Power Lunch - Dow Hits All-Time High 7/12/24

Episode Date: July 12, 2024

Stocks are on the rise, with the Dow crossing the 40,000 mark once again and reaching an all-time high.Are we entering a new phase of the market if the Fed is about to begin a cutting cycle? Or can big tech and small caps rally together? We’ll discuss throughout the hour.  Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Good afternoon, everyone, and welcome to Power Lunch. Alongside Kelly Evans, I'm Tyler Matheson. Stocks are rising today. The Dow crossing 40,000 again and reaching an all-time high. Gains for the S&P 500 and the NASDAQ also moving up after yesterday. Those gains, by the way, Kel. Well, they're pushing those indices into gains for the week. The NASDAQ now higher 11 of the last 12 weeks, dating back to April.

But that comes despite weekly losses for Microsoft and Amazon, believe it or not. And while those mega caps decline, small caps had a great week. Russell 2000 up more than 6%. Home Builders also had a huge week. KB. Home and Beezer up more than 15% as the CPI and comments from Powell seem to increase the likelihood of a September rate cut. So are we entering a new phase of the market if the Fed is about to begin a cutting cycle or can big tech and small caps all rally together? Let's bring in Mike Santoli. Can we have kumbaya? You know, Tyler, I think certainly we can. The prospect remains out there.

I do think that's what we're seeing today, by the way. InVity is up 3% again and Apple's up a couple percent. It doesn't really seem in that sense like a totally changed character of this market, but maybe one that is a little bit less narrow and slightly less reliant and stretched in the direction of those very largest names, which are not only big and popular and crowded and heavily owned, but also defensive when people are fearing the macro. I guess there's another option out there that was not just mentioned, which is maybe it's time we get a little bit more of a pullback or a cooling off in the indexes, which doesn't hit the smaller stocks as hard because they haven't been up as much and maybe are not as extended. So all those things are in the mix. I think we can absolutely say there's more room for this reversion to the mean to go on for a bit.

We're not even close to the highs on the Russell 2000 of 2021. You probably have to go up 10% to get there from here, even though the S&P's been making almost 40 new highs this year. So, yep, there's room for everybody. It's obviously got to be about the, not just a rate cut, but if the rate cut is seen as preserving and extending this expansion so that it can be a very orderly soft landing type easing cycle and not the beginning of a heavy rate cutting campaign.

All right, Mike, stick around. We appreciate it. For more on what the next phase of the market could look like is David. David Smith joins us. He's Chief Investment Officer at Rockland Trust Investment Management Group. And CNBC senior analyst and commentator Ron Ansana is here at the table with us. He's also Chief Market Strategist at Dynasty Financial Partners. Welcome, one and all. David, I'll all throw it to you. What do you think?

Is this, you know, people love the great rotation question because they always want to say yes. It is. Very few people want to say, no, it's not. Where do you fall? Well, I think we're all hoping it is. I mean, most active managers are struggling with the fact that if you're running a mutual fund, for example, you can't be overweight the magnificent seven just due to regulatory requirements and restrictions. And so we're all hoping for broadening for that reason, but also because that would imply that there's a broader economic well-being. I kind of use the terminology with our clients here at Rockland Trust that, you know, the big tech companies kind of make their own weather.

and they just kind of go up based on their own secular phenomena. What we're seeing and hoping is that the broadening will come as a result of the weather getting better, people feeling more and more comfortable and confident that the soft landing scenario that we're all hoping for comes to fruition, and the data that we've received over the last couple weeks with the jobs numbers last week and CPI yesterday support that there's going to be a Fed cut, and ultimately that if it's the beginning of a series of cuts should result in positive economic outcome and perhaps will manage the very, very challenging outcome of getting to a soft landing. What happened today, Ron, that made the Dow move as high as it is? Well, I think a couple of things. Consumer expectations eased off a little bit,

which once again reinforces that the Federal Reserve probably needs to make an interest rate cut. Inflation expectations among consumers included in that University of Michigan sentiment reading that came out today, fell to the lowest level we've seen in quite a number of months. And, you know, PPI for, you know, coming in slightly above expectations, wasn't really all that hot and doesn't change the inflation narrative much. So I think, as was being said, you know, the soft landing scenario looks quite good. The Atlanta Fed just upgraded its GDP forecast for the second quarter from one and a half to two percent annual rate of growth. It still looks fairly goldilocks here.

