Power Lunch - Downgraded (Again), and Yellen Goes to China? 6/27/23

Episode Date: June 27, 2023

Another day, another downgrade for Alphabet shares. Is the AI hype meeting the market reality? We’ll discuss that and other tech topics.Plus, Treasury Secretary Janet Yellen is reportedly heading to China for a high-level meeting next month. We’ll talk to a former Treasury official about what she’ll try to accomplish.  Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Welcome to Power Lunch alongside Kelly Evans. I am John Ford. Coming up, another downgrade for Alphabet is the AI hype meeting the market reality. We will discuss that and other tech topics. Plus, first the Secretary of State, now the Treasury Secretary, Janet Yellen, reportedly heading to China next month. We will talk to a former Treasury official about what she'll try to accomplish. But first, thank you, John. Let's get a check on these markets.

And stocks are right around session highs pretty much. The Dow's up 227 points. and it's the laggard today. SMP's up 50 to 4378, and the NASDAQ leading the charge of 1.7 percent. Russells are strong today as well. Keep an eye on Walgreens' boots. This is why the Dow is underperforming somewhat. The stock is the worst performer in the Dow with a 9 percent decline today. And it's not just the worst performer today. It's the worst in the Dow over the past three months, over the past six months, and over the past 12. We'll have more on the earnings missed that is sending the stock lower coming up. On the other hand, we've got shares of Generac continuing their run of up,

28% in June. We spoke to the CEO last week about their role in helping Texas stabilize its power grid during this heat wave. 30% run capped off with an 8% pop today, John. All right. Now for our slew of tech news for it today, Google getting another downgrade from Bernstein today, following a downgrade from UBS yesterday as competition in the AI race heats up. Here to break it down for us as a very own tech correspondent, Steve Kovac, and Alex Cantruitt, CNBC contributor and founder of,

of big technology. Alex, start with you here as we talk about this downgrade of Google parent alphabet. I don't know. I mean, it used to be we were used to, you know, Google being the overlord and Microsoft the underdog. But valuation-wise now, Microsoft is looking a lot stronger. Absolutely. And I think, you know, the downgrade wasn't this massive downgrade. I mean, they're still expecting 11% growth with the new time, the new. price target from UBS. So it's not like they're killing the stock. But what they are saying is Microsoft is pushing this company to be defensive, and those defensive moves could lead to revenue slowdown for Google. For instance, you take generative search, right? So you now have the first

75% of the window. That's all content that Google shows you, and then the ads below, and that could ding the revenue. Remember, search revenue for Google was up only 2% in the first quarter. So this is already a business where the growth is slowing a little bit. You add these AI elements, even though you need to do it to be competitive, long term it can be trouble for the business. I don't know, Steve. Microsoft has a $2.5 trillion market cap. Alphabet only has a $1.5 trillion market cap. The P.E. on Microsoft is 35 plus. Alphabet's only 26 plus. Isn't this Microsoft Search versus Google Cloud? If you think that they can grow about the same, why bet against Alphabet? Yeah, exactly. And then if you look at what Microsoft is doing, let's just go back to the AI thing for a second,

less about search and ads, but also AI. Which of these two companies has a more clear? clear monetization plan for AI products. It's Microsoft. They've laid it out. They're going to upcharge office customers for these AI co-pilot tools. We have some ideas out of Google how they want to monetize. It's going to be integrated in search. What that looks like, how that benefits the ad business. We don't know. But even on a macro level, let's talk about what Google's seeing with advertising, to Alex's point, a slowdown, but also this note points out competition. We have TikTok. We have all these streamers going avod, meaning advertising. advertising support, including our own Peacock.

So there's more competition than ever just for YouTube, just for those ad dollars. They mentioned TikTok as well. I'm not sure that's a perfect comparison, but when it comes to the big TV streamers, YouTube is right up there. We don't talk about YouTube in the same conversation off as Netflix and so forth. But it's up there. It gets just as much viewers as Netflix. Still wonder if a Microsoft win is priced in here.

Okay, quick programming note. The analyst behind the alphabet downgrade will join Closing Bell Overtime. It's a great show if you haven't seen. That's today, yeah. Bernstein senior analyst Mark Schmulik will be on at 4 p.m. Eastern with me and Morgan Brennan, don't miss it. Nice. Looking forward to that. Okay, here's a fun angle on this Google Microsoft thing, but also Reddit is having a huge impact on Google. Here's what's happening. Google executives are admitting that users aren't too happy with its new search function after Reddit protested new changes to the platform. Let's back up for a second and Steve explain

what we're talking about. Is this the fact, for instance, when I'm Googling something esoteric that happens in my house? I know what you're going to say. I get a Reddit result and it's very helpful. And because Reddit has gone dark, sort of, that's messing up with people's Google results. Yeah, this is just a dynamite scoop from our Jennifer Elias and CNABC.com. Basically, you know, the top search executives, including the top search executive at Google, basically admitting what we all know, which is a lot of people who are penned Reddit to their search queries because they know they're going to get a better answer.

