Power Lunch - Econ Recon, EV Speedbump 5/15/24

Episode Date: May 15, 2024

The market just received the cooler data it was waiting for, as CPI dropped slightly in April to its lowest reading since 2021. We’ll discuss what it means for stocks and the Fed’s next move.Plus, the White House’s EV tariffs were meant to protect America’s auto industry. But in doing so, it may have hurt progress toward an all-electric vehicle market. We’ll explore. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Good afternoon, everybody, and welcome to Power Lunch alongside Kelly Evans. I'm Tyler Matheson. Glad you could join us. Coming up, the cooler data the market was waiting for. CPI, otherwise known as inflation, dropping slightly, core inflation at its lowest reading since 2021. Plus, the White House's EV tariffs were meant to protect the U.S. auto industry, but in doing so, it may also have hurt progress toward an all-electric market. We'll discuss. But first, a check on the markets in the aforementioned EV space. shares are up on an upgrade from J.P. Morgan. And copper prices. This one is getting lots of attention lately, not just rallying this week, hitting a record high, and we're seeing massive volume and interest. We'll have a little bit more later on. The meme stocks pulling back today, AMC and game stock deep into the red. The theater chain's loss is driven mostly on news. It's issuing 23 million

new shares. That'll do it to you. Certainly will. And the magnificent 7 ETF, briefly hitting its highest level since inception in April 2023, currently up a little less than 1%. And on the overall market front, the Dow is up nearly 300 points. It is within about 160 points of 40,000 for the first time. S&P up 1% NASDAQ up nearly 200 points. We may have some all-time record high closes today. Looks like it. Now those moves are being fueled by that cooler than expected inflation report out this morning. And here to dive deeper, is James Demert, chief investment officer with Main Street Research, and Kathy Bostjansik, senior vice president and chief economist at Nationwide Mutual.

James, let me begin with you. You see the economy as kind of right where the Fed you think would like it, even though they keep saying inflation is too high for their taste. So you don't think the Fed will cut rates at all this year, and you think we are in the incipient stages of a nice bull. run. Yeah, Tyler, thank you. Good afternoon to you and Kelly. Yeah, I think the Fed does. They've got it right where they want it. I know the market would love them to lower rates, but, you know, think about it. GDP north of four percent, you've got employment very strong and, wow, corporate profits

coming in way better than expected. These are the hallmarks of a new business cycle, one that's really productivity-based with the AI tailwinds. And you can have. these kind of environments. The last time we had it was 20 years ago. Tyler, you and I might remember that from the 90s when you had the tech-led market. And you could have rates stick up high for a while without the Fed doing much. So too much attention on rates, maybe not enough attention on earnings, number one, and productivity growth number two. Kathy, how does that strike you? Well, hi, Tyler. I happen to be with you and Kelly as well. Well, I think one thing I would disagree with is I do think the Fed is poised to raise rates, lower rates this year. And I think the data this morning keeps December and

also September alive, really. And I think that, that said, I do think the economy has been quite resilient. But everything's on the margin, right? So we're seeing some slowing in employment growth, moderation. Maybe that's a better word. And then you saw that filter through to income. And then now we saw that with retail sales. So you're seeing this kind of nice moderation. which is what the Fed wants. I would agree that's what they want, and they want the moderation of inflation. But I do think it opens a door to rate cuts.

We're looking for 50 basis points this year. But I do agree that the equity market is putting probably too much focus on that and not enough on where's earnings in the forward trajectory of the economy. If the Fed gets this right, we get a soft landing, that is good for the equity market. I don't think at this point that we're in the early part of a new cycle, you know, we're probably still in the late portion of a business cycle. James, although if you think this is kind of a 90s boom, and I'm sympathetic to that point of view,

but a lot of us remember the dot-com crash as well. So how do we thread that needle between enjoying our performance, maybe enjoying those secular winners, maybe it's AI this time around, but seeing the script done differently. Yeah, Kelly, these don't end well, but they can go on for a long time. You know, in productivity growth cycles that are usually led by tech,

You know, oftentimes GDP growth, GDP growth north of four, which is where we are. And think about this, the 90s, we had 10-year Treasury averaging 6% during that period, inflation at 3.5. Same setup. Again, that's why I don't think the Fed needs to do much. We think we're early in the cycle because of this margin expansion from AI. But I think, you know, here you sort of have to think, where are we in that cycle to manage risk? We think it's at very early stages.