And indeed, if it's going to broaden out, if the economy is going to stay in, lower interest rates generally will favor small caps as well as large caps. But they'll get that tail when they've needed, yeah, no matter the cap. Yeah, no matter the cap. Whatever kind of cap here. Whatever kind of cap. I borrowed that for my kids. I don't even know what it means. Mike, I think it means not law. Anyway, hey, Mike, so the natural place of mind is going with this as well, but the unemployment rates on a seven-tenth upswing from trough to peak right now. And what if it keeps going? And I know you know these cycles better than anyone. So have we ever seen a cycle where the unemployment rate starts to rise, but then stops before it goes too far?

There was a little bit of a rise off of the absolute low in the unemployment rate in the mid-90s, but then it basically did just kind of stall out and and either kind of hover or come back down at times. So yes, there have been these instances, but, you know, I know you're referring to these models that suggest at a certain point the unemployment rate does get upward momentum and it does tend to sort of be self-reinforcing at a certain point. Broader point, I think also that you're kind of touching on is this has to be kind of a growth scare and not the real stall. And so we'll see if that remains the case. I think, as Ron said, like underlying growth still seems okay. It still seems roughly near or just below trend. And that'd be great if that's where

we managed to settle out for a bit, especially because the earnings cycle is not exactly matched up at the moment with the broader economic cycle. It seems as if annualized earnings growth rates are going to be a little bit better than you might expect from a slow growth economy. So I think that everything can coexist at once for this interim period, but the way it breaks from here matters quite a bit. David, you have an eclectic mix of stock. that you like that range from the consulting field to insurance to energy. Explain why. Yeah, well, I think in this broadening theme, as we discussed earlier, I think if investors do get comfortable with a soft landing, they're going to look beyond AI. Obviously, the AI has been

the driving trend in the Magnificent Sevens performance, broadly speaking. And so if, in fact, they're going to look more broadly than that, and we do have a normally shaped interest rate curve, that's very beneficial to financial services companies, particularly insurance companies, that own large bond portfolios. So as maturities roll off, they'll be reinvesting those proceeds at higher interest rates in the intermediate to long term, which would be beneficial. At the same time with insurance companies, particularly Chubb,

there has been significant increases in premiums there. That's actually beneficial to the insurance carrier so long as people don't cut their coverage. Chub tends to focus on a wealthier clientele and more affluent clientele who tend not to be as price sensitive as it pertains to hedging out risk. So we feel like Chub particularly is in a very good position take advantage of both of those phenomena.

As it seems Accenture, we're very excited about Accenture's AI exposure. If you think about the enhancement that we're all going to get in productivity as general operating businesses, it's going to come from this technology that is very, very new. There are all kinds of new vendors, and IT departments in corporate America need to figure this out, they need help. And Accenture is particularly well positioned to help, generally speaking, these companies sort through all that.

So there's a couple of examples of things. We think investors will begin to focus on as they look beyond, you know, just AI-specific direct plays and begin to look beyond and what else could potentially benefit. The way you have to go. I want to believe it's the roaring 20s run. The Ed Yardinney's right. And it's going to turn out that way. But again, it's pretty unusual to have a period where the unemployment rate rises like this. And a recession isn't coming, nor does it keep rising further.

I'm kind of in Mike's camp. I mean, you get the slowdown, you know, that it is not necessarily, you know, fatal in any way, shape, or form. And you also look, if you look at jobless claims yesterday, they fell, even as the unemployment rate has ticked up. So, you know, we're not hearing from companies that they're doing mass, mass layoffs. You're hearing on a more selective basis. And, you know, a lot of it is having to do with industry-specific issues as opposed to economic issues. We're probably going to slow down. A recession, I think, would require inflation to spike back up and the Fed to tighten.

And, you know, financial conditions are more than friendly as far as stock market is concerned. I'm not sure that's true on the credit side. But there's a lot of money sloshing around that's supporting the economy as well. All right, folks. Thank you very much. David Smith, Ron Insana, Mike Santoli. We appreciate it. Good to see all of you. Well, as stocks digested the possibility of rate cuts, that news also playing out big in the bond market. Rick Santelli tracking the action for us from Chicago. Rick. Yes, Tyler. You know, yesterday, the CPI really excited the market. And as you look at a week to date of two-year, you can clearly see how rates just dropped.

And today, rates largely ignored a much warmer PPI with warmer. revisions, but it did pay attention, as Ron Insana pointed out, to the weaker confidence, and, of course, the inflation readings within University of Michigan. Open the chart up to first week in February, because we're on pace for a four-month low-yield closing twos. Open it up year to date, I will draw your attention to something significant. The high close for the year, well, that's been 504. The low-yield close has been 414. The average is 4.59%, which is where we were hovering right around 460 all week until yesterday's cooler than expected CPI. Let's look at a week to date of tens.

