Power Lunch - Big Week For Your Money 8/19/24

Episode Date: August 19, 2024

Stocks are starting the week higher across the board, following their best week of the year as the comeback rally continues.Plus, the Democratic National Convention kicks off in Chicago tonight. We’ll tell you all you need to watch for. 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 alongside I'm Tseum Modi. I am John Ford and stocks are starting this week higher across the board after the best week of the year. They're continuing to come back from those big losses a couple of weeks ago. And for the Dow and the S&P 500, both indices are a little more than 1% away from their record highs. Incredible comeback. Leaving the Dow right now at this hour is McDonald's following a bullish note from Evercore. More on that coming up. And health care names standing out, Amgen, United States. health care also contributing to the gains. And only a handful of Dow stocks are lower, but they do include big tech names like Amazon, Microsoft, and Apple. We'll get into the bearish note on Apple, which is weighing on the stock right now. But we begin, not with a bearish note today, but with

chips and shares of AMD are up more than 3% on news that it is acquiring privately held server maker ZT systems for $4.9 billion. MD plans to pay 75% of that in cash. The remaining 25% in stock. ZT systems designs and builds AI servers and could help AMD test and roll out its latest AI chips more quickly for large cloud customers. My next guest, though, is skeptical. This deal is going to boost AMD's chip sales in the near term. Doesn't expect to see any benefits until 2026. Joining us now for more, Vivek ARIA, senior semiconductors analyst at B of A Securities. Vivek, there's already experience AMD has working with ZT, and being able to design these systems for AI

and more quickly roll them out seems to make a lot of sense. Why don't you think that within a quarter or two this might start to have some impact? Thank you for having with John. You're right. They have been working together, but if you take a step back, success in AI requires success in silicon,

success in systems, in software, in developers, in networking, and that is something that Nvidia has been doing for over a decade. And that is, I think, the competition that AMD has to face. And then the more practical aspect of it is that by the time they close the deal, that is the middle of 2025. And by the time you start to see any incremental sales start to come from this deal, it's towards the end of 25 into early 2026. So we like AMD.

There are many reasons to like AMD, right? There's a chance for them to gain share from Intel in the CPU market. AMD is also participating in the AI market, which we think can grow 30 to 50% a year. But on this specific deal, we think it's going to take time for some of the benefits to show up. Is that necessarily a bad thing in that if you already like AMD and you think they got some decent tailwinds, this is perhaps another one to come in a few quarters down the line. As an investor, should you look at those comments from you skeptically and say, okay, well, this is a longer way out benefit, or is it more bullish saying, okay, well, here's another boost

potentially a few quarters down the line? Sure, no, I do think that it is a positive, back to the point of when does it actually start to matter to numbers in a tangible way. If we take the AI market as a whole, today, Nvidia is about 70, 75% of it. If we take all the custom chips from Broadcom and Marvell and several of the Taiwanese, that's another. other 10 to 15% of it. So AMD is essentially fighting for the number three position in the market. So that's the remaining 10% of the market,

and they are about half of it. So what I think this deal enables them to do is maintain that a market share possibly expanded over time. But when you look at the two extremes of the AI accelerator market, so Nvidia on the one side, with all the scale and incumbency and all the software and developers are proven out. And then the custom chips on the other side

that have the lowest cost structure and the most customization by the hypers, I think it essentially leaves AMD that narrow about 10% or so of the market to go after. So this, we think, is a necessary part of them maintaining that position in the market, but is it sufficient to help them go against the two other extremes of the market, which is Nvidia on one side and the custom chips on the other side, that I'm not sure of quite yet. That's the question that the market is still trying to figure out. Vivek, the 1,000 engineers that AMD gets with the ZT systems deal. Does that underscore the difficulty in? in procuring specialized talents,

not only designing chips, but also the infrastructure build out of data centers. And do you think that other chip makers could use a similar approach in sort of growing and organically to get access to good talent? No, you're right, Seema, that building out these complex systems is very different than traditional server infrastructure, right?

But used to be a single, right, CPU-based system. Now we are seeing these clusters scale from 20 to 30,000 accelerators to over 100,000 accelerators by the end of the year to the prospect for a million plus accelerators down the line. So building and optimizing these systems is extremely complex. It's extremely expensive. So the customers can use every help that they can get. It's a case of, you know, AMD and ZT have been working together for some time. But by the time it gets into a place where just ZT, by itself is helping AMD sell GPUs in excess

of what AMD had already been selling. I think that's what takes a little bit more time. But you're right, when it comes to the broader semiconductor industry, for the industry, you are starting to see this vertical integration that these companies are not just selling silicon. You know, Nvidia selling a lot of systems. They are monetizing a lot of software.