The first year of a, what we think is a seven to nine year cycle. That's typically how long business cycles last. And so PE ratios are still reasonable for most of the market, not the magnificent six, but for most of the markets. That tells us we get a long way to go. But we're going to have to be, as astute investors, let's be careful about PEs versus growth rates as we go forward. I always suggest you stop losses, but that's more of a tactical thing that we're. We do. But yeah, manage risk as we go along. But we're early stages of this thing.

Kathy, how much do you trust these inflation numbers, the core number at 0.3% after three consecutive months of 0.4%. It is a small decline by any standard, obviously. How much do you trust that this is the kind of momentum we're likely to see and a kind of momentum that is going to allow the Fed to do as you think it will, and that is cut rates maybe beginning in September. Yeah, great point. I mean, we really need to verify that. I think you hope, you like to say trust, but I think you hope that this continues. And I think there's a good reason to think that the really strong numbers who got in the

first quarter are sort of anomalous, that we're back now to a disinflationary trend. But, you know, when you look through the data, what really kind of bailed us out in a sense was poor goods, right? Goods inflation actually became more deflationary. If you look at the service sector, it's still pretty sticky. It cooled off a little. But if you look at rental prices, transportation costs, medical care services, they're still running high.

So I think we continue to trend lower, but it's probably going to be frustratingly, you know, slow enough to allow the Fed to cut rates, but we're still going to kind of struggle a little bit with high service inflation. Kathy, I was struck listening to James that he thinks we're still early cycle, but you were just saying a moment ago you think we're more late cycle. Can he be right? So, you know, from a macro economic perspective, what we look at was the unemployment rate, you know, for instance, is very, still very low. Yes, we've seen a few ticks higher, but to me, there's still stretch resources in the economy, and we still have inflation high. And it's hard to see a new cycle start with those dynamics, right? And the Fed's looking to cool things down so that to me,

that means slower growth. Usually in the early portion of a new cycle, you get very robust economic growth. And the Fed really wants just the opposite. Otherwise, we're not going to slow inflation down. So I guess you have a little bit of a healthy debate here, whether we're first, you know, at the beginning of a new cycle or still the latter port of a previous cycle. James, the final word? Yeah, I love the debate. I love that we're both. on different sides of this. And I think that investors want to be really careful here about being too bearish or not confident enough. There are six trillion dollars in money market funds

sitting on the sidelines that should be in equity markets. And sooner or later, you know, that's going to get dragged in from all the FOMO people have by watching corporate profits continue to be better than expected. GDP being better than expected. I'd be worried if the Fed reduced rates in a very, in the beginning of a new productivity cycle, because then they're going to stoke the inflation they're trying to stay away from. So that's where we see them sort of sitting back and just enjoying the data as it remains now. And I think it's going to be like that for the rest of the year. And the stock's still power higher. Super interesting. Anything that can help us solve the productivity puzzle would really go right to the heart of this. Thank you both so much

for your time, James Demert and Kathy Bustjansick. Let's get a bit more insight from today's data. Rick Santelli on the Civo floor with the Traders take. Rick? Yes. Thank you, Kelly. I'm with Jim Bianco. Jim welcome. Best I can say is mostly as expected, sequentially lower in terms of CPI, but well above the Fed's 2% target. What did you think about the numbers? I kind of agree. I think that what you got was some moderation in the inflation numbers, and that's what everybody's looking for. That's the good news. The bad news is we're moderating around 3.5%. We're not seeing anything near the 2% number. And what's especially concerning about getting the 2% is that this

owner's equivalent rent, which we were all talking about going into the number, printed point four again for the umpteenth month. Yeah, no help there. Right. It's not, it's not helping. It's other outliers. Because they pick and choose. The market is definitely pro earnings, pro economy, and whether the Fed eases or not, the momentum trades alive and well in equities. Absolutely. You could see that in the way that they, with the things they pick, like they pick auto insurance, to get worried about it because it's very high. But we're not picking any of the good stuff that's very, very low. We want to look at the stuff that's overstating inflation and then dismiss it.

We don't want to look at the stuff that's understating inflation and dismiss that. So you can see the market's bias there. Absolutely. And, you know, this whole thing, the market's wrong. I can be actionable at any price on the Dow, at any price on the closing prices, NASDAQ has to be any stock. What is maybe off course is what investors think is going to happen in the future that they price in today. And what do you think is the main thought on investors who are scrambling to buy equities?

