Power Lunch - Cracks in the consumer economy? 02/25/25

Episode Date: February 25, 2025

Stocks are lower across the board, with the S&P 500 on pace for its fourth consecutive losing day, as traders weigh concerns around economic growth and global trade. We’ll cover all of the angles for you. 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. I'm Kelly Evans. And joining me for the hour today is Sarat SETI, managing partner at DCLA. Sirat welcome on a kind of difficult market session as well. Stocks are off the worst levels of the day. The Dow's higher now helped by Home Depot. The S&P is lower by four tenths. The NASDAQ is still down 1.1%. Now all of this comes ahead of earnings from NVIDIA tomorrow after the bell. That stock lowered today and down 11% since Jan 6th. It's really roughly $300 billion in market cap over the past week as well. And some key areas of the market are continuing to weaken. Another down day for the once hot energy AI names. Vistra, for instance, down 4% Aklo 9. And Bitcoin falling sharply today, breaking below 90,000, hovering just below 87 now as well. Ether, that was in the news for some hacks.

That's been starting to put pressure across the complex, down 8%. And micro strategy, now called strategy, is down 12% as that leverage Bitcoin play potentially unwinds. And as the momentum comes out of the market, Tesla has fallen. once again. It's market cap below a trillion dollars and the shares are down almost 9% today. Let's start with the consumer because that confidence data again this morning showing the biggest monthly drop since 2021. Expectations. That's the indicator of the markets like they fell sharply as well. Consumers are worried about inflation and a recession. Surat on that cheerful note, what do you make of it all? So I do see that. I mean, we look at the economic indicators of the

consumer, if you look at kind of the data coming out, jobs getting cut. It's not just in Doge, right? You're seeing Starbucks, you're seeing other companies. Chevron. You know, coming out and saying, we're going to be more efficient. So I think the future expectations of what are the knockoff effects on that, right? If I lose my job, will I be able to get another job? Two years ago, it was, oh, if I'd lose a job, I'm going to get another job. It's amazing how much the tide has shifted culturally in two years from the great resignation and all the powers with the workers, and now we're seeing more or less complete unwind of that. So you add that to the, if you're a consumer,

and even if you're corporate America, what are tariffs going to do? You know, in terms of, and we've always talked about when you're in an inflationary period, do you buy now, do you buy later? What should I be doing with all my consumption? And I think companies are having that effect, the uncertainty, which makes you just freeze, which means you're not going to spend money. And that's another factor that we have to take. And where is that going to be in GDP growth?

And the market looks forward. So all the momentum is coming out of the market, and you're looking at the tenure now. So more people buying bonds just for protection. Exactly. Maybe some upside at this point. Right. So rates going down. And then there's the overall fear of the word that nobody wants to hear is stagflation.

So if you had to cast your vote for one camp or the other right now, the inflation worries predominated last month. Now we have this kind of soft patch concern that seems to be coming to the fore. What is your biggest concern? My biggest concern is still inflation. It is. I think growth can come back, and I think growth will come back. We do have an administration that's very favorable on growth. So while they're pushing different levers and the uncertainty does create a little bit of a havoc,

it's the inflation part, I think, that we still hadn't had it solved before tariffs came on. And now you've got some other geopolitical issues and what are prices of commodity is going to be, what are prices of input is going to be, where is all that going to go? And if you start onshoreing, that's going to cost a lot more as well. Oh, totally. So I think that's a bigger piece of the overall, but you do have, again, an administration that's going to foster growth. So how that comes is the question, and I think the market today, or the last few days, is kind of selling off because there is no clarity of that yet. Sure, there's going to be a lot of churn.

We're going to talk in Vida in a second here because it's the big tell after the bell tomorrow, but going through the names in the portfolio or just kind of looking at whether you'd be buying anything today, which big names are you watching and why? So I think consumer staples are very interesting because they've come off quite a bit. So whether you're talking to Nestle's of the world, companies that have products that people are going to pay for that have good branded, I think that's where you want to be. Healthcare sold off. I think there are a bunch of areas in there that when you look at valuations, that's kind of where you want to be. And then obviously when you look at tech, you want to say, okay, where do I want to get in at certain prices? And I think Nvidia is going to be very important tomorrow. You have all this back and forth as to what spending is going to happen, what is deep sense.

going to do, it will be very good for Invidia to give people some clarity as to what the demand is. Down 20%, let's call it, on Nvidia. Same kind of a broadcom. Does that get you more interested or you need to wait? I think it's what are they going to say on the call that's going to be interested? Because, look, you've got administration last night that says now we're going to do tariffs again. How is that going to affect demand going forward? What does that do to China?

