Power Lunch - Bullish Case for Disney, Trump's Tech Policies 8/6/25

Episode Date: August 6, 2025

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And welcome to Power Launch alongside Contessa Brewer. I'm Dominic Chu. Stocks are higher this morning, an hour at the afternoon. One of the best performing stocks today is Apple. Those shares are rallying, as CEO Tim Cook is set to make a major investment at the White House later on this afternoon. You have a big news that we're watching right now out of Washington, D.C. The trade world with India escalating. President Trump raising tariffs to 50%. That makes it one of the highest levies on any trading partner. for the United States Dom. Plus, one of the hottest trades of the year is under pressure. Shares of AMD and super microcomputer both falling after the companies posted disappointing results in their data center segments, raising some fresh concerns about AI demand. Both companies are facing some strong competition and high investor expectations in an area that has been key, and that's putting it lightly to this rally. First off, though, this hour we are watching the White House where this afternoon Apple CEO Tim Cook will join President,

Trump for an announcement, a new $100 billion investment commitment in the United States. Megan Kisela is at the White House now and joins us. What are you learning, Megan? Hey, guys, that's right. So it's 4.30 p.m. today that we are expecting Apple CEO, Tim Cook, to be here. That's according to a White House official. And that's primarily to announce this investment commitment. So a few top line details here. This will be increasing the total investment commitment by an extra $100 billion, bringing it to $600 billion, after Apple already committed $500 billion earlier this year. That'll be over the next four years. We should see that money come. Now Apple says part of this money will be put towards a new American

manufacturing program, bringing again more Apple manufacturing to the U.S. They also say that through this program, they'll be increasing their investment across the country and further incentivizing other global companies to bring more of their supply chains to the U.S. as well. And again, Cook should be here. That will be 4.30 p.m. today that we're expecting to see him and the president on camera in the Oval Office to make this announcement. And then guys, the other Apple story is one that you also just hit on is the India piece of all of this. So those tariffs already set to go into place overnight, 25% on India's exports to the

U.S. and now with a new executive order today, the president is increasing that level to 50% total by the end of the month. August 27th is the effective date for the 50% tariff. But the question is whether Apple, which of course has a huge manufacturing hub in India, would be impacted by this. And based on my conversations with White House officials, they're going to be largely shielded from any impact here. The root of it is that these are the reciprocal tariffs at 25%. They're effectively just using the same statute to double those to 50%.

And because semiconductors and all derivative products were already exempt from those reciprocal tariffs, that means that Apple and most of its products, if not all of them, will also be exempt from these tariffs. So a lot for Cook and Trump to be talking about. We should see them later this afternoon. You know, it's so interesting because these tariffs have been part of the stick that has been used to try and get companies to announce they're going to return manufacturing jobs here to the United States. Do you hear it all from the White House any skepticism that any of these deals will actually come to fruition? That is a huge question. Is investment commitments, as you say, one of the biggest things that this president responds to, he loves to see them.

He loves to hear about them and talk about them almost every single world. brings a big Oval Office or a White House announcement either with company leaders or with foreign leaders as well. But what we don't know is, what's really hard, I should say, is to track that investment as it comes in. So that's one of the biggest questions for now. For example, the $500 billion that Apple had already committed, how much of that has been invested, this $100 billion, what exactly will that be used towards? And Contessa, I'll say we have the same question about foreign countries as well. The EU is a big one on my mind. They committed to invest $600 billion in the U.S. in order, as you said, to get a lower tariff rate because that was

what the president wanted to see. EU officials have been open that they can't, they can't commit to making sure that that happens. We'll have to see how the White House responds if they don't. Megan, thank you very much. All right, let's talk more about Apple as well as the impact President Trump's policies are having on the broader technology space. Joining us now is CNBC's Steve Kovac, also Christina Parts of Nevelas, alongside with DA Davidson's Gil Loria, who covers, by the way, many of these mega-cap technology companies that could be impacted by the tariff and trade policy. Thanks everybody for being here. Let's roundtable it with our reporters here first.

