Power Lunch - Big tech technicals, Midterms playbook & used car prices 11/4/22

Episode Date: November 7, 2022

Hunting for signs of a bottom? Why a market technician says you should look at the charts of mega cap tech stocks. Plus, how the midterms could ripple through Wall Street. And what the decline in used car prices says about the economy. Hosted by Simplecast, an AdsWizz company. See https://pcm.adswizz.com for information about our collection and use of personal data for advertising.

Good afternoon, everybody. Welcome to Power Lunch, along with Contessa Brewer. I'm Tyler Matheson, and here's what's ahead. Is this an anything but tech market? Apple, Microsoft, Amazon, Tesla, off 25% or more from their yearly highs. But is that a good thing? Why one technician is watching the charts of these mega caps to figure out when the equity market will bottom. Plus, your midterms playbook from energy to ESG to China to health care, what's at stake for Wall Street when it's. Americans go to the polls tomorrow. First, though, to Contessa and a check on markets in the green. Tyler, thank you for that. The Dow climbs the week here a day before the midterm elections ahead of the monthly

inflation report. It's up a percent right now as much as 300 and, well, 330 points. Now you can see the S&P 500 up half a percent or 19 points in the NASDAQ composite up a quarter of a percent. Energy is the best performing S&P sector this afternoon, led higher by an 8. gain in EQT, Baker Hughes and Marathon Oil. Look at that. You're seeing EQT up 8 and a half percent right now. Baker Hughes up 5%. And in deal news, Walgreens is expanding its health care footprint. Village MD, which is backed by Walgreens, is buying urgent care provider Summit Health in a deal valued at nearly $9 billion. The stock up of 4% on the day so far.

Tyler. All right. With the major averages still off double digits from their 22, highs. The mega-cap tech companies that led the market higher in October, well, they're sinking again. Apple, Amazon, Tesla, all down 12 percent in just the past week alone. So does this signal capitulation for the bare market, the kind of bottoming, the throwing in the towel? Let's bring in J.C. O'Hara, chief market technician at MKM Partners. You say this is not that. Why do you say that? And why do you think it is so important that these stocks, the Microsofts, the apples, the Teslas, the Amazon's, bottom out dramatically before we can say the floor is in? Well, Tyler, over the last year, you know, investors focused has been on downside risk.

What can go wrong? Where can the market go to the downside? And there comes a point in every bear market or in every cycle where investors need to pivot they're thinking, from downside risk to upside potential. And I think we're approaching that point in this current cycle. Now, why do I say that? How do we know we're at that potential pivot? Well, when we go back and we study bear markets, you know, one common characteristic of all bear markets is you need to see the largest, the strongest stocks out there. You need to see those names become completely washed out. The highly speculative names, those that are the highly speculative names,

that's typically the first dominole to fall. And then during better markets, you know, there's safety in these large mega-cap sort of names. And real capitulation doesn't happen until you've seen washout conditions from the largest mega-cap names. And markets can't bottom until you see that. Take me back then, J.C., if you might, as you're using historical allegories, take me back then to, let's say, 2000, 2001. What were those Superstar socks that had to, wash out. 2007-08-09, what were the stocks that had to wash out before investors became confident that maybe the bottom was in? Do you remember? Absolutely. Some of these names are hard to forget, right? I mean, the tech top, you had GE, you had Cisco, you had Microsoft, you had Exxon. These were

the largest names out on the street. Yeah, Dell. Yeah. Exactly. Exactly. Right. These were the names that held up the best until the final innings of their bare market. And as soon as you start capitulation in those mega cap names, that's when the market was able to bottom. You know, similar thing happened in 2007. The largest names at the end of that bull market, when those finally capitulated in 2008 and early 2009, that was when the market was able to find its footing. Okay. So take Apple out of it because, you know, it may have fared better than some of its other big mega tech names competitors. But if you look at meta, if you look at Microsoft, if you look at Amazon, oh, how the mighty have fallen. So what do the charts tell you? Does the chart say it's time

to get in? Or do you think, no, it's still time to sit on the sideline and wait for all of this to shake out a little more? I still think we need to sit on the sidelines. I still think there's more downside risk in these mega cap names. That doesn't mean downside risk in all stocks, right? The average stock is actually doing much, much better than these mega cap names. But, you know, going back to the study that, you know, we ran looking at these mega cap names and how they fared in bare markets, one common characteristic was as soon as the bare market started to, you know, find its footing and stock started to move higher, the mega cap names did not participate in the upside coming out of a bare market low. So for right now, you know, we're of the opinion that