So that is, I think, the natural step in terms of the industry extracting a lot more value from the build out of these AI systems. Do you think this deal helps in the future? form or influence what CEO Jensen Wong says on the call next week when NVIDIA reports earnings on the 28th or are not really? I don't think this matters to NVIDIA in the short term because when we look out at the next three to four quarters at least, the market is still very supply constraint, right?

There is a lot of supply constraints when it comes to back-end packaging. There's a lot of supply constraints when it comes to the availability of advanced high bandwidth memory. So I think for the next several quarters, demand is very strong. strong. So customers are willing to buy whatever products they can get their hands on. And today, a lot of that product is Hopper, right? We think that Blackwell perhaps has been shifted out by a quarter or so, but just the demand for Nvidia's Hopper product is so strong. So in the near term, we think numbers can stay strong. But when it comes to this AMD ZT deal, I don't think it matters

to Nvidia for the next several quarters. Well, yeah, Nvidia stock also up better than 3% Even as AMD is up about three on this deal, Vivek Aria, thank you. Thank you. And a quick programming note, I will be speaking with AMD CEO Lisa Sue. Don't miss our exclusive interview on overtime. That's live 4 p.m. Eastern. I'm so excited. I mean, any clues on what you're going to ask first or what we were going to learn from this interview?

You know, there's, I think, a lot in ecosystems. Jensen Huang's been talking a lot about software and a lot about building whole data centers. this seems to potentially build out AMD's capability in data center design. I also want to hear about why she's spinning off the manufacturing piece of this and how much she might think that's worth. Yeah, it might even fund some of this transaction. Now, AMD, not the only stock moving. Apple today is the worst performer in the Dow.

Moffin-Nathanson initiating coverage on Apple with a price target below where it's currently trading, saying that the AI good news is already priced in. Steve Kovac here, to make sense of this, clearly Apple has done well since that August this low, but stock not doing well today? Yeah, that's probably because of this. But look, it is a more bearish note here in issuing coverage. And the thesis at Moffat Nacistson still agrees largely with what the rest of the streets saying that Apple's artificial intelligence products are going to drive iPhone upgrades. But the rating is neutral. And they say that's largely baked into the stock price for now. The price target, though, implying 6% lower from Friday's close.

Now, some of the risks that they lay out in this note are regulatory. There's the Google that are at risk right now because of the DOJ's antitrust case. That could be up to $19 billion a year that Apple makes from Google. And that's part of the services business, of course, not to mention in Europe with the Digital Markets Act. That is another threat to services. By the way, rival Epic Games just launched its first App Store in the EU last week. And then here in the United States, the DOJ has its own antitrust case against Apple,

targeting the App Store, messaging, and many more big part of the services business. there. Still plenty of optimism on AI in this report. Here's analyst Craig Moffitt, the author of the report, explaining why on money movers earlier today. Don't change the fact that we are relatively bullish about the AI strategy, but that there are a lot of issues that make it difficult to see how the stock meaningfully outperforms, not just the broader market, but in particular, its core, the rest of the Magnificent Seven, to which it is so often compared. So I gave you some of the issues, guys. But here's what is already baked in with that AI bullishness part.

You need an iPhone 15 Pro or better to use Apple Intelligence, presumably the iPhone 16 as well, coming in a few weeks. And by the way, Apple is spending far less of capital expenditures as a percentage of revenue, just two and a half percent compared to more than 20 percent for META and Microsoft. Also, Moffat Nathanson did its own survey recently saying 51% of people want to use Apple Siri, far better than the preferences for competing assistance from the likes of Google and OpenAI. But, guys, it's going to be many, many months before we have the real answer whether this new artificial intelligence product is going to drive significant upgrades.