Notice where it's been paying most of its trading time, right around 428 to 430 until yesterday. We'll open the chart up to 327, March 27th. We're on pace for a three and a half month, low yield close, open it year to date. The low yield close, 3.88, the high yield close, 4.7. Guess what the average of that is? 4.29%.

We are now closing the week below the midpoint of the year in short and longer-term meals. That is technically significant, and we want to continue to monitor that, especially on a week where we had auctions of longer-dated treasuries. Tens went very well. 30s, not so much. Tyler, back to you. Rick, thank you very much. A quick power check now as we head to break on the positive side, Carvana, higher after BTIG initiated the shares at a buy, saying it can grow market. share and profits simultaneously from here. It's already up more than 80% in just the past three months.

On the flip side, Wells Fargo, sinking on earnings, reporting a 9% decline in net interest income for the second quarter. We'll have more into results from the rest of the banks when Power Lunch returns, so stick with us. Welcome back to Power Lunch, everybody, the S&P 500 financials sector hitting an all-time high today. That is despite declines in big banks reporting today, like JPMorgan and Citigroup, strong investment banking revenue, but still trading lower, and Wells Fargo, faring the worst after reporting a 9% drop in net interest income. So let's look at the results now with David Conrad, managing director at KBW. Let's look at those big banks, Mr. Conrad. It would seem based on how they're performing today, the fact that you call them all market

perform, and they are all close to what I see to be your price target, that you don't think these big banks are the place to fresh money and that they may be fully valued. Am I right or wrong? No, I think that's fair. You know, I think when you look at the banks overall, in terms of the banks that are reported today, you know, Bank of New York is a little bit different animal, but also a G. Sib, you know, that's up strong, up over 5%. We do like that name. But it is a different animal here. But in terms of these large banks, you know, J.P. Morgan, I think, had a very solid quarter. They had a very strong investment banking up almost 50% year every year. But it is trading, you know, near 13 times 2025 numbers. You know, that is above its historical valuation. And, and, you know, most of

financials are to steep discounts of the market. You know, J.P. Morgan isn't as much. And so I think that valuation, it's off today a little bit because it's over owned and has a valuation. And they were relatively consistent with their guide. But it was still a really solid quarter. It's just a matter evaluation. Yeah, there's not much to nitpick in JP Morgan or in city. I suppose people are pointing to the net interest income gap at Wells Fargo as the big problem there, which is why that stock is down as much as it is. Yeah, with Wells Fargo, you know, that's been a turnaround story. They've done a great job and really lowering expenses and buying back stock and restructuring the company. Today we had a little bit of a setback and kind of a recast of our.

expectations. They did disappoint on NIA. And, you know, what's interesting is they didn't change their full year guide, but they moved to, you know, closer to 9% relative to closer to down 7%. So a worse guy than what we were expecting. You know, people are scratching their head because their asset sensitive rates are now, although we expect the Fed to cut later in the year, for the bulk of this year, they've been higher than what we've expected. And so that should actually be a tailwind for for Wells Fargo. But it hasn't. I think there's two factors. One, loan growth has been disappointing, and that's really true for the industry. And I think that's a read-through for next week as well. That really the only loan growth is credit cards. I would circle back to the fact that debt capital

markets is wide open. And so I think bond underwriting is stealing a little bit of share from corporations tapping banks balance sheets. The other issue is deposit costs are still creeping up, even though the Fed is done raising rates and potentially lowering rates later this year, there is a lag in deposit costs. With wealth specifically, they had some adjustments in higher costs and wealth business. And so I think that's a little bit more of an outlier than what we'd see for the rest of the names next week. But those are the two factors that drove the lower NIA. I noticed that.

I thought that was interesting, David. The customers, you read through to that and they're getting more savvy and they're looking for higher yielding places to put their deposits. Do you think Fed rate cuts stop that if they're only cutting 2550 basis points? I don't think it will in the first couple moves. I think to your point, banks are actually still their entire deposit portfolio is still actually below market levels that you see in money markets. So I think it depends on the mix. But if you have heavy consumer, heavy wealth, I think you'll have a challenging time

moving down your deposit costs over the first couple moves. In fact, it could go the opposite way. You could have up costs and down rates. Now, Bank of New York, again, reported today, their deposits are almost all institutional. So we expect a really strong deposit bait on the way down. So we think that name's unique that they will get the deposit costs down. Your coverage universe, you have some outperforms. Bank of New York is one of them. Goldman is another. Truist is another. But largely, you've got sort of market performer. Are you kind of just lukewarm on the segment right now? I think that's right. I think there's limited catalyst. And until we get the yield curve, which is now inverted, I think it will be flat to slightly positive as we move through 25.

