months. I also asked Cook about his recent visit to China just a few weeks ago. He told me, quote, I feel great that in an extraordinary competitive environment that we grew iPhone sales in mainland China last quarter. That may come as a surprise to some people, and so I feel good about China.

I think more about long term than I do the next week or so. Meanwhile, the services business appears to be over its post-pandemic slump, beating expectations, to post an all-time record of $23.9 billion in sales. That's up about 14% from the year ago quarter. CFO Lucrelius said on the earnings call last night to expect similar growth in services for the June quarter. As for artificial intelligence, big lingering question, of course, nothing much material to share there.

I tried to squeeze some fresh details out of Cook, but he wouldn't really budge, only teasing there's going to be an announcement on generative AI soon, which we're, of course, expecting at WW, DC on June 10th, guys. Steve, thank you. That's a great breakdown. I know it's been a busy couple days for you. If you don't mind hanging around right there, let's get more reaction to Apple's results from Tony Sakanaki.

He is a senior analyst at Bernstein. He just on Monday upgraded Apple to outperform for market perform. He has $195 price target. So maybe still a little bit of upside from these levels, but they've certainly made you look quite prescient of giving your call on Monday. What gave you the confidence to upgrade the stock at that point in time? And do you think, kind of given what you've seen, there's still significant room to run from here? Good afternoon, Leslie, and thanks for having me on.

I think, you know, our sense was that expectations were quite low going into the quarter. Investors were fearful about China being weak. and that even if Apple did, you know, guide below expectations, that was widely anticipated. And once this guidance was past us, investors would feel confident looking ahead to a whole series of new product offerings, new iPads being announced next week, new iPhones in September, which we think will have AI capabilities, and then likely new maps and AirPods as well in the second half of the year. So our contention really was that expectations were low. And once we got past this quarter, almost good or bad, the stock could be poised to run up, given that it had underperformed

by about 20% year-to-date and was trading at, you know, below its recent average multiple levels. And Steve, I wanted to ask you about China in particular. And if you could help us kind of make the distinction between mainland China and the greater China because mainland, I thought the whole narrative surrounding the slowdown there was this idea that the Chinese economy was slowing down and therefore, you know, some iPhone sales were declining as well. It was becoming also out of favor relative to some of the more hometown brands in that area. But greater China, if Tim Cook is saying that mainland is growing, where are they seeing the pockets of weakness that bring down kind of the greater China's sales as a whole. Yeah, they didn't really talk too much about that,

Leslie, yesterday, but there are some things of note beyond that just the iPhone. First of all, services were up. That kind of helped things, too. But also, keep in mind, it's been since the fall of 2022, since Apple last released an iPad. So that could have been some of the weakness that we've saw in China the last quarter. So take that into account. By the way, the CFO Lucre Mastery also said to expect double-digit growth to return to the iPad because, as Tony just mentioned, we're going to get those new models next week. So that should finally give people a reason to buy an iPad again. But, yeah, mainland China is kind of countering that narrative.

We had those reports out from Counterpoint Research in IDC in recent weeks that sent the stock down on these fears that, you know, Counterpoint saying iPhone sales were down 19%. Well, Apple, that's not what they were necessarily showing yesterday. And of course, like I said, Tim Cook told me iPhone is showing momentum and growth out there. So, you know, I'm looking a little bit more skeptical at these reports we've been hearing out of China. I'm not sure where they're exactly gained the data. And it's clear that there's a huge disconnect between what the third parties are saying and then what Apple actually reports out there in China, Leslie. Hey, Tony, it's Dom.

