Power Lunch - Earnings & The Economy, A Toy Story 10/27/23

Episode Date: October 27, 2023

The latest inflation reading came in as expected. Amazon and Intel reported strong earnings. And the Nasdaq is rebounding from yesterday’s losses. We’ll break it all down. Plus, one key concern we’re watching: how will the consumer hold up during the holiday season this year? Both major toy makers, Hasbro & Mattel, issued warnings about potential weakness. We’ll explore what it means for the broader economy. 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, everybody, alongside Morgan Brennan. Welcome Morgan. I'm Tyler Matheson coming up. Earnings and the economy. Inflation comes in as expected. Amazon and Intel report, strong results both places, but stocks losing steam throughout the session. But one concern we are watching is how will the consumer hold up during the holiday season? Both major toy companies, Mattel and Hasbro, warnings about potential weakness there could toy sales be a red flag for a blue Christmas? But first, the check on the markets, the doubt sliding throughout the day, but the NASDAQ still holding on to a small gain, thanks some of those big cap tech names, all three averages on pace for a lower week, lower month as well. Chipotle higher following its results, though. It was able to raise prices to offset rising costs and still post same store sales growth of nearly 8% up 6% right now. Santa Fe shares are having their worst day ever, though. And according to Jared Holtz said Mizuho, no big farm stock has lost 20% in a day in the last. 10 years. The company warning that higher costs and higher taxes will limit earnings growth. You can see those shares are down 19%. Yikes. All right, as we mentioned, today's rebound in tech helped by some positive earnings reports. And let's start with Intel and Christina Ports in Nevelas. Christina.

Well, Intel's results were much better than expected, but largely in part to a boost in personal computer sales. So let's start with the good news for this company. Gross margins are showing signs of life, signaling a bottom might be in. You can see that on the right hand side of your screen, that upward trajectory, and that's because PC sales are improving, which actually bodes well for AMD's earnings that are coming out next week. Cost cutting is helping operating margins. Intel also signed two more foundry customers for a total of three, so that means that business is growing, but is still a very small contributor to revenue. Gelsinger also promised they're on track with building five manufacturing processes in four years so they can catch up to Taiwan Semiconductor

by 2025, and management assures investors that their AI ramp is underway. So, and lastly, but not least, there's even the auto division, Mobile Eye, that improved. Texas Instruments also saw auto resilience, and that also bodes well for on semis earnings that are out on Monday. But unfortunately, analysts aren't rushing to tell investors to buy Intel right now because of a few reasons. The major one is that data center sales are still an issue as companies shift their IT spend away from the typical PC chips that Intel is known to make towards AI chips, like the ones that Nvidia makes, for example. Apple. Sales continue to fall for Intel for seven straight quarters. Gross margins are still 60%

away from two years ago. They'll also have to deal with China export bans. And then lastly, Piper analysts say that Intel's AI chips that are going to be launching December 14th have a lower performance than AMD and Nvidia's chips as well. So the value of this company is really pedicated on its ability to execute its roadmap within AI chips as well as manufacturing, aka the foundry business. And so far, Wall Street and analysts, need a little bit more convincing, but the stock is still tracking for its best day since March 2020. So it's up 9.5%. But just last week, it was down. And it's, you know, the stock is at a level we saw just 10 days ago. Yeah, it's down. I mean, so it's a big move today for the blue chip chip stock. But to your point,

Christina, we had these reports about Nvidia and AMD launching their own arm-based chips that are going to go against Intel. and we know this week alone that Qualcomm's already moving into this market as well. Yeah, so Qualcomm is the official one to make the announcement. We're expecting the same from both Nvidia and AMD. And the difference with their chips, all three of those, is that they're going to be based on armed technology. Think of it like the blueprint for the chip. Intel has an X-86 blueprint.

That's a competitor. So you have these three big players that are going to be coming out with PC chips that will compete directly with Intel's market share. Intel's CEO was asked us on the call yesterday. He said he welcomes competition, but that history has proven that the X-86 has been around for quite some time. It's integrated into a lot of developer systems. So it's not an easy transition, but it is a transition, let's say two years from now. So it's definitely a concern in the near term.

Okay. More from Pat Gelsinger, the CEO of Intel on overtime at 4 p.m. Eastern today, too. Christina Partanablus, thank you. Energy names mostly lower today. And it doesn't matter if it's old energy or new. Chevron and Phase, all in the red following results. Starting here with Exxon and Chevron, we're going to kick it over to Pippa Stevens. That's right, Morgan.