And then the whole Chinese trade, too, which is very interesting. Been hot lately. But then that's affecting Tesla. Yeah. You think that's why Tesla's down? I think partly that, because what's the demand going to be? What's the ability to produce over there? I think that's going to be really important.

Now, one side could say, look, given Tesla, given Elon's significance of the administration, that could help down the road. But you look at Tesla sales in Europe, they're slowing down. Then there's a question of management time. So I think the execution has to be there as well. So I think that's where you've seen some money come out of the stock. deep competition with the Chinese EV fleet. That's for sure. Our next guest has been watching the market action around NVIDIA. Let's bring in with his predictions for the earnings tomorrow and the

ripple effect, potentially Bob Sloan. He's a managing partner at S3. Bob, it's good to have you. So read the tea leaves, at least as of now, about 24 hours out. So I think Nvidia encapsulates the real conundrum for every investor, which is invidia is such a large component of every index. And it's bigger than the market cap of, I think, every single country X Japan. So one is things indexed and correlated, and one are they not? And I think tomorrow what you're going to see when you look at short interest, and you look at it technically, so look at it in terms of support and resistance, you're going to see that Nvidia has sold off, but short interest has come down quite a bit.

It floats between 280 million shares and 260 million shares. It's more towards the support. And we think you're going to see a pop tomorrow. Bob, where do you see most of the short interests coming from? Are these active funds, hedge funds? Is it people hedging as to kind of owning some of the other mag seven? Do you have any color through that? Yeah.

So what's interesting is that the market has really changed since five years ago. You know, five years ago, you had a lot of amazingly concentrated bets and you had all these hedge funds blowing up. You know, no one trades that way anymore. And invidia is the marketplace. And we know that by looking at the holder's structure, 70% of the ownership of Nvidia is indexed. So if you look at the ownership structure, 70% is indexed. What's shorting against it? People are using Nvidia not to short Nvidia.

It has nothing to do with Nvidia. has everything to do with shorting the rest of the market cheaply and efficiently. So it's become a risk management play rather than a play on the company itself. So a decent level of short interest, even though you think, Bob, we could see a pop tomorrow. I know you said it is the whole market based on ownership, but Jordan Klein over at Mizzuho was saying this morning, he thinks Nvidia may not even matter at this point because we've gotten all these data points through earnings where a lot of the software names, large cap and small cap just haven't been trading that well. Look at how weak some of the kind of energy names.

are in the AI space, for instance. Do you think he has a point? Yeah, I think he does. If you look at some of the ETFs, for example, you look at spy, you look at IWM, you look at the cues, every one of those is bearish. But it just so happens that in the short term, in video, it will have a pop tomorrow. When we see short interest declining, covering's happening, and when it bounces off the resistance level of short interest and the market declines, that's generally a bullish short-term signal. Bob, do you see any other sectors that are pretty short in the active world other than just technology today?

Kind of as a investor, where are some of the, I guess, you know, turbulence areas that people should be looking out for that are being shorted? Well, I think you put your finger on it, which is you got a lot of themes out there. One is efficiency versus inflation. So we look at the ETFs around TLT and, and, you know, and, you know, and, you know, and, you know, and some of the shorter-term bond ETS, longer into the curve selling off, inflation, shorter end rallying, efficiency.

So you have that battle out there. And then look at tariffs. China ADR is selling off anything that is component manufacturing, selling off, and then also you have non-U.S. car makers selling off, too. So, you know, there's a lot of, I think, uncertainty, and therefore short-term signaling is really king right now. Sarat, any final comment? No, I think, Bob, when you look at Nvidia and you said, you know, it's not as important,

what do you think was one of the most important indications in this past earning season that people should pay more attention to that haven't or more focus on? I think, you know, data is a very, very, very important way to interpret what's happening in the marketplace. It's the key determinant of particularly short. interest for a market price action. So when you look at what's happening in terms of market beta, so everyone's running their portfolio trying to mimic the index and take less risk. And so that's when you see short interest bouncing off resistance levels. You know, that's probably bearish for the marketplace. All right, Bob Banks. Bob Sloan is S3, managing partner. Appreciate you

joining us, Surat. What jumps out to you quickly from that? Well, I think it's going to be very interesting to see if Nvidia does not deliver what happens to that short interest, because you could see, you know, not the short covering, but you go the other way. Right. And that could be a risk-off situation that kind of goes through the market for a while. I mean, look, I take your point. I think about the Warren, but look at Berkshire Hathaway's performance during the same period of time. As we all try to figure out which way it goes, you know, is it this, is it that? And that, Berkshire's acting like this is a value market when everything they've ever done.

