Power Lunch - Global rate hikes, the Main St. economy and investing in bonds. 9/22/22

Episode Date: September 22, 2022

Central banks around the world are hiking rates presenting investors with new opportunities in fixed income. Plus, the CEO of Valley National Bank tells us how rapidly rising rates are impacting small business borrowing. And, what holiday hiring plans say about the retail sector and the consumer. Hosted by Simplecast, an AdsWizz company. See https://pcm.adswizz.com for information about our collection and use of personal data for advertising.

Welcome everybody to Power Lunch. I'm Tyler Matheson. Along today with Sima Modi, here's what we got for you this hour. Central banks around the world are hiking rates, virtually all of them. Global inflation fight is moving yields higher, presenting investors now with new opportunities in fixed income and challenges across the book. We've got your playbook. Plus, the Main Street economy, we'll talk to the CEO of Valley National Bank to tell us what rising rates are doing to small business and consumer lending and how that is changing the outlook for the economy. Sima. Tyler, there are 121 new lows on the S&P 500. That is nearly a quarter of the index.

A quick market check, the Dow Industrial's fighting to get into positive territory. At the lows, it was down 189 points. It's currently off by four. S&P 500 lower by a half a percentage point and a NASDAQ composite, the underperformer here, down over 1%. Now, speaking of the NASDAQ, the chip stocks are getting. hit hard at this hour. Take a look at advanced microsystems and video on semiconductor down nearly four to five percent. We do have an outperformer here, one in my world, Royal Caribbean,

higher after tapping the bond market to refinance debt in a filing. The company says bookings are significantly outpacing 2019 level stock up 1.2%. Tyler. All right, Sima. The Fed, of course, leading the fight against inflation, but it is far from the only central bank that is doing something. It's become a global battle, by the way. The Fed, of course, hiking interest rates by three quarters of a point yesterday. That's the third time it has done that this year. It's almost on Pratt. I don't remember ever having three hikes of that scale so quick in succession. Then overnight, the Bank of England said, okay, we'll raise two, but by only a half point for the second straight month, despite saying the UK may already be in a recession. Not usually the tonic

you want higher rates if your country's in recession. Swiss Central Bank, three quarters of a point, bringing them out of negative territory. Norway, where my forebears come from, a half a point there. And in Asia, Indonesia's Central Bank, hiked interest rates by a half point. That was more than expected. All of this playing out in the bond market with yields across the board rising. The two-year around 4.1 percent, and Rick Santelli is at the CME. What is the market telling you, Rick, as a seasoned observer?

It's telling me that the equity markets better be careful because the big guns are out and it isn't only in the U.S. at interest rates are moving higher and spreads are getting wider. It is, as you pointed out, a global event. I mean, Sweden and Vietnam did 100 basis points. Now, let's look at a one week of two-year. Its high watermarked today was 4.16%. It's had, what, 11 days in a row of higher?

yields and it's at a 15-year high, as you see on that one-week chart. If we move to an intraday of tens, it had a high of 3.71 percent today. It's currently trading around 369, and that's up almost 16 base points. These numbers are huge. And if you look overseas, Bank of England, as we discuss, raising rates as well, 50 basis points. Well, let's look at what happened to the Guild. This chart starts on August 1st. The Guild today closed the WICT, under 3.5%, a fresh 11.5 year high yield closed, and just for the month of August, it basically went from 180 to 350. That is huge. Boones? Well, the ECB, we know, is continuing to try to snug up, but they have a variety of issues with their weaker economies. Nonetheless,

boon yields closer to nine-year fresh high, just a whisker under 2%. And finally, all of this, and all of the recession talk, you mentioned the UK, Tyler, but But there's going to be more. It's making the dollar in our central bank king of the globe as the dollar is nearing in on near 20-and-a-half-year highs. It's on pace to close at the best level since May of 2002. Back to you. All right.

Thank you very much. Rick Santelli. So as yields climb, our fixed income investments now becoming more attractive as an alternative to stocks. Our next guest says yes, but investors will need to be nimble. Let's bring in Joanna Gallagos. She is the co-founder of Bond Blocks Investment Management. Joanna, welcome. Good to have you with us.

You say in the note I was given, fixed income markets are beginning to look like a place for positive returns and yields. This is after a long period where many investors regarded bonds, at least treasuries, as fundamentally uninvestable. The turn has taken place here. If I buy your thesis, where in the fixed income world should I invest? Is it T-bills, munis, junk? What?

