Power Lunch - Earnings Season Kicks Off, Dow and S&P 500 rise to record highs 10/11/24

Episode Date: October 11, 2024

The S&P 500 and Dow Jones Industrial Average powered to new highs on Friday as banking behemoths ushered in a promising start to the third-quarter earnings season. The major averages are headed for a fifth-straight positive week.We’ll cover all angles of the market for you. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Welcome to Power Launch, everybody, alongside Kelly Evans. I'm Tyler Matheson. Glad you could join us on a beautiful fall Friday. J.P. Morgan laying down the foundation for earnings season. The company is nothing short of a powerhouse crushing estimates. But Jamie Diamond issuing some warnings on the global and U.S. economic fronts, he is always worth listening to. Yeah, and he's often cautious. We'll talk about that today. Beyond banks and earnings, we also received some insights into the consumer. Sentiment did slip this month. And coincidentally, UBS. This is out with a new note on a consumer juggernaut Walmart, saying essentially its third-party marketplace could be the future of that company. So no concerns on the Walmart front, still lots of tailwind. I guess Walmart trying to grow into a space that Amazon has mined very, very, very profitable. Oh, yeah.

All right, Tesla's Robotaxi event, it was yesterday. We talked about it all day. Well, it left many analysts disappointed. Now, Musk knows how to put on a show. He knows how to jump up on stage, bear his little belly there. He shared some interesting visuals. That was not one of them. But one of the biggest winners was Uber, ironically,

because the event failed to offer any details on Tesla's ride-sharing plans. We're going to trade both of those names in three-stock lunch. So once again, I mean, Uber shares moving to the high side of the session of nearly 10% despite Samanel's caution last hour. We'll dig into later this hour. All right. We're going to begin, however, with three market drivers to break down at this hour. One is consumer sentiment and the inflation data.

And next is J.P. Morgan, kicking off earnings season and offering insights into the global economic landscape. And even more crucial earnings on deck for next week. We've got an all-star panel to hit all of these angles. On the markets and the economy, we have Michael Aroni, chief investment strategist at State Street Global Advisors. Mike Santoli is also with us from the NYSC. And to tackle the banks and more, David Conrad, large-cap banks analyst at KBW, a steeful company. Let's start, why don't we, Michael O'Roney, with the economic data out today, a little bit of squishiness on consumer sentiment, but generally the data have been pretty good indicating a soft landing, right? I would overall say that the soft landing outcome remains intact. The economy's cooling, but not in recession.

Inflation continues to be on the right trajectory. Earnings are going to be great. Wells Fargo and J.P. Morgan got us off to a good start. Consumers in good shape. So I think all in all, the soft landing outcome is the most probable, and that's pretty constructive for the stock market. Michael Santoli, what is the Dow seeing today to make it go up 350 points? Yeah, Tyler, I think sometimes, you know, the context is the catalyst, which is every time we get one of these tests, whether it's CPI, PPI, weekly jobless claims, and we kind of run it against our premise, which is, I think, that the market is priced for something like a benign soft landing. If we clear the test, I think it does release to the upside. I don't think that there's a lot of fixating on specific news. I think the bond market had its move, mostly in response to payroll data a week ago. And so it has not really given incremental reason to worry at this point.

The S&P at a new high of 5,800 or so. You know, it's slowing down. This is not a huge burst higher for the week, but it's definitely grinding in the right direction and led by mostly cyclical components. David Conrad, what is the maximum? grow message from the big banks this earning season. The shares seem to be telling us the coast is clear. Yeah, I think with the economic data that everyone has spoken about, I think people are trying to look through some near-term headwinds and see the improving NII, perhaps, going into 2026.

That probably wasn't a luxury we had three weeks ago. And so, you know, I thought with this quarter's results, NIH this quarter came in a little bit better than expected for J.P. Morgan, but did guide down largely the first half of next year on NIA relative to consensus a little bit, but does expect that to kind of accelerate and improve in the back half of 25. And so that's where people are really focused on is looking through, you know, rather denying credit results here this quarter. With that a little bit off the table, you can be a little more patient with earnings. David, let me ask you a kind of curious question.