Look at those shares today. The B shares are at 500. It's up 10% year to date. And Berkshire's getting a lot of credit for the cash they have. Right, exactly. It's basically option value on not being invested.

Right, right. So what happens then does the Berkshire go in and buy stock if the market comes back? And that's what he's been doing for the last three months when he's been offloading the Apple position and just increasing cash.

Now, that's market timing. And he always talks about not timing, but look, sitting there, with cash and getting at 4% yield and potentially kind of buying a dip. But remember, the last dip we had was August. August was the last time we had a 10% dip. So the market has been kind of being bought on these dips

and what's the technical level? Is it 5,900? Do we go lower than that? What's the catalyst? Does a tariff come off? Does it increase tariff on? And while everyone tries to figure that out, he's sitting in cash and sitting pretty right now

and I just find it ironic. All right, speaking of NVIDIA, don't miss our live CNBC special report tomorrow night. John Fort will sit down with NVIDIA's CEO Jensen Wong after their earnings report, and that begins here at 7 p.m. Eastern Time. Really looking forward to that. After the break, data and fundamentals only get you so far. What happens when the global economy faces down the unexpected?

Power lunch will be right back. Welcome back to Power Lunch. President Trump insisting tariffs on Canada and Mexico will go forward when the month-long delay expires next week. And that's not all. Earlier today, Senior Trade Counselor Peter Navarro was on CNBC, saying every country could face tariffs. Those go country by country by country. We're going to come up with an estimate of how much it's costing the United States

and set a reciprocal tariff immediately, assuming the investigation pans out the way we think it will. And as soon as these countries remove their DSTs on American companies, then the tariffs will go away. It's that simple. it's that common sense. All right. So what could this all mean for markets and investors? Let's bring in managing partner at Abroath Group, Christopher Smart.

Christopher, welcome. And listen, I look at the markets today and I check the, you know, the names most exposed to Mexican. You know, we're talking about some of the auto names, some of the suppliers. They seem to be shrugging off Trump's latest remarks in the past 24 hours. Well, I think it's hard to know what the markets are doing right now because there is obviously the economic news that has given them some pause over the last week or 10 days in terms of a slowing economy, some of the jobs numbers, the consumer expectation numbers. But I think there's also some skepticism built into the market's views about what is actually going to happen. The president has, you know,

threatened a lot of these tariffs before and has pulled back. I think right now, you know, if I were to gauge what the market is telling us, there is an expectation that he probably isn't going to put 25 percent tariffs on everything coming across the border from Mexico and Canada. because the market would be trading down a lot more if there were that belief. But there is a belief that there is going to be some tariff on a lot of stuff. And the trick is figuring out if it's going to affect your industry or not. I thought it was interesting. Our analyst last hour mentioned the case of Steve Madden, which had a big China supply chain

that since the first Trump administration, it worked to relocate to Mexico, and now it faces this headwind. So what would you say from a kind of a strategy point of view, a lot of these companies should do? Where's the safest place to have that supply chain? is it ultimately going to be in the U.S.? Well, the safest place, of course, is to go home into your closet and close the door. But if you have to do business, which most of us have to, what I tell clients is you need to keep a very sharp eye on the short term, which is what may well happen in terms of tariffs against China, tariffs, against Mexico-Canada tariffs,

as Peter Navarro pointed out in your video just a minute ago, against almost every other country where a good is crossing a border. So you have to keep in mind how that might affect your supply chain. But over the longer term, I think you have to just expect you're going to have to build in higher costs for more duplication of suppliers, for bringing things closer to home, and for crossing as few borders as you possibly can. So when you look at kind of the goalpost moving, what do you advise in terms of, you know, is it going to be 25 and then we're going to set it there? and how do you, as a manufacturer, then actually say, wow, this could change in three months or it could get revert. You could revert it again. So what are the best ways to kind of protect against that? Are there financial instruments?

What do you look at? Well, I mean, I think the thing that we're all trying to struggle with is to understand what is the president's plan. And at least from my perspective, having looked at the previous administration, seeing what's unfolding here, and having worked in the White House under President Obama, I'm not sure there is a real plan here. There are some ideas that they want to advance. How can we use these tariffs to put pressure on other countries for a variety of different reasons? But there's also a lot of improvisation. So I'm not sure, you know, the president will see how these countries react.