Here is, I think, the potential fatal flaw in this neutral rating. Apple actually has product coming out at the end of the year. And if we see something like a super cycle, if there are lines around the block, if this software works, you know, with the new AI as well as or better than people expect, that's going to potentially ignite some animal spirits. Exactly. And one other thing I'd be on the lookout for, by the way, in like three or four weeks, we're going to learn what the new iPhone is, does that new iPhone, let's call it the 16, have a unique AI feature beyond what we saw announced in June. We've seen Apple do this before, even if it is sort of a software feature, they said this, Siri, The launch of Siri was only on the iPhone for us, even though technically it probably could have run on earlier ones. So will there be some kind of special feature unique to the iPhone 16 that will drive upgrades beyond just saying, hey, Apple intelligence is coming to this phone. Beyond the phone, anything else we're expecting on September 10? That's the launch date. Yeah, that's the launch date. Probably a new watch. This is usually the event where they have the stuff you carry around with you every day.

So the watch, the AirPods, and the phone. But the phone is a star. iPad is done. We got through that already this year. Steve Kovac. Thanks. Thanks for joining us. Now the Democratic National Convention is kicking off in Chicago. The election now less than 80 days away. Should voters expect more clarity on Vice President Harris's policy plans, especially when it comes to the economy? We'll get you that answer when Power Lunch returns. Welcome back to Power Lunch. Democrats kicking off their four-day convention in Chicago today that they hope will boost Vice President Kamal Harris's chances for the White House in November.

This event comes less than a month since she rose to the top of its ticket, replacing President Joe Biden. He is scheduled to deliver the keynote address tonight, passing on the torch to Harris. Other top Democrats like former President Barack Obama, Bill Clinton, are expected to speak throughout the week. Joining us now for more on what to watch is Ed Mills, Washington Policy Analyst at Raymond James. Ed, it's nice to see you. Great to be here, Seema. What do you envision Harris's message to be on the economy? What will she lead with? then will she find opportunities to break from President Biden on certain policies? Yeah, Seema, it's really been interesting because since the start of her ascension to the top of the ticket,

we have not gotten a lot of detail. We got some detail last Friday with her economic plan. I think generally speaking, the expectation is she's going to embrace most of what has been the Biden-Harris administration. But we're going to get some tweaks. We're going to get some breaks. We'll get that on Thursday when she addresses this crowd. But we haven't had a sit-down interview. We haven't really gotten a chance. And I think when I talk to investors here at Raymond James, they want to know what her policies will be. And most of what I'm able to say is look at what has been the policies of the Biden administration,

because most of that will continue. But that's not across the board here. I think one policy, or at least the mention of it that has been getting some attention is price gouging, taking aim at groceries and grocers, excuse me, what that could. actually look like? Is that the government actually price fixing, implementing price controls? How do you think she navigates that topic? Yes, I kind of view this as taking the mantle of Biden's shrinkflation campaign and talking about additional powers. I also kind of look at this from the perspective of in politics when you're explaining you're losing. So Democrats do know

that under the Biden-Harris administration, there's been a lot of inflation. She doesn't necessarily want to be on the defense in terms of explaining what the administration has done. that could have contributed to inflation, she wants to be able to pivot and say, look, this is how I would deal with this slightly differently. I think a lot of this is about empowering the FTC, which is led by Lena Khan, who's been extremely aggressive to not price fix, but look at where there might be some gouging, looking at the middleman. We've seen this over the last several years, kind of that making the middleman, the boogeyman moving forward. But from a market perspective, what I would look at is, are there some middlemen that have outsized profit margins? That could get a lot of government

scrutiny. Or are there certain deals that if they were to come together could give them even more market power? And so last week, we had Mars Kelenova. Are other deals out there maybe pausing not going to sign that deal? Or are those deals that have been announced going to have additional scrutiny from a market perspective, FEMA? That's how I really look at those economic plans. Ed, check me here in my impression. My impression here is that it's not necessarily the economic policies of the Biden-Harris administration across the board that are unpopular. It's Biden that's been kind of unpopular, and inflation, of course, is unpopular. So to what degree do you expect Vice President Harris to present herself as a change candidate,

even as we're seeing, you know, the golden oldies of Biden, both Clintons and Obama, kind of gearing the crowd up for her. Yeah, John, I think it's important. What you highlight is that every election is a choice. It's compared to what? And I think that something that was a drag on the ticket was the fact that when we look at the right track, wrong track numbers by voters, they mostly say about 65, 70 percent of Americans say this country's on the wrong track.

