Power Lunch - Hurricane Impact on Hospitals, Tech Execs Betting on Nuclear & Trading Crude Oil for Gold 10/15/24

Episode Date: October 15, 2024

CNBC’s Tyler Mathisen and Kelly Evans take you through the heart of the business day bringing you the latest developments and instant analysis on the stocks and stories driving the day’s agenda. “Power Lunch” delves into the economy, markets, politics, real estate, media, technology and more. The show sits at the intersection of power and money. “Power Lunch” gives viewers a full plate of CNBC’s award-winning business news coverage, plus a healthy dose of personality from the show’s anchors and the network’s top-notch roster of reporters and digital journalists. 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 Contessa Brewer, I'm Tyler Matheson. Welcome, everyone. Stocks are lower today as earnings start to roll in. The big report weighing on stocks this morning, United Health, down $45 a share, which is a drag of more than 250 points on the Dow. Some shortages here involving medical products and the like, and you can just draft all your papers. Sometimes that happens. Moving right along. Energy is the worst performing sector as oil falls nearly 5%. Israel telling the U.S. it's not planning to hit Iran's oil facilities. We saw that big spike when we saw the missile attack on Israel from Iran, and then oil came back down some. But clearly the geopolitical concerns are weighing on the energy sector. But the idea that maybe oil facilities will not be hit, that is obviously causing an oil price to slide a bit.

It is the season fall into winter, lots of kids getting sick, people getting their flu shots. We'll talk to Dr. Scott Gottlieb about pneumonia, something I know you're familiar with, bird flu, and much, much more. There's a lot of illness going around. I came down with something a couple weeks ago myself, and so it is the time of the year. But shockingly, then the pediatric pneumonia, and we're going to talk with Dr. Gottlieb about that as well. I've been doing some diving in. All right.

Let's begin, however, with the bank earnings is Goldman Sachs, Bank of America, and Citigroup. All reporting today, the stocks moving in different directions. Leslie Picker has all the details. Hey, Tyler, yeah, three beats driving the stocks higher when those numbers crossed. But once the market open and investors got more information on the conference calls, the reactions became more mixed. A lot of trepidation surrounding various outlooks, B of A, shares in the green, because CEO Brian Moynihan reiterated his view that net interest income,

that's the profitability metric for loanmaking, bottomed in the prior quarter in 2Q. We disclose our sensitivity beyond the curve. But given the curve that we see, the one in the market, we don't make it up. We take the markets curve. We see growth in NIH for the fourth quarter and beyond. And so we feel good. It's a very complex thing because you have fixed rate assets. You don't get hurt so much.

We have non-interesparing deposits, which squeeze a little bit. You reduce the rates on interest-bearing deposits. Commercial loans come down, but some are hedged out to a longer period of the time. Goldman Sachs relatively flat today, despite a sizable bottom line beat in a profit jump, CEO David Solomon said that he believes they still have some, quote, tailwind dynamics around investment banking activity. Solomon added that even though banking revenue has improved, they are still below 10-year averages. Citigroup facing the steepest declines of today's bank reporters. You can see down 4.5% right now.

On the conference call, executives shared that fourth quarter net interest income would be sequentially flat to Q3. Although non-interest income at the firm, that's banking and markets and services, to name a few, only their weight in the quarter, guys. Okay, so Leslie, stay with us here for a second. We want to get the shareholders take on the big banks. McCrae Sikes' portfolio manager at Gubelli Funds, his fund owned shares of Citigroup, Goldman Sachs, and Bank of America. McCray, it's good to talk to you today.

Is there a theme that you're seeing with the banks that you particularly like that's particularly optimistic for you as an investor? Well, I think overall for the banking sector, we're seeing a troughing of NII and acceleration towards earnings gains for next year. So I think that's a good setup for the whole industry. Obviously, we have a couple of idiosyncratic components to that. Citigroup, J.P. Morgan, which is going to see some headwinds, which they mentioned on Friday. So we have a little bit of movement between the different entities, but in general,

the industry is moving towards a more beneficial cycle, Fed easing. And Bank of America is one example of that today in terms of iterating kind of positive. as we tracked through 25. Why is Citi the outlier today? Well, I think Citi-Syncratic components to it. They talked about that expense headwind going forward. They delayed their IPO of the Mexican operation, so I think that was a little bit of a disappointment.