$110 billion buyback is nothing to, you know, sneeze at right here. It's a lot of money. I know that Apple generates a ton of cash and that the buyback story is a big part of the whole investment thesis for Apple. But what happens if they take that money or even a fraction of it and plow it into things like artificial intelligence, hypothetically? I mean, wouldn't it move the needle? Good afternoon, Tom. So the buyback is a very large number, $110 billion. dollars. They've been upping their buyback. Last year, it was $90 billion. This quarter, they bought back,

you know, I think $25 billion worth of shares. So they're on pace to buy back about $100 billion worth of shares per year. That helps EPS growth by about 3 or 4 percent per year. So that is an important part of Apple's model. I think in terms of AI investments, you know, many companies are raising their CAP-X. A lot of it is for compute for AI. Apple has a kind of a hybrid model where it uses some of its own compute, but increasingly, it's using the data centers for other vendors, you know, like a Microsoft or an AWS. And so it's paying for that. That's in its income statement. It's not a capital expenditure. And so as a result, Apple's capital expenditures are relatively low. They're only about 10 billion a year. You're hearing about some of the other

magnificent seven, you know, spending 40, 50, 60 billion dollars per year on cap X, in part for AI. Apple's saying, hey, we don't need to lay out that cash in terms of a capital expense. What we'll do is we'll just pay for ongoing use of third-party compute services for us to do our work on AI. Steve, in terms of this buyback that we're talking about, is the sense from Wall Street that it is kind of the main driver of today's stock move? Or do you think that the results on a fundamental basis were strong enough to contribute to the gains that we're seeing today? Probably the main driver, yes, the buyback. I mean, that was the immediate reaction. as soon as we got those numbers at 4.30 yesterday afternoon, that seems to be what was driving.

You know, revenue came in, you know, a little bit beat on the top and bottom lines. But, yeah, that seems to be the bulk of it, plus the guidance. You know, Tim Cook told me before the call, even started, he gave me a little guidance, said low single-digit growth for the June quarter. And that seemed to be enough to drive it a little bit higher. It's up 7% now. That's about what it was after hours as well. I also want to add on to something that Tony was just talking about, about this idea of cloud

and so forth, and the CAPEX spending. There's also spending about what they're doing in artificial intelligence on device. I actually talked to Cook about this a little bit, too, in our interview, and talking about what's called these neural processing units. You're going to hear about this a lot as Microsoft talks about AI devices in the coming weeks as well. Those are the kind of chips that Apple has been shipping since 2020, and that's that's, you know, allows for more AI activity happen on device. Now, of course, Apple devices don't necessarily

run generative AI things right now, but it does help with things like image processing and other stuff kind of under the hood. So they have a lot of experience on the hardware side and have been making investments in those kind of technologies to enable AI. And again, we're waiting for that big announcement next month to see exactly how they unleash that on the software level. WWDC. Of course, it's going to be all about that. Saganagi and Steve Kovac. Thank you very much for the Apple conversation. Have a nice weekend, guys. All right, even before this huge buyback announcement, Apple was already a leader on the street in repurchasing its own stock. Bob Bassani joins us now with a look at some eye-popping numbers,

and I've seen some hints of them about just how much Apple will have bought back in its own stock in terms of market value over the course of its campaign, and it's staggering, Bob. And it's been doing this for a long time, Don. So, Dom, so Apple, so, Apple's $110 billion stock buyback announcement is very large, but Apple is already the largest buyback company in the S&P 500 in dollar terms and by a large amount. In the last 12 months, Apple's bought back $84 billion in stock. That is far above anybody else in the S&P 500. So give you an idea.

Alphabet is a distant second. They only bought back $62 billion. And meta, Microsoft, ExxonMobil, they're on the top five, but they're way down there compared to Apple. But Apple's been doing this for a really long time and consistently. The company has been aggressively buying back in stock and reducing the share count, too, since 2013, 11 years now. The share count has gone from 26 billion shares in 2013 to 15.3 billion today. That's a reduction of 41% in the share count.

