Power Lunch - Earnings Excitement, and Your Money, Your Vote 4/25/23

Episode Date: April 25, 2023

Earnings season is in full swing, with big reports out before the bell, and even bigger reports coming out after the bell. We’ll dig into the companies that already reported, and get you set for what’s still to come.Plus, President Biden has officially announced his 2024 re-election campaign. We’ll dig into the economic angles of a 2nd Biden term, from taxes to the latest on the debt ceiling. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

All right, welcome everybody to Power Lunch alongside Kelly Evans. I'm Tyler Matheson. What a busy hour we have in store coming up earnings, earnings everywhere. Bigger reports out before the bell, bigger reports even coming out after the bell. Throughout the hour, we're going to dig into the reports already published and get you set for those still to come. Plus, President Biden officially announces his 2024 presidential campaign. We'll dig into the economic angles of the second Biden term from taxes to, of course, the latest on the debt ceiling. Before all that, though, let's get a check on these marks. markets, which are sitting near session lows with the Dow down 307 points. The S&P back below 4,100, the NASDAQ down 1.5%. Let's get to Christina Parts in Evidence in the House for a look at some of the big movers. Hi, Christina. Yeah, and like Kelly mentioned, we're seeing a weakness across the board on fears of a slowing U.S. economy. We still have yet to hear from all the mega-cap tech names and retailers set to report earnings in the days and weeks. Shares, though, of First Republic making a lot of news right now. Plunging over 40 percent will bring First Republic up in just a second as the worst S&P stock right now. halted as well. And this is because there was a new Bloomberg report that First Republic is weighing up to $100 billion in asset sales, long-dated, of course. The size of that sale is what's spooking investors right now. Its earnings report as well, so deposits that dropped 40% in the first quarter. But according to the company have since, quote, stabilized. The company plans to cut costs. Hopefully you can bring that stock back up by slashing headcount roughly 20 to 25% in the second quarter. You can see shares are now down 43%. There

was a halt just this afternoon. Now we can go to UPS raising the alarms with its biggest single-day drop in more than eight years. You can see shares are down 9.5 percent. It missed quarterly results estimates, but the street is actually focused on management commentary that indicates sales values should continue to be under pressure as disposable, disposable income, I should say, shift away from goods to services. Full-year revenue projections aren't improving either. UPS guiding at the low end of the range at $97 billion. Lastly, well, The Health Management Fund, Northern Trust Corporation, down almost 10% right now. Missed earnings, drop in deposits.

Drop in deposits also meant lower management fees, which hurt profits. And that's why it's also, I think, if I remember correctly, the third worst player on the S&P 500 right now. Guys? All right, Christina, thank you very much. For more now on that First Republic story. Let's bring in David Faber from the New York Stock Exchange. Hi, David. Hey, Tyler.

Yeah. You know, the story, of course, that was just quoted in terms of Bloomberg is the story we actually first brought people this morning in terms of the plan that First Republic is undertaking to try to get assets off its balance sheet. They put a number on it, of course, the market reacting perhaps to that as well. But the overall plan is one that we went into in detail this morning, and it would go along something like this. You get the same group of banks that actually put in the 30 billion on March 16th in deposits to then line up and say, okay, we will now put together capitalization for a special purpose entity that will buy those

loans and securities from you. At a higher level, at least, they would be marked to market right now, perhaps still below where their book was or where they originally were made. And that would free the balance sheet up to have some repair. You'd get rid of these assets that are underpaying while you're dealing with a deposit base that you're paying an awful lot for. And then you would re-equitize, go out and try to raise equity. There is a belief on the part of First Republicic. It could do that were to be successful in this asset sale plan. And then you you could go back to the business of really being a bank by making loans. The problem is it's not clear at all that any of the banks that might be counted on to try to

step up for this purchase of assets are willing to do so. And so a question becomes, is the Fed or Treasury or FDIC willing to say, you need to do this? Right now, that does not seem to be the case, Tyler. And so it's very much unclear that First Republic is going to be successful in any plan to rid itself of many of these loans and securities that have contributed to what I've reported for quite some times as much as a $25 billion hole in its balance sheet. If it's unable to do that, well, these next few days, again, as we said this morning, are key, and then you have to wonder whether, in fact, the FDIC is going to move to take it into receivership. So that's kind of where things stand

right now, kind of a fighter against the ropes, waiting for the referee to call a technical knockout, that referee being the FDIC, but hoping perhaps they have one. last punch left that can actually get them out of their corner. And David, plenty of people would say this isn't about whether First Republic becomes the latest bank failure. The real question is whether this is going to push the administration back into making explicit or not the deposit guarantee and or their willingness on the sort of the policymaker side of this to step up and help facilitate or take any losses on some kind of acquisition.

