Power Lunch - Don’t Fight The Fed, and Defense Downgrades 1/13/23

Episode Date: January 13, 2023

The fight against inflation is highlighting a growing divide between markets & the Fed. We’ll explain what the latest numbers are saying that might make the central bank really unhappy. Plus, stocks are falling as Lockheed Martin & Northrop Grumman are both downgraded to “sell.” We’ll explain why there’s increased scrutiny on U.S. defense spending right now. Hosted by Simplecast, an AdsWizz company. See https://pcm.adswizz.com for information about our collection and use of personal data for advertising.

Hi, everybody, and welcome to Power Lunch alongside Tyler Matheson. I'm Kelly Evans. Coming up, the Fed versus the markets, how the inflation fight is dividing them, and what the latest numbers are saying that might make the Fed a little unhappy. Plus, a defense downgrade. Stocks falling as Lockheed and Northrop Grumet are cut to sell. Sell? There's still a global power struggle, but also increased attention on U.S. defense spending. We'll dig into that. But first, a check on these markets. Dow, S&P, NASDAQ, are back to positive territory. Okay, so I'm going to tell you why that's happening, because you can't really talk about the days trading Kelly, Tyler, without bringing up the big bank stocks. This is the kickoff to bank earnings season, also earnings season in general. It's got some pretty crazy intraday movements, as you're seeing here.

So check out shares of Bank of America, Wells Fargo, Citigroup, J.P. Morgan Chase. Now, they're all up around 2 to 2.5, 3 percent, near their session highs at this point in positive territory after each was markedly lower in early action on the heels of their respective earnings reports. Very big intraday reversals, perhaps driven by some fundamental buyers stepping in to buy a beaten up brand names and banks, maybe some short covering as part of that story. Regardless, they are big stories today and helping to drive some of that upside action. Also, by the way, keep an eye on shares of Delta Airlines moving in the opposite direction, also out with earnings today. that, by the way, beat estimates for both profits and revenues, but Delta said that higher labor costs will hurt current quarter profits. Delta is currently, by the way, down 3 and a quarter percent, three and a half percent, one of the worst performers in the day on the S&P 500. Now, let's take a look at what we're seeing on the tech trade with Christina Parts Nevelace over at the NASDAQ.

Thank you, Dom. Let's start with the change of tone coming from China. So this is important. Chinese authorities are considering adding ride-hailing Abdidi, along with other apps back on their domestic app stores, according to Reuters. The reason I bring that up is because the move is seen as easing of regulatory hurdles and it's helping other Chinese tech names right now like Pinduoduo, one of the biggest winners on the NASDAQ. You can see it's up over 4% as well as JD.com. Chinese tech ETF,

K-Web also trending higher on this renewed support from Chinese regulators. So we talked about the positive. EV names are the laggards right now after Tesla cut prices in the US and Europe. We also got a rare downgrade to sell for Tesla from Guggenheim. Analyst warning Tesla's numbers need a reset and there's only actually five cells on FACSET versus the 27 buy rating. So definitely a little change of heart. The news weighing on other EV names like Lucid and Rivian, Rivian, one of the worst performers, almost 8% lower on the NASDAQ 100. Tyler? All right. Thank you very much, Christina, as stocks try to stay afloat while investors digest big bank earnings results, the major averages are still headed for a winning streak, the NASDAQ, and now on pace for its second straight week

higher and its best weekly performance since back in November. Inflation picture, also helping stocks to rally recently as the outlook for inflation softens yet again. We'll talk a little bit about that in just a moment with Ron Insana. But right now we're joined by Mark Lushini, Janney, Montgomery Scott, Chief Investment Strategist. Mark, welcome. Good to have you with us. Thanks, Tyler. I know Ron, when he joins us, is going to say that inflation is playing out pretty much the way he expected,

which is to say that the tide seems to be going out on inflation. Do you see it that way? and if so, what can we infer about how to invest based on that? Well, I do largely agree with Ron and that interpretation of the inflation readings. We had for some time expected to see inflation begin to roll over some months ago as some of the feedstock to the inputs to CPI were clearly falling in some cases somewhat precipitously, although there were sticking components that were helping to support inflation at well above Fed target levels.