Yeah, we think that actually the short end of the curve is really interesting right now. And I think a very intuitive thing to do is to look at treasury exposure. If for anything, just getting yield on your cash again is important. And I think what we would say going forward in broader fixed income portfolio, is, you know, we've come off, you know, yields a little bit over zero going up to four with just in with this year. Yeah. And so we see that the fixed income markets are structurally changing. So even if you're not ready to get into credit, you might start considering that there's some really important entry points because fixed income is structurally different now and will be for the foreseeable future.

So you'll be getting a lot more yield in your total return. You'll be getting diversification back in your portfolio and with potentially upcoming economic. down term, that's just something that hasn't been the case in the last 10 years. Just as it's difficult to tell equity investors to invest into a falling market, it has to be difficult to tell bond investors today that, hey, we're getting to a point where bonds are really investable again after the kind of year that bond investors have had on a total return basis. Their yields are up, but their value of their bonds or bond fund shares have gone down. Yeah, I think that, you know, this year has been a really painful year across the board in the equity portion of your portfolio or the fixed income portion of portfolio.

But we now are getting to levels we have clear conviction and action by the Fed. It's kind of irrefutable. And investors should have no further doubt that the Fed's going to continue to be aggressive about additional rate hikes. But we like to say, if bond blocks is you should be getting into the market differently than you have before. And so you'll need more tools that are more precise to manage those risks. duration is really a key factor that every big income investor has to deal with every day. So interest rates are rising. You need the tools to do that.

And that's why we like, you know, more precise Treasury tools to affect that exposure. Joanna, what do you make of the sell-off in the U.S. junk bond market, the high-yield market? I know you've been studying the balance rates of a lot of these companies that are, quote-unquote, risky. But where do you see the prospect of defaults in the coming months, if any? I would say that, you know, there has been, and clients that we've been working with, there have been a lot of discussions about staying in high yield, but shaping your portfolio to higher quality high yield.

A lot of interest in our XB product, which is a portfolio of higher quality high yield bonds. And I think that that's more what we're hearing about versus the default is, okay, I may believe that that's coming, but what can I do today? what's actionable today to anticipate that and transition my portfolio into higher quality. So it's JUNQUE as opposed to JUNK. I mean, a little fancier, a little tonier form of it. You said a moment ago, and it was intriguing. You said that you need to be, I forget what the word was,

more precision, more precise in the ways you invest today than you might ordinarily have been, and that you need more precise tools. What are those tools? What are you talking about? Yeah, bond blocks was founded to focus on delivering more precise exposure and fixed income to investors. We're an ETF company. We've launched 19 products to date, and they really update the broad-based blunt tools that have been in the market for over 15 years. So in high-yield, for example, we have seven sector funds.

You know, you now can, you know, reduce volatility in your portfolio by adding as much energy as you want or as much healthcare as you want. We've just launched eight duration targeted Treasury ETS, which haven't examined. existed before. And those addressed a lot of the duration drift, the interest rate and duration drift that you're getting in a maturity-based ETF. So things that you can do today with new products that you couldn't do before is where we are focusing. And I think with yields increasing and people wanting to be more specific about how they build their portfolios, that was what our aim was with our product line. All right, Joanna Gallegos. Thank you very much. We appreciate it. Thank you.

You bet. While some investors may be looking at bonds, our next guest still expects a strong finish to the year for stocks, led by consumer discretionary and technology. Here to explain is Kevin Mon the president and CIO of Henion and Walsh Asset Management. Kevin, thank you for joining us. You just heard Joanna there making the case for bonds the two year above 4%. You can certainly get yield in the bond market. So tell us why stocks are a better idea right now for investors.

Sure, Seema. We see two particular tailwinds lifting stock prices higher by the end of the fourth quarter of this year. First, we believe that the Fed will, in fact, turn less hawkish, not dovish, certainly not dovish, but less hawkish in November and perhaps raising by only 50 basis points in November and only 25 basis points in December. If they do, that would signal to the market that perhaps we pass peak hawkishness and also, hit peak inflation, given that the Fed wouldn't cut back on the magnitude of their right hikes unless inflation was starting to moderate. If, in fact, that occurs, we anticipate more money coming back off the sideline and starting to go into those areas of the stock market that have been beaten up the most thus far this year in 2022. Kevin, what gives you confidence that the Fed