Yeah, that they're looking at interest rates and they're saying now that rates are coming down, that competition of 5% yield should be positive for equities. And I think you keep in mind about what the bond market over the last year or so is every move has been an overreaction. 5% in October, 380, I'm talking about the 10 year year year year. 380 in December, 475 last month, now 435. Now, the bond market just doesn't turn around and move the other way. It doesn't adjust. It doesn't have a new range. has these wild moves in one direction or the other.

We have one minute left for my favorite question. I've been saving to the end. What if we never can get to the 2% target of the Fed? Where's the end game there, Jim Bianco? Well, the only way I think we get there is with a recession and you kill the man. But assuming that that's not the case. Yeah, but then when the recession's over, I would think it's going to go back up. Right, right.

I think then the realization might come in that the Fed is only slightly restrictive at five and a quarter to five and a half. maybe two rate cuts or three rate cuts is all they need to get back to neutral, that four and a half on the 10-year note might be neutral, and that if the economy speeds up, we might have to see much, much higher interest rates. And that gone are this idea that we're going to go back to three or two percent, even on inflation, let alone zero. Everybody's kind of realizing that. Sounds to me like you think basically the rally in treasury price and the rally in stocks

was mostly because of the fact that it wasn't worse. Right, exactly. That's what Powell said yesterday. He said, I'm not going to raise rates. Oh, good. Let's rally the market because you're not going to raise rates because it's not worse. Well, there we go. We just summed it up for you, Kelly, from Chicago and the CBOE. Back to you. All right, gentlemen, thank you very much. Coming up, the Biden administration using tariffs to keep Chinese EV makers at bay. But here in the U.S., could this ultimately drive prices yet higher and dissuade more consumers from going electric. Plus, speaking of which, we'll speak to a disruptor launching electric school buses here in the U.S.

Power lunch, we'll be right back. Welcome back. If you look beyond the longstanding tensions between the U.S. and China, you can see the real reason why the Biden administration targeted Chinese EVs. U.S. automakers can't compete on the prices. Even today, Neo's launching a lower-cost family-friendly model. Our Eunice Yun is live in Shanghai with more. Hi, Eunice. Hey, Kelly.

Well, Neo-founder William Lee argues that President Biden's tariffs are unreasonably. and says that Chinese EV makers compete on the strength of their products. This is what he told me in an exclusive interview. Our achievements in China are entirely due to innovation and the progress of the competitive market. I don't think it is reasonable for the U.S. government to impose such high tariffs on Chinese electric and new energy vehicles. Besides, who are the victims? American consumers and global climate change? I think it is very serious and very wrong. I think it's very, very

very much a very true. Neo's new lower cost brand is called Envo and the debut model is the L60, which Lee says is an SUV geared towards families

and is longer, wider and roomier, he says, than Tesla's model Y, yet priced guys at 13% cheaper at $30,000. We're awestruck. Eunice, where are these

cars currently selling? Do they sell overseas? Do you know the kind of price point? I mean, that $30,000, is that what that car was going to sell for in China? Yeah, that's right. And it was interesting because I asked Lee that very question. He said that he's eyeing the overseas market, but for now he's looking at China and to launch and deliver it by September. But I thought it was also very interesting is that he confirmed to me that Neo is working with the lower cost rival BYD on the batteries to keep the cost down for this particular brand. And as I think you guys have been reporting quite a lot at this point, that BYD is really known for having very, very cheap EVs to the tune of between like $9,000 and $10,000. Wow.

All right, Eunice, thank you very much. Eunice Yunn reporting. But even with those tariffs, it may not be enough to keep Chinese vehicles out of the U.S. DC.com auto reporter Michael Wayland is here to explain. Michael, welcome. Good to have you with us. My notes say that you regard these tariffs as near-term protectionism that may delay but not stop Chinese automakers from coming more to the U.S. with EVs. Why do you say that? I say that because I've been talking to trade and automotive rationale now for the past 24 hours, and they essentially are just calling it temporary productionism, like Eunice was just mentioning with