That's quite remarkable. Apple not only dominates recent total buybacks. It completely dominates the largest quarterly buybacks ever done. the 12 largest quarterly buybacks ever done in all history, all in the $20 billion range, were all done by Apple. Everybody else is way down the list. So in recent years, the buybacks in general have become the preferred method of returning cash to shareholders, preferred over even dividends, because buybacks are a lot more flexible

than dividends. You could take them back. It's harder to take back dividends. So who's next? Well, not surprisingly, companies with very large cash flow in the tech space, they've tended to be the companies that are buying back the most stock and reducing their share count. So that includes, for example, meta, Microsoft, Texas Instruments, and Alphabet. They're the other ones besides Apple. But there are a few surprises as well outside of tech. So I'll give you an example, Home Depot and the

home builder Pulte, they have been dramatically reducing their share count in the last few years as well. And Dom, just to give you an idea of Apple's priorities, they bought back, excuse me, they paid out $14 billion in dividends in the last year and $80 billion in buybacks. $14 billion dividends, $80 billion in buybacks. Think about that. That's a priority. Yeah, that's an eye-popping figure. And Bob, I'm just curious, kind of given what we've seen, Apple has not necessarily seen some

of the gains as the other companies that you've mentioned as being big share count reducers. But how does kind of performance play into this calculus as well as the tech environment as it pertains to antitrust in that maybe the capital that they're using for buybacks can't be used for things like acquisitions because you've got regulators on their case about potential, or at least alleged, anti-monopolistic behavior. Yeah, I think recently that has become a real issue, particularly over in Europe. I don't think it was in the past, though.

I think Apple is speaking volumes that they don't, the fact that they put so much money into buybacks, and a little bit in the dividends indicates to me that returning money to shareholders is a bigger priority, even than overinvesting in, like, looking at cars, for example, which they decided to get out of. In terms of like the share count reduction, remember, the important thing here, Leslie, is not just buying back the stock, but at the same time reducing the share count. There are companies that buy back stock, but then they add options on the other side, and so they don't reduce the share count. Apple reduces share count.

So I'll give you the idea, 2013, they have 40% less shares. outstanding than they did in 2013. What that means is everything else on the income statement is the same. Everything else is the same. The earnings are 40% higher than they would have been without that because the share count's been reduced by 40%. So that's materially very, very significant. A good part of Apple's gains clearly are due to that share count reduction. All right. Big story for sure there. And Apple eye-popping numbers, Bob. Thank you very much. We'll see you later on. Coming up on the show, Beyond Apple, we'll break down the other big moves in the Dow, Amgen playing an even bigger role in those gains for the Dow so far,

along with today's big jobs report. That's all coming up next. Welcome back to Power Lunch. Apple is not the only stock contributing to today's stock market gains. In fact, Amgen is responsible for probably at this point more than half of the gain on the Dow so far. Angelica Peoples is here with more on that stock and why it is surging. And let me take a stab at this. It has something to do with obesity. You're exactly right, Dom. Amgen shares are soaring today after the company saying that it will advance its experimental obesity drug called Maritide into phase three clinical trials. Now, executives are saying that an early look at the phase two data was encouraging, and they're now going to move forward with this drug. And we won't have the full results from that phase two trial until the end of this year, but executives say they're not seeing many people dropping out of the study.

And remember, the side effects have been a problem for obesity drugs across the board. So Amgen's trying to reassure investors that that's not an issue here. And Amgen's already investing in manufacturing so it could ramp up production if and when the time comes. This injectable drug would compete with Novo Nordus Spigobi and Eli Lilly's Zepound. And shares of Novo and Lilly are both down today. Amgen's also saying, though, that it'll scrap an experimental obesity pill. Instead, it's going all in on this injectable drug Maritide and earlier drugs in the pipeline. Dom?