leadership will change and leadership has been changing through bare markets. So the names that held up the best within the bare markets, you know, the apples, the Tesla, the Amazon, the Googles, those are not the sort of names that you want to have exposure to coming out of a bare market because they typically underperform on an absolute and a relative basis. So, J.C., you're also recommending that people walk down the ladder in terms of market cap. You're saying that small cap technology is holding up better. My question is, if it's holding up better, is it as good a deal? I think we saw a lot of the small caps.

If you look at the indices, Russell 2000 used that as our benchmark for small caps. That peaked out months in front of the S&P 500. So a lot of the selling pressure has already transpired. It has already taken place. The last seller has already sold. So I really think that, you know, we call it the FIFO method of bottoming, right? The first to experience weakness should be the first names to start the recovery. And small caps were the first market cap.

area to see the weakness. So we believe they should be recovering first. And we're actually seeing that on relative basis, right? Small versus large across different sectors. Small is doing much, much better than large cap. FIFO, I like it. It's pithy. It's catchy. It's memorable. J.C. O'Hara, thank you. Thank you. From Apple's technicals to fundamentals, the company is cutting its outlook now for the iPhone shipments due to China's COVID restrictions. Even with the supply chain-related warning, Our next guest says Apple will remain a relative safe haven for big tech investors. With us is Tom Forte, senior research analyst at DA Davidson. Tom, good to see you.

All right. So first of all, set the scene for us about how problematic this is for Apple. I'm especially curious with this warning about the iPhone, especially the 14 and the 14 max, aren't those orders already in for Christmas, the phones that they're expecting to sell over the holidays? haven't they already adjusted for that? Sure. So basically, when we saw the iPhone 14 lineup, our original thesis was that despite a more challenging macroeconomic environment on an improving supply chain, the 14 should outperform the 13. So Apple's announcement over the weekend on essentially China's COVID-Zero policy

and how that's having a negative impact on their supply chain today, for the iPhone 14 generation that calls into doubt our original thesis. So it does look like iPhone sales for the December quarter may come in weaker than expected. So when you're looking at, I mean, Apple down a percent on the day right now, I'm just looking at it over here. The fact that you've got supply chain issues and warnings, do you think that the warnings about the supply outstrip what Apple anticipates for demand for these particular phones? So the fact that the warnings are coming, you know, essentially today, not December 31st or not December 1st, suggests that there's still time for Apple to make an adjustment. So I think Apple realizes longer term that it's overreliant on China from a supply chain standpoint.

You're seeing that to the extent that they're moving some of their supply chain efforts to India. But as it pertains to the fourth quarter, it's clearly going to be a challenging quarter for Apple. It doesn't necessarily mean that there's September fiscal year end. that they won't have a chance to recover during that time frame as hopefully conditions improve in China. But it does call on the question in December quarter for their most significant product. Am I just going to have to wait longer to get this phone? Absolutely. So the good news, if that is good news, I guess, is that customers, especially for the Max,

especially for the pro, have realized that they do have to wait. They can't get the product immediately. so perhaps the weight is a little longer. So maybe that is a silver lining for Apple. We've grown accustomed to having to wait for the pro iPhone lineup. So what does this do potentially to the company's earnings? Is it a material dent or not? The dent would come if it's flat out lost sales

and not just revenue moving into the March quarter for the December quarter. So I think the good news, if you look at the last 12 months, even with the supply chain disruption, is that their earnings have held up reasonably well. So this seems to be more like a March quarter of revenue versus December quarter revenue and not lost revenue. You call Apple the best house on a bad, big cap tech block.

Can you explain why you think it's such a great investment right now? And I mean, I guess if you have a price target of $167, part of it is the potential upside. So CMBC pointed out that if you take Fing and you add Microsoft and you add Tesla, you're talking about $3 trillion lost market cap over the last 12 months. I've been covering equity since 96 on the south side. I've never seen anything like that. But when you compare Apple with Amazon, with meta, with Google, they're the best house in a big cap block, tech block. They're doing relatively well. They're not overweight to advertising. which is more macroeconomically sensitive,

and there are higher margin businesses like Amazon being cloud computing and advertising aren't under pressure. So they're clearly the best house and unfortunately what is a bad block right now for mega-cap tech stocks. Well, thank you for wrapping that up with a neat little bow. Tom Forte, good to see you. Thank you.