And then they have this regulatory overhang, which there was a number of questions on the call about that in terms of, you know, what's the ultimate costs and what is, you know, potential penalties, et cetera. So I think that uncertainty is going to be weighing on those. shares for the time to end. Leslie, how much of a factor is it that they have set aside more money to reserve against potential losses? Well, it caused about a 9% hit to net income. So it was sizable. A lot of that has to do with credit cards, both the fact that people are using more credit cards and also that they have to set aside more allowances for those credit cards.

And they were seeing some lower FICO band customers struggling a little bit more in this higher interest rate environment. Although the dynamic changed toward the end of the quarter, it's still impacting people, credit card rates do take some time to really come down as the Fed country. They don't. They don't. When you look at them, I think the average right now is about 21% or 22%. It's very high. Maybe they'll come all the way down to 19 or something like that. One could be so lucky. So McCrae, as you look forward to an interest rate regime where rates are likely to decline whether by another half point this year and then how much next year, who knows, what is that going to do to these big banks?

Well, I think you really have to go and dissected balance sheet by balance sheet. Today on the Carlet Bank of America, they talked about some of the HCM that's rolling off 10 to 20 billion a quarter. That is on there, pretty low rates, and so that would be reinvested. And even as the Fed brings down rates, you know, the forward expectations are that they will still be able to reinvest that with an improvement in NIM, which will affect NIM, obviously. And then also you have growing deposits. So this is the fifth quarter that they've had added deposits. We hope to get some more loan growth going forward to. So that will also affect the outlook for NIA.

And so you had a similar situation with Wells Fargo on Friday and that outlook. But on the contrary, you know, J.P. Morgan is a little more acid-sensitive. And to the extent that loans are coming down in terms of that impact, they're going to see some headwinds. And so they expect to inflect, you know, potentially at the end of 25, maybe before then. but, you know, a little behind in terms of the other banks. But, you know, they are really earning much more than the other banks. So, you know, a NIM closer to three with Bank of America's NIM closer to two. McCrae, I'm curious your belief in this capital markets recovery because we saw in the numbers today.

And on Friday, that there are sizable jumps in investment banking fees, for example. But a lot of that has to do with debt capital markets. There was some M&A advisory among the banks, some kind of late in the quarter closures. But, you know, the commentary around it is a little mixed. And obviously, last year was a pretty low base by which they're increasing from. So I'm curious where you see the revival and kind of how you're modeling that in terms of what types of stocks within the banking community you're assigning more weight to. So I think David Solomon expressed in terms of the numbers. So this quarter, you know, M&A is down 13% from the peak.

It had been as low. It's down 25% from the peak. in the first nine months of 23. And so we're operating in this environment where we're still kind of underutilized in terms of that capital market activity, realizations, et cetera. And my colleague and I had the chance to meet with a couple of alternative investment managers in the last couple of weeks. And you can tell that there's some urgency to get out there and monetize those assets with the markets opening up in terms of the elections getting done and then the Fed easing policy. So there's a couple of catalysts, I think, that are going to

way into 25 and provide a better environment. And the banks as facilitators of those transactions, both advisory and capital markets, are well positioned to take advantage of those trends. All right, McCrae, thank you very much for being with us today. McCrae Sykes, Leslie Picker, always good to see you. Thank you. Former President Donald Trump speaking in Chicago today, that discussion just wrapping up. I believe, Amen, it was at the economics club of Chicago, an event collaborated with by Bloomberg. Amon, give us the details. Yeah, that's right, Tyler. It was Bloomberg's editor-in-chief John McElthwaite at the Economic Club of Chicago, sitting down with the former president here just over an hour of conversation. In it, a number of economic

items I wanted to bring to you, including the fact that the former president talked here about tariffs. You know, the former president has called for tariffs of as high as 10 percent across the board. And now he's saying in this interview that he thinks those need to go much higher than that in order to entice foreign manufacturers to bring manufacturing back into the United States. the United States. He said those tariffs could have to go as high as 50% to really incentivize manufacturing to come back quickly to the United States. He also said that he wouldn't commit one way or the other whether or not he would remove Jay Powell as Federal Reserve Chairman. He said that he believes that the president of the United States, particularly a president with business

experience like himself, should be able to call up the Fed chair and say to the Fed chair what he thinks should happen on interest rates. He doesn't say that he thinks he should be able to order interest rates to go up or down, but he does say presidents should have the ability to sort of jawbone the Fed chair over the phone directly, something that presidents have really avoided doing in order to preserve the independence of the Fed in recent years. He also was asked whether or not he would want to break up Google. He said, I would do something about Google.