Starting here with Exxon and Chevron, they are under pressure today after disappointing results, but from Wall Street. So Chevron is the bigger laggard of the two as weaker than expected international upstream profitability from its, once again, the international division, more than offset a strong quarter for its downstream division. Now, free cash flow, therefore, was short of expectations. Exxon's EPS miss was smaller, driven by weakness in its refining and chemicals processing units. Still, the company raised its dividend to 95 cents per share.

Now, for both companies' profits overall were higher quarter over quarter, thanks to rising oil and gas prices, although they were significantly below last year's high watermark. Now, turning to end phase, that stock sinking after the company significantly cut its Q4 revenue guidance. The solar equipment manufacturer is facing issues on both the supply and demand side, especially in Europe. CEO, Bajy Kathandar Amman, telling me growth expectations in Europe are, quote, coming back to reality, meaning incremental versus the demand surge they saw immediately following Russia's invasion. And for the U.S., he said higher rates are the culprit and they need to come down to stoke new demand. Those shares down 70% this year, guys.

Pippa, we had an analyst on last hour who described the Chevron and Exxon quarters as messy. What does that mean? Well, I think you saw divisions between how their different operations are performing. And so we saw Exxon Upstream was fine. Chevron's Upstream, not as great, thanks to some issues over in Kazakhstan with their TCO project. And then for downstream, Exxon's was a little bit better and Chevron's was a little bit messy. And so I think that for a long time, consistently higher oil and gas prices were just supporting profits across the board was lifting all ships. And now that that's no longer the case, we're starting to see a breakdown in terms of how efficient are your operations, how are you managing costs, and how are you getting those barrels to customers?

Another thing with Chevron, excuse me, was some of their shipping costs and when they actually realized the profits from their shipping operations. And so I think that's what it was. It wasn't as clear numbers on the headline. We had to look below the numbers to get more clarity on the quarters. Yeah, Chevron also had all the LNG labor issues in Australia as well to contend with. I am curious, though, because we are seeing it in oil gas, we're seeing this M&A activity. I mean, given how hard hit some of these new energy stocks, these solar stocks are, do you expect we're going to see consolidation there, too?

So one really interesting division between the U.S. oil and gas companies and the European players, is the European players have been much more active in things like wind and solar, while the Exxon and the Chevrons of the world have said, we're never going to be a leader in those areas, so why would we pursue those avenues? So Exxon and Chevron's low-carbon solutions have focused on things like carbon capital. and hydrogen versus a total, a shell, a BP, looking at solar and wind. However, to your point about U.S. consolidation, I do think that when stocks come down so much, it always begs the question of will we see some mergers?

I think you have to differentiate between some of the more commoditized portions of the market. Those are the hardware manufacturers like Enphase and Solar Edge, and then the Rezi names. And also, this market is still very fragmented across the U.S. Even the largest players only have a very small share of the total market. So there is opportunity for consolidation. All right, you came loaded for a very in-depth conversation here. Appreciate that. Pippa Stevens. All right, shares of Amazon rising 6% today following its earnings.

And though many people still think of Amazon as an e-commerce company, it's the cloud and AI businesses that really drive the stock. Let's get to Deirdreboza now for more. Hi, D. Tyler, we may have to think more about that e-commerce core in the months ahead because, yes, last night, Andy Jassy, the CEO, did put to rest some of the biggest concerns about its cloud business growth at 12%. It was flat year over year.

And so analysts in the street is hopeful that that's going to be on the upswing once again. However, I would point to its revenue guidance that came in about $3 billion light in the mid range of that guidance. And that may raise some questions about the quarter ahead. This is supposed to be Amazon's blockbuster quarter with lots of holiday shopping events, including its own prime day, which we just had. And so that is the opportunity to really tell the street whether it continues to sort of maintain the market share that it has or if there's more competitive forces. So that's going to be something to look at.

I will say, though, that profitability has been great at the company. We haven't seen an Amazon that has really seen this kind of operating income in a long time. Those AWS margins, they were up some 600 basis points in the quarter above 30%. And you've also got some of its newer business. businesses like advertising, that grew 25% on the top line and third-party sellers. This is a higher margin business as well. That continues to perform up 18% on the quarter. But all of this is to say, Tyler, that e-commerce should take the spotlight in the months ahead. All right. Deirdre Bosa, thanks very much. Appreciate it.

All right. Looking ahead to next week, not only does Apple report results on Thursday, but it also has an event planned for Monday evening. Steve Kovac is joining us with a look at what to expect. Yeah, a rare Monday evening event from Apple. So look, it's a double whammy coming from Apple next week. First up, that virtual event Monday night, where it's expected to reveal new Macs going on sale in time for the holidays. Bloomberg reporting just today, Apple will announce its third-generation chip for Max, called the M3, and add them to current models of the IMac and MacBook Pro.