But I think we have to get through credit visibility and the different shape of the yield curve. I think what I'm trying to identify with all those outperform ratings is banks that are under earning for various reasons. And whether it's in a case of Key in Bank of America, we think Goldman has still in a restructuring phase of the consumer business and has a big tailwind in capital markets. So there's unique company catalyst in those names, but for the group overall, you know, we think we think investors are going to stay, you know, a little bit subdued with them until we get a better shape of the yield curve. Okay, David. Thank you very much. Have a great weekend. Thank you. Stay cool.

Still ahead, digging in. President Biden was defiant and mostly energetic in last night's press conference, though he still had a couple of gaps. Did he do enough to sway his doubters and bring some donors back to his side? We will dive in when Power Lunch returns. Welcome back to Power Lunch. Stocks are jumping, nay, leaping to end the week. The Dow's above 40,000 with a 440 point rally. That's a new record. Similar for the S&P to 5648, the NASDAQ, the leadership up 1.3%. But it is pretty broad. The small caps, everything seems to be up. Turning to politics now, last night's press conference from President Biden probably did little to change minds, but didn't do enough to change the flow of money from nervous donors.

Megan Kisela has the latest for us. Megan? Hey, Kelly, so the short answer here to your question is no, or at least not yet. No donor or bundler I've spoken with today feels like last night changed anything. He didn't fail the test, but he also didn't do enough to quiet his critics. So that means the fundraising is also on hold. Multiple bundlers tell me they just don't feel like they can ask for money right now. Another well-connected Democrat says the bundlers who are reaching out to people are getting crickets back, adding that quote, the donor class is frozen for the time being. The other point to note here, though, the caveat is that I've also heard from multiple sources in the fundraising world who say they're confident that the money will flow just as soon as

Democrats have certainty in their candidate, whether that's Biden or someone else. One donor and fundraiser told me today that as long as there is a path to victory or a perceived path to victory, then money won't be an issue. But it is something that will have to watch a little bit longer, especially as the drumbeat of calls for resignation continues. Just in the last hour, a 19th Democratic lawmaker, Mike Levin, added his name to the list. Biden has been making calls to various congressional caucuses today to shore up support. He'll continue that outreach tomorrow. He's hitting the campaign trail today and next week, and I'll have a fundraiser in Texas on Monday. So it's a busy schedule. Clearly, he's heating the calls for the public to hear from him more and to see him

more. His campaign now is just hoping it's enough. Kelly? Let's talk a little bit about the people in the campaign and his inner circle who are doing, I'm sure, what you just said they need to do. And that is to plot the path to victory for Joe Biden, not just the path to victory for the nomination, but the path to victory for the presidency. What are you hearing about that? And what would the elements of that path potentially look like? You know, some in the campaign say it's a matter of keeping their heads down and doing the work. We saw the campaigns on a long internal memo and also hold an all-hands call last night after the press conference, trying to rally morale, trying to refocus everybody saying that their internal polling still looks good.

It's not all that changed from the debate and even the press conference that they want to focus on those swing states and kind of stick to the playbook they'd already laid out. On the other hand, though, some of those campaign staffers and close Biden advisors who met with lawmakers yesterday, the reporting that's out there now is that they weren't sharing any internal. polling. They weren't giving those specifics that lawmakers and others, donors in particular, are really hungry for. So they want to sort of keep their heads down and just grind it out and move past this. At some point, it becomes a question, though, of if that's enough, because they've been doing that for two weeks and it hasn't worked so far. Yeah, I'm surprised. I don't know if I should be surprised, Megan. I mean, I thought after a relatively solid performance last night that perhaps

we wouldn't be hearing as much as we seem to be hearing today of more voices joining that chorus saying that it's time for the president to step aside. What would be the signs this weekend other than a literal change, but that a change is in the works, maybe a Harris ticket? And by the way, if Harris is the candidate, who's her VP? There's already a lot of speculation about who her VP is in this sort of identity-driven era of politics. A lot of folks are talking about a white man with some probably governing experience, someone like Roy Cooper of North Carolina, Josh Shapiro of Pennsylvania. But I think the keys to watch are going to be not only what members of Congress are doing. But what is congressional leadership doing, especially after Biden continues to

make this outreach to the caucuses? Do we hear from Nancy Pelosi again? We heard from Jim Clyburn this morning, and he was resolute in support of Biden, but he also said he supports Harris, and that's just going to continue the news cycle for a little bit longer of, oh, maybe he'd be okay with Biden stepping aside. So unless and until we start to see some key leadership figures kind of putting their foot down to say, enough is enough, we're all with you, we're moving on. drum beat continues. Yeah, and that has been, it's what has not been said, that is almost as telling as what has been said.