And this Reddit rebellion, meltdown, whatever you want to call it, shutting down to the pages, has exposed that weakness in Google search results showing, hey, they're not actually that useful. And when Reddit goes away, we don't have an answer. You're left with nothing. You're left with nine sponsored ads. Exactly. No Reddit thing you can rely on and nothing else to turn to.

Yeah. And it's not just a problem with Google. By the way, this is a problem with Amazon as well. These companies are incentivized by the market to grow their advertising business. And therefore, that means stuffing more ads when you search for something. I don't know. Again, it happens on Google all the time, especially if you're searching for a product or a movie or service. But on Amazon, increasingly as well, it's hard to find those good organic results.

And Google has tried, they've had that, I think, perspectives, I think they call it, is a new product they launched to kind of make up for this, you know, miss of Reddit. But it's very interesting to hear Google's top search executives admit to this. Alex, how does perspectives? So on Monday, Google introduced a new feature called Perspectives, which will surface discussion from social media platforms like TikTok, YouTube, Reddit, and Quora. how is this going to work exactly and how quickly can they roll it out? Yeah, so it's going to be a side tab that's going to give you access to some of the discussions that are happening on the internet and then you could get through, get to through Google. And by the way, this whole discussion just highlights the paradox of Google, right? Because at the end of the day, what it is, it's a search engine.

It's your way to get to the open web and to find information. And we're now starting to ask these questions. Can Google tell us everything, right? That's sort of the beginning of this generative AI searches. We want Google itself to tell us everything. But without the web and without the people creating content on places like Reddit, Cora, the other ones that we've listed here, what is Google? It's a shell.

It's just a place with advertising. And so, you know, it's all these users on the web that have been providing the value to the actual search engine itself. And now we see what happens when they go away. Now they're not really able to bond together and negotiate against Google, but we're actually right now seeing how important these sites are. But Alex, isn't this also exposing a problem in the AI era, which is that the myth of free data is going away. If you let your data out there for free, people are just going to scrape it, use it to train their AI models, and then replace you.

The New York Times is now making more money off of subscriptions versus advertising. And doesn't that sort of paint the way that a lot of these different platforms are going to go, either putting up paywalls or erecting other, like building walls to keep the AI scraper? out so that they can maintain the value of their content, of their data. Absolutely, it does. And by the way, it just goes to show you what the challenge for the challenge a search engine will have moving forward, because ultimately companies played ball with search engines because they could drive traffic to people and drive eyeballs.

You know, I think part of the reason why this generative AI boom is happening is because search engines just let people down and didn't provide them the information they want. They'd much rather have a conversation with the computer than type keywords into Google. Now, if you have companies like Reddit where there's a moderator shutdown or others who are telling Google not to crawl or AI bots not to crawl, you end up with the reinvention of the web,

and one that might not be as useful as it has been or not as useful as it could have been had Google made some of the right decisions before this moment. All right, last topic. A court filing shows Microsoft, CEO Satina Della, provided a new goal of $500 billion in revenue

by 2030. Steve, that's a lot of revenue. Just half a trillion. Apple's going to do. to do about $390 billion this year. Amazon crossed half a trillion last year, but of course, it's a retailer. So its model is different. That's kind of a high target from Microsoft. That's a lot of growth. Yeah, Microsoft, just to put that in context, their fiscal year is not ending for another couple of days, but we do a fiscal year 22, which was just shy of $200 billion.

So they want to go from $200 billion in $22 to half a trillion in 2030. Where does this come from? the same filing that we were talking about here says AI, AI, AI, cloud, cloud. And those two are intrinsically linked, as you know. But that is a lot of it. And by the way, this came out. But wait a second. You can't get there with AI and cloud.

No, but there's another piece here, too. There's a little company called Activision they're trying to buy too, which they believe that that's where this came out. The court filing came out. So they believe that is going to be accretive to them. That's going to help grow. But you can't get there with Activision either. Exactly.

Like, if you're buying Activision, you're already as big as Microsoft, right? You've got to buy a lot of stuff. They've bought LinkedIn. You know, they've bought, what's the... GitHub. They've bought Xenamax. Nuwans. They can go.

They've got to keep buying stuff to grow top line that much, right? Yeah. Or they think cloud is going to continue this hypergrowth. Now, we've seen cloud, especially in the last couple years, lose that hyper growth, lose that momentum. But every time Sotianadella talks about this, he talks about an extremely long runaway for cloud growth. So maybe that's part of what they're factoring in here.