The president will see how markets are reacting. I think this is a very important, it's an important signal. you were saying earlier, you know, these companies aren't trading off so much, but they're not, you know, there, there is concern in the markets about how these costs are going to get built in. But it's, it's another uncertainty that you can't really predict like a lot of building a business. You have to really just sort of do your best. Maybe build in, as I say, you have to have an expectation that costs are going to go up, that moving things across borders is going to be more difficult. And that's going to ultimately wind up in, you know, mild, you know, marginally lower profits and marginally higher prices to your consumers. Yeah, Christopher, appreciate it. Christopher Smart of Abro Group. Serrata, I was just going to ask if you'd kind of like give us the lay of, look, the Chinese stocks, the European stocks are all outperforming the U.S.

so far this year. And for China in particular, I don't think a lot of people saw that coming, maybe with the exception of David Tepper, but as the Trump administration took office, that those names would be doing so well, even with the 10% tariffs they've already had. Yeah, and I think, again, we kind of mentioned that. What it is is will this administration go after China as hard as the prior one because you have so much interplay already?

A lot of people think no, by the way. A lot of people think, look, they had Lightheuser in the first administration. The transition team was much more focused on the China issue. This time around you don't. You have Elon Musk who's got business interests in China. He's got business interests in there. And you look at kind of Apple's got business interests in there. So anyone who's close to the administration that has interest in there, I think that's why you're seeing that market not selling off.

And by the way, the Chinese market was coming off a very low point, too. It just kept on selling off and selling off. The euro market's interesting, too, because I think part of that is if there's a resolution to the Russia-Ukraine war, will more capital flow there? And will you have more focus? Come down. Do you have exposure there to some of the big corporates? Our exposure is 380Rs. own, you know, companies like Nestle, Novartis, Diageo, but it's really U.S. companies that allocate

capital over there that can do well, whether it's the Honeywells, Ingersoll Rands. So you do get the exposure. You just say where, you know, let the companies allocate where they want to be as opposed to picking the country or the choice. And I've heard, you know, the S&P 500 is, what, 30, 40 percent earnings abroad, something like that. A lot of that, Europe, especially for Staples you mentioned. So you're saying, just stick with those companies who can be kind of nimble in this environment, maybe shift revenues or supply chains a little bit and not have to bet on the country by country. Right, because what happens is if you go directly, and I'm just using Europe, then you

also have the foreign currency risk from that side. Right now you have at least ADRs here that are hedging. But you look at Colgate Palm Olive, Colgate's 70% global, but it's listed in the U.S. So there are a lot of companies that are working through this. And I think one of the other effects of all this is you're seeing very little M&A activity. I have been so surprised by that. I thought earlier this year we were starting to get the drumbeat, but we, you know, We've had guests come on and say, no, you're not going to get that until there's more clarity.

You're not going to get it because companies are more focused on running probably different financial scenarios to say what tariffs are going to affect me, what's my cost of capital going to be, as opposed to let me go buy this company because I don't know what the tariffs are going to, you know, all of a sudden you buy a company and that company has a lot of tariffs. Your whole model changes. So I think that's where, and then you're seeing that effect on a lot of the other sectors as well. That's fascinating. Surat for now. Thanks. After the break, NVIDIA gets a lot of attention during earnings season. as it's really about to tomorrow.

But this name is also set to report, and it's up 180% in a year despite the recent pullback. Market Navigator explores that next. Welcome back to Power Lunch with the markets gyrating today. The NASDAQ is the epicenter of the losses and kind of this momentum selloff we've been seeing.

It's still down 1.4%. The Dow trying to stay positive, although its gains are fading this hour. It's currently up 38 helped by Home Depot's rally. Now, Nvidia isn't the only AI name that's been under pressure. Some of the energy names related to that space have also been selling off, I should say. And joining us now to discuss is Mike Coe. He's the chief strategist at open interest.pro.

And Mike, you're watching Vistra. That was our mystery chart. It's up more than 180% in the past 12 months, even with this 20% drop over the past week. How do you play it? Yeah, so this is an interesting case. As you pointed out, you know, the AI trade, the data center trade, incorporated a lot of electricity generation. based on anticipated increases in power demand to service that space. You know, what we saw, of course, is that Vistra, along with the rest of that trade, has sold off quite a lot in recent days. And there is another wrinkle that has been added, and that is the must offer that is going to be related to the auctions that they're going to be holding for PJM later this year.