And none of your reporting suggests that, but I think there's, that's that. hope to some extent was probably priced in a little bit here that you can kind of lean a little bit on Washington. And I'm just curious where we go in the next couple of days. I think we'll have a lot of bearing on how calm or not people feel about the system more largely. Yeah. I mean, listen, regulators were successful, Kelly, and putting a good amount of time between SVB and First Republic. It's not as though this has been a secret. We've been talking about First Republic since those very earliest days when SVB went into receivership, followed by signature bank right after. And so that has been healthy for the markets.

We've seen earnings from many or most of the regional banks, if not almost all of them, and things seem to be much calmer. And so there is a belief, I think, that were First Republic to be taken into receivership, it would not be seen in any way as a systemic risk. It still would be expensive, by the way, for the FDIC, potentially. It would mean assessments on some of those same. banks that are being encouraged perhaps to participate in buying some of these assets, but it would not be systemic. And I think that may be one motivating factor for why Treasury, Fed, White House, are not necessarily pushing hard here,

at least as far as I'm aware, for those banks to step up. There is not going to be a sale to a third party or to another bank here. The mark-to-market is too large, the hole in the balance sheet, and therefore what you do to your own book value, that's always been the problem. There are plenty of potential banks that would like to have had the franchise First Republic had, but they're not going to step up to take the head to book value. They would have had to do so. That would have happened over these last few weeks if, in fact, anybody was interested. So that's kind of where we are right now. And again, the next couple of days, we'll see. Maybe they can pull something off here with this asset sale.

Yeah, David, thank you so much for joining us this afternoon with that, David Faber, over at the New York Stock Exchange. Let's an analyst take on First Republic with Timothy Coffey of Janney Montgomery. Scott, he's on the newsline. You've got a sell rating on it's him, obviously. You want to just pick up on what David said there and their strategic options at this point. Well, a lot of that matches what we put in our report today. We've included our downgrade to sell was that the best pathway forward and perhaps the only pathway forward for First Republic at this point is to do an asset sale.

Certainly there's a securities piece that they can sell, available for sale, health and maturity. but the striking thing of the earnings release yesterday from them was that their loan to deposit ratio was near 170%. That's really, really high. To bring that down to a more reasonable 100%, they need to sell loans. And so the idea that they would start selling or look to sell pieces of that residential mortgage portfolio, it makes a lot of sense in our opinion. So if they're selling loans, the buyers knowing the distress situation, are not going to, what are they going to get for those loans? Are they going to get anything? close to par? Unlikely. Unlikely. And our estimates, I think we were using a 20 to 25% discount

on the cell, right? And the personal public speaker is not in a position of great strength here. There's going to have to be a discount. There's going to have to be some give. And we think it's in that 20 to 25% range. So then what's next? If they're able to, if they're able to unload a sufficient number at a sufficient price, can they continue as an ongoing operation? Or if you spin the clock forward, are we looking at the death spiral of another bank? Well, selling the assets is first of a two-part series of events that need to happen. The second part is they need to raise capital to fill the whole that, selling a loan that a discount has created. Assuming they're able to do the second one, they're likely to undertake the first one. And then what we

So to see as a company that is in a much better financial position from a capital standpoint, perhaps not at a great earnings standpoint, but the business can continue. We think, though, it won't continue in the same way that First Republic was in the past. Going forward, it's going to have to be a much different operation. Tim, would you add any comments about the rest of the regional banks here and the sort of fall on effect for them, knock on effect for them, from the situation being dramatically different today than it was just yesterday, when, if we all recall, the shares are up as much as 11% into the earnings print?

I think there's two things that are happening right now. We're in the middle of the bank earnings right now, and the first set of earnings were really good. Western Alliance, for instance, gave us optimism. Second half isn't been as good. And, you know, First Republic is kind of a signal of that. All right, Timothy Coffey, thank you very much. We appreciate your time today, and I have a feeling we'll be talking to you again soon.

Thank you. Thank you. Some major companies reporting giving us more insight in to where companies see the market and the economy adding. We start today with McDonald's trading lower, but only after hitting its 11th all-time high in a row, beating results, seeing traffic growth despite price hikes, sure signs of pricing power.

