Power Lunch - Is Apple recession proof?, Kimco Realty’s CEO and calling a bottom. 10/27/22

Episode Date: October 27, 2022

Is Apple recession proof and can the iPhone super cycle continue as the economy slows? Plus, Kimco Realty’s CEO on how his company can benefit from the Kroger-Albertsons mega merger. And, why it’s too early to call a market bottom. Hosted by Simplecast, an AdsWizz company. See https://pcm.adswizz.com for information about our collection and use of personal data for advertising.

Welcome to Power Lunch. I'm Contessa Brewer. Here's what's ahead. Is Apple recession proof? It's a key question. We may get answers when the company reports earnings this afternoon. And critical to this is whether the iPhone super cycle can continue as the economy slows. Plus, calling a bottom past bear market show we're not there yet. History also shows that severely beaten down stocks bounce when the market is deeply oversold. Some silver linings coming up. Tyler. All right, Contessa, a tale of two markets today in response to earnings and new data on the economy showing that it did grow faster than expected and hinted at waning inflation. You just saw the president cheering for the GDP report.

The Dow up very, very nicely at this hour, as you see right there, up by 287 points. It was up much higher. But on track now for its best month since November of 1987, that was post the crash in October of that. year of 12% for the month of October so far. You got your Boeing, your Boeing, your caterpillar, your Honeywell, those are the three top performing Dow stocks right now. Cat on pace for its best day since at least March of 2020. And you know about meta? You hear about it? Worst performing stock in the NASDAQ 100. 22%, 23% of its value lost today alone, issued some weak guidance that led to several downgrades of the stock, Contessa.

Well, Tyler, attention now turns to Apple the world's most valuable company that could move the broader markets when it reports earnings in just about two hours. Now, investors are going to pay close attention to what Apple says about the I-14 sales and whether economic conditions are starting to weigh on the high-end electronics market. Also important, the impact of the strong dollar and the potential drag on growth. There will be also a focus on the growth rate of Apple's high margin services. Apple raised prices on both Apple Music and Apple TV Plus this week. Plus, Apple's impact on the S&P 500 is massive. It represents about 7% of the index's entire value with a market cap of more than $2 trillion. We're joined now by Barton Crockett with Rosenblatt Securities.

He has a buy rating on Apple and $189 price target. And Tim Higgins, technology reporter at the Wall Street Journal. Tim, I'm going to start with you today. So shares of Apple have largely outperformed Microsoft, Amazon, Google. What are their big headwinds? What do they need to say to continue that kind of momentum? Yeah, this is all about the current holiday quarter today. Yeah, investors are expecting record revenue in the September quarter that just passed,

but they're looking for signs from Tim Cook that he's optimistic, that those high-end iPhones will continue to fuel just an amazing growth that we've seen over the past few years. Now, that growth probably won't be at the 40% level that we've seen, but even a couple percentage points could make it a record quarter. Barton, let's talk first about these three things that you and your colleagues are watching, the I-14 sales, the dollar impact, and the service business margins. Of these, which do you want to tackle first? Mix to the high-end iPhones. You know, we've done some survey work that would tell us that two-thirds of American adults looking to buy an iPhone

or skewing towards the pro, the pro max, you know, 20, 25% higher average sales price for those, you know, much higher kind of focus on that than we've seen before. So that's worth, I think, several percentage points of growth in the iPhone revenue line that they report, if that's extrapolated globally, which I think we're gonna see, you know,

that type of pattern around the world because people are loving the high-end devices. These things are more important than ever before. And that's really the tail, of this quarter. I think the computer market, the Mac, the iPads, you know, Apple's been gaining share, but those markets have had a pandemic pull forward. You know, nothing really, I think, impressive to look for there, you know, except that those are smaller in the mix. And services, there have been some, you know, slowdowns in game play on the app store. But, you know, we think

that they'll continue to see some growth in advertising. And their subscription services are are becoming meaningful and we think a strong contributor as well as, you know, their care products. And, you know, and I think that that set up there is that they can continue to put respectable growth in services against a lower kind of expectations with a company where, you know, you're looking for things that people will buy if it's a tougher economy. And if Apple shows some evidence of that, I think people will warm, you know, warm up to it, kind of like a staple. and that will be helpful for relative performance of this equity. You know, let me ask you, Tim, if I might, about some of the, I hesitate to call them secondary products,

but they're not the iPhone. They're ones like the watch, the Mac, the iPad. What is the company expecting there? And were so many sales of iMacs, of Macs pulled in to the pandemic year that you don't expect a good quarter on that this time, or you see that sort of slackening sales, Tim? Well, I'm definitely going to be looking for Mac and iPad sales. You know, it's interesting this summer Tim Cook was telling me that, you know, they didn't have the inventory to even be able to tell if there were economic headwinds

