Power Lunch - Have Markets Topped?, Eye On AI 5/20/24

Episode Date: May 20, 2024

The Dow is turning lower today, after closing above 40,000 for the first time last week.Is 40K a sign of a top, or just another bit of momentum for this rally? We’ll discuss.Plus, the Nasdaq is holding on to record gains thanks to more AI optimism. Microsoft is kicking off its big developer event, and unveiling new AI PCs. We’ll bring you the key details. 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 Kelly Evans, I'm Tyler Mathis. I'm glad you can join us on this Monday. The Dow turning lower this afternoon after it closed, yes, above 40,000 for the first time on Friday. Is 40K the side of a top or just another bit of momentum for the rally? Well, the NASDAQ holding on to gains hitting a new record high thanks to more AI optimism. Microsoft kicks off a big event unveiling new AI PC. We'll talk more about that. Any kind of advanced at AI. going to be good for those chip stocks and analysts are getting even more bullish on NVIDIA, setting that stock up 2.5% today, up 91% so far this year. Let's begin, though, with that existential question about Dow 40K, is the design markets are picking up or about to lose steam. Michael Santoli is over at the New York Stock Exchange. What do you make of it, Mike? Well, Kelly, indexes making new record highs are generally a feature of a strong underlying trend,

trends which tend to persist. And so it's not necessarily the case when we get. get to a new big round number, all of a sudden you have to start raising the alarms for an imminent peak. There even is some research of when the Dow does hit one of these round number thresholds, that forward returns are actually better than average over the next month and year, though. Who knows if the sample size is big enough. To me, what matters is all the inputs that you would look for are also generally in a positive state. So earnings at a record high and also forecast going higher. Credit conditions extremely strong.

And it seems as if the market believes the economy can withstand, let's say, 10-year treasury yields in the force as we have for a while right now. To me, the argument is, are we paying too much for this happy scenario in the short term and not accounting enough for the variables that could come along, such as whether the slowdown we're seeing in some consumer activity domestically is not just this happy deceleration to a soft landing, but is something worse. And, you know, the other things that could just, you know, kind of throw things off course a little bit. we do have this commodity rally going. And whether that's a warning of persistent inflation or not, we can argue about. But to me, it's about tactically, we can say maybe we have to rest or give some back. But longer term, you know, most of the things I would look at would say don't fight the market. Yeah, I am scratching my head a little bit about gold and copper rallying together.

But I want to also ask you about Mike Wilson kind of throwing in the towel and raising that S&P forecast, I think to 5,400 now. And, you know, I think it's just one of these, okay, he made. a similar move last summer saying the bearish call hadn't worked, but then, to your point, then we kind of skidded for three months to the October low. So maybe history repeats here. Yeah, I mean, look, if it were a case where everybody's bullish and the one remaining bear throws in the towel and there's nobody else with a kind of fighting this or with a cautious stance, I would be more concerned. Now, you know, he sort of marked his opinion to market. This is an inherently impossible job to forecast the index over any period of time. I do think he concedes

that he was excessively valuation sensitive and maybe he was looking at some historical relationships that this cycle has not really rewarded at this point. But 5,400 is 2% up from here, not even. So, you know, it's not exactly as if he's a raging ball. And if I look at the aggregate strategist opinion right now, it's very lukewarm. The median and average forecast for the end of this year for the S&P are basically where we are right now. So it's not the case to me. And there were some in the year 99 and 2000 when you basically had these very prominent bears that were fired or just left the business. And that was a little bit in retrospect of signal. People were getting a little too overexcited. I'm not sure this qualifies. All right, Mike, thanks very much. Mike Santoli.

We want to keep the conversation going. Our next guest says the vet rally can continue. She's Stephanie Link, Chief Investment Strategist and Portfolio Manager at Hightower and a CNBC contributor. see you, Stephanie. Okay, let's play a little game of would you rather. Would you rather higher growth or would you rather higher interest rates? Oh, gosh. I would rather higher growth and inflation not exceeding these levels. We have made big progress on inflation. Tyler, as you know, we topped out at about 9.1%. We're running in the threes. We all want to get to two. I don't think we're going to get there because the growth here in the states is pretty strong, three, three and a half percent. That's above trend. And that's driven by the consumer.