But this is an aggressive target to say the, least and coming out a court file length that's super interesting. Alex, I know Sotinadella, Superman and everything, but you can have to buy a lot of stuff and execute flawlessly to hit that target, right? Absolutely. And to do this, they're going to really have to take share from Amazon, right? So I think Microsoft internally believes that AWS got to this head start because they were there with the technology earlier.

But what they really did was they took Microsoft's customers. Now Microsoft has a way to win them back. because ultimately you have companies with the on-prem servers, they've been slow rolling, the move to cloud, and Microsoft sees all that opportunity ahead of itself. Now it's going ahead with this message of security, this message of AI, and it's got its site set directly on Amazon.

And it believes that it can both push its customers, you know, that have moved to the cloud to cloud, and then also take those AWS customers. And I have to say, you know, the way that the opportunity lies in the enterprise, and the way that this company has been pushing AI in a way that Amazon, there's no consumer product there.

You know, maybe they do have a chance. And I think that it's good to be ambitious inside your company with Nadella's plan 2020, right? When he wants to grow profit and revenue and operating margin by 20% year over year, be ambitious, right? What's the point of being in business if you're not ambitious? And so, you know, it's a stretch for them to hit it, but there is a chance for them to do it. Yeah. And by the way, $500 billion is doable. Walmart was 600.

You look at the Fortune 500 list of top revenue companies. This one, this from 2022, Walmart is shy of $600 billion. Amazon, to Alex's point, next around upwards of almost 500, 400-something billion, Apple. I mean, then CBS, you really have to touch a big part of retail. And those margins are terrible. Yes. CBCM is not a highly nice company. Grocery from Walmart?

Like, you want Microsoft groceries if you're? You want those cloud margins. And Amazon has the high revenue with the low margin business. Everyone's always trying to get them to spin off. So, you know, can Microsoft achieve that size and the margins, to your point? That would be a feat perhaps never before achieved. Which Chatea Nadell has already done. So it's possible.

It is. And by the way, he's been talking about this since he took over as CEO, and he's making it happen over the last several years. All right. Steve, Alex, thank you. And let's stick with the tech theme for another moment. We know it's been a hot sector this year. But there still are some winners and losers within the group. Dominic Chu breaking it down in sectoromics, Dom.

Not just hot, Kelly. The hottest. The single biggest sector in the S&P is the single best performer. If you wonder where the rocket fuel has come from so far this year, it's technology. 28% of the S&P, it's up 37% over the course of this year-to-day period, more than doubling what the S&P 500 has done so far. So if you take a look at what's been driving the upside, a lot of conversations that you guys just had about artificial intelligence, look at where some of these things land.

InVIDIA, up 184% on a year-to-day basis, very much that AI story there. AMD, another chip company, up 70%, very much AI-oriented. and then kind of cloud security, if you will, kind of rolled up into one, Palo Alto networks, up 81%. Those are your year-to-date, powerful winners to the upside. On the downside, we've got some services firm also generally linked towards retail cybersecurity and protection. You have Gen Digital, down 13%, think Norton Lifelock, think Reputation Defender, that sort of thing. EPM systems, which is a kind of platform for software development, digital product development, down 31%. And N-phase on the solar side of things, down 40%. The real losers on a year.

year-to-day basis. But remember, this is Kelly, John, very much a momentum story for technology. 65 stocks in the sector. Four out of five of them are trading at or above their 200-day average price on a rolling basis. So this is very much about a momentum trade so far. We'll see if it sticks with tech. I'll send things back over to you. All right, Dom, thank you. Our Dom Choo. Coming up, Treasury Secretary Janet Yellen reportedly planning a trip to China, along with the plan to curb U.S. investment there. We'll talk about it with a former Treasury official, plus Starbucks CEOs celebrating 100 days on the job with a complaint against the labor unit over the Pride Day core controversy.

Details when Power Lunch returns. Welcome back to Power Lunch. Treasury Secretary Janet Yellen expected to visit China for high-level talks next month. This would follow a visit by Secretary of State Anthony Blinken, who met with China's President Xi earlier this month, and it comes amid tense relations between the economic superpowers. Here to weigh in on that is Anthony Coley, a new CNBC contributor. He's a former Treasury official who served as Deputy Assistant Secretary in the Office of Public Affairs. Welcome. Thank you. Obama administration?

Obama administration. So this is going back maybe 10 years or so? About that. I would say how we described the U.S. China tone back then? Certainly not what it is now. Certainly not. So my last foreign trip as a Obama administration treasury official was to an APEG Finance Committee ministers meeting in Beijing. And a lot has changed since then, right?

I mean, you've got spy balloons. You've got the theft or alleged theft of technology and innovation from American companies. You've got China's continued intimidation of its citizens in the U.S. and around the world. But it is so important for Secretary Yellen to have this dialogue. It must be constructive and it's got to be honest.