Former Speaker Pelosi, current ranking member, minority leader, Jeffries, they have not come out in a, or really even Schumer, beyond saying I'm with Joe, hasn't really come out in a full-throated endorsement kind of way. Anyhow, Megan, thanks very much. And these are... Go ahead, please, finish. Go ahead. I was just going to say these are savvy politicians, Tyler, and so they know exactly what they're doing.

With every word they say or don't say, they recognize that they're leaving the door open. They have at least so far been leaving the door open for more of this to continue. Some of it might be political games. You know, Nancy Pelosi recognizes that many of her colleagues are in tight races in swing districts. Maybe those are the folks who she says, okay, go out and this might be good for your race. At some point, though, does the hammer come down? Do they stop doing that? or do they let it keep going? That's going to be the next tell.

Very interesting. Megan, thank you very much. Appreciate it. Coming up, Formula One racing, but on water, we'll get a glimpse into the new sailing competition that Wall Street Titans like Larry Ellison and Mark Lazarie are putting their money behind. Power Lunch will be back in two minutes. Welcome back to Power Lunch. I'm Kate Rooney with your CNBC news update at this hour. The jury and the Senator Robert Menendez bribery trial began deliberating just minutes. ago. The New Jersey Democrat and his co-defendants are accused of a years-long bribery scheme.

Menendez's wife, Nadine, also charged, but she will be tried separately. The couple has pleaded not guilty. If convicted, Senator Menendez could face decades in prison. The GOP-led House Homeland Security Committee subpoenaing the Department of Homeland Security to demand the release of more information about immigrants with potential terror links who have crossed the southern border committee chair, Mark Green, says, reporting. reporting from NBC News and others about migrants with ties to ISIS K and other terror groups who have been arrested led to that subpoena. And in parts of Texas, the heat index will once again reach 100 to 105 degrees today, as electricity providers there say just over 1 million residents

remain without power in the wake of Hurricane Barrel's landfall. Meanwhile, about 42 million people in the western U.S. are still under heat alerts today, as the National Weather Service warns of, quote, dangerous and record-breaking heat over the weekend. Ty, back over to you. All right, Kate, thank you very much. Well, a new and high-stakes report, sports, excuse me, is gaining traction here in the U.S. 10 international teams, high-speed racing around the world, and it's not Formula One. It's sailing, and it's got the backing of Wall Street Titans, such as Larry Ellison and Mark Lazary.

Deirdre is here exclusively with Sail GP CEO Russell Coots. Deidre, take it away. Tyler, thanks for that. And ahead of the final weekend, which is going to shape up to be some great races. Thank you for being with us. Thank you. Everyone in sports wants to be the next F1 in terms of its success, its mainstream appeal. CLGP has a lot of those elements, high risk, high stakes, $2 million prize this weekend.

What do you need to do to get to the league to the next level and have that sort of mainstream access? Well, I think the interesting thing is that we've seen just incredible growth over this last. really, well, six months even. New teams coming on stream. We just announced a team from Brazil. We've got another announcement coming up in September, another exciting team. And as we expand into those markets,

I think we're drawing more fans in to really see what is evidently an exciting racing product. I was just saying before that really what we're seeing is this isn't the avid sailing fan that's following SAILGP, maybe 10% of our audience is that. It's really the racing fans, the general sports fan, and it's also the people that are interested in the back stories behind the athletes. So you've got a growing fan base,

and that is attracting more investor interests as well. I mentioned Mark Lazary, who led a group to buy a team USA for $35 million. Put that in perspective for us and how valuations are looking in the league. Well, I mean, I suppose I always thought that teams would gain in value over time. I didn't think it had happened this early. And it's really been in the last year and a half. You know, we were selling teams at 5 to 10 million. Then the first European team sold for 20 million.

Then the American team solved for 35. We're now seeing sales at 45 million. I think by the time we're halfway through season 5, I don't think it's unreasonable to think we might see $80 million sales. $80 million for a team? Yeah. And who is interested? Who's buying?