And we'll start with the Apple story. Right. Yes. While Megan was chatting, you kept kind of nodding your head and shaking and shaking your head at the same time and kind of waving at Christina. There is a good amount of, I guess, skepticism may not. be the right word, but everyone's waiting to see when this will actually happen, how it actually gets executed. Right. So what exactly are you learning with regard to this big Apple announcement and what exactly we can expect to see in terms of the dollars actually hitting the street?

That is the big question, right? Where is this money coming from? Where is it going? And I looked back at the capital expenditures and operating expenditures at Apple over the last few years. OpX in 2024 for Apple was like $57 billion. Capital expenditures, let me see here, $9.5 billion. Extrapolate that out, that does not equal $600 billion over the next four years. So what is Apple doing here? They're likely including a lot of stuff that's already baked into their expenses. That includes paying Qualcomm, there's licensing fees to use modems.

That includes things potentially like the amount of money app developers make when they put stuff in the app store. This is not $600 billion to build factories here in the United States. Now, there is one factory being built here in the United States. That's in Houston, Texas, my old hometown. And in the Northwest side, Foxcon, Apple's partner that makes all the iPhones and other gadgets and gizmos for Apple, they're building this facility out there that's going to not make iPhones, but these artificial intelligence servers that are used to power Apple intelligence. Very different than what the president's talking about. What Apple is giving the president today is a very nice headline number that he can tout and say Apple is investing $600 billion.

But I can guarantee you that is not, most of that is not going to be building stuff here in the United States. United States. So the question becomes, when Cook is at the White House today, what products, what stuff are you going to be making here? You know what else? Because Christina was also nodding and shaking her at the same time during that report from Megan. We have seen, though, fabs, facilities, and whatnot put foundationally on the ground in the United States as a direct result of government programs, whether they be a part of this administration or the last one with the Chips Act. So there is rubber meeting the road and shovels in the ground for certain aspects of these types of investments. What happens with the chip side of things when it comes to all of this massive

investment in America? I think your expectations need to be tempered. And I say that with the boots in the ground for the chips world. Many of them have been delayed. Ohio Intel's plant till 2030. Samsung, TSMC, Arizona's second plant, you know, possibly now next year, maybe into 2027. I think a point that Steve raised is double counting. What many of these companies will do is they'll promise X amount hundreds of millions of dollars, but that is double counting some previous investments. An example, which I think InVideo would maybe say I'm wrong on, but they promised $500 million themselves in just April over the next four years.

I should say $500 billion, a larger amount, much but larger. But they are too going to use the Foxconn Houston plant, specifically for AI servers and eventually they want to have humanoid robots over there as well. So there are boots on the ground happening, but there are major issues, environmental delays, labor shortage that I don't think we're addressing enough. TSM had major problems with their first plant because there wasn't enough talent here in the United States that were capable of working on these advanced machines, which is why they had to bring in foreign workers. And I think that's a major issue for a lot of the manufacturing that's

going to go on here in the United States. All right. And then Gil, let's bring you to this. conversation before we kind of widen this whole thing out. Apple shares are up and it was a good amount on this bit of news coming out of the White House with Tim Cook making a visit and making this announcement that we are anticipating this afternoon. Just how important is the investor narrative going to center around how much Apple and Tim Cook get along with the White House and the Trump administration writ large? Well, that is the story. The fact that he's there and that he has a say in policy is what investors really care about. They want to make sure that that exemption you talked

about it for the India tariffs holds up, that they're not going to get snagged by that 50% tariff, they're not going to get snagged by the policy rivalry with China. Tim Cook being there, being part of this conversation, making headlines for the president is what gives investors optimism that Apple will continue to be able to sell iPhones in the U.S. in the short term. without too much tariffs. Your conversation is spot on in the fact that we have to separate the rhetoric, the big numbers from the accounting here. Apple is not going to invest $600 billion over the next three years in the United States incrementally. We're going to count a lot of its existing spend, its partner spend, and it's going to build new facilities in the U.S.