This will happen less than a week after Qualcomm revealed its new processor for PCs that it claimed is faster than Apple's. And after we got that report this week, Nvidia plans to make computer processors as well. So computer chips are going to get really interesting over the next couple of years, just like Christina was reporting. But more important than that, Apple reporting,

it's Q4 earnings on Thursday. Company already implied sales for the quarter will be down, marking a full fiscal year of declining sales. And plenty of headwinds for the current holiday quarter. Analysts over the last few weeks reporting demand for the iPhone 15 lineup appears to be lower than it was a year ago. And while services are poised to show some re-acceleration and growth, it may not be enough to make up for the lackluster iPhone sales. And one more interesting

thing, this just broke last night, actually. The U.S. International Trade Commission ruling yesterday, the Apple Watch violates patents from the health tech company Massimo and recommending an import ban. That goes to the Biden White House, which has 60 days to decide whether or not to ban the Apple Watch. Apple tells me it plans to appeal the decision. And we'll hear from the CEO of Mossimo this afternoon an exclusive interview on closing bell overtime. Morgan, I think you know that show. We sure will.

It's going to be a key interview, one of several, in the 4 o'clock Eastern hour. I do want to go back because it is like there's three big, the way traders are putting it, three big macro market moving events that are going to happen next week. Fed, Jobs Report, and Apple. And it speaks to the fact that as goes Apple,

so goes the market. And so when I hear some of these expectations for the quarter and what it means for the fiscal year for Apple, how worrisome is that? How much of that is a tell for the macroeconomic environment overall? Yeah, it's tough, and especially the macroeconomic environment in China. Remember, it was a year ago we were expecting China to open up in December, January, of this year, and, you know, it was going to reinvigorate growth in that country. And we just haven't seen that materialize that Apple or many other companies as well. So that speaks to the state the consumer there. There's more competition for Apple now with Huawei coming back on the scene. So that is one big tell. Also, just smartphone demand in these developed markets has been falling.

And so there's just not the same customer base there was a year ago for these kind of devices. New Macs might help a little bit, but not enough to move the needle. I want to go back to, is it Massimo? Massimo. You're going to hear from the CEO in a couple of hours here. Is that company asking for a total ban on sales of the I-Watch in the United States? States and around the world? It's just the United States. So this is a case that actually Apple, a patent dispute that Apple lost way back in January of this year. And it's related to that oxygen sensor that's in the newer models of Apple watches. Mossmo claiming they have a patent for it,

claiming that Apple poach some executives and kind of stole those ideas and so forth. But this has happened before. Because these devices are made overseas, the ITC can recommend this ban saying, you know, it's made in China, therefore you can't ship it back to the U.S. There are some ways around it. There are some questions, which models are affected? Is it maybe just some older models? Maybe that new watch that came out just a few weeks ago won't be affected. Or if it's a software in the model.

Or if it's a software thing, I believe it's mostly a hardware thing. But at the same time, Apple has faced this before. You might remember, I don't know, a decade or so ago when they had that patent battle with Samsung. There were all these talks about import bans and maybe some models would be affected and not. So it's going to take a few couple months it looks like to really shake out. Look, there are ways around it. Apple has actually shifted some of its production of the Apple Watch to Vietnam, which might help it kind of skirt around this. But that's all we just got to wait and see for all that. All right, Steve, thanks very much.

Steve, go back. Coming up, we'll talk the state of banking, the consumer and real estate with the CEO of Valley Bank. Plus, another bank CEO making headlines. J.P. Morgan's Jamie Diamond selling a million shares will discuss when Power Lunch return. Shares of Valley Bank are lower after it posted third quarter results in line with expectations. The regional bank says loan growth slowed a little bit overall in the past quarter because of high interest rates. But the total loan amount did increase nearly 2% year over year, largely on new loan originations in its commercial real estate loan portfolio. Joining us now for more is Ira Robbins, CEO of Valley Bank.

Ira, welcome back. Nice to have you. I want to focus, not so much, we'll get to commercial real estate and that portfolio, but I want to talk about consumers. Your total deposits rose a little bit in the most recent quarter. How much more are you having to pay depositors to attract and keep them? And how is that affecting such metrics as net interest margin and net interest income? Paying them more than I'd like to pay them, to be honest with you, Tyler. We look historically what our data is, and a data really is how much we're paying on an interest expense versus what the market movement has been.

And for us, it's about 55% on average this year. Based on our original models, that would have been a little bit less. And it's a function of what happened, I think, back in March, as well as the competition that we're getting from the U.S. Treasury. And it's very easy today for a consumer to put his or her deposits into a Treasury direct versus putting it into a bank. So definitely a little bit more competition today, which is negatively impacting margins and negatively impacting net interest income, which negatively impacts earnings. And with that said, I don't anticipate an inverter curve to be here forever. And bank profitability will definitely come back. So if you were to compare this year to last year on a typical deposit account, I don't know what would constitute a typical deposit account.

