Power Lunch - Inflation Situation, Donor Backlash 10/12/23

Episode Date: October 12, 2023

The latest CPI report showed no slowdown in inflation from the previous month, and was higher than expected too.Will that change the Fed’s plan? We’ll discuss that, and how “higher for longer” could effect other parts of the market as well.Plus, a top donor is lashing out at the University of Pennsylvania over perceived anti-Semitism on campus. And this issue could be popping up at other well-known colleges across the country. We’ll bring you the key details. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Welcome to Power Lunch alongside Kelly Evans. I'm Dominic Chu. Coming up on the show, the latest CPI report showing no slowdown in inflation from the previous month and actually higher than expectations. So will that change the Fed's plan? And how is the Fed's higher for longer approach going to affect the bank stocks as they start reporting those results tomorrow morning? Plus, a top donor lashes out at the University of Pennsylvania over perceived anti-Semitism on campus. and this issue could be popping up at other well-known colleges all over the country as well, Kelly. We'll talk about how they and maybe the employers as well should be navigating it. Let's get a check on the markets, though, which have taken a sharp leg lower this afternoon. The Dowdown almost 300 points now, going on a 1% move. Same for the S&P, the NASP, the NASDAQ as well, all 11 sectors in the red today. So energy and tech, we're keeping us, we're helping us in the green, but they've given that up. A lot of this coming right after the poor 30-year bond auction, top of the

hour today. We had a similar pattern after the poor 10-year bond auction top of the hour yesterday as well. And yields for the 10-year and 30-year continue to climb. That tells you where the market worry is at the moment. We're also watching shares of Birkenstock continuing to drop after yesterday's IPO, which priced at 46, opened at 41, and is now possibly going to break below $38 a share. We'll have more on the struggles of recent IPOs coming up. And it's not just those struggling beyond meat as well. Mizuho cutting the stock to underperform with a $5 price target. The stock is $8 now, but in July 2019, Dom, it was a $230 stock. All right, well, Kelly, a hotter than expected inflation read out this morning. So could this change the Fed's rate plan?

Let's bring in our own Steve Leesman for more on that story. Steve, in addition to the bond auction that Kelly just pointed out, the CPI has been a big driver. What exactly has changed and what hasn't? You know, it's interesting, Dom. There's been some increase in the outlook for another Fed rate hike this year. But the market is still betting. It doesn't happen. I'll show you those numbers right away. But first, let's look at the numbers that moved up those probabilities.

The headline CPI coming in at 04. It's down from the 06 last month, but it had been expected at 0.3. And the year-over-year 37 unchanged. There was hope for improvement there. The core coming in exactly as expected up, 0-3, same as last month. And the year-over-year making some progress that might be. keeping people at bay or at least putting two sides to the trade here. Gas prices went up a healthy 2.1 percent and home ownership costs rose an unexpected 06. Most forecasts were hoping

for some progress in that number. They do see it coming down in the months ahead. But there were declines in use car prices and apparel while food inflation. It was modest this month, at least this month anyway. All of that leading to a higher probability of a Fed rate hike. But not overwhelmingly so. I was kind of surprised. It was down very low, below 10 percent probability for November. Now it's up to 12. And December's 36, up from 28. When it starts to get near 50, the market really means business. Officials have talked a lot in recent days of letting the higher bond market yields do the feds work for it. And yields are higher. So the Fed at this point is thought to have pivoted to hold, but it's going to keep a wary eye on inflation data. And as you know,

guys, the question now increasingly is how long at these levels, not necessarily how high anymore. Steve, an interesting dynamic that's developing right now within the longer end of that bond trade, the yield curve, so to speak, is this notion that with geopolitical unrest, the terrorist attacks happening in Israel and the Middle East, all of that was propelling this flight to safety trade, bringing down longer term yields over the last several days. How exactly is that going to resolve itself with the inflation narrative? it appears as though the inflation story right now as having more of an impact on the U.S. sovereign bond market than is the Middle East crisis. Well, I have to talk clinically about this, obviously not taking into account the horrific human toll here. But the general consensus I'm hearing is that there is a limited impact on the U.S. economy, not really that much impact on the inflation outlook per se. And so you're right, Don, what's happened is we had this.

this reprieving yields from this flight to safety. And that came off a little bit, especially now that people said, wait a second, I got to worry about inflation. I got to worry about these massive issuance things that are out there. Those are the main drivers at the moment with the flight to safety kind of waning in the background. But it's all this Fed talk and the talk yesterday in the minutes that made me think that, you know, the Fed is more likely, Dom, on hold here. And I was talking to Kelly yesterday. I said, the movement we're going to see more and more is where, that first cut is priced in. Over the past several days, they'd move from June to maybe as soon as May, today they're back

to July. So there's a lot of swing in those three months. When you want to see when the market gets nervous about higher for longer, you'll look at that out contracts of when that first cut is expected. Great point. And right now it's a little more out. Steve, thank you. We appreciate it.