Angelica, I'll pick it up from here. Thank you very much for breaking it down. for us. Appreciate it. Let's turn to the bond market now as yields took a sharp dip lower on the jobs data. Let's get to Rick Santelli in Chicago with those numbers. Rick. Yes. You know, not only do I have a special guest, but today's jobs number obviously was a bit less than expected. We'll get into it in a minute. And interest rates along the whole curve went lower. But they have since bought them. And the reason they bottom, well, we'll get into it with my guest, who's on the floor, Jim Bianco. We haven't had a live interview side-by-side.

on a trading floor and over four years. Jim, welcome back. So what are your thoughts about the jobs market? Good to be back. The jobs market numbers were good for the market. It showed that the strength that everybody thought backed off. We got jobs, but we didn't get too many jobs. Probably the best part of the report was your labor costs fell two tens up and on a year-over-year basis. They're down under 4%. So the market kind of got what it wanted. It got growth and it got a little bit of backing off of inflation, and that's why you saw a rally. Yeah, and that's the first time we're under 4% since mid-June of 2021 on the year-over-year average hourly earnings. Now, let's switch gears. Something else happened at 10 o'clock Eastern, right? That's right. We got the ISM

services, prices paid. That's their inflation measure beat at 59-2. This follows the 60.9 that we got in manufacturing earlier in the week. So this measure, that's more recent, more high frequency of inflation is saying that purchasing managers are still paying up to get stuff. And that kind of put the bottom in yields for the day because this is what we're worried about. We're worried about inflation, and we've got another inflation number that's, you know, I wouldn't go problematic, but it's not going in the right direction. Right. So jobs put it lower.

We traded under four and a half in a ten. We traded under $4.80 and a two. We're now both hovering. So that number did put the bottom in on rates. All right. Now let me ask you a question. Okay. Where do you think we are on the inflation front?

And did you see some of the Q&A with the chairman of the Fed? What were your thoughts on anything he may have said that you found interesting? Yeah, so on the inflation front, two things could be true at once. We had a transitory element about inflation coming out of COVID. We went to 9% back to 3. But when that transitory element dissipated, we're now finding that that sub 2% inflation world we were in is more like 3, 3.5.

We have higher inflation right now going forward. and that's why interest rates are still at four and a half, and they're nowhere near where they were a couple of years ago. The Fed chairman, the thing that jumped at me was what he said at the end. Oh, about politics? Yes. Okay, come on. The Fed said that they're not political,

and then the way he answered the question was he said, I'm not partisan. Okay, that's a different question. You're not partisan. You don't sit around the table deciding which a candidate you want, but there's a meeting on July 31st between the Republican Democrat Convention. Are you going to move at that meeting? There's a meeting in September 18th. Are you going to move at that meeting?

If you move, you become the equation, you become part of the narrative for the election, or are you going to wait to the end of the year? That's the political part. He didn't answer that question. Well, the difference between are you partisan, are you political? It's like saying, I'm not a Cubs fan,

but that doesn't mean I'm not a baseball fan. Listen, we only have a half a minute left. My final question is, do you think that stagflation is a statistical probability, albeit small? Yeah, I mean, to some extent, we're in a higher inflation world, and we're not seeing weaker growth.

Right there, that is some version of stagflation. The problem with the word is it's a loaded term, right? When you say stackflation, everybody remembers the late 70s. Well, that's a virulent form of it, but you don't need to have that virulent form. We do have some form of it. It could be slow going and slow coming on the home front of stagflation. Jim Bianco, it's great to see in person, buddy.

Dom, back to you. All right, Rick, Jim, thank you very much, guys. Stocks are higher as today's weaker jobs report raises expectations for a Fed rate cut, possibly, despite mixed messages on Fed policy. Our next guest says earnings are providing a constructive backdrop for the stock market. Let's bring in David Smith, Chief Investment Officer with Rockland Trust. The interest rate conversation pretty much frames everything these days. They do kind of help with the earning story.