So at this juncture now, several months after seeing those inputs suggesting we were going to see some deceleration inflation as being confirmed by both the headline and decorer readings that we got just yesterday. And so I think that obviously is a setup for the Federal Reserve to do what some of the Fed officials just recently had said, which is step down the pace of hikes, although likely continue for one or two more before pausing. And as a consequence of that, perhaps relieves some kind of. concerns that investors have legitimate ones at that, that perhaps a recession could be averted

and therefore stock prices have already discounted the worst of those economic conditions that would weigh on corporate earnings. Do you think, Mark, that we've seen the bottom for stocks? Well, it's a good question, Tyler. Obviously, everybody's trying to ascertain that. And to the extent that we saw from the peak in early January of last year to the Nader in mid-October, a 27% decline, that is a typical drawdown in a non-recessionary bear market. In a recessionary bear market, the drawdown is typically 34%, which does suggest that perhaps if we do encounter a recession, even perhaps a mild and relatively brief one,

we could see some diminution in earnings, which could cause at least a retest of that October low, if not plum, lower levels still before a durable bottom is formed. At this juncture, it seems as though there is some likelihood that we perhaps can skip past a recession, albeit by a trivial amount, but nonetheless, help to support the kind of earnings that Wall Street is going to be clamming for in order to expect to see equity prices already have seen that discount into the drawdown we had in October and therefore maybe build more sustainable highs if we get above this 200-day moving

average that we continue to flirt with repeatedly over the last 12 months. diminution is a great word. Ron, what do you say? With respect to inflation, yes, absolutely. Diminution is, I think, at a perfect word where I was combing through every inflation statistic I could find in order to write the piece that I put out today. And that number has been, in many cases, cut in half from where it was at the peak. For the last six months, we've seen inflation come down consistently by every measure,

whether it's CPI, core CPE, the Fed's favorite gauge. We're really seeing inflation fall off. And again, going back to that word transitory, which the Fed may have improperly used early on insofar as I think many people thought it implied a couple months in a post-war or post-pandemic style environment, it's usually a couple years, which is the argument, as you both know, I've been making for quite some time. And I think the data reinforced the notion that transitory, not permanent, was probably the best way in which to look at this. It wasn't the 70s and 80s. We can't. What? What? What? What? All right. So here's the thing. It's going to look like that now.

It's going to look like people go, wait a minute. The Fed shouldn't have tightened in the first place because this whole thing was going to come down. But I think, to put it fairly, we should say they had to ratchet things way up and that broke the back of inflation. Why were gasoline prices collapsing? Not because of the war in Ukraine, right? The tightening of financial conditions, the slowing of the economy is one reason why we had this thing suddenly turn on its face. So I don't want people to go, you know what? They should have held off here because they didn't need to tighten because their tightening is what turned things around.

In a certain sense, yes, but also supply chain disruptions also evaporated over time. So a lot of the things that drove goods prices in particular higher, including the price of oil and things like that, were the disruptions that we saw as a result of the pandemic, as a result of the war in Ukraine, which hopefully that comes to a conclusion at some juncture. So what does the Fed do now? Well, they're going to continue doing what they're doing. I don't think anything's going to change. They're probably going to go quarter point at the end of this month.

I mean, they've gotten a break. Quarter point, not a half. Probably not. I mean, we're not seeing any signs that inflation is about. to reaccelerate, right? There's really nothing in the pipeline that would suggest that's the next move for inflation. And then beyond that, the yield curve is so steeply inverted, somewhere close to 1.2 percentage point spread between the three-month T-bill and the 10-year note yield. It is screaming recession risk. And then they did too much, don't you think?

I think that, you know, I think they've done too much, right? I think they should have stopped a couple hikes ago. But Arturo Estrella, who I've talked about on the show, who we discuss on very frequently. Former New York Fed economist did all the seminal work on the yield curve, this particular spread, three months to 10 years. It's a 93% chance of recession sometime this year. And it's deep. It's not like we're down by just a couple basis points. It's 1.1, 1.2 points nearly. Why don't they pay more attention to it? I don't know. And I don't know what the Fed's looking at right now. Because, again, if you want to say service sector inflation is high, the pipeline is coming down. If you want to say shelters high, that pipeline's coming down. We know that to be true.

So they're looking backward. Let me ask you the question I asked Mark a moment ago. Do you think the bottom has been hit for stocks? Look, that's a tough call. I mean, you don't get a secular bull market in stocks until the wind is at your back. And by that, I mean a friendly Fed, right? A Fed that's actually loosening or stopping all together, right? One of those two possibilities.

And then, you know, the tape is starting to improve. So Marty's Wig, the late great money manager, don't fight the Fed, don't fight the tape. If you're looking for a secular bull market in risk assets, you need both. those factors at your back. I would love to know. Can you explain the dynamic we could see where we all know the bad kind of macro thing that's coming. But in the meantime, how does the market behave? You know, this is one difference from 08. And 08, we had a sell off throughout the first half of the year. Now we see the opposite. And I'm curious what you would say to investors. Well, look, I mean, I think you dip your toe in your selective, your high quality. You're doing

all those types of things. You can even hide out in six-month T-bills if you want at 460 and just wait. There's no real rush. I mean, particularly for longer-term investors, you know, you can pick your spots. But I think, again, you know, for that kind of trigger where you want everything at your back, we're just not there yet. And the Fed would have to capitulate for that to be the case. Very, very interesting. Ron, and thank you for bringing your friend, Tom Berger. Yeah, you know, we actually met on Facebook, believe it or not. Is that right? Tom asked the question at one point about financial markets, and I asked him

a few questions about his past that I won't describe here. And we got to be fast friends. We've talked about doing a few things together. I think what we want to do is America's funny as stock picks together. I think that's a good idea. I think that's a show. Yeah. We can introduce you to the right folks. Yeah.