Steve Leasman. Let's get the latest on the bond market after that auction about an hour ago. Rick Santelli joining us from Chicago. it was interesting, Rick, not only the immediate reaction in yields and stocks, but that it continued. Yeah, and this is much different, actually, than yesterday's tenure, which was also a very poor auction. But having back-to-back long-dated treasury yields with soft auctions, that's important. And listen, I agree with Steve always following the Fed's important. They're a mighty organization, right?

But let me see, am I going to worry about maybe a quarter point in December? or am I going to worry about almost 20 basis points today in 30-year bonds? The market right now is in control, and that is something that has changed. Now, as you look at 2's, tens, and 30s on one chart week to date, you can see what I'm talking about. Boy, they all popped. And 30-year now joins 10-year in the highest yields going back to 2007. Yesterday it was 2010 for 30-year. On Tuesday it was 2011.

and boy, it is zooming. And today at the auction, we had the highest yields at auction since May of 2007. But here's something really important. If you look at the dollar index, the dollar index has been in very lofty levels. It didn't even respond much to flight to safety trades. But look at the way it popped today. That's a week to date chart because the dollar index was open on Columbus Day Monday. So we're at the highest prices since Monday, which isn't that long ago.

But to see how it all lines up together and what the equities did is painting a picture. And I agree with Steve, the human toll in the Middle East trumps everything. But the flight to safety trade is a knee-jerk reaction. Nobody really knows the depths it affects the economy. Steve made a very good estimate, most likely not in a huge way. But that doesn't really define some of these flight to safety trades. It's more of emotion. And it already seems to be getting trumped by the aggressive long maturity.

pay very close attention to which side of four and three quarters we close the week on tomorrow. Back to you. All right. Rick, appreciate it. Rick Santelli, thank you very much. Let's talk more about stocks, which continue to deteriorate this afternoon as the risks facing the markets pile up. Margaret Vitrano is here. She's portfolio manager with Clear Bridge investments. It's great to have you on set.

Welcome. Thank you. You know, it's interesting because you're in an area that's been so strong growth primarily, you know, even so you've been a little bit underweight tech and so forth. Are they going to be able to withstand this rate shock better than other areas? I mean, I see now you're looking health care. So just talk to us about how you're kind of thinking through these. Yeah, I mean, look, I think many of the large tech companies,

one of the reasons they've acted both offensive and defensive over the last couple of years, is because they have great balance sheets. So if we do have a sell-off, you know, should some of those mega-cap tech companies hold up well? Sure, because they've really great balance sheets, and that gives them a lot of ballast. But when we think about, if you would have, asked me two or three years ago where we're spending our time, I would have said internet and tech. Now, not as much. I mean, we think that there are some other areas of the economy,

health care, beaten down health care, where you can really find some good value and have some defense in your portfolio or early cyclicals where we may be a little bit early, but coming out the other side of the slowdown, I think there's a lot of opportunity to perform there. So diversification, I think, is really key right now. How much do those rising rates? I mean, we showed the chart of the rising rates on the 30-year side of things, the 10-year side of things. There have been fundamental, drivers with obvious reasons for the data coming out. Does that put more of an onus on you as a portfolio manager to scrutinize balance sheets on the leverage side of things?

To look at whether or not certain companies who use a lot of debt to finance their operations may be at risk in the coming months, quarters, or years, depending on when their maturities happen, and when they have to roll that debt into higher interest rate debt. I tell you, it's certainly more of a mid-cap, small-cap problem because most large-cap companies in the U.S. have overcapitalized balance sheets. Where you're going to see it in large-cap land is earnings compression from higher interest expense. Certainly they're going to have to roll over some of their debt at higher rates, and we're going to see that in less earnings growth. I can see that happening, but not to the point of financial distress on the large-cap side. Yeah, again, you think maybe these are the ports in the storm. So when is the effect of higher rates really going to bite? For a lot of companies, it feels like, okay, maybe they turned out some debt in recent years.

As you're looking through and trying to figure out, okay, what's safe and what's not safe, are you literally getting balance sheet specific? We are just to make sure that they are overcapitalized, to make sure that nobody, of course, has any financial distress risk. In our technology and internet portfolio holdings, we don't have companies that aren't profitable. So that's where you're really going to have a problem. Any company that's not profitable that maybe was a popular stock in 2020,

This is a problem when you have much more capital constraint. And what about the pipeline? I mean, in the last several years, tech, the IPO market. I mean, this really delivered kind of this whole new crop into the market, not up to large cap levels yet, but all of a sudden that's dried up now. All of a sudden, that early stage kind of growth part of the market, the small cap growth, if you want to call that, looks like one of the weakest. And what are the ramifications of that?