And I've got three things that I hope she talks about when she's there. The first is she's got to continue to put national security and the national security of the interests of the United States first. She also has to talk about the need for China to have a level playing field for American companies. And then thirdly, there's got to be a sense of part of the areas of common ground that she and her Chinese counterpart can have. Is it issues related to climate change? Is it issues related to the forgiving debt for some of the emerging countries? All of that type of stuff. So she probably shouldn't call him a dictator right off the bat, probably, right?

She should not do that. So let me weigh in on this if I can, John. She should absolutely not call him a dictator. I will say this about the president's use of that word. He shouldn't have said it. But actions matter more than words. And what the administration would say here is that the actions that the People's Republic of China has taken against U.S. companies are far more damaging than some off-the-cup ad libs that President Biden has done. But I also wonder, there's an advantage to appearing tough on China.

Right. Right. And as we get closer and closer to next year, that sort of needs. grows. So what can Yellen really accomplish here when China feels like we're trying to contain them and we're inching ever closer to a Cold War type setup like we had with the USSR, you know, a generation or two ago? Yeah. So dialogue is important. But what's also important here is the economies, these two, China and America are the world's two largest economies. Our futures, intertwined with each other.

And so constructive conversation matters. She's got to be direct. She's got to be clear. She's got to continue to put the national security of the interest first. And she cannot, she cannot waver on that. And I don't expect her to. Should we almost say the stakes for the trip aren't that high? I mean, I think the feeling with Blinken in his 35-minute meeting or what have you

is that it was a lot of effort, a lot of hoopla, but not much happening. What do you think are the most significant actions that could now take place between the U.S. and China? Are we trying to warm things up, get the militaries talking, look for a thaw? Are we trying to take a tough? I'm not even sure what the goal is. Right. So I think the most important step to come out of our ongoing relationship between PRC and the United States are going to be these reverse sypheus rules. That's what? Reverse? Oh, you mean if we impose that?

Right, right, right. And so I've talked to a lot of people in Washington. What we do know is that the Treasury Department has spent a lot of time talking to private industry, talking to private funds who have investment in PRC, and trying to figure out, this is the Treasury Department, trying to figure out what are the narrowly tailored rules that are appropriate in specific sectors that can safeguard U.S. national security, a semiconductor in AIDS. related efforts in that space are where I think these rules are going to land. But it's a clear decoupling. It's a clear sort of there will be less, you know, cross-border investment between these two countries going forward. To an extent, this is why the details matter. The devil is absolutely in the details on this.

And I think what I've seen from this Treasury Department from this administration is a recognition of the importance. importance of a robust economic exchange with China, but understanding the importance that we do have important American values that we are going to stand up for. And there is no backing down from that. All right. Anthony Coley, thanks for joining us today. Thank you. Appreciate your time. And welcome. Thank you. Nice to have you a lot. Good to have you. Coming up, a $500 million pickle. UBS estimates pickleball injuries. thought it was supposed to be safe. Add up to a half a billion dollars in extra medical costs across America this year. And that could be a huge burden for an already beaten down health insurance area in those days. The United Health and Humana down 9 and 13 percent this year, respectively. That and much more ahead when Power Lunch returns. Welcome back to Power Lunch. Stocks moving to session highs led by the NASDAQ. Let's get a check on the bond market for Rick Santelli in Chicago. Rick. Yes, John Fort rates are moving up, just like equities are moving up, and for some pretty good reasons.

If you look at a two-year and 10-year intraday on the same chart, you could see that at 10 o'clock Eastern, they popped, and they popped for good reason. When we saw the June Conference Board Consumer Confidence, the headline number was basically the best in 17 months. If you look at the present situation, that was the best in nearly two years, and what lies in, ahead, the best of the year, these are all solid numbers. And if you look at a year today to five year, which happened to have been five years, it was the second leg of a three-leg auction twos yesterday, five's today, seven years tomorrow. It didn't go as well as yesterday's two-year, but it was still above average. But the point is that we auctioned off 43 billion fives at almost the identical place they were when they saw the last year, right around 4%. Think

about that and think about how the Fed and everything that's passed under the bridge since the beginning of the year, I find that amazing. And if you look at tens, look at the consolidation that we've had basically for the entire month of June. Traders are paying very close attention to that because it certainly looks like any type of a yield close above 385 is going to be breakout material, but they're still selling against it. And finally, if you look at the difference between U.S. 10-year and European boons. It's now at the widest it's been in four months at 140 basis points. We want to continue to watch that.