Neo and BYD. They are trying to stop or at least delay the Chinese from coming here with EVs, but everyone that I've talked to has said it's pretty much just a blip on the radar. The Chinese automakers are going to come here eventually and they're going to do it regardless of if there's a tariff or not. They don't have to import directly from China. They can go to Mexico and import from there. They can join a joint venture or I mean they can also just kind of come here from China and still kind of afford the tariff. I drove via B.YV. Siegel, which is what Eunice was talking about for about $10,000 in China. And even with 100% tariff, it's still priced pretty competitively to the U.S. market. So they can come in and they can still be competitive. That would

be one way that they could take on the tariffs, just eat the tariff and still be price competitive with European or American-made brands, number one. Or number two, they could get around the tariffs by joint venturing with, say, a Mexican manufacturer or a Brazilian manufacturer, a Canadian auto factory? Yeah, or they can just establish the presence there themselves. I mean, we still have free trade between Mexico and Canada, and BYD specifically have been looking to build a plant in Mexico. And if they do that, then there's not anything right now telling them that they can't do that. Also, with the tariffs right now, they only address EVs. When you look at China vehicles coming to the U.S. right now. There's four models, specifically the General

Lawrence Buick and Vision that they imported more than 44,000 of last year, and the tariffs actually do nothing to address that. And the Chinese aren't just looking at EVs. They're looking at ice products. They're looking at hybrids, and they're all kind of glowing very quickly globally. We see it happening in Europe, and it's just a matter of time until they kind of arrive on U.S. shores. Michael, does the U.S. auto industry, and I'm including Tesla in that, have an answer as to how to compete with a $20,000 Chinese EV? Not yet without losing money. Obviously, Tesla's working on their low-price entrant reportedly,

and General Motors is also working on their Altium platform. They're actually doing drives right now, the Chevy Equinox EV with starts about $35,000 with the tax credits can get you to the high 20s, but there's nothing yet to rival the Chinese kind of technology that they have. And what Neil was talking about with the battery technology and the amount of different offerings that they have, it's very true that the automakers are trying to play catch up. And these tariffs are just meant to pretty much delay or give the automakers time to adapt and try to catch up when it comes to the EV invasion for the Chinese automakers. So let me, we do have to go, but I want to push back on that thought that there, that inevitably is what I'm hearing you say,

inevitably these Chinese vehicles, whether EVs or others, will make it into the U.S. market. How can you be so sure because the U.S. is not powerless, they could double the tariffs yet again and make it a 200 percent tariff or a 300 percent tariff or they could put some sort of restriction on a vehicle coming in from our trading partner in Mexico? They could, but they could also go through a joint venture. And when you talk about the U.S. market chair, we're talking about GM Ford and what was Chrysler and Alstalantus, they had more than 74, 75% of the market share in the 70s, 80s, and then the Japanese came in, the Koreans came in, the Germans came in, and I mean,

their market share has dwindled over the past decade. But isn't that what the U.S. is trying to avoid a repeat of, right? But, I mean, does it. Yes. And to be certain, this is what people have been telling me that, I mean, the Chinese have gotten so competitive and so much better in their manufacturing, that it is only a matter of time until they get here. I've been hearing it for decades that the Chinese are coming, but they didn't have the quality and also the resources to come here. And a big hurdle for that was engines.

They no longer need engines to come here. They have batteries. They have motors. And they can get here much more quickly than they could without the technology of having engines to build them. Thank you, Michael. So fascinating. You don't need an engine anymore. So now they can have free your entry.

Even if these tariffs are successful, is there a world where they could backfire on the U.S. auto industry, slowing down the point? push to all electric or driving consumer resentment over high vehicle prices. Here to discuss that is Yossi Levy. He's founder and CEO of car dealership guy. Yossi, it's great to have you here. What's your take on all of this? I mean, it's kind of that point Michael was making is if the world is going in this direction of cheap Chinese EVs that are evidently a fine quality, what happens if the U.S. is not part of that? Yeah, look, on one hand, these tariffs, while there's no Chinese cars being imported today, they do protect U.S. jobs.

So that's one side of it, all right? The other side of it, you could say, is that it's actually inflationary for consumers. So it does not benefit consumers at all. And it's not how a free market should operate. And if you really think about it, I do agree with Michael that long-term Chinese cars will enter the United States. When I speak to lots of dealers and it seems like, you know, everyone is concerned about Mexico. That seems to be like the big focus on what happens, you know, BYD isn't big in Mexico already. what happens if those China tries to bring vehicles from Mexico into the U.S. that way, in the short term,

it seems more reasonable than possibly importing directly from China, especially given tariffs and what we see going on right now. Yossi, here's my question. For the last four years, let's call it, maybe three to be really fair, when the U.S. auto industry was really focused on new EVs and new models. I mean, the Ford F-150 EV is a $100,000 vehicle. Why did nobody make a $20,000 entry-level EV that could have perhaps forestalled the arrival of this Chinese competition. Well, it's interesting you say $100,000 because I believe that's how much Ford is actually honest, they're losing on every EV they sell on a net basis. So it's pretty bad. But to answer your question, so what happened was we had a decade of low interest rates. Vehicle prices crept up.