Yes, not $600 billion worth. And the only other thing I'd add is Tim Cook better have his head on a swivel. These press conferences often go a little bit far afield. If you remember, the Stargate announcement that Masa San came for was supposed to be for $100 billion and ended up being for $500 billion. So Tim Cook hopefully can manage this number down, even if he can't actually deliver on the $600 billion. He's already up. It'll be interesting theater to watch if that happens again and to see whether there's pushback

in the moment. My question is, when you get this kind of pressure from the administration to put your money and your commitments here, is there any advantage to Apple to building new plants or making investments if they're going to shift some of the focus to the United States? Is there a business advantage there? They can make it into advantage. You highlighted the fact that they do have the capital to invest. Again, let's not forget, that $9 billion KAPEX number you talk to compares to their peers spending $100 billion a year. They have the cash, they have the borrowing capacity. They can invest in the U.S. And when they do, which they will, they will make sure to ramp up the

talent pool as well. Because as you're pointing out, we don't just need the capital in the buildings. We need the talent to be able to develop and make products in the United States. So they can, use that capital to turn this into an advantage. Having production in the U.S. can be an advantage for them. It will require a lot of investment, but if they invest in automation, in robotics, and making these cutting-edge plants in the U.S. while developing the talent, they can actually make it into an advantage. All right. And, and Christina, I want to cap things off because as much as this is a big story, it's not the only one out there. Advanced microdevices made a lot of news,

given its report and some of the status of what it's doing with AI, the growth out there, especially for things like data centers, what can you tell us about the AMD story vis-a-vis what we are seeing now, of course, with the White House and everything is about investments in America. The problem is AMD is considered a second-tier scrappy brother to Invidia. And the latest earnings report, you had expectations so high for their next iteration GPUs. They did say, like, the MI-400, these are just more advanced ones, are set to launch next year, and there's going to be, you know, interested customers. But I think what was missing is just more concrete numbers

in terms of guidance in, you know, the ramp up, numbers, customers, et cetera. And so that weighed on the stock. The other aspect, which is surprising, is the China bit. The fact that she couldn't quantify when their China sales were going to come back online. Of course, you're reliant on the government for those licenses to send chips to China. But that's something we knew. InVitya warned about that issue. They're saying that we won't see any benefit from China until at least Q3.

So it's weird that that is part of the soft. Maybe it's just more. Expectations were so high. And for a lot of chip names, Dom, going into this earning season, you just saw if they hit the bar, that wasn't enough. And you saw stocks plummet across the board. It's already been a banner year of as well for AMD. Yeah.

Okay. Steve Kovac, Christina Partsenablus, Gil Loria. Thank you guys very much for being here on the show for that massive that we could go on forever on this one. Anyway, thanks very much, guys. Lots more to coming here on the show. Here's what's on the menu. First up, the ESPN zone. a big deal in the sports biz. Plus, the value investors got to a growth market and weighing your

options will explain and dig into all of that when Power Lent returns after this. Welcome back to Power Lunch. Disney out with earnings this morning. The beat estimates with strength in streaming and the parks, but the stock is down 2.5% right now. That just offset some of the TV headwinds that we're seeing. The big headline from all of this today is the ESPN deal with the NFL. CNBC Sport and Media reporter, Alex Sherman, spoke with one of the top executives now. I mean, give us a sense of what this tie-up means for both ESPN and for the league. Yeah, it's an unusual deal because there's no real dollar figure here. It's ESPN selling a 10% equity stake in the business to the NFL for a series of media assets.

So there's the NFL network. And then there's the linear NFL red zone, but not the digital NFL red zone. and there's some fantasy assets involved. So I spoke with NFL executive vice president of media distribution, Han Schroeder, and I asked him, why did you want to do this deal with ESPN? Take a listen to what he told me. I think Bob Eiger said it today. They're not in the linear or the digital business.

They're in the television business. And they do it as well as anyone. And so as we think about the combination and the partnership we announced last night, their ability to take NFL network, take all the aspects of ESPN, and reinvigorate and grow NFL network going forward, make it, you know, the asset we think it should be 24-7, 365. They're so uniquely able to do that. Same with the fantasy business they're acquiring. They'll take RedZone, the brand we've built, and be able to scale that and bring that to other sports. So a couple things.