will be less hawkish? Because the takeaway from the press conference with Jay Powell yesterday was that the concept of pain, he certainly stressed that point, that it will be painful for investors and households as he tries to tackle inflation? My confidence in this outlook is my lack of confidence in the Federal Reserve. Think back to earlier this year when they suggested that inflation was transitory. It certainly has not. Think back to May when they told us that no rate hikes above 50 basis points were under consideration. Well, guess what? We've now had three consecutive hikes of 75 basis points each. They told us that they were going to raise rates on a gradual basis. That certainly has not been the case this year. So why would we now start to believe

that they're going to follow the script that they suggested yesterday? I do believe they're trying to talk down inflation in addition to raising short-term rates and influencing longer-term rates by reducing the size of their balance. But again, the economy continues to slow. We've met the technical definition of recession and how much further can the Fed go without risking pushing the economy into a deeper and more severe recession than would have otherwise occurred on its own scene? I think you just answered my question, Kevin, where you said my confidence comes from the fact that I have a lack of confidence in the Fed because I was going to ask you, I don't think

you and I were watching the same program yesterday. Because I sure didn't hear any wiggle room there. or maybe we weren't watching the same, maybe we were smoking something different. I don't know what it was, but in any rate. I don't smoke. Yeah, neither do I. But now I'm still, I'm without words.

But at any rate, so if you're right, if you're right, where are the early opportunities going to be in the equity markets? Great question, Tyler. And remember, the other tailwind that we see taking place in November, our midterm elections. Historically, stocks have risen on average, roughly 16% in the 12 months

following midterm elections. We also note, Tyler, that generally stocks do better when we have a divided government. And if, in fact, the polls hold true, it looks as that we may have a divided government after the midterm elections. That turns less hawkish after the midterm action results. We think areas such as technology and consumer discretionary, notably e-commerce, are going to stand to experience the greatest rebound given the extent of the pullback they've received thus far. Stocks such as Amazon or even ACI worldwide on the technology front, if you're not familiar with ACI worldwide, they provide the technology that supports real-time digital payments and credit card processing. Amazon fits into that same thesis as Amazon will take advantage of the rebound in

e-commerce activity, as we expect, another record holiday shopping season to cite these recessionary environment that we're currently operating. And finally, we like CBS healthcare in this environment, Tyler. They pay a good dividend around 2.2% yield, and their recent acquisition of Signify, we think's going to help take them into the home health care in addition to what they provide already in their stores. Kevin Mon, a non-smoker. Thank you.

Yes, sir. Good to see you. Take care. All right, coming up, how inflation is changing the holiday shopping season, and what Walmart and Target's strategies say about the economy and the health of the retail sector. Plus, are small business owners struggling under the weight of rising interest rates? We'll talk to the CEO of Valley National Bank, who will give us a bird's eye view from Main Street. But first, a look at shares of Eli Lilly,

almost said Eli Manning, Eli Lilly outperforming the market. After UBS upgraded the stock to buy, the firm calling Lilly's weight loss drug potentially the biggest ever, with an estimated sales potential of 25 billion. I see what you get there. Bigger. Bigger. Bigger. Way to year. Welcome back to Power Lunch. Inflation is making the upcoming holiday season

a bit trickier for retailers. This year, Walmart says it will hire 40,000 workers, a big decrease from the 150,000 workers it hired last year. Target instead is hiring the same number of workers as last year, 100,000, but it's offering holiday deals and promotions a little bit earlier. Here to discuss what this is. says about the consumer, retailers, and the economy is Jan Niffin, CEO of J. Rogers Niffin worldwide. Jan, good to see you. Good to see you. Is it inevitable that we will see a slowdown

in retail hiring this holiday season, or will it be more selective? Department stores versus e-commerce retailers operating or servicing the low-income consumer versus luxury? What do you expect to see? It's already selective. You saw what FedEx said about what they were going to do. We know they've got their own problems to deal with. UPS acts like it's going to be about like last year. Target said the same thing, same as last year, and Walmart's in a different spot, right? They hired 150,000 people last year, but they kept a whole lot of them on staff, and they're adding a lot of, they're giving those people extra hours this year rather than hiring more people, and they've also become more efficient. So I'm not sure what they're telling us means anything

other than what they've told us all along is that they see a pretty good back to school and they see a solid holiday. And I don't think they've changed their view on that. And most retailers saw a solid back to school. And most retailers through yesterday will tell you sales were okay. What they're worried about is that they might not still be okay given a 75 basis point increase today and all the things, or yesterday and all the things we've seen going into the consumer with, what, 8% inflation, maybe something, maybe that high coming through the back half. And so they're worried about it, but they're not

seeing their customer walk away yet. So as long as the demand story remains strong, hiring shouldn't be affected as much as perhaps some people are expecting. Which companies, though, could be next to warn? Based on their balance sheets, based on what we heard over the last couple of weeks during earnings season, which could be the next retailer is the next shoe to drop? Well, there's already been a lot of shoes drop, right? Coles had real problems. Gaps had real problem. They're reporting. But we've seen, you know, really good numbers out of people like Tapestry and Capri and Macy's has been pretty good. We haven't seen those change.

