Power Lunch - Health Of Markets, Power Player 1/12/24

Episode Date: January 12, 2024

Inflation and the Fed aren’t the only issues affecting markets right now – now are earnings, too. UnitedHealth is accounting for nearly all of the Dow’s losses on concerns over higher-than-expected medical costs. We’ll discuss.Plus, earnings for big banks are rolling in, with some signs that the sector is weakening. We’ll hear from Bank of America CEO Brian Moynihan about bank results, the state of the economy and much more. 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 Dom Chu. I'm Tyler Matheson. Welcome, Dom. Good to have you here. Let's take a look at the Dow. It is down at this hour, as you see by 100 points or thereabouts, the S&P 500, and the NASDAQ with modest rallies. And check out the moves in the bond market, as this morning's inflation numbers came in less than expected, the opposite of what we heard yesterday, the mildly opposite, from the CPI. But, Ty, inflation and the Fed are not the only things affecting the markets right now. We have to go to the earnings story. to worry about some of those issues. United Health accounting for nearly the Dow's entire losses on concerns. Medical costs are higher than analysts had previously projected. Several of the big banks also reporting. J.P. Morgan Chase slightly lower, you can see here. Now it's actually swung to a gain, quarter percent higher.

The rise in net interest income could be starting to slow down a bit there. Citigroup was also down right now, though now up 2%. 20,000 jobs are being cut there as part of its restructuring plan. And Bank of America is actually down today, truly down, two-thirds of 1%. And by the way, CEO Brian Moynihan is about to join us with more on those results in an exclusive interview later on this hour time. All right, Dom, let's start with the markets. Our next guest is sticking with a new year, new bull market stance and says the biggest risk

is a turn higher in inflation next year. Joining us to talk markets, the Fed, inflation and earnings, Hugh Johnson, Chairman and Chief Economist with Hugh Johnson Economics. And joining us throughout the hour, happy to say, is CNBC contributor Courtney Garcia, Senior Wealth Advisor with Payne Capital Management. Courtney, good to have you with us in studio. Good to see you here on this side of the Hudson for a chair. Yes.

Usually over at NASDAQ. Hugh Johnson, welcome. Good to see you. Happy New Year. Thank you. Happy New Year to you, Tyler. You keep doing this, Hugh. You keep doing this year after year after year.

I keep trying to catch you. I can't. So you think a new bull market began back in October and you think it's got legs. Oh, yeah. It definitely is. As bull markets go, you know, if you look all the way back to 1890, you've got the average bull market being 47 months. And if you look back to the post-war period, post-World War II, you've got essentially

63 months. So we're at the, let's call it a two-month mark, maybe three-month mark. And when you've got market said, bull markets that last that long, on average, this one's got a lot, a lot longer to go. What was the demarcation point that you think set this? bull market off and running? Well, it's a number of things, Tyler. I think the number one thing is the performance of the financial markets generally, not only the decline in interest rates, but the most important thing was the performance of different sectors of the market. You saw the so-called

bull market sectors like consumer discretionary industrials and technology stocks doing well. I think the real tip-off, at least for me, was that for a long time, small capitalization stocks were lagging large capitalization stocks, and that all changed. And that changed in October. And I think that's the signal that a new bull market has really begun. There's a lot of other things that tell you that basically when you look at cycles all the way back to 1890, it's starting to shape up as being a very somewhat normal cycle. Hugh, it's Dom. One of the big things that we talk about speaking of that cyclicality is this idea that we are now in an election year. And we've talked a little bit over the course of the past several weeks about some of the moves that we typically see in those

election years. Do you feel as though there's a risk out there because of the political situation in America right now for any kind of enhanced market volatility? Yeah, there's always that chance. There's always a chance of some increased volatility. I'll be honest with you, Dom, I don't believe that the outcome for the election, or let's say the potential outcome or what people think will be the outcome of the election, is going to have much of a bearing on what the markets do, what the stock market and bond market do in 2020. The number one things are going to be the same things that you and I worry about all the time, which is what's the economy doing, what are interest rates doing, what are

interest rates and earnings doing? Those are the things that ordinarily drive stocks. And when you get away from the election, just a little bit away from the election, you'll find that those are the things that are going to make the difference in 2024 and in 2025, because we're headed towards 2025, which will be an equally important year. Courtney, react to what you've just heard from Hugh? You know, actually, I agree with a lot of Hugh saying. I think some of this really changed that we've had where you're not going to no longer see the magnificent seven leading last year and you're going to see things like small caps, which you pointed out. Which is one of the things Hugh points out. Exactly. And I think there's a lot of value to that. I think that's,

there's going to be a continuing broadening into this market. And I really agree with all of his points. And I think for a lot of those reasons, investors need to continue to look outside of those areas. Especially this year, we're kind of seeing, okay, is that market going to continue to rally? Are we going to go back to some of our big, you know, seven tech companies? But I really think everything he's saying, I completely agree with. So you're with the idea of small caps. Hugh points out that in the early stages of bull markets, they tend to do better than big caps. Which is absolutely true. And on top of that, if you think that interest rates are going to come down this year, and I think the consensus is most people think it is, the question is how fast or how

many times rates are going to get cut. But if they do, in fact, go down, that's going to help your smaller cap companies because they take a lot more debt financing. So suddenly that's cheaper. That's going to help their growth prospects a lot better and small caps are set up well in that. Hugh, you like Walt Disney, Microsoft and J.P. Morgan. You can touch on them as you answer my question. And that is what is the possible risk to your thesis? What is the big one? Well, there's one big risk, which I don't think a lot of people see coming. I think yes, interest rates are going to be coming down. The Federal Reserve is going to be reducing interest rates, although quite clearly the markets are over-expecting when we talk talking about six interest rate reductions by the Fed.