The CEO weighing in on the impact of inflation earlier on CNBC. Last year, we faced double-digit inflation globally. And even in Q1, Q1, we are still experiencing double-digit inflation. Now, our outlook for the balance of the year, we do expect it to get more favorable. Here now is Peter Saleh, managing director of restaurants at BTIG, as a buy rating on McDonald's and a $305 price target, which he raised from 280 last week. This is a company that seems to have plenty of pricing power. Their same store sales up nearly 13%.

I guess the CEO, rightly, is always worried about something. he seems to be very worried about inflation, but the pricing power seems strong here. Yeah, so thanks for having me on. Look, I think their fundamentals are extremely strong here. We've got double-digit same-store sales growth almost 13% across the board, across geographies, not just the U.S., but across Europe and other countries as well. That's anchored by low-to-mid-single-digit positive traffic. Some of the best traffic numbers we've seen out of McDonald's,

in several years. So the consumer is still out spending. Are they concerned about inflation? Sure. I mean, the inflation that they're feeling right now is three, four, maybe even five times what a normal year inflation looks like. So yeah, they have something to be concerned about and it's inflation. But the good news is it is starting to moderate a little bit and should be better as we get into the back end of 2023. I'm all for caution here, but it sounds like the CEO. So I want to get your opinion as to whether he's sandbagging it a little bit. He's calling for a mild recession. He's saying inflation is really worrisome.

He's seeing some resistance to pricing, more resistance that we thought at the outset. Great to be cautious, but is he downplaying the company's prospects? Look, I don't think there's any evidence that there's any sort of consumer weakness. Look, the inflation definitely can lean on the consumer for an extended period. at a time, but we're just not seeing it in the numbers. We're not seeing it for McDonald's. We're not seeing it for many of the other operators in the space. So maybe they're being a little bit too cautious, but I guess better to be cautious when your trends are pretty good rather than to just be too loose with it. So in our view, we don't see any evidence of that.

Gotcha, my friend. Thank you very much. Peter Saleh. We appreciate it. Let's turn now to Alphabet, which is set to report after the bell. Its revenue growth is in focus after three consecutive quarters of earnings declines and anything on its chat bot barred that failed to wow investors at that showcase back in February. Alphabet lost $100 billion in valuation the next day and the stock is down slightly into earnings. We turn to Mark Mahaney, head of internet research at Evercore. Mark, good to see you today. And I mean, this has already been picked over and picked over and picked over and yet earnings always have a way of surprising us. Well, this is going to be your advertising marketing bellwether. Look, this is a two

billion advertising revenue run rate. There's no bigger data point on what's happening to add dollars globally. And our guess is that the results are going to be kind of in lineish to cautious. All the channel checks we've done, there's no inflection from what we've seen, what we've described as an ad winner. That continues. And if they're softening in consumer discretionary spend, Google's going to see it too. I think people are going to be looking for signs of what they're doing with BARD. I actually think the product is gotten, I actually think It's very competitive, large language model search product. But the question is, how are they going to integrate it into the core Google search

business that everybody uses? 90% of the population uses. I don't know if we'll get that answer on the earnings call, but we need to get that answer in the next few months. And then finally, what the market wants to hear from Google is, what are you doing about costs? The comparison is made day in and day out with meta. Meta's been very aggressive, Facebook.

Meta's been very aggressive with taking out costs. We haven't heard that yet from Google management. And I don't think we're going to hear that today. and I think that'll be a little bit of a disappointment. I think they have plenty of room to take out costs. If they do that, I think investors would reward them. But I don't think the culture of the company is going to lend itself to easy cost cuts anytime soon. Sure, although, I mean, Ruth Pora is extremely sharp.

So if she senses that that's what, you know, the investment community is looking for, don't you think she'll lean into that a little bit? I hope so. But the culture of the company is, this is a very long-term investment-oriented company. You know, the great mistake that they think that they made during the great financial crisis was the cut investments. This is the company that's always invested for the long term. So they want to be careful about quickly or overreacting to market conditions.

I get that. I have a lot of respect for their long-term investment orientation. I just think it leads to a management team and a board that's probably not going to be as aggressive at cutting costs as you saw it. And so, yeah, investors would like to see it. I don't think they're going to get it. But I'd love to see it. I just don't think it's likely. That's fascinating.