Tom, good to see you. It's been 30 years since I saw Tom. It's been three years since I've been here. Is that right? In the building. My last day on air here was March 13th, 2020. Wow. I've only been in the building once since.

Ron, thank you very much. Mark Lachini, thank you as well. We appreciate it. You're welcome. Bank earnings kickoff today with results from B of A, JPM, City, and Wells Fargo. Now, investors were looking for better signs for the economy, but that's not really what they got. Hugh Sun joins us now to discuss as we look at the bank stocks that, Hugh, I don't know, one message this morning, now a different message. What did they hear? Was it conference calls? What's going on?

Yeah, I don't know. I mean, so you're seeing all the banks catch a little bit of a bid after the initial sort of absorption of the idea that was put out by J.P. Morgan and B of A, so number one and two in the United States. market share in banks and banking, and both saying that there's a recession on the way. So JPMorgan specifically saying that their base case scenario, their most likely expectation for this year for 2023 is for a recession sometime in the fourth quarter, a mild recession, but a recession nonetheless at approximately 5% unemployment. And so the fact that they're both catching a bid now, I mean, maybe there's the expectation that a mild recession is the quasi-soft landing that people hope for, for it's not so bad. I guess I would point to the other thing, which is, you know, compared to

a quarter or two ago, they weren't expecting a recession in 23. So certainly the arrow is a down arrow in terms of their expectations for this year deteriorating. You know, if we're looking, not that my heart bleeds for the bank earnings. I mean, it's, they're going from five billion to three billion in earnings. I know that's an important decline in profitability, but they're still making plenty of money most of these banks are. But if they are setting aside money for reserves, if they are forecasting a probable recession in 2023, why are the stocks up nearly 3% today? Yeah, no, it's a bit of a risk on. I mean, I wouldn't say, you know, and here's the thing with bank earnings. There are so many cross currents and there are so many up arrows and

down arrows that, you know, you can look at what the stock is doing that day and say, this is the reason why this is happening. You know, I don't necessarily think that's the case. I think basically what's happening is, you know, the investor class is hoping and praying that they get the soft landing and they're looking at the results and they're saying, you know, maybe banks can absorb these losses. If it is indeed a mild recession, they could take the next two or three quarters, set aside reserves for those credit card losses that are expected and essentially be okay and still be profitable as Mike Mayo talks about. in his bullish forecast.

If you look at all the other analysts, however, they think it's too early to get into bank stocks. They think that it's better, that there's going to be a better entry point later on in the year as we get closer to that recession. So, I mean, it is impossible to say it right now, but you could say that there is enough to bolster each case if you believe in it.

All right. Hugh will leave it there. Thank you so much, sir. We appreciate it. Hugh Sun, who did such great reporting leading up to all of this, by the way. Two big interviews on the big banks coming up on the closing bell today. B of A CEO Brian Moynihan will discuss their results and also joining Sarah today. Michael Santo Massimo, the CFO at Wells Fargo. The fund begins at 3 p.m. Eastern.

But we still have a lot to do here on Power Lunch. Defense stocks trading lower after Goldman downgrades a couple of big names to sell. Could Congress really get enough votes to cut defense spending? Plus a recovery this week for Amazon. That stock up 12 percent. but new numbers show ratings for the NFL are down, mostly because Amazon took the Thursday night package. The audience there, less robust than on Fox,

can streaming the strategy streaming pay off long term. We will be right back. Welcome back to Power Lunch, everybody. We're having too much fun here today. It's really been a good afternoon. Defense stocks are selling off, not a good afternoon for them. After Goldman Sachs did a sweeping downgrade of the sector, saying that at current prices, the stocks reflect a glitone,

global geopolitical superpower struggle, but not the possibility of Congress refocusing at its attention on debt and spending. Goldman knocking Lockheed Martin and Northrop to sell, those stocks doing three to six percent lower right now. Raytheon to neutral, while that stock is lower by two and a half percent, let's bring in Morgan Brennan to discuss this. One of the points that I seem to pick up in the research is the idea that maybe defense spending has gone to a secular. secular peak or a cyclical peak is really what I'm trying to say. And I think that is now the question that's emerging in these first two weeks of 2023, because to your point, we saw a record defense spending last year,

the fiscal 20203 budget here in the U.S., increasing by nearly 10% on the top line. Even more than the president asked for. That's right, more than the president asked for. You had all the increases tied to Ukraine as well. Plus, you have all the defense spending that is increasing the world over. But that said here in the U.S. you also now have this renewed interest in the debt and the deficit and potential talks about not only caps on discretionary spending and pushing back defense spending to the levels we saw

last year, but also this idea of a 2011-style price cap on defense moving forward. Now, the likelihood of that happening, probably not very high if you talk to analysts, but this idea of girding for grid lock in D.C. is very much what is the focus. It's big focus of this note from Goldman, as well as others that have put notes out today. And it feels like is that what's changed? You know, if we go back, we actually had guests here coming on and telling us how excited they were about the defense sector, even just a couple of weeks ago because they said, look, you finally have the Ukraine war, uniting even Democrats behind the idea of increase in spending.