Is there two-year yields? Close today at a 15-year high. Kelly, back to you. Wow, Rick, thank you. We appreciate it. Rick Santelli. Now, as more solar generation comes online in California, the state's grid operator is facing a challenge,

the steepening of the so-called duck curve. Pippa Stevens is here to finally explain. Yes, after that, deep tease yesterday. So basically, it's called. the duck curve because it looks like a duck. So we have a chart here if we want to pull that up, which really illustrates how the net load, net demand load varies during the day. And so there you go. There is the duck. So you can see that during 12 p.m., demand is pretty low, and that's right as solar is at its peak. And then later on, it ramps up as people go home, the sun sets, they turn on

their washing machine, they turn on their laundry machine, that kind of thing. And so as you can see from the chart between 2015 and that's the top line up there, and now, which is the white line at the bottom, that curve has gotten a lot more steep as more and more solar has come online. And that poses a challenge for the grid operator because it's that ramp up in the afternoon that's really, really hard. And, you know, peak power plants like, you know, gas-fired plants, they can't just ramp up, you know, at a dime. It takes a while for it to come online. Now, Johanna's written, Rittenershausen from Convergent Energy did tell me that this is very much a unique, unique to a certain period of time per year in the spring

when demand isn't as high during the day because things like ACs aren't on. But it does show the opportunity for energy storage, since batteries can be deployed much faster than a fossil fuel plant. And so that's what everyone is saying is that in order to transition to this greener grid, we really need a lot more storage to come online. The key is to watch that duck curve before you get the bill. Yeah. Oh, I was like the bill.

Yeah. Very well dung it on. Very well done. It does look like a duck. It really does. All right. Let's get to Sima Modi. Thank you, Pippa.

For the CNBC News update, Seema. Hi, John. Good afternoon. Donald Trump's legal team will square off with New York prosecutors this afternoon over the venue for his hush money trial. The former president's lawyers argued in a court filing today that the case should be moved to federal court because their client was in the Oval Office

when Trump allegedly sent hush money to Stormy Daniels. Manhattan District Attorney says Trump, Trump was charged in state court because he broke state law. Canadian wildfires, which delivered dangerous levels of smoke to the eastern United States earlier this month, have reached a record high for carbon emissions. A Canadian monitoring service reported today, the fires have released 160 million tons of carbon into the air. That is the highest level since monitoring even began in 2003.

The smoke, excuse me, is now reaching Europe. And the highly anticipated Barbie movie. comes out next month, so Airbnb is reopening Barbie's newly renovated Malibu Oceanfront Mansion to promote its release. The Dream House, which is equipped with a massive pool. Barbie and Kenready Wardrobes will be free to rent for some lucky fans for two nights only in July. Booking requests begin, guys, right down on the 17th. Back to you. That's my birthday. I couldn't. I couldn't stay there. Just saying. I'll get it for John. Thank you, Seema. Earlier we mentioned Walgreens Boots Alliance,

sinking after missing third quarter estimates and slashing full year guidance. The shares are now at their lowest level since September of 2010. We'll trade it and some other movers in three-stock lunch ahead. Power lunch is back in just a moment. Welcome back, everybody.

Time for three-stock lunch, and it's a deluxe edition because we're pretty hungry today, or thirsty, I guess I should say, three key stocks and stories on our radar. Our team of reporters will give us all the news and moves. And then our trader, our CNBC contributor Michael Farr, welcome, Michael, will give us our trades. Phil, let's start with you.

Huge day for Delta, monster run the stock has been on. Yep. And it's three data points we're going to point out here that are behind the move today, raising guidance for the second quarter, both in terms of earnings and revenue. And then when you look at the full cash flow guidance for the rest of this year, up nearly a billion dollars, or actually a billion dollars, $3 billion versus $2 billion. There's just the new guidance from Delta. Here's CEO Ed Bastion talking about just how strong demand is right now and how long he expects it to last. It doesn't matter whether it's in the U.S., whether it's in Europe, whether it's in Asia. People are wanting to travel and they're prioritizing travel.

And as a result, the demand that we're seeing today is even stronger and the value is even greater than we're seeing. We're raising not only the full year, we're raising the second quarter. I think the second quarter is going to be our highest Q2 earnings in our history. And when you take a look at shares of Delta, not a surprise that it's at a 52-week high. This is a company that has raised guidance on a pretty steady basis over the last several quarters and the bullish outlook that we heard during the Investor Day here in Atlanta today. I haven't heard that from Ed Bastion in a long time. He believes, guys, that this is an extended run in terms of surge in demand, that people will

continue to want to travel beyond this year well into 24, if not 25. Phil, real quickly before I let you go, because that might be a little harsh. on United later. Defend what's been going on with all these cancellations. I've got a I got friends who are here for like the fifth day stuck in New Jersey. They can't get out. This is what happens when you've got cancellations that hit one of your hubs and it's hitting newer. And look, we're going to see this from time to time this summer with different airlines. Some will come back from these cancellations better than other airlines and United right now because they dealt with this and we saw the letter that Scott Kirby put out to the

