Power Lunch - Can Apple save the market, hunting for value and the auto dealership trade 10/11/22

Episode Date: October 11, 2022

Can Apple save the market? What the charts are signaling about the stock’s next move. Plus, we’ll speak to a veteran investor who’s hunting for value and buying stocks he says are too cheap to ignore. And, if the car market is normalizing, what happens to auto dealership stocks? Hosted by Simplecast, an AdsWizz company. See https://pcm.adswizz.com for information about our collection and use of personal data for advertising.

All right, welcome everybody to Power Lunch, along with Melissa Lee. I'm Tyler Matheson, and here's what's ahead on a very busy Tuesday. Stocks are rising in afternoon trading for the most part, rebounding from earlier losses. We are tracking the turn as the S&P attempts to snap a four-day losing street. And can Apple, Apple, do what it's done so many times before, and that is save the market. The stock reversing course this afternoon heading just a little bit higher, but it remains 9% off its 52-week low. Where might it go next? We're going to look through the charts to see if they are signaling a breakout or Melissa, a breakdown. Yeah, Tyler, what a day it has been.

Stocks racing earlier losses. The Dow had been down 129 points. The S&P 500 bouncing back after touching its lowest level since November of 2020. The levels are very important here. Right now, we're just about 13 points of the session highs for the S&P 500, and we're up by 4 tenths of percent. But keep in mind, the trajectory of the move today out of the gates, an hour into the session, we hit session lows. That's approximately when the 10-year yield hit its highs, that exact moment, also when the dollar index hit its highs. Once we had the 10-year

yield roll over a bit, we had the S&P 500 as well as the Dow moving higher. The NASAC, though, still struggling under the weight of the semiconductor index, which is down by more than a percent today. Amgen, meantime, the best performing stock in the Dow held by an upgrade to an overweight Morgan Stanley, an analyst citing the stock's defensive nature. Staples, the best performing sector in the S&P 500, led higher by Walgreens Kroger as well as Klorox, up by 3% plus. And as stocks rise this afternoon, bond yields, as we mentioned, falling the 10-year yields, pulling back after approaching that 4% level overnight. So is this part of the reason why stocks are rising?

Let's get to Mike Santoli at the NYS. And Mike, I feel like we are living in the bond's worlds right now. We just have to see what they're doing and then we react. That's absolutely right for the moment anyway. And perhaps indefinitely, that is it. Equity rallies operate pretty much at the permission of the bond market. Now, it was mostly an overnight move hiring yields. Remember, the cash bond market was closed yesterday. And a lot of folks were pretty much bracing for a spike hiring yields based on what global yields had done, based on what some of the Treasury ETFs had traded at yesterday.

And when we didn't get that, it seemed like there was some softening up on the yields. It left the stock market clear to perhaps find some traction at a, for me. familiar spot. Past two days, S&P's gone down below 3,600, two or slightly below the prior lows, which was only a week ago Friday. So we've been kind of hanging around and testing the lows for the year. It did not really find a real impulse to go lower, a break for the exits. And so we're bouncing. Why? Market's been certainly a bit oversole, defensive positioning after a very weak third quarter and rough go at the end of last week. And you have the CPI number on Thursday. Clearly everyone's anticipating it. I don't think today's action says people are as soon as

it's going to be a benign number, but you just want to be in a neutral spot, maybe don't get too negative ahead of a big catalyst. And certainly some of the Fed speak was mildly reassuring from Vice Chair Brainer yesterday that the Fed might be a little more flexible than previously feared. I thought, Mike, though, that the Mester comments today seemed a little bit hawkish. And I was surprised that the markets were still able to sort of lift a little bit higher, even despite what she had said, which is basically that monetary policy would remain restrictive for a very long time. No, that is exactly true, Melissa, but the way I would read it is that's been the message. That's been the baseline message coming out of almost all Fed speakers, including from Loretta Mesta in her prior comments. So what you're looking for is the turn or a little bit of the moderation of that message.

And perhaps you got it in the vice chair last night. I don't think we want to make too much of it. This is all perhaps scrutinizing it a little too minutely. But I think that's the reason that the market was able to take heart in one set of comments and more or less look beyond the more recent one. All right, Mike, thank you very much. Let's turn now, shall we, to the technicals of the market with the S&P just above the key $3,600 level.

I thought it was $37.50. Now they say it's another key level, $3,600. Whatever, leadership stocks like Apple and Tesla, they are just off their 52-week lows. Dan Fitzpatrick is founder and chief market analyst with stockmarketmentor.com. Dan, welcome. Good to see you, sir. My notes, my- Thank you for having me.