One thing just at the end there that he said, which is that you can expect ESPN to invent new products. products with the red zone title in it. So think about SEC football red zone or NBA red zone or whatever ESPN may want to want. The other thing is I don't want to be too cynical about this, but you got to figure this is kind of win-win from the league standpoint in that they didn't want to run these assets anyways. So they were able to get a 10% stake in ESPN, which either will be a great investment down the road as ESPN's direct-to-consumer business takes off and reinvigorates ESPN. Or it won't be.

but in that case, they unloaded some assets they didn't want anyways. Have you been able to figure out what 10% of ESPN is about equal to in terms of dollars? Yeah, I asked analyst Rich Greenfield, a friend of CNBC, what his valuation was. He said it was probably about $2.5 billion, so $25 billion valuation. ESPN did a tie up with Penn Entertainment for sports betting. And, you know, like Penn went and rebranded all of its barstool, total failure, barstool stuff to ESPN bet. it still has not worked out the way either company thought it was going to. And, and, you know, the question is, is it because of the Penn side of things?

They're powerhouse in regional casinos. They know what they're doing when it comes to the casinos that people want to drive to and play at. So the ESPN answer, I think, to that would be it hasn't been a fair fight until now, roughly now. On August 21st, ESPN announced today that they will launch its new direct-to-consumer product, which will come with all of these different bells and whistles, including betting and fantasy personalization. That's where they think ESPN bet can finally take off. Through this new $2,99-per-month service that will basically be the first time you can access ESPN programming and not have to pay for cable. So they said, yeah, up until this point, there's been no real reason to use ESPN bet.

But once we integrate ESPN bet into this direct-to-consumer product, then we feel like it might take off. And now it gets the imprimatur of the NFL on top of it. And NFL is the thing. So that's interesting. The other thing I'd be curious about, and we don't have time to go into it now is, I mean, how do NBC, CBS and Fox feel about equity stake in the TV? The NFL is actually going to end up with a small equity stake. stake of CBS once the Skydance Paramount deal closes tomorrow.

So now they'll have a little stake in that company, a larger stake in ESPN. But right, NBC's like, you know, are you guys going to give them preferential treatment? Right. So that might be the rub. Now, of course, the league says, no, of course not. But, you know, to be the current. It's kind of arm's length, but kind of not. Look, the league wants as many

bidders as possible, so it doesn't behoove the NFL to play favorites here. They want friendships across the board. And they want the most money possible. Exactly. All right, Alex Sherman, thank you very much for the discussion. We're going to broaden it out beyond just ESPN now. So we're going to dive deeper into the Disney overall third quarter earnings beat. Robert Fishman is a media at Moffitt Nathanson, media analyst there. He's got a buy rating on Disney and a $140 price target. Robert, I don't

know if you caught much of the conversation that we just had with regard to the NFL and ESPN, but just how important for the Disney quarter was the TV side of things as opposed to the theme parks, streaming, and all the other stuff they've got going on. Yeah, as you alluded to, there is a lot going on at this company. Starting with the NFL announcement last night and all the great reporting here, basically we see this as a big win for Disney and for ESPN, that they get to align themselves with the most important IP out there in U.S. media with being the NFL, and strategically have that partnership for the long term is a really nice win for ESPN and the future of that

asset. It also clearly is a positive for the NFL. But importantly, what we're all kind of waiting for and watching closely is when the NFL likely opts out of their bigger deal, how is that going to have broader implications to your question on the larger ecosystem? we think ESPN is very well positioned with the launch of this ESPN DTC platform, and it just is another step of the pivot that they're making towards DTC for their overall TV assets. All right. Speaking of the DTC aspect of the whole thing, there are a number of different headlines coming out with regard to that kind of DTC distribution type element. I'm referring not just to this NFL and ESPN announcement.