That's not in the cards. I think it's going to be three in 2012, maybe five in 2000 or four cuts in 2025. That's one thing. The second thing is interest rates will be coming down. This is all what Courtney said. And I think that the yield on a 10-year treasury will come down from the 4% level to the 3.5% level. I think the big, and inflation is going to be coming down steadily throughout the, year. The big risk in my judgment is as we get to the second half of 2004, I think people will

start to see, including the Fed, that there's a real chance that interest rates or inflation and interest rates could turn higher in 2025. The consensus now is clearly that inflation and interest rates are going to continue down through 24 and 25. I think that's wide of the mark. I think we're going to see somewhat higher inflation, somewhat of a turn in Federal Reserve policy in 2025. In other words, they won't cut by four times in 2025. You'll probably only see two cuts in 2025. It's going to take a little bit of the edge off of the new bull market. It's not going to end it. It's not going to derail it. It's just going to take a little bit of the edge off the new bull market. And Courtney, we're going to give you the last word here on this topic. The volatility

picture in the stock market, it's been trending near-term downside, but it hasn't been horrific. and volatility generally still remains low. Is this a setup for more elevated levels of volatility throughout the course of the year? I don't think necessarily. I think since you want to look at the last year, we had such a concentrated market, and I think that's really why you're seeing

the volatility hasn't been so strong. I don't think that's a good or a bad thing for the markets. I think everybody kept waiting for the VIX levels to get to a certain point to call this an end to the markets going down previously. I don't think that's necessarily something we need to focus on. I think it's the broader picture here. And for example, when you look at the SP500, there's over 150 companies in there that are trading below 15 times earnings. And generally, things are still attractive and still cheap when you're looking at a diversified portfolio.

All right, Courtney, thank you very much. You'll be back joining us again later this hour. Glad to say that. And Hugh Johnson, always good to see you, my friend. Appreciate it. My pleasure, Tyler. All right, let's turn now to oil, which is bouncing back above the $75 mark today. It did hit that point at one point.

The U.S. and the U.S. and the U.K. carried out military strikes against Houtiote. targets in Yemen. Those Houthis have been attacking vessels in the Red Sea now targeting both U.S. and Israeli ships as well as others. Let's bring in Pippa Stevens for more on the impact on the oil markets. One you could argue Pippa has been a direct, at least per back's, you know, view having taken shape because of what's happening in the Middle East. Yeah, that's right, Dom. And we did see Brandcruid briefly topping $80 per barrel earlier in the trading day after those U.S. and U.K. strikes against Houthi targets in Yemen. Now, the oil market is on. edge as traders evaluate what an escalation could mean for supply, which so far has not been

disrupted. And RBC notes the key wildcard is Iran, adding the country seemingly fired a warning shot about its willingness to come off the sidelines when it seized an oil tanker yesterday in the Gulf of Oman. But in the Red Sea itself, attacks have so far largely avoided oil tankers, and that means crude vessels are still transiting the waterway. Kepler's math Matt Smith telling me, we have seen a slight decrease in volumes going through the Red Sea, but that's not thanks to diversions. Rather, it's European refiners importing less from the Middle East because they're hesitant to take on any risk. Instead, they're looking elsewhere, including to the U.S. with U.S. crude exports to Europe now at a record, but you can see really off the highs of

the day from earlier today. Yeah, $75.25.25 for U.S. benchmark WTI. PIPA. I'd like to turn to another supply issue right now. The world's biggest uranium miner is warning of a shortfall over the next couple of years. What can you tell us about that mineral and that supply? So uranium stocks are surging on that warning from Kazadimprom, which is the world's largest miner. The Kazakhstan state-owned company has long-term contracts that they need to deliver on. And so if their production falls short, which they warned about, they'll have to turn to the spot market where supply is already really really. tight. Spot uranium prices surged above $100 yesterday, hitting a 16-year high amid this global,

you know, resurgence in nuclear power. And there's also growing calls to sanction Russian uranium with the House passing a bill to ban imports back in December. So that could create an even tighter market. And right now we're seeing this ETF up about 7%. Tyler Dom. All right, Pippa Stevens with the latest there. Thank you very much. Coming up on the show, a power player, Bank of America's shares in the red, although off the lows of the day following its results. Our own Becky Quick is sitting down with CEO Brian Moynihan coming up next. Keep it right here. We'll be right back. We call this segment more time with Courtney. Welcome back. Courtney. This is the best segment on here. It's the best segment ever. That's awesome. Yeah. We were talking in the last hour about

the idea that an awful lot of last year's gains in the market came from an expansion of PE, the valuation quotient of return. Is that likely to be repeated this year and second is what we've seen here to start the year as the market has kind of retracted a little bit? Is that a collapsing, not a collapsing, but a deflating a little bit of valuation? No, because I think where most of that PE expanded, again, it was really concentrated in the markets to just really your big tech firms, right? A lot of the other areas are actually still under value.