Have you heard from tech CEOs and founders? have sort of gone into the F1 world? Yeah, it's not people that are generally that may be sailing fans. I would have thought that we would have had wealthy individuals that were interested in that would have come in and bought one of these teams and had some fun with it. But really what we're seeing is real investment coming in where these people are actually seeing an opportunity, seeing the growth. They know that some of the expansion plans for the league coming up.

really they're seeing an opportunity. Have you heard from the private equity interest, which has taken a growing interest in professional sports? Of course. And not only in the teams, of course, in the league. But the league's not for sale right now. So Larry Allison founded this league, along with you back in 2018. It started with avid sailors and has moved into a broader group of investors. What's his involvement like?

And what about his son, David Ellison, who just led the bit for Paramount? Well, sure. I mean, Larry is hugely focused on tech. He's interested in sports as well. And I guess when we started this, we had this vision that really there was this gap in this sailing industry. And when these high speed, super fast hydrofoiling boats came along, we felt that we could set up a league like LGP that were structured like the other sports leagues. So we looked at some of the other big sports leagues in the US like the NBA,

NFL and so forth, took some of the lessons that have been learned from there and then applied it to this new sailing property. And I think, you know, we've been surprised at how quickly it's developed, pleasantly surprised. You guys also have a YouTube docu-series, and it's done quite well. Nothing like the success of like the drive to succeed on Netflix. Are there plans to spend more money a splashier series on a Netflix or perhaps a Paramount Plus? Yeah, so currently we produce a series, a YouTube-based. It got about two and a half million viewers last year. It's an $85,000 budget.

We've got, it's in process now to produce an enhanced version of that, greatly enhanced version. Bigger budget? Is that what that means? Yeah, bigger budget. And then really exciting. story by the way. I can't announce that today. But then also, yes, longer term, do more of a drive-to-svive type show where you can really get behind the scenes at the tech, at the individuals, the people story, you know, battling for their place and the team as athletes, but also the owners,

you know, the business side of it. There's so many backstories that we can tell. And because the boats are all the same, all the teams use the same equipment, we can tell a lot of those stories and bring them out in the open. So there's no real secrecy. There's some business secrecy, of course, but there's no real secrecy behind the tech. Right. And maybe create your next Lewis Hamilton or Max for step.

But we'll be watching and tracking your progress. Good luck this weekend. Thank you. Thank you. Guys, I'll hand it back to you at HQ. Fascinating. Thank you both very much. We appreciate that glimpse.

This week's inflation data showing a big increase in cost in one key area. Most of us have to fork over every month. Car insurance premiums rising 20% from last. year. Contessa Brewer joins us now with more. Any sign these are topping out yet, Contessa. Not yet, Kelly. I mean, the CPI just puts it in black and white. What vehicle owners already know that car insurance is very expensive, 19.5% higher in June than last June, up almost a full percent just from May. Meanwhile, the rising rates are encouraging investors in the insurance companies. Look at

the ETFs for insurance, all up, let's say roughly 15% year to date. And then look at all Allstate specifically. It's up 15%. Progressive, up 34% this year. But catastrophes are already hitting hard as well. Progressive, in fact, announced nearly three quarters of a billion dollars in catastrophe losses in May alone, one month, and before hurricane season even kicked in. Those storms will likely factor into earnings for multiple insurers. That estimate of catastrophe losses, along with a prediction of lower net investment income, prompted Goldman Sachs today to change its estimate for all state's second quarter EPS from $1.92 to a loss of a dollar per share. All state stock today is in the green, however. It's up about 1%. You've got progressive up.

Berkshire Hathaway, which owns GEICO, of course, up almost 2%. And travelers up, one and a third. Travelers, by the way, Kelly, reports earnings a week from today. Do these property and casualty insurers have complete freedom to pass through pricing power, or are they subject to any state regulations? No, they don't. In fact, many states, they go through, the rate requests actually go through an insurance commission. And in California, for instance,

the insurance commissioner is elected position. Well, if you're an elected position, you need to please the voters. So what insurers, car insurers, especially saw for years and years, is that they would go in ask for a rate increase and it was denied. That has changed this year.

and the state has come together because the marketplace has become impossible. Many people could not get car insurance. We're going to the state insurance of last resort, and they're trying to fix that system. But rates are just now starting to catch up with several years of loss costs that have exceeded what the premiums were coming in. People couldn't get insurance because the companies wouldn't write the policies? Yeah, and in fact, a lot of the insurers said, we can't do business here. we can't make enough money on premiums to cover our cost. So we're done.