So you look at those stronger, more aspirational businesses. They're doing well. We saw really bad numbers out of both Target and Walmart, but we know they're straightening out their problems. And they're going to have a better back end than they have front end in in both cases. So, yes, it's tough if you're dealing with the lower end. But I still expect Dollar General to do pretty well. I expect TJX and Burlington to do pretty well on the trade down. I expect Macy's to do well because there are the back to gift place, right?

We're going to see better gift giving this year than we've probably seen in three years because the consumers out there saying, wow, COVID's finally over maybe. Maybe I should go back to normal. And we know that they're attracted to gifts right now. So I see that as being pretty strong. And then when we get to those more aspirational ones that I named, I think we'll see good numbers out of them too. I didn't mention I think Nike will be good. I still think that boot barn and Levi's will be good because the Western Crays is still in,

and they've got a reasonably affluent customer. So I think the upper end will do well, and the lower end will struggle some because of trade, you know, the trade down in what people can afford to buy because they have to spend so much on food. But at least gas has come off of a $5 a gallon mark. You know, we had the Fang stocks, but I love your confection here. the watch stocks, Walmart, Amazon, Target, Costco, and Home Depot, pretty much no matter where the customer is, they have won the game, you say. So that would be a good place.

If I were trying to build my own retail ETF, it might be wise to just own those five, right? Well, I confess, that was Jim Kramer's numbers that came out on watch. He's the one that created that. I adopted it because I liked it so much and I believe in it so much. But yes, absolutely. you could own those five for the rest of your life and be happy. They have won the game, right? They were essential.

They got to stay in business. They reinvested in the business during COVID. They took market share, and they're not going to give it back. So when we come out the other side of this, whatever this is that we're going through with the Fed and inflation, these will still be the five big winners. I will believe that. And I'm going to be with that for a long time unless something dramatic happens. All right, Jan. Thanks very much. Jan Niffin. We appreciate your time, as always. Up next,

the 30-year fixed mortgage spiking after yesterday's Fed decision. That number is next. Plus, further ahead, new reports the SEC will not ban payment for order flow, a crucial yet controversial part of Robin Hood's business. And don't forget CNBC's delivering alpha returns in person on September 28th. The world's top investors will discuss risk opportunity and navigating the new market dynamic. Lots to talk about there. You can scan that QR code that you see on your screen or go to CNBCEvents.com to register. We'd love to have you join us. It's, I think, a week from yesterday. We'll be right now. Welcome back to Power Lunch, everybody. Big direct reaction to the Fed's rate hike yesterday. Diana Oleg has the latest mortgage numbers. Hi, Dai. Hey, Ty. Yeah, the average rate on the 30-year fix just took another big leap today, jumping 26 basis points to 6.62.

percent. That according to Mortgage News Daily, who's C.O. Matt Graham told me the Fed only amplified the message of faster rate hikes, and Powell's press conference did nothing to soften it. Shorter-term rates got hit hard yesterday. Longer-term rates are getting caught up today. Mortgage rates loosely follow the 10-year Treasury yield. Now, just to put that into perspective, if you're buying a $400,000 home with 20 percent down, your monthly payment is now $320 more than it was just at the start of August and $700 more. more than it was at the start of this year. Not great nose for anybody out shopping for a house this weekend, Tyler.

That's right. Diana. Diana, thank you, I think. Well, let's get to Leslie Picker now for a CNBC news update. Hi, Leslie. Hey, Tyler, thank you. And here's your CNBC News update at this hour. A new report today says that unemployment fraud during the COVID pandemic may have resulted in over $45 billion in losses. This is roughly three times the previous estimate.

The Labor Department says that more coordination is not. needed to investigate and charge those responsible. Tesla is recalling more than one million vehicles over an issue with the automatic windows not responding correctly after detecting an obstruction. The electric vehicle manufacturer says the issue affects five years of Model 3 cars and a few model Y, S, and X vehicles. Tesla said it is issuing a software update for the problem and that no injuries have been reported. And as you guys were just discussing target,

and Walmart have announced their hiring plans for the holiday season. Target is planning to hire up to 100,000 seasonal workers. About the same number as last year, Walmart expects to hire 40,000 seasonal employees, which is down from last year. Retailers are still recovering from a year of excess inventory and markdowns. And I can't believe we're already talking about holiday season, but I guess it is now officially fall, guys. Yeah, not too far away.