Well, I mean, the ramifications are that you're talking, when we talk to our portfolio companies for the first time in, several years, they're excited about the opportunity to do M&A, right? So if you had asked them two years ago, they would have said, we can't afford to buy any of these companies because they can go public and make a higher price than we can ever pay for them. And now that's coming back to them. That's a great point.

I mean, let's put rubber meets the road on this. Portfolium manager, stock picker, you've got to put client money to work. What's on the shopping list? You've made some allusions to things like early cyclicals to health care. what types of stocks are we looking at that go on your shopping list? Well, first, you know, we do want to make sure the portfolio has some defense. You know, we are facing a more challenging period over the next couple of months, took a couple of quarters.

And so beaten down health care, I think, is really interesting. It gives you good value and some defense. We like Thermo Fisher Scientific. It's a really good quality company. Good compound are very diversified. And interestingly, the issues that are affecting them right now, slow down in China or COVID-D stocking, those are not long-term problems. This is a very good company, long-term when we think they can get back there.

Early cyclical companies, I think, is where you want to look next, because we'll get through this. It's so tough right now to go that route. So inch your way in, inch your way in, because there are companies like the railroads. I mean, I never thought I'd be a growth manager talking to you about railroads, but this is a business where the business, they still ship things like grains and lumber, which have some defense. Self-help. This is a self-help story. But what is it? Is it Norfolk Southern? Is it Union Pacific? We like Union Pacific. They have a new leader. The company has not done a very good job of execution over the last couple of years. And I think this new CEO can help improve on time performance, can help improve safety. That drives volume. That drives profitability. So we're going for self-help. And hopefully that'll save us if we're early.

This is the sign of the Times large-cap growth manager going for railroads and health care. It should be it. Margaret, thanks so much. We appreciate it today. Thanks for joining us. Margaret with Toronto. All right, well, coming up on the show, the IPO pipeline bursting. When the year started, investors, we're excited for the list of names going public, Instacart, arm holdings. But nearly all of them are falling flat now post-IPO. We'll discuss why in tech check coming up. Plus, the fourth day of our five-star fund week.

Today, we're looking at the bond market. Power lunch will be back after this break. Welcome back to Power Lunch. Birkenstock is trading below $38 a share right now. That's well below its offering price of $40. $46. It opened at 41, remember? Now, other recent listings, Instacart, Armholdings have also disappointed since the pops after their debuts. Joining us for more now on these lackluster debutser debuts is Deirdre for our tech check today. I'm not sure what it says about the IPO

market or sentiment Deirdre, but it's certainly not exactly all that positive. Well, let's think about it. What can we say? I know it's early days. What can we say so far about the IPO window of 2023. One, it was short. Two, not very sweet. And now it's likely closed as we head into the year end. No one wants to be doing their road shows during the holiday season. So this early performance dom that you just outlined, it suggests that they've been a bust. Let me put this in terms of their IPO debut peaks. Birkenstock ended its first day off by more than 10%. It's down again today. Instacart's down 40% from its first day pop are more than 20. Even Clavio, an enterprise software company that's arguably a better internet.

for the IPO market, that's down nearly 20% from its short-lived post-debue peak. And this is all before the lockup period has expired, guys, when insiders can sell shares. And so really, that raises the question, could it get worse from here? We know that especially at a company like Instacart employees have been sitting on options for a very, very long time. It also may tell us, guys, and startups especially, that may need to tap markets, that perhaps market conditions still aren't all that great. And it may take, at least from what I hear, until the second half of next year before we see the IPO market really gain some steam again.

Deirdre, Berkinstock is different. I mean, obviously, but different in terms of the sentiment that went into it for investors, Birkenstock versus, say, in arm holdings or a clavio or an Instacart, which were all kind of more tech-e-focused. And that was what was capturing the imagination of certain IPO investors out there. Is it fair to say that Birkenstock is not in the same kind of sentiment category that, say, Instacart or Arm was? And should we be looking at that or those two as comps to what's happy with Birkenstock? You bring up a good point. I think that you could say that all four are very, very different. And Clavio may actually be the most consequential because it's more of your traditional venture-backed startup. And there's many more of,

of those than there are Instacartes or in terms of where it plays the category and more than Birkenstocks in the IPO pipeline. So that's why we try and take them all together and say the one thing that they all had in common was their marquee names, right? They were anticipated IPOs that the retail investor knows and could get excited about. And so the fact that they're all down and that they've had disappointing debuts, tells us something at large about the IPO window and is that it's not looking all that great for other companies that want to go out.