And when there is a lack of competition, it becomes harder and harder to get insurance. And insurance becomes then necessarily more expensive. And then you go in, you try to get a rate increase because you're the only insurer and it doesn't work. You see how it's a vicious cycle. I got it. Contessa, thanks. Contessa Brewer. And coming up, the second wave of AI.

It's not a mag seven stock, but Wall Street apparently thinks Oracle is an underwent. the radar AI beneficiary. We'll discuss when Power Lunch return. Welcome back to Power Lunch. Let's get a quick check on one of our stock draft teams. Competitive eater Joey Chestnut is toward the bottom of our standings dragged down by Starbucks. But his pick of Oracle has been a winner up 25% since our draft at the end of April. I'm picking Oracle.

Why is that? Well, you know, they just announced they're going to be moving to Nashville. I'm a big believer in Larry Ellison. Are they an AI pick in a way or are they an also ran in AI? I don't think we know. Now we might. Kate Rooney joins us with a look at Oracle's place in the AI race. Kate?

Hey, Kelly. Yeah, we're starting to get that answer to that question there after Oracle's last earnings report, at least it has been emerging as a key player in AI, thanks to this endless demand we're seeing for servers and for cloud computing. It's cloud business. It's a lot smaller than what you're going to see around the Mag 7. some of the names like Amazon and Microsoft, but it has inked some key partnerships with OpenAI and Microsoft, Google as well, CEO SafraCats, and the last earning call saying Oracle has seen enormous demand for training AI large language models. This stock has been in this cohort of what some are calling second-tier AI winners.

Shares are up 35 percent if you look at this year so far. This week, though, the stock did get hit a bit after reports of Elon Musk's XAI scrapping a $10 billion deal for Orrower. Oracle servers and then rented ships. Wall Street, though, mostly shook that off. The reaction really underlined some of the excitement in Oracle's AI upside, which right now is outweighing the loss of a major customer for Oracle. Jeffries, for example, says the Musk deal has, quote, no impact. They say it wasn't factored into revenue yet,

and that Oracle continues to see exceedingly strong demand. And then part of this stock story was the setup, really coming into this year. Evercore said sentiment towards Oracle was at a low watermark, and Oracle went from zero to hero recently. It was their contrarian pick for the year. There's not a lot more confidence in some of that cloud growth and revenue growth as well. Oracle does trade at a discount if he compared to names like Microsoft, but a possible TikTok ban that scene is one hangover on the stock.

Oracle's cloud does power that social media app guys. Yeah, well, what do you make of this kind of what's going on with Eli Mosque and XAI? Interesting. Seeing that news that he was pulling back from Oracle does signify that he wants to move faster. So that's sort of aligned with the Musk ethos of moving fast and breaking things and sort of pushing the limits of what's possible. So I thought that that news was interesting this week that if they do pull back from Oracle, it indicates that they're spending big, that they're trying to move quickly on XAI. But I would say the sentiment in the valley is that they are sort of coming from behind here. that, you know, names like ChatGPT and Open AI, which Musk was a founder of, have really been first mover.

So he is seen as sort of on his heels when it comes to AI, but, you know, there's a lot of people that would not bet against Musk and that he's known to pull off, you know, some wild endeavors, and it's worked in the past. So I think it's one to watch, but kind of coming from behind there. I think Joey Chestnut mentioned that Oracle is moving its headquarters to where, to Nashville? Yeah. I thought they'd already left Silicon Valley. Yeah, they're also. I mean, they had. They're not really a Silicon Valley company at this point. It was Austin. And then it's interesting that that was his thesis, you know, the Nashville move. But a lot of other people look at more of the fundamentals. But again, talk about people you would not bet against Joey Chestnut. Yeah. Yeah. I mean, prolific. But it's interesting. ESPN had this comparison of people in their sports, Tiger Woods, LeBron James, Joey Chestnut. He's right up there. Right up there. And a good stock. picker, evidently. Well, pretty good. You got one right. I think Starbucks he's not doing so well on. But anyhow, Kate, thank you. Kate Rooney. Coming up, much of investors' attention has been on big bank