Leslie, thank you. Leslie Picker. Coming up, breaking down the rate ripple effects. The Fed decision having an impact across stocks, industries, and entire nations. First, we'll take a look at what it could mean for regional banks. Will small businesses slow their borrowing? The Valley Bank's CEO weighs in. Plus, the dollar getting stronger, wreaking havoc on global and emerging markets. Finally, growth stocks hit hard by those rising rates.

And investors like Kathy Wood aren't that happy. We'll hit all that when power lunch returns. Welcome back, everybody. We've got 90 minutes left in the trading day. I want to get you caught up on the market. stocks, bonds, commodities, and a bank CEO will tell us what he's seeing in the economy from his perch on Main Street. Let's begin with Bob Pazani as stocks continue to slide following yesterday's rate decision. Bob.

And Tyler, the S&P is underperforming the Dow because tech stocks, heavy weighting in the S&P are down more, almost 1.3%. Bank stocks down 1.5%. There you see the S&P 500. I'm just bringing up because we're, oh, a little less than 90 points away from the June 16th low. Remember that number 3666. That's quarter of the benchmark everybody's using whether we break through that or not. What we are definitely doing is seeing a dramatic expansion of new lows, more than 600 on the NYSC. That's almost 30% of the NYSC, maybe 700 or so on the NASDAQ.

That's pretty significant, considering big names here. Look at this alphabet, meta, Microsoft, Intel, all them at 52-week lows. And even on the Dow, we see some big Dow names, new lows, non-tech names, 3M, for example, Nike ahead of its earnings next week, Visa 3M, all. Again, 52 week lows. This list is getting pretty big here. Even the transports, and obviously Nike, excuse me, obviously FedEx has been a new low for a while. Now it's bouncing today, but JetBlue, Southwest Air, Mattson and some of the logistics companies, also new lows. So Tyler, I keep an eye on all of that. This is what people are concerned with as we slowly get to the idea that we're going to have

to take down earnings estimates a little more for the fourth quarter. A lot of these companies are now sitting right at the precipice of a notable 52-week lows. And in several cases, two-year lows. Tyler, back to you. That's interesting, Bob. It's tech, but it's not just tech. There are a lot of sectors that are being hit here. Bob Bazani, thanks. Let's go to the bond market, shall we yield's continuing to move higher. The two-year yields soaring to a high of 4.14%. There you see at 4.1-1 right now.4-1. Get the information. There's the 10.000. There's the 10 year at 3.7, let's call it. The spread has also jumped now sitting just below 3.7. There's that that's the 10 year, right at 3.7 right now. A lot of people view short-term rates,

higher than long-term rates as a recession indicator. Now let's move forward and check on oil, higher today by less than 1% after falling yesterday after the Fed decision. At least for today, it seems like the market is fearing supply disruptions more than demand destruction. There you see West Texas crude up 50 cents at 83.44. Well, rising rates rippling through the banking sector, and that is having an impact on small business or willingness to borrow and seek loans. Joining us with a look at the lending landscape is Ira Robbins Valley Bank chairman and CEO.

Ira, welcome back. Good to have you with us. Let me turn to you and ask you something. Maybe a little bit out of left field. I'm going to get to the business question in just a moment. Have you started raising your rates on deposits? We've had to, unfortunately, I think there's been a significant outflow of deposits in the banking sector. And there's still been strong demand in the banking environment as well.

And as a result, to make sure that we have enough funding sources, we have had to begin to raise rates, although still at a laggy pace to where the market's gone and what we're able to charge on the asset side. So let's talk a little bit. That's an interesting answer. Let's talk a little bit about what you're seeing from business borrowers. Are they pulling back? How are they reacting if they have new loans, loans that they need to roll over? How are they reacting to the idea that they're going to have to pay more for their money?

No one's happy about it. So our speakers have had to have a lot of difficult conversations with many of our borrowers. Many projects that were assessed were done in different economic times. Debt service coverage ratios look very different today than what they did even six to seven months ago. I think what we're seeing is a lot of uncertainty across the entire space, whether it's with interest rates, from a global perspective, what's happening in Ukraine, from a supply chain perspective still. And as a result, uncertainty leads to a lack of commitment when it comes to CAPX. And we're seeing that today. The Fed Fund projections rate estimates a 4% rate by the end of this year.