He said they have too much power, but he declined to say specifically that they should be broken up because he also said that the United States has an. interest in having big, powerful, strong tech companies that can compete with Chinese competitors. And he was asked about TikTok. He said he sees TikTok as a threat. He sees a lot of things as a threat, he said, but he declined to say that TikTok needs to be banned in the United States. And one more thing, Tyler, McElthwaite, in this fairly contentious, as I said, interview asked him about the reporting in Bob Woodward's recent book that he has been speaking with President Putin of Russia, former President Trump saying here that he's not going to say whether or not

his headphone calls with Vladimir Putin. He said, I don't comment on that, but if I did do it, it's a good thing. Tyler, back over to you. It was, as you say, contentious conversation. And I thought the back and forth on tariffs was especially so, because the former president talked about raising tariffs to 100%, 200, 300%, even more on certain categories of goods, most notably automobiles. And he doubled down on his comments about Detroit being effectively a third world kind of environment, comments that he made in Detroit earlier this week. Yeah, this is the former president, you know, really coming up against sort of the business and economic establishment on tariffs. Trump's saying here, look, you guys got it wrong.

He said the Wall Street Journal got it wrong. He said, John McElthwaite, you personally got it wrong. He was very aggressive on this point saying, Tariffs are actually a good thing. Tariffs will give the United States the ability to force the trade imbalances back the way I want them to go. Micklethwaite pushed back on that to some degree, saying, hey, wait a second, you're going to cause prices to go up. You're going to cause cost to go up for businesses. A lot of businesses in this room won't necessarily like that. And Trump said, you know, you and the establishment, in effect, have simply been wrong on this for 25 years.

I believe he said tariff is the most beautiful word in the dictionary, among other notable things. Amen Javers, thanks very much. Appreciate it. Coming up, oil prices slipping 5% amid growing fears of a supply surplus, coupled with easing tensions in the Middle East. The details and an inside look at some unlikely bedfellows in the energy industry. Plus, a power rundown with former FDA Commissioner Scott Gottlieb. We're going to talk about medical supply shortages, the FDA's U-turn and France versus the bird flu. Power lunch is back after this. Welcome back, everybody, to Power Lunch. Oil prices, taking it on the chin today. Look at that down 4.74% for WTI. It's the first time that we've seen that since the end of September. Pippa Stevens joins us now to tell us why we're seeing such a decline. Yeah, heavy losses today, Contessa, and that's because it looks like Israel will not target Iranian oil infrastructure with three senior administration officials telling NBC news that Israel plans to limit its retaliation to military targets. was bid up as the market waited to see how Israel would respond, fearing that Israel might destroy Iranian oil facilities. But traders are now unwinding the risk trade and are back to focusing on the fundamentals, and the global market is still oversupplied and potentially facing even more barrels coming back on the market from OPEC beginning in December. Still, CIBC Private Wells,

Rebecca Babin told me the market is being short-sighted in believing that just because energy infrastructure might not be a target this time, that we're in the clear moving forward. If there are more tit-for-tat responses, oil facilities could once again be in focus. WTI has all but given up its gains since Iran fired ballistic missiles at Israel on October 1st and on the verge of breaking below 70. We're at 70-37 right now. Let's switch and talk a little bit about nuclear power and technology or big tech getting involved in it. Nuclear power has sort of gotten back into the conversation. Yeah, I mean, this has been a really big trade over the last year, and it comes because tech companies are in a little bit of a bind because of AI's energy demands.

You know, they've made these commitments to transition to zero emissions, and now they all need more power than anyone imagined to compete in the AI race. By 2026, global electricity use from data centers is expected to double, consuming the same amount of power as Japan, according to the IEA. So the solution is a nuclear power. It can generate electricity without any pollution, but it's expensive to get a plant up and running. Some have also faced project delays and ballooning costs. But with big tech buying the power, even if it's at a higher price, that could jumpstart new builds. Google's deal with Caros Power is just the latest example. We also had Microsoft teaming up with Constellation Energy to bring Three Mile Island back online,

while Amazon bought a data center from Talon Energy that's powered by the Susquehanna Nuclear Power Plant. Prominent tech players are also backing nuclear, both Bill Gates and Sam Altman, are chairman of nuclear companies. Jeff Bezos has funded a fusion company, and DaVitas Jensen Huang is called nuclear a, quote, integral part of the AI future. Is the regulatory hurdle lessening then? Is the knot in my backyard pushback lessening? So there are two factors there. There's first the knot in my backyard, the NIMBYism, and then there's the regulatory piece. On the NIMBY front first, nuclear power, support from nuclear powers now add, the highest level in more than a decade. A lot of that is coming from millennials and Gen Z.