And so when you're the incumbent president, it's very difficult to win re-election. Changing out the candidates changes that a little bit. But I think what Harris has really going for her is that the comparison that voters are being asked to make is, do you want a Harris presidency or a Trump presidency? And Donald Trump, when we look at favorable, unfavorable ratings, he's underwater. And what has happened over the last month is Harris started out as vice president underwater in those favorable versus unfavorable, and she now has a net favorable rating. When you have a favorable view of a candidate, you're more likely to vote for him or her. And so that favorability

rating, I think, is really what we are watching here at Raymond James in terms of seeing who has the edge going into November. Let me try to widen the aperture here. We've been talking a lot about domestic policy when it comes to the economy. What about international? What about globalism and potentially tariffs, particularly China? What have we heard from the vice president and what more do you think we need to hear? We haven't heard all that much, and that's kind of what I started out with. I do expect that the U.S.-China relationship to be front and center, regardless of who's in the White House. How that gets dealt with is going to be very different.

Former President Trump has argued that he would like to have a 60% tariff on certain goods that are coming or all goods coming from China and 10% tariffs elsewhere. I get a lot of questions on whether or not that would be a second wave of inflation. Is that going to be something that impacts the consumer? There's not an expectation that there would be tariffs on goods if Harrison Walls are elected. But we've also had a lot of conversations here at Raymond James about the tech exports that have been restricted by the Biden administration that absolutely would continue. The true one bipartisan issue here in Washington, D.C. is getting tough on China. That does not change. But from a geopolitical perspective, something that really was a drag on Biden, and it could still be a drag on Harris, is the kind of geopolitical issues that have risen during his term. That has fed into that wrong track. And so if it was someone other than Trump, I do think that there would be even higher poll numbers for the challenger, because inflation, the border in geopolitical issues are issues that are favoring the part.

that's not in control and something that Harris is going to ultimately have to answer for how she would deal with this differently if she were to be elected. Right. Both tough on China about how they deal with it. It is the question. What about on the breakup of Big Tech? Of course, there's been some question of marks swirling around Google. Yeah. So I think as it relates to Google, this is something that is a long time that it's going to take before this gets resolved. There are going to be appeals. If you're the Justice Department, And of course you're going to go for the most aggressive remedies. You've been looking for a win.

They finally got a win. They are going to be aggressive. What I'm watching for is Lena Khan, who is the current chair of the FTC, her term expires this fall. Does she get reappointed? Does President Harris try to keep her on? I think that's an open question, especially the fact that she was the former senator from California, much closer to the tech industry than Joe Biden has been. Obviously, if Donald Trump is elected, there would be a new chair of the FTC.

But what I warn investors at Raymond James is just because you could see a changeover between Biden to Trump, the populism that's pushing for some of the aggressive actions against big tech doesn't go away. In many ways, a lot of the concerns about big tech were highlighted for four years under his presidency. So kind of this larger antitrust populism that exists is one of those other issues that stay. But how it gets litigated is going to be obviously very different. Good stuff.

I know J.D. Vance has been vocal about his interest in breaking up a big tech. So you're right. Interesting to see. It will be interesting to see how this plays out. Ed, thank you. That's Ed Mills. Thank you. Now coming up, another check on the chips.

Our trader has a potential options play on a well-known semiconductor stock market navigator. is up after the break. Welcome back to Power Lunch. Let's get a quick check on the markets. Both the S&P 500 and the NASDAQ are trying for eight-day winning streaks and near intraday highs. The Dow has come off the highs a bit. Dom Chu is here with today's market navigator.

All right, so let's talk about one of the places driving that big trade that we've seen so far, recovery-wise, and it's technology. It's been leading that rebound. But one trader thinks that stocks within that sector are some of them, at least, getting an undeserved ride higher with the rest of the overall group. So Tony Zhang joins us, the chief strategist over at Options Play. He joins us now. Tony, you're looking to capitalize on what you see is overvaluation in one stock in particular. And I'm very curious because this stock is considered by some people to be a leading indicator for the chip space. And that's applied

materials. Tell us why. Yeah, it really comes down to both the technicals and the fundamentals. you have a pretty important and technical level here, 213, 215 unimplied materials. That's been an important support and resistance level. And we've basically tested, we broke below that level here on the sell-off a couple of weeks ago, and we're coming right back up to that level now, testing that as resistance.

And momentum so far has been starting to slow down. As you said, we've had eight straight days of a streak. And this really leads me to believe, at least in the short run, we have some concerns around the momentum and whether this can continue and break out higher above that level. I think based on kind of the underperformance that we're starting to see of this particular stock applied materials to the market, there's concerns that this is actually going to get rejected at that important resistance level and now start to trade lower from here.