How much more do you have to pay this year? For us, it's almost 250 basis points more on average for our deposit. accounts versus what we were paying. Fascinating. Ira, it's Morgan. You have analysts saying that this quarter, this past quarter that you just reported and this current quarter could represent a trough in your net interest income and net interest margin that you're going to be seeing repricing on your fixed rate assets about

$4 billion annually that that's going to boost that. Is that the right assumption to make here in terms of how you're thinking about the business? Yeah, I think, you know, values. always run a very neutral balance sheet. So compared to many of our peers, a lot of banks are either asset sensitive, which means they have a lot of loans that reprice or they're liability sensitive, which means they have a lot of deposits that reprice. So for Valley, we try to keep it as neutral as possible. So as the Fed now has been flattening a little bit and the escalation and rise in rates hasn't been as dramatic as what it's been, the repricing of the backbook on the

asset should provide a pretty significant tail win for us. And this is an opportunity for bank analysts to really look at each individual organization uniquely. Value, like many of its peers, are going to, you know, have net interest income that's going to expand. But others are going to have net interest income that continues to contract just based on how they positioned their individual banks. So then if the Fed were to stay higher for longer, really truly higher for longer, what would that mean for you?

How do you position for it? I just love the comment, Morgan, right? Higher for longer, when in reality, it's more normal for longer. I mean, we've really, unfortunately, we're in an interest rate environment where monetary policy was too easy for a very long time. Now we're going to see some significant repercussions for consumers for commercial real estate and for a lot of businesses that are uncomfortable operating in these environments for an organization like Valley. And I would say for the general banking environment, once we get to stability, once we get to a more normalized place, whether it's

higher for longer, normal for longer, lower for longer, that stability is what's going to create the profitability for the banks. That's what's going to create the confidence in many of our consumers and our commercial bars to go back out and have some of that CAP-X. So it's really important that we get some confidence and stability in what the interest rate environment is going to look like. Well, since you raised it, commercial real estate feels like a good topic to hit here. Why don't you walk us through your book of business in commercial real estate and explain where the concerns are, where you're confident? Because commercial real estate is a very broad, a broad asset class. that includes everything includes everything from warehouses to factories to small businesses and so forth.

Yeah, maybe just take a step back and just sort of say how are commercial real estate loans made? Right, so commercial real estate loan, think of a purchase price of a building of $20 million, $12.5 million dollar loan against that. And if that was done in an interest rate environment where a cap rate is 4%, that would have been appropriate at that point in time. So now interest rates move up and let's say the cap rate goes. from four to seven percent, instead of being able to get a loan on that property of $12.5 million, your loan is now $7 million. So it becomes a real challenge for somebody new coming into the market saying, hey, am I going to look at what the value of this property is going to be?

And it becomes a bigger challenge for borrowers that are now looking to reprice those loans because the original term has come up. So a borrower either needs to come up with $5 million in that example to say this is what my new loan is going to look like, or there needs to be some conversation. with their bank and hopefully some rent escalation as well. So are you having those conversations with some of your commercial real estate customers? Yeah, look, we are a very unique organization. We've been in the commercial real estate business for almost 100 years.

We had $1.8 billion of loans be priced over the last nine months into this higher interest rate environment, and we did not have to ask any of our clients to bring any additional funds to the table. Now, we're unique. We never underwrote a loan at 4%. We always had a floor. on what our cap rates were. But that said, I'm not sure that's what everyone within the industry did. And there's going to be paying for some certain banks that have different types of exposure. There's going to be paying for some borrowers and there's going to be paying for some communities that have a significant amount of commercial real estate. That said, for Valley, to have $1.8 billion of loans over the last nine months and not have any borrowers have to come to the table with

anything, I think reflects the type of underwriting that we've had for the 100 years that we've been in existence for. Ira, quickly. Consolidation, M&A, we're starting to see it among the regional sector? Are you in the market? I think we're always looking as to what makes sense for us. I think the challenge becomes today is the purchase accounting marks in any organization. Right. So as I mentioned before, banks sometimes take longer duration on their assets or shorter duration on their assets. And when you're in an interest rate environment that's gone up as dramatically as it has, there are significant purchase accounting marks on some of these longer duration asset banks. And they make it very challenging to come to an M&A as to where it makes economic