Gen Z especially, you look on TikTok and Instagram, and there's a lot of prominent backers just because they don't have necessarily the same association of what can happen with a meltdown. On the regulatory front, that still is a question because these SMRs, the future, the small modular reactors, they still have to get those permits from the NRC. Cairo's has a demonstration project. They're building in Tennessee, but not the full-scale project yet. And then also these SMR...

Wait, like a proof-of-concept process? Or more than that? It's more than that. So they're building it and the NRC approved it. Then the NRC has approved to tear power. That's Bill Gates's companies, their construction permit, but not their nuclear reactor permit yet. So this is a long timeline, you know, 2030 at the earliest.

You've got AI fueling the need for more power, but you've also got electric vehicles, which certainly are going to be a part of the future and to rely on electric power to power, let's say it's a third of the auto fleet in this country eventually. going to take a lot. And Bitcoin mining, by the way. And also reshoring. I mean, data centers are the latest and kind of the grabiest headline in terms of power consumption, but it was already growing. And remember, utilities forecast their load growth, their facilities, you know, a decade in advance. And now all of a sudden, it's kind of wait. Every single day, there's a new forecast of just how much power AI is going to use. And so that's why these companies are now going

directly to some of the nuclear companies. Pippa, thank you. Still ahead. Our trader says, investors are starting to rotate out of oil and into a different commodity. This one, trading near all-time highs. We will, um, ther-da-dun, reveal it next. A little lunch, quick check here on the markets. You can see down off by half a percent, the S&P 500, the same, the exact same, half a percent, and NASDAQ composite down by eight-tenths of a percent. Dom Chu, let's get to today's market navigator, and does all that shines brightly indicate gold? We're going to kind of link the last segment you guys just talked about with Pippa Stevens on the oil trade and then link it with gold.

So what we're looking at is the crude oil trade, right? Prices are slipping. Traders continue to keep an eye on those Mideast tensions. At the same time, though, gold is climbing to new highs. Our next guest says the two are actually kind of connected. And he's here to help us navigate the flow between those two commodities. So joining us now is Phil Striebel. He's the chief market strategist over at Blue Line Futures. Phil, let's talk about the oil trade. We just dove into it a bit more. in depth in the last segment. But I'd like to hear your take about why you're seeing the decline in prices and whether or not that rotation, many, if you will, is going from gold into commodities elsewhere, or is it going from oil into gold? Yeah, I believe that the sell-off in crude oil could boost gold up to new all-time highs, and there's two takeaways. It's the inflation

expectations and the rotation. There's an interesting dynamic between the price of crude oil, inflation expectations, the strength of the dollar and Fed policy. The correlation between crude oil and the dollar index is a positive 85 percent since the recent escalation in the Middle East. So we've seen crude oil prices. They've collapsed over the last 48 hours. You got OPEC. They cut the demand forecast for 2024 and 2025. Israel's walking back from its escalation and proposing of striking some of the oil and nuclear facility. So how does it benefit gold? Well, over the past few weeks, we've seen this little reaction in the gold market with any kind of escalation. And now with inflation pressures relieved, the Fed can focus on the fragile labor market, take more of a dubbish stance.

And what we see is the dollar will begin to weaken. And with a 54% inverse correlation to the dollar gold futures benefits. So where the rotation takes place is that money managers, they cut their bullish bets on the gold market to the lowest level in eight weeks. and they chased inflation and they chased crude oil prices higher. Now that crude oil prices are coming off and the Fed looks like they're going to shift more doveish, they want to rotate back into those asset classes. So if you look today, you got the Russell 2000 pushing up was up about 1%. You got bonds up over a handle and gold futures march and higher.

So the CME's Fed watch tool shifted to a 90% chance at the federal cut 25 basis points in November. And we really don't believe gold price are going to stop there. We think that central banks are going to continue to purchase as well. All right. So then what's the trade? How do you capitalize on that? How do you kind of take that macro view and translate it into an actual event or trade? So you look at the consolidation that we recently had in the swing low that we had.

It's been about a $50 range, $2650 on the downside, $2,700 on the upside. We believe that you buy the micro gold futures contract at $2650. You put your stop loss just below that recent swing low about $2620. So you're risking $300. And we don't believe that this thing is just going to make new all-time highs. We believe that we're going to march to the end of the year on up to $28.50. So that would be a $2,000 gain and a $300 risk, giving you an optimal risk to reward. All right.