Well, boom. Then the Kevin McCarthy debacle hit. Is that what changed everything when people said, wait a minute, this might empower a group of Republicans who have no interest or, like you said, trying to maybe pull back a little bit? Yeah, and so, and I think that's why, and Cowan wrote about this just yesterday, basically saying, quote, a full-year CR continuing resolution or longer for discretionary spending may be the best outcome when it comes to defense budgets and how that's going to impact the defense stocks. A continuing resolution would basically keep spending at current levels looking to fiscal 2024, but it would mean no new initiation of new programs or new spending initiatives for the Pentagon. So it's still considered very debilitating when you're talking about military modernization. In the Goldman note, is there one company that is better positioned in their view than others?

So what's interesting about the Goldman note, and actually it speaks to what we're seeing play out in these first couple of weeks of 2023 in general, is the downgrades are Lockheed Martin and North of Grumman, which were really the two best performers within defense and aerospace and some of the best performers in general last year. We saw a big run up because of defense spending, because of geopolitical risks. because of the defensive nature of defense stocks last year. And now those are the names that are selling off some of the most aggressively to start this year. The D.C. angst certainly playing a role here, but also the fact that you're at near all-time highs in terms of valuations. And again, to your point, this idea of a peak. Plus, you've got uncertainty around supply chain.

And, and this is a little bit wonky for television, but it's going to make earning season very noisy in the coming weeks. The fact that you saw this R&D tax credit change that didn't get reversed, in the omnibus spending bill. What basically means is that companies like the defense contractors that spend a lot on research and development are not going to be able to immediately write off those expenses. They're going to have to amortize them over five years. So a company like Lockheed Martin, for example,

you could potentially see some very hefty multi-billion dollar charges baked into forecast for this year now. A lot of headline risk. Yeah. Gotta leave it there. Morgan, thanks. Good to see you. Still ahead on the show.

For those of you out there with a profitable side hustle, you might be safe from the tax man for now. The IRS holding off on a requirement for payment apps to report those accounts with income over $600. Remember this? But the delay doesn't mean you won't owe eventually. Listen up. We'll discuss it next. Welcome back to Power Lunch.

I'm Frank Collin. Here's your CNBC News update at this hour. The death toll has risen from nine tornadoes and severe storms in Alabama and Georgia. Seven of the deaths were in a single county near Selma, Alabama, where a tornado left a 20-mile path of destruction. Rescuers are still there searching. for survivors. Well, parts of California, they won't have long to dry out for the next series of storms hit. The National Weather Service is forecasting more severe weather over the weekend into next to prepare the state is sending swift water rescue teams and extra firefighters to eight counties in

Central and Northern California. And President Joe Biden will give his second State of the Union speech on February the 7th. He formally accepted an invitation from the Speaker of the House, Kevin McCarthy. The annual address gives Biden an opportunity to lay out his legislative goals at the midpoint of his four-year return. That's the very latest. Kelly, back over here. Frank Holland, thank you so much. It's time now, everybody, for our weekly ETF. This week, we're looking at consumer discretionary ETFs, $130 million of inflows coming in in the weekend and yesterday. That CPI report member showing inflation starting to slow, and it could be a big boost for this group. A lot of them are techie kind of names. Soft landing hopes that would be good for everybody. And as a practical matter,

Amazon up 14 percent this week. Tesla also gaining those are holdings, big holdings for these funds. specific ETFs are talking about. The sector spider up 5.5% Vangard's consumer fund up almost 6%. Same for the Fidelity name here as well, all having a pretty banner week. This data comes from our partners over at Track Insight. More information is available on the F.T. Wilshire ETF Hub. But why am I doing this? We have a TV star in studio today.