As you survey the big banks that you follow, Let's say you had to have one bank that would be your core holding, the one that you're going to be, it's going to be your long-term go-to, and another of the big banks that would be your speculative one, the one where you think, okay, I'm swinging for the fences here. I may swing and miss, but if I hit, I'm going to really hit it out of the park. What would those two banks be? Well, JP Morgan is always the long-term go-to. So you look at that stock, and it always looks a little bit expensive in your term,

but if you look at it over five years, it typically does reward you well. And it's really the best well-run bank out there with a lot of excess capital. In terms of, you know, sticking with today, Wells Fargo has been an under-earning franchise. It's well documented with a lot of regulatory risk. They have the asset cap. And so that one, you know, the bulk case thesis on that would be that the asset cap was lifted sometime next year. They're close to Trough, NII as we moved through the first half of next year. and an under-earning franchise, which could, you know, at one-four, one-five of Tangio book could be, you know, much more valued out two years.

Interesting. shares are up 6% as well on some of these, on the excitement really around that. Mike Santoli, fold this in, maybe give us a little preview of your column this weekend. The most bullish commentary that I'm seeing from analysts, broadly speaking, is that they see both earnings and multiples growing. And even at a moment when the third year of a bull market, which we're entering, it's typically a little bit more of a choppy one. So it's just the bank so far. We've got a lot more on tap.

What's the expectation? Well, I would argue that earnings growing, or at least in the future quarters, accelerating even a little bit from this quarter's pace, and holding the multiple is probably the bull case that might seem like it's a little more prudent to bet on, as opposed to expanding, you know, the S&P, PE above 21, 22 times where we are right now. I do think a unique aspect of this moment, though, is, you know, Fed already in ease mode or at least, you know, removing restriction into an earnings recovery. That's one of the anomalies of many of this cycle that we're dealing with right now. And so it does seem like it's all sort of supporting and pushing in the right direction.

And again, I still think we have to have everything tested against the fact that the market seems already priced for something close, a pretty good scenario. So it doesn't necessarily mean we're going to have the element of surprise if things are really good because we mostly are expecting that. Michael O'Roney, let me turn to you, and there are a couple of things in the notes that interested me. One is the three things that investors should look for in the earnings call. Confirmation that the gap in earnings growth between the Mag 7 and everyone else is narrowing. What the executives say about the impact from hurricanes, Middle East tensions, and the election. And third, here's the one that's really interesting to me. Will AI optimism turn into AI skepticism? Are we starting to see a little bit of that?

Tyler, I think we got a glimpse of that in the second quarter earnings results. Alphabet, Microsoft, and NVIDIA all beat on top and bottom line, yet it wasn't good enough. So it does demonstrate this notion that when you are a price for perfection, if you don't deliver on perfection, your stock gets a bit re-rated. Now, we have seen a rebound since then a little bit, But ultimately, I do think that is a risk headed into this earning season, that if AI optimism turns into AI skepticism, that could pose some risk for the top end of the market, which has been a primary driver of returns over the last couple of years. Thankfully, with lower rates, falling inflation and the normalization in the yield curve, we have seen other parts of the market be able to participate more fully, and that's kept us afloat. But as Michael Santoli is pointing out, you know, the risks are a little bit skewed to the down. A lot of that's already reflected in prices.

You, because of that, Mike O'Ne, are sticking with technology, communication services, financials, consumer staples. Explain this blend. Yeah, it's a little bit of a balance, Kelly, because I do think that, again, the soft landing outcome is the most probable. The Fed is certainly bought into that narrative. The markets, the stock market, is certainly bought into that narrative, but there are some risks out there. So when we look at this earning season, there are only two sectors where earnings actually in the market, actually increased from June here, where analysts were increasing their earnings forecast.

One was technology, one was communication services, and in the last couple years, you've had to be where the earnings growth is, and we still think that that's true. In terms of financials, I think David did a good job. They're highly profitable, they're cheap, they return a lot of capital to shareholders. Should you get a Trump win, you might see some regulatory relief, they're cheaper than the market, and they're off to a good earnings start. So we like financials and banks in particular. just gives us that defensive name just in case. When we look at the defensives, the bond proxy, typically when the yield curve normalizes, which has now happened, it's no longer inverted. Bond proxies and defensives rally, and that's happened.