So there's the trade, a minimal amount relatively of risk for that kind of bigger reward if gold prices keep going higher. Phil Strebel, Blue Line, thank you very much. We appreciate it. And Dom, it sounds like, you know, those would be great odds if we were at the roulette table in last night. Yes, I figured talking to the gaming correspondent, you kind of like that risk-reward accent. But a lot of people, well, a lot of people are using those micro-futures as well. It gives people a little bit more ability to get on some of those trades and contracts without having to put up so much money as collateral as margin to make some of those bets happen. All right.

Thank you, John. You got it. Tyler. All righty, coming up, Hurricane Damage is disrupting the medical supply chain of all things, hurting hospitals and dialysis centers across the country. Up next, we'll look at one manufacturer that's bearing the brunt of the impact. and speak with former FDA Commissioner Dr. Scott Gottlieb about some potential solutions to strengthen the supply chain. Power Lunch is back after this. Welcome back to Power Lunch, everybody. Hospitals around the country still feeling the impact from Hurricane Helene. The catastrophic flooding forced the closure of Baxter's manufacturing facility in North Carolina,

which supplies 60% of the nation's supply of IV fluid. And as a result, some hospitals are having to postpone elective surgeries and other non-eastern. emergency procedures to safeguard their stock. We reached out to Baxter. They gave us a statement saying a temporary bridge to transport product offsite has been installed, but does not yet have a timeline on when production will be fully restored. Here to weigh in on the impact and more, Dr. Scott Gottlieb, former FDA commissioner and a CNBC contributor. Dr. Gottlieb, welcome back. Good to have you with us. Certainly COVID showed us about the fragility of lots of supply chains. But here comes a natural event coming in and disrupting a critical supply chain.

60% of the nation's IV fluid coming out of one facility. Is that smart strategically? Well, look, this represents a much more systemic challenge when it comes to the production of these IV sterile injectable drugs and mostly generic drugs. I would include the IV fluids within that category of the generic drugs. The problem is that manufacturing these things aren't trivial. You need specialized facilities. They have to be done in sterile conditions. They're heavily regulated, and the reimbursement's been driven down very low for all these drugs, all these sterile injectable generic drugs, mostly by Medicare. So they're sold with very slim margins, and so what you've seen industry do, first of all,

you've seen a lot of industry players get out of this segment in recent years, but the ones who've remained in, what they've done is they've consolidated manufacturing in a small number of facilities, because the only way to do this at profit, to do it profitably, is to do it at a very large scale. So now you have consolidated manufacturing for essential medicines and a small number of, number of large manufacturing facilities, and when those go down, you take out a very large percentage of the market. So it sounds to me like what you're saying is that it is an unintended consequence of a pricing

mechanism in part that is causing the consolidation of manufacturing, which is, in turn, then, a vulnerability. Well, two ends. On one hand, we've seen the increase regulation when it comes to the manufacturing of sterile injectable drugs. because of historic problems. And this is driven by the FDA. I think the FDA has been prudent in what is done,

but it's applied greater regulation, greater scrutiny of these facilities, made it harder to build new facilities. So that has led to fewer players in the market and rising costs. And on the other end, you've seen reimbursement actually come down. So rather than reimbursement rising

from Medicare programs like Medicare and Medicaid to accommodate the increased cost of the regulation, it's gone down. A lot of these drugs are produced unprofitably. They actually lose money on a lot of these drugs. So these are the IV chemotherapy. Therapeutics, IV antibiotics, the drugs that you hear about going in and out of shortage. It's the same list of drugs all the time, and the IV fluids are in that.

And by the way, just in 2017, when I was covering Hurricane Maria in Puerto Rico, we saw the same problem with Baxter, big manufacturing facilities there. When the hurricane goes down and takes out, you know, not just the power, not just the building, but you're damaging the homes and the ways that people get to work. It disrupts the supply chain there. So this time it was Baxter in Helene. But what you saw with Helene is that the breakdown was so widespread. And we saw something similar in Texas with the winter storms there, that if there's concentration geographically in any area, then you're prone to the climate risk as well.

With Maria, because I was there at, I was at FDA at the time. That was a facility that actually manufactured the plastic bags. Those bags were then shipped into the U.S. and filled, because you don't want to fill the bags far away because it costs a lot of money to ship IV solutions in an airplane. So they made the bags down in Puerto Rico. But when that was disrupted,

then they didn't have them to fill in the U.S. facilities. That was a major disruption. Yeah. Let's move on to weight loss drugs here. And the FDA has made a decision on compounded drugs that because of a shortage or whether there's a shortage. Tell us where we are with these compounding drugs

and whether, I mean, patients like it because they can get it for far less money than it would cost to buy the, say, Eli Lilly brand. Yeah, look, compounders are allowed to enter the market when there's a declared shortage of drugs. And there was a declared shortage of terseptide, the Lilly active ingredient, also semi-glutide from Nova Nordisk.