employees saying a lot of this is because in his opinion, the cancellations at the FAA control center that handles traffic into New York. Regardless of that, you will see this with other airlines this summer. Right now, it's United dealing with it in Newark, but there's ripple effects across the country. Yeah, no, absolutely. It's hearing about it everywhere. Phil, thank you. Our Phil LeBoe reporting. We turn to Michael Far. Michael, we'll focus on Delta, incredible run lately. What would you do with the stock here? Wow. You know, Kelly, Delta's been killing it and they've been playing that sort of travel revenge and reopening trade and they've done a they've done a great job it looks like it's going to continue labenthal is going to thinks it's

going to continue he was talking about that today on the show it's very cyclical it's not my kind of stock so i'm going to give it a hold but the chair price probably goes higher kelly goes higher from here yeah now walgreens boots sinking after results this morning bertha coombs has more on that bertha John Walgreens' earnings missed estimates, and the pharmacy is slashing its outlook, driven by a big drop in COVID sales after low respiratory infections this spring, and consumers growing more cautious. Low COVID-related demand hits city MD revenues, which is now part of Village MD in the health unit. Executives are pledging that they're going to make bigger cost cuts as they integrate these recent health acquisitions

while still expanding. It's a lot of moving parts, as Elizabeth Anderson of Evercore put it. The pharmacy side, meantime, saw an 83% drop in COVID vaccines and accompanying slide in test sales, along with consumers cutting discretionary purchases. CEO Ross Brewer says they're holding back for bigger promotions, which will continue to hurt margins. Walgreens cutting its full year 2020, $203 earnings guidance to $4,000, between $4 and $4.5 a share. That's more than 10% below the consensus. All right.

Bertha, thanks. So, Michael, what do you do here? Do you buy low or do you stay away? No, you know, and it's funny today. We're going to talk about two stocks at all times highs and one of its all-time lows. Walgreens at an all-time low. And this stock's been in free fall since 2018. It was $85 a share. It's down another 9 or 10 percent today. Classic value trap. I much prefer CVS. It's much more diversified. Walgreens is a sell. Would you kick Walgreens out of the Dow, Michael? Yes, at this point, I think I would. You know, if you're going to have a wall, if you're going to have some retailer in this space,

I think there are better managed companies with much better balance sheets than Walgreens. All right. Fighten words. Michael Farah stayed for one more. It's going to be housing. New home sales surging 20% in May from a year ago. Diana Oleg has more wild, Diana. I know, Kelly, a much bigger than expecting. May read sales of new homes up over 12% month to month, and as you set up 20% from May of last year,

and this despite mortgage rates, which were kind of rough in May when these contracts were signed and counted. The 30-year fix started the month around 6.5% but then shot sharply higher over 7% in the second half of the month. We did see a drop in the median home price, down 7.6% year over year. Part of that is builders lowering prices, and part is just a shift in what's selling, which is skewing slightly lower due to higher. mortgage costs. Now, one really interesting number a bit deeper in this report was that the number of homes sold but not yet started has nearly doubled since last May. So a big backlog that should keep builders busy for a while. One issue there is will they find enough labor and have enough

access to enough building materials to get it all done, Kelly? That is the question. Diana, thanks. Michael Farr, last one up. How would you play the housing market lows, it looks like? Well, this one is the other one today that's trading at its right near its 12-month high. You know, there's been a housing shortage, so we've got continuing home building. There's been consumers still have jobs, and they're repairing their homes. Their contractor sales at Lowe's have been doing very well. This is a stock I've owned for a long time. I would buy it even at these 12-month highs.

I think it's got higher to go. But for me, it's a core holding, and I think it has been a really, really well-managed company with a really good balance sheet too. All right. There's your play. Everybody lows up 12% in your date. Michael Farr, thank you so much. Good to see you today.

Thank you. And now as we had to break, June is Pride Month, and CNBC is celebrating by sharing the stories of corporate leaders. Here is Michael Shackner, Boston Consulting Managing Director. I truly believe corporate America can play a great role in advancing diversity equity inclusion. There is so much you can do as a company to create an inclusive. inclusive environment so that individuals from the LGBT community can be their authentic self. I was always looking for mentors to get encouragement of being your authentic self at work

and to unleash the power that you all have to drive better innovation, drive better outcomes, and you better problem solved. Welcome back to Power Lunch. The fight over Starbucks workers wanting to hang up pride decor taking a new turn as the company files a complaint against the union. Kate Rogers joins us now with more. Kate? John, Starbucks filing charges with the NLRB in part over the union's allegations of stores being unable to decorate for pride. Now, the union claimed that Starbucks failed to bargain over what it alleges is a change in policy. In its filing, Starbucks said, quote, the union's violations have ignited and inflamed workplace tension and division and provoke strikes and other business disruptions in Starbucks stores,

adding the union's unlawful campaign includes without limitation making deliberate misrepresentation, that include maliciously and recklessly false statements about Starbucks' longstanding support of Pride Month and decorations in its stores. Now, the union is calling this a public relation stunt meant to distract from Starbucks' own actions, adding in their rebuttal that every single charge that Starbucks has filed against our union has been dismissed by the NLRB for lacking merit. Watch what Starbucks does, not what it says, while attacking the union that represents its own workers.