Stalantis is a notorious example where they increased prices from 2019 all the way through about 2024 by about 50%. And so what you had was you had this decade of, you know, just zero interest rates. People were affording more expensive vehicles. And cheap vehicles were simply not a thing anymore, right? The American consumer got hooked on luxury vehicles, bigger vehicles, more options, more features. Well, guess what? Interest rates are not zero anymore, right? Today, actually, I tweeted yesterday that the average interest rate on a new car, new auto loan today is nearly 10%, right? 10% on a new car. That's a 20 plus year record. And so you're in an environment where consumer expectations need to retract.

I mean, people can't afford this. And so, but we've built up to this point in the economy. And so you have a really, really problematic environment where the vehicle prices are a lot higher than what people can afford. Exactly. And perhaps part of the issue, to your point is, is it true that U.S. automakers, including Tesla, can't produce a $20,000 rival to cheap Chinese EVs without massive losses? And if that's the case, shouldn't we have just subsidized their ability to do so so that they could, again, kind of organically stay ahead of what's coming.

Yeah, it could be. I think there hasn't been a large focus on it for the last, you know, several years, decade, really. So now the market is starting to realize, wait, consumers want some consumers want EVs, many more want hybrid. And so maybe we should rethink our strategies and really focus on what the consumer wants, right? We overbuilt supply for the last five years when it came to EVs and that we got ahead of ourselves. And so now we're kind of getting back to balance. And I think to your point, you know, time will tell. I think the manufacturers are realizing that it is a different economy.

I don't know if we're going to go to cheaper cars, to be honest with you. I think what's more likely is we're going to see higher leasing penetration with consumers and alternatives to traditional financing because that does lower your payment, you say, 15, 20%. And so that's sort of been the bridge for consumers. So you kind of answered my question, but I'm going to ask it anyway. You talk to a lot of car dealers. what do dealers tell you about the current market? And what are dealers telling the manufacturers

about what customers want? Dealers have been very vocal that to the manufacturers, that they have overswung the pendulum within the EV market, right? I want to be very clear. I think there's phenomenal EVs on the market, and it's a growing market. And I think it's going to continue growing, but the pendulum swung too far, right?

We overbuilt supply of the EVs that people don't want. Many of these are, you know, frankly, Tesla has, been the leader. They still come in about 50% market chair. But even they have trapped their prices, you know, 20 to 50% over the last year and a half. And so, you know, EVs are consistently higher. Paid the higher price. Yeah. I'm sorry to hear that. But yeah, it's many, many dealers and consumers in a similar boat where, you know, it's on their balance sheet and they lost a lot of money from that as well. So that's been the case. Hybrids have been the talk of the town, right? Dealers have been asking for more hybrids, consumers have are been buying a lot of hybrids. The market share of hybrids

is at an all-time high. So people are buying these hybrid. Toyota has done a phenomenal job on that because they have focused on hybrids and what the consumer wants. They haven't, you know, swung the pendulum too far one way or another. They've really listened to the customer. The last thing I'll tell you is there's a funny text message I got. This is from a top 25 dealer in the country. He wrote to me, he said, maybe if the UAW and Sean Fain were in China, maybe these cars would make it to the United States from China. So just a little funny text that I received yesterday, actually, about this topic. But yes, I mean, it's clearly very political.

And, you know, time will tell how it's going to play out. We shall find out. Yose Levy, thank you very much. He's the car dealership guy, founder and CEO. Car dealership guy. Yeah. Thanks for having me on. Yeah, you bet.

Still to come. A meme stock whifflash, sunpower plummeting nearly 30% after an initial short-squeeze climb. More on that move next. as we head to break. We celebrate Asian-American, Native Hawaiian and Pacific Islander Heritage Month. Here is Clara Shai, Salesforce AI CEO,

and a CNBC change maker. Initially, when I came to the U.S., I didn't speak any English, so I had to listen first before I spoke. And I think that's allowed me to observe trends happening as they unfold and really shift what I'm doing, what I'm thinking, what I'm working on.