Oh, we're delighted to have you here. Though I'm not delighted to quote what you say in my notes, and that is that the S&P can fall another 20 percent, and that may not happen until the third quarter of next year. That's next summer, Dan. I can't wait that wrong. I don't want this to happen. Give me your thesis. Guess what?

Guess what? I'll start with the good news first. Okay. Markets anticipate the end of a recession. We've seen that before. and there's always good stocks to buy during that time. In fact, it sounds kind of counterintuitive to say it. But I think that trading and investing can actually be easier in this type of market.

You know, as long as you temper your expectations, and what I mean by that is most stocks are crap. Most stocks are falling. Can we quote you on that? That's really a good one right there. Most stocks are crap. Yeah. Most stocks are crap. Okay.

So you have a very, very small pond where you need to fish. And the most, the easiest way to sort this out is to, if a stock's not above the 200 day moving average, then you don't see it. Because if you're buying it lower than that, you are not on the side of institutions. So, you know, I don't want to get too far off track. But that would be my optimistic advice is don't give up on the market. Just make sure you're covering your risk right now. and keeping some powder dry so that when we do see an improving market, and we will, just not now, then you're able to invest. I want to get to some stocks that you don't think are crap, number one. But before we do that, I buy the idea that the market always moves in anticipation of the end of a recession. I know you're saying we're not seeing that in the market now. That's not what the market is reacting to today or on these brief periods of flurries. But we can't even agree on whether we're in a recession or whether one is coming or not.

No one seems to know. Well, I think a lot of people know they're just not saying it. I just go back to the basic definition, you know, two quarters of negative GDP. That's a recession. We're in it. You look around and, you know, no. Nobody that I know is rolling in the dough saying like, oh, my gosh, I got to do this, I got to do that.

I see it everywhere where people are a little tentative. And maybe that's just from the news flow. But I think there are deeper things going on here with the Fed funds rate, the way they've jacked it up by, I mean, people talk about like, oh, they've only raised it 3%. No, they've raised it 80% from 0.25. in a very, very short period of time. So that's a problem. And just in general, think about this, Tyler.

The last couple bare markets... 80%. They've tripled it or whatever they've done. I mean, it's well over a triple. It's just been madness and not to editorialize too much, but the thing I hear is, well, the Fed has to do this to maintain their credibility. And that's assuming the Fed has credibility. They're always late, and this is the case here.

it's really just kind of too much, too fast. But everybody says that. But just technically, you know, this market is broken. Let's get to, boy, you're giving us a lot. You're giving us a lot today, man. I love this. Let's get to some stocks. I'm bringing my A game.

I love that, man. Let's get to a couple of stocks that most people would think aren't crap. I don't know whether you think they're crap, but I'm just fixated on that word, by the way. Apple and Tesla. At least I didn't say something else. No, well, yeah, it's cable, man. It's all right. FCC isn't watching. Tesla and Apple, you do not see them as the saviors, the Clydesdales, that pull this market out of its ditch.

You know, I really don't, and I hear people talk all the time. I've heard several people on CNBC lately talk about Apple. Not necessarily that Apple's going to be the savior, but you really got to watch Apple. Apple's holding up the market and all that. And I understand that, but it's really not. It's underperforming right now. It's outperforming two-thirds of stocks, and that's fine. But it's not really outperforming even the S&P anymore. It's rolling over. And I don't know if you're able to show this chart of Apple versus the 200-day moving average or the 40 week. But it tests that several times. And now it's fallen below that, and this is a classic topping pattern. Also,

here's the historical data here. On big leaders, and I would say Apple's one of them, and think about Tesla in this way too. Once a big leader breaks down, 80% of those leaders historically fall at least 50%. And 80% of those, or half of those, I should, say fall 80%. And you can look at, not to pick on Kathy Wood, but you can look at ARC as an example. That was a huge high wire. And it's just imploded. But the point is when the institutions start exiting and the retail buyers keep buying, that's atop. And that, in my view, is what we're seeing with Apple, for example. The fundamentals are deteriorating. Got to leave it there, Dan. Dan, you can come back anytime. Thank you.

Okay. Appreciate it. Bye. Thanks, Tyler. From technicals to fundamentals, our next guest, isn't recommending selling stocks in this market and said he is hunting for value. Sirat Sethi is managing partner and portfolio manager at DCLA. He's also a CNBC contributor. Sarat, always great to speak with you.