And that basically is an effort by PJM and FERC, which is the Federal Energy Regulatory Commission, has agreed to go along with this to make sure that there is sufficient. supply available. And of course, if you increase supply, all else equal, the idea is that that would lower prices, which would put some question on the margins that a lot of people were anticipating for Vistra in the next year, which was anticipated to earn about $6.74. Adjusted EPS or so, at that price, if it was able to achieve it, it would be cheap. But, of course, if you're going to have pricing a little bit lower than anticipated, then those numbers are coming into question. So right now, the options market is implying a move of about 7.5 percent after the they report. That's in line with the size of the moves that we've seen over the last four reported quarters. One of the really big trades that caught my eye, though, was the June 130-1-2 put spread. Somebody bought over 4,000 of those 130 puts and then sold the 90s against it to help finance the cost. And that June expiration date's probably not a coincidence, given that that's when that meeting is going to be taking place ahead of those auctions. So that's a way that people who are a little bit

concern that there could be further weakness can make a bearish bet and mitigate some of the expense. Nothing makes a sexy AI play quite so, you know, doldrummy is talking about FERC meetings and all of these legitimate risks on the horizon. Surratt, anything you'd add for investors? Just a question. I mean, you saw yesterday Microsoft come out and kind of hedge their data center. Do you think that in addition to others are now coming out, that you're seeing more of a sell-off here, that some of the momentum is coming out of this? Well, I mean, the three-mile pricing that we saw out of that Microsoft arrangement, obviously, is generally bullish for the space, I would say. And I still anticipate that there is going to be this huge ramp in demand.

This is really more of a short-term question about pricing than it is about the fundamentals in terms of the demand for, you know, AI data centers and the power needs that they're going to have. So, you know, I tend to be still a little bit positive, but I rather like trades like this for those who are long. you know, the worst thing that would happen if you put a trade like this on is you're going to lose about 6% of the current stock price, given the kinds of moves that Kelly was just highlighting. I don't think that's a huge risk to have for a hedge that lasts you out until June. All right. Let's shift gears, Mike. Talk about a stock that never goes down, which is TJX. I think the analysts have been correctly bullish on this one for about 15 years and running. Any reason to expect a change in tone tomorrow when they report? Anything about the consumer? I mean, a lot of people argue weakness might even benefit them there.

Yeah, I mean, they service, you know, a somewhat price conscious customer. I think they're doing a lot of good things on their marketing side in terms of social media and so on. You know, they have a good sort of, you know, their product offering, I think, is quite attractive. And they really have been operating very well. I think they're looking at something like 7% year-on-year anticipated EPS growth here. But I do believe that the consumer is under significant pressure. Now, we've had a couple bits of data coming out on that front. One is that, of course, we've seen record revolving credit balances.

We've seen some increased delinquencies. And I know on the back of that, some strategists have pointed out, oh, well, we've also seen, you know, very high, basically deposits, and that if you take a look at the credit card balances relative to deposits, it's not that troubling. But you actually have to dig a little bit deeper to understand that about 90 percent of savers have basically used up all of the savings that they had accumulated during the pandemic. and we had all those transfer payments combined with reduced spending. So I think there is going to continue to be a little bit of pressure here.

I don't expect a whole lot of top line growth. A great operator, but at 30 times forwards, I don't know that it's all that cheap. The options market here implying about a four and a quarter percent move, again, that's in line with the average that we've seen over the last several reported quarters. One of the big trades we saw there actually was a sale of the March 14th, 125 strike calls. And I think that's a decent way for somebody who's looking to milk a little extra premium out of it, You don't think that it's going to break out to those November-December highs that we saw, which was right up around $128 a share.

All right, Mike, thanks. Appreciate it today. Mike Coe joining us from Openinterest.pro. And up next, first we had sky-high egg prices. Now another staple is making some record highs. We'll tell you next on Power Lunch. Welcome back to Power Lunch. I'm Simamoti with your CNBC News Update.

A federal judge ordered the Trump administration to pay foreign aid funds to contractors by 1159 Eastern on Wednesday night, saying the White House has not gone. complied with an earlier order to unfreeze that money. It is the third time the judge has ordered the release of these funds, which were frozen after President Trump ordered a 90-day pause on all foreign aid. The Vatican providing another update today on the Pope's health, saying he remains in critical condition as he receives treatment for double pneumonia, but is still working. The 88-year-old is spending his 12th night at a hospital in Rome the longest day of his nearly 12-year papacy. Utah could make history as a first date to ban floor.