Is the earning story enough to drive the markets higher? But I think it is, Don. I mean, at the end of the day, ultimately, investors are looking at cash flows generated by companies and companies generate cash flow through earnings. And their earnings expectations looking out, we're just starting, obviously, the first quarter reporting period, but they look pretty robust. They look like low double-digit earnings growth for 2020, 2024 and 2025. That's a great backdrop for stocks, for sure, despite all the mixed messages that we're getting

out of the Fed and in the data, again, another data point today where that labor force increase, the price increase in wages is very compelling, very surprised to the downside, which is good news. So does that mean that you are tilting your strategy towards more economically sensitive type stocks, or is this an environment where inflation's a problem and you've got to be more defensive? And if so, what's on the shopping list? Yeah, so we tend to look long-term, you know, traders. And so we're thinking out, you know, 12 to 24, even longer, sometimes when we're making investments. So we're not skewing our portfolio so much right now based on near-term factors like yesterday, the labor print today. When we think longer term, we want to have a good mix of those things.

right? So we want to have some exposure to the rapidly growing sectors. AI is a phenomenon that's going to be around for many, many years. We want to make sure we have companies that are exposed to that. But at the same time, recognize that at some points in the market cycle, some of the more traditional cyclical companies are going to do well, and we want to make sure we're participating when that happens as well. So right now, I'd say we're not skewed in one way or the other. We're kind of balanced across those two categories. And I think we're well positioned for whatever comes our way with regard to inflation and its impacts on interest rates. How closely are you paying attention to jobs at this point in time?

And do you think that this morning's numbers was enough of a degradation to get a cut as soon as July? Yeah, so I don't know worry so much about the jobs numbers themselves, but the wage inflation number is really, really important. If you think about it, if we had a limited amount of goods and services in the economy and everybody's making substantially more money, the only thing that can happen is prices rise. And when prices rise, that's inflation. So we're looking very closely at that as an input to overall inflation. The jobs members themselves obviously have some impact on that. To the extent that there are good solid job growth and relatively low unemployment, that's going to put more pressure on that pricing.

But the pricing itself, the wage growth is really something that we're very, very focused on to try to understand the bigger term trend in inflation. Yeah, and of course that came in below expectations, but growing nonetheless. David Smith, really appreciate your time. Thank you. Thank you for having me. Further ahead, Chinese stocks outperforming, benefiting from the higher for longer policy here in the U.S. We'll discuss in today's tech check.

Welcome back to Power Lunch. I'm Kate Rooney with your CNBC News update. Israel reportedly gave Hamas a week to agree to a ceasefire deal before it pushes forward with an invasion of the southern border city of Rafah. That's according to the Wall Street Journal. It comes amid reported weekend negotiations in Egypt on the possible ceasefire deal, which could see the release of some Hamas, hostages. Missouri, meanwhile, became the latest state to let voters decide whether to enshrine

abortion access in the state constitution, a coalition of abortion rights activists submitted the required signatures today to put the question on this November's ballot. Missouri is one of 11 states where organizers are working to secure abortion rights via citizen-led ballot initiatives. And flooding in southern Brazil has killed nearly 40 people with another 74 still missing. Local officials say water levels were at their highest point in Rio Grande de Sol since recordkeeping began nearly 150 years ago. More than 23,000 people have now been forced to evacuate to escape the deluge. Leslie, back over to you.

All right, Kate, thank you. Coming up, we'll take a look at the state of black-owned businesses. Some seen growth, but still facing a major hurdle, lack of capital. Megan Casella is live in Washington with that story, Megan. Hey, Leslie, I'm standing in the middle of a restaurant who has seen revenue growth 20% year after year, and yet its owner still can't access the financing he needs to expand. We'll bring you that story, what it says about the state of black business, and maybe a little barbecue after the break.

Welcome back to Power Lunch. The April jobs report coming in weaker than expected this morning. Non-farm payrolls increased by $175,000 last month. That was far below Wall Street's consensus estimate of $240,000. The unemployment rate ticked higher to 3.9% while it was expected. to hold steady at 3.8%. Joining us now to discuss the jobs picture and the impact it has on the economy is Mark Morial, the president and CEO of the Urban League, National Urban League.

He's also the former mayor of New Orleans. Mark, thank you very much for being here. Thanks for having me. Well, let's get right to the economic picture because this is one that some folks will look at and say the economy is at a turning point and things are getting worse. Is that the way you view today's jobs report? It's always a mistake to look at jobs numbers in isolation. The important thing is to look at trends.