And that's how I think I was able to kind of see the early social media wave and more recently on the AI side. We've got some big moves in the solar and commodity space to tell you about today. And Pippa Stevens has the names to watch. So the first one is Next Tracker. This is a rare bright spot in the solar industry. They reported last night beating top and bottom line estimates. CEO Dan Sugar told our Jim Kramer last night that their backlog has more than doubled. And so the reason why they're doing well is because they create these sophisticated trackers.

that then follow the sun throughout the day. And so then developers want to use their equipment because it means their solar arrays are that much more efficient. Now, on the flip side, sunpower down more than 20%. This comes as the meme stock rally fizzles. They were caught up in that yesterday. Shares were up 60%.

It is important to note here that about 80% of their outstanding shares are sold short and also only 25% of the stock is available to the public. So this really is a kind of buyer beware. And then moving over to copper, that did hit a record high today. We've seen this enormous rally at more than 20% so far this year. But it does feel like this latest move is driven by a short squeeze.

We've seen a lot of financial players pile in, a lot of trend followers getting in on this trade. And so people are now warning that maybe this is unsustainable. That being said, it does feel like after copper traded sideways for so long that it now has been reset a little bit, and it's going to be higher lows looking forward just because of that energy transition and data center demand drivers. Copper is the new memes doc. Watch out uranium. Uranium Twitter. They've got to find about copper Twitter.

Pippa, thank you very much. Pippa Stevens. Let's get to Bertha Kuz now for a CNBC news update. Bertha. Hey, Kelly. U.S. officials say crews have begun towing a floating dock system into the waters off the Gaza Strip and that it should be installed in the next 24 hours,

allowing for the delivery of humanitarian aid into the enclave. The dock will be anchored three to five miles off of the coast and will be moved from the dock to a causeway on Gaza Beach. It comes as the UN says there is a full-blown famine in northern Gaza after seven months of war. In Galveston, Texas, a barge hit a causeway and has caused an oil spill. That happened this morning. The incident led to the closure of the Gulf intercoastal waterway, a significant commercial maritime channel in the area.

Police are also blocking the road, which is the only bridge for traffic on and off Pelican Island. And the Education Department has extended a deadline to apply for student loan forgiveness. Borrowers can now request a loan consolidation by June 30th. It basically combines federal student loans into one new federal loan and could help them get their debt canceled sooner than they would have otherwise. Previous deadline was April 30th. Kelly, back over to you. Election year.

Bertha, thanks very much. Bertha Coombs. Still to come the next installment of our anatomy of the consumer. Today we're heading to the belly of the beast. Yes, restaurants. We'll talk about the strength there. And as we head to break, check out shares of Amazon and Alphabet. As a new 13F release shows Tiger Global increasing stakes in those two tech names.

Power lunch will be right back. Welcome back, everybody. Today marks the third edition of our Consumer Week series. New retail sales showing signs of slowing from U.S. shoppers and while inflation is easing just a bit, prices do remain high in restaurants. So much so that McDonald's is moving to offer lower price options. We've been hearing a little bit about this all week and Kate Rogers is here to tell us more. Kate. Hi, Tyler, that's right. Source is confirming to CNBC that McDonald's $5 value meal, which will include four items for $5 has passed

votes to be offered beginning next month. The meal will include a McChicken or a McDouble, four-piece nuggets, fries in a drink. A source telling me the offering will run for about a month beginning on June 25th. In a statement, McDonald's told CNBC, quote, we know how much it means to our customers when McDonald's offers meaningful value and communicates it through national advertising. That's been true since our very beginning and never more important than it is today. During its latest earnings report, the company noted that lower income consumers were pulling back a bit, and CEO Chris Kempinski said the company would be working on a national value platform. We did report last week that Coca-Cola also contributed marketing funds to sweeten the deal for franchisees

who, remember, run the majority of McDonald's locations. The stock is up by more than 1% now. Back over to you guys. And we'll see who might be next to match that or maybe try to offer something a little bit cheaper. Kate, thank you. Let's dig a little deeper now into the gastro health of the consumer, these restaurant stocks. We'll talk to Jeffrey Bernstein about that. He's senior restaurant analyst with Barclays.