Like energy, for example, trades like 11 times forward earnings. Banks. Yeah, by far the cheapest out there right now. And I think there's a lot of opportunities that investors can look at where you don't have these largely stretched valuation. So I do think investors should still own your apples and your Googles, your Microsofts, and your Navidias. But I think there's a lot of other areas that are cheaper valuations that you can consistently add money to, maybe even take profits and be rotating out into those. You know, what's interesting, though, Ty, about that, if you look at the way that it moved in terms of the market in the last half of the year,

a lot of that multiple expansion that we talked about was because of these lower interest. rates as people either saw interest rates go lower or had the expectation that the Fed was going to cut as soon as March. That played into the multiple discussion, which is why you could justify higher multiples. What if that gets derailed? Is there actual multiple contraction this year if interest rates don't play along? Or is there something that has multiples moving independent of what that narrative around interest rates could be? So I actually wonder, though, if that was as much of a play into some of the multiple expansion as was as all of the speculation with artificial intelligence and what that's going to lead to in future earnings. And that is where I think some of

that's going to come in. I think you're already starting to see that where suddenly everyone is so excited about what this is going to do to productivity in the future. And I think there's something to that. But now this year, they're saying, okay, how much is that actually going to affect earnings here in the short term? I think that was actually a bigger effect to a lot of the earnings multiples than interest rates coming down, which I don't think has been fully realized yet. And I think that's what we're going to start to see here. You mentioned banks being really remarkably cheap at this point. Let's talk a little bit about that and whether you see that as a sector that is highly investable, moderately investable. And of course, we're going to have Brian Moynihan on here

in just a moment. So if you've got any thoughts on Bank of America, now's the time. Yeah, which I think it's to be fascinating here what he has to say. And I think especially what they're saying on the consumer, right? Everybody really looks to JP Morgan when Jamie Diamond reports there. And so far, they really haven't seen the issues with the consumers that a lot of people were expecting to see. I mean, generally, they're still in good shape. And bank earnings maybe have actually not hit their expectations, but a lot of those were for some one-time costs. Or there were their charges.

Exactly. A lot of them were on the ones today. Strip those out and actually a lot of them beat expectations. So I don't think this is necessarily as much of a concern as people should be worried about. Especially if interest rates start to come down this year, we actually could start to see lending activity pick up, which could help the banks. And I think that's going to be interesting to see.

You know, there's been so much of a discussion about, and rightfully so because these mega banks are the focal point of kicking off earnings season. But it was maybe just a little over a year ago that we saw the Silicon Valley banks, signature bank issues, the smaller regional banks in America got all of the attention. Is it perhaps an opportunity now to revisit that smaller mid-sized bank trade and not focus so much on the JP Morgan's Bank of Americas and cities because there has been so much attention paid towards those that there may be a catch-up trade elsewhere in the market?

I do agree with that. I think those really got hammered hard last year. And I mean, for valid concern, this time, I mean, a little more than this time last year, there was a lot of concern on what was going to happen with those smaller and mid-sized banks. But a lot of that really has not come to fruition. They're in much better standing than people expected, barring a few. I think you'll probably see a catch-up trade in some of those, you know, mid-and-regional banks. How should people think about two things that are sort of extraneous variables in the market?

And one is the presidential election, and the other is tension around the globe, whether it's Taiwan, whether it's the Middle East, whether it's Ukraine. These are always going to affect portfolios to a certain extent. The election I get questions on every day. I'm sure you do. Every four years. We have the same conversation. There often can be volatility leading up to an election,

but typically election years actually tend to be a good thing for the markets, especially once it's been decided. It doesn't really matter which party gets in office. It's just a certainty of knowing who it is. It'll be interesting to see this year, because if it does end up being a Trump-Biden election, It's two people who we've had an office before where you know what their policies have been. So things like pharmaceuticals, for example, people are a little less concerned in this election year than they have in the past.

They're saying, well, we've already seen these two people. We already know what they've done with things like the pharma industry. So it's too early to say with any of that, but I think it's going to continue to be a conversation this year. I don't think it's a reason to be concerned to be investing at all. All right. Courtney, thanks very much. We'll have you back in a little bit as we continue on Power Lunch. We'll be right back. Welcome back to Power Lunch, everybody.