That's driven by the secular stories that are happening in manufacturing, like onshoreing and the energy transition. It's also a little bit of pockets of strength and housing. But it's also globally we're seeing strength. And I don't think that's getting enough attention. It's China growing five and a half percent. It's India growing seven percent. It's the Eurozone doing a little bit better. UK doing a little bit better. So I think inflation is going to stay elevated. But I would rather, to your question, I'd rather better growth with a little bit elevated inflation because that means earnings actually can continue to grow. And we know that stocks follow profits. I'll touch and go that point one last time. Then I want to switch to India because it's interesting to me. But in other

words, if you're willing to tolerate slightly higher inflation, roughly where it is today, that would suggest you're probably willing to tolerate interest rates roughly where they are today. And don't expect a big series, certainly, of interest rate cuts beginning later this year. Yeah, I mean, I don't think that we're going to see any interest rate cuts. And even if we get one or two, that's not going to do anything, really. We've put in place so much already at 550 basis points over the last 18 months. The point being is that the fiscal stimulus that has been put in place over $8 trillion over the last four years is more than offsetting the higher interest rate. So eventually we're going to slow. But for next,

we're growing and growing quite nicely. Do I think the S&P, do I think it's going to grow another 11% from here? We're already up 11% on the year and we're up 37% in the last 18 months. So could we, we could grind higher. And that's kind of what I'm expecting. Nothing really very heroic, though, in terms of double digits growth. Speaking of heroic, let's talk about Bill Brown. You think he's going to be a household name one of these days? I do. I think he already is. And welcome back, Kelly. We haven't been on together since you've been back. It's great to see you. Yes, likewise. Thank you. to see you. So Bill Brown was at L3 Harris from 2012 to 2020 and the stock was up over 400%. He has an outstanding track record. When he was at UTX, he was able to not only focus on growth,

but also on margin expansion by 500 basis points in a five-year span. So what I think he's going to do is the new CEO of 3M. I think he's going to focus on growth. He's going to focus on margins and focus on free cash flow. And to me, the stock is trading at about 15 times, kind of a troughish kind of a number, and that's cheaper than the market, and it's pretty cheap overall. They already cut the dividend. We know. The dividend yield is 3%. It's pretty good. So I like this story. I think this is GE2.0. A lot of people wanted to, you know, grab that one the first time around. So let's get back to India. You've just bought an Indian ETF. Why? What's the thesis?

Yeah. So I bought the ETF because you get a diversified list of companies, Indian companies, 132 companies. It's fairly concentrated. Reliance industries is their number one, about 8% position. I really like that story very much. It's energy, it's power, it's grid, it's telecom, it's infrastructure. And so we know that India needs to build their infrastructure. So we know that they're going to grow about 7% GDP for the next couple of years. We know they're going to grow earnings about 15% over the next couple of years, maybe even more, Tyler, depending on the margin story. But the growth side of the sales side is going to be very powerful. And we know it's because of the fiscal stimulus that has been put in place. We know it's favorable demographics as well.

So I like it very much. The ETF is behind the S&P 500 in terms of year-to-date performance. I think it can play catch-up. And so it's a long-term theme for me. Interesting to see what will happen with Target later this week. Walmart, of course, drew a lot of attention and praise last week. Target? Yeah, so I own Target. I like Target. I like what they're doing. I like this announcement of everyday low pricing today. They're lowering prices on 5,000 goods items. I think they're going on the offensive and they're balancing profitability versus growth. But I don't know if we're going to see that growth in terms of same store sales this quarter. In fact, I think you're going to see negative comps. But it's all about operating margins. If this company can get back to 6% operating margins, that will get you something like 10, 50, 11. dollars a share in earnings. That means the stock is trading it 15 times. 10 multiple points lower than Walmart. And oh, by the way, Walmart talked about private label strength. Well, Target does 30% of their revenues in private label. And so I think that's really kind of the exciting piece.

But the margin story, they got to either do a 6% number or have an outline to get to 6%. I think for the stock to do well. If it's weak for whatever reason, I'm a buyer again on the valuation and the growth prospects down the road. All right, Steph. Thank you very much. Stephanie. link. We appreciate it. Thanks, Tyler. And we'll see if we can turn this market around this afternoon at Dow's near session lows. Coming up, the next wave of AI. Microsoft unveiling a line of futuristic AI PCs at its big event before the developer conference tomorrow. We'll hear from a top exec about what else to expect. Plus, him's and hers in good shape. The digital pharmacy startup soaring on news that'll start offering access to GLP1 weight loss injections on its platform. Shares are up 27 percent

and we'll get the trade in three-stock lunch ahead on Power Lunch. We're back in a moment. Welcome back. Microsoft is unveiling new PCs today. They're AI PCs. And CEO Sae Unidela calls them the fastest, most AI-ready Windows PC ever, which makes sense because AI is only about a year old. Steve Kovak is in Redmond, Washington. He's joined now by Microsoft's chief marketing officer Yusuf Medi.