In terms of Birkenstock, though, you bring up such an interesting point. No, it's not a tech company. But we looked at this yesterday, the way in which it is a direct-to-consumer company. Remember Allbirds, Hems and Hers, Warby Parker? They were kind of tech companies because they were direct-to-consumer. Birkenstock actually has that model as well in terms of having that e-commerce direct link to the consumer. And it's doing it in a better way than actually those companies that claim to be tech companies were doing it. So that one's a little interesting to see how it shakes out.

essentially uses its wholesale platform and direct consumer platform to create scarcity and a compelling sort of platform for the consumer. Indeed. Dear, dear, thank you. We appreciate it today. Dear Jorbosa. Meantime, fighting in the Israel-Hamas war, extending to multiple fronts, especially the social one, public sentiment divided over the conflict, especially here in the U.S. celebrities taking stances receiving backlash from either side. Colleges like UPenn criticized for allowing anti-Semitism and social media platforms working overtime to battle misinformation. We'll discuss the battles waging on these social fronts when Power Lunch returns. Welcome back to Power. I mean, we're just watching what's happening right with the markets.

The Dow industrials were down about 320 some points, just about literally 60 seconds ago. They are now bouncing off those lows down roughly 290 points to the day so far. 33,514. The S&P 500 currently down about 1 full percent, 4333, the last trade there in the NASDAQ composite, really now taking it on the chin, a big reversal. It's not down over a percent, 13,000, 517. Meanwhile, oil prices are also moving lower, not what you'd expect to see based on past instances of conflict in the Middle East. But this time, the U.S. is in a very different position, energy-wise. So let's bring in Pippa Stevens with more on that story and the changing dynamic of the U.S. energy market. That's right. So we haven't seen a big response in oil prices, given that neither

Israel or Gaza is a major producer by any means. But even if the conflict were to spread broader into the Middle East, it's very unlikely we'll see an embargo like in the 1970s, thanks to a very different geopolitical environment. And also, the world is a little more insulated to any energy supply shocks. If you look at the U.S. specifically, our production, we have a chart showing this. Our production is now hovering right around 13 million barrels per day, which is, yes, which is a record High level. Exactly. And much of that, of course, is thanks to the shale boom. And what's really important here is that shale oil is short cycle, meaning you can bring it online in six to nine months. Back in the 1970s, it was those deep water wells that are a long cycle. There you go. You can see our production right around 13 million barrels per day. Now we've also, as that production has increased, so have our exports starting in 2015, of course. And so now when you take oil and petroleum products together, we're actually exporting more than we are importing. And that was for the first time a couple of years ago, that happened. And so the U.S. is much more insulated. That said, this doesn't tell the whole story

because we still imported last week about 6.3 million barrels of oil per day. And that's because of our refiners. On the West Coast and the Gulf Coast, they are set up to run sour crude and our shale oil is light crude. And so they've been retrofitted to run as much shale, light shale as possible,

but there's only so much tweaking you can do. So bottom line, I know that was a lot. Bottom line is that we're in a better position, but these markets are global. I know we don't have a lot of time, but it still feels like we have to watch what happens in Iran, because if global authorities get serious about driving their oil supply from 3 million barrels back down to 300,000 or whatever it may be, that feels like it would also have a big impact. Exactly. And we've largely turned a blind eye because we wanted prices to come down.

And so the U.S. has let those exports from Iran rise to about 2 million barrels per day, up, you know, 500,000 barrels per day in the last month. Sorry, in the last year, a lot of that going to China, of course. And then the Strait of Hormuz is also the big, big, big wild card here because about 20 million. barrels per day passes through that every day. Big choke point for sure. A lot of places to watch. Pippa. Thanks. Pippa Stevens. We appreciate it. Since Hamas attacked Israel on Saturday, social media platforms have been flooded with content and videos. Some real, some not. Julia Borsden joins us now with a look at the fight against misinformation. Julia.