Staples is kind of the best of the bunch within that group. Look at those financials here. David, I'm going to give you the last word, David Conrad. And you can even thank Michael O'Roney for those kind words or close up the conversation one way or another. Go ahead. Yeah, let's say, I mean, I think the yield curve is a really important point. A lot of people focus on the two's tens, which is just positively sloped. And in turn, so the last couple weeks, you know, so far to five years still inverted. But hopefully, I think if we see the belly of the curve stabilize, the Fed moves to the dot plots,

that curve will actually be positively sloped as we enter 2026. And that's a really bullish sign for the banks. All right, two mics and the David. Michael O'Roney, Mike Santoli, David Conrad. Thank you very much for your time today. Our next guest can offer more insights into the state of the banking sector and the economy. Here now is the CEO of Raymond James, Paul Riley. It's worth noting that Raymond James is actually headquartered in St. Petersburg, Florida,

which was hit hard by Hurricane Milton. And we'll get to that. Let's start. Paul, welcome to you, though. We appreciate you joining us. And I can't imagine kind of wrapping up the quarter, getting ready for earnings season with this storm bearing down. But what did we learn? What can you tell us about what's going on in the economy for the business?

from that period and maybe even now? I think the economy is really your last guess that talked about is in good shape. I mean, it's hard to have a recession when there's full employment, and I think there is right now. Rates coming down on banks may affect spread earnings over a longer period of time, but they were very healthy, as we saw by the reports, and rates coming down, M&A, bond financing, all tend to pick up. So, you know, for the general economy, I think it's still all positive. at least for the near term.

You know, Paul, I'm curious, just to get your thoughts on it. There are the, I hear people like you, very learned, experienced executives, market forecasters, all basically all saying the economy is doggone good right now. But American voters don't seem to feel that way at all. Why do you think that is? Well, I think a lot of it is what inflation has done to paychecks. You look at the high inflation rates. And the costs of not just general inflation, but staples like eggs and other things have gone up much quicker.

So people feel those squeezes. And that's really been the impact. So the jobs are there, incomes are up. But costs have gone up more. So I really think getting the inflation down by the Fed was really the most important thing to do because that's what's really put the squeeze on, you know, the average family. Are you excited about the yield curve, Paul? I'm excited. I don't know. I don't get excited about yield curves one way or another. People predict them going down or up, and we just tried to stay neutral with them.

We got criticized for not taking bets a few years ago and locking in our portfolio, and we said we're in the long run, and that ended up paying off when rates really started coming down. We were still floating. So, yeah, maybe we don't earn as much when we take bets, but through 200, 140 consecutive quarters, we've been profitable, including every quarter of 09, by just playing the long game. Tell us what your experience personally and that of your teammates was, as you faced down these two recent hurricanes, most especially, Milton, just a day or so ago. So being in the area over 60 years, it certainly was an experience. They say it was a hundred-year storm. I hope they're right.

But we learned a lot of things. I think that first, all these storms are idiosyncratic. So I live on the beach in St. Petersburg. I got flooding on my first level and lost cars and boats and all my siblings. Some had flooding. Some did fine. The second storm, which was supposed to be, you know, the killer storm. Really, we had no flooding even on the beach.

But we did inland in Tampa as the water got pushed in the bay. So every storm has a different impact. So the impact that we really are worried about is people. And the first storm we were able to contact over 5,000 people individually. They're all okay. And this storm we've contacted 94%. We've gotten responses for. So they've all been okay.

But we still have about 6%, you know, that we do man on man and make sure they're okay. So certainly they're physically okay, but a lot of people have damaged their homes. Some are going to struggle putting that back together. Some have lost all their personal things. things. So, you know, it's going to be for them. It's very, very tragic. But on the good news, we've already committed well over $11 million to help our associates and communities. Advance the money, have a low rate loan program, and we will help them rebuild. And our offices came through fine. First thing we do in a storm is we tell everybody to get out, get safe.

We used to fly on places, but we learned in COVID. You know, we can work remote. Just get safe. when the storm's over, we'll redeploy you. Also, a third of our, everybody thinks we're in St. Pete, but our back office, we're a third in St. Pete, a third in Memphis, and really a third in Southfield, Michigan. Our servers are in Denver and Southfield. So the storm doesn't impact that. It does impact the lives of so many associates that live in that area.

In terms of the long-term impact as well, Paul, there's all state was on our air this morning saying, they don't insure Florida. I'm talking on the consumer side. they don't insure California. They've been pulling back after the damage of these storms. Do you think it's going to have a longer toll on the economy in terms of the housing market? The amount of people have moved there, maybe having some second thoughts?