They don't want to be burned again, cutting costs and maybe amid the next great investment. boom. Mark, thank you so much today. We appreciate it. Mark. Thank you, Kelly. All right, Google's big AI rival also reporting after the bell. You've heard of this company. Microsoft shares up more than 16 percent so far this year. Investors optimistic about AI, but a lot of issues facing the company as well, including slowing growth in the cloud business and a sharp slide in demand for personal computers. Michael Turin joins us now with more on what to watch. Michael, welcome. Good to have you with us. Are you comfortable? This is a stock that's up, what, 15 percent since March 10th, it is selling it a multiple of 28 times earnings. Are you comfortable with that

multiple going forward? I mean, we're comfortable with that multiple. It's squarely within the five-year averages for Microsoft, but a bit more cautious into this print. I think a lot of investors are grappling with competing forces into this earnings result. If you go back to Microsoft's last earnings report, they took a very negative tone around macro. They removed some fiscal year targets for commercial commercial growth. In operating income growth, the stock, to your point, has moved up on AI enthusiasm, which is less likely to show up in near-term numbers. And the macro has not gotten markedly better. So still plenty of uncertainty out there, a seasonally lighter period for software. We're a little bit admittedly more cautious into earnings across software, but long-term Microsoft

still stands to benefit. So give our viewers a guidebook to what two things you'll be looking for in this report this afternoon. What are the things you're going to be listening for? I mean, number one is Azure growth. What spooked investors the most last quarter was the rate of deceleration that they communicated. The Azure category is the growth driver for Microsoft's business. It is the long-term protective mode around their business. Last quarter, they mentioned that it exited the quarter at a 35% growth rate,

despite 38% growth rate reported in the quarter. The guidance for this quarter implies 30 to 31%. I think investors want to know if that's conservative or where that growth rate ultimately settles. And then number two is margin. How much cost control can Microsoft put in to just help protect this business model during a period of tougher growth? Amy was very clear on the last earnings call around the cost controls, and Microsoft has always

been very focused on profitable growth. So we're looking for margins to stabilize. We're at low single digit EPS growth this quarter, but expect a rebound to 15% growth next quarter. So we've said this is a very important hurdle for Microsoft to clear with this earnings report. So listen for Azure growth and margins, Michael, couldn't be clearer than that. Thank you so much. Appreciate it. Thanks for having me. Appreciate it. Lively afternoon. Further ahead on the show, though, another key company report on our radar. We're talking about JetBlue, posting a quarterly loss, but joining other key carriers and forecasting a profit for the second quarter on strong travel

demand. We will speak to the CEO. The shares are up fractionally. Plus the race to 2024. President officially announcing his reelection campaign with a clear focus on the economy. We'll break down what it could mean for markets and policy next. Dow's down 322. Welcome back. President Biden officially launching his 2024 re-election campaign, promising to fulfill his economic policy vision. But of course, with business and the economy and inflation on the forefront of everybody's mind, he first might have to deal with the debt limit.

Amon Javers is live in Washington with more for us. Amen? Hey there, Kelly. Well, hanging over the debt ceiling negotiations in Washington is this. sense of uncertainty about when exactly that deadline for default actually is. The so-called X date is the date when the U.S. government can no longer meet its financial obligations, but no one knows exactly when it's coming. Treasury Secretary Janet Yellen has said June 5th is the earliest possible date, which was seen by many as sort of the most pessimistic

scenario earlier this year. Now, the Congressional Budget Office has said it could come between July and September of this year. But one problem they're facing is that capital gains tax revenues have been coming in very light, very, very light this year, in part because 2022 was such a brutal year on Wall Street. For the year, you remember, the Dow was down 8.8%. That was the best of the three major indexes. All three of the major averages had their worst year last year since 2008. So that represents just a lot of capital gains that didn't happen in 2022. So on Friday, Goldman Sachs analysts pointed out that tax receipts are now running 35% below last year. And Bank of America estimates that the ex-date could shift from mid-August to late

July as a result of that shortfall. And all of that puts even more pressure now on House Speaker Kevin McCarthy, who's trying to move his 320-page debt-sealing bill through a deeply divided House of Representatives. He's expected to start that bill through the committee process today, but that bill likely won't go anywhere in a Democratic Senate. And today, the White House said President Biden would veto that bill if it even passes in Congress. So a lot of it says, stake here, guys, no clear solution on the horizon. Back over to you. Get a lot more interesting before we know it. Amen, thank you. Taxes, of course, always a key issue in any presidential election. It could be even more so this time around it. Robert

Frank is here to lay out Biden's top tax priorities. Robert. Well, Tyler, there are three proposals that we're going to hear a lot about during that presidential campaign. The first of these, and his favorite is the billionaire minimum tax. That's a minimum tax rate of 25% for people worth more than $100 million and it includes unrealized capital gains as income. So you're going to pay this tax on any gain of a stock or property even if you didn't sell it for that tax year. He's also pushing to double the capital gains rate from 20% to 39.6% for those who earn more than a million dollars a year.