override in public water systems. The state's legislature sent a bill making the change to Governor Spencer Cox. It's not clear yet if he will sign it into law. It does come as the new health secretary Robert F. Kennedy Jr. has criticized the use of the mineral, which the F. CDC says can strengthen teeth and prevent decay. Kelly? All right, Seema, thank you very much. Seema Modi. Meantime, consumers keep getting prodded. First, it was eggs. Now cattle prices are hitting a record high, Pippa Stevens is here with more. PIPA, I imagine this means are beef prices and so forth. Exactly. So it's all going up. And basically, cattle prices are hovering around their January all-time high, making consumer stakes a little bit more expensive. Beef prices are now outpacing

overall inflation with January CPI report showing a five and a half percent rise year over year compared to three percent headline inflation. And for the time being, consumers are not pushing back, spending a record $160 billion on beef products. last year, even as prices hit $8 per pound. But cattle ranchers cannot just increase supply when prices rise. Last year, beef cat inventory in the U.S. stood at roughly $28 million head. That's the smallest herd since the 1960s. Ranchers have been reluctant to rebuild herds following years of depressed prices,

expensive feed, high rates, and unpredictable weather. Alton Callow from Steiner Consulting told me that while prices will be volatile, the trend between now and 2026 is higher. since there is a very long lag time, as well as a disconnect between futures prices and retail prices, since it does take a while for higher producer costs to trickle down. So, you know, if you're going to be ordering the steak anytime soon, it's going to cost you more. So how much of the stake is also imported? I mean, is that going to get affected by tariffs, and then, you know, the prices here will stay high

because now you can actually raise prices? So that's another big outstanding question. We get about 6% of our cattle supply from Canada and Mexico. And so for the time being, with people that I've spoken to said that we probably won't see an immediate impact from tariffs simply because these trade relationships have developed over decades. And so if you're, for example, a farmer in Mexico and you've always sold to processors or feedlots in Texas, you don't necessarily have anywhere else to send your cows. And so for the time being, you might say, okay, it's worth it for me to absorb that cost rather than have the feedlot pay a higher price because there's nowhere else to go. But longer term, that eventually starts to get trickled down to consumers. Do you know offhand, Pippa, what's going on with chicken prices?

Because here's what I find strange. Egg prices are constantly high. They're a problem. It's abnormal. But then you go get chicken. And I'm like, okay, it's a little high, but it's not as bad as it was during the pandemic. Doesn't it come from the same birth? Especially if there's a trade-down effect happening with beef now as well.

Yeah, you always have to look at the different types of meat we're talking about and where consumer preferences stand. There's also, you know, in the cattle industry, there's restocking your herd, similar, phenomenon in the chicken and the avian industry. And so right now, of course, we saw that mass culling thanks to the bird flu. And that's what's really driving up those prices of eggs. But chicken has always been kind of a trade-down meat. And so the prices have traditionally been pretty depressed. But particularly now when you see egg and beef prices rising, then we could start to see momentum shifting to chicken. All right. Not what the consumer wants right now. Not at all. Pippa thanks. Pippa Stevens. The 10-year treasury yield slipping to its lowest since December. We're down to

431, and we were below 430 earlier today. It comes amid some fears about cracks in the economy. So are we going sub four or back up to 5%. Rick Santelli will tackle that next. Welcome back, a bit of a risk-off mood to markets today, but just in the last few moments, the Dow has actually re-accelerated back to the upside in almost a session highs, up nearly 200 points or half a percent.

NASDAQ still underwater down 1%. And all of this has bond yields falling to their lowest level since December after another week consumer confidence reading. We have more data still to come this week. Santelli is out in Chicago with more for us. Hi, Rick, and a special guest. Hi, Kelly. Indeed. I'm with Jerome Snyder from Pimco. What a perfect day, and you nailed it. Whether it was University of Michigan weakness, now it's consumer confidence weakness from the conference board. We get these outsized moves. For a while, we're on pace for the lowest fuel closing a two year since October. Jerome, I don't think inflation's

gone away. I don't think growth is necessarily gone for good. I think we have an uncertainty hiccup. But on the interest rate side, I will contend that most of the downside is because of a safe harbor environment and a weak equity, nervous scenario. Your thoughts? From a starting point perspective, you have to realize that equity risk was priced at a premium at that point in time. So our credit spreads as well. So the incremental value of adding additional risk was probably at its peak a few days ago, maybe in a few weeks ago. Markets are simply recalibrating. They're focusing on the data more precisely than the Federal Reserve.

And perhaps this is a longer-term discussion to be had rather than reacting to the minute-to-minute to data. So inflation prints, yes, those are going to be a focus. Growth prints, confidence prints, these are all factors that come into play. But perhaps investors are becoming very myopic in this, and what we're seeing that is a result in rates and equity markets on the day-to-day basis. Perhaps it's in fact a situation where investors are going to be looking for some sources of ways to protect themselves from the volatility as we get further focus than fiscal policies that might take a little bit longer time to come to fruition in terms of that growth outlook.