sense for the acquire. That will ultimately come to a period where it won't be as significant. And MOA will definitely come back. But I think it's something that the industry is going to need to continue. All right. Ira Robbins, thank you, as always, for coming in and educating us. We appreciate it. Thank you. Is the consumer becoming disjointed? Well, troubling signs for holiday spending emerging from the toy sector. Details when Power Lentry turns. All right, welcome back to Power Lunch. Stocks continuing to slide towards session lows as we head into the weekend. The Dow now down nearly 400 points, 382 right now. That's a better than 1% slide. The NASDAQ giving up nearly all its gains despite strong results, as we spoke a moment

ago, from Intel and Amazon. And the NASDAQ down just shy of 3% on the week. It has been a sloppy week, even though NASDAQ is a little bit higher at this hour. Morgan. Well, Sam Bankman-Fried taking the stand in his own defense today. Court resuming a short time ago after our lunch break. Let's get to Kate Rooney outside the courthouse for more on what we've heard so far. Kate. Hey, Morgan, so Sam Bankman-Fried, he's back on the stand inside as we speak. He has been acknowledging some mistakes in the fact that customers were hurt in the collapse of his crypto exchange, FTX, but he says that he did not commit fraud. Bankman-Freed saying that his biggest mistake was not controlling risk when asked if FTX had a risk management department.

SBF, as he's also known, responded, we sure should have. which did get some chuckles inside the courtroom as well. When asked by his attorneys, did you defraud anyone? He said no, I did not also said no when asked if he took customer funds. Replied no there. Bankruptfried has tried to shift blame to some of the other executives. Claim of times as well that he was too busy, that he didn't know about some of these issues at his crypto hedge fund.

Alameda also ran FTX. Bankman Fried sounding prepared today, giving concise short answers. not the case guys yesterday in what amounted to address rehearsal that we heard. The jury was dismissed yesterday for the day so that the judge could hear pretty much a preview of the defense's arguments in that. They tried to place a lot of the blame on his FTX lawyers. This morning, though, the judge narrowed the scope of what the defense can talk about in front of the jury.

They also said that they decided, I can't ask the defendant here, SBF, about the FTX lawyers for the most part. So that narrowed significantly. examination yesterday. He did stumble. They asked him for clarif, or he asked rather, for clarifications. For the lawyer, he did not say anything directly. He wasn't answering the questions directly. The judge seemed really frustrated about some of the diversions, told him repeatedly, listen to the question and answer the question directly. So there's a lot of frustration. We'll bring you any headlines, though. We'll expect that cross-examination to continue later today, if not next week, guys. All right, Kate, thanks very much. Kate,

Rooney reporting. Let's go out west to Kate Rogers for a CNBC news update. Kate. Tyler, Israeli forces are pounding Gaza with airstrikes right now. A spokesman for the military confirmed the bombings and said Israel is also increasing its ground operations. According to the New York Times, most, if not all, phone and internet lines appear to be down in Gaza. Authorities in Maine say they are searching a river today near where mass shooting suspect Robert Card left his car, When asked whether investigators have any indication that card may have killed himself and his body, maybe in the river, officials said they are exploring all options. And as most major automakers integrate Tesla's charging ports into their electric models,

BP says it agreed to buy $100 million worth of EV superchargers from Tesla to grow its BP pulse charging network. It's not clear how many chargers $100 million will buy, but BP says it will begin to install them at the start of next year. Tyler, back over to you. All right, Kate, thank you very much. And as we had to break, a quick power check on the positive side, Dexcom up 9%, the diabetes monitoring firm, besting forecast, boosting guidance on the negative side,

beyond Enphase and Ford, which we mentioned earlier. Charter communications down 9% the cable company beat earnings. So why is it negative? Well, total video customers declined by 6% from last year, partly because of cancellations related to the loss of Disney programming. We'll be right back. Welcome back to Power Lounge. It's been a tough week on Wall Street with all three major averages headed for steep weekly losses.

The NASDAQ still trading about 10% off its recent high S&P similar situation. Traders weighing new inflation data today after the Fed's preferred inflation gauge core PCE increased 0.3% in the last month in 3.7% year over year. Let's bring you Mona Mahajan, senior investment strategist with Edward Jones and Ronn Sanna, chief market strategist with Dynasty Financial Partners. He's also a CNBC contributor. It's good to have you both on. Mona, I'll start with you because I'm looking at the S&P right now. 4116 is the level.

I mean, we broke through that key 4200 level earlier in the week. Earnings have been a bit of a mixed picture yields. Yes, they've come off a little bit, but still high. and we do have this geopolitical uncertainty with headlines, even just in the past hour, that show signs that this could be a bit risky, at least going into the weekend. What does an investor do? Yeah, it's a great point.