Yeah, you know, I remember in Naples when they got hit really bad a few years ago, everybody said that was the end, but housing prices are certainly way up. It's still a good place to live. But no doubt, insurance has been one of the challenges we've had in the market. But our prices went up as they did all over in Florida. We got more expensive during the COVID period. But we're still cheaper to live, even with those costs, than a lot of the big areas like New York.

And we've got beautiful water, which is the pros and cons during a hurricane. So I think the area is going to come back. Short term, especially for houses that are below the floodplain. If you have a newer house, you're above the floodpane. Almost all of those did fine. The older houses that were built under it, those are the ones that are prone to flooding. And I think at some point those houses will have to be come down, partly by the FEMA, 50% rule.

If you have more than 50% damage, you have to raise your home. And so that's going to be a struggle for some people. But I think longer term, with that, it's going to be fine. Insurance is one of the challenges as more people pull out the state as a catastrophic insurer is becoming more and more of the insurer of last resort. So we're going to have to do some work to figure out how to make our insurance market more affordable to people. All right, Paul, thank you very much, and I'm glad to hear that your teammates and execs are okay physically and that you're helping them rebuild and come back.

Thanks so much and have a good weekend. Thank you, Tyler, Kelly. You got it. All right, still to come, and sticking with the bank space, not blank space, that's a Taylor Swift song. We'll take a look at one financial. I don't know why this stuff pops into my head, just out of nowhere like that. Well, look at one financial name that is not only outperforming many of its peers this year, but it also won over Warren Buffett. Details on that name next. Plus, further ahead, a power call on Walmart why one analyst thinks the retailer's third party marketplace could be a growth game changer. How long don't you be right back.

Welcome back everybody. Warren Buffett's Berkshire Hathaway, selling 9.5 million shares of Bank of America. Over three days, Buffett began shedding the bank stock back in mid-July. He's been unloading quite a few positions lately. He's also sold so much that he no longer has to report sales of the stock quite so promptly. Bank of America is up, nevertheless, 5% today at 4195. But Buffett isn't down on the entire bank sector. As a matter of fact, Berkshire is one of the largest shareholders in Brazil's new bank, which is up around 60% this year.

Kate Rooney taking a deeper look at that name. That's not one we usually follow, Kate. That's right, Tyler, and I love a good mystery chart. So the name is New Bank. It's been an under-the-radar winner this year for Berkshire Hathaway. The Latin American Bank, as you said, we don't talk about it every day, but it has been outperforming its counterparts, at least in North America. It's up about 60 percent this year, three times better than the S&P. Jeffreys is the runner-up in Berkshire's portfolio.

That's up about 55 percent. And then Amex, also in the top five. New Bank is the largest digital bank outside of Asia. It's got 105 million customers across Brazil, Mexico, and Colombia. CEO David Veles used to be an investor here in the U.S. He was actually a partner at Sequoia. He tells me they were able to leapfrog some of the incumbent banks in Brazil by going fully digital. He said he was actually surprised when Warren Buffett initially got interested,

but he says that the Berkshire team was able to look past some of the headwinds of operating in Latin America. They invested pre-IPO and then doubled their bet. Feles argues that navigating an uncertain market in Latam has kept them more nimble. There is macro volatility. There is political volatility. There is interest rates happening. There is scandals all the time. I think what this creates, frankly, is it's a continuous paranoia in that you can never get comfortable because things are going to change.

And it forces a level of just speed in how you make decisions. inside the organization. It forces you to be extremely dynamic. So the street is mostly bullish on this name over half of analysts. Do you have a buy target? Average price target now indicates roughly 8% upside. From here, guys. Back to you. All right, Kate, thank you very much. Kate Rooney reporting on Newbank and Berkshire. They always find them, don't they?

Before the big runs. Speaking of which tech stocks that had a big run with the triple Q is just 2% away from all-time highs. But could earning season throw a wrench in the? the rally. Our trader has some ways to protect yourself. Market Navigator is next. Welcome back to Power Lunch. You can see the Dow up nearly nine. Are we at session highs, Dom? Just about session highs right now. Up 378 points, six-tenths for the S&P, a third for the NASDAQ. The big banks are stealing the attention today and when's the last time we said that. But we can't overlook our friend tech and the triple Q's in market navigator.