Loyal viewer, someone we all know from America's Funniest Home Videos and dancing with the stars and even with the windbreaker and sneakers on. We can't let this talent go to waste. Tom Bergeron. Welcome, everybody. Hi there. I'm CNBC intern Tom Bergeron. Here's what's ahead on Power Lunch. A Thursday night fumble NFL regular season ratings falling this year following Thursday night football's move to Amazon is streaming coming up short with sports. Plus Apple CEO Tim Cook requesting and receiving a 40% pay cut. Why not? After a shareholder vote, Tyler and Kelly will discuss all this when Power Lunch returns. Where do

I leave my resume. All right, welcome back to Power Lunch, everybody. We've got about 90 minutes left in the trading day. So let's get you caught up on stocks, bonds, oil. And then we'll look at the NFL's ratings ahead of a big weekend of playoff football. Let's begin with Bob Pazani for a look at what's moving on Wall Street. Bob. Tyler, the lows of the day were right at the open and the market felt like it wanted to go up all

throughout the morning. We're now up. And more importantly, bank stocks are up. Just take a look at what's going on here. I want to emphasize J.P. Morgan, for example, was 135 at the open. That's a huge move. That's a big intraday move for J.P. Morgan, opening on the bottom, we're at the highs for the day right now. I want to just emphasize what I think is going on here.

A lot of general investors, not bank investors, general investors were looking at the bank earnings as proxies for recession. And what they wanted to look at was the loan loss reserves. They were wondering if the numbers were going to go up really, really high. to indicate concerns about really deep recession. Now, these numbers are higher. They have increased the provisions for loan loss, but not that dramatically. City Group about a billion, a billion for Bank of America. These are numbers that are not far from what the normal numbers were prior to COVID. So, yes, they are elevated, but not dramatically. And it sort of supports to a certain extent the soft to mild recession story out there. I think that's what's going on. Elsewhere, the big story

for 2023 is going to be margin concerns. And, Delta is a very good example. They said business is great. Overall, business is great. However, they're paying a lot more for costs, particularly for labor costs. So that's affecting their earnings and that's affecting their guidance and the stock is down. Interestingly, United and American, which you think would have similar issues, are not down that much. So that's a very interesting dichotomy. But there's your big story, margin compression for 2023. Where are we on the S&P 500? Well, we are in an upswing, folks. I would not call this a bull market, but it's heading in that direction, actually.

3981, that's the 200-day moving average. We're above that now today. We haven't been above the 200-day moving average for more than two days since April of last year. That's a very simple way of looking at whether or not we're in an upswing. We're definitely in an upswing. Tyler and Kelly, I wouldn't call it a bull market, but half the S&P 500 are above their 200-day moving average right now. We'll talk a little bit more next week about that. But you've got to get up past 60%.

We're definitely in some kind of upswing right now. Back to you. All right, Bob, thank you very much. Let's flip over to the bond market now where yields are slightly higher today. 10 year around, let's 3.45, no, 350 on the nose actually right now. So it's coming up a little bit. Now, their signs inflation is slowing. It's leaving some to believe the Fed will only hike by a quarter point at the next meeting.

But again, lower rates have undergirded much of the recent rally. This is the area to watch to see if it can continue. All right, let's bring in PIPA Stevens now for a check on how oil is trading today. Do tell. Yes, it is on set here for a four, the positive week in the last five with WTI and striking distance of that $80 level. Now, in addition to the global economy, looking a little bit better, we've also got the dollar at a nine-month low.

Wow. And since WTI is priced in dollars, it does make it more expensive for foreign buyers when the dollar is strong. But I did want to focus on Nat gas today because it is tumbling yet again, and we actually saw an injection into storage last week. And that is unheard of in the middle of January, in the middle of the winter. Usually time to draw it down. Exactly. And so we saw this injection and one trader said it was the most bearish storage report he had ever seen. Wow. And a lot of that was concentrated in the south central region, but we even saw an injection in the north. So this is

completely warmer weather than expected? Yeah, warmer weather. Simply as simple as that. Exactly. And it's been warmer in Europe as well. Exactly. And then you think about it, we've been walking around in like spring jackets. I mean, I've been in basically short sleeves. And so that's been having this huge downward pressure on gas. Now, forecasts are changing towards the end of the end of the indicator here. It's a pipa indicator. Exactly. You see pepper in the short sleeves. Exactly. Exactly. I know. I know. It's all about my clothing. But yes. And so temperatures are turning a little bit colder for the end of the month. So that could play a role here. But for right now. It also reminds me, I know we have to move on, but what Ed Moore said as well earlier this year

when he was correctly bearish on a lot of these fossil fuel prices. And he said, watch out there's going to be over production. And that has also been, it seems a big part of the story. Yes, we aren't using it as much, but we have had big numbers on both the oil and the Nat gas side. And Freeports, Texas facility is still offline. And that's 2% of daily U.S. demand. Now, let's talk lithium for just a moment. This is the new oil because we're all driving EVs now. So what are the lithium prices telling us? Okay, so one big mover today is lithium company Ioneer. They're about 700 million market cap, stock up more than 20%.

That's on backing from the DOE. They got a $700 million conditional commitment. And so that is, there are some provisions there, including that they secure all their necessary permits, but the stock is just flying on this backing. To start mining lithium in the U.S. Yeah, so this is the Reinhold Ridge project out in Nevada. And so they say they're in the final stages of the federal permitting process,

but that loan is tied to securing all those permits. And as we've talked about before, it's not always the easiest process to get through. But it seems pretty simple. They're just these big blue pools. and it just evaporates. So that's for brine, yes. So that's how what Silver Peak is and down in Chile and Argentina. That's brine.