And Jeffrey, I mean, we see the likes of McDonald's struggling. They now have to go move to lower price points. profit margins handle this transition? That's a great question, and it's a conversation that the corporation has with franchisees every day. The system is 95% franchise, but importantly, franchisees profitability is pretty close to where it was pre-COVID. So they're in a good financial position, and the hope is that this would not be margin dilutive, but rather margin accretive. If you could drive the incremental traffic and get some of those consumers to trade up, that's the ultimate goal for the program.

No, that would be nice, wouldn't it? I guess if we could broaden this out, restaurant continues to be the one place in the retail sales report and elsewhere, where we see consumer strength and where consumers seem to still be willing to pay up. Again, maybe in the macro data, what do you notice in the companies you cover, which is becoming a little bit more choppy with, you know, in the last earning season, more companies reporting weakness. You know, if you asked me that question a month ago, I would have told you that the U.S. consumer is holding up extremely well and that restaurants are on the very staple end of consumer discretionary and we all need to eat every day so that the

category tends to be fairly resilient the consumer does not want to necessarily trade to eating at home and restaurant sales the most closely correlated to labor so if the consumer has a job they feel like they can you know pick up food on the way home or go out to eat but through the most recent earnings cycle just over the past two weeks we have heard of much greater bifurcation that the lower-income consumer is feeling increasingly pinched, that they've exhausted a lot of their savings and stimulus money, and with a lot of restaurants having raised prices meaningfully over the past few years

to mitigate inflation, some of those consumers on the lower end might be reverting to a few more meals at home. Two questions. Two questions as I might. You have on McDonald's an overweight rating, which is what one might be if one goes several times a week for McNuggets, fries, and McDouble and a Coke for five. $5. Do you think this is, so you have an overweight rating on it, does this move by McDonald's make you feel better about that rating?

This move makes me feel better. McDonald's is in a great position, more broadly speaking. They are targeting a lower income consumer. Historically, during economic slowdowns, the consumer tends to trade down. So instead of a sit-down restaurant, they might trade down into a fast food restaurant, depending on the occasion. So I think they're very well positioned. And this value platform, getting it approved by the franchise system for a month on television is going to drive a lot of incremental traffic.

I can well imagine. Let me just ask you very quickly. Is this likely to spark some kind of price war with its either direct or indirect competitors quickly? Yes, it is. They have a number of burger fast food competitors who are well aware and anxiously awaiting McDonald's new value platform. So I'm sure they are working on it internally right now as to how to compete. on that front. Fantastic. And that was quick. That was. Thank you. All right. Jeffrey Bernstein, thanks. And you can hear us, folks, always on our podcast, be sure to follow and listen to Power Lunch

on your favorite streaming service. We will be right back. All right, welcome back, everybody. Seeing some moves in the industrial AI space, Simo Modi is tracking that action for us. Hi, Sima. Hey, Tyler, a number of industrials powering big tech with electrical and cooling technologies used in data center AI. You'll see all these names hitting new high. Eton has been at the forefront of this trade. Its market cap has now added nearly $100 billion since 2019. Now, Eden's direct competitor, Vertive, just spoke at Bank of America's Industrial Conference and said AI servers will account for more than 20% of data center electricity demand by 2028. He also didn't seem concerned about capacity constraints limiting growth. You'll see Vertive stock hitting a new high, and it's more than doubled so far this year. And take note of TE connectivity, its industrial connector.

transport electric signals to data center servers, communication orders, which includes AI clients surged about 36% in the first quarter year over year. And you'll see that stock also hitting a new high. This as we await Deer's earnings tomorrow morning. Kelly? 20% of demand in the next few years. It makes sense.

Seema, thanks very much. Good to see you. Sima Modi. Coming up, we'll hear from a CNBC Disruptor 50 member trying to electrify student transportation. Yes, we will be right back. All right, welcome back to Power Lunch, everybody. CNBC's 12th annual Disruptor 50 list is out,

and AI is, of course, a big focus to see the full list. Scan the QR code on your screen or go to CNBC.com slash disruptors. I can't decide which the easier way might be. Maybe it's just disruptor slash 50. I don't know. You decide. Our next guest is trying to disrupt student transportation, school buses, that is. And just today, her company announces the nation's first 100% electric school.

bus fleet for a major school district in Oakland, California. Ritu Narayan is the CEO and founder of Zoom, which is number 31 on the CNBC 24 Disruptor list. She's also a 2024-Chance meter. Ritu, welcome. Good to have you with us. Tell us about this exciting opportunity with the Oakland Unified School District to supply how many buses and how soon. Thank you, Taleb, for having me. I'm so excited to be here.