I mean, it's arguably the most important part of the market, right? So let's check this out. the major indices are at or very near their record highs right now. But one of our traders thinks that it's prudent with this environment to take out a little bit of downside risk and insurance at this given moment. So joining us now with the trade and the reason why is Jeff Kilberg, the founder and CEO of KKM Benangial. He is, of course, also a CNBC contributor. So Jeff, thank you very much for being here with us right now.

A notched record for the S&P 500, a notched record for the down industrials today. We're about 2% or less than away from the all-time highs in the NASDAQ composite. This doesn't feel like an environment where we should be taking profits, right? I mean, all the momentum to the upside. Why are you so cautious? Well, it feels like a little heavy to one side of the boat, Dom. And that's exactly why I want to utilize a NASDAQ future to book those profits. It's synthetically hedged. And if you look at the NASDAQ future, specifically December contract, I think there's an opportunity to sell right here. And I think it's fascinating. If you can sell it at $20,000, $4.50 in that these contract, yes, I am risking.

is exactly at the all-time high, about 400 points higher. But I'm looking for a 4% drop. It sounds significant. And this is a little bit different than usual, Dom. This is a trade, but it's also a longer-term view where I just think we've seen such elevation in all U.S. equities. And it's really in the headwinner in the face of higher 10-year notes, higher VIX, see the elevation of the VIX over 20.

So this is definitely a contrarian approach. But if you have exposure, and let's be clear, everyone has exposure to the top five hole in the NASDAQ 100. It's Apple, NVIDIA, Microsoft, Broadcom, and meta. Those five make up nearly 35% of just the NASDAQ 100. So therefore, I think it is time to buy some downside protection. I'm utilizing that in the futures market. All right.

So we're looking at the trade right now. The viewers are seeing it right there. The cell level right now, again, 20,450. You're targeting a 19,650 level to take profits on there. But the stop is very tight. It's only about 400 points above where we are right now. You said at those all-time highs, why this doesn't seem like a very high conviction-type short situation. Why are you giving it just so little leeway to have any kind of a move before it perhaps even goes back to the downside?

Well, no one wants to be a hood ornament, Dom. And I think the fact that we have exposure to all these names, if you're managing a billion dollars or if you're managing a $500,000, $400,000, 4-1K by yourself, you have exposure to the NASDAQ-100. It's been the leader ever since 2023, everything AI. has gone up. But the reason I have such a tight leash on this is because I think a 4% drop is absolutely plausible. All the uncertainty, we haven't seen anything. It's almost, I'm not whistling by the graveyard by any means, Dom, but it feels like everyone's holding their breath right now. Why is the market continuing to melt up? Well, that in itself gives me reason to pause. And by having this, it's a very loose stop, actually. I'm looking for a 2% which in the NASDAQ

100 world in the futures market is quite wide. But I'm looking for a 4% drop, which, as you know, could happen in a trading session or two. All right. And then one last question. I mean, Kelly and I have talked about this in the past. The size of futures contracts are massive. The amount of leverage you use is massive sometimes between the big contracts and the E minis.

There are also micro E mini contracts on the NASDAQ and elsewhere as well. So why are you using the E minis versus the micros and what exactly is the main difference? Well, my portfolio is a little larger. So I want to utilize the E mini futures and the NASDAQ 100. But you're absolutely right. If you want one-tenth of the exposure, use the micro. It's a little hard to remember the mini and the micro, but that micro is a much smaller exposure on hedging. And you've seen institutions, Dom, utilize futures for decades upon decades.

This is an institutional high-horsepower tool. It's a power tool. That's why the micro really allows people who have maybe under $500,000 to hedge that out. Because when you do see risk happen, there's nothing better than owning or shorting futures to really have that realized insurance. place. All right. Jeff Kilberg at KKM. Thank you very much. Have a nice weekend, sir. You too, Dom. All right. So Kelly, what's curious about this, whenever you use these futures markets, right, and a lot of traders who utilize retail trading platforms understand this, there's a reason why they're margin and leverage products.

You have to be a little bit careful with risk management, which is the reason why I think Jeff has such a tight leash on something. Walking out, try to maybe short those triple Q's. We take it as a sentiment gauge of nothing. Or just buy options, maybe. Who knows? Don, thanks very much. You got it. Dom Chu. Iler. All righty, CNBC's newest series, Millennial Money, takes an inside look at the lives and finances of the world's first global generation. Why not how much they're earning, where they're spending, how they're investing?