Starbucks has now changed its policies in response to worker actions. If Starbucks truly wants to be an ally to the LGBT QIA plus community, they will actually listen to their queer workers by coming to the bargaining table to negotiate in good faith. Strikes now are continuing at cafes across the country, the union says this week, with more than 150 stores representing nearly 3,500 workers pledged to take part in those strikes in solidarity. Guys, back over to you. Okay, Kate, now Starbucks is going to clarify the guidelines for store decorations here? That's right, John.

Last night, the company sent out this partner communication, maintaining once again that they say there's been no change to company policy, but said they do understand there's a need for more clarity and consistency on current guidelines for decor in stores for things like Pride Month, and adding they to issue clearer centralized guidelines, representing inclusivity in the brand. Reminder to viewers that Starbucks says managers can make decorating decisions currently based on their safety guidelines in stores. And Workers United said the company is now folding based on the strikes that have taken place and called this one a major. major victory for them. So a lot of back and forth here. And ultimately, the NLRB will decide, but it could take some time for these claims to make their way through. Kate, thank you. Our Kate Rogers reporting. Starbucks shares up about half a percent. Still ahead of pickle for the broader health care industry. Estimates showing hundreds of millions and dollars of medical costs expected from pickleball injuries alone will reveal the under the radar sector our expert thinks

could cash in from this when Power Lunch returns. Welcome back to Power Lunch, everybody and check out shares of Humana. Not today's kind of unch move, but look in the corner there at that 11% drop in June, the mid-month slide when the company warned of higher insurance costs and part as people who put off surgeries during the pandemic are now getting their knees and hips replaced United Health. Same story a little bit earlier that week. Now on the other hand, the likes of Zimmer, the medical device companies which make those replacement knees and hips have gotten a nice boost. They're up about the same amount this month, about 13%. Well, now to this mystery, throw pickleball into the mix. This analyst at UBS writing, quote, we estimate $250 to $500 million of medical costs are directly attributable to pickleball. Joining us to talk about the surprisingly dangerous trend, Dr. Kavita Patel, we welcome her back, NBC News Medical contributor. Dr. Patel, you buying this? Well, what I am buying is that we're seeing a lot more pickleball injuries.

And if you haven't played pickleball, you're probably at a minority now because it's part 10, it's part badminton, part chess, part ping pong, and a lot of injuries, Kelly. Well, doctor, I am in a minority, but I have played pickleball, so not that minority. And my mom, I was playing with my mom. She's 79. And isn't this, though, what the medical, the health community has been telling people to do is get out and be active? So shouldn't this be good? Yes, some edge cases of injuries, but aren't people getting a cardiovascular workout in?

Yeah, you're right. This is exactly what we want people to do, but we want them to be prepared when they do it. Look, even before some of the more recent pickleball craze of COVID, even before COVID, about 90% of pickleball injuries, and there were a lot of them before COVID, were in ages 50 and above. So we know that if you are older, you were just more prone to injuries because of all the things for all the reasons we're prone to injuries as we age. Most of the injuries fall into a very kind of catchy, it's what I see all the time. You slip, you trip, you fall, or you dive.

It's one of those four categories. And people think that pickleball on the surface seems, quote, easier than tennis or it might seem like it's reasonable for older people to do to your point about recommending it to your mother. But you're moving in 360 directions. It is not easy. One of the most common injuries that we see is an Achilles tendon tear, which can also be hard to recover from. Add all of this up. You need to prepare your body to do this, but you're right. Getting out there, getting fresh air, getting outdoors. That's exactly what we want people to do. But we're also seeing the consequences. It's why we're seeing all the injuries that we're seeing and we're seeing this boon to a lot of the stocks.

that are especially tailored for this sector. To clarify, I didn't recommend it to my... She took us to the pickleball court. This was her set and everything. We just showed up. A friend of mine pulled his hamstring pretty badly. So Dr. Patel, we've been warned of the downside. Again, the costs for UNH, Humana,

some of those paying out higher Medicare because of Medicare usage and all that. You have some actual surprising beneficiaries. Run through them real quickly, if you could. Yeah, orthoclical diagnostics, OCDX. So I'll talk about the public stocks. We even see USPH, U.S. Physical Therapy, which is a huge kind of conglomerate of physical therapy because let's put it this way