Big reaction in the bond market today following this morning's inflation numbers. Rick Santelli following it for us in Chicago. Hi, Rick. Hi, Tyler. Well, the producer price index was significantly different than yesterday's CPI. That's for sure. There was a cooling there, albeit there were some pops, especially core year over year. But investors looked right over it and they continued to monitor a couple of the big moves.

that we saw, especially that headline number on PPI. And the moves? Well, let's let the pictures speak for themselves. Here's a two-day of two-year, Tyler. And look at what the high yield was intraday yesterday. 439. We're trading 415. Where do we close last Friday?

438. Huge moves. Now contrasts that with the long end of the yield curve. Look at a two-day of 30s. Right now, 30s are higher, in yield than yesterday. They're up a couple of basis points and they're virtually unchanged on the week, which of course leads to the notion, what have the yield curves done? I'll tell you what they've done. What traders have told me since early December, that 2024, and we've said this many times,

is the year the yield curve steepens and probably moves dramatically in positive territory. Let's look at that Tuesdays curve, shall we? It's hovering around minus 19, basis points. It hasn't been at this level since Halloween. That's how big of a move we've had. And as you look at that chart, let's go back a year and a half on Tuesdays because we are very close to levels we haven't seen since July of 2022. What does that mean? What's the translation? Why is that important? I'll tell you why. Because the market is gravitating towards easing. And the Fed's going to ease and they're going to do it rather aggressively. PPI help fuel that.

So short maturities are going down. And even the longer maturities haven't been immune to some of the pressures pushing yields down. For the most part, traders don't play these naked positions. They play the spreads. And the reason they're playing the steepening spread is because unlike history, they think that we could see a slowing in the U.S. economy and that slowing is still going to be followed by a debt level to service. that's going to keep global longer-term interest rates higher than many anticipate.

Back to you. All right, Rick, thank you very much. And several of the big banks reporting mixed fourth quarter results this morning, including Bank of America, shares of BAC, trading a little bit lower after the nation's second largest bank, reported a lower profit because of a regulatory charge. Let's send it over now to Becky Quick, who has an exclusive interview with Bank of America's CEO. Hi, Becky. Hey, Ty.

Thank you very much. I want to welcome Brian Moynihan, who is the chairman and CEO of Bank of America. Brian, big day for the banks. We've heard from a lot of reports. And there have been a little bit of confusion as people try to look through these numbers because there are some big charges that have gotten handed out to every one of the banks, FDA assessments and other things that have been included. On the earnings per share, you came in at 70 cents.

That was above expectations, but it was down from last year. But why don't we dig beneath some of these charges and try and really get it, happening with the bank. Why do we walk through segment by segment? Maybe we could start with sales and trading because revenue there was up by about 3%. What's happening? Well, Becky, it's good to be here and we'll see you next week over in Switzerland. But if you look at sales and trading, Jiminy the team have done a good job. For the year, 23 versus 22, up 7%. This quarter up a bit. We are down a little bit in fixed income this quarter, but year over year it's up 11%. So things have in flow. They've made money every trading

day, they've done a great job. They've gained market share. The equities, this business came up stronger in the fourth quarter, but a year every year is relatively flat. So they've done a good job. And then when you move over the investment bank and corporate banking side, loans grew, deposits grew in that area. And then importantly, our investment banking fees, it seems performed better than some of our peers. And Matthew Coder, our team have done a good job there of running the whole commercial bank, the global corporate investment bank business and also helped helping on the investment banking side. So we feel good about our markets-based businesses. In terms of consumer banking, revenue there was down by about 4%. What was the pressure? I think

part of this may have been having to pay up to keep some of those consumer deposits. Yeah, it's, you know, largely, when you look at the company overall, last year's fourth quarter of 22, was a high net interest income. And like all the companies, it's come down as rates paid to consumers have gone up and the Fed has quit raising rates. And so, If you look at that, you know, that affects consumers most of all because they got 900 consumer segment. They have $950 billion of deposits, of which they pay 40, 50 basis points for them. It's a great business.

Deposit-based net business is stabilized. Credit card loans are up. The rest of the loans are relatively flat. Credit costs went up and affect them a bit just because we're building reserves for the credit card growth. But the team's done a great job there. And importantly, $600,000 net new checking accounts, billions of $40-some billion of flows into the Merrill-edge side for the investment side of that business.

And, you know, we feel very good, and they've opened 50 new branches last year and basically finished our remodeling of all the branches. So they're absorbing all expense and expenses relatively flat year over year. In terms of net interest income, down 5%. You mentioned the reasons why just higher deposit costs, offsetting those higher asset yields. 13.9 billion was the number that came in. What are you anticipating as rates potentially will come down? Federal Reserve may lower rates. What are you anticipating a net interest income for the current

quarter in the rest of the year? Yeah. So for fourth quarter last year, it was $14.1 billion. And then what happens is fourth quarter of 23 to first quarter of 24, you have one less day. And for this, believe it or not, that's like $100 to $150 million. So we're saying next year, it'll be $13.9 to $14 billion, which is consistent with what we said last earnings call. And the interesting thing about that is since the earnings call in October, until now, you've had the rate cuts in the market go from three to six. And so, you know, that's a major change in interest rates for 2024, and we still think we have the same trajectory.