This is a different type of lithium. We've also got clay and hard rock. So it's a little bit more untested, but they say it's more economic and it doesn't use as much water. So that's what they hope for. Which you don't want to have to use in the Southwest. Pippa, thank you very much, our Pippa Stevens. Now to the busy sports weekend on deck.

I see the jerseys everywhere. NFL playoffs kick off tomorrow when it comes as viewership during the regular season is expected to be down about 3% from a year ago. but it's not the reason you might think, unless you know, it's Amazon. They're being blamed for this drop as Thursday Night Football moved exclusively to Prime Video this season. Here with more on that and the streaming landscape is Joe Flint, media and entertainment reporter for The Wall Street Journal. Joe, welcome. You know, Amazon says, listen, the demo numbers were fabulous, and frankly, I was surprised that many people watched it on Prime Video.

What are your takeaways? Well, I think it decline was always to be expected. any time a sport or any program is transitioning to a new platform. That said, younger demos aside, the drop in viewership is lower than even Amazon had projected. They had told advertisers they thought they'd have about 12.6 million viewers. According to Nielsen, they had about 9.58 million viewers. And even Amazon's own measurement through their own first person data came up with just over 11 million. So they did under deliver some.

I also think there was some technical issues as someone who had to watch the Amazon games on their computer because they just didn't stream on my TV. So there were some bumps. And I think a lot of sports will experience this sort of transition because we're going to see more sports leagues doing bigger deals on streaming platforms. If you X'd out the Amazon factor and you merely looked at the legacy providers, How did the NFL do? Up on NBC, CBS, and ABC, a couple percentage points. And ESPN was down slightly, but that is taking out the Cincinnati Buffalo game. And, of course, what happened there in the game was canceled.

That audience prior to cancellation was on track to provide enough of a boost where ESPN would have also been up from a year ago. So this is really more of a Thursday night football situation than a general NFL ratings are down situation. Joe, now we have this kind of one last big media rights deal, the NBA coming up. I guess do we know the timing for that yet? What is that going to tell you about the value of both these sports rights and also what people are paying up for these sports teams? Well, the NBA is going to be very interesting. It's got a couple more seasons. go. The main carriers, as you guys know, are Disney's ESPN and Warner Brothers Discovery's TNT.

Both of them really need the NBA, but you look at Warner Brothers Discovery. They have a lot of debt. They've been making a lot of moves to try to reduce debt and be much more conservative on spending. David Zaslaw, the CEO there, has already said, we don't need the NBA. But TNT relies on the NBA, not only for ratings, but the big sub-feat. that they charge distributors. So I expect they will fight to keep it, but I won't be surprised if they end up with a smaller package and the rest of that gets carved off to an Amazon to an Apple.

Now we see YouTube pushing into sports. So that's what I would anticipate happening. I'm curious. Speaking of sports generally, but specifically the NFL rights, to a lesser degree, the NBA thing, I wonder how the pay packages that are now being offered to the broadcast.

like Joe Buck, like Troy Aikman, like Tony Romo, like Al Michaels, how are those affecting profitability? Because those individuals are getting paid a heck of a lot more than they did five years ago. Most definitely. ESPN made the big move bringing in Joe Buck and Troy Aikman because they felt that they really didn't have an A-List broadcast booth for that franchise. And Amazon, of course, wanting to make a splash, show that they're real, brings in Al-Mykeman. Michaels. And yeah, those costs are up. And then everyone else's costs go up to keep talent around. And if Tom, he ever retires and goes to Fox, that's a huge paycheck they've promised to him.

So, yeah, certainly those costs are getting higher. And production costs seldom go down in sports as well. At least for now. Yeah. And I think Charles Barkley just signed a big deal with TNT, if I'm calling correctly, which he earns, man. They're a grass, a very entertaining program. I love the whole thing. But I think it's Joe, Joe, thank you very much. I call this the Tony Romo effect because he was the first one to go in and get, what was it? I think it was in his cycle, $18 million a year. And then that, of course, raised what his partner was going to get, Jim Nance, raised what Aikman was going to get and so forth.

So I think they should all bow at the altar of Tony Romo. Up next, why your side, hustle money is safe from the IRS. At least for now. We're right back. Welcome back, everybody. Gig workers, side hustlers and the self-employed breathing a little easier today, getting some good news. The IRS holding off on a requirement for payment apps like Venmo and PayPal to report accounts with income of more than $600 a year. But the delay is adding more confusion around the rules. And Robert Frank has been untangling them for us. Yeah. The bottom line is this month, the IRS was supposed to start, and these payment platforms were supposed to start sending 10.000. 99s to the IRS for whatever income you earned on these payment platforms, even Airbnb and Etsy.