even if you have a minor injury almost always I recommend physical therapy so you can strengthen rehab and get back out there on the pickleball court or the court of your desire and then let's talk about imaging we've kind of glossed over this but even companies like InVision and some other publicly traded imaging focused intensive services are going to benefit from this because if you go into any emergency room and we're seeing an increase UPS possibly 67,000 emergency department trips in a year alone due to pickleball injuries, usually you need some sort of imaging to go along with that, not just plain film x-rays, MRIs. So we're talking about pretty broad sector boon tailwinds that I think could apply,

not just to the insurers, but to the services sector. And think about the supply chain. A lot of us are recommending some of those wraparound devices to help support the knee, the ankle, even the elbow. Not a tennis elbow anymore. It's a pickleball elbow. So think about the direct medical equipment and the durable medical equipment that we need to prescribe for those patients. Those are all going to see some tailwinds there. We had no idea you were such a stock picker. Now that we know this, Dr. Patel, I mean, there's a lot more potential here. I'm looking at those skews just like you are when I prescribe something and I see them and I'm like,

hey, who makes this? Exactly. I love it. Future contributor, no, concurrent contributor, you know, but also to your point, maybe this even spurs more weight loss demand, this, John was saying, kind of get people in shape so they can play. Yeah. It does. And I will say this, like even to my own parents, I said, look, even five to 10 pounds off of the pressure on your knees and joints, like those little ankles, it can make a big difference. So this coincides with the conversations we've been having about obesity. It all comes together. And you can see how it can benefit A to Z. Eli Lilly always wins. Dr. Patel, thank you very much for your time today. Thank you. We appreciate it. You know who's going to make a killing off of this? Shack with the icy hot. Oh, wow.

Yeah, still to come. Seacrest is taking the wheel. Ryan Seacrest has yet. get another job, name the head host of Wheel of Fortune. We're going to talk about that and much, much more when Tyler Lynch returns. Welcome back. There's only three minutes left and a lot more stories to get through. So let's start right away with United Airlines blaming thousands of flight cancellations this weekend on the FAA. Phil mentioned this earlier. Scott Kirby claiming staffing issues and arrival and departure cuts the regulator made on Saturday created a domino effect once bad weather arrived on Sunday. The Wall Street Journal reporting United still dealing with the issues today, canceling more than 10.

percent of its scheduled flights as of this morning after canceling 18 percent of them on Monday. I'm not sure that the customer cares whose fault it is, is just take care of me, right? Yeah, I have friends who have been trying to get back to Seattle since last Saturday. It's going to be a couple more days now. It's a nightmare. Yeah, you said they were stuck in New Jersey. They just get bonus days, as an hour before. New Jersey is wonderful.

Adobe making a bold move to support its generative AI tool Firefly. It says it'll pay for any intellectual property claims against its business customers arising from are generated by Firefly, and they have Adobe stock. So they're saying they have, to contrast with the other ones out there that are crawling the web, they have like Getty watermarks on them. Adobe's like, we have the rights to all this stuff. Oh, great. So they don't think there's going to be any liability.

Exactly. Well, that's clever on them. Lordstown Motors filing for Chapter 11 bankruptcy protection and also putting itself up for sale after failing to resolve a dispute with Foxcon, Taiwan's Foxcon, semi-company. They're suing Foxcon claiming they failed to honor an agreement to invest up to $200, $170 million and accusing them of fraudulent content. But what I mean, you know, ends with a whimper for this startup that was, that had big hopes, big ambitions in Ohio, it's just all the rest of it.

Yeah. And at the same time as Lucid's doing this deal with Aston Martin, where Aston Martin is getting access to some of their technology, Lucid's getting some Aston Martin stock. So, you know, that EV upstart managing to stay alive by, you know, selling technology versus cars. The list of corporate layoffs, meanwhile, keeps growing. Ford Motor confirming its cutting engineering jobs in both the U.S. and Canada this week, while Robin Hood Markets says it is cutting about 7% of all full-time employees as it struggles with declining customer engagement. Markets are higher, but economic conditions. Just want to keep mentioning these as we get them.

And a new perk aimed at old workers. It's called Grand Ternity Leave. This is my favorite story of the day. Companies are offering time off a few days up to a few weeks to new grandparents, sister. go offering it right now could be a growing trend. This is helpful, everybody. This is if this is helpful for your younger workers who are middle-aged workers, whatever it is, let the grandparents come help. We need it. Yeah. Quick last word also. Ryan Cicris has been tapped to take over as host of Wheel of Fortune when Pat Sejack retires next year. I mean, doesn't he have too many jobs already? That's what everyone's safe, but he quit the one. And I learned that Wheel of Fortune only taped for like three or four days a month. Okay. Vanna White's keeping her job too. It's going to be

Vanna. Yeah. Amazing person. Banna is. I mean Ryan too, but does he have, is he? I don't know. Thanks for watching, Power Lunch. Closing bell starts right now.