So you live in New York City or California, that total capital gains tax would be over 56% if you count the state and federal. And then finally, perhaps most lucratively, he's not. wants to raise that corporate tax rate from 21 to 28%. Biden says his plan is to, quote, reward work, not wealth. Critics say all this would hurt the economy and investment. And taxing those unrealized gains would just be very difficult to administer, especially for this IRS.

Robert, thank you very much, Robert Frank. For more on Biden's announcement and what the election will mean for markets and the economy, let's turn to Brian Gardner. He's Seafel's Chief Washington Policy Strategist. He's also co-host of the Potompson. perspective podcast. I didn't know that, Brian. Now I'm going to have another one to try to listen to on the car ride, at 1.3x, by the way. So, you know, makes everyone sound a little Mickey Mouse. But what do you think if I had to put 1.3X, you know, spin this forward, Biden's president again,

what would he try to do? I mean, talk to us a little bit about what the implications are here. Yeah, so I think Robert hit the big themes on the tax side. I think it's a continuation of what we've seen in the first term. I think that was kind of the message that was played out this morning in the announcement and his speech to the labor union. So it's a lot of unfinished business. What did not get passed in the buildback better bill that became the Inflation Reduction Act, it's kind of returning to this tax theme of increasing taxes on the wealthy. It's a play on the populism that kind of has engulfed the country, both sides,

one side trying to do a different theme of populism. So higher corporate taxes, higher personal income tax rates. Robert didn't mention increasing the basic top rate for income above $400,000. But I think that would be back in a Biden second term as well. Running on raising taxes is rarely a recipe for success in my long experience of watching things. How would you grade the president's legislative accomplishments so far? far and why, if they are accomplishments, is that message not getting across? So grading is tough because I didn't like being on the other side of that when I was a student

and wasn't particularly good at it either from the student side. But now that I get to play teacher for a second, I give it a B, B plus just on political execution. He came into the term with very narrow majorities in the House and the Senate. There was a lot of skepticism of what he could or could not get through, more skepticism that he couldn't get through much of his package. And he did pull off some impressive legislative wins despite all that. Now, there's a lot that he didn't get through, the tax portion. That's why we're still talking about it, because Democrats, in those first two years, the Biden administration, when they control Congress did not pass the tax package.

I think they are going to go back and try it again. Look, he ran out of it the first time. And while, Tyler, I agree with you that raising taxes is not a great political strategy. We live in very interesting times, to say the least. The politics of the era are much more complicated than they used to be. I think Republican voters, one, don't care about taxes on the wealthy as much as they used to. Suburban voters have kind of drifted over towards the Democratic Party. And if it's a rematch of 2020, Trump versus Biden, I think Biden has a little bit more runway to go on taxes with a caveat,

let's see what the economy is doing. But I think that the main theme of that race is, do you want to go back to the chaos of the Trump years or just stick with a steady hand? And I think the tax issue probably takes a back seat to all of that. But let me just ask one follow-up question. If the president was not able to get the tax portion through a Congress that was Democratic, you're not going to tell me that you expect him to get it through the current Congress. No, no, no. So let's fast forward to 2025.

Let's see what the next Congress looks like. If it's the current structure, Democratic Senate, Republican House split some way, then the chances of getting his tax package through or close to nil. Let's just say for a second that Biden wins and carries through Democrats both in the House and the Senate, and they recapture that. He faces the same problems that he did two years ago in getting these tax pieces through Congress. So I'm skeptical either way. I'm just just saying, as we're getting ready for campaign season, these headlines are coming back. My advice to investors would be to take them with a very large grin of salt. I'm very

skeptical that they're going to pass, but you're going to hear more and more about them. And Donald Trump actually, and Trump advisors, more importantly, have not been as anti-tax hike as other Republicans. So I don't know how much Trump pushes back on that. Biden, could have a little leeway on this. Again, I'm very skeptical that it happens, that it gets passed by Congress in 25. But maybe it's a reasonable running point. I mean, something to run on, tax the rich, soak the rich. Maybe that works because what I'm hearing you say is that the possibility of getting it actually through Congress is nil. Brian, we have to leave it there. Brian Gardner, Steve, we thank you very much. And stocks are lower right now, near session lows. The Dow, down nearly 300,