Lilly has increased manufacturing, and the shortage was subsequently lifted. I, first of all, have a lot of concerns around these compounded drugs, not just that I think some of the ingredients are problematic in these drugs, and we've seen evidence of that, but also the efficacy of these drugs derives from the fact that you deliver a very constant exposure of the active ingredient. don't get big peaks and you don't get big trows of the drug. You deliver a very level exposure. And the formulation work to do that is very difficult.

And I'm skeptical that the compounders are achieving that. FDA said that the shortage was over of terse appetite, the lily drug. They said that the compounders had to exit the market. The compounding association sued. And the FDA backed away from that on Friday night. And I'm surprised by it because I thought this lawsuit was weak. I thought maybe they had done that to try to extinguish the litigation. but the litigation itself wasn't a real threat to the agency.

So I'm concerned that the agency did this as a policy decision because there was a lot of consternation about the compounders coming out of the market because patients were accessing lower-cost alternatives. Let me ask you a direct question. If you were an individual who wanted to take one of these medications and you had a prescription for it, would you get it filled at a compounding pharmacy or not? Well, I certainly wouldn't get it filled at a compounding pharmacy. Now, you know, I have access to branded drugs.

some patients I recognize it's difficult for them to afford the branded alternative. I would say that the cost of the branded drugs have come down substantially and patients can access it at a fraction of what the actual list prices are, still higher than what some of the compounders are being sold for,

but a lot less than what the initial launch prices were. I think some of these drugs with the couponing could be accessed for about $500 a month. Still very expensive, but the compounders are selling their drugs for $2, $300 a month as well. And I think the delta in what you're getting in terms of efficacy and safety from the branded drug versus the compounder favors use of the branded drug

if you can get access to it. I think the FDA made a mistake here if, in fact, they allowed these compounders to stay in the market as a policy decision because of the cost considerations, because it's going to make it very hard for them to enforce their compounding regulations going forward. If they pick and choose where they enforce it. And finally, we want to ask you about some states reporting an increase in pediatric pneumonia, Indiana. Central Virginia says hospitalizations for pediatric pneumonia are up 30 percent. Is there something unusual going on with pneumonia and children? Yeah, I don't think it's unusual yet. So we see typically late summer, early fall, mycoplasia pneumonia. That's what these cases have been reported to be. We've seen

epidemics in the past. You typically see an epidemic of a three to seven years of this pneumonia. I don't think this is necessarily an epidemic. These are regional outbreaks. We'll have to see which way this goes. You know, since COVID, the epidemiology of this bacteria has changed. significantly. We used to see resistance strains. We're seeing less of them now. We're seeing larger outbreaks now. This is a difficult to diagnose pneumonia, difficult to treat, because you need specialized antibiotics. You typically need a class of antibiotics called macrolides, drugs like azithromycin or eurythromycin. So this is something that you need to be aware of an alert to to get diagnosed. That said, most people, for most children, this will be a self-limiting infection. And unless you

have other symptoms like fever, a lot of pediatricians will choose not to treat it. But for children who have a persistent cough and have other signs and symptoms of an infection, certainly they should get looked at and you should be alert for this this time of the year. Dr. Gottlieb, thank you very much. Nice to have you with us. Thanks a lot. Let's get to Pippa Stevens for a CNBC news update. Pippa? Hey, Contessa, here is your CNBC News Update. The Biden administration is warning Israel to improve the humanitarian situation in Gaza or could risk losing U.S. weapons funding. Secretary of State, Anthony Blinken and Defense Secretary Lloyd Austin sent a letter to demand Israel take action within the next 30 days. It calls on Israel, in part, to let 350 A trucks into Gaza each day.

North Carolina's governor says at least 92 people are still unaccounted for after Hurricane Helene brought widespread flooding to the state nearly three weeks ago. He said the numbers could fluctuate as North Carolina's National Guard continues its search and rescue work. So far, 118 deaths have been recorded in the state, accounting for nearly half of the 243 killed by the storm. And the country's largest retail trade group says it expects Americans to spend more this holiday season. The group estimates will shell out between $979 and $989 billion in November and December. However, the National Retail Foundation forecast the slowdown in the pace of sales growth when compared to previous years. Tyler and Katessa? All right, Pippa, thank you for that. Coming up, Wolfspeed shares surging 20% after the chipmaker landed a major grant from the Commerce Department.