Welcome to both of you. Steve. Hey there, Kelly. Yeah, Yusuf, thanks for joining us fresh off the stage from this big, So-Pilot PC announcement, pretty much anticipated. We knew there's going to be more AI features and really focused on hardware. I guess my question for you is, now that we have this AI PC moment happening with you guys, you guys are calling a co-pilot PC moment, what do you tell the people who, you even said,

this is going to be an upgrade moment for a lot of people. People are going to be dying for these AI features. When people are looking at these devices and say, hmm, I may have bought a computer two, three years ago during the pandemic, why do they need to upgrade again right now? Yeah, well, first off, the computers that they've got today will be great, and we're bringing things like co-pilot to those PCs. The thing that's great about these new co-pilot plus PCs is they are the most advanced AI PCs we've ever had. So their performance is the fastest we've ever had. They're faster than a MacBook by a long while.

And they do things you can't do. So, for example, you can now get essentially a photographic memory of what you've ever seen on your PC through a feature called recall. You have the ability to create in real-time live with AI, something you cannot do, fast, private, and free. And you have the ability to do live translation. So while you and I are talking, you can literally switch languages and understand these things, I think almost superpowers,

and that's some of the things you can do on these. And much of this, and because of these chips, specifically today, Qualcomm was a big part of the announcement, how much of this is happening literally on the computer versus we're used to using AI being run in on cloud services? Can you talk about what is being done in the cloud versus what's being done actually on these PCs that make them stand out?

Yeah, absolutely. And I think you hit on, first off, the key point. The chapter of AI innovation that is happening today that we're unveiling is all of that on-device action. We have 40 AI models that are actually on the device that allow you to do that creation in real-time or that recall. And so all of that happens locally. It's all very private. You get secure, but we still can go to the cloud to get updates. And that's what will happen. So we'll update these models through the cloud. And then finally, the co-pilot, which does access the cloud, will now run with the latest GPT-40.

So now you get this full duplex of voice video text images on the PC as well. So you get the best of both. And then folks today who, again, might have a computer and looking at these features, they may not be ready to buy a new device. Are they ever going to get features like you just mentioned? Well, no.

Some of these devices, they do require this new PC that has the new MPU with over $40 trillion operations a second. You need that new performance. You need that new AI model that's on the device. So, yeah, this will be a reason to go buy a new PC. You mentioned some other chip makers on stage. Qualcomm is obviously the debut chip maker here.

You also mentioned AMD coming out with eventually similar products and Intel as well. The one chip company I didn't here was Invidia. Do they play any part in this? Yeah, they continue to play an important part. So what we announced today is really a general purpose architecture. The PC is the most open platform for AI. So we run CPU, GPU, and these new NPUs.

Invidia provides these fantastic GPUs that will run here. and all of the AI models that we announced today that developers will take advantage of will run great on those Nvidia GPUs in addition of course to the amazing new NPU that we have from Qualcomm and others great i believe kelly has a question back in the studio a very pragmatic one you see if how much will these PCs cost uh well one of the great things about how we've built them is they're very affordable so they'll start at 999 and they will be essentially 200 dollars cheaper than the equivalent MacBook laptop if they're 200 dollars cheaper than the MacBook laptop. It sounds to me like they're meant to compete with them. But what about where the real

competition is probably taking place these days on obviously the iPhone? Is there ever going to be kind of a handheld device answer to that category killer? Well, today, today, definitely the focus is on the PC. And I think what is great about what we've shown today is that the AI models and the copilot plus PC, that architecture now is the future how devices will work. You'll have hybrid AI, you'll have your personal agent, and you have these new experiences like recall and creation. Matt, think of those as eventually being able to go to any device, but today's definitely the focus on the PC. Yusuf, you mentioned OpenAI and that new GPT-40, which we just learned about last week,

is eventually going to make its way to Windows. It sounds like sooner than later, is that fair to say? Over the weekend, there's been a lot of drama over there at OpenAI, that one safety team disbanded, two of the one of the co-founders have departed. There's this kind of concern going around with, you know, are they taking safety seriously there? You guys rely a lot on Open AIS technology. Microsoft is a major investor in there.

Are you confident in the safety of those products, given all the drama and turmoil we've seen over the last week? Yeah, we have great confidence in Sam Altman and the team there. They do, they have great work. I mean, that's the whole focus of Open AIs to really build a great future of AI for the world. We work with them quite a bit, and we also add our own. extra efforts that we put on top of that.