I couldn't agree more, and I think the problem I have with the markets is is that they're not equally paying attention to all bits of data. We had a hot CPI on, what, the 11th, the 12th, we had a warm PPI, and then right after that, interest rates moved down. You throw weak confidence up there,

boom, equities get tagged, rates go down, and it's to the point now where I would find it hard to believe that we're not going to start to see a more consolidated long-end rate structure to the upside. Listen, when we think about this, the term premium question is a fiscal policy question, meaning how much more does the United States need to finance over the longer term? That means longer-term rates might have a way to be sustaining higher versus shorter-term rates. We also know that the Federal Reserve is going to be focused on maintaining a longer playing field,

holding this presence here for a while as they see the inflation metric go longer. So from that point of view, we should be focusing on the income generation in bond, in fixed income. And that really allows investors to avoid the volatility that we're experiencing over the past few sessions, perhaps longer, until we get further clarity on the growth outlook, positively or negatively, and more importantly, the inflation outlook. And that still presents itself as a way to remove yourself from the discussion of longer-term inflation pressures, because bonds still present a high, relative real-term. Capital preservation now has risen to the top of the list of what investors seem to be strategizing, hard to argue with, with all the volatility

in stocks, although they've reversed it. bit higher as we're speaking. Investors are thinking about savings as being a way to invest now, as opposed to investing perhaps in other ways that they've been conditioned to with an easier monetary policy environment over the past few decades. Perhaps as the calculus is changing, but we clearly know that the data is changing in the near term. Longer term, those expectations suggest a higher growth possibility for the United States, but something more muted in the future. Jerome Schneider, thank you for joining me today at the CBO. Kelly, back to you. Rick and Jerome, thank you very much. Surat, any thoughts on Barrett?

becoming more attractive to you or not so much? So I'll say it a couple of ways. I mean, it's interesting in the conversation about maybe bonds becoming more investing than savings. However, you have to look at real versus nominal interest rates. And in a world, if you can get 4% in a short-term treasury, what is your real rate? And are you actually ahead of where you're supposed to be? Especially after taxes. Especially after taxes and especially after inflationary pressures.

The second part is credit spreads are still tight. So you've seen the pressure on yields coming down just because people are going there. But it's interesting that the credit market yet, which I feel is the more informed market, has not really said to the stock market, hey, things are getting worse. Right. So with spreads there, is it a question of more capital? There's nothing you see in fixed income that makes you that interested. It is very hard to buy fixed income to think you're going to make a lot of money because the spreads are so tight.

You're not being paid to take risk. But maybe people think, look, just until we get through whatever we're going to get through, I'm going to get a little bit of yield to wait. Exactly. I mean, that's what's happening with the treasuries, right? Yeah. And corporates are issuing. And so that's good.

That's good liquidity in the market in terms of the credit side. It's the question, can the equity piece follow? Yeah, all right. As we had to break, Tesla is on track for its worst day in two months. It's now down more than 9 percent, even as the broader market has ticked up a bit. It's one of the worst drags on the S&P 500, and it's one of the worst drags. below a trillion dollar market cap. Three stock lunch is next. Welcome back. It's time for three stock lunch where we trade three different names in the news. And Nancy Tangler is here to do the honors today.

She is CEO and CIO of Laffer Tangler investments. Nancy, glad you're aboard because let's start with Home Depot, which is still up 3% after beating fourth quarter estimates and snapping an eight quarter losing streak for comp sales, which rose about 1%. Do you like the stock here? Yeah, actually, Kelly, thanks for having me. Home Depot's in our 12 Best Ideas portfolio. It didn't feel like a best idea a couple of years back. And the stock has had some sort of resurgence last year. But we think from here the company beat on earnings revenues. Comps were up 8.8% versus an expectation of down 1.7. Tickets were up, transactions were up. And the organic growth was positive. while analysts were expecting negative, 10 out of 16 departments posted positive comps. But the guidance was weak, which was why the stock sold off in the pre-market. I don't know why any CEO would give robust guidance in this environment. So we think, you know, the dividend increase was a little bit lackluster.

But we think, you know, housing is recovering. And if you look at what's performing today, it's consumer discretionary minus Tesla. So go figure. The consumer's still alive and well. Since Sarada's sitting here, Nancy, I'm just going to get his, I don't see HD in your portfolio. We own lows. Loz, I see. And I think Nancy's points are spot on.

And the two other things I would add to them. One is you don't have an increased supply of homes. So when people are buying homes, they want to remodel. And I think that's going to be really interesting. And then the second one is people haven't really moved a lot. So now they're going to look and say, what do I want to do in the current home again? Totally. You know, post the COVID kind of thing we had.

So I think these Home Depot and lows are in a sweet spot compared to some of their competitors. Interesting. All right. Let's move along to Apple then. Big announcement Monday to invest more than half a trillion dollars in the U.S. over the next four years. 20,000 new hires. And the stock is up half a percent today, Nancy.