We've got a consolidation and rebranding in the world. here with regard to their streaming video product. Hulu is going to become just an integral part of Disney Plus going forward, not so much a standalone as much anymore, just the programming integrated there. Then you've also got this notion that with the overall picture at Disney, the theme parks are also a huge part of that story as well. So of those three, which of those do you think is the most important to the Disney story for investors in the coming two to three quarters? That's a great question. So what we've highlighted in the importance of DTC and parks as the key drivers for this company going forward, both in terms

of the earnings potential, clearly starting with parks and the stability and growth that we've seen out of parks recently, including this quarter's really strong number. So we expect that momentum to continue at parks, and that at least sets the floor but presents an upside opportunity as the momentum in that business continues. despite some of the competitive pressure from other openings with Epic in Orlando. So all of that being said, we think DTC is clearly the future of this company, as you continue to hear and allude to. And as this company continues to make that pivot into the future of streaming, that's what

investors are going to start to continue to get excited about, really understanding what that consolidated app is going to look like, what the upside to margins is going to lead to, and we think that that can drive upside to earnings potential as the Hulu costs start to get integrated and that really understanding what the revenue upside is from higher engagement with this combined property and then bring back sports into it, again, really aligns with all of the assets under the company. You had written in your note from a couple weeks ago that the shares of Disney were sort of looking like roller coasters, like just up and down and all over

the place. Where do you think shares will go based on the momentum that you're seeing? Like, is the parks, is this experiential part and the direct-to-consumer enough to propel Disney shares significantly higher? We think the answer to that is definitely yes. And again, coming back to upside in parks, continued growth there. They increased their guidance to the upper end of the range for this year after a really strong three-queue number on the domestic side. So the momentum in the parks business, we think will continue to naturally increase the share price, but really what it comes back to is the upside potential on the DTC story. And investors need to have confidence in that longer-term margin story. But really,

collectively, as they think about all of these assets coming together, and we haven't even touched on the studio yet, you know, strong slate coming there. So as all of these things start working together, which they have and why the stock is where it is today, after, you know, bouncing off the lows, we think that the next leg from here is going to continue to go up. All right. Robert Fishman of Moffat-Nathanson. Thank you so much for joining us today. We appreciate your expertise. You know, it's really interesting about this, too, is when you look at Disney parks reporting such strong results. The cruise lines have as well. The big international hotel brands have had a great quarter and they're reporting really promising results. And then you pair

that with, say, Las Vegas, where room rates are soft, where the casinos have not done as well as even regional casinos. And there really does seem to be a divergent tale of haves and have knots and travel and leisure. It's clear that experience is still very important for those districts. discretionary dollars. I think it's about the Disney brand as well, very much so. So we'll see how that plays out contesting. Still to come, we have another major sports player set to report results. We'll dive into that next. Welcome back to Power Lunch. Draft King's shares are moving higher today. Following an upward trajectory, it has seen over the past year, today up almost 2%, but over the past year, up 23% year-to-date and 45% over the full 12 months. Even though the luck has not always been on

Draft King's side, and I don't just mean fan favorites winning at March Madness. State taxes are a real thorny problem. Illinois just passed a punishing rate hike that will hit Draft Kings and Fandul more than the smaller competitors. And so Draft King said it's going to pass on a 50-cent fee on all online sports bets in that state. Will that discourage gamblers? We'll see. Maryland and New Jersey also proposing tax hikes. And then there's an issue of sweepstakes-style gambling, widely available nationwide. Draft King's CEO, Jason Robbins, has told me previously that sweeps enjoy an unfair advantage because they're not licensed. They don't pay similar sports betting taxes, and they don't provide the same level of know-your-customer scrutiny. And then on the predictions

markets, rather than being competition, really, this could be an opportunity. Robinson has said he's interested. And why wouldn't he be really? Because right now, Draft Kings can't offer wagers in California, Texas, or Florida, the most populous states. Predictions could be a workaround if the courts go that way and permit it. Investors may hear about any or all of that on the call or tonight when Robbins joins Jim Kramer on Mad Money. But what they'll really want to know here, Dom, is what to expect for the next couple of quarters. Remember, Draft Kings lowered its full year Outlook last quarter by $200 million at the high end of the range. And the street now expects 15 cents earnings per share on revenue of $1.4 billion.

It's a complicated story for sure when it comes to online betting these days. All right, well, value investors are struggling in this risk-on market. If you're one of them, should you stick with your guns or chase the bulls? Our next guest has some advice on that topic. Keep it right here. Crypto Watch is sponsored by Crypto.com. Crypto.com is America's premier crypto platform. Welcome back to Power Lunch.