We'll tell you how much, what the money's for, and whether there's still room to run in this stock. We're back after this. Welcome back to Power Lunch. Quick check here on the markets. And as you can see, the Dow Industrials are off by about a little more than half a percent. And the S&P 500, the same. The NASDAQ composite off by a percent. The Russell 2000 up by half a percent. The bond market back open today after a day off yesterday. Let's get right to Rick Santelli in Chicago for more. Hi, Rick. Hi, indeed.

The market might have been closed yesterday, but something important is happening on a back-to-back basis. Long-dated treasury yields really have been leading rates higher for the last five weeks. And maybe the catalyst was either the Fed lowering rates or maybe debt and deficits or maybe a much stronger jobs report or all of the above. But the 30-year bond is the last maturity. Look at a two-day chart going back to Friday on the long end that didn't trade above yesterday's high yields. It was the last one. It had eight consecutive sessions.

The streak ended last Friday for tens. And today, well, it's not going to be the ninth session, as you see. So why is that so important? Well, it's important because it might be giving us an early warning that momentum is breaking. And as you look at tens and thirties on one chart together, going. back to the end of July when basically his last time rates are at these levels based on yesterday's closes, well, maybe that event may be done. So we want to monitor that. Another area we should pay close attention to is the fact that since the Fed cut rates, if you look at the September

17th difference between tens and boons, it was around 150 basis points. Today, it's over 180 basis points. So over 30 basis points wider. the widest in nearly three months, and that's after our central bank cut rates. So we want to monitor these. It has a big effect on a variety of markets, including foreign exchange, and maybe one of the reasons, of course, that the dollar is doing so much better against the euro and other currencies. Tyler, back to you. Mr. Santelli, thank you very much.

I appreciate it. Coming up, United Health, weighing on the Dow, after giving lackluster guidance, we will break down the numbers and the trade in your favorite section. statement, three stock loans. All right, welcome back to power launch. Time for a deluxe three stock lunch edition. We'll get the stories on three stocks in the news and get trading advice on each one. Our trader today is Jay Hatfield, CEO and CIO of InfraCAP. He oversees the InfraCap Equity Income ETF. First up today, the stock causing all of the Dow's losses today is United Health. Let's bring in Bertha Coombs for what's going on there. Bertha. Raising concerns today, despite

a beat on the third quarter. The company lowered the top end of guidance for the full year 2024 in part on higher costs associated with the change health care hack earlier this year, but more concerning to investors, higher costs in Medicare Advantage. The company called out a couple of factors. They're seeing higher than expected inpatient costs. They attribute that to what they call aggressive upcoding by hospitals. That is, health systems making patients seem sicker with billing codes that get higher reimbursement. Now, hospitals will counter that United Health denies care more than other insurers. On the Medicare prescription side, they say the inflation reduction act limits on out-of-pocket drug costs for patients is already having an impact.

Once customers hit their limits, they're no longer have co-pays. They're using higher cost brand name drugs as a result, and that limit will be even lower next year. They see the and continuing and now conservatively see full year 2025 earnings of about $30 a share versus the estimate from analysts of over $31, all of which is to say that's weighing on its Medicare peers as well today, Tyler. All right. Thank you very much, Bertha. That's the news behind United Health's big drop. So, Jay, is this a time to buy the stock at a discount? It is, after all, a vast and good company. Thanks for having me on, Tyler. We have actually owned UNH in ICAP, which is our large cap dividend fund.

We did trim it as it got towards 600, and that is our target now. With the revised guidance of $30, we have a 20 multiple. The company does grow at higher level than the market and as an attractive dividend. So we use a peggy ratio. So that's the PE to the growth plus the yield. And so we're using a discounted peggy ratio to the market because of all the things you just accurately described with regard to pressure on reimbursements. Okay, Jay, we're going to move on next to Johnson and Johnson.

That stock up slightly after earnings. Angelica Peoples has those details for us. Hi, Angelica. Hey, Kandessa, that's right. J&J beating on the top and bottom lines. Now, pharma was the star of the quarter while MedTech struggled. In pharma, cancer drugs, a particular bright spot, things like multiple myeloma drugs, Darslecht and Carvicti, those both topping estimates. Immunology, another area to look at in the quarter, and that's because Stalara, a drug for some autoimmune disorders, now facing biosimilar competition in Europe, and it will also see biosimilars in the U.S. next year.