All righty, coming up, business on the ballot. The stakes are high for energy policy. We'll look at the potential changes and the impact on prices if the House ends. and the Senate flip to the GOP, plus the biggest wildcard for investors, and it's not the midterms. A top strategist lays out where we are in the cycle and why she's looking at growth now overvalue. More power lunch straight ahead. Welcome back to Power Lunch.

Democrats are worried about how inflation will influence voters in this year's midterm elections, whether voters will put all the blame on the White House and Democrats at the polls tomorrow. But the president is shifting responsibility for high prices to the oil companies. Pointing to energy is a big reason that prices have shot up so much. Pippa Stevens joins us now with more on the inflation blame game. Pippa. That's right, Contessa. President Biden has accused the oil and gas industry of war profiteering as earnings sore, boosted by elevated commodity prices.

Chief in focus is how much companies are returning to shareholders relative to how much they're investing in new production. As data from Deloitte shows, about 50% of oil companies' cash now goes to CAPEX. That's down from roughly 80% in 2014. But as you can see, companies had already started to reduce spending prior to the pandemic after years of lackluster performance. At the same time, capital return via dividends and buybacks is growing across the industry. And now accounts for roughly 30% of cash going to shareholders,

that's up from roughly 15% in 2013. Now, during the third quarter, Exxon posted record net income of $19.7 billion. Chevron reported 11.2 billion in total earnings during Q3, the highest ever apart from the second quarter. However, these results follow record losses during the pandemic when lockdowns sapped demand for crude. Now, this year, Exxon plans to spend roughly $22.5 billion on CapEx with Chevron, at $15 billion. Now, the White House has also focused on buybacks, which are surging across the industry, as companies have more cash on hand. Exxon's repurchased $10.5 billion worth of shares this year, and Chevron had spent $7.5 billion on buybacks through the end of September.

But Wall Street seems to like what it's hearing, Tyler, with both stocks hitting record highs today. All right, Pippa, thank you very much. Well, energy policy, just one of the ways the midterm elections could ripple through Wall Street and your investments. According to our next guest, a split government could lead to oil permitting reform. Investors could also see more hawkish rhetoric on China, ESG investing, pushback, and potential compromises in health care. Isaac Boltansky is Director of Policy Research at BTIG and joins us now with his midterms playbook. Let's start with energy that Pippa was just talking about. Let's just assume for the moment that the GOP rolls in the House and takes the Senate. What could that mean for permitting and the energy

complex? Well, I think we can expect some permitting reform. And this is pretty straightforward policy here. I'm hearing, Isaac. Is anyone else hearing Isaac? Yeah. You're hearing him? Good. I was worried. Go ahead, Isaac. We're listening. We were always, we were always expecting, at least the GOP House next year. But with a GOP Senate as well, I think that we should expect some degree of permitting reform next year. And I think that's also going to come, Tyler and Contessa, through a lot of oversight. And what I'm hearing from Republican taxes, there are going to be a lot of hearings on everything from why was the Keystone XL pipeline canceled to why can't we get more permitting on federal lands for oil and gas. And I think all of that and the totality of it, both from a legislative and an oversight perspective, is going to help on the energy production side.

But we've got to keep in mind, there's only so much that can really be done in a divided government scenario. And there is no panacea for energy prices, at least in the near term. Yeah, and obviously you have a perfect recipe, it would seem to me, for gridlock. The GOP may want to do things, but you've still got a guy in the White House who has strong power. the veto power and the ability to either execute or not execute executive actions in that area. Let's move on to China. I can't imagine that the relationship between the U.S. and China and the rhetoric could get much worse than it already is. Yeah, look, on China, the reality is there is no reason whatsoever to expect any thaw in U.S.-China relations,

from human right concerns to trade policies to Taiwan, there are any number of areas where you see a deep, deep divide between both Beijing and Washington. And that divide is going to maintain no matter who's in control at really either end of Pennsylvania Avenue. So look, the way that I think about this is it's going to be an ebb and flow situation where you can see moments of softening in the rhetoric and some actions. For example, the China ADR agreement that we got between the accounting authorities here and Beijing, which I think has seen some positive movement. But the big ticket items, things like trade policy in particular, you're not going to see a softening. And my fear, Tyler, is that when we get to the back half of 2023, we're going to hear a whole lot of China hawkishness. And that's both because folks are going to be getting ready for the presidential election in Taiwan,