volatility returning at least for now. And traders have a new way to bet on the VIX. We're going to discuss that when Power Lunch returns. We'll be right back. Hello, everybody. I'm Contessa Brewer. Here's your CNBC News Update this hour. The five adult suspects in the Dadeville, Alabama mass shooting 10 days ago,

appeared in court for their bond hearings. A total of four people were killed, 32 injured in that shooting, that happened at a sweet 16 birthday party, April 15th. Each person has been charged with four counts of reckless murder, but a motive for that shooting still unclear. A private Japanese company attempted to land a spacecraft on the moon today, but lost communication moments before it's scheduled landing. The CEO for the Tokyo-based iSpace company says the landing attempt was deemed unsuccessful

since they have been unable to reconnect to the lunar craft. If successful, the landing would have made iSpace the first private entity to complete the feat. And the FDA is granting accelerated approval for biogen's ALS drugs, that treats a rare form of the disease. The approval requires biogen and its co-developer Ionis to further study the drug and verify its clinical benefits. If a subsequent trial confirms those benefits, the FDA can grant traditional approval for the medication.

Kelly? All right, Contessa, thank you very much, Condessa Brewer. Still to come on Power Lunch, JetBlue, joining the likes of Delta Airlines posting a loss but promising profits ahead. Both airlines citing strong demand with more to come, but JetBlue does have one big unknown object on its radar screen. Will the Justice Department succeed in blocking its purchase of spirit?

We'll speak to the CEO next. Welcome back to Power Launch, everybody. Shares of JetBlue are higher despite reporting a loss. Revenue, however, beating estimates. The company is positive, had positive commentary on travel demand and promises of profit ahead, keeping sour investors at bay. Right now you can see some of the airline stocks. JetBlue up 5.5% for the year.

However, the company is lagging the rest of the group over the past 12 months, though leading it this year so far. All that said, strong demand may be holding the stock up, but will it be enough to drive profits? Let's get to Phil LeBow with JetBlue's CEO Robin Hayes. Thank you, Tyler. Robin, thanks for joining us today. Let's get to the main point.

Yes, you had a loss in the first quarter, but I think it's the second quarter guidance that people are focused on. you're forecasting a profitable second quarter. What's the setup from your perspective when you look at the spring and then heading into the summer travel season? Now, hi, Phil. Good to see you again. Yes, you know, Q1 was a loss. It's usually our weakest quarter. We actually did better than we had originally guided. So we were pleased with that and a great effort by the JetBlue team. As we're coming to quarter two, what we're seeing is still very strong demand. international is extremely strong, domestic is strong, and that's comping, comparing to some pretty

tough comps last year, because if you think about this time last year, that's when we really started to see the demand for travel start to search. I think feel really good going into the peak, a combination of strong demand, lower fuel than we saw in Q1, and also keeping our costs in check, I think all give us a good setup for the second quarter. But your guidance in terms of revenue for the second quarter coming in just a smidge below where the analysts are expecting it to be. And you mentioned during the analyst call that you're seeing some headwinds out there, in particular the FAA constraints, the travel restrictions that you guys are putting in place with regard to flights into New York City. How much is that going to potentially be a headwind in the second quarter into the third quarter? Well, it is a headwind, Phil.

I mean, New York is, we have a significant amount of capacity that is in and out of New York. It's our largest market that we fly to. And the FAA has told us and other airlines that they are far from fully staffed. In fact, in the New York area air traffic control facility, they're about 54% of their staffing requirement. And by the way, Phil, that's based on a 2014 number. So if we think about how much air traffic has grown since 2014. And so what we did was we have reluctantly decided to reduce flights in and out of New York this summer. By doing that, it's going to make the service more operable.

If we didn't do this, the FAA had told us that delays would nearly double in the New York area. For those of you who fly in and out of New York, you know it's already can be very challenging. And so we wanted to do what we could as JetBlue to offset and try to mitigate the impact of a shortage of air traffic controllers. Robin, it's Kelly here. And I just want to jump in and kind of bring it back to the spirit deal because, and I'm thinking about this in light of President Biden's announcement of his run for re-election and that sort of thing. I mean, it's pretty clear the administration and these agencies have no interest in a lot of deals happening kind of period. Why not just walk away? I mean, how far are you willing to take this? How expensive a fight could that be?