results in the aforementioned Mag 7, but what about the rally in small caps? Our trader will give us his top pick in three-stock lunch next. All right, time now for today's three-stock lunch. And here with our trades is Quint Taitro, founder and president of Jewel Financial, who chose JPM as his favorite bank to report so far. First up with banks kicking off earnings season. We asked for your favorite bank, and you did pick J.P. Morgan. What's your take here? And why do you like it? Well, Tyler, it's my favorite bank. Unfortunately, we're trimming and selling the name. So while it is certainly the best of breed and probably the best bank in the world, I think this has reached a full valuation. And even in the best banks, you know, sometimes you got to take profits. So this is a name

that I think is really a buy the sizzle, sell the steak. The stocks run up, in my opinion, because of the strong consumer, but also I think traders have gotten ahead of themselves in the anticipation of lower short rates, making a better yield curve, obviously improving net interest income on a lot of these banks. So we think that that's already baked into the price. Any further upside here would have to come from surprises out of the consumer or other areas of the bank, which we just don't see happening. So also the stocks trading two times book, which historically has kind of been our place to start trimming and taking profit. So we still own the name. We will for a very, very long time, but we're certainly not overvalued and not buying the name up here.

That's for sure. Not chasing it. All right, let's move along to Johnson & Johnson, Quint. This was your stock to watch among those reporting next week. Why would you be looking at this one? And is it a buy for you then? Yeah, it actually is. So it's almost exactly the same story.

Obviously, it's not a bank. But nonetheless, this is a stock that has been hurt for a variety of reasons. But along with the staples, these are names. where typically people gravitate towards in low interest rate environments. Well, they've not had to gravitate to these names at all because they're getting 5% in money market. Now we feel that that tide is shifting, and I think you can go looking in the Staples area. This is a name that is trading, you know, basically 14 times earnings has a really hefty balance sheet. And if anybody's concerned about the litigation risks or the headwinds that Johnson and Johnson is facing,

they've got $26 billion in cash. So a healthy dividend, we think, money is going to rotate into the staples and specifically this name we like. All right. We finally, Quinn, asked you to choose a small cap stock with the Russell 2000 jumping this week. On holdings, up nearly 40% year-to-date. You like it? Yeah, we do, Tyler. Up 40% year-to-date, but 15% off of recent highs, which came after their last quarterly announcement,

which was really strong. We think this is a company, obviously, the on-cloud shoemaker, taking market share from the likes of Nike. and others. It is trading richly if you look at the forward multiple 34 times earnings, but if they hit those estimates, which we feel could be viewed as conservative, that's a 200% earnings growth. So this is a name we like. We think the small cap move continues. We think this rotation is not just a one-day thing. We think it's going to be bumpy, but we do think that there's opportunity for follow-through. And this is a name on that last earnings call pullback we like and we are buying here. All right, Quinn, thank you very much. Have a great weekend. Stay cool.

Thank you. You too. All right. And remember, you can always hear us on our podcast. Be sure to follow and listen to Power Lunch wherever you go. We'll be right back. Welcome back at shaping up to be a pretty huge market day with the Dow potentially closing over 40,000 for the first time. It's up 400 points, 1%, the S&P, NASDAQ, all at records, and the Russells are stronger as well. All right, we've got less than two minutes left in the program.

Several more stories we'd like to let you know about. Let's get right to it. AT&T says hackers stole, believe it or not, six months. worth of call and text message records of nearly all of its customers, all of them. According to a new SEC filing, the bulk of the data was recorded between May and October of 2023. AT&T claims the actual content of the calls and messages was not compromised. And neither was the personal information of the individual owners of the phones involved.

ATT's network has 127 million devices connected to it, according to its 2023 annual report. It sounds like they got a lot of data, but maybe not so much that would be damaged. I think this is the metadata, so it can basically figure out, you know, if it can figure out phone numbers, it can figure out other phone numbers that people spoke to for how long the duration of that call was, perhaps use some geography matching up. So a lot of potentially damaging stuff in here if people can kind of sift through it. And AT&T probably still has to answer a little bit more about this. And well, that one disappeared, so we'll go along to the next one, shall we will? We're going to double-click on the next story because the double-click,

the phrase double-click, is the new phrase driving many in corporate America crazy. It's being used in the context of taking a closer look and even Jensen Wong of Vindivia has used the phrase. We're going to double-click on that, which means we're going to delve into it a little more deal. It's like, it's right up there for me is dive in, take a deep dive. You know, my grandpa used to hate bottom line. Bottom line. He used to drive him crazy. I don't know why. Double-click, I have to say, it's not one I heard. Well, you guys double-click on Scott's program, which is coming up here in just a minute. Thanks for watching, Powerline.

And I'll see you in a couple of weeks. Closing bells for us right now.