and folks, you're going to be gearing up for the presidential election here. I put all that together, and I think the back half of 2023 is when we're going to see a ramp in the anti-China rhetoric here in the U.S. That may actually provide some bipartisan opportunity for whoever is in the House and the Senate. What about in health care? Could you see something similar, an opportunity for these two, I mean, very divided views to try and work together on areas like health care? You know, what I've found interesting, Kadasa is we aren't relitigating the Obamacare wars nearly as much as we used to.

It's still part of the talking points. It's still part of the rhetoric. But it's no longer the number one through 10 issue for Republicans. So I do think that there's small areas of agreement, and in particular telehealth and mental health or areas where you could actually see some movement over the next two years. Once again, anything bigger than that is going to be impossible, given divided government and the way that we think that the numbers are going to break down. But any movement on either of those, I think, would be good, and it's something that's necessary. Some GOP candidates, some GOP commentators have taken off, I guess, on what they call woke capitalism. I get the rhetoric. But what, if any sort of policy follow-through might there be on that topic? Or is it just going to be rhetoric?

It's rhetorical wars. And I think all of us need to get. ready for this for the next two years. The reality here is that once again, the campaign for the next election begins later this week. The campaign for 2024 begins right after this election. And so a lot of DC and a lot of my coverage and everything is going to have to be trying to parse between rhetoric and reality. What can actually pass, what can actually be done administratively. On the ESG side, I'll say this. We spent about 10 years working on this, and it's pretty clear what the E portion is, Tyler. It's not clear yet how the S and the G portion interact with it. And I think that there's some puts and takes with that that we're going to see congressional Republicans try to focus on

over the next two years. And perhaps that's going to advance the debate. Perhaps in certain areas, I think you could actually end up complicating the waters, especially if we see pushback over things like the SEC's climate disclosure model, which companies are already going to be struggling with how to deal with. Well, I look forward to talking with you many times over the next couple of years, Isaac's going to be a fascinating time. Isaac Boltansky, BTIG. Thanks again. And a quick note, we will be discussing the key business issues on the ballot live on CNBC tomorrow at 7 p.m. Eastern Special Broadcast Business on the ballot. Guess who's back? Mac again. Mattress Mac, $75 million winning World Series bet.

great for him, record setting around the globe, but this could really hit Caesars where it counts, and it's not the only casino to say so. Plus, finding a concrete way to be sustainable. Today's Clean Start highlighting a company making Clean Cement. We'll be right back. All right, welcome back to Power Lunch, everybody. Let's give you a check on the market. The Dow is up more than 400 points. That's 1.5%. 32,0817 right now. The three major index is sitting right around session highs at this hour. We've got about 95 minutes left in the trading day, Contessa. Mattress Mac grabbing the headlines today for his record-setting $75 million payout on wagers that the Astros would win the World Series. He was right. Jim McInvail, the furniture

store mogul from Houston, told me, after he pays himself back for that initial $10 million bet in all, he'll essentially break even. That might be true for the sports books, too, because they took the wager, and Cesar's, for instance, says it paid out $30 million on Mac's initial $3 million bet with them in May, describing it as the biggest single payout on a legal sports bet in history. CEO Tom Rieg said the digital business is on track for a profitable quarter, except for Mattress Mac. And since he won, profitability is a big if. Penn CEO, Jay Snowden, said the same thing on his earnings call last Thursday, that its barstool sports book will pay out $10 million on the Mattress Mac wager, and he said that the sports online business otherwise

would have had a profitable quarter. Instead, he said, if Mattress Mac wins, it will likely be break-evenish. Now, here's why all of this matters. We watch Draft Kings after their earnings call on Friday plummet down almost 28 percent on the day because Jason Robbins has doubled down and said that profitability would likely be fourth quarter of 23. When all it, when his competitors have come out and said, we might actually be profitable fourth quarter of 2022. They have thrown down the gauntlet,

and investors are really putting the pressure on these sports book to prove profitability. And all Draft Kings really has is the sports book, right? Unlike the others who have other... And fantasy sports, and they've got these ancillary businesses that are not necessarily meaningful to the bottom line.