And so threshold currently was $20,000. That was going to drop to $600. So if you had more than $600 in income on any of these sites, that was going to... So I'm an Airbnb owner. I'm on Airbnb, and I rent my apartment out for $2,500. I would have to, I would get a... It was going to be reported to the IRS. Now, you owe tax, Tyler, on that anyway.

Anyway, yeah. Anyway, but a lot of people, you know, it's an honest. system, and we know how that works. A lot of people were not reporting it. So the IRS came out very quietly over Christmas break and said, you know what, we're going to hold off on this because it's created a lot of confusion, and we all know the IRS is already inundated with problems right now, just dealing with its own returns. So any transaction this year will still be subject to this rule when they start next year. So it's all been delayed. It hasn't been eliminated, but it's been delayed by a year. Yeah. Well, I think the confusion is,

It's also partly around, well, what do people do now? You know, does it, does the delay mean they're still coming from either? That's where I think some of the confusion is crop. So here's what you do now. If you have a business transaction, in other words, if you sell something for more than you paid for it, or it's a service that you provide as your business, you have to pay tax on that, and you should label it that way when you use Venmo or PayPal. If you have a family and friends, so let's say your roommate, you're reimbursing them for rent,

or you reimburse Kelly for dinner, those are, personal payments. Those are usually reimburses me. Of course, of course. Those are personal payments under family and friends and they are not taxed. And so make sure what people need to do is make sure when you're

using these apps that you're labeling either personal or business. And theoretically, the payment platforms are only going to submit to the IRS the business expenses so you only get taxed on that. Now, we're going to see whether that actually happens. So for my 2022 return,

I don't have to worry about this. Don't have to worry about it. 2023 return, do I need to start worrying about it? I should. I should pay closer. If you have a business, the best thing to do accountants tell me, and they're dealing with a lot of these questions right now, is actually create a separate account. So create two accounts when you're using PayPal, Venmo.

I need to say, one is just business, one is just personal. That way, when the IRS comes, not going to do it or say, you know, why did you make this? Well, that was personal. You don't have to go through every transaction. You've got a separate account for that. I wonder if it's a business risk for Venmo. I mean, are people just going to go, I'd rather just not, you know, be exposed.

Well, some people are switching to Zell because the secret is Zell is not subject to any of this. What? Because they say that they're just a bank-to-bank. They're not a third party. So a lot of people have switched to Zell thinking, now, well, you shouldn't avoid taxes regardless, but people are switching to Zell because it's not subject to the same. And that's how the big banks win. That's how they win.

They always win in the end, don't they? Fascinating. All right, Robert, thanks. Robert Frank. Coming up, trading some of the key sectors this week. Our three-stock lunch is next. Welcome back. It's that time for today's three stock lunch. We're sipping on some big winners this week like Tesla, lower today, but on track for its best week since September. Visa also on track for a third straight week of gains and Rockwell Automation about to have its best week since November. Here to help us trade them all is Craig Johnson, chief market technician at Piper Sandler. Hi, Craig. What do you do with Tesla? Well, you know, Tesla's a stock that's 70% off of its highs at this point in time. It's had a pretty steep to see.

cent over the last four months in here. From my perspective, I'm looking for some sort of relief rally. It's really oversold on an RSI basis. Look for a relief rally, but I still want to sell it, Kelly, because I think there's other things to buy. And if you're looking for something in the automobile space, take a look at LKQ on the apart side, or take a look at Ferrari, take a race. They look a lot more attractive than Tesla. Take a look at a Ferrari. I like that advice. Sounds good. All right. How about Visa? You know, Visa is a very constructive looking chart. We are overweight the financial sector. Visa is certainly one of those names that's constructive to us.

Despite all the economic concerns out there, the chart is turning higher, and it looks like to us that Visa is a name that should be bought at this point in time. Well, it's almost like I'm going to have to ask you a follow-up. There's just no ifsands or buts about it. You can't think it yet. How long would you be in it, by the way? Well, when I see these kind of longer-term downtrend reversals, this looks like an intermediate to a longer-term hold from my perspective.

I mean, credit cards are a key part of the economy, the segment you were just discussing, where you got Zell and other places out there, credit cards are still going to be a very important tool going forward. And I like the chart and it's starting to turn higher and it should be bought. Does that, Craig, I mean, when you hear all the recession talk and you look at the charts of the market, like Bob Bassani was saying, we want to see that breadth a little bit more. Are we at that point yet where you think we could have quite a bit of strength here, even if ultimately things are going to get worse? We are 100 percent. And thank you for the question.