Are you going to be kind of hung up and hamstring with this for a long time? And did you know going into it, hey, it's just going to be nearly impossible to get anything done, but it's that important to us? Or do you think it's become more clear in the ensuing months that it's just going to be really hard to get these things done? Well, I think it's important and hard. So important because, again, we've just talked about the challenges in the northeast because of the shortage of air traffic controllers. And so for JetBlue, that means we need to diversify.

We need to bring the JetBlue product, the JetBlue experience, the JetBlue low fares to more customers across the country. And so that's what our merger with Spirit will do. It'll create a true high-quality, low-fair challenger to the Big Four. The issue in the US, we have four large airlines that control 80% of the market. The rest of us have 20% between us. You know, how can the number six and number seven player becoming the number five player with everything that JetBlue stands for be anti-consumer? It's not. It's very pro-competitive.

So we are now in the hands of a judge. You know, we have a court scheduled. We have a court case scheduled in October. We're going to make our case. We feel really good about our case. And the timeline is really progressing as we expected. In fact, when we announced the agreement with Spirit last year, year to merge. We said we expected to close in the first half of 2024, and that is indeed still the

case. Hey, Robin, it's Phil again. Billy Nolan, the acting head of the FAA. He is going to be leaving this summer. As you know, there is no nominee right now to become the permanent head of the FAA. Is this uncertainty around the FAA? How much is that hampering growth for the airlines overall? I'm not just talking about Jeff Blue, but for the domestic airlines and airline service here in the How much is that a hindrance? Yeah, I was very sorry to see Billy step down, Phil. I understand why. But, you know, he's done a good job in the interim as an acting administrator.

And we haven't had an administrator now for a very long period of time. We need an administrator. We need to get key roles at the FAA field. You know, we have to hire air traffic controllers. We have to train air traffic controllers. We have to upgrade the technology in the system to bring the U.S. up to a similar technical level of capabilities other countries had. All of these issues, Phil, as you know, have been issues that have been out there for many years.

So what we want to do is work collaboratively and together with the FAA to get these issues addressed. This just can't go on. We should not be in a position where JetBlue's ability to serve New York is limited because of the significant staffing constraints. I mean, all of us in New York are proud of New York. We're trying to bring the city back. We have a passionate mayor who wants to bring New York back. We want to bring tourists back to New York. We want to get hotels open.

We want to do loads of exciting things. It's a wonderful, vibrant city. But we won't be in a flight, everyone who wants to come to New York here this summer. And so we have to address it. New York is singularly disadvantaged by these ATC staffing shortages because they're worse in New York than anywhere else in the system. Robin, I know we are going to be talking about this a lot, unfortunately, a lot more in the future.

I appreciate you joining us today from JetBlue's headquarters in New York. Tyler and Kelly, I'll send it back to you. All right. Thank you both. Still to come, we'll check on First Republic and the rest of today's market action. Dow is near session lows down 322 points. FRC down 40%. We're back after this.

Welcome back to Power Lunch, everybody. We have stocks at pretty much fresh session lows here. with the Dow down 331 points. The S&P to 477, that's a 1.5% drop the NASDAQ down about 1 and 3 quarters of a percent. First Republic's shares are down formatively. Bob Bassani has more details at the New York Stock Exchange. Bob? Well, we were going along.

It was a weekday, but it got weaker around 1 o'clock when there were reports out that the First Republic was weighing an asset sale of up to $100 billion. Now, remember, they were already down, rather noticeably, on yesterday's earnings reports. That was a 40% drop in deposit. That was a lot steeper drop in deposits than anybody had already anticipated, but we dropped even more on that. And this actually moved the overall market. It moved bond yields lower as well, which I think was a surprise to a lot of people. And it certainly moved the regional banks. They're all moving lower today, notably.

And remember what happened when the earnings came out for the regional banks? They were generally okay, not worse than anticipated. And the stocks a couple of weeks ago rose briefly on this. As a result of what's been happening the last day or so, and particularly today, these are all now trading towards the lower end of their recent trading ranges from a month ago, going back to the banking crisis towards the lower end. And that's a bit of an issue for the markets. Take a look at the KRE. This is the regional bank ETF. This is a basket of all these large regional banks. This is essentially a new low here. I'm showing you a one-year chart, but that's a two-and-a-half-year low. So we are back down to where we were right at the high. of the banking crisis in the middle of March here. S&P 500, again, rather surprisingly, it then moved the market here. We moved 20 points on the S&P. And you could see after moving up recently,

as we entered earnings season, for the last several days, we've lost a lot of the momentum that we had. And as a result, cyclical names are no longer helping the rally. It's very defensive now, consumer staples, and health care primarily. So I back to you. Thanks very much. Still ahead. The VIX is in a new product shaking up the way traders can hedge against volatility, that and more when Power Lunch returns on CNBC. Welcome to Power Lunch, everybody. Stocks are lower today. Bond yields falling as well.