I want to pick up on a thought that our previous guest had, and that is that all stocks are crap, which I think I'm going to embroider on my samplers, which I'm going to give out for the holidays, in case you're wondering what I'm going to get you, Tyler. Thank you. It is all stocks or crap. And I want to start off one of your first stock picks, and that is Comcast, because the basis for that statement is that stocks are moving lower.

There are a lot of stocks out there that are just moving lower. In Comcast, and I say this sadly because it is a parent company of our network, has had that sort of chart for two years. And yet you say you find value in it. Why? I do for a bunch of reasons. One is, I mean, if you look at the valuation here, Melissa, it's trading at eight times earnings. you're getting a 3.5% yield. It is, you know, it's a public company, but with a strong family ownership, and that's something we always like. And then when you look at the sum of the parts,

this is a cash flow machine. 80% of the business comes from cable. Yeah, things have, you know, pull forward in the pandemic, but that is a high margin business that has pricing power into it, especially that as more people have, you know, working from home or working from the office, so you've got that business. And the negative aspect, there's no question. There's the reason the stock is down 40% is, look, at some point, people are looking at now NBC Universal are looking at theme parks, and that's slowing down. But you're getting paid to wait on this at eight, eight and a half times earnings with a very solid balance sheet. There are a few triggers that Comcasts can pull. I mean, they can look to buy more shares. They can look to do other

acquisitions. They can look to, you know, break up some of the parts of the ownership. So the market trading in 15, you've got a stock trading to almost half as much and is totally out of favor. that's a true value play with the strong balance sheet. Yeah, the balance sheet really allows those other options to be true options to ride it. And I just want to ask, you know, for the dividend, because we did put that up as a reason to be in Comcast stock, 3.6% sounds good. But in light of a 42% decline in the stock shares, that's not really going to give you much solace at the end of the year here. So how do you sort of weigh that in? How do you view the dividend yield?

It seems like it shouldn't be necessarily a factor. No, it isn't, but it starts to be growing a floor, especially when you get to be, three and a half percent. I mean, at that point, there's a floor, especially when it can cover its cash flow. So I think that is something really important to look at when you buy companies like that. And, you know, if the stock goes down further with so much cash flow coming out, I mean, over $40 billion in cash flow, they can buy back a lot more shares. I want to get to Uber, Sarat. Are you in Uber already, or are you looking to get in or did you get in today on the back of this report that the DOL is looking to make it more difficult for companies to reclassify

independent workers as contractors? Sure. So full disclosure, we've been in it for a while. We've owned it for a while. We've written it all the way down to the teens. And now when you get this news today and you look at it and Melissa, you look at this news, there's nothing new here. This is exactly what happened under the Obama administration. The states get to decide what they want California. It's already in the past ruled when they had a huge referendum. If you look at the kind of the data, you know, 50 million workers have said, hey, we want, to be independent. So a lot of this is just not real news, but it's interesting as if, you know,

why is this coming out one month before elections? So it's unfortunate because sometimes some of this information comes out when it's not really relevant to the fundamentals of a stock. I mean, Uber by itself, most people don't understand the story. It's really three businesses now that are cash flow positive. And really, the beauty of an Uber is the driver gets to choose, whether they want to do mobility or that they want to do food delivery. That's something very unique amongst Uber and they've said, and they have been cash flow positive for the last three quarters, and they are intending to be cash flow positive

going into next year as well. All right. Sirah, great to speak with you. Thank you. Thank you. Sirot Sethi. All righty, coming up, rising used car price is a major contributor to inflation over the past year, but that's turning just a bit, and it could lead to a

new way to trade the auto dealer stocks, plus mortgage rates, back above 7%. A new report shows they're not only more expensive, but also harder to get. And before the break, take a look at the ARC innovation ETF, well off its lows of the session.

More power lunch in two minutes. All right, welcome back, everybody, to power launch ahead of Thursday's CPI report. We take a look at auto prices, which had been one of the biggest contributors to inflation. According to car gurus used, wholesale prices are coming down. We reported something on this last week, falling 2% in September. New inventory.

New inventory is up 52. percent from last year, though still below pre-COVID levels. Yeah, you go to lots. You do not see as much inventory as we used to. If the car market's starting to normalize, what does that mean for the auto dealer profitability for names like Group 1 automotive, Sonic, Auto Nation? Daniel Imbrough is managing director at Stevens. Daniel, welcome. Good to have you with us. What do you think here? I was on the phone earlier today with an auto dealer, and they didn't have much, a new car, looking for a new car. They didn't have much inventory, particularly in the high. hybrid area, they don't have a lot.