The series premieres this Sunday at 5 p.m. Eastern only on CNBC. Don't miss it. And as we head to the break, we just want to bring your attention to shares of Generac, up around 3%. This came right after former President Trump said on Truth Social that if he wins the election, he will allow the cost of home generators purchased between September 24th and August of 25th to be tax deductible.

We should point out that this is being added to a growing list of promises regarding tax cuts from former President Trump as well as from candidate Harris, despite the former president sharing few details on how these policies would get through Congress. Power Lunch will be right now. Welcome back to Power Lunch.

I'm Bertha Coombs. Here's your CNBC News Update at this hour. President Biden, announced this afternoon that he will make a request to Congress for more money to increase hurricane aid in the wake of Hurricane Milton in Florida. It comes as some experts estimate that Milton caused $50 billion worth of damage in the state. The president plans to travel to impacted areas of Florida on Sunday. The president also calling for a strengthening of the power grid after millions of people saw their power knocked out by the Category 3 storm.

According to poweroutage.us, more than 2.2 million people are still in the dark right now in Florida. And the National Labor Relations Board accused Apple of interfering with workers' rights today. The complaint accuses the tech giant of restricting employees' use of the workplace messaging app Slack by illegally firing one person who advocated for workplace change on Slack. and requiring another worker to delete a social media post. Apple did not immediately comment. Tyler, back over to you. Bertha, thank you very much and welcome back, everybody.

Yields slightly lower today coming off some significant economic data, and Rick Santelli's been tracking the action for us from Chicago. Rick. Absolutely, Tyler, and not all yields are actually lower on the session. Short-dated treasury yields, like two-year, three-year, five-year. Once you get to sevens, they're virtually unchanged. then you have tens, twenties, and thirties whose yields are higher on the day. But let's start out with the data.

You do remember yesterday, CPI core was warmer than expected, 3.3%. Now let's look at the two year-over-year cores that we have for PPI. There's year-over-year core X-food and energy, then X-food, energy, and trade. And as you see, one's moving up slightly, one's moving down slightly. That isn't the point. The point is that these are one-year charts, and you could see we've been lower and were elevated. And if you look at the way both those are coming at the right-hand side of the grid, it certainly looks like 3% is where things seem to be panning out. The issue is that they

may be well-behaved, but it's not well-behaved at the Fed's target. Now, we did also see that a university sentiment from Michigan, even though it was a preliminary look, we eased off on all the metric, whether it was headline current conditions or expectations, and we did see a little bit warmer little bit warmer with respect to some of the inflation data on the one year. To summarize, well, let's look at how the markets have responded in all the various areas. If you see tens and thirties today, their yields are up as I pointed to, but only 30s have traded higher than yesterday's yield. Tens have what we call a double top.

Yesterday's high yield was 411. Today's high yield is 411. So it's breaking that pattern. It doesn't look like it's going to have an eighth session in a row trading high. in previous highs and tens only in 30s. Now, let's macro the whole thing. We saw the Fed lower interest rates, 50 basis points on September 18th. So let's do September 17 charts for twos, tens, and 30s. And you can clearly see what has happened with respect to interest rates. The only issue isn't the direction. The issue is the reason. And there's a variety of reasons.

Maybe the economy is doing better, although some of the data lately on sentiment today might go in the other direction, but ultimately we also had auctions this week, threes, tens, and thirties. And some have said that the markets snugged up on long maturities after the jobs report that was stronger than expected, primarily to make room for extra demand in the auctions. And that may be true, especially considering that they want pretty well at significantly higher yields and, of course, lower prices. Kelly, back to you. Comprehensive report there, Rick. Thank you very much. Rick, let me ask you a question if I might. How closely does the Fed look at the PPI numbers?

You zeroed in on those PPI core numbers, which are certainly kind of the feedstock of consumer prices. But is it that that they look at, or do they look more closely at consumer price measures? Oh, I would think for sure consumer price measures. And as I mentioned, yesterday we did have that outlier on the year-over-year core with CPI as well. But their preferred gauge, the PCE, historically runs about four-tenths to a half a percent under CPI. And for my personal pick, and I think many traders, CPI is what they like to look at the most. They're most comfortable with it, but it isn't necessarily the Fed's favorite metric.

So what we're really debating here is their metrics a bit lower, but it's still not quite a 2%. The Fed is really rolling the dice that over time we are going to see. Their target rate in all of these metrics. But yet every time I look at some of these charts, it just doesn't look like it's going to happen any time soon. Yeah, there's lingering up there in that 3% neighborhood. And so you wonder how quickly we might get down to 2%. Rick, thanks. Have a great weekend.