Turning down to the bond market, the Treasury's 10-year note auction took place just this past hour. Rick Santelli is following all the price action as well. And Rick, we heard a little bit about it in the last hour, but recap for us and please give us that grade. Absolutely. As a matter of fact, as you look at the... this 12-hour chart. You notice how yields are dipping here a bit? Let's go to that first. Very quickly, it could be headlines about the phone call with Zelensky, the president. There seems as though the Russian scenario, there might be some thawing there. Also, Fed's Cook was out

and a little bit doveish, so you see yields dropping. But the key is, it wasn't a terrific auction. So the two times we traded four and a quarter today was right around 1140 Eastern, which was a big sell hedge, and then right after the auction at one Eastern. Then we started to dip down a bit. And if you look at the chart going back to Jobs Friday, you can see how we've been in a very contained range outside of those little blips today to the upside. Finally, 30s minus tens. It's a spread called a knob.

It's a favorite in Chicago. Maybe you don't trade it, but the fact that it's triple what it was at the end of last year, from 20 to almost 60 implies not only a steeper curve, but stubbornly high long rates. Contessa, Dom, back to you. All right. Thank you very much. Rick Centelli. Let's turn to the equity markets. Value stocks are greatly underperforming growth names. Since the recent market bottom on April 8th, the Russell Growth Index has outperformed the Russell Value Index by more than 20 percentage points

in just the past four months. So how are value investors supposed to survive in this hot, growth-driven market rally? I heard it described as growthy. I thought that was really Great. Joining us on set to discuss is Chris Grissanti, the chief market strategist at MAI Capital Management. Chris, when we talk about value investors, my first question is, should anybody be just a value investor right now? Sure. Well, you define broadly value investing is going where stocks are cheaper than they ought to be. And I think every investor wants that. Right. Of course, and then we argue about what that means. But to be a real value investor now, you have to hold two kind of conflicting ideas in your mind at the same time. One is that a lot of stocks are dangerously expensive, and I think it's easy for value investors to hold that in their minds.

But the second thing is there are factors at work right now that mean I think this market goes higher and then near to intermediate term. And these factors are technical, but they're also fundamental. So my biggest one that I don't think enough people are focusing on is the CAPX by the four big tech companies. companies is going to be about $400 billion in one year. That used to be, you guys remember, that would be the size of a stimulus package that Congress might pass in order to stimulate the economy. So you can't stand in the way in that. You can't be a value investor and say, the market is too expensive.

I'm not going to invest because there's just so much of a tailwind with this stimulus like CAP-X. And there's a number of other earnings things, too, that you've got to play in the game. Okay, so where, given the KAPX spending from the likes of meta, Amazon, Google, and Microsoft, where can you put your money and expect to see some growth in a value play? But you got to stay a value investor. So what I want you to do is go to those sectors that have, you know, the tide is out, like in health care be my favorite one. Because now health care is the lowest percentage of the S&P since the early 90s. So 35 years ago, it was this low and never again.

So what we're looking for there is companies with good balance sheets, good earnings. And you can see we're showing health insurance investing. Right. You're hot on health insurance as opposed to health care? No, I like all of health care, but I have a special place in my heart as a true value investor for health insurance. So just last week, the Wall Street Journal had an article that said, are these health insurers just uninvestable?

And when you start reading stuff like that, you think that's where I want to go as a value investor because, of course, these are huge multibilible. billion-dollar companies. They're not uninvestable. They'll get back on their feet and they're selling it near record low valuation. Is there a difference back in my mutual fund days, they called it GARP, right? Sure. Growth at a reasonable price. What's the difference between a GARP-type trade and pure value investing other than that you're combining more factors into that Well, there's a big intersection of the Venn diagram, but real value investing, we don't care quite as much for growth. For example, Dom, Pfizer and Merck.

are two pharma. They're not growing very much at all. So it's not garpy, but they're so darn cheap. So they're selling it sub 10, you know, eight, nine times earnings. They have yields of four or five, seven percent for Pfizer. And all they need to do is hit one or two good drugs. We can sit there and clip the coupons while we wait. Or if the market turns over like it did in the first quarter, these stocks were the best performers of the entire market. So that's where we go. What's a value trap then? How do you avoid that when you say, hey, you know, this is so cheap, but it stays that way for a long time? Sure.