All right, so then how exactly, John, the question becomes, how do you play it, right, Tony? How exactly do you take the view with a risk mitigated type facility? Yeah, this is really where you want to utilize options to try to do so. you can take a neutral to bearish view using a strategy called a selling a call spread, call vertical spread. So what we're here is we're going out to the September 27th weekly expiration, and we're selling the 205-225 call spread. Earlier today, you can collect about $7.25 for that call spread. Applied material is up a couple of bucks since we structured this earlier today, so you can move this up to the 210, 2.30, which is just moving all the strikes up by roughly $5.

And you can collect roughly, again, $7.25 if you adjust that based on the current price. But right now, we're still trading below that important 215 level. And the valuations, I think, here is also concerning for me as well. The fact that we are trading at roughly the same valuation of the rest of the industry, but applied materials actually expect to grow at a slower than industry average growth. So from that perspective, I do think as the valuations start to look a little overvalued here as well. All right, Tony, with the call spread there, sale, collecting premium on applied materials. Thank you very much.

We'll see you again. Thanks, Tom. So, John, I mean, this is interesting only because for me, I mentioned the idea that it's a leading indicator because applied materials, you know, ASML, KLAs, they make this stuff that makes computer chips. So a lot of people use them as this kind of tea leaf for what the future holds for the rest of the chip industry. Although these days, I guess it's hard to override anything that's AI. It's hard these days because that's chip equipment. There's longer lead time involved. You know, if you want the advanced lithography, you've got to have the ASML equipment.

But right now, the hyperscalers and the demand in the data center is so much of the issue. And that doesn't necessarily have to do with the equipment. So questions about to what degree that's a bellwether. Yeah, exactly. Interesting play either way. Well, coming up, crude reality. Oil prices down 7% in the past week. We'll find out why when Power Lunch returns.

All right, the NASDAQ up 153 points. Markets are pricing in a rate cut at the Fed's next meeting, and the question is 25 or is it going to be 50 basis points? The bond market seems to be hanging on every word from Chair Powell, who is set to speak at Jackson Hole. Rick Santelli, joining us from Chicago with more, Rick. Yes, and I think that the Fed and the Fed officials are hanging on to every data point to see if they have a green light to ease. And to that end, today we had leading economic indicators. LEI, and for the 29th consecutive month, we didn't have a positive number.

We had zero in February this year. The last positive number up 3 tenths was all the way back in Feb of 22. Now, if we look at the two-day of two-year, look at how the left side and the right side are about right, we've been basically treading water today in short maturities virtually unchanged. The further down the curve you go,

you see a little bit more bind, there's more of a drift to lower. yields. And if we look at the spread, the difference between our tenure and German tenure, the European boom, we see it's getting ever closer together. Right now, it's about one year since we've seen them as close as they are. They're hovering about 160 basis points apart. And finally, YG, high yield, junk bonds. Look at it's trading an ETF at over two year highs. What's going on? Well, it's about easing when the Fed eases. Some of those companies that couldn't get really great credit ratings

they had to pay up to borrow. Well, their future looks a bit brighter when rates are moving lower. John Ford, back to you. All right, Rick Santelli, thank you. Well, those yields might be up, but oil is down. Another 2%, 7% in just the past week. Pippa Stevens is with us now on more on the big move that we're seeing in oil. Supply, demand, both?

Yeah, it's both. And so oil is starting the week. in the red coming off a fifth negative week in just the past six. And it really comes down to the fact that we're seeing both headwinds on both the supply and demand side for oil specifically. And then you add in the macro uncertainty, including what happens at the end of later this week in Jackson Hole. And there's just not a lot to like in the oil market right now.

So a lot of market participants are on the sidelines. Now one headwind for oil for some time now has been China. We have a chart showing just where their demand is. You see there on the orange line. It's both below last year's imports. This is crude oil imports into China. as well as below the five-year average. And according to RBC, imports are down 320,000 barrels per day so far this year.

And in July, numbers were the weakest since September. At the same time, their refined products are building. And so that has been a big headwin because for so long, all the bulls were saying, once Chinese demand recovers, then the market will look better. Nat gas, though, we have a chart here, up more than 4% today, catching a bit of a bid now above that $2 level, as some of the producers have scaled back now, up 5.5%. that is leading energy stocks higher with EQT, the biggest gainer.