You too. Thank you, Tyler. And coming up, Walmart's answer to Amazon. UBS out with a bullish note on Walmart saying it's third-party online marketplace, could be a game changer for growth. We'll speak to the analyst behind that call with the shares up 52% year-to-date. Is it an Amazon threat? That's coming up. Welcome back. Consumer confidence may not be on the rise, particularly right now,

but a new note from UBS shows a lot of confidence in one consumer name, Walmart. Specifically, the analysts there says the retail giant's third-party marketplace could be a growth engine for the company as a whole, not just a little rivulet in the revenue stream, but can it stand up to the likes of Amazon or eBay? Additionally, it's got even more competition coming from China and companies like Alibaba. Here to discuss is the analyst behind the call. UBS is Michael Lasser. Michael, welcome. Why don't you lay out the thesis here and why you like what Walmart seems to be doing in third-party marketplace?

Thanks for having me, Tyler. Our thesis is that Walmart is in the early stages of building this ecosystem. system that is going to drive considerable sales and earnings growth for the next several years. A key piece of that is going to be its third-party marketplace that as of last year did about $70 billion of GMV collectively through its domestic and international properties. We think that over the next few years that can grow to $150 billion. And as it grows the third-party marketplace, that drives other elements of business. very high margin revenue streams like advertising, logistics, data monetization, and others.

And this is going to be a stock that investors are going to want to own as we move through this very attractive growth cycle. So it becomes a kind of virtuous cycle, not only creating this revenue river, but also having knock-on effects with advertising and other things. What how much does as a percent? What is what is Walmart's margin when they sell a third party item for let's say $25? What do they collect in revenue from that? So we think that the profitability right now has improved, but it's still probably losing some money, probably in the mid single digit range. So call it minus 5 percent. But this is a business about scale. And as you get more third party sellers, you get more assortment, you get more scale.

And that should lead to significant improvement in the profitability of this one segment, such that that minus five this year can go to 15% positive on the margin over the next few years. If that's the case, that can add 8% to the entire profitability of the enterprise. We think that this will be significant and it's just one factor of many that can drive target shares higher over time. Michael, I have not used the Walmart app or Walmart Plus or any of those platforms lately, obviously shop in the store, but are there a lot of third party items on the platform today? And at what point are you expecting a lot more third party items to be available? When is my question? When should download the app? You should download the app. They've made a lot of changes to it over the years.

It's very easy to use. There's not a lot of friction in the process. It's a good experience. Right now, there's about 500. million items available through Walmart.com. That's growing in part because it's adding more third-party sellers. The best we can tell is it's got between 100 and 150,000 third-party sellers through Walmart.com. To put that in comparison, Amazon has two million third-party sellers. So Walmart's just scratching the surface. And Walmart's a viable alternative because a lot of these third-party sellers don't want to put all of their eggs in one basket. They want to diversify their business, and they want to tap into the very rapid growth that Walmart provides them, because it's got

a lot of natural traffic, and you can sell more products to the very significant traffic that is coming to Walmart's website and to its app. Let me come back to that idea that right now the margin is sort of negative. They're losing use at 5%. And by adding scale, they could get to a positive 15. How does that happen? Why does, why does sort of more revenue sort of magically turn into profitability? And where does that profitability? At whose expense does that profitability come, I guess is what I'm asking. So over the last few years for quite some time, Walmart's had to make sizable investments in its infrastructure in areas like systems, people, supply chain, in order to build the bones to be able to.

to serve this business. Interesting. And now that it has that infrastructure in place, the more revenue that it brings in, it will be able to leverage the cost structure. And that is what is going to drive the profitability from here. And the key is we think it's just approaching escape velocity with not only the sales, but also the profits that are going to drive a meaningful contribution to Walmart over the next few years. All right, Michael, thank you for the answer. I appreciate it. Thank you for your time

today. Michael Lasser. Good to see you. I'm going to check out the out. Tesla is the worst performer on the S&P today, down 8%. Wall Street apparently underwhelmed by its robotaxe event last night. Is it an opportunity to buy the dip? We'll trade it in free stock lunch. And as we had to break, CNBC is celebrating Hispanic heritage. Here is Empath CEO and CNBC contributor Carlos Gutierrez sharing his story. Hispanics have made a great contribution to this country. And I'm not talking about just low-skilled workers, but high-skilled workers and even C-suite. I would urge corporate America to understand the skills of Hispanic Americans. Their history, their experiences have given them skills that they can use in business.