Yeah, good afternoon, Intel. Thanks for having me. You know, you're right. Inventory on the new side is still very limited. And while we're starting to see some signs of use prices alleviating, you know, we still think we're a couple quarters away from new production, materially building enough to where inventory starts to build on lots. And, you know, that's part of the reason we actually think the auto dealer stocks can

work because while inventory has been like, what it's led to is a much higher per unit profitability. And I think as OEM production, slowly ramps and improves, you know, that elevated profitability can last year in the near term. It's very interesting because I was going to ask you sort of basically that. I have another friend who's in the automobile business. So we're not selling nearly the volume in units that we used to sell, but we're making more money than we ever have. Yeah, that's exactly right. I mean, if you think about the historical car purchasing process, you know, you're used to going in and

negotiating some amount off of sticker price. and essentially over the last 12, 18 months, you haven't been able to do that. And so the dealers themselves, exactly what you said, selling fewer units, but making much more per unit. And overall, it's actually been an increase to profitability, which is part of why the stocks multiples of compressive. Nowadays, it's how much less above sticker price can I get in many cases? It's exactly right, especially on hard-defined models you're going to find above MSRP

and especially the independent dealer laws out there. How do you start thinking about the recession and a, in a, pullback in consumer spending, Daniel. I mean, I would imagine that consumers who are looking for cars might be more apt to go and buy a used car instead of a new car. But are you concerned at all that there's going to be an upswing in inventory at exactly the time when consumers pull back. So there's a bit of a push pull there. Yeah, well, it's a great question. And kind of the key for investors right now, the key focal point. You know, I think it's a risk in to next year, but I still think we're undersupplied enough on the new side that we're not going to hit that fulcrum until at least

the back half of next year. We're really a sea supply meet demand. On the U side, there's no out, though, to your point, we're seeing consumers spending pullback. We've seen it much more distinctly at the used-only retailers. So out of our coverage, CarMax and Carvana or two that don't have the new side. So we've seen demand pullback without maybe the offsetting profitability from the new vehicle piece. But in our opinion, there's enough between a few things, really pent-up demand. That's both consumers, also rental car agencies. I mean, you had the stat, you know, inventory or prices were up last year. Biggest driver of that was actually the rental car companies at auction buying cars.

You know, over the next 12 months, there's still a lot of pent-up demand from those fleets to turn over and kind of become younger again. And so I think there's enough demand for new vehicles that we're not going to quite see that inventory build as much as people fear, especially with the ongoing supply chain issues, whether it be out of Asia and China, whether it be across Europe with the energy crisis, I think there's still some global disruptions that are going to continue in the near term. If you had, if you, as you go through and you look at the car dealership stocks, are there one or two that you like markedly more than others?

Yeah, it's a great question. There are, I think broadly for the group, we lean more positive, but our favorites in the group, you know, all year has been Asbury, tickers ABG. What we have here is a fantastic, really cost control story. The management team has been great executors and capital allocators over time through COVID. They bought really three assets and from our industry contacts, they probably bought the three strongest assets that were bought during COVID. I think it's made their asset, their earnings power stronger over time. And I think, you know, they've paid down a lot of debt off the balance sheet. They finally have the free cash that they can start reallocating capital back towards shareholders.

There is, they do have some Florida exposure since that could be a bit of a near term, just disruption with Hurricane E and down in Florida. But I think longer term, that remains one of our favorites. Another one we've been highlighting more near term has been group one. You know, it's a dealership model that historically the ownership in Brazil and Texas have been overhangs, but they've divested Brazil. You know, Texas right now is actually a very strong economy for them. And the stock's trading at its 20% free cash flow yield on next. which year's numbers, which already assume profitability begins to normalize next year. I think of this valuation, that that's another one that in the near-term investors could put money

to work today. Wouldn't the UK be an overhang for Group 1, though? They've got a sizable share of the market there. It's a great point. And it is. And it's definitely an overhang on the group. I don't think the multiple fully closes that gap, but I think it's more than discounted today. The other piece is the UK for these guys is vastly premium luxury.

So as you think about that consumer, who's buying a new Porsche or new Mercedes or Rotari, much less, I think, discretionary or much less impacted by the inflation we've seen. It's more fluent customer base over there. All right, Dan, thank you very much, Dan Imbrough of Stevens. We appreciate your time today. Thanks so much. You got it. Ahead on Power Lunch, laying the cards on the tables.

Money is pouring into gambling and sports betting, but those stocks struggling this year. Some down anywhere from 20 to 50%. We'll head to Las Vegas and hear from the Penn Entertainment CEO. Plus, today is Working Lunch. we're highlighting the CEO of a pharma giant, Sanofi, about using AI to advance the industry. Power Lunch, be right back. Welcome back to Power Lunch. I'm Frank Holland.