J&J executives saying they can manage that decline and try to turn attention to their newer autoimmune drug, Tramphia. Then in medtech, weak economies in Asia hurting sales there. Joe Wolk giving me a few examples. In Japan, J&J, the leading supplier of contacts there, and he's saying that people might refrain from ordering more expensive daily disposable contacts or they might extend their prescription. There's also a physician strike in Korea and an anti-corruption campaign in China, and that's all weighing on sales there. Now, one other thing to keep an eye on is the shortage of IV fluid that started here after Hurricane Helene, a J&J executive on the call today saying that if that drags on, it could affect surgical procedures

across J&J's portfolio. So a lot to look at there, Contessa. Something we were just talking with Dr. Scott Gottlieb about earlier this hour. Thank you, Angelica. Jay, what's your trade on J&J? Thanks, Contessa. We have a hold on JanJ because of our 170 target. I mean, they do have this momentum.

You just described on cancer drugs, but this is a gigantic company, 400 billion market cap. So we're estimating a 6% growth rate, a 3% dividend yield. So that's a nine total return. And we believe it'll trade at the same growth plus yield that the market does. So that's a 170 or 16 times earnings. And so that's just showing only 3.5% upside.

We have a small position in I cap, but we've been trimming it in these low 60s. And we do generally prefer riskier stocks like financials, reeds, and tech, because we are more bullish about the market. than most people. All righty. Thank you very much. Let's move under our final stock. That is Wolfspeed. We referenced it a moment ago. The stock soaring more than 20% after it secured $2.5 billion in new funding, including $750 million from the Chips Act. Sima Modi has the details. Hi, Sima. Hey, Tyler, Wolfspeed CEO says this new funding will accelerate its production of silicon carbide at its plants in North Carolina and New York. This is a type of silicon used by heavily. The vehicle industry. Now, Lowe says he really believes the new capital will help Wolfspeed better

compete with China. The Chinese are absolutely going towards electric vehicles. Something like 40% of the new car registrations in China are electric. So they are absolutely moving in that direction at full speed. And they are also trying to become completely independent of the West and everything semiconductor, silicon, silicon carbide, etc. So they are funding all kinds of, all kinds of, of companies in both silicon and silicon carbide. So there's no doubt about it that we face that kind of competition now. Now, competition from China is one of the reasons Wolfspeed shares have underperformed weaker than expected financial performance tied to delays at its North Carolina plan.

Also haven't helped. Shares down about 70% this year. But the stock is popping. This investment announced today a mix of public and private capital is seen as a vote of confidence in Wolfspeed that is sitting on a lot of. of debt. Keep in mind, though, short interest is high in this name, guys. All right, thanks very much. All right, let's move into your pick on this one, Jay. Is Wolfspeed an opportunity? Well, if you adopt our conservative methodology, there's a pretty easy call. So we would

avoid Wolfspeed. It has a 31% short interest, so that really accounts for the rally. As you mentioned, they had operational issues. But more importantly, they lose money. They're not projected to turn profitable until 27. And when I was investment banker a long time ago, we had a rule of Morgan Stanley. We didn't take any companies public. They weren't profitable. We apply that rule to all of our investments and all of our funds. And I would recommend that rule for most investors, unless you have some special insight or you're on the board or for some reason want to be a amateur venture capitalist. Yeah, show me the money. Jay, thanks very much. We appreciate it. And remember, you can always hear us on the podcast. Be sure to follow and listen to Power Lunch wherever you go. We will be right back.

All right. Let's give you a quick check on the markets right now. The NASDAQ, the worst performer today, as chips are lower after ASML earnings were released early and accidental leak. ASML's orders were well short of expectations, saying there are strong developments in some areas of the market, including AI, other segments still weak. stock down $150 per share and obviously other chip stocks that like the ones you see right there, down in many cases by double digits, Nvidia getting hit as a result along with other chip names. Check out shares of Trump media taking a sharp leg lower this afternoon after the former president's interview at the Economic Club of Chicago. The stock was briefly halted for volatility, which you could have characterized the interview as because it was pretty volatile. It has since reopened. but down about 5%. And here are shares of Sphere Entertainment,

the company's entertainment venue in Las Vegas, has caught a lot of attention, has boosted a lot of business in Las Vegas. And today the company announces the next sphere. Number two will be built in Abu Dhabi in partnership with the Department of Culture and Tourism. A lot of news around the UAE right now. You've seen it. It's spectacular.

It's so cool. Great to have you with us. Thank you. Thanks for watching. Power Lunch, everybody. Posing bell starts now.