And look, I think we've broken some technical levels on the S&P 500 and the NASDAQ, both of which had actually held in above their 200-day moving averages, except for the last couple of days when they've broken lower. So that does imply that perhaps some additional volatility, some additional downside momentum may be ahead of us. Now, you know, to your point, it does feel like, from an economic perspective, we got a great GDP print this week for the third quarter, but keep in mind that was backward looking. So the 4.9% will likely cool in the months ahead. We know consumers are facing some additional headwinds. They've worked down a lot of their excess savings. We are seeing

interest rates still high, mortgage rates still elevated. And of course, bank lending standards are still pretty tight. So that all leads to, you know, heading into, season expectations were high. We had four of the magnificent seven reporting. They all reported pretty well, but I think the high bar, some extended valuations, frothy stock prices all led to this sell-the-news reaction. And you combine that or pair that with an economy that may be cooling going forward or perhaps the peak is behind us. That leads to this volatile market environment. Now, all that being said, we do think as we look into 2024, we are entering an environment where inflation could continue to moderate, maybe not in a straight line lower, but we could continue to

see moderation. We do think yields are headed towards a peak and earnings growth while they were flattished this year could start to re-accelerate next year. So using this volatility, we think, is an opportunity for investors in the months ahead. Ron, do you see it the same way? And just looking at the GDP number that we got. Almost exactly. I have virtually nothing to add at this point. Thank you for having me on. Thank you, Ron. Well, I am going to ask you, Ron, though, this GDP print that we got yesterday. I mean, we're going to look back on this and say, this is it? This was the peak of this economic cycle? Yeah, I suppose that's true, Morgan. And I also agree that I think right now, one of the things that's getting in the way of a typical seasonal rally is the uncertainty that we

have around the Middle East with, as you mentioned earlier, the intensifying ground action in Gaza and the attendant potential for U.S. involvement, the U.S. hitting two targets in Syria that presumed to be Iranian-backed operations there overnight. So yeah, look, I think inflation is coming down. I think the economy is going to slow. I think at one juncture next year, the Fed becomes a tailwind rather than a headwind because we will, and I heard folks talking to Barry Knapp earlier in the day from my inside macro. We have a wall of commercial real estate debt and multifamily housing debt coming due next year that needs to be refinanced. I think that's going to cause enough of a enough turbulence in the marketplace, everything else notwithstanding, that the Fed ultimately

does decide to pivot, but that's still several months off. But we've probably seen the high water market rates, growth, and inflation is my best guess. So, Ron, if I could just ask you to elaborate a little bit, inflation is slowing, but is the slowing slowing in inflation? Yeah, I think it will, Tyler. I think, you know, when you look at what's likely to happen going forward, and, you know, what we don't talk about is oil prices may be up, but gasoline prices have crashed, natural gas prices have come down, copper prices have come down, lumber prices have come down, leading economic indicators and some pocketbook costs have rolled over certainly in the last several weeks. So yes, the one thing we can't cure is the one-time elevation that we have in prices

in the post-pandemic environment. We're broadly speaking. Prices are up around 20% from where they were before the pandemic. We're looking for a slowing rate of growth, and I suspect that's certainly what's in the cards ahead, assuming we can also get some relief on the mortgage front, which would reduce the cost of shelter and also then ultimately bring down consumer prices. Mona, since you sounded, dare I say, constructive on 2024, where do you put money to work? Is it stocks? Is it bonds? If it is stocks, where specifically? Yeah, you know, we see opportunities forming in the equities and bond space. And in equities, we would say there will likely be a more broadening of market leadership and market

participation. You know, yes, the Magnificent Seven had led the rally this year. But if we're in an environment where we do have better inflation trends, better yield trends. We could see a broadening. And even as we reemerge from potential softening, keep in mind, areas like small caps, cyclical parts of the market, even parts of international that have really gotten beaten up, could place some catch up in that environment. And what I'll add briefly on the bond space, you know, we really see a pretty compelling opportunity forming, especially in investment-grade bonds, where you have not only, you know, locking in yields for a longer period of time and longer duration assets, but this potential for price appreciation if and when the Fed eventually

pivots to lower rates. So we do think over the next few months there's this real window of opportunity to lock in some of these investment-grade bonds at really getting a nice income boost to your portfolio alongside some of broadening and equity participation. So we think opportunities in stocks, opportunities and bonds, and the 60-40 portfolio still remains alive and well. You may have some variation around it, 80, 20, 70, 30, but we think bonds. still play a meaningful part in portfolios.