Just checking the IXE energy ETF. It's down today and down about 4% this month. I guess that has to do with oil underperforming as well? Yeah, so we saw a lot of enthusiasm for these stocks earlier in the year. The XLE retook its record high back in April. But since then, it just has kind of been going nowhere. I think that, you know, traders and investors see better gains elsewhere. And a lot of the factors in oil in that narrative are already well known.

and until we see a positive catalyst, such as a turnaround in Chinese demand, until we know what OPEC's going to do later this year. I think people are staying on the sideline just because they don't want to take that commodity price risk. Okay, Pippa, Stevens, thank you. Let's broaden the discussion and talk about markets, which are higher across the board, the S&P and NASDAQ trying for an eight-day winning streak. And there's a lot for investors to digest this week with Fed Minutes on Wednesday. Jackson Hole kicking off on Thursday.

Brian Jacobson is chief economist at Annex Wealth Management. Brian, it's nice to see you today on Power Lunch. You know, Jerome Powell doesn't have the best history here at Jackson Hole. I mean, he's definitely certainly injected volatility into markets in prior, our past performances or speeches, I should say, at Jackson Hole. What are you expecting this time around? Yeah, I think that it could be something very similar this time. It seems like there's very high expectations that he is going to lay out that they are planning on cutting rates. Maybe he's going to talk about the cumulative progress that they've made and the battle against inflation.

recognizing that the labor market has come back into better balance because, you know, the unemployment rate has risen, job openings have declined relative to the number of people unemployed. But beyond that, I'm not sure he's necessarily going to deliver on what the market is hoping for, which is like a clear signal that they're planning on moving, you know, very quickly or by a large amount. Because here at Annex on our investment committee, we think they'll deliver a 25 basis point cut on September 18th. and then maybe it's 25 basis points every meeting pretty consistently. And honestly, that might not be enough to really placate the markets. Markets have done exceptionally well over the last two weeks. S&P 500 is up 9% since that August 5th low.

So if he does hint at a 25 basis point rate cut later this week, will that be enough for markets to continue stocks to continue to move higher? In the short term, perhaps not. I think that actually if he delivers on that messaging of 25 basis points, there's enough people who are hoping for maybe a bigger statement about 50 basis points that they could be a little disappointed. And so prices are always set on the margin by the marginal buyers and sellers. And so if they're really disappointed in that move, we could see a little bit of a pullback. Now, one of the things that I'm a little bit more concerned about is when we do get that actual cut is whether or not it proves to actually be not the giant pan. that everybody is hoping for. Yes, every little rate cut helps people who have the debt that's

floating rate. But really, if you think about 25 basis points, is that enough to move the needle on a person's decision in order to refinance a mortgage, get out of a 3%, you know, 3% 30-year fixed rate that they have to go buy a new home businesses to invest? And so perhaps the rate cut itself isn't necessarily going to deliver the economic stimulus that a lot of people are hoping for. Brian, I wonder, though, does this Powell really have to do that much? Because a couple weeks ago, the market was down on Fed discipline, right? After that job, well, before the jobs report, and especially after, but then it was up on the data, right? People were saying, oh, emergency meeting, the Fed has to do something. Well, maybe the Fed doesn't have to do as much

as some people thought. Does he now have to signal that the Fed is willing to do as much as people falsely hoped he would do when they thought that the sky was falling? Yeah, maybe he's actually going to push back on that idea that the Fed needs to do an outsized or a supersized move with the Fed cuts, mainly because in the past when they've had to do those emergency meetings or something bigger, it's because financial conditions had been seizing up. And actually, even though, you know, prices were down, still markets were fairly orderly. It's not as though we were seeing credit spreads blowing out or that there were a lot of failed trades, especially in repo markets and things like that. So there was really no justification

for some sort of emergency move by the Fed, especially since the data wasn't really all that weak. It was slightly weaker than expected, but it's not like all of a sudden, you know, we saw a hundred basis point increase in the unemployment rate or something that would be really shocking. It was, I think, really in line what the Fed was expecting, maybe a little bit worse than anticipated, but nothing that really merited some sort of big move by the Fed. Perhaps the consumer and the credit picture for the consumer matters more in the setup to Q4, but does Fed language around any of that particularly matter? The Fed language always matters, especially all those different adjectives that they use about the outlook