For small businesses, IRA, could we reach a level or a point at which these small business owners are not able to cover the cost to, service their debt? I think if you look at one side of the ledger, you know, expenses have upward mobility as long as revenues go up. They still continue to see the ability based on inflation to pass along many of these expenses. Until that really begins to change, the interest rate environment is still okay for some of these small businesses. Credit card debt has risen.

That was the message from American Express last week. They also said, as you pointed out, spending is also up. So what level does it need to reach before this becomes a bigger concern for markets, credit card debt? I think looking at one side of the balance sheet in isolation is really going to confuse a lot of people as to how they think about the projections of the economy. I think about what's going on in the interest rate environment today. We have 100,000 economists and 200,000 opinions as to what's going to happen. Each of those opinions are really based off of what indicators you're looking at from an economic perspective. If you're looking at corporate profits and unemployment, one could argue that the Fed still needs to be more aggressive in raising rates.

If you're looking at housing, there's an absolute slowdown. And one could argue that the Fed has been overly aggressive and needs to slow down what their policy looks like. To me, there's a couple underlying factors that really have driven inflation over the last few years. One is the massive fiscal stillness that our government has put out there, the accommodated monetary policy, the uncertainty with regard to Ukraine supply chain. And there's a third one with regard to the environment and climate. And until we have a better understanding about what the impact is and those variables that are really driven inflation, it's hard to really say whether the fed's overdone it or not. Let me ask you, because you just said something a moment ago that was very interesting. And you said that businesses are having to look or take a second look at the financing of projects and that you're seeing some capital expenditure outlays going down.

What does that tell you about what's going to happen or is happening in the broader economy? Are you seeing a slowing economy? Without question. I mean, I think I'd have to have my head in the sand to sit there and say we're not going to go to a recession. Things are definitely beginning to slow. I think the challenging really point goes back to looking at the unemployment number. Wage inflation is still significant. And corporate profits are still very, very strong today.

But we have to keep in mind that those are lagging indicators. And as a result of those being lagging indicators, things can still seem really good for a lot of people. But from a long-term perspective, it's insane to think that the government could put that much money out there from a supply-side perspective and not have inflation and what that implications are going to look like. Yeah. Very quickly, I don't know how much of your business is in the mortgage area, but what are you seeing there in terms of applications and people coming in to get loans? Yeah, so we have about 20% of our business. We have a portfolio that's over $4 billion today, a large amount of of it's in Florida as well as in the Northeast, our activities down about 35% from where it was. Refinance activity has basically stopped

across all segments of the footprint. For us, last year, our conforming residential mortgage rate was two and seven eight. Today, sitting at six and a quarter and likely to go up a little bit further. So the implications to those purchasing homes is gonna be significant and continues to be significant. Ira, we love having yawn

because you answer the questions. You're very direct. We thank you. Robert Robbins, Valley. Thank you. Ahead on the show, King dollars rain, the Fed's rate hikes, only fueling the dollar's dominance over other foreign currencies. So what does this mean for investing around the globe?

Before the break, we're celebrating Hispanic Heritage Month here on CBC. Let's listen in to President and CEO, the Hispanic Association on Corporate Responsibility, Sid Wilson. We know that corporate America has a lot of work to do to make sure that we are fully inclusive of Latinos, particularly on corporate boards in the C-suits, as well as that pipeline development for making sure that Latinos are included, especially for Latinas. Latinas by themselves would be a G20 country if you just took Latina GDP alone. And together, all of us, allies as well as those of us within our community can continue to be that positive force that American needs.

Hey, welcome back to Power Lunch. Steve Kovak here with the Market Flash for you. FedEx has released their earnings earlier than expected. We're expecting them after the bell. Looks like shares are up about 2% here. Mostly on this new headline, we got most of these results early, but the new headline saying, 20-23 will consider. consist of $350 million to $500 million in cost savings. That seems to be what shares are reacting to. We will expect to get a call or earnings call from FedEx after the bell today where we'll get some more details on their support. But for now, I'll send it back to Tyler and Seema.

Yeah, we'll be waiting for those comments from CEO, Rodgers, the Romanian, stock up right now, but still down about 26% this month. Let's pivot here. The Fed rate hikes are spelling trouble for Asian economies and broader emerging markets. Japan overnight intervening in the Forex market to defend the yen. Many countries now looking to China for support. The Wisdom Tree Emerging Market ETF has seen $2 billion in outflows over the past four weeks. What does this all mean for U.S. investors?