Kelly, let's start off with X. It has drawn broad criticism for misinformation on its platform and the slow response of its community notes fact-checking feature, allowing altered images and even video game misattributed as war footage to spread. Some debunked claims spread by verified accounts which can make money from ads on their post. Anilix company Alethea reporting a propaganda network of 67 accounts on X coordinated a campaign with false inflammatory content

related to the war. European regulator Terry Breton sent letters to MediciO, Mark Zuckerberg, and X's Elon Musk, along with TikTok, flagging the increase in illegal content and the platform's responsibility for monitoring and removing misinformation and illegal content, such as violent and terrorist content under the newly enacted Digital Services Act. Ex-CEO, Linda Yakarino, responding that X has removed hundreds of Hamas-affiliated accounts

and saying, quote, we've redistributed resources and refocused internal teams who are working around the clock to address this rapidly evolving situation. Meta responding, quote, our teams are working around the clock to keep our platform safe, action on content that violates our policies or local law and coordinate with third-party fact-checkers in the region to limit the spread of misinformation. Meanwhile, Meta's ex-alternative threads is seeing an increase in downloads. It moved from 40th place in the U.S. App Store to 20th place since the war began, according to data.a.i. And Dom Kelly, YouTube has also drawn criticism for letting videos calling for violence to stay up for days before they were pulled down. Back over to you.

All right, Julia Borson, with the latest out on the state of playing social media, given the unrest. Thank you very much. Let's now get over to Contessa Brewer for a CNBC news update. Good afternoon, Contessa. Dom, hello, the number of Americans killed since Hamas attacked Israel Saturday has risen once again. According to U.S. officials, 27 Americans are now confirmed dead. That's up from the 25 we knew about earlier today. 14 have been unaccounted for.

potentially they're among the estimated 100 to 150 hostages taken by Hamas over the weekend attack. The White House also announced today the U.S. is planning to arrange charter flights to Europe Friday for any Americans who want to leave Israel. Israel's parliament approved a plan to provide $6 billion worth of insurance coverage to Israeli airlines. That move ensures that air operations can continue during the Israel-Hamas war. The country's national airline, El Al, has pledged to continue operating flights as Israelis rush home after the country called up 360,000 reservists to fight. And a pro-Palestine rally on the campus of UNC Chapel Hill got heated today when a university professor tried to carry an Israeli flag into the protest. Local media reported he had a drink thrown on him during the clash but wasn't hurt and then police escorted him away.

Tyler. All right, I'll take it over, Contessa. I head on power lunch. More on the markets here. The Dow falling in the past hours, we headed to break. We also want to give you a quick power check. Now, on the positive side of things in the S&P 500, it's Fasconnell, the company beating profit estimates on strong demand for its on-site products.

It does industrial supplies. Now, on the negative side, you've got Hormel Foods down 10%. Union workers ratifying a new contract with the largest wage increases in that processed food company's history. power check, fast and all, formal foods will be back after this. Welcome back. The CEO of Apollo management is calling for the resignation of the president and the chair of the University of Pennsylvania over the school's failure to condemn Hamas's attack on Israel. He's a major donor to the school. Let's get to Robert Frank for more on this story now. Robert. Kelly, this has been a very fast-moving story today. The University of Pennsylvania now responding to claims by Apollo CEO Mark Rowan that the university has refused to condemn anti-scentral.

Semitism. Rowan called on donors to stop giving money to UPenn after it hosted a Palestine literary festival last month that he says endorsed hate and violence. He told donors to send a $1 check to the university rather than their usual donations just to send a message. We already have seen $150 million that would have come to the university, move away from the university. We've seen more than 4,000 of our most engaged alumni basically say the university he's heading in the wrong direction. U-PEN's vice chair now saying the university has, quote, publicly committed to unprecedented steps to further combat anti-Semitism on its campus

and condemn the devastating and barbaric attacks on Israel by Hamas. Similar tensions are boiling over at Harvard. Larry Summers, Harvard's former president criticized the university for not condemning a letter from the Harvard-Palestine solidarity groups. Posting on X, he wrote in nearly 50 years of Harvard affiliation, I have never been as disillusioned and alienated as I am today. Hedge fund billionaire Bill Ackman is leading a campaign for companies to refuse to hire any student at Harvard who signed that letter. At least a dozen CEOs have signed so far, including sweet green and easy health.

No formal response yet, Kelly, from Harvard on the hiring boycott. All right, Robert Frank with the latest there, thank you very much for that. Now, for more on, the donor backlash, the implications for higher ed, what happened at UPenn and what university leaders, should be doing to address anti-Semitism concerns. Let's now bring in Naomi Schaefer Riley, the senior fellow at the American Enterprise Institute. Now, she previously covered higher education for both the Wall Street Journal and the New York Post.

Naomi, thank you very much for joining us. I guess the first question overall is just how important should these campaigns be for the combating of anti-Semitism at institutions of higher learning? Sure, thanks for having me. Well, money talks. as you're beginning to see finally.

My question for a lot of these donors is where have they been for the last 10 or 20 years as anti-Semitism has increased on campuses across the United States? But I think this is hugely important. I think that college presidents really do have to care about their bottom line, even at very wealthy universities.