What the focus is, is the growth of the sportsbook business, and how do you turn it around rein in those promotional and marketing expenses? So Mattress Mac was putting bets with lots of different houses. The biggest one was with Caesars, $3 million with Seasers alone. But he went with win bet. He had one, as I said, with Barstool and multiple other sportsbook operators. And why does he say once he hits, gets payback $10 million?

He put in $10 million. He'll just break even on the bet overall. Because the bets are actually a hedge on his furniture business promotion. In fact, he says, I don't have a gambling problem. I have a promotions problem. He told his customers, if the Astros win and you spend more than $3,000, thousand dollars on a mattress, you get your mattress for free. So now he goes back and he pays back all these customers who bought new mattresses. A bit of a hedge. But by the way, the sports

books love mattress Mac because he gives them a lot of promotion. The industry likes him because he highlights responsible gambling, only gambling what you can afford to lose, and also doing it legally. And that's all messages that resonate. All right. Good for Mattress Mac. And well, we'll see what's next. Brian Sullivan has the CNBC News Update. Hi, Brian. All right, Todd, just thank you. Here's what's happening at this hour. NBC News reports another American has died fighting in Ukraine. New Yorker Timothy Griffin had joined the International Legion. It was alongside Ukrainian other foreign volunteers. Ukrainian spokesman says Griffin was killed in action during a counteroffensive in the eastern part of the nation. In Arizona, nine-year-old was facing felony charges for allegedly bringing a gun to school. Police say they found a loaded firearm in the child's backpack in August. Police had originally sought charges. against the parents. They're not doing enough to secure the weapon in their home. Local prosecutors dropped those charges saying chances of a conviction were low. And forget about pencils. SAT tests are going digital. College board is making the change, simplify test taking and giving.

The SATs are also being shortened to about two hours from three, with fewer questions and more time to answer each. The test will be still given in a school or test center. U.S. students make the switch in 24. International test takers go digital next year. I thought they were doing away with these tests, but Tyler, apparently, they do still exist and they will be 100% digital. Not like our day where we carved our answer on a piece of wood with a bowie knife. Yeah, it's absolutely true. A lot of the schools now are test optional, as I'm sure you know, Brian. They either, they accept them, some encourage them. Others say, we don't even look at them. Oh, I'd be optional. Yeah, we'll see. All right.

ahead on Power Lunch. At the top of the out, we heard MKM say it's way too early to call a bottom in the market. Our next guest says the S&P could fall another 5 to 10 percent. That is next. Plus a mover, a call, and a key earnings report. We have a full menu in today's three-stock lunch. Stick around for Power Lunch. Fewer than 90 minutes to go to the closing bell. We want to get caught up on the markets now on stocks, bonds, commodities, plus a bearish prediction on where the markets are headed next. But let's begin with Bob Pisani at the New York. York Stock Exchange, looking green across the board, Bob. And this is a very impressive advance.

In the last half hour, Dow's moved 150 points. S&Ps moved 20 points or so. I see United Health up eight. Home Depot's up $7, AmGem's up $7. Bowling's up $6. What you want to watch, though, is how tech. Apple's gone positive. It's been negative all throughout the day.

Of course, on those China news. Microsoft, look at that up $6. That's a really good move. MET is one of the best performing stocks on the S&P 500. after an absolutely horrible week, last week, and even alphabets up. Boy, this is a really broad rally overall here. I know everybody's focus on tech, but the real big performers last week that did outperform were energy stocks and to a lesser extent some health care names.

So we have a whole bunch of energy stocks at new highs today. That's an historic high for Exxon. Chevron's helping the Dow up almost $2.5. Hess, Marathon Oil, Schlumber She's at a new high, diamond back at new high. highs. Those are really holding up very well on outperforming the last week and a half. The other group is generic health care. So lilies at a new high right now. Cardinal Health, Biogen, Gilead Sciences, all at new 52-week highs. How about the new low list? You know, believe it or not, Tesla's at a new low. Tesla was $400. Look at it just broke 200. Tesla is $400 in January. It's half of that right now.