Welcome back. Let's get a quick power check with markets near session highs. These are some of the best and worst performing. names today. On the positive side is the industrial supplier fastenol jumping after reporting a rise in revenue despite disruption from Hurricane Helene. This is often looked to as a barometer for the economy. That's a good sign. It's up nearly 10%. Also on the positive side is Walgreen, still a Dow component, if I'm not mistaken. Some online chatter on a bullish Reddit forum. No other details beyond that. But it is set to close its best week since July. It's still down 66% from its 2024 high. And on the negative side is water heating firm, A0.7.

Smith. They reported consumer headwinds on the earnings call, topical today, given the drop in consumer confidence. The shares are down 7%. That's your power check and power lunch. We'll be right back. Welcome back. It's time for today's three-stock lunch and here with our trades is David Wagner, portfolio manager at Aptus Capital Advisors. David, welcome. First up, we've got shares of Tesla down nearly 8% today after investors were overwhelmingly disappointed or maybe underwhelmingly appointed to the EV-Maker's Robotaxi event yesterday. Jeffrey's analyst called Tesla's $30,000 Robotaxie at Toothus Taxi. So what's your take on Tesla, David?

You know, Tyler, it's almost like Tesla and Uber reinvented the bus over the last two weeks with Tesla's robo van and Uber's group shuttle to New York airports. But with this newfound innovation, if you call it that, it felt like consensus was heading into this event, that you, it was probably going to be long on vision and short on deliverables. Yet, you know, really no investors wanted to be short this event heading into it because if they're wrong, they're going to be really wrong. But in Tesla fashion, you know, and consistent with their historical announcements, it was a sell-the-news type of event.

So to me, this puts the stock in the penalty box for a while because there's no tangible catalyst to drive this business higher in the near term, especially if you look at the core business that's going to have limited growth and basically no margin expansion until you get that lower cost model two that's coming out maybe, say, 2027. So given no lack of catalyst and some competition on the EV side, I'm on the sidelines. On the sidelines. Well, let's look at the beneficiary, so to speak, which is Uber, David. The shares are soaring today.

They've continued to move higher throughout the session. They're up 11 percent now. They're said to be benefiting from Tesla's lack of detail on the imminence of its ride sharing plans. The Jeffrey's analyst making Musk's event a best-case outcome for Uber. And what would you do with Uber shares here? You know, I was actually a long on Uber, actually before the Robotaxie event, but last night seemed to be more of a last major hurdle for Uber to clear, especially after they had an awesome Q2 earners report, Kelly. Then in August, you had their credit rating approved to Triple B. So I'm long here, but it really gets me excited for just Uber as a whole because they've struck, you know, so many great valuable partnerships with Waymo, Cruz, and others that I get to hope to see expand over the next few quarters as AV supply continues to grow. But it really showed me the defensiveness of Uber's platform because it's basically going to improve utilization and reduce costs of scaling AVs into new markets.

So I agree with them. It was definitely a best case outcome for Uber because Tesla really just can provide any verifiable evidence on their progress towards L3. But now that last night's event is over, I'm really excited because investors can finally, you know, focus on the actual fundamental story of Uber, which definitely own, definitely merits some type of ownership. All right. We've got about a minute left. Finally, let's get to the analysts who are getting. more bullish on Netflix ahead of earnings next week. Guggenheim raising its price target there.

Jeffrey's also binging on a bullish third quarter preview. Barclay's warning, streaming ad monetization could be a bumpy ride, however. Netflix's lower today, but up nearly 100% in the past year. Your trade on this one. Yeah, Tyler, even at this valuation, I think the market's really underestimating the potential for EBIT margin growth over the next few years off of licensing agreements with a bunch of partners on their content, which is really just another example. showing the strength of their business model moving forward. So I'm long.

All right, David, thank you very much. We appreciate it. Have a great weekend. Thank you. And thank you for watching Power Lunch. You can have a great weekend too. I think it's happy Canadian Thanksgiving. Oh, is that right? This weekend. Can erect me if I'm wrong. And Yom Kipper as well. There we go. A lot to note. Thank you for watching Power Lunch. As Ty said, closing bell starts right now.