and exactly what they're going to be looking for in terms of guideposts to help calibrate policy. But really, it is about the consumer. And if you think about rate cuts, right now, if you actually get a rate cut, The first effect is to actually reduce the income of people who are collecting a decent amount on money market funds and short duration instruments like that. And it's not really going to stimulate the activity of those people who are paying very high rates on their mortgages, credit card debt, and the such. And so that's one of the reasons why there is sometimes this J-curve effect when you get cuts,

which is that it's actually a bit of a growth dampener before it actually results in an acceleration of growth. Maybe that's what we'll see in the fourth quarter. is that when we don't see a big acceleration of growth, that people get a little disappointed, a little bit skeptical about whether or not the rate cuts are actually going to have the desired effect. All right. Brian Jacobson, thank you.

We've got intraday highs in the past couple of minutes for the S&P and NASDAQ. The Dow's being weighed down by Boeing and Visa looks like to me. Let's get over to Kate Rooney for a CNBC News Update. Kate. Hey there, John. Secretary of State Anthony Blinken says, Israel accepted a U.S.-backed proposal that would exchange a ceasefire in Gaza for the release of hostages held by Hamas. Now he's urging Hamas to accept the framework. However, the group

has already expressed concerns about the deal, saying it would not agree to any proposal that doesn't include a permanent ceasefire. Prosecutors, meanwhile, say Harvey Weinstein will remain locked up in New York as he awaits a retrial there on rape and sexual assault charges, the former movie mogul, made a brief court appearance today related to California's request to extradite him to the state to serve a sentence for a separate rape conviction there. The retrial comes after New York's highest court tossed his conviction this spring. It's tentatively scheduled for November.

And Russia says Ukraine hit a third bridge as troops press forward with an incursion in the Kersk region. It's the largest into Russia since World War II. Meanwhile, Ukrainian president Vladimir Zelensky says so far, forces have gained control of more than 460 square miles and 9. Settlements. John, back over to you. Kate, thank you. Well, coming up, Evercores, Levinette, the firm upping its price target on McDonald's shares, saying it's bullish on the chain's U.S. business in 2025. We'll dig into that when Power Lunch returns.

Welcome back to Power Lunch shares of McDonald's up. Let's see, 3.5% leading the down today. Kate Rogers joins us now with more on what's driving McDonald's higher. Hey there, John. So at the heart of Evercourt ISI's note, today, it was a turnaround on value and that is likely what's driving the stock move here. Analysts writing that the company appears poised to recover in the back half of 2024 and 2025, writing, quote, last week's sales success with commemorative cups has not only bolstered three-Q sales, but it also evidences that the brand is strong and becoming less encumbered by a poor value perception.

Heading into 2025, we believe the company will be more effective in pursuing a multifaceted approach to value and stepping up the pace of menu introductions at both premium and medium price tiers. It also notes that McDonald's customers have noticed price increases, which for some items are as high as 40% over the last four years, more than any other fast food or fast casual brand. It's working on a national value platform, whichever course says could alleviate the issue. That's key as McDonald's has struggled with that value perception,

particularly amongst lower income consumers in recent quarters. The stock is down around 3% year-to-date, but it's up over 8%. 8.5% this month, guys. Back over to you. Kate, does Wall Street, an analysts who track this stock, do they think McDonald's can continue to raise prices, especially given the environment where Starbucks is talking about slowing foot traffic and generally speaking, more consumers trading down? So, Seema, it's important to remember, too,

that the franchisees, which operate more than 90% of McDonald's locations, they'll be the ones to set the prices. And what's key here with this national value offer that they've had for more than a month now, is that the franchisees voted to extended in 93% of, of the stores. So McDonald's is definitely on a pause right now in terms of price hikes. That's what's gone up over the last few years. But now they're looking for ways to bring those prices down and bring customers back in. They've talked about chicken. They've talked about extending, you know, that value platform even further. And on the call, executives did note that franchisees, they say,

are in a good financial position to invest in, you know, perhaps extending this even further because that $5 value bag has done really well with lower income consumers. It's tracking well with them. and that's the cohort that the company wants to bring back in. So we'll see if it happens. Still, Kate, I'm troubled by the fact that people are getting excited for these nostalgic cups, I guess, from their childhood that actually came out when I had already graduated from college. I don't know what that means demographically about.