So we are 100% at the point where this market should be bought. Because when you go through and you start looking at the charts, you look at the breadth measures, you look at the metrics. What I'm seeing right now in our work is I'm seeing metrics in terms of breadth and new highs that I have not seen in over a year, Kelly. And we're just pushing right up to that downtrend resistance line around 4,000 on the S&P 500. And from my perspective, a break above that level technically is going to set this market up to a FOMO rally. and with $4.3 trillion of cash sitting on the sidelines, the market's going to go higher. Beautiful. All right. Let's talk Rockwell Automation then. You know, Rockwell's another terrific looking chart, and the whole reshoring theme that our eco team keeps talking about,

I think is a very powerful theme that's going to be around for quite some time. And when I look at the industrial companies, they are a key part of this. Rockwell Automation is going to be a key player in bringing manufacturing back to the United States, automating it, putting it in place. And you look at the bottoming setup here in Rockwell, it is, again, another constructive looking chart that we're buying in here and looking for a retest back to the old highs. All right. Craig, the glasses are empty.

Two buys and a not so much buy on Tesla. Craig Johnson, thank you. And still ahead. CEO salaries, Tim Cook, asking for a pay cut. Apple shareholders granting his request. So will other CEOs follow that particularly? We'll be right back to discuss that. more. Apple shareholders agreeing to cut CEO Tim Cook's salary, a move requested by Cook himself,

but other CEOs are still raking in the big box. Steve Kovac, Dominic Chu, join us now to discuss. Steve, why did Cook volunteer for a pay cut, or was this him responding to what he anticipated shareholders were going to ask him to do anyway? Well, it was even anticipation. So a year ago, Tyler, when they had their vote on this issue, the shareholders meeting, that far fewer people supported his pay package. Used to be something like 95% every year. It's like Tim Cook should get paid. Exactly the board thinks he should get paid.

In this case, it was only like 64%. So they saw this dramatic drop-off in support for his compensation package. And in this filing yesterday, Apple says, look, we've been talking to shareholders throughout the year. Well, we know what happened to Apple's stock price last year. So they probably weren't super happy that so much of his restricted stock units were tied to performance, or sorry, tied to time rather than performance. Oh, they were.

And now, so now it's been flip-flopped around, so it's more tied to performance rather than time. He could retire tomorrow in some cases and still get those time-based RSUs. It feels like it should always be tied to performance, Dom. And that's the reason why this has become so controversial, and the reason why you had a number of shareholder advisory services come out in support of these reduced pay packages. It's not necessarily that these pay packages are too generous. It's the time-based units that becomes an issue.

because what you want is to align some of these compensation methods and schemes towards shareholders making money at the same time. If they do, there should be no real problem with the CEO making more money alongside of shareholders. What's curious these days, though, is over the last, say, five to seven years, there's been a lot more focus on that governance aspect of ESG investing, right? And so there's been a lot more focus on CEO comp. One of the things that a lot of folks have been focusing on for years now has been that gap between CEOs and the actual. average worker, right? And this is something the Economic Policy Institute, which is obviously a more left-leaning think tank, but they look at things like pay disparity. One of the things they're looking at, as of 2021, the average CEOs realized salary was nearly 400 times the standard line employee,

non-supervisory rule. That's total comp. 400 times the average employee. The reason why that doesn't sit well is because it's 400 times the average employee. And for Apple, by the way, it's about a thousand times because of all the retail employees. Right. Right. I mean, in Amazon where you're comparing a giant tech company with a cloud operations to what someone in a warehouse is making, I mean, I don't know how useful these are. I'm interested in the case of Apple that this seems like such a big deal.

Like it's such a big deal that he cut his pay by whatever it is. 40%. I mean, is it material to their earnings in any way? Or do he's still incredibly well compensated. And by the way, pretty much all of us probably are exposed to Apple's performance and are aligned with his incentives because it's the biggest most widely owned company in every mutual And not to mention all the buybacks they get. So it's not like they're seeing shareholders aren't seeing a benefit, but you also got to look at, and Apple points this out in the filing too,

the performance of the stock under his tenure. I think the stat they use is the S&P over the since 2011 is up 290% or 300% and Apple shares were up like over 1,000% in that same time period. So they're just like, look at the chart. Right. Look what he did for you. This is why we're paying him so much money. And even still, he's going to take the pay. Are we hearing of other companies either in tech or in banking, say, or in any part of the economy that are doing this? There will be. And the reason why is because even if there wasn't before,

the fact that Apple is probably one of those publicized public companies out there, this is a very high profile move that's been made there. So if you want to know what's going to happen elsewhere in big tech, this could be one of those precedent setters. Intel's one to watch too right there. We often see it after the recession hits. And there's been a, this one's interesting because even though tech's been an evaluation reset, it hasn't been that bad yet.

No, definitely not. And Apple can definitely stick through it, and they've been holding up better than the rest. But yeah, it's still falling. I hear the walkoff music, gentlemen. It is. I hear the music as well. That's a signal. That's a signal, Donny.

Steve, thank you and thank you for watching Power Lunch.