So we have great confidence in their work and the work that we put in our products. Your own safety efforts on top of that was what you're saying? And then last question on our talk, Apple got a lot of mentions in that presentation. I mean, I assume that was deliberate. Do you feel like they're behind? Well, I feel like we definitely have a very clear value prop.

Like we talked about, we have now 60% faster than a MacBook, 20% more battery life, $200 is cheaper. So yeah, I think we have the lead now in the world of AI PCs. And we have these superpowers that you can do on the PCs you just can't do on a MacBook. Fair enough. Yusuf Medi, thank you so much for joining us, fresh off the Copilot PC announcement. Tyler Kelly, I'll send it back over to you. All right, Steve, thank you very much.

Youself, thank you as well. And of course, the new wave of AI PCs is likely going to create a boon for the company making chips to put in those PCs. Just talked a little bit about that in that conversation. We should hear a lot more about those chips over the next few weeks. And who better to explain it than Christina Parts of Nevelas? Hi. Hi. So the two major drivers right now, which is why all of these companies are arguing, everybody's going to be buying PCs. First is Windows 10 is set to expire or lose support in 2025. The second point is that the average PC refresh cycles about four years. And remember, we all bought, I don't know about us, but our company bought laptops and stuff during COVID, right, when everybody was working from home. So the assumption is at the end of this year, you're going to see a lot of buying. And what better time to offer an AI PC than at this moment in time? For our audience, we just talked about it, but you guys, you get, like, how it's all run locally, right?

That's the big selling point. And then they also argue, too, that there's a new chip in there, the NPU, which is a neural processing chip. NPU. Yeah, neural processing unit, which is different. So GPUs for graphics and images, which, in India, you realize, hey, this is also good for AI. Then you have the CPU that runs the browser, does all the other, you know, back-end work. And then this new chip, the NPU, and I'm saying new Apple's been using it for a long time, that focuses solely on AI. And that's going to be a distinguishing factor for these AI PCs.

And so they're really focusing right now on battery life and power because there's no killer app. That's what's missing in this conversation. Even that thing he said about recall does make me wonder. Like, maybe I wouldn't mind that. If the laptop is affordable, it might be kind of fun to mess around. So you're buying into the hype. I'm curious. Recall of what?

Recall of? They would have this technology the AI would power that would allow you to basically go back and kind of check whatever. Hey, someone's scatterbrain like me. Where was that file that had the thing in it that was about, you know, and could it help me kind of go find stuff really? Go find stuff that you had already worked on. Yeah, past work, that sort of thing. I'm asking for a friend that there might be some people who wouldn't want that. Yes.

Just saying. It's all local. You're willing to give up a personal stuff for convenience, which is what we've done throughout all of the internet, right? And I don't think it's going to stop any time soon. So to your point, that is going to be the major benefit that you can plan family itineries, find an email that Tyler wrote to. you like seven months ago on a very specific topic about industrials, for example. And then it'll pop up for you on your local computer versus having to connect to the cloud. Why? Because it's all saved there. And so that's why he brought up privacy. Security is a big

thing to going forward. But it's like, a thousand bucks is not cheap, right? It's not nothing. Lenovo, there's was priced at 1,200 minimum. So that's a delay, maybe, is the price point. Did we ever send you an email on industrials? No. You know, I'm not sure. It rings the bell. Maybe with the AI. It's because all the AI. Industrials are, you know, back on vogue, almost in a way, with all of it. I just want to switch it up.

But, yeah, since it is so software-based, you do wonder if they can make the case for using the hardware. Okay, meanwhile, Nvidia, that stock's been moving higher, not unrelated to all this. They report Wednesday. We've got some more analysts raising their price targets ahead of that event. It's like, when can we go one day without somebody increasing their price target behind, beyond $1,000? And I'm calling it a love fest just because every day. And it's not just the price targets.

They're actually increasing their estimates, which, which, helps the valuation of NVIDIA, which right now is trading at 38 times forward earnings. So that's considered, you know, hey, Nvidia is still a good value when you look at it over, like, the course of the last three years, or when you compare it to, you know, the S&P 500 when we're talking about growth rates, NVIDIA just keeps growing like crazy. So for this earnings report, everybody's expecting a beat because data center demand is still so strong. We talked about KAPEX spending. So you have all of these big hyperscaler spending money.