If you have hedge fund managers who are encouraging people to withhold hundreds of millions of dollars in donations in response to what is just pure cowardice on the part of these administrators, I think that's a great move. I think they'll finally start listening to the concerns of people in the community who have for decades felt as if this is a problem that is growing and it is not being addressed by the administrations.

Naomi, there's a very fine line that a lot of folks are trying to walk right here. It's not about the outrage, not outrage. There are outrageous things happening around the world. The question then becomes about the free speech element. The takes that I have heard are that you don't want to, stifle free speech, and it's something that we as journalists treasure very much, we're all very big First Amendment proponents, but that you also have to say with your free speech that these are despicable views or these are despicable acts that are happening. How exactly then do institutions

at higher ed make that balance or toe that line? Well, I don't think it's as hard a line to draw as you're suggesting. I would refer people to, for instance, Ben Sass, who is the president of University of Florida gave a very clear statement where he said, we have free speech here. You want to demonstrate that's fine. The second it descends into any kind of threats or violence or anything like that, we will respond. And also, we will protect the security of the Jews on campus. And also, by the way, we unconditionally condemn the attack on Israeli citizens. To say, you know, we are opposed to the decapitation of babies doesn't really seem to me like it's a very controversial thing to say, but apparently these days on campus it is. I will also point out that I think it's,

in terms of free speech, this line had been crossed a long time ago. I mean, there was a report, there are some interesting reports, you know, back in 2011, you had this eruption of anti-Semitic statements, you could call them that, at UC Irvine. You had people chanting death to the Jews. You had people vandalizing Holocaust memorials. You had people threatening individual Jewish students. So the idea that this is now just about free speech, I just, I don't buy it. I think that campuses have a duty to protect free speech, but they also have a duty to ensure that it's clear where that line is and that students cannot engage in this kind of threatening tone, and also that those students are not speaking for the university. I mean, it's, it is incredible to me, just take

Penn, for instance. They were only too happy to speak out about the death of George Floyd. Once you go down this road of making political statements as a university administration, then it seems to me perfectly reasonable to expect that they're going to say something about the slaughter of over a thousand Jews in Israel. So I think, Naomi, that's exactly the question is whether universities should refrain from this kind of, I think the Stanford example is very interesting where they say we think it's important that the university is an institution refrain from taking institutional positions on complex political or global matters that extend beyond our purview. And there's others also saying here that this idea of needing to weigh in on every single thing that's

happening, I wonder if that's going to be really where university should look, whether or not they have a problem with anti-Semitism being separate and, of course, being an issue, but in terms of these public proclamations and even the corporate workplace is being dragged into this in recent years as well. Well, they have, like I said, they have already gone down this road. Once you've decided that you're going to make statements of Black Black Lives Matter, once you've decided you're going to make statements about Ukraine, once you've decided you're going to make statements about all these things, then it just, you've just. seems like you're singling out the Jewish community for not making a statement about this outrageous

thing, which frankly is very personal to a lot of students on campus. I mean, the statement that Penn made upon the death of George Floyd was all about how we care so much about the black students on this campus and we feel for them and we are worried about their safety and we want to care for them. Where is that statement about all the Jews on campus? And the Jews who have relatives and friends, close relatives and friends who are living in Israel at this time. Is anyone saying anything to them like that? No. So once you've gone down this road of making these statements, then I feel like you actually have to be pretty consistent about it. Oh, for sure. And I think that's where they might start to question. And maybe we'll see more universities,

meeting with their boards, meeting with their donors, and being told or deciding that going back to neutrality is going to be a better approach. Is there going to only be more turbulent times? Naomi, thanks for joining us. We appreciate it today. Thank you. Naomi, Schaefer Riley. Let's take a break, CNBC. Meanwhile, celebrating Hispanic heritage and sharing the stories of influential business leaders. Here is Luciano Sieber, Colbert Gate Palmolive's chief supply chain officer. What others can learn from my journey is that if an industrial engineer from a factory in Brazil can become the chief supply chain officer of Colgate Palmolive,

then it means that anyone can not only achieve but go beyond their dreams. Be proud of your heritage. Be proud of your identity. At the end, those are your superpowers. What you bring with you from your country is really what defines you as a professional and as a human being. Welcome back, everybody. Our five-star fund week continues, and today's focus is on fixed income, good timing, with yields pushing to multi-year highs. Today's five-star fund manager says investors have the opportunity to earn equity-like returns with less volatility.