So that is, that separates the men from the boys, as they used to say. So I think what you do there is you find, are the cash flows good? Are the balance sheets good? And the value traps only kill you if they really go down. So what you want, the dirty little secret of our business is not who gets the stocks that go up the most. That's exciting. That's good headlines. but the ones that avoid the ones that go down a ton when things get more difficult, much more

difficult than they are today. And a good value investor should be able to do that. Chris Cassanti at MAI Capital. Thank you so much. Thanks, contestant. All right, let's get over to Christina Partsenevilus for a CNBC news update. Hi, Christina. Hello. Ukrainian president of Zalinski, sorry, says he's held a phone call with President Trump and European counterparts moments ago. It came hours after U.S. envoy met with Russian President Vladimir Putin in Moscow. Zelensky said, He reiterated his call for Russia to end the war in Ukraine. Meanwhile, President Trump said Whitkoff and Putin made great progress in their meeting,

but that secondary sanctions on Russia are still coming on Friday. President Trump has said that the sanctions will take effect unless Russia agrees to peace in Ukraine. And Major League Baseball is about to get its first female umpire. The League is calling up Jen Powell for this weekend's game between the Miami Marlins and Atlanta Braves. She will work the bases for Saturday's doubleheader. Powell has previously. worked with MLB spring training games as well. Dom, back with you.

All right, thank you very much, Christina, Parts of Nebula. For that up next on the show and outside the boxway to hedge the markets. But first, as we head to break, President Trump's tariffs remain in uncertainty for various sectors. Here's how one industry is handling them.

People are generally using old, uncomfortable, low-quality camping gear. So our first product is a portable chair that we developed over multiple years. So we've been growing really rapidly the past two or three years, almost doubling the business every year. Our plans had been to double the business again this year. About a year ago, we started moving out of China and into Cambodia.

There was a 0% tariff on goods coming from Cambodia, and so we took on a lot of debt in order to make that manufacturing transition happen. This year on April 2nd it was announced that there would be 49% tariffs on Cambodia and we were actually in the middle of our first production run with our new factory. We called up our factory literally that night and said stop production. We cannot afford to bring our own products into our own market. But we managed to scramble to complete that first production and get that product into the US before the end of the 90-day window.

It was at considerable expense that we managed to get it here in time. So we have a small amount of inventory that we're selling through right now. Once we're sold out of that, probably in the next few weeks, that'll be it. We've taken on additional debt over the past 12 months in order to make the manufacturing transition out of China. And so we're on the line for all of this personally. It's a very, very difficult situation. Welcome back to Power Lunch. 2025 is on track to become the six straight year of record options activity.

With Options Clearing Corp data showing that contract volumes more than doubled since 2019, last year the Options Clearing Corporation cleared 11.2 billion contracts, a rise of about 11% on a year-over-year basis. While Options Trading can be lucrative, it comes with inherent risks as well. So we have an expert here, all set to explain the best strength. strategies to limit losses, trying to maximize returns at the same time. So joining us now for more on the options straight is John Borrello, senior portfolio manager for the Invesco Global Asset Allocation Team. And John, thank you very much for being here. We talk about options quasi

regularly here. So people are familiar with them. But the reason why we want to highlight them now is because we are entering a seasonality tumultuous type period. We have a lot of headline risk out there. But an option is a option. market that doesn't seem to be reflecting those risks at all. Can you take us through why the options market is relatively cheap given all of the risks that we are seeing? Yeah, I mean, you said there's a lot of attention on the options market. volumes have absolutely exploded in the last several years. But the VIX is back down to kind of the 16 level. It had that jump in April when we had, you know, obviously a lot of volatility in the marketplace. But I think one of the aspects that's under the

of the level of volatility that we're seeing is correlations. So, you know, we have a lot of uncertainty in the marketplace. Investors are parsing through the equity market, stock by stock, sector by sector. And that's causing stocks to zig and zag. You have, you know, some, you know, winners are going up, of course. The losers are going down. And that offsetting activity is suppressing volatility. So one thing that I watch is the CBO correlation index to view this.