You have foreign and sovereign wealth funds spending money on creating their AI infrastructures within their own countries. And then you have the fact that supply has actually improved for NVIDIA on their current ship that they're offering in the market. And they do have a new one coming out, Blackwell. And that's another GPU that's supposed to blow it out of the water. And analysts still believe that there's just going to be so much strong demand, even leading up to that next iteration, that it'll keep, you know, the Love Fest going on for this company. Although I should mention Jeff Kilberg is not part of the Love Fest. He just said last hour, he thinks maybe watch 850 level on a pullback about the abundance of enthusiasm. Not that that's uncommon for some analysts with hot stocks going into earnings.

It makes sense. And the momentum trade. Here's a name that everybody's already in. And that's why you haven't seen as much movement leading up to the earnings date. Whereas previously, I think it was just last quarter, you did see a little bit more of a negative result going into it. So I think the magnitude, we're going to see a beat. It's the magnitude. And if they're going to increase their guidance going forward just based off the supply,

that's really going to be the, I guess, the barometer of where the stock is going in the short term. And then June 2nd and 3rd. That's a big one for our audience, the Computex. Jensen Wong is giving a keynote speech there, and there's going to be something. All right. Thank you. Thank you, Christina. Thank you.

Good to have you here. KPU. All righty. Speaking of AI, Open AI, disbanding its team focused on the long-term risks of artificial intelligence. Less than a year after announcing it, we'll get the key details in Tech Check next. Be right back. Welcome back to Power Lunch, everybody. We just learned more about Microsoft's ambitions when it comes to AI PCs.

And, of course, you can't talk Microsoft and AI without also discussing its relationship with Open AI, which is going through some drama of its own right now. And Dieter Bosa has that story for us in today's tech check. Hey, Dee. Tyler, all of the drama, none of the answers. So if it feels like deja vu, you are not wrong. This is really a continuation, though, of the drama that we saw last November, Sam Altman was briefly ousted just to return a few days later.

Some of the people I've been talking to aren't surprised at all by Ilya Sitzkever's departure. He was behind the ousting of Altman, and he lost a board seat amid the saga. But his exit last week was quickly followed by another Open AI employee, Jan Liki, that with Aliae oversaw the unit responsible for the long-term risks of developing GenA.I., a team called Superalignment. He was not as quiet on the way out, posting over the past few years safety culture and processes have taken a backseat to shiny products. Well, trillion-dollar companies like Microsoft,

they really like shiny products. But amid the drama, even Microsoft has been diversifying its AI strategy somewhat. Still all in on OpenAI, of course, after pouring in $13 billion. But in the recent months, it's also hired DeepMind co-founder, and we staff a Sullyman

and got a minority stake in another AI, darling, Mistral. So signs of it, not sure what to attribute it to, but it could be some of that drama. I thought it was interesting, guys, when Steve just asked that Microsoft executive, he still had confidence in Open AI. And the executive said great confidence in Sam Altman by name and the team there. And he said that that was their whole focus to build a great future for AI and the world, which is getting maybe a little bit harder to argue with all of these departures.

Yeah, how many companies are really vying in, compared with what Open AI does, how many companies kind of do what they do? It's a good question. So OpenAI develops chatGBT, which is really the foundational model, right? They build LLMs, which require huge amounts of capital and compute power. Its most direct rival is probably anthropic, which was kind of born out of open AI. And also they take that task of building responsible AI very, very seriously. In fact, that's why it was created.

There's a number of others, though. Mistraw, which I mentioned is developing an open source model, Google, of course, is developing its own LLM. So when I was talking to you this morning, believes that actually these closed large language models are becoming commoditized already, especially when you see what, say, a meta was able to do

and how much it was able to build an open source LLM that they need to figure out solutions. They're becoming commoditized. Maybe they'll start to be sold off, or you'll see more partnerships like the one with Microsoft and OpenA. I forget it was you, perplexity?

That's pretty good one. People love that one. That's not in the same category. Not in the same category. They build on top of large language model. So you could call it an AI wrapper company, though. I don't think they want to be called that. Who's AI do they use then?

Which large language model? They have their sort of proposition is that they harness the power of many different LLMs to give you the best, most comprehensive answer with follow-ups. Deirdre, as always, thank you. We appreciate it. Dear Jibosa. Over to Kate Rogers now for a C&N. NBC News Update, Kate?

Hi, Kelly. Iran said its presidential election for June 28th following a helicopter crash that killed its president and foreign minister. State media reports the acting president and other leaders agreed on the date today, but the decision still needs final approval. Iran's constitution calls for a new election within 50 days. The news came as the State Department offered condolences to Iran, but added the president's approach to the country remains unchanged. Haiti's main airport reopened today following months of gang violence. that led to the resignation of the country's prime minister. Right now, only a local carrier is flying in and out of Porta Prince. U.S.-based airlines are not expected to restart flights until late May or early June.