All righty. Ron Ansana, Mona Mahajan, thanks very much. And coming up, the pinch that stole Christmas. Toymakers Hasbro and Mattel, both sounding the alarm on holiday spending. We will discuss when Power Lunch return. Welcome back to Power Lunch, everybody. Toymakers, Hasbro and Mattel shares sinking this week after both companies suggest sales will slow into the holiday season. As consumers will start cutting back on spending because of inflation pressures throughout.

their budgets. For more on what the holiday season could bring for the toy makers, let's welcome Linda Boltonweiser, senior analyst at DA Davidson. Linda, welcome. Good to have you with us. How much do you think consumers are going to pull back? Well, I consider the toy category to be a soft cyclical, meaning it can be affected by tough economic times, but parents will always buy toys for their children at Christmas time. So in that sense, the industry will be down this year after several years of double-digit growth, but there will still be people coming out and buying toys for Christmas. Mattel has the upper hand here? I prefer, I have buy ratings on both Mattel and Hasbro, but I've been telling investors that I prefer Mattel. Mattel is gaining more

market share right now, and Mattel is participating in the toy categories that are growing fastest, especially fashion dolls, whereas Hasbro doesn't really participate in the most attractive of categories right now. Fashion dolls would include Barbie, wouldn't it? That's correct. Barbie's got to help, right? A lot. She's doing the heavy lifting. It is. And when I wrote my report, my title of my report was Barbie saves the day, and that is the case. So Barbie and the movie and really even some of the box office receipts that Mattel gets is making up for the weakness of the overall industry, enabling Mattel to make their numbers in Is Ken really the dufous he was in the movie?

Well, at some point, at some point we're thinking there will be sequels. So maybe there'll be a movie. Yeah, think. I do wonder, though, because you use this term soft cyclical. The fact that parents are always going to have to buy toys for their kids, for example, no matter what the economic climate, I mean, you cover quite a number of companies, both on the good side and when I see, like, beauty products for, example, but then also on the services side, for example, WW or some of the fitness companies,

the gyms that are publicly traded. Is it in either or situation with consumers still where we've seen the shift from goods to services, or is there a slowdown happening more broadly? Well, we are seeing a slowdown in many categories, especially durable goods type of categories. Obviously, staples will hold up better. Beauty is having a moment. So most beauty companies are doing extremely well right now. Cody, ELF Beauty, Interparfou, which does fragrances, these are all very strong right now. But companies that benefited during the pandemic are still kind of having a trouble gaining back growth after the pandemic strength. And that would include toys, actually. Consumers bought a lot of toys for their kids when they were stuck at home

during the pandemic. And now we're experiencing some pullback in the industry as a result of that. You said you have buy ratings on both the toy makers. Is that what investors should be putting their money to work for this holiday season, or do you prefer something else? Well, I have some long-term theses for Mattel and Hasbro that I still think are intact. So when these stocks get crushed like this over a week Christmas, for long-term investors, this is the ideal time to buy great franchises like both Mattel and Hasbro. However, if you want the best earning strength right now and I think good continuing stock performance, I do prefer the beauty space. So my top recommendations there are Cody, ELF, and inter-parfume. All right. That sounds pretty good to me.

Let's go there. Let's go beauty. Linda Boltonweiser, we thank you. Appreciate it. Thank you. Beautiful. Still ahead. Earning season rolls on with McDonald's, Eli Lilly, and Airbnb all set to report next week. We'll get the trades on each ahead of those results in three-stock lunch. We'll be right back. Welcome back. It is time for today's three-stock lunch. Today we are looking at three stocks on deck to report earnings next week. First up, McDonald's.

The company sets a report on Monday before the market open. The current analyst consensus is for a strong buy with the average price target representing about 25% increase from MCD's current price. Here is, oh, here with our trades, is Art Hogan, chief market strategist with B. Riley wealth management. Art, great to see you. How are you looking at McDonald's? Well, I can tell you this is one of those names that has had a market performance this year.

So it's down 2% of the year, which is about the average for the S&P 500 mark equal weight index. And I think it's about 16% off its 52-week high. It trades at a reasonable to itself 22 times and pays a 2.5% dividend. I think this is going to be an earnings winner. I don't think there's a great deal of expectation built into this. So I would buy this in front of its earnings report on Monday. Well, let's move on to Eli Lilly, Art. The company set to report next Thursday before the bell.

What's the trade on Eli Lilly, which has been rising for much of the year on the strength of its weight loss drugs? Yeah, Mujarno. Lily is one of the GLP-1 darlings and certainly reflects that. And it's both its multiple of its year-to-date performance. It's very difficult to think it's going to be able to say something that actually justifies. It's being a 55% year-to-date. I think that when you look at the high flyers and the AI darlings of this week's reports and how they reacted to even good or better earnings results, it's just difficult to sort of get your arm dropped out of this.