We come down a little bit in the first quarter. We bounce around a little bit down in the second quarter, and we start to grow out from there. And that stability is really the power of the deposit franchise starting to actually grow. We actually grew deposits quarter to quarter, the third to fourth, and it's very stable, and there's some seasonality in that, but we feel very good about that. And that's all advantage funding, which helps us grow,

the NIA, but it's just a matter of, you know, basically getting loans to grow, getting deposits to grow, but also just taking the effects of the squeeze from the Fed quit raising rates and the deposit pricing gaining for those deposits are more rate sensitive. Brian, that's a lot riding on the idea that the Fed will actually start cutting rates in the first half of the year. And that's certainly what the market seems to think right now, but there are issues that could complicate that. Part of that is what we saw with CPI earlier this week. obviously PPI today showed that producer prices were down, but CPI was a little hotter and more stubborn than had been anticipated. And there are some headwinds out there, things like higher

transportation costs when you look at what's happening when the Red Sea, you saw oil prices up. Four and a half percent may be better than that today on some of those concerns, too. If that starts to trickle back through into the inflationary cost, and the Fed does not actually lower rates sooner, what does that mean? From our company's perspective, that actually helps a little bit because the vast amount of short floating rate instruments we have on the asset side and the cash for the $500 billion, almost $600 billion of cash we have that we put with the Fed overnight and very short treasuries. But let's back up and talk about what we see in the consumer maybe and how we think that the market moved heavily, the Fed should stop. They've said they've stopped, everybody said they stopped. and then they started putting cuts in.

And the market has, as I said, six cuts in, and the Fed dot plots have three cuts. Our team has four cuts, Kenneth Browning-Platt's team. So if you mix that all together, in the end of day, rates not coming down to actually help us. But the reality is,

is that everything's setting up for them to be able to normalize the rate environment, given that you're seeing consumer spending, which for the first part of 22 to 23 was up like double digits. It's now down to 4% or 5% growth in the first part of 24 hertz about the same. And when you think about that, we've been watching that for years and years and years.

And as you look at that, that is more consistent with a lower growth, low inflation economy. If you think about the consumer-driven economy in the U.S. in terms of the amount of impact they have, if they're slowing down their purchases, that's not inflationary. Now, we have to get through the housing rollover in the inflation statistics. You have the issues you're talking about. If gas prices kick up, the consumer feels that. The consumer's expectations have stayed in line. And so I think there's still some tenuous ground here where we've got to make sure we get a short footing.

But I think the consensus view of what we see in our customers, what we hear from our commercial customers, is they are basically planning for a soft landing, which is still a major step down in growth from the third quarter of 23 to the first quarter of 24. You're going to see a growth from 4% plus to about a percent. That's a major down draft and growth. And so the Fed at some point has to be careful. It doesn't go below that. and these external factors could hasten them to do more faster, i.e. cuts, or cause them to hold on a little bit longer to make sure the inflation doesn't kick back in. Brian, Bank of America's stock was up, I think, 1.7% for 23 versus a gain of about 10% for

the financial sector overall. You all have been facing some headwinds, and a big part of that is that low-yielding long-dated securities that you really loaded up on during the COVID pandemic. What can you say about where that stands? I think the past, paper losses at this point on the securities or something like $98 billion versus $132 billion that you've been looking at before. You've been talking about how it doesn't matter. You're not going to take these losses. You just let it write off.

But when do those things actually write off? And when does it give you more freedom to do other things with that money? So why do we have to invest? Is that we have a trillion dollars a loan's trillion $1,0.50. And we have a trillion nine of deposits and other cash and other sources. we have more than $2 trillion. So we have a trillion two we have to put to work every day. Less than half of that is in the held of maturity portfolio.

And it has run down $80, $90 billion from the high and just keeps running off. And that was the plan. We haven't made investment since 2021. But back then, when rates were predicted, we had to start extract value. And so that just keeps converting, eight or $9 billion last quarter. We'll continue to be that. And we'll continue to be converted over. Now, meanwhile, as deposits grow, we're building up more and more cash.

And we're just putting it short term as we did back then. And so we bar-bell the portfolio is still there. And that is earning five. And so if you look in our materials, you'll see that the yield of our combined portfolio of a trillion dollars has actually continues to rise every quarter because you have the runoff and the lower yielding held to maturity and an increase in the AFS and the shorter-term stuff. So we'll ride that through. But it gives us a stability in NNI even as it go next year.