Here's what's happening at this hour. Ukrainian officials say they found a mass grave in the newly liberated town of Liman. The regional governor says they found the bodies of 55 civilians and Ukrainian soldiers. Some of them were children. Israel and Lebanon have reached a historic agreement over their shared maritime border.

The deal could pave the way for natural gas exploration and also reduce tensions between the two nations, which have been formally at war since Israel's establishment back in 1948. And Royal Watchers, Marker Calenders, the coordination date for King Charles has been set for May 6th of next year. Details are scarce about the ceremony, but Scott News reports it will probably last just about an hour, far shorter than the three-hour event that installed Queen Elizabeth back in 1953. Also, the guest list will be smaller, with only 2,000 in attendance instead of the 8,000 people invited

to Queen Elizabeth's coronation. That's the very latest. Back over to you, Melissa. Guess I won't be looking for the invite. Frank, thank you. Frank, Holland. Let's take a look at chairs of Penn Entertainment, the stock losing nearly half of its value so far this year.

The company's CEO, among the big names gathering in Las Vegas this week for the Global Gaming Expo. Our Contessa Burr spoke with them. She joins us now with the interview. Hi, Contessa. Hi there, Melissa. Yeah, commercial casinos are just on a hot streak, though. That just off a record setting August, gaming revenue up 9%. over the previous August.

And according to the American Gaming Association, that the gaming CEOs say that they are watching for the same things, the same challenges plaguing other industries. They're looking at inflation. They're looking at supply chain issues still. And, of course, interest rates are top of mind. I asked Penn CEO Jay Snowden, how he's approaching 2023. So for us, it's about prudent capital management, staying liquid,

making sure that we can put capital into our properties, even when things appear difficult, just as we did in COVID, by the way. We're here for the next 50 years. We think about things for the next 50 years. And so we have that luxury. That may result in some volatility in the stock. I can't control that.

All I can do is think about the next generation of this business, and that's what we do every day. Snowden also says the illegal offshore gambling market is an existential threat to the legal industry. And he says law enforcement regulators and companies, they just got to band together to fight it. The AGA's research guys shows that Americans spend $300 billion annually, new numbers out from the AGA this morning,

on illegal and unregulated sites and machines. That's a massive cost in terms of tax revenue, but also when you think about all these operators investing in getting licensed and know your customer, and they just lose out on that to those competitors who don't have to go through the same regulation. All right, Contessa, thank you very much. Great to see you out there in Las Vegas. Ahead on Power Launch problems at home. The rate on the 30-year fixed mortgage climbs past 7%. And now new reports say credit availability could be declining, even as rates are rising. We'll bring you the latest.

Plus, data stock mining. We're picking through some of the big calls today in the cloud space and trading them in our three-stock lunch. We'll be right back. 90 minutes left in the trading day. We want to get you caught up on the stock market. Stock commodities bond yields and the impact yields are having on the mortgage market. Let's start off with Bob Bassani at the New York Stock Exchange, where things have turned around significantly since this morning, Bob. Yes, and there's a number of reasons for that. The most obvious of which is that we are moving in lockstep with bond yields. I'm showing you the TLT here.

These are prices on long-term treasury versus the stock market, the S&P and today. Look at that. That's a pretty good relationship. So the bottom line is we yield. This is the opposite here. Yields essentially topped out around a little after 10 o'clock. And as the yields started moving down, prices up, the stock market started lifting. So we're moving in lockstep essentially with bond yields. When bond yields start moving down, the stock market starts moving up. And that's the simplest way to understand this. A couple of other stock specific stories happened. I think were important. Uber was a terrible mess this morning. It was a lot of talk about change. in the gig economy affecting Uber, it bottomed out.

Around the same time, the stock market bottomed out, it started rallying as well on a fairly significant volume. Then after the market closed, Melissa, we had a very interesting development. LVMH, the biggest luxury goods maker over in Europe, actually reported their sales numbers, and these numbers were way better than expected. Organic sales up 19%, these organic sales,

that was way better than expected. Fashion and leather goods, which is really two-thirds of the business, up 24%, again, way above expectations. Wine and Spiris, famous champagne house there, up 14, and watches and jewelry, up 16%. One thing really interesting, and LVMH is still down on the year, but outperforming most of the rest of the European stocks. One thing very interesting, sales over in Europe, up 43%. I had to read that twice, 43%. And they attributed this, Melissa, to Europeans, excuse me, to Americans going over to Europe buying massive quantities of luxury goods due to the weak dollar.