So the unemployment rate has been below 4% for 27 straight months. The longest such period since the 1960s. And over the last several years, and your chart indicates this, there have been down months and up months. The important thing is, what does the trend line look like over a series of months? wage gains have been outpacing inflation. And maybe we're in a sustainable period of growth, maybe not as strong as we like, but sustainable. So I think while this maybe didn't meet what the analysts forecast, many times we've seen over the last year or so, the analysts have missed.

They predict an aggressive month and it's a little down. They predict a down month and it's more aggressive. So we need to understand these figures in context. And so the important thing is lower unemployment, which is consistent, continued growth, although it appears to be slowly. Let's see what this looks like over the next two to three months before people jump to conclusions. All right, Mark, there's also a lot of context or what's being floated around as context around the next issue we want to discuss with you. And that's the ongoing protest sweeping many parts of the country here with, with regard to college campuses, pro-Palestinian, anti-Israel.

A lot of these things we're seeing video of some of these campus protests right now. Many mayors and police departments have now come in actively to disband some of these protests, to break things up. I want to call on you as the former mayor of a large metropolitan area to ask you, in your opinion, what is the line that is. is crossed or not crossed with regard to civic authorities coming in, stepping in to bring order to these kinds of environments? It's a very important question.

Let's begin by affirming that free speech and the right to protest is not only protected by the Constitution is a time-honored American tradition. But free speech is not hate speech. Free speech does not sanction violence. Cities and states and universities and others have the right to regulate time, place, and manner. When a protest becomes about vandalism and restricting people's access to classes and to go about their way, then it has crossed the line. I participated in an anti-book ban, freedom to learn protest, if you will, today at the United States Supreme Court. Free speech for those of us in the civil rights movement is always peaceful.

It always involves an adherence to reasonable grounds and reasonable bounds. I think this is the difficulty. I'll tell you what concerns me, and this has been a concern of mine for a long time, that what starts as a peaceful protest ends up being something else because of provocateurs and people who come in, yes, from the outside, who do not necessarily share the goal of those protesting and who are there to do nothing other but to create confusion and chaos. And as a disciple of Martin Luther King, I strongly support protests, I strongly support peaceful protests. But there is a line to be drawn.

Mayors, once again, are at the vortex of some of the most difficult decisions in American government and an American society, how to respect protests, but also where to draw the line. And if you send police in to ensure that restraint, if you will, and if you will, careful handling is the order of the day. This is the difficult thing that has to be dealt with. So I would offer that. Free speech does not sanction hate speech. We draw that line. It's an important line to draw. And those who love and respect the First Amendment,

those of us who've got a tradition of leading organizations that have been involved in peaceful protests for generations, understand where the line has to be drawn and what is acceptable and what may not be accepted. Yeah, a lot of nuance there. Mark, I want you to hang tight. There is a new report on the state of black business, which finds that access to capital is one of the biggest obstacles

for black entrepreneurs trying to grow businesses more than any other demographic. Megan Kisela joins us now with more. Megan. Hey, Leslie, so we are here at D.City Smokehouse, a black-owned business in Washington that just expanded to its second location last year. But its owner, Melvin Heinz, says he would like to grow even further, but he's lacking the access to the capital that he needs in order to do that. So after seeing his revenues grow some 20 to 30 percent year after year

for more than a decade, Heinz applied last year for a $100,000 loan, but he received only $45,000. And that remains the only large loan that he's received from a large bank. We're going to continue to grow, but, you know, having that capital, having that access to funds at any time. It just helps. It just helps you sleep better at night. Now a new report out this week shows that Heinz is not alone in this. The Alliance for Entrepreneurial Equity found that more than two-thirds of black business owners who applied for a loan last year were either completely or partially denied. That compares with about 44% of white business owners and it's a big reason why just 2.5%, just 2.5% of all U.S. businesses are black-owned.