And if you think about what people are saying, they're down a lot next year. We're basically saying if you do all the math, we're down a couple percent. points for the year, which is outperforming others because we have the stability of the earnings power driven by the deposit franchise. At the end of day, we've got a trillion nine of deposits, which all in costs is 160 basis points or something like that. It's really fantastic base, but it's our customers and we do a great job to get it. You're frustrated by how the street has been grating at all just based on the stock price itself? Has it been a frustrating situation for you? I'd never get frustrated because the end of day, if I go out and look at what our company does for our clients and our teammates and our shareholders and society, we generated on an operating basis, $29 billion plus earnings, 15% return to tangible common equity, 90 basis point return assets in a year which had started with people thinking there'd be a recession. It turns out a soft landing. It's a completely different environment predicted as your colleagues were talking about bank disruption, all the things that went on. And yet we started the year with about $1.9,3 trillion. the deposits, we end of the year with $7 billion less. So all this idea that deposits are going to run out of the system for, you know, as rates got normalized all this stuff, none of us proved true. And I never get frustrated. We just go out and do what we do is deliver good core earnings

and we let the market take care of itself. And if the stock's cheap, we keep buying it. What's your outlook for the housing market, just given how mortgage rates have come down? Well, I think, you know, we're in a process if we have 15 years of no rate environment effectively and people thinking that was normal. And we barely got normalized. We were just starting to get normalized at, you know, 19. And then the pandemic came and rates fell again. So I think it's just going to take a while for everybody to get used to a higher mortgage rate.

But your staying at start to happen. You're starting to see the, as even gets down a little bit, you start to see the kick-up and activity. It's not going to be robust. It's not going to be a big refy activity. But, you know, we're basically getting on home equity loans a constant amount of production. And on the mortgages, we're sort of running a stay-in-place, IE producing the amount that's being paid down every quarter. But it's not something, you know, I think it'll be okay.

I think the beneficiaries of the half the households don't have a mortgage in America, so they are renters that are on outright. The other half that do, you know, are benefiting by fixed rates. We have 40-odd percent of our mortgage portfolio in our books is all floating rates, so those rates will start to, are starting to move up. And we'll see all that play out. But in the end of day, people move because they either have more children or something like that or they retire and become empty nesters,

or unfortunately, the House is sold because people pass away. All those things are still true. It's just the refi activity is lower because people have low nominal rates, which is basically a good thing for American consumers and provides their ability to stay in the game and spend because they've got their mortgage rates by and large aren't shifting much. Brian Moynihan. Brian, want to thank you for your time today.

And we look forward to seeing you at the World Economic Forum in Davos on Tuesday. We'll be talking with Brian Moynihan again Tuesday morning on Squackbox. We'll see you then. Thank you, Becky. Tyler, we'll send it back over to you. Again, when we get to Davos, it's going to be a lot of other things we're talking about, including the loss of trust and institutions, what happened and how you build that back. Very interesting and very topical. Becky, safe travels to you and your team.

Thank you. Thank you, and Mr. Moynihan as well. As we had to break, a quick power check on the positive side, cognizant higher. Jeffries raising the price target on the IT services firm. On the negative side, United Airlines, Now 9% Delta's weak guidance, along with oil prices dragging the entire airline area down. That is your power check at 37 past the hour. We'll be right back.

Welcome back to Power Lunch. We just heard from Bank of America's CEO Brian Moynihan on the bank's fourth quarter results and, of course, much more in the macro picture. So let's get an analyst take on that big interview with Becky Quick and the other banks that we're reporting today. David Conrad is managing director of equity research at KBW. He has a market perform, more neutral. rating on Bank of America, also a $33 price target. We also, of course, still have with us, Courtney Garcia, who's remaining with us for the hour. David, thank you very much for joining us

this afternoon. I know that you were listening in on that Brian Moynihan interview. There are a lot of folks who suggest that Bank of America is one of those ways that you take a broader view on not just the U.S. economy, but specifically the U.S. consumer. Did you find anything that he said interesting with regard to the trajectory of the U.S. economy going forward because of that consumer? Yeah, Don, thanks for having me on. You know, I think Bank of America does stand out with the consumer franchise, and most specifically what we saw in deposit growth this quarter, NII came in a little bit ahead of expectations, although the forward look is a little bit below, but all in all, with the

rate environment, they help up very well. I think, you know, I think in terms of the consumer, you know, we are seeing it decelerating pace here from what he said. And so, you know, I think what's interesting with the setup for banks, right, is that, you know, we do have a slowdown in the economy. But, you know, the push and pull this quarter in earnings is if we are still thinking about a soft landing, you know, the forward curve doesn't really make a lot of sense with six cuts. So I think we're getting some, you know, more severe NII guys than maybe it might be reality as we've been through the year. The net interest income story is not just specific, of course, to what's happening with Bank of America, but we also, of course, got results from J.P. Morgan Chase today and Citigroup, Wells Fargo as well.

When you take a look at those four across the board, is there one that's particularly focused better or leveraged better towards a potential interest rate cut than the others right now, if it were to hypothetically come sometime between March and August of this year? Yeah, you know, I think near term, I mean, J.P. Morgan had the best net interest income guy. Now, part of that is the benefits of the First Republic acquisition, but a lot of it's, you know, also due to growth in credit cards. And so I think in terms of, you know, how you think about the performance of the NIA going forward, the credit card names certainly do have an advantage just because of the balance sheet growth. You know, conversely, Wells Fargo, they probably had the best quarter out of all four this morning, but probably more susceptible to six cuts than the peers. And so their NIA guide, assuming six cuts, came in a little bit below expectations. Yeah, you have an outperform on Wells Fargo, market perform on City, JP, and Bank of America.