Let's bring in Jeremy Schwartz, managing director with Wisdom Tree Acid Management. Jeremy, appreciate you joining us today. Japan intervening first time in 24 months since the aftermath of the Asian financial crisis. Could we see another one? Well, you know, it wouldn't surprise you to keep seeing more of those headlines. You know, they tried to stem the tide of all the flows going against the yen. But in reality, you know, they didn't change much. They put in some volatility that the yen might appreciate on days they intervened,

but they left their monetary policy unchanged. The 10-year in the U.S. is rising. You know, the forces driving the yen weaker has been this rising differential. The Fed being one of the most aggressive central banks raising rates. the Bank of Japan is still controlling interest rates. So I see the fundamental forces still being yen weak. I think they're going to have to continue to intervene. I don't think that's going to change until they change their policy.

We'd still say you should be hedged when you go to Japan. You shouldn't be betting on the yen. I think it would be a very tough environment for the VOJ. There was a great op-ed in the Financial Times this morning that is titled Global Backlash is brewing against the Fed. What's the most extreme scenario we could potentially see if the dollar continues to rise? Could we see sort of a coordinated action taken by these emerging economies to defend themselves from a stronger dollar?

You know, I think they're going to wait to see the end of the cycle. I think we're closer to the end than we are at the beginning. Now, and of course that means inflation actually has to come down and they have to start seeing it come down. But I think even that's Japan's policies, that they feel like they can't do enough to stem the tide on the central bank policy. So they're just waiting six months to see sort of the last few hikes from the Fed. And then they might change their policy. It'll coincide with Corota leaves as sort of a new governor. But I think it's tough because the Fed is raising rates aggressively.

And now you're seeing some of the other central banks like the ECB trying to play catch-up. But Japan is the outlier. I think for global investors, you're going to go where their policy is still easing. Japan is that. China is that. The ones that are tightening aggressively is a tougher environment. So you're recommending Japan and China. What's the thesis on emerging markets right now? Does it have to get worse before it gets better?

Before, you know, we see valuations come down to a point where investors like yourself say, now is it time to get in? Well, I think the EM central banks were the early tightness. You know, you see Brazil as an example of a place that's commodity rich. They were hiking more aggressively earlier. And so they're not, you know, having to do the relative tightness today. So I think to some extent, it's the COVID zero in China has been a tough policy, and that has ripple effects across all of the emerging markets. But so if China can improve its economy next year post this, you know, the Communist Party thing in a month from today, that could be a useful capital for broader emerging markets.

But I do think that the EM Central banks tightened more aggressively. They took their pain earlier. And that's setting the stage for potential rebound next year. If I want to invest in emerging markets, but I don't want to invest in China, can I do that? By a funder an ETF? Yeah, we launched one today, XC, which is emerging markets, X state-owned, X China. We have been doing a lot of value in dividend strategies going back 15 years ago. We've seen a lot of interest in those strategies actually this year.

They've been inflows into those funds. But we see X-China as a way. you know, if you go back 20 years ago, China was only 5, 6 percent of broad indexes. It got up to 40 percent, which is really a big allocation. We think people want to control their allocations to China. A fund like XC can give you dedicated exposure to China control how much you want, and we do it with an ex-state-owned approach. We think those companies have good governance, less running in the interest of the state.

And so XC is a brand new fund, piggybacking the full family of now China-state-owned, Broad E.MX state owned, India ex-state owned and now ex-China. Second largest waiting, Tyler, after China is India, which is fastly approaching what China has. Jeremy, thank you. Jeremy Schwartz of Wisdom Tree. All right, coming up, the Fed creating a major leak in Kathy Woods' Ark.

Higher rates crushing growth stocks, so now Wood is lashing out at Powell. We'll trade some of Arc's top holdings in today's three-stock lunch. Time for today's three-stock lunch. high-growth investor, Kathy Wood, tweeting her disappointment in the Fed's unanimous decision to raise rates, saying the central bank isn't focused enough on deflation. Most of the holdings in her ARC innovation fund have deflated, folks. It's trading lower today. And some of those stocks, look at them. We'll look at them today in three-stock lunch, Roku, Zoom, and Block.