Now, black business owners like Heinz say they have to become accustomed to hearing no when asking for capital, and they increasingly have to lean on alternative forms of financing. There's an expectation, quite frankly, of being rejected for the loan or for financing opportunities, not getting that venture capital opportunity, et cetera. So when you do push through, it really is extraordinary because it's not expected. Now for Heinz, just this week he's been meeting with the local initiative support corporation, And he's hoping that their black restaurant fund launched in partnership with Uber Eats is going to help him pull the money to launch a food truck this summer, guys. Oh, fascinating. Megan, thank you. Mark, your reaction to Megan's report.

I know that there are reforms in place for the Community Reinvestment Act, which is aimed at helping borrowers in part in this demographic reach that access to capital. Do you think that the rules in place go far enough? Well, let me say this. I appreciate that report and for highlighting a great D.C.-based restaurant, but also highlighting the fact that notwithstanding the incredible entrepreneurial, if you will, instinct and desire in Black America amongst Latinos, women, and other historically left out communities, access to capital remains too elusive. So the Community Reinvestment Act is an important.

important tool. But some in the financial services have sought to stop a rewrite of the Community Reinvestment Act by way of a federal lawsuit. So it's disconcerting that all of this hint up economic potential amongst these businesses is on the sidelines and the capital markets from venture capitalists and others, banks and others, in some instances, do not recognize the great potential. Think of an initiative like the Fearless Fund, which sought in a very modest way to create more capital access for women-owned businesses. They are being sued, too. So the important thing I would hope that those in the capital markets who may be listening may understand the great potential, the emerging market, emerging markets, the chance for profitability

and economic growth lies within the borders of the United States, America, amongst these businesses, owned by African Americans, owned by Latinos, owned by first generation business owners. It's tremendous potential for the economy, and we have to recognize that while regulators have to do a better job in dealing with the continuing discriminating. nation in the marketplace and financial services companies that made commitments in some instances after George Floyd must continue those commitments. This is all about economic growth. It's about jobs. It's about those things that we all talk about here on CNBC, growing the economy. Yep. It's an important story indeed. When we will continue to follow, Mark Morial, thank you for being

here on a whole variety of topics today. Appreciate it. Thank you very much for having me. Well, a quick programming note, the Berkshire Hathaway annual shareholder meeting, maybe you've heard of it. We'll be live on CNBC and streaming on CNBC.com tomorrow. Warren Buffett will take the stage at this so-called Woodstock for capitalists. Our own Becky Quick and Mike Santoli will be live in Omaha beginning at 9.30 a.m. Eastern time tomorrow morning in Omaha. We'll be right back. Welcome back. While the U.S. averages are jumping on the hopes that the Fed could start cutting interest rates sometime soon, there's another part of the world that's also seeing a market

rally. Here's Robosa takes a look at that for today's tech check. D, that place is coming off a low base. Yes, it is. And what you're referring to, it is China. So call it the unwinding of a trade that's worked for most of the year in the last year. That's long AI, long Japan, short China. And it may be even the flipping of that theme that we're seeing. Look at American AI beneficiary chip names, AMD, Broadcom, Arm, Qualcomm. They have underperformed the broader markets over the last month. Invitya 2 is in the red over that period. SMIC, though, that is China's largest chipmaker listed in Hong Kong has held up better. And it's really been the big Chinese internet names, Tencent, Alibaba, JD.com, PDD, that have led the rebound, suggesting that their own AI trade is gaining momentum and helping Hong Kong to take the title as world's best performing stock market.