The airport was first closed in early March. And Ivan Boski has died. In the early 1980s, Boski was an investment banking Titan who made hundreds of millions of dollars betting on corporate takeovers, ultimately pleading guilty to insider trading in 1986, paying a $100 million penalty, a record at the time, and serving three years in prison. He was 87. Kelly, back over to you. All right. Kate, thank you very much, Kate Rogers. Still ahead, stalled out.

Workers at two Mercedes-Benz plans elect not to join the UAW or break down what that means for the union, the auto industry, and the South when Power Lunch returns. Welcome back to Power Lunch. Here's a quick glance at the markets where the Dow was down almost 200 points a little while ago. That's a 4 tenths of a percent decline. As you can see, though, it's the only of the major averages in the red while the S&P is up about 8 to 5312, and the NASDAQ is up two-thirds of 1% today.

All righty, turning now to a major setback for the United Auto Workers Union on Friday. Workers at two Mercedes-Benz plants in Alabama. Voted against UAW union membership. The results are seen as a blow to the UAW's organizing efforts, despite a victory at a Volkswagen plant in Tennessee last month. Let's get some insight on what's next for the UAW and unionization. overall with Dan Julius. He is a visiting professor at Case Western Reserve University School of Management, also a visiting fellow at Yale and Rutgers. Dan, welcome back to CNBC. What's the difference between Tennessee and Alabama, apart from Nick Saban?

And they brought Nick Saban in to talk to the employees to not to vote. Well, the difference is one is the Deep South and one is formerly a border state. And so the antipy. to unionization is greater in the farther south you go? Is that what you're saying? No question. Look, what are unions? The unions represent something foreign from the north. They were associated with the civil rights movement. This is Trump country.

Biden was on a picket line. I mean, you know, it's not exactly a hospitable place. And then you have politicians and others that have made these sort of lucrative incentives to companies to bring them in, promising them, you know, non-union labor. With a promise either explicit or implicit not to have unions come into the shop. Yeah. Well, I gave them tax incentives and all kinds of things.

And they have an economic model. An economic model doesn't include unions. So there's no question that for the UAW, it's a higher haul. So what does this tell you about the UAW's efforts to unionize places in the South and also for a non-U.S. automakers? anywhere in the country? The southern strategy, so to speak, is what they're calling it. Well, first of all, I was surprised that as many voted for the union that did.

The union lost by, I think, 57 to something 43%. But in fact, I was surprised how many voted for. What this says is the UAW has a road to follow. But I have faith or confidence, based on my readings, that the UAW would be right back. They've invested $40 million in organizing 37 plants in 16 states. So they can come back and stage another vote at how long? Absolutely. No, they have to wait a certain amount of time.

Also, there are charges that there's been unfair labor practices committed, and the UAW has filed legal action both in the U.S. and in Germany. Against Mercedes. And the interesting thing here is that the UAW has friends in Germany. After all, Germany deals with unions all the time. And, you know, so it's going to be a different situation when the UAW tries to organize, let's say, factories that are headquartered in Korea. They have a far more historically tumultuous relationship with their unions. Those stats we just showed were interesting how UAW membership is actually at its lowest since 2009.

Because whether it's them or at Apple stores or Starbucks, anecdotally, you feel like there's been a pickup, especially in some of the newer, companies that have come into the market, but the numbers overall still show that not much of a move in terms of, you know, total union membership in this country. You're right. As a matter of fact, the trajectory is downward, that if you go back 20, 30, 40 years, you see 20% union density. Now it's 10% and in the private sector, it's less than 7%. And keep in mind something else. After all, this is an industry that in 1960s owned 90% of the market share. The U.S. auto industry. U.S. auto industry, and today it's at 40%. And so what's going on in the auto industry has made them vulnerable to strikes and vulnerable to union action. And so the UAW is at a

precipitous. The UAW not only wants to do good things by workers, the UAW wants members, right? So if they are stymied at getting members in new plants in the South, in the auto business, where are they going? Where are they looking to unionize? to recruit new members? Well, they're looking at education. College campuses. They're workers. Workers.

Teaching assistants. And students. And they're looking full-time. Yeah, student workers. And they're looking at museums. They're looking at cultural organizations. But the real action is still in the non-union labor auto plants. You know, there's 158,000 workers among these non-union plants.