We're going to trade those names with Boris Sloshberg, BK asset management. Welcome, Boris. Let's begin with Roku. What do you think of it? So Roku, I think, is, you know, the argument for Roku on the bullish side is that streaming is the future. But that tends to forget the fact that there's enormous amount of competitors in the space, including even YouTube, which now has more minutes watched than most of the broadcast TV. The thing about Roku is that its growth is actually very, very tepid, around 3 to 6% next year projected.

And they really guided down because their primary business is advertising. And as you can imagine, advertising is going to be the first. thing gets cut when the economy retrenches. So to me, the only reason why Roku is not a sell is because it's a perennial takeout candidate. So I'm very wary of being short the stock, but I definitely want to stand by. I'm not interested in a position at this point. All right. Second up is Zoom. What do you make of the stock? So you know, what's interesting about Zoom is that amongst all the three stocks we're talking about, it's probably the most profitable, the most mature business we have, and yet the stock has been

decimated. It's down 22% in August by far more than all the other two stocks combined. And the reason why is because Wall Street really fears Microsoft. Basically, the story on Zoom is that Teams is eating its lunch, 270 million active users, I believe in Teams at this point. And that is really the case. Wall Street believes that consumer's thickness is very, very low, enterprise thickness is very high. And certainly there's lots of evidence, you know, to remember that. Every remembers NetScape and Rim.

There's, you know, everybody is littered with skeletons of companies that lost their enterprise space. And that's really the worry with Zoom, which is why I'm worried about it myself. I don't think this is a good stock. I don't actually think it's probably going to drift lower, despite the fact that it's a pretty decent business, simply because it just does not have any chance to win back the enterprise against Microsoft, right? All right. Let's go to block square down year-to-date 5 percent, fairly modest, basically.

No, your-to-date 65 percent. Excuse me, year-to-date. No, no, it got decimated. It got decimated very badly. But you're actually right. It's down actually 80% off its highs because they have to absorb the afterpay acquisition. But despite that, its core business of transaction processing, both on the consumer side with cash and on the mom and pop side, on the brick and mortar, is actually very, very sound. They did $52 billion worth of gross volume last year.

That's 23% more year over year. They're probably going to double digit that again this year. And more importantly, they're probably going to do about six. billion in profits this year, against a $36 billion market cap. That's a pretty interesting valuation of these levels. If you believe that we're going into a cash to society, which I very much do believe, then they're definitely going to be a major beneficiary of that. So the stock at this level, this valuation is very much a buy.

Boris, thank you very much. Very clear answers. We appreciate your insights today. Boris Schlossberg. Thanks. Reports out of the SEC could have a big impact on Robin Hood. We've got those details next. Draw your attention to shares of Robin Hood, giving up early gains.

The stock had popped on word that the SEC won't ban the practice of payment for order flow. Kate Rooney joining us with Moore. And Kate, if this were to be true, that would be a big victory, right? That's right, Seema. This is seen as a really big win for the brokerage firms, especially Robin Hood. Bloomberg reporting that the SEC will let Wall Street keep that practice. There had been some jitters out there about a total ban of payment for order flow, which is sometimes called PFO.

That involves selling retail client trades to firms like Virtue and Citadel securities instead of having those orders routed to the New York Stock Exchange or NASDAQ. Critics of the practice have questioned whether retail investors are getting the best price on the back end. They call that best execution. And the SEC chair, Gary Gensler, has been among the loudest critics here. He's asked for more disclosure as pretty skeptical of potential conflicts of interest and complained of power being potential. concentrated among select market makers. On the other side, advocates argue retail investors are getting the best price and say that's why brokerage firms can offer trading for free, which they say expands access. If PFF was banned, some have argued that you'd have to go back to the old

days where you had to pay for your trades. Robin Hood really pioneered that free trading model, and executives there have told me they didn't expect a total ban, but if it came to that, they would be looking at some other sources of revenue. For context, guys, PFOF made up about 68% of Robin Hood's total revenue in the last quarter. Back to you. Robin Hood stock trading at right around $10 a share. Kay, thank you. Robin Hood's CEO, Vlad Tenev, will join Squawk on the street tomorrow morning at 9 Eastern. A lot to talk about there. Don't miss it. All right. Let's take a look at where the market stand right now, shall we, just to bring you up to date. Can we throw up a screen? There you go. Industrials basically flat. S&P. 500.

by about a half of a percent. But the NASDAQ is the problem child here, as it has been for so many days. Subsectors within the NASDAQ, chip stocks, the semiconductor names continue to be under pressure. We have the CEO of Qualcomm today talking about those softer economic headwinds. So that seems to be part of the story today. Thanks for watching Power Launch, everybody.