Of course, we saw some amazing stats with the British pound, for example, almost reaching parity with the U.S. dollars, the euro reaching parity as well. And that apparently a big boost to LVMH. Melissa, back to you. Sorry, Bob. Thank you, Bob Pisani. Oil closing for the day falling back below 90 bucks a barrel. Let's get to Pippa Stevens at the CNBC Commodity Desk. Pippa.

Hey, Melissa, oil is falling again today with two factors driving those declines. First is another round of lockdowns in parts of China. A rebound in the country's demand has been a key part of oil bull's optimism, given that China is the largest crude importer. Second is those broader recession fears, which have been weighing on oil over the last few months. Let's check on prices. WTI at 8910 for a loss of 2 and a quarter of a percent. Brent crude right around $94 down about 2%. Natural gas, though, is higher after yesterday settling at its lowest level since July. Last week saw the second largest gas build since the EIA began tracking the data more than a decade ago. So fears around a possible shortage have somewhat abated. But we are currently in shoulder season with a ramp up coming as temperatures drop.

Looking at stocks, oil and gas names are higher while clean energy stocks are in the red. One notable decliner is sunpower falling after Bank of America cut the stock to an underperform rating. Melissa? PIPA thanks. Pippa Stevens. Now to the bond market where yields are pulling. back. Rick Santelli's at the CME watching all of this action, Rick. Yes, yields pulling back and certain yields actually pulling back below unchanged. Those are the

shorter maturities like threes, twos, threes, five, sevens. They're all a bit lower in yield, a bit higher in price. We had 40 billion three-year note auction today. I gave it a below-average grade. No sponsorship by investors, despite the recent run-up in yields. Hey, we can all think what Bob Pisani said. Stocks. They're following each other. Remember the third and the fourth of October? Those were big stock days to the upside and yields move lower. Matter of fact, they had an interim low on the fourth.

So let's start our two-year note yields on the fourth. They were hovering around 4%. And even though they're a bit lower today because they settled a whisker above 430, you can clearly see they've covered a lot of ground in a short period of time. Let's look at a two week of 10 year. You know, this is very interesting because if you look where they were right around the third and fourth, the third and fourth, they were hovering in the 350s. So you can clearly see that you turn that longer dated treasuries have had. And if you go overseas, well, let's go to September

1st for GILTS. You know, GILTS were hovering around 386 on the fourth when we had that interim bottom. You can see how GILTS came right back, hovering right below 4.5% as the Bank of England is forced to continue quantitative easing, buying to continue to try to control the run-up and rates. And finally, here's the dollar index. They're around one 10-ish on the 4th of October. Boy, did they follow rates higher. So it's the dollar rates and stocks all moving to the upside. Of course, when yields don't get out of hand. Melissa Lee, back to you. Rick Santelli, thank you. And the moves on the bond market, of course, impacting mortgages, rates on the 30-year fixed back above 7%. If you could even find a mortgage,

Diana Oleg has been looking at that story for us, Diana. Well, that's right, Melissa, it's really a double whammy right now for would-be home buyers. The average rate on the 30-year fixed crossed over 7% at the end of last weekend, just kept going higher today, hitting 7.14% according to Mortgage News Daily. That's the highest level in over 20 years. Remember, we started this year right around 3%. Now, we've seen the refinance market decimated with those applications down well over 80% from a year ago, according to the Mortgage Bankers Association's latest report. applications to buy a home down 37 percent. And to make matters worse, it's now even harder to qualify for a loan. Mortgage credit availability fell in September for the seventh straight month, down 5.4 percent from August, according to the MBA's index. It's now at the lowest level since

2013 when the housing market was still recovering from the financial crisis. And while lenders are desperate for business, given the drop in demand, they're also concerned that a weaker economy could cause an increase in mortgage delinquencies. They therefore have a smaller appetite for lower credit score borrowers or any riskier loan programs. That said, there is now more demand for adjustable rate loans, which offer lower interest rates, but which are considered more risky, of course. So I guess I'm understanding you correctly here, the drop in so-called mortgage availability is directly tied to the idea that the mortgage lenders are pulling back. They don't want to be exposed to less credit-worthy borrowers.