I don't think this is one you want to hold it to the earnings report. It likely has some more consolidating view, but clearly a great company, love the company, just don't like the price. Okay. But as a long-term investment, you would hold it, right? I would certainly hold it. I would buy it on significant pullbacks here. we know the total addressable market of the diabetes and obesity drugs is going to be something spectacular, but we've really priced in a lot of that total addressable market in a very short

period of time. Finally, Airbnb. Stock is down recently, but still up 33% this year. Art, what's the trade on Airbnb? Airbnb is a tough one. Now, we like the company, and we would be a buyer. We just wouldn't do it in front of their earnings report. The reason I say that, Morgan, is threefold.

First and foremost, the overall volatility in stock trading Airbnb on a year-of-year basis has come in quite a bit, which is good. step four, when it reports earnings. So it's got one of the highest reaction rates or reaction functions to earnings, really no reason to step in front of an earnings report and put money to work in there BAB. Away from that after it reports and then you let the do sell, I would certainly be a buyer of Airbnb. I just wouldn't do it into the print.

I think that trades out a reasonable to itself 30 times multiple. As you mentioned, up 33% year to date. It really did well in sort of navigating the sort of getting punted out of New York City and expanding broadly in geographics, both domestic and globally, and certainly a beneficiary of all the travel and leisure that we saw happened in the last quarter. So I think it's a great company. I just wouldn't step in front of it before it reports the earnings. What is the market telling you today?

Market telling has three things. It's Friday, it's been a terrible week. The yield on the U.S. 10 years at her about 5%, where we think it's going to stay for quite a period of time. It's also telling us that we've got a lot of news in front of us, including a Fed meeting next week. But I think on balance, we've done a very good job. in a very short period of time, a federal market that's corrected, the better part of 10% for

the S&P and NASDAQ, and likely sets up for a better week and certainly a better end of the year. And, of course, we've got that October seasonality potentially ready to work here. Art Hogan. Absolutely. Have a good weekend. All right. Coming up, Jamie Diamond set to sell some JPMorgan stock for the first time since taking over as CEO. We will explain why.

And as we head to break, join CNBC's Evolve Virtual summit. That's on November 2nd. Can't believe it's already November. Leaders and innovators from around the world will share strategies for adapting and thriving in this new era of business. Scan the QR code on your screen right there. Keep it up there or visit cnbc events.com slash evolve. We will be right back. Welcome back everybody. J.P. Morgan's CEO, Jamie Diamond planning his first stock sale since taking over his CEO nearly two decades ago. Picker joins us with the details. Hi, Leslie. Hey, Tyler. Yeah, shares reacting to this news down about 3.8% currently after JPMorgan

announcing in an SEC filing that Diamond intends to sell 1 million shares beginning in 2024. At yesterday's level, that amounts to about $140 million in around 9% of his beneficial ownership when also including unvested performance share units and stock appreciation rights that he has access to. Now, as you mentioned, Tyler, this is Diamond's first such sock sale in this capacity. In the filing, J.P. Morgan said, quote, Mr. Diamond continues to believe the company's prospects are very strong in his stake in the company will remain very significant. I'm told the share sale is not indicative of any kind of leadership change at the top of J.P. Morgan that it's purely for financial diversification and estate and tax planning purposes for Diamond and his

family, Diamond will use a stock trading plan to sell his shares throughout the course of of 2024. As for whether this is the start of Diamond selling down more of his $1.5 billion ownership in J.P. Morgan, that doesn't appear to be the case. I'm told by a source close to Diamond that he has no current plans to do more of these, at least in the immediate future, guys. I guess it's not that surprising. I mean, it's surprising because this first time we've seen him do this, but he's also been very cautionary in terms of his confidence. He's not. He's not about the market and the state of the world. So perhaps not that surprising from that standpoint to see him actually looking to diversify his own holdings. Yeah, I mean, that's what Mike Mayo pointed out in a note. The analyst from Wells Fargo, he basically said, you know, while there, at least there's no stated kind of tie with some of his recent comments, at least in the SEC filing, Mayo points out that recently he's been saying that interest rates can go as high as 7 percent and the world should be prepared for that, as well as saying banks are.

uninvestable due to the Basel 3 endgame rules, which are increasing the capital requirements for some of the largest banks. So kind of when you pull all those together and you see the share sale, that could be something that investors are looking at today, although there's no evidence that he believes that, you know, J.P. Morgan has reached a peak or anything like that, and that's why he's selling. All right, Leslie, thanks very much. Leslie Picker reporting on Jamie Diamond. Don't know whether that had any effect, but the market has just fallen another few dozen points. down now, I can't even get it, 450? Is that? How are you guys? Yeah, 433 right now. We're at Session lows for the Dow. The S&P is close to session lows here as well. Thanks for watching

Power Lunch.