Let's go immediately to Rick Santelli at Sebo. Yes, I'll tell you what, Tyler. If you look at an intraday of two-year no yields, they've really plummeted. And believe me, the two-year note auction wasn't spectacular, but it was still slightly above average. It was more of a mogul, meaning traders waited to continue buying, pushing yields down. The two-year note auction was just in the way. And M2, everybody talking about it today.

That chart goes back to 1980. You're not going to find a lower M2. And finally, when it comes to the CBO, 50-year birthday today, 40 years for the index options, 30 years for the VIX, and only two days old for the one-day VIX. Here's the chairman and CEO, Ed Tilly. Ed, congratulations. Everybody wants to know about your new one-day VIX. product. Yeah, we launched yesterday. Really important for us to continue to bring new measures

of the market to investors of all shapes and sizes around the globe. People wanting U.S. exposure, our 30-day VIX number wasn't capturing where the majority of the volume is moved now, and that's on the short end of the curve, meaning zero days to expiry, options open and closed in one day, or one-day options, one day in the future, like tomorrow. A lot of volume there. We needed to measure the volatility in that trend. You know, prior to options, strategies were much less able to fine-tuned, to replicate the type of performance in a portfolio that strategist wanted. It really has changed the landscape in a huge way. It really has. Investors want to trade the news cycle. Look at the news that you announced today every day. It's all day long.

And having to use options that are one week out or 30 days out or six months out, that's not what investors have been trending to. They want to trade today. They want to trade this news cycle. they're able to fine-tune their portfolio on exposure based on the news of the day. That's what we look to capture. Now, when it comes to the zero versus one day, how much activity just today alone? What's the difference between the one-day and the one-month vix right now? One-month VIX moved about 55% today. The 30-day VIX number, about 16-17%.

So we were not capturing in that 30-day. What's happening today and tomorrow? And traders are all about the hearing. And now, Kelly, back to you. Fascinating stuff. Thank you both. Rick Santelli. Coming up, the beat goes on this earnings season, thanks in no small part to pricing power.

We'll look at some of the companies able to cover their rising costs, and for how much longer they'll be able to do that when Power Lunch returns. Welcome back, everybody. Big theme of this earning season is pricing power. Good news for companies, not so much for consumers. It's helping to fuel some beats here. And Christina Partsenevolous is digging into just what extent we're seeing this, Christina. Well, higher prices that just.

just don't seem to be want to come down anytime soon. Even though there are signs, raw materials are starting to moderate just a bit. Outside of a few retailers, most companies just don't want to give shoppers a discount. The maker of Huggies and Kleenex, Kimberly Clark, for example, increased prices 10% in its most recent quarter.

Volumes did fall, 5%, but margins still grew compared to last year. Kimberly Clark's CEO says it has to do with a better than expected elasticity impact on volume. In other words, the increase in prices isn't drastically reducing demand. PepsiCo prices. Look at that, up 16%.

Volumes only fell 2%. Coca-Cola, pushed up prices 11%. Volumes actually increased 3%. Procter and gamble, you guessed it. Prices were up 10% and gross margins grew. Sherwin Williams, the maker of agreeable gray pink color, very popular amongst our producers on this show. They did discuss demand softness

in its earnings report this morning, but earnings still topped estimates. Why? Higher prices. McDonald's CEO is one of the only CEOs who said that consumers are starting to push back on higher prices in a few markets, adding fewer items to their orders. But overall, traffic still grew because people want their Big Macs. All of this points to inelastic demand. People may not or may be grumbling about prices, but they are still willing to pay up.

Yeah, and even we had the quote from that McDonald's CEO, we did that story earlier today. Come on over here. Well, we got 28 seconds left. 30 seconds, excuse me. He said he was feeling some pushback, but still they raised prices 13% year over gear, and they were seeing high demand. Precisely.

So we keep talking about this weaker economy, inflation hurting everyone, and yet we are still paying, as we saw on that board. Yeah. People do seem to be willing to step up. For now. What are going to do with the remaining eight seconds?

Yeah. We've just sit, chit-chat-up on our day. The evidence index, though, dropped to a nine-month low. So that's something, right? Exactly. Thanks for watching. Thank you, and thanks for watching closing bell.

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