it's now in the teens. It usually lives in kind of the 40s and 50s, and during a period of crisis, it'll jump into the 90s to give you a sense of how, you know, when stocks are under stress, they all move together. Right now we're seeing the opposite of that, and I think that might be suppressing volatility. So this is the value at. There is a divergence. There's a disturbance in the force, so to speak, and there's a chance for investors and traders to take advantage of it. How exactly do they take advantage of an environment? Like you said, that doesn't happen very.

often and is making options prices extremely cheap compared to where they have been historically. Yeah, well, look, you know, with that increase in volume that we're seeing in the options market, a lot of that is speculative. So we're seeing a lot of kind of lottery ticket buying through calls on some of the more meme stock names. And that type of speculation, you know, that those can be good trades, but we really think the options market is ripe for the other major use case, which is risk management. We think of risk management with options. options in really two main buckets. There's option income strategies where if you're not using leverage, you know, things like covered calls or cash secured puts can be a beneficial way to

stay invested in the equity markets, but take risk down and add a source of monthly income that's not interest rate sensitive. That's one way to reduce risk. The other way is through hedging strategies. So, you know, buying protection like you would buy insurance on your car or your house, that's another way to kind of reduce risk in a way that's not reliance on future correlations. And given the level of suppressed correlations we're seeing today, if you do start to see those correlations pick up again and stocks move together, you should see a nice jump in option prices for hedgers at least. So what are you looking for? Give us sort of a checklist of if you're going to use this like you would use insurance for hedging your risks and covering your

risks. What do you need to look for? Yeah. So I mentioned two different ways to manage risk with options. With option income strategies when you're a seller, we tend to look towards the shorter dated expirations. You know, options are expiring assets, and so their value decays like an ice cube through time. When you're a seller, you can put time on your side by staying closer to the expiration dates. The opposite is true if you're hedging. So if you want your hedge to actually maintain its value for longer, You can buy a longer dated put, for instance, to try to protect from a market drawdown. All right. John Borrello, thank you very much for the option strategy.

Appreciate it. And stick around. We have lots more power lunch next. All right. Before we go, we want to highlight a few of the companies that are reporting earnings in the next 24-hour cycle. Airbnb results are on deck after the closing bell. Investors are watching whether strong summer travel demand can keep powering growth at that company. The stock has been pretty flat over the last year.

Shures are down just about maybe 1% in that span, but down 20% from its recent 52-week high. Also, Eli Lilly reports tomorrow morning, with investors watching closely for updates on demand for its blockbuster. What else? Weight loss and diabetes drugs. Mungaro, Zepbound. That stock is down about 5% this year,

and if that continues, it would be Eli Lilly's first annual decline in roughly eight years. But the reason why we're showing you that chart is because Novo Nordisk has been way worse. Way worse, yeah. And AIG reports after the bell as well. We are watching here commercial property insurance rates beginning to decline somewhat, but casualty rates. I mean, that's liability insurance for businesses going up. The cost of lawsuits and sky high settlements and verdicts continue to plague the insurance industry.

That's a real factor here. Macro uncertainty is creating both opportunities because, of course, clients want more protection against the headwinds. And then there's a headwin for insurers where the clients can no longer afford the insurance. They've just hired the CEO of Lloyds of London to be the president at AIG. So that perspective could come in very handy amid all of the volatility that we're seeing around the globe. AIG shares up year to day. I'm just looking right now about 9%. Well, what's curious, too, is for many of these reports, what we have seen are some of these expectations being lowered going into those reports. And it's kind of interesting we had the options

segment on just now. One of the things I also noticed is that the options market can price in certain outcomes, expectations. But for many of these reports that have come out, when the stock moves, it moves by significantly less than what the options market had been implying. So there's an interesting dynamic at play there as well. And we can keep an eye on that. For sure. All right. Well, thanks very much to everybody for watching Power Lunch today. Contessa, it was a great show. It was great. Thank you, Dom C. Tomorrow, closing bell starts right now.