Dan Ivesen is group chief investment officer with PIMCO and portfolio manager for their 127 billion dollar five star morning star rated income fund it's out about two percent here to date but it is consistently one of the top performing funds in its category dan it's great to have you here welcome thank you kelly the volatility's i don't know what the move index is doing today but these are about the most interesting times we've seen in a long time in bond land yeah it's true the last couple of days have been a good reminder that volatility's high and we unfortunately expect volatility to continue So it's both a concern, a mental concern as well, given the big moves and rates, but also a great opportunity for active management in the fund.

Where are you looking at? So the kind of strange dynamic as someone's trying to manage a portfolio in fixed income is that you want high yields, but if they keep going higher, you're left with kind of mark-to-market losses, and you're trying to track benchmarks in all of this. I really can't imagine. So where are you looking for both tactical opportunity and for people to earn, you know, pretty decent, longer-term yields? Sure. So I think the mindset's, you know, one of patience. The good news about fixed income is that the starting yields a great predictor of forward returns.

So if you're patient, and, you know, our particular strategy now is yielding about 7.5% without taking a lot of interest rate exposure. The prospects look quite bright over the next few years. With that said, I think today's CPI data, is a reminder that we've yet to control inflation. The risks of a hard landing are still quite high. And what we've been trying to do is keep it simple, remain resilient. And over the past several months, we've looked to actually go up in credit quality. And the good news is you can do that in very high quality of liquid areas of the market and still generate the type of yields that I just mentioned. So a lot of, you know, government, you know, guaranteed risk, things like agency mortgage-backed securities, a lot of very, very high quality corporate bonds, some

asset backed in, you know, very season pools of mortgage securities. And again, we're at a very high level of credit quality in a historical context. And we think we're quite resilient, even if we do get into a recessionary type scenario. Dan, it's Dom. It's good to see again. One of the things I've had a lot of conversations about on a relative basis more than I've had in years at this point with folks on Wall Street is the idea that people are looking more and more at things like bank loans and floating rate adjustable rate debt and they're looking to invest in places like that. We've seen a lot of fund flows into floating rate mutual funds and ETF type products. Do you think that's something that has legs?

Is there a kind of shift in investor sentiment on the credit side where they are now looking more at these higher interest rate levels that could reset at even higher rates down the line? Yeah, so there's a lot of temptation to move into the floating rate area of the market simply because you don't have a lot of direct interest rate exposure. Those are actually some of the sectors that we like the least. And I think it's important to remember that the senior secured loan space, segments of the private credit markets have grown significantly over the last several years when rates were at or near zero. So again, it's good in theory that you have a floating rate, but the companies that have borrowed in the floating rate markets and in many cases

aren't perfectly hedged or in some cases not even hedged at all, have to increasingly find extra money to actually make those debt payments. So given our, you know, slightly higher concern, that, you know, we're headed for a hard landing than what's implied in the market, you know, we think it makes sense to be quite defensive in those areas. Those areas of the market tend to be lower rated, less flexible companies. So we'd much rather, you know, actively managed duration at a high level and focus on sectors that will be much more resilient if we do get into a harder landing scenario. So that, in fact, is an area of our portfolio where we've actually brought down risk and have very, very little exposure to senior secured loans or other

higher risk forms of corporate debt. It's a crucial point, Dan. It's the very calculation everyone in the market's trying to make right now is, you know, are we going to make it through this okay or not? And as you said, you're kind of in the hard landing camp. So are these yields, what you can get on cash, what you can get across the Treasury complex? Are these the buy of a lifetime? I'm about quite sure of a lifetime. And again, yields can certainly go higher. But this, as good a value that we see in this market, you know, going all the way back to pre, you know, global financial crisis. And again, for the patient investor with a two to three year type horizon, we think you're going to be well rewarded to shift out of cash,

lock in some of these yields, or even looking at equity valuations versus fixed income, it probably makes a lot of sense to shift a little bit of your equity exposure into the higher quality bond market. Maintain some liquidity and then position yourself to take advantage of what we think will be more volatility in the next couple of years. And even under a softer landing scenario, there's going to be problems in the first.

commercial real estate markets. There are going to be problems in the corporate credit markets. And by staying liquid, earning an attractive yield while you wait, we think you could be well positioned to go on offense. And that's exactly what we're looking in preparing to do with this strategy as well. All right. Dan Ivesant at Pimco, our fourth five-star fund manager of this week. Number five is coming up tomorrow. Dan, we appreciate it. We'll see you soon. Thank you. Appreciate it. All right. Still ahead on the show. We'll trade some of the big moves of the day. Walgreens higher despite a fourth quarter earnings missed, Target upgraded over at Bank of America, and BNP Paribati