I'm naive on this because I don't know how you all do price targets, but your price target on Bank of America is $33 a share, and it's at $3.95 or $3.92 right now. Does that mean, if you're sticking with that $33, that I should expect basically no return on this stock, if I were to buy it over the next 12 months, or would you lever up that price target in light of the numbers that were reported today? I don't think a lot will change today. We'll see what happens over the weekend,

but I think basically the results were relatively in line as well as the guidance. You know, I think when you look at Bank of America, I think it's a stock that will likely outperform its peers in more of a stress situation. So to Brian's point, they can hold on to NIA a little bit better in a, you know, six-cut environment. Part of it's because of deposit growth.

The other part of it's because of a higher beta on its liabilities. But I also think with Bank of America where we get more constructive as we think there's a safer play on credit. So if the economy turns a little bit more challenging, we think they would outperform on the credit side. Let's bring Courtney into the conversation. Courtney? Yeah, David, it's Courtney here.

Thanks for being here. I saw in your notes here, you pointed out specifically Goldman Sachs and Morgan Stanley, and they have a higher impact when it looks at investment banking. And you think that's probably going to be concerned when we look at last quarter. How do you look at that when we positioned now into 2024? And how is that going to impact them, especially as rates are changing this year? Yeah, you know, I mean, for all the banks, the perfect environment is probably more the Fed dot plots of two to three cuts with lower inflation of soft landing.

I think that would be a risk contrary. That would be very strong for capital markets and for the banks overall. And so the way we kind of think about this group is, you know, NIH is going to be pressured next year. We're pretty confident of that. We think capital markets is going to improve, especially in investment banking. And so, you know, we do think, you know, we've had a drop in a ratio of narrowing credit spreads. It does feel like a good backdrop as we move into next year. and so we would rather own more sensitivity to capital markets and asset management than

sensitivity to net interest income. Makes sense. All right, David, thank you very much. We appreciate your time today. You bet. Thank you. Conrad. All right, let's get over to Kate Rooney for a CNBC News update.

Hi, Kate. Hi, there, Tyler. Hunter Biden's attorneys signaled he is ready to comply with a congressional subpoena if House Republicans issue a new one. They say the change comes because there is now an authorized individual. impeachment inquiry into President Biden. House Republicans are pushing to pass resolutions asking the Justice Department to hold the president's son in contempt of Congress for defying an earlier subpoena. The younger Biden surprised Republicans this week when he showed up to a vote on the resolutions. The White House said this afternoon it is not interested in a war with Yemen, but

the U.S. won't hesitate to take further action in response to Houthi attacks in the Red Sea. The comments came after Iranian-backed rebels vowed retaliation for U.S. and U.K. launched military strikes in Yemen on Thursday. And it is signed the holiday season. This is sad news, guys. It's really over the 80-foot Christmas tree at Rockefeller Center. It is coming down tomorrow. Once crews remove it, the tree will be cut down, and then its lumber will be donated to Habitat for Humanity. Tyler, back over you.

Kate, thank you very much. Always passing of the season when the tree comes down. Still ahead, the turbulence for Delta, the shares sinking despite posting a fourth quarter beat after trimming its 2024 outlook. We will trade Delta and a couple of more in a fresh three-stock lunch. Power lunch returns after a quick break. Welcome back to Power. Time for today's three-stock lunch. Today's menu is earnings focused. So here with our trades is Scott Nations, founder of Nations indexes.

Up first year, we've got Delta Airlines. That airline reporting a fourth quarter beat, though, saying bookings for corporate and leisure travel has picked up from COVID. low's, but shares of DAL are down big after the company trimmed its 2024 earnings forecast. Scott is Delta flying high or getting grounded in 2024? Delta's a hold. And as you pointed out, the problem is the forward guidance. Interesting that they beat on EPS, but they're going to guide lower in the future. UAL is actually the worst performer in the entire S&P, so the entire space is getting hammered.

One important distinction, Delta does not fly the 737 max 9 that United does and which has been in the news so much lately. It's a tough space to invest in, but Delta is the best name in the space if you want to be in it. So Delta, Courtney, what do you think? Would you want to be in Delta or another airline out there, if at all? I actually completely agree with that point that of all the airlines, this is the one you want to be in. I mean, they have a really strong balance sheet. Their free cash flow is very impressive. And I think generally one thing that hasn't recovered yet is international travel as much as domestic.

So airlines such as Delta, which have more international legs, is something that I think can continue to benefit in 2024. All righty. Up next is another United, United Health, Scott, that company reporting a better than expected fourth quarter. But shares falling because of soaring medical costs your trade on UNH. It's a buy. We shouldn't be surprised that there's inflation and health care costs, but the company still beat on either. EPS. Isn't that the definition of a well-managed company? Costs are going up and they still managed to beat on EPS. So I actually applaud their performance. Yes, the medical cost ratio was much higher than expected and it's been higher than expected seven out of the last ten quarters. That's certainly a problem. But right now, the stock, which is down a few percent, is being hurt because it's defensive. That sounds like a strange complaint to me. And it's one that would carry weight only when the market. it's a little frothy. All right. Courtney, your thoughts on United Health? I'm agreeing with you again here.