It's actually been okay this year. Yeah. I mean, this is Tim Cook took out a playbook from Trump 1.0. And this is his attempt to avoid tariffs. I think it'll probably work. Free cash flow of 100. billion. Earnings growth is supposed to be pretty robust this year.

Stock's fully valued, so I would label it a hold. We do hold it. And, you know, there's not much not to like at this point. Services still growing double digits, which is why we bought the stock in 2013. Now, wow. Surat, you a fan as well? I think it's a whole, too. I mean, I wouldn't chase it to these levels.

It's a great company, great cash flow, everything that Nancy said, it's 30 times earnings. It's not 50. And it's your consumer staple in technology. You get the steady cash flow. They could buy back shares. They've got levers to pull. What he did was very smart to say, let me protect against tariffs. Let's see if that works, because I don't really know how that works specifically when you can say, you know, it's China who has to put the tariffs on, not us on Apple.

So I don't know how that works. Still more than tripled over five years, which is pretty remarkable. Let's go to a little more controversial one, which is Service Now. Nancy, you say it's a buy after recent weakness. I was wondering about you today on this day. It's down about 13% year-to-date. And a lot of people get frustrated by the way big software is trading. But are you sticking with it?

Yeah, actually, we added to it this morning, Kelly, full disclosure. I mean, I would just say that the company has shifted modestly from a subscription model to a consumption model. Bill McDermott has called that the hockey stick growth trajectory that he's been looking for. But analysts are having a hard time modeling it. So this is one, they now are on all the hyperscalor platforms. Oracle, expanded their relationship with Visa and Amazon. So I think this one at 20% earnings growth, 20% revenue growth, you just pick away at it when it gets clobbered.

And that's what we've done for the last five years. Also a member of our 12 Best Ideas portfolio. Hear that, everyone? She added to it this morning, Surat. What do you say? We don't own it. It's a great company. We already have our workdays and sales forces in there that are also having their little

issues at this point because I think software, as you mentioned, as a whole, is all sold off. So I think you pick your spots. You say the companies I like, I know, I own. And you kind of add to them a company like this when it's down, not when it's, you know, flying. You don't chase it. All right. Nancy, thanks. Appreciate it today.

Always a pleasure, Nancy Tangler. And remember, you can always catch this show as a podcast. Never miss a three-stock lunch. Just find power lunch on any platform you use. And we'll be right back. Let's get some final deep thoughts from our guest host, Surratt, before we go. And, Sarat, let's set this up with a quick look at the small caps. We haven't talked about that today.

The Russell 2000 is in, let's call it, correction. I mean, it's nearly 12% from its recent high. A couple of emblematic maybe names. Do you see Krispy Kreme today? The donut maker. Rough quarter, terrible guidance. The stock's down almost 24%. Could be its biggest drop ever.

It's been public for four years and its lowest close ever. It's under $7 a share. I mean, real quick thought on this one. Well, I mean, this is exactly the GLP phenomenon that any company can't, if they don't meet their expectations, they're going to get hurt because now there's no benefit here. Like, you have to re-prove yourself. especially if you're going against something that, you know, all these farmer companies have. And, I mean, I don't know if this is true, but it seems anecdotally a lot of expansion.

Yes. You know, and when you're so saturated that I drive by it on the highway, I go, that's not that interesting or special. That wasn't how it used to be. And there's competition, and you're seeing slow down to the consumer. So all those factors, it's a show me story. And at that point, if you're expanding, what's your cost of capital as well? Yeah, another name on the smaller side.

I just want to mention today, a big decliner is Carter. they're the maker of baby clothes. Down 16% on weak results. I don't want to say the kitchen synced it, but they blamed the impact of inflation on young families. Consumer shopping at mass retailers instead for their children's clothes and declining birth rates. So again, all of this may be true,

but when you see it all coming up at once, you know, it's a tough moment for them, obviously. And look, you add to this with the small caps that we're talking about. Small caps have so much focus on financials and industrial growth. All of that, the market's telling you to, We don't see that going forward. So all that run-up that you had pre-election, it's just capital coming out, momentum coming out. Is the whole election trade unwinding?

It feels that way. I mean, we're back to kind of the market very lower since the election. And the certainty that we were looking for in terms of regulation and growth is now kind of like where are we going to be. So let's invest in companies where people are following the apples of the world where we know the staple companies within the index. Boring, but beautiful. Sirot, thanks for a great hour. Not boring, mostly just beautiful. Thank you for watching Power Lunch and closing bell starts right now.