In April, it has continued to move up another 5% this week alone, almost 5%, I should say. There is, though, always this question of whether Chinese stocks are actually investable at all, because you never know what Beijing is going to do. So on the surface, this rally does look technical, but on the AI front, the fundamentals are building. China is a world leader in research and a study from Georgetown University published this week found that China leads the U.S. as a top producer of research in more than half of AI's hottest fields, like large language models and distributed machine learning. The Apple earnings guys, another potential data point.

sales are falling in counterpoint research, says consumers are citing the absence of major advancements in hardware and performance as a reason to refrain from buying new iPhones, while Huawei, which has made a lot of ground, is offering some of those features, raising the stakes for WWDC, guys. Leslie, really, I mean, Deirdre, Leslie and I were talking in the break really quickly, as you talk about this, is the story for investing in China limited to only those big cap tech companies? Certainly not. Those are the ones that have been leading the rally, but you've

about Beijing talking about supporting the market, so that could lift a whole lot more with it. Excellent. Deirdre, thank you very much. Thanks. Ahead, a tale of two travel stocks. Our trader says Expedia and booking might be in the same travel boat, but they're heading in very different directions. We'll discuss in three-stock lunch next. Welcome back. Time for today's three-stock lunch. Here with our trades is Gina Sanchez, Lido, Advisors, Chief Market Strategist.

She is also a CNBC contributor. Up first, booking holdings shares on the rise after reporting Q1 results yesterday that show growth in travel demand. That stock moving higher today, Gina, what's your trade? So booking is one that we like. We hold currently in our portfolio. And this is one that is shown strong stock growth. However, if you look at sort of the general trend, there has been a ton of revenge travel that has been helping companies like booking.com. and they have seen growth in both hotel bookings and airline bookings.

But we're probably going to see some slowdown in the next year as we go from post-pandemic catch-up to just normal markets. All right. So from price line and open table and kayak to a different story for Expedia, which is Airbnb, Expedia Hotels.com. Those shares are on the decline. Hitting a five-month low. Expedia reported a disappointing first quarter results and lowered its full year guidance, blaming vacation rental weakness in Verbo. Gina, what's the trade on Expedia?

So this is a problem of a challenged company model, which is VRBO. That is, you know, what was a great booking market for literally every other company doing bookings did not show through in Expedia. And like I said, demand is now likely to slow just from normalizing the cycle. And so if they didn't catch it in the last year, there's no way that they're going to be growing in the next year. And finally, as we see falling rates, let's take a look at a home builder. Gina, you gave us D.R. Horton is a name you like here. Shards are up almost 3% today. Why do you like it?

So this is one where we have seen high interest rates and everybody tends to hate home builders and high interest rates. But the reality is that there is still a shortage of supply of homes. the high interest rates have kept people from putting their homes on the market. And so, you know, you look at D.R. Horton, and they have had a tremendous, you know, run in terms of seeing that continued bookings for home. The expectation is 90,000 by year end. That's the current guidance. And, you know, clearly there is still more demand than supply for new homes, and they are seeing the numbers. And they have really strong margins. Yeah, that's certainly an understatement there. Gina Sanchez. Thanks so much for being here. Thank you. All right. Remember, you can always hear us on our podcast. Be sure to follow and listen to Power Lunch on your favorite streaming service or podcast platform. Power Lunch in audio format. We'll be right back.

All right. Well, welcome back. Stocks are continuing to rally on hopes the Fed could cut rates sooner rather than later. The Dow is up roughly 450 points. As you can see, the S&P up more than 1% as well. The NASDAQ higher by maybe not surprisingly 2%, given the Apple outperformance. That move in the Dow, thanks largely, though, to gains in Amgen in addition to Apple. Amgen soaring on earnings and news that its obesity injectable is heading into phase three clinical trials. Apple, by the way, trying for its best day since November of 2022 on a big Q2 beat and its largest ever share buyback in history, $110 billion, giving a boost to Eddie George, who, remember, picked it in our CNVC stock draft. Another mover, Carvana up 4% today on pace to close out the week with a more than 40% gain. It's also up 57% since O'S Perlman took it in last week's CNBC Stock Draft. And shares of Paramount falling this afternoon on a variety report that Skydance's proposed deal with Paramount appears to be falling apart. This is one of those interesting sagas.

And we in the media kind of look at it because it is a media company. We need to bring back succession because this is perfect. fodder which by the way was filmed partly in our studio here in anglewood cliffs all right well thanks very much guys for watching power lunch closing bell starts right now