Exactly. They're concerned about rising delinquencies, even though delinquencies are sitting near record lows and are even around lower than they were pre-pandemic at this point, but they are concerned that should those start to rise, they don't want to be exposed to more risk. All right. Diana, thank you very much. Diana Ollick reporting. Up next, today's working lunch, Mr. Ford, John Ford, bringing us his interview with the CEO of Sanofi. And throughout Hispanic Heritage Month. We celebrate our CNBC teammates and contributors. Here's Jose Seale, Restaurant Brands CEO. I think the story of the Cuban immigrant is not well known. It's a pretty

compelling story of difficulties, challenges, leaving everything behind, not for economic reasons, but for political reasons. For example, my mom came as a 14-year-old. She had to leave everything behind, became a very successful educator later in life, became a PhD and taught in universities. And like that, there are many other examples of very successful Cuban immigrants. And so I think the story is one of the challenges that were overcome because of perseverance, because of grit, because of optimism, and because of a tremendous work ethic. I can't read anything yet. All right.

As economic conditions tighten, business leaders are focused on using, technology to provide an extra bit of efficiency, maybe a competitive edge. This week, John Ford brings us up close with the CEO who's working to apply artificial intelligence in the pharmaceutical business, John. Yes, Tyler. Paul Hudson is the CEO of Cinoffi, a $100 billion roughly market cap pharma company based in France. He's not a scientist. He earned a degree in economics and learn to collaborate in teams and empower the scientists to pursue better solutions. He says that even when he was in college in Manchester, he was eager to get to work.

Like everybody else, I was trying to make ends meet. I mean, the reality was I also worked nights at a gas station, you know, trying to make sure I could cover my costs. You know, it's okay. I spent the summer's digging holes on construction sites to make sure I had enough cash for the following term. I mean, I did stuff that most people do. And to be honest, I feel now I'm better for it for having had those experiences. But I was, I did them willingly. And, you know, it was a good time to be around.

smartphones. So, you know, it was, everybody was very present all the time. And no, I, I enjoyed my time at college, like I said, but I was, I was happy to get working. And now under his leadership, Sinoffi is working on ways to use software to give it an edge in a business defined by long shots. The hope is that advanced analytics will help scientists figure out characteristics of the patients most likely to benefit from drugs in development, boosting the odds of approval. When you start off with the drug in, you know, let's say it's eight, nine years from launch, you've got maybe a eight, nine, ten percent chance that it will work eventually. And that rises to like 65 percent when you're in the last clinical work in the last two or three years.

Only 65, right? Not 100. And what we believe is using AI, we can't change the, we will change the structure of the drug. Chemically, that's other work. But let's follow this example. we believe that using big data, we can improve our chance of success by finding patients of a profile that will disproportionately get a benefit. And that's good for them. It's good for governments who want to invest wisely every dollar or dime.

And it's good for us because it means that it's a success. But we're not trying to go from will it work or won't it work. We're trying to just stack the deck in favor of the patient. and, you know, and that's four or five, six, ten percent. It's not more than that. But that's okay. Managing those percentages. He's based in Europe, so I also talked to him about the economic instability that's come

from inflation and the war in Ukraine. He said there's the potential for enterprise technology to amplify workers' impact and help people get creative and save energy during what's expected, guys, to be a challenging winter. When he's talking about using AI to better the odds of the drug actually getting through the process, Does that mean changing who participates in the trial, actually finding candidates that will actually respond well to the drug? Exactly. So there's work on both sides on the drug itself and on who the drug is targeting. And it's just those percentages of being good enough to have the right kind of benefit for the right people.

He's had a long pedigree in the pharmaceutical business. He was at Novartis before he came to Sinoffi. Did you talk to him about why he would move from one company to another? Is it merely the money? Is it the scale? Is it that Sanofi has a more interesting pipeline than Novartis or what? Well, he talks a lot about opportunity for impact, right? Where can he have the biggest impact and being able to bring people together and point him in the right direction?

He also talked a bit about COVID and where Sinafi fell short, right, in coming up with vaccines. But then how they move forward, learn from that and get better in the future. What is the next sort of technology that they're looking to try and use? Well, there are several. I asked specifically about AI, but also about enterprise tech, because with this remote work challenge and also the challenge of saving energy in Europe now during the winter, right? Enterprise technology actually helps people work remotely without the same kind of office footprint, and that should help Europe overall possibly.

So there's this interesting, based on what's happening, even in energy market. It's opportunities for technology to be a help. All right, John. Thank you. John Ford. Let's have a little hair of the data dog, shall we? Wells Fargo getting bullish on the software name, calling it a unicorn in the software space. We'll trade that name and others in today's three-stock lunch.

Stay tuned. Time for today's three-stock lunch today. We're looking at three calls in the software space, the sector that's trading around its lowest level since May 2020. Bernstein initiating snowflake and market perform. The analyst says, while it's been a darwin, in the industry, it risks melting if it doesn't gain significant revenue. JPMorgan, meantime upgrading service now to a buy with a $460 price target in Wells Fargo, initiating data dog with an overweight rating and a $120 price target, calling it a unicorn in the software space.