But is there a sense of, in terms of age cohorts or demographics, where McDonald's is finding success? I imagine it might just be across the board, given the inflation-strapped consumer. It's so interesting to see who Gen Z kind of. gravitates towards John and you know we won't do the math on when those some of those nostalgic characters came out for you know for everyone's sake here but you know it's it's interesting because they had a really successful run with the grimace shake too which is an older character that would resonate you know with customers who know McDonald's from their childhoods but then it went viral

on TikTok right so that means they're bringing in younger consumers and so they have to kind of thread that needle with older demo younger demo and the lower income cohort I think you know no matter how old you are everyone's a little bit more price conscious right now and that I think would particularly apply to a younger consumer. That being said, we talked about Chipotle a lot. They had a fantastic quarter. They do really well with Gen Z. And they've had prices, you know, non-discounted forever and ever because they don't have to do it.

So I think customers, as we've seen, are just being really picky and choosy right now about where they're spending their money and why they're choosing to do that, you know, isn't hard to figure out. But these companies are trying to target them correctly with the right offers at the right price at the right time. Yeah, it's tough to do on certain times, but clearly McDonald's making moves. here. Thank you, Kate. Kate Rogers. With the market higher, NASDAQ up nearly 1% and today marks the 20th anniversary of Google's IPO and two decades later, it's facing threats to its

existence thanks to antitrust scrutiny from the DOJ. Should investors buy it or bail? We will trade the stock in three-lunch, three-stock lunch coming up. Welcome back. It's time for today's three-stock lunch. Here with our trade is Jerry Castellini, the president and CIO of Castle ARC management. First up, we have Alphabet. Today is the 20th anniversary of its IPO. The stock up over 7,600 percent since then. Jerry, it's facing some near-term challenges, but what's your trade on Alphabet? So we are holders of the stock, and we are going to stay long-term holders of the stock. We understand, obviously, that there's a challenge, and there has been one now for a great deal of time for all these big tech names by the FTC and over monopoly issues.

I would make the point here that the ultimate line that you have to cross is that you've done harm to some material competitor. And there's just no evidence that Google is helpful, but has done anything to harm anyone. And we're staying with it. And we basically make the point, do not get off one of these materially advantaged companies in the AI space. I guess a breakup might not be bad for the stock anyway. All right. Next up, we have HP Inc. shares sliding today.

after Morgan Stanley downgraded the personal computing company to equal weight from overweight, citing limited upside potential. Jerry, what do you think? No, AIPCs there? No. In fact, if you read the recommendation, they felt that the stock is expensive relative to the last couple years. I mean, this is a nine multiple stock. The Fed is going to ease most likely in the next six weeks. It's hard to see a cheap stock going down for valuation. in the face of a FedE's. And in their case, you also have the potential here, which is, I think, becoming more and more reality, that there's going to be a cycle called the AIPC cycle, which they would be built right in the center of. And you would see all sorts of upgrades across the

board and be the exact time where you wanted to buy a very attractively valued company in a space like this. So we would recommend not to jump on this and just to hold onto the stock. Jerry, finally, we have Sweet Green shares of the salad chain falling 6%. Piper Sandler downgraded the stock to neutral from overweight, saying the risk reward for the stock is more balanced. Are you a buyer of the dip? Absolutely. I'm a holder. Our firm is a holder of this stock as well. I would, again, caution. Remember, this is August. We're looking for things to do besides political conventions. And making a change in an outlook for a company just because, in this case,

The wonder is that perhaps the economy is going to slow down and affect this business. We would take the other side of. You just covered McDonald's. We get the fact that that's a broad, economically driven entity. This is a company that could triple its footprint and still not reach all the market they feel they can reach. This is a health food and a very successful casual dining idea. And it's way too early to cut this out. Stock up 200 percent this year.

Jerry Castellini of Castle Arc Management. Thank you for joining us, and we will be right back. Welcome back, a quick check on markets with a Dow up nearly 200 points, and the NASDAQ up just short of 1% on PACE for its eighth session winning streak. Paula Alta earnings out tonight. Maybe the last two weeks of August, John, but we still have a lot going on. Jackson Hole on deck. For sure, Palo Alto, one of a few stocks in the 100 billion or more camp that are up more than 2.5% AMD,

NVIDIA among them that's going to do it for power lunch you can catch Palo Alto earnings on overtime closing bell starts now