And they can't afford to turn that back there. And interestingly enough, the evidence shows that being in a union does raise your wages. It does add to engagement. It's associated with democratic involvement. There are a lot of good things about unionization. Why do you think they didn't win this time? I think that we tend to underestimate the impact of culture, that the individuals in Alabama, first, the UAW has had some severe significant corruption issues several years ago.

And they were put, a monitor, put them under some control. you have a new leadership in the UAW, activist, using technology, far more agile, if you will, about organizing, using a rolling strike strategy that has been effective. I also think that the NLRB appointed under this administration, has been very favorable, and as has the president. And you also have, it's very interesting that the several generations... But that would argue in favor of the union prevailing.

But it's true, but there's also fear. First of all, they ran a very strong no-agent campaign. There was some fear and intimidation. And keep in mind that several generations ago, individuals from this part of the country go up to the north to get good jobs. And all of a sudden, those jobs have dissipated. You know, there may be some overlap. So the southern worker fears that what has happened in Detroit, in Ohio, in Toledo could happen to them, partly as a function or relation to union representation.

And in addition, their politicians are saying exactly that. Yeah. All right. We have to leave it there. Dan, thank you for the explanation. My pleasure. My pleasure. Good to have you back.

Meanwhile, there's still time to join the CNBC Financial Advisor Summit this Wednesday, May 22nd. They'll hear from top investing experts about the bull market. Can it last much more? There's Tom Lease of Rita Subramania, and you name it. Scan the QR code on your screen to register or visit cnbccvance. dot com slash f a we'll be right back welcome back some major news coming out of the middle east this weekend as the president of iran was killed in a helicopter crash it's not having an impact on oil prices today but pippa stevens is here to explain the consequent action pippa yep so no impact and

that's because as clay seagull over at rapidan told me the interim officials are part of the establishment and so there's not expected to be any type of change in policy and then when there are elections it's going to be you know likely low turnout and then the establishment will also ensure that a hardliner selected. And so the bottom line is that the market is not expecting any type of big policy changes here. And so that's why we're not seeing a response at oil today. Now, Rebecca Babin at CIBC private wealth also told me that she thinks it's part of, you know, this commodity euphoria that we're seeing and that oil could drop down, not hugely, but maybe Brent tests that 80 dollar level. Today we saw oil, sorry, not oil, we saw gold and copper, both hit record highs, as well as

orange juice future. It's a little bit of a different story there. But just that if this kind of, you know, commodity euphoria trade unwinds and oil could get caught up in that. But then take a look at Nat Gas because that is higher now at the highest since January. We've seen $2.474 there. We've seen meaningful production cuts from producers like EQT. And so that's helping the picture, although storage still is elevated. And then finally, next decade, this stock is up about 12 percent today. This comes as Adnock.

That's the UAE state-owned oil company, took a stake in next decade's Rio Grande, LNG Export Terminal, down in Texas. I just want to talk about this commodity euphoria. Because you're right. I mean, you shouldn't normally have gold and copper rallying together. You know, copper's supposed to be the sensitive to economic growth. Economic, yeah. Gold is supposed to do better if we're talking about potentially falling real rates or economic weakness, that kind of thing. So it does start to feel like this big chase. And maybe it's triggered by the inflation reports, better growth, the sense that you have to be in materials.

Yeah, and just people looking elsewhere. And then, you know, once they hit highs, you get more and more interest, including from people like retail investors who then see the headlines and then pile in. And then, you know, it kind of fuels it. And then at a certain point, you know, is something's got to give. And so, you know, that could be for oil, although June 1 is the OPEC meeting. So that could see a difference. I mean, does anyone think it's been part of this euphoria?

Not really, it seems to me. No, but I think that's because for oil, it's a bigger kind of understanding that geopolitical risks right now are not really factoring in. There's no supply disruptions. There's not the same type of momentum. However, it could be subject to the downside of then, you know, trade or CTAs, especially those trend followers getting out of the traits. Maybe not that much upside, but it could be subject to the down side.

I still wonder, too, if it's all because the energy transition, it's just kind of being left behind. We'll see. Time will tell. Thank you very much. And still ahead. Our trader wants to sell, sell, sell. A hot take addition to three stock launches next. And as we head to break, we celebrate Asian-American Native Hawaiian and Pacific Islander Heritage Month.

Here's Aradnan Saren, Astrosenica, Group, CFO, and executive director. I was born and brought up in East Africa. And my parents are of Indian descent. And I think what makes me really proud is the fact that I have a wide cultural understanding. And ultimately, it's being able to bring diverse views together that leads to best decision-making and eventual success. All right, let's go with three-stock lunch. How about that?