tapping the brakes on Carvana shares. There's a fresh look at three-stock lunch on the other side of this break. Keep it right here. Welcome back. It's time now for three-stock lunch. We're trading some of the big movers of the day. First up, you've got Walgreens Boots Alliance, Dow component, higher, despite reporting disappointing fourth quarter earnings and soft guidance this morning, as the street seems to like its cost-cutting measures and plans to use AI to street. line and supply chain. So here with our trades this afternoon is David Wagner, portfolio manager over at Aptus Capital Advisors. Walgreens is an interesting fundamental story, new CEO coming in. What's the trade there? Yeah, I kind of agree with you, Dom, on the CEO news. I think the markets

should take that very well. I mean, Wentworth has a history of execution, especially on the healthcare services side of the business. I mean, here, everyone knows that the pharmacy side sucks. The retail side also sucks. But it appears that all conversations around Walgreens Boots Alliance right now is actually going to be coming from the health care services side of the business. And I mean, if you really focus on this health care service side of the business, you know, they've lost almost $600 million year to date off of poor strategy execution. It's like the opposite of the field of dreams. You know, they built these village MD facilities, but really no one really came. So I'm really not interested in owning a business that has, you know, struggling on the retail side and on the pharmacy side, completely.

bind with a third leg of the business, really, that has had really for execution on the services side. So I'm staying away here. All right. Let's see what you think about Target. Dave. Higher on an upgrade to buy at B of A. They're saying the shares, which we know have been under a lot of pressure, now look attractive while margins could improve in the year ahead. Would you be a buyer? Kelly, I'm begrudgingly going to say that it's time that investors can finally start dipping their toes in this name. I'm not going to go to the extent and out on a limb say that, The all clear sign is out there.

I mean, the stock's still down 25% here to date and down like 20% since July. But, you know, I tell my clients that valuation should never be the sole reason to be bullish on some type of name. I tell them that you need some type of catalyst to drive mean reversion in that valuation. And Kelly, I think that we're finally in an environment where, yes, valuation is very depressed, but you're starting to finally see a few catalysts right now with overall foot traffic moving forward and margins, especially as they have a lot of anniversaries on a lot of bad data. But of course, the wildcard here is going to continue to be shrink and its effect on margin. But yeah, I'm getting a little bit more constructive here, especially as you've started to see the $3 billion

and gross cost savings really start to come to fruition. All right. And our final name today is Carvana. It's down about 12% on a downgrade over at B&P Paribah. The bank moving to neutral after a monster run for the stock up 600% or so year to date. Is Carvana now a little too rich? Yeah, Dom, you know, the downgrade today should not be a huge surprise, really, for everyone. As you said, the stock's up 600 percent year-to-date off of better-than-expected EBITDA

and a debt restriction that really just kicked the can down the road. Yet, there remains an affordability issue here for consumers, coupled with the fact that car prices are going to continue to probably increase due to tighter supply and UAW strikes. Not to mention, you know, Carvana's losing like a low double-digit market share right now since they really started to pull back on a lot of their marketing spend and slow with their purchasing of cars. It's a classic catch 2022. A catch 22 here, I apologize. You know, they've done a great job keeping cost controls tight, allowing for break even EBITDAs. But that's baked in right now. You know, basically for this story to change, they need to persuade investors that they are back again

to being a growth stock and not a turnaround story. All right. David Wagner, at Aptus, with our three-stock lunch today. Thank you very much, sir. We'll see you soon. And all the other headlines we want to run through on the other side of this break. Welcome back to Power Lunch. What you're seeing right now, we've got news out of the Sam Bankman-Free trial. His former girlfriend, Caroline Ellison, has wrapped up her testimony after nearly three days on the stand. She is expected to leave the courthouse at any moment.

We've got cameras camped out there. And, of course, our own Kate Rooney, who's been monitoring everything, is going to have much more on that story coming up on closing bell. So we'll keep it right here. All right. In meantime, the Social Security Administration has come out. with its announcement for the cola. Oh, cost of living adjustments.

It was, what was the eight point something? It was a record. Yeah. So this year, 3.2%. It's not nothing. That'll be the boost of benefits next year. About $50 extra per month on average, much lower. There's the number.

8.7% was the record increase last year. What's interesting, the average Social Security benefit per month is around $1,900. So it's not an insignificant amount of money on a percentage basis, but it speaks to this idea that you have this cooling environment and whether or not people are going to be able to still live on that paycheck. I think it's important to mention today as well in the context of the fiscal doom loop where we see interest rates rising because there's concern about the size of deficits, the size of treasury issuance, and one of the factors increasing the deficit was these large colas last year.

And by the way, the stock market right now is down 225 points. Remember earlier in the show we were down north of 300 points, so trying to find some stability there right now. Thank you for being here, Dom. All right. Thanks very much. Thanks for watching Power Lunch. Closing bell starts right now.