And a lot of REITs are at 52-week-goes. This has been an ongoing story, but Essex, Public storage, which used to be a superstar a couple of years ago, 52-week low, extra space. Same area there, new lows there. Very interesting afternoon starting to shape up here. Contessa, back to you. Bob, thank you for bringing us that. Let's talk about the bonds now. Yields rising to start the week. The 10-year, right around the 4.2 percent now. As you can see, the two-year at 4.72. That is well off the 15-year high it hit last week at 4.8. And then let's move now to the price of oil slightly lower today, right around 92 for WTI, just under 100 for Brent. Oil markets hanging on every word out of China going up when China seems ready to loosen

COVID restrictions, but today pulling back as well there. You see WTI crude down 0.83%. Chinese health officials say they are committed to this strict containment approach. That's opposite from what we heard late last week. Nat gas prices are up more than 9%. A one month high on forecasts for a cooler November. And our next guest says the S&P 500 could fall another 5 to 10% from here. And China remains a big wild card for the market. Megan Shue is head of investment strategy at Wilmington Trust. It's good to see you today, Megan.

Let's talk a little bit about first why you think the S&P 500 could go down another 5 or 10%. Thanks, Contessa, for having me. So I think the way we think about it is that we've talked for a while about the risk of recession being elevated. And we now have moved our base case to expecting a mild recession in 2023. And I think the way I would look at it is that if the bottoms are in, if the bottom is in for this market, it would be pretty unusual to have bottomed this far ahead of the start of a recession, which we expect to be a first half, possibly starting in first quarter of 2023 story. So I think the timing is off for the bottom to be in, but I don't think we need

to go much lower than we've already seen in terms of the drawdown for the S&P 500, which at 25% for this year, max drawdown is very much in line with the average for a mild recession. And we don't expect anything nearly as severe as what we saw in the last few recessions. We expect some softening of consumer spending and CAPX, but the job market is, so tight right now that it's really hard to see really massive layoffs happening in the economy. So I think we're talking about a short, fairly mild recession. And there could be further downside, but we're not getting defensive at this level. And I mentioned China at the top here. How does that factor into what you anticipate coming down the pike?

Yeah, China is a huge wildcard. Clearly, a lot of news stories over the weekend about the possibility of a relaxation of their COVID policy. It's something that we've been watching carefully. And when you think about the COVID policy, along with the geopolitical risks, whether it's conflicts with the U.S. over tech trade or even the risk to Taiwan, there's definitely some inflationary risks emanating from China in 2023.

I think oil is a big story there. 2022 is one of the largest declines in oil consumption. for China that we've ever seen, I think outside of just one year in the 90s. So if we look at a return to growth in oil consumption, which is what the EIA expects, then we'd be looking at increasing demand, and that could lead to some higher pressure on oil, basically a continuation of the climb higher in gasoline prices that we've seen in the past few months. So if I put together a couple of the things you've said, I come up with this. You think there may be a mild recession. You think that the market may go down.

in the S&P, 5% or so thereabouts. This would all imply that you think interest rates are going to continue to go up just a bit. How high do you think interest rates need to go to kill inflation? That's the million dollar question, definitely. We now expect the Fed to have to raise rates likely north of 4.75%, probably more like 5% in terms of the Fed funds rate. and that would suggest more pressure on the short end of the curve. Interestingly, we don't expect the 10-year treasury yield to move too much higher.

We think, in fact, it's more likely that we see a further inversion of the curve. And so I think if you're looking at what is most important from an economic driver, as well as what markets price off of, it's those longer rates. I think we've definitely done the bulk of the work there. We could see some modest increase in the 10-year treasury yield to 4. a quarter, you know, maybe four and a half, but I don't think we have to go much further than that. I think the economic story is just going to weaken that will start to see a tradeoff back into the long end.

But the Fed funds rate you see going up four and three quarters, five, maybe even a little bit above that. And in that, you have good company in the form of Larry Summers. I note, among other things that you say you have recently added to fixed income from cash, I guess that's because you see it as paying a better rate, number one, and that most of the interest rate hikes may well be behind us. Have I got your thinking correct or not? That's right. And I think one of the other things that's been so painful for bond investors

has been the speed with which rates have adjusted. And that we expect to be more modest going forward. We heard that from Chair Powell. So even if we get some modest increase higher in rates, you've already got a decent income cushion embedded, and the slower rise in rates should be more tolerable. So we should look at over the next year, you know, definitely better returns for bond investors. And if you have a mild recession and, you know, another small leg lower inequities, we'd expect fixed income to be that diversifier that it was not in 2022. So we wanted to