Here to trade these names is Marianne Montaigne, the portfolio manager at gradient investments. Marianne, great to have you with us. Thanks, Melissa. You know, it's funny because we walked you through these names before, obviously, before we got to this point on TV. And we went through what is expensive and what is not expensive. Is there an absolute number in your mind for this sector? I mean, it's really a sector that has been hit so hard because of macro concerns and just, you know, a risk aversion in the market, particularly to companies that have high valuations that are not profitable.

I'm not saying that these companies are not. Some of them are. But this sector has been just really taken to the woodshed. Yeah, I think a more attractive company is going to sell below 10 times estimated 20, 23. sales. And part of the reason is because that management have already alluded to the fact that they have longer sales cycles in this cloud software sector. And they've just been more cautious on their guidance. Now, when you've got valuations that are higher, you're going to get harder from rising interest rates and also the macroeconomic uncertainty. So, you know, one of the companies that we're

talking about is Snowflake, which has a very high, very high. valuation, I call it rarefied air, at 24 times sales estimated for 2023. And management has beaten expectations. They've raised guidance this last time around. But they indicated that growth is slowing. So longer term, they have some great plans, but shorter term, that valuation is just too high for us. Let's move on to Service Now, whose valuation you find rather more attractive. Right, Tyler.

So the valuation is about eight and a half times next year's sales number. And, you know, we think that they're going to continue to grow sales and earnings in the 20% area. And despite the lengthening deal cycles, this one actually has a pipeline that's very strong. And they said that there's been a 40% increase in the pipeline following their knowledge now conference. That was management's comment. So this is a mission-critical type of software for IT workflow and also HR for larger enterprises. And they have a renewal rate of 99%. That's the company I want to be invested in.

And they have about 5.5% share of their total addressable market. So we think there's great prospects ahead for service now. It sounds, Marianne, like you might be sniffing around Datadog, but is a little bit too expensive right now at current valuations. Yeah, it's about 12 times that price to estimated 2023 sales. And management noted a gradual slowdown last quarter, primarily on the larger customers. And we'd just like to wait for a better buying point on that one. All right. Mary Ann, great to speak with you. Thank you. Thank you.

Marianne Muntane. All right, up next to beaten down stocks in the news today. Coinbase rising meta, not will explain next on power line. Quick check in the markets here. And as you have noticed here, we have turned negative. SB 500 is down now by about six-tenths of a percent. The NASAC is down by 1.2%. These losses have been accelerating.

This could be from headlines that the Bank of England is telling pension funds that they've got three days to rebalance. And, of course, the new administration's efforts to, you know, ease the inflation pain over there has really caused a lot of disjoint. Yeah, there's been a lot of. of dysfunction and market reaction and market conyption. And this could be another reason. We've really lost what we were up 360 when we began the hour.

Are thereabouts on the Dow now up just 29? And S&P and the others have turned negative. Some of the key stories we're having to look at today. Shares of meta falling in a new 52-week low after a downgrade by Atlantic Equities. Today is also the company's annual developer conference. It's announcing its latest headset code named Cambayra. Cambria. Cambria.

There was a letter transposed there. It does look like Cambira. It does. It does. It should be Cambria. I thought it was probably Cambria. Like the pre-Cambrian or something. The product will be mixed reality, mixed reality, folks.

So it will accommodate both virtual reality and augmented reality. It will not have any real reality, but it will have augmented and virtual reality. And it will be mixed. It will cost $1,500. It comes a day after the New York Times out with an article on the company's shift to the Metaverse. The article said meta staff refer to the key Metaverse projects as M.M.H for Make Mark Happy. Which implies that the headset might be a flop. But let's make the boss happy because he wants to push into the Metaverse because that is what the company rebranded itself as.

Yeah, I don't really see myself. I don't know that I see you wearing one of the headsets around the house. No. Not for $1,500 at a time when inflation is very. running rampant and consumers are making a choice between filling up their gas tanks and buying your reality. Do you like it real, mixed or augmented? And free. Real and free? Not $1,500 for this mixed. Augmented virtual nonsense. But I'm sure in the future, when the technology is better, there will be true applications and there are probably true applications in medicine, and we're simply thinking about a consumer perspective. We're thinking of it as a goof. Exactly. Yeah. A nice way to go see Moab, Utah or something. All right.

I'm going to come. Thanks for watching, Power Lunch, everybody. Nice to have you here, Mel. I'll see how fast. Closing Bell starts right now.