Here with our trades is new construct CEO, David Traynor. Welcome, David. First up, we got Microsoft shares gaining more than a business. percent ahead of its build developer conference. Your trade, sir, on Microsoft. Hi, Tyler. Good to see you again. Yeah, Microsoft, we love the company. It's a great company. Huge cash flows, super high return on invested capital. But in the last few years, we think the arms race is catching up to this business. Return on invested capital is down. They used to rank in the top 20 in the S&P 500. Now they're barely in the top 50. So we think it's time to take gains.

We think the valuation is really kind of gotten ahead of the stock here and to decide. despite this super cash flow business, great return on the best of capital, we think it's time to sell. Not many people are that brave. All right. What about Johnson controls in the news today after Elliott built out a stake of more than a billion dollars? Shares are up, you know, only about two and a half percent. You got a trade on this one? Yeah, it makes sense that some active and activists would come in here and try and clean things up. This is a pretty poorly run business. And in fact, we've seen that the auditors flagged concerns with internal control. So the numbers look bad. This gets our very unattractive rating, which means the accounting

earnings are misleading. They're going up and looking positive while the economic earnings are negative. And on top of that, we're seeing a really expensive valuation. So when the auditors themselves are saying, hey, by the way, we're flagging a weakness in internal controls, that's another sort of reason to avoid this stock. So unless the activist come in and save the day, this stock's definitely a sell as well. Very interesting. All right, let's move on to shares of Hymns and Hers Health, they are surging about 30% after the telehealth company introduced access to compounded GOP-1 injections. That expands on the weight loss program at launched back in December. Your trade on Hymns and Hers full of pronouns here.

You're right. A lot of pronouns there. Yeah, we think that this is a sell, no matter what you want to call it. It's a really overpriced business. An interesting concept. novel concept, but not one that has really strong barriers to entry. We think that this business is going to be commoditized pretty quickly, and the valuation is implying that it's going to go from a negative margin business to a very high positive margin business. Returns on invested capital are close to zero or negative, and the current price implies they're going to go to like 50 plus percent, which is more than Facebook and Microsoft and HCA, for that matter, more than triple the HCA. So we think the valuation is pricing in more than enough good news, too much good news,

and we'd recommend that investors sell this one as well. All right, David, thank you. Three sales. Thanks very much. A new construct. We appreciate it. And remember, you can always hear us on our podcast. Be sure to follow and listen to Power Lunch on any platform. We'll be right back. Welcome back to Power Lunch. Let's give you a look at the Dow right now. It is kind of stabilized there, about 167, 170 points lower than it began. the day at 39,836 after closing about 40,000 on Friday. And JPMorgan is the worst performing stock in both the Dow and the S&P down 4% now, as it's been moving steadily lower throughout the day.

On the back of comments from CEO Jamie Diamond during their investor day, he told shareholders his retirement timeline is not five years anymore and that J.P. Morgan is well on the way with succession plans. I don't think that's what's weighing on the stock. But Diamond also made it seem unlikely that they would buy back stock. And boom, that's probably how you get. Yeah, take the two of those together because he is, by any standard, really the gold standard among banking CEOs. Absolutely.

Well, let's talk a little bit about Target. It says it is going to lower prices on 5,000 frequently purchased items in its stores in a bid to both stay competitive and give consumers some much-needed relief. In a statement, the retailer says the price cuts are concentrated in grocery staples like milk. What is that word? Meat. Meat? Mear bread. It says mere.

It says mere. Meat? mere bread, fruit and vegetables, as well as toiletry items like paper towels, baby wipes, and diapers. Don't mix up your mere bread and your baby wipes. It expects to save consumers millions of dollars this summer. There you go. Unless it was meed, wasn't that like the old... Mead, the drink.

I was thinking about that story with Stephanie Link, though, who wants that 6% operating margin on target, and then these price cuts, well, if they drive traffic, maybe it'll help. Also, Red Lobster filing for Chapter 11, bankruptcy. Among the list of reasons blamed, difficult macro, bloated and underperforming restaurant footprint, and failed or ill-advised strategic initiatives like the endless shrimp promotion, making that every day. That'll blow you. Right there. Instead of one sweet.

That actually increased business too much. They lost $76 million last year. The people, there's a lot of operational problems here. Yeah. It's so sad. You used to be such a great place. Yeah. 177 points lower on the Dow. Thanks for watching Power Lunch, everybody.

Appreciate it. NASDAX, higher, though. Big week for technology. Closing bells. And InVIDIA. Yeah, starts right now.