But yeah, I think you want to look at this optimistically. They're actually the largest provider of Medicare Advantage plans and especially as we have an aging population that's going to benefit them. Some of the concerns, too, with the additional costs. I think a lot of those are one-time things, which are they pointed out. There's a lot of people going in for RSV vaccines and COVID has spiked recently. Some of that is just seasonality, and I think you want to try to strip that out where you can. All right.

And finally, let's get a look at Goldman Sachs. The company is set to report results on. Tuesday. What's the trade on Goldman? Are we going to see the capital markets recovery? Goldman is also a buy. The valuation is very low with the forward PE, a tick below 11. That's right. It's not even in the teens. Earnings estimates have been coming down over the last 30 days. That's a little bit of a problem. But this company is dirt cheap. It's a not just a buy. It's a long-term buy and hold. The only problem I see for the stock, is the potential for them to not be getting out of the consumer lending as quickly as they should.

All of the senior leadership below the C-suite hates this failed experiment with consumer lending. So if they get out, this would be one of those situations where drastic or ruthless is not a bad thing. All right, Courtney, Goldman Sachs or Morgan Stanley. They're both out next week. Oh, good point. Actually, I do like Goldman Sachs here. I think specifically when we're talking about their retail business and them spending that off. that is going to be a good thing to them so they can get back to their bread and butter, which is our guest earlier had pointed out. David, he was talking about how investment banking is actually likely going to be a beneficiary next year when you're looking at banks, especially

his rates are coming down. I think that's where Goldman's likely going to benefit. All right. Scott Nations, thank you very much for the three-stock lunch. Courtney, you're sticking around. We've got a little more power lunch coming right back at you after this quick quick. We've got about three minutes, 20 seconds left in the show, and we're going to use every last one of them. Several stories you need to know about. Let's get right to it. First up, tough day for The shares dipping on a slew of negative headlines, including supply chain delays from the chaos in the Red Sea. That's disrupting global trade. Price cuts on its vehicles in China and yesterday's decision by the rental car giant Hertz to sell off a large portion of its EV fleet, though not all of it.

Tesla is certainly taking some hits lately. You wonder whether or not, Courtney, this is going to be one of those situations where people focus so much more on this because Tesla is the first company that we all know so much about. that's going to take a supply chain hit because of the Red Sea. That's true. And I think it's also interesting. This is coming right around the times we'll be getting these headlines about BYD is suddenly now having additional production

and they're having to cut prices in China. I mean, that's probably going to be their biggest competition is in China. And now they're having production cuts, which is not going to help them in that race to, you know, who gets the consumer over there. So it's going to be interesting to see what happens. All right. So from one mega cap to another tie,

we're talking about Al Gore retiring from Apple's board. He's 75 years old and the company has a rule, barring directors from seeking, election past that age, 75. Gore has been on the Apple board for more than 20 years. We, of course, know he's very high profile, has a lot of the cachet with regard to climate change and all the other initiatives out there. You wonder whether or not the replacements that come into these boards. What goes into the selection process of some of those people who come in? Yeah, I don't know. I think probably, I think there was another person who was leaving the Apple board, as I recall. I am not a fan of

required age and exit. I think it's not a constructive thing. All right. Because I'm approaching 75. Oh, stop, stop, stop. New data showing that remote workers are falling behind colleagues in a very important career aspect, and that would be promotions. Analysis from live data technologies found that fully remote workers were promoted 31% less frequently over the past year than folks who worked at least part-time in the office. They also receive much less mentorship than their counterparts who showed up in person. We could have told you that. We're right off the bat. Yeah, absolutely. It makes perfect sense. Do you do most of your work from home or what do you do? I have a combination. Honestly, a lot of our

clients, I think prefer to do stuff remotely. So I do, but we are getting more and more who want to come in. And I think you have so much more doing something. I prefer to be here on the desk with you guys than doing this. We love having you here in person. Absolutely. And I think it makes sense. You're going to get more opportunities that way. All right. And of course, it's a very big football weekend out there. Wild card round for the NFL, six games over three days. Jim Kramer, our own Jim Kramer, is doing mad money tonight, live from Arrowhead Stadium, home of the Chiefs. He'll be joining the football night in America crew pre-game tomorrow,

and the big thing people are talking about, the Chiefs Dolphins game is only going to be on Peacock, a very bold experiment. We should mention, of course, that Peacock and CNBC are both owned by NBCUniversal slash Comcast. So that explains why Jim is. going there and not to the Eagles game because he is of course one of the world. Oh, absolutely. Number leading Eagles fans. Courtney is great to have you with us. Thanks for having me. I really appreciate you bringing up this all bro edition.

Exactly. Thanks for watching Power Lunch, folks. All right. Closing ball starts right now. Guys, I'm a great weekend.