increase a little bit of exposure there and make sure we have a full allocation to bonds. All right, Megan, thanks very much. Megan Chu, Wilmington. We appreciate it. And up next, clean start. We're going to take a look at a startup that's using carbon emissions from, removing carbon emissions from cement plants to create a cleaner product. We'll be right back. Cement is one of the most commonly used elements in all types of construction, but it is also one of the world's biggest carbon offenders. So the drive is on to reverse that. And Diana Oleg looks at one option in her continuing series on climate startups. Hi, Dai. Hey, Ty. Yeah, cement is the main element of concrete, really the glue inside it. And its production accounts for a full 8% of global

carbon emissions. Now one startup for Terra is using those emissions themselves to create a cleaner cement. We've done what nature does to form coral reefs and shells in nature. We take CO2 absorb it and make a reactive form of that same starting mineral so it actually be used as a cement. So it takes the CO2 that's emitted when limestone is heated to make cement and basically recycles it back into cement. There are a lot of companies now claiming to make cleaner concrete. But Gilliam says they don't address the problem at the cement level, which is where the vast majority of carbon is emitted.

He says this also reduces costs. For us from day one, it's always been about making a product that can compete economically without a green premium. Fortera is building its first plant next to a Cal Portland cement plant. We put about 1.6 tons of material into our plant, and we only get one ton out. That other six-tenths of a ton goes out as CO2 emissions. To really nail down the carbon reduction that we're striving for, we need to have a tailpipe technology that will sequester that carbon

before it goes out of stack. For Terra's backers are Kozla Ventures, Temasek. Total funding so far, $35 million. And Fortera's CEO says the company's expansion will get a big boost from incentives in both the recently passed infrastructure and inflation reduction acts. But it'll take times it's a three-year process from start to finish to get a plant up and running. Tyler. I learned something every day, and today I learned it from you.

I had no idea that cement was such a contributor to the carbon emissions, 8% overall, the greenhouse gas. given all the new types of constructions that's going on now, how big is the cement market today? And what does that mean for competition in this space? Well, it's actually a four billion ton a year product. And that means that there's a lot of room for competition in this space. Because not only is it a big carbon offender, it's also kind of a climate hero on the other side in that it's very resilient. Concrete homes are very resilient against climate change,

against rising sea levels, against flooding and heat and cold, etc. So you're going to be seeing more of it used. It's just now they want to make it cleaner. So there's a lot of room, a lot of space, as you would say, in this for competition. Diana, thank you very much. Diana Oleg, reporting on the climate today. Still to come, could gaming, and this time I mean video gaming, not casinos, be a bright spot for tech? As the broader group struggles, will consumers keep buying video games, even amid a recession? We'll trade take two at today's three-stock lunch. time for today's three stock lunch. We are trading a big mover, a big call, and a big earnings

report. The mover is Boeing. The shares up 3% today, adding to its recent gains. The stock up 15% over the past week. The call is ACTA. Guggenheim says the software stock is, quote, too compelling to ignore. And the earnings report is take too interactive. Its results after the bell will tell us if gaming can withstand a possible recession. With us, Matt Maley, Chief Market Strategist at Miller-Tayback. Why don't we start? with Boeing, quite a nice move for a long beleaguered stock over the past week or so. No question, Tyler. And it's like you said, long before we were, even before the pandemic hit this stock got knocked down in 2019. And the issues are still out there in front of it to a

degree, but they're starting to make some headway there. But it's one of these stocks. We have, you know, companies we always talk about being too big to fail. Boeing isn't too important not to succeed. I mean, we only have two airplane manufacturers in the entire world so that we need to keep them around. Plus, of course, the world is not so safe right now, and they're important a defense contractor. So the government wants to help them out. But also on the technical side of things, the chart is looking very interesting. It made a nice little double bottom here over the summer and in the fall. This rally here is taking it above its 200-day moving average for the first time in a while. It's a little overbought near term, but if this stock can get about that 140 level,

that's going to be really helped the stock break out. And for long-term investors, again, a stock that it's too important not to succeed, it's one you want to hold for the long term. So, Matt, let's talk Octa next. The stock is down 80% this year. Is it oversold? There's no question that it's oversold. But the one thing I got concerned about, I mean, it's also cheap. We have it, what, 3.6 times recurring revenues, and that's good. The one thing I worry about those, of course, we still have the Fed tightening their policy. And these technology stocks, you know, even though they have some nice revenues, they're not, don't have any earnings.