So electric school buses are having a moment right now. Today we are announcing that Oakland is the first major school district in the country to be 100% electrified. And what's unique about this is that all the 74 electric school buses that we have here will be on our V2G platform and have bi-directional charging. And what does that mean to the community is when these school buses are not used for transportation, they will be used as a storage device to give energy back to the grid at scale. And this means that they will add to the grid resiliency and also amazing sustainability benefits to the community in terms of reducing the carbon emissions.

In other words, they are both a consumer of power but also a supplier of it. So how does that work? In other words, if the buses are sitting on the lot, are they hooked up and then some of the power from their battery gets sent over to the main grid or what? How does that work? Yeah, the exciting piece is that school bus is the largest battery on wheels. It's four to six times Tesla battery. It's also an ideal asset to be electrified because it has a very predictable local commute pattern.

And it's not used for transportation in the peak demand of energy, which is usually the evenings and summer. So when these electric school buses are not used for transportation, we are using a V2G platform to discharge them. and give energy back to the grid. So think about it that you would charge them at the low peak hours and discharge them and give energy back to the grade at peak hours. It's such a win-win all across the board. Who manufactures these buses? And if you don't mind, and maybe you can't say, how much do they cost?

So we work with a variety of manufacturers. Our goal is to accelerate the energy transition. So we are working with almost all the partners in the ecosystem. What we look for is the safety, reliability, and V2G enablement. That's the critical piece of it. The buses today are more expensive. They are at least two to three times more expensive than the regular ice buses. And one of the ways we have accelerated the energy transition is actually getting the grants

from both the federal and the state level. And also this V2G deployment, which gives energy back to the grid and is able to provide revenue back, is also one of the ways to bring the cost at power with the ice bus and accelerate the energy transition. All right, Ritu, congratulations on this exciting new initiative in Oakland. We appreciate your time today, Ritu Narayan. CNBC is going to continue its coverage of the D-50 reveal at 4 p.m. Eastern with the company ranked number four on the list.

That is Brex. We'll hear from them at 4 o'clock. Still to come. Is the meme train losing steam? GameStop and AMC shares both. plunging today. We will discuss that after a quick break. Welcome back about two minutes left in the show and several more stories you need to know about. Let's get right to it. Starting with the meme mania frenzy showing some signs of fizzling out already. Shares a GameStop and AMC are both down about 20% today.

GameStop was up 180% this week before the session. AMC up 135. Yeah, what is that? Yeah, look at those numbers. There they are there. I think I would not follow advice from someone called Roaring Kitty. It just seems a little out of my league. I don't understand them. I don't understand them. Listen, the question is how to people who might have gotten burned the first time around, what do they do now? Yeah. You try and get back in and make up some of the loss you might have suffered.

All right, let's talk about the NFL. It's never a bad time talking about the NFL. New partnership now with Netflix. The streaming giant now set to air two Christmas Day games in 2024 as well as one holiday game apiece in 25 and 26. marks the first live game deal between the NFL and Netflix, though the league already has a long-term deal with Amazon to stream Thursday night football games. Streaming, that's where sports is headed.

Financial terms for now, not disposed. The next big fish one here is going to be the NBA con. Oh, sure. If you think about ultimately the people who are going to benefit most from all of this are the players whose salaries are about to go way up. Because if you enter Netflix and all the big tech giants... If inside the NBA goes away, I'm going to hold a pretty important. I have some intel.

They could be coming with the... Okay. My first thought as well, but they could come together. I'm not going to say anything else. Uber announcing a host of new products and features at its annual showcase in New York, with most aimed at saving customers' money on rides and food. Now, they have shuttle service to destinations now like concerts to the airport,

a feature allowing caregivers to book rides for loved ones and new perks for Costco members. Very interesting. They're a very enterprising company, and they've managed to branch out from their initial concept, seemingly successfully. Indeed, investors want to make sure that it's profitable and that there's the ability to kind of get uptake.

Should we look at the market as we tee it up for Scott Wapner? He's about, we're about 150 points away from 40,000 on the Dow. S&P and NASDAQ may be they're inching very close to all-time highs. Intriday highs for those two. The Dow is about 40 points shy right now, but you're

right. It's going to be all about 40K after today's session, I think. Thanks for watching, PowerLine. Closing bell starts right now.