And companies are, it's just tough to get these stocks to really act really well with if they don't have earnings. And I just think there are other names in the technology sector. I mean, gosh, I know you've been talking about Google or some of the big cap tech names having a tough time. but, you know, it's the cheapest it's ever been tied with the cheapest it's ever been. I think there are other areas in the marketplace that even though it's oversold and cheap, that I'd rather have my money of when it comes to the technology sector. Let's move on to Take 2 Interactive, which is kind of unlike a lot of stocks, sort of just been tracing a kind of gentle flat line for much of the summer into the fall.

Yeah, it just got hit hard, but it was mostly in the spring. And as you mentioned, it's been trading sideways. Now, it is getting oversold on a near-term basis, so that's helpful. And, of course, they have their earnings coming out. And one of the things we do have to be worried about here is that, you know, they have this merger with the ZINGA. We'll see how that's progressing. We want to hear about that.

But, you know, it's interesting. The NBA is getting a lot. It's early in the season, but, boy, it's getting a lot of notice this year. And they have this new product, the 2K23, which they expect good orders out of that. So good bookings, I'm sorry, out of that. So we'll be looking to see how all those look. And then, of course, Grand Theft Auto, which has been unbelievable for them for many years, they're coming out with Grand Theft Auto 6.

If that can be good at all, it's a stock is so oversold. I think it'll give us a good bounce. It's one. I want to wait until I see the earnings. If the gap's higher, that's okay. It should have a lot of room to run. So I like that one more on a short-term basis, going on a longer-term basis. All right?

Matt, thank you very much. Matt Maley. We appreciate it. It's like they're taking a page from Hollywood movies, right? Like, if this one was good, nine sequels must be better. It's going to be great. Yeah. Up next, what a trip to the used car lot might tell us about the CPI report due out later this week. Power Lunch, we'll be right back.

Welcome back to Power Lunch. Use car prices are coming down. That could shed some light on what we'll see in this Thursday's inflation report. Dom Choo joins us with more details. Hello, Dom. It was very, I mean, highlighted, I guess, contests, Tyler, this idea that car prices, especially used car one surged during the COVID pandemic. and supply chain issues, but to kind of give you an idea of just what the levels are at right now. According to Car Datasite Car Gurus, which keeps an index of used car prices overall,

earlier this past summer, we were talking about prices, kind of in that range, just about $30,800 per vehicle per used car. We are now closer to just around $29,600, which means that we've fallen roughly 4% during that span just since the summer. Four percent doesn't seem like a lot, but we put it in a six-month span to show you just how dramatic it has fallen from where it's been pretty much for the better part of this year. Now, if you look at a longer-term chart of those used car prices, going back a few years, this is where the rub comes in, because over here is the current level I just showed you, that 4% drop. It's kind of tiny right there, right? You can kind of see it right there. And what

we're at right now is a level that is roughly going back to the summer of 2020, 4% and 4%. 45% higher than what it was in 2020 for use car prices. So as we keep these broader points in context, there are some points that people are looking at whether or not this could be a sign of whether or not we are seeing a topping of inflation. Not necessarily that it's going to come down wholesale, but that this is getting tougher and tougher to maintain these levels of inflation. One of the place to keep a close eye on as we watch this use car trade, one of the big beneficiaries over the COVID pandemic has been car parts. Now, if you look at Carvana, which is one of these stocks that has traded off tremendously over the last year, it's a used car reseller. And as used car prices have kind of been at least viewed as topping out, could Carvana have inventory at higher prices that they now have to sell at lower prices. That's a bare case for it.

Now, watch these other stocks. We're talking about auto parts retailers. The more used cars cost and used cars are hard to get, the more people spend at places like O'Reilly Automotive, AutoZone, Advanced Auto Parts to fix up. their existing ones. So if there is something that some traders are starting to talk about right now is whether or not if you have used car prices possibly moving lower, what could happen to some of these stocks that have done so well because those used car prices are going higher? Two other places you might want to look for an impact. Look at the auto insurers, all state, for instance, and progressive, that they have seen what they have to pay out for

claims because used cars are so expensive. And now because auto parts have been so expensive as well as labor, that there's an impact there. So if there's a hypothetical easing, what does that mean? Exactly. Tom, thank you. You got it, guys. All right, and thank you for watching Power Lunch.