against those devices. They didn't see any headwinds for the iPhone sales, but they were seeing in some of those cheaper products such as the watch. But when you talk about Macs and iPads, unclear. So now that inventory should be improving, which they said should happen in this September quarter. It'll be interesting to see where the economic world order is affecting those products, because as you point out, they were some of the big surprises during the past two years, really fueling some of that record growth with the iPhone. So going forward, they could face,

you know, some headweds to try to match those year-over-year results into the 2020. Barton, if I'm understanding correctly, as with the iPhone, where it looks like the priceier version is is doing very well, you sort of see the same with the new version of the eye watch that the highest end version of it with all the bells and whistles to use the cliche is doing better. Yeah, this is an $800 watch. And in our survey, you know, those looking to buy a watch nearly half said they wanted to buy the ultra. You know, that's not everyone like, you know, basically a fifth of Americans were looking to

buy a watch, but that's a large population and a heavy skew to the expensive model. And this is their real kind of debut in pricey watches. I mean, the core that they pushed, they've had expensive watches, but they haven't been to core. This is a pricey watch at the core that a lot of people want to buy. And I think that'll be a nice help for the wearable segment tonight. Hopefully we'll see that. It tells time, doesn't it? Yeah, yeah.

It does. I think you like my heartbeat and ovulation and all that stuff. But just so it tells time. But you raise a good point there because Apple keeps, even if they don't have the big new thing, They keep innovating. They keep pushing the envelope further. Iterating the new, yeah. Absolutely. And take a look at this. Here's these mega market cap losses that we have here. Look at their declines over a year. The total loss $3 trillion.

But of that, Apple has the very tiny shape. It's barely a nipple out of that Apple, $35 billion lost in total. Do you think, Tim, that there's something, or maybe Barton, this is a better question for you. Do you think that there's something that is sort of protected about Apple in that people who get into the Apple ecosystem tend to stay there. And even if the Apple Watch costs $800, not a $50 TimeX, I don't know how much a TimeX is, but they're willing to spend that because they're loyal customers. They're going to stay in that ecosystem. Yeah, look, I think that the theory that Apple has integration of software, hardware, services, make a better mouse trap. And they're taking share hand over fist all over the place.

And it's really like nothing we've seen. And I think that they're taking share in the most important parts of the modern economy. You know, your phone, your connection to the world through that, it's never been more important to you. And, you know, the watch is kind of loop you into that ecosystem. The fact that the AirPods work better with your computers kind of, you know, loop you into that ecosystem. They've got a story that's working well.

Though they still haven't figured out how to make silent, truly silent on those phone ringers. Yeah, somebody's phone was groaning right there, I think. We heard it. It was good. Wasn't mine. It wasn't mine. But we're not asking everyone to name names or out themselves. Barton Crockett, Tim Higgins, we really appreciate it.

Looking forward to Apple earnings. But I think you're so right. Once you get sucked in, you are, it's sticky to get out. But the products are good. But also because you're buying all of those accessories that only go with Apple. It's not like you can use them and switch from the place to place. Once you're in that ecosystem, it's hard to switch. And they work.

All right, the major indexes have seen a mini rally since the October 12 low. The Dow is up close to 10%, if you can believe it. The S&P more than 6%. But according to our next guest, history says this isn't a bottom. And the bear market will likely inflict more pain. Joining us now, Paul Hickey from Bespoke Investment Group. Oh, you party pooper, Paul. Why do you say this?

Well, Tyler, I wouldn't say I'm a party pooper here. All we were doing here is comparing the characteristics of typical bear market lows to the current period. And what we highlighted at the time a couple weeks back was that the last legs of the bear market from all-time highs are typically very violent and they inflict a lot of pain. So you tend to see a real sharp decline on the way down in the last, you know, six months, you tend to decline over 20%. In this current period, to the October 12th low, we decline 14%. The three-month decline was also much more mild than average. It was only the one-month decline that was in line with the historical norms, so to speak. So just pointing out the fact that, you know, bare markets are typically violent. This one wasn't necessarily violent. The other thing

about bare market bottoms, though, which is important to remember, is that you, the low is is there's very usually a small window to get in. In the median amount of time that a bare market low trades within 5% of the ultimate low is 10 trading days and then on either side of that low. Whereas in the current period, we saw more than twice that amount of trading days so far. So there was an extended window for investors to get in. So all we're highlighting again is the fact that bare market lows are typically pretty violent, this one was painful, but not quite as violent in the past.

The other thing to remember, though, is on the other side, and this is what we advise in the report, is that that kind of behavior shouldn't cause someone to sit all out and get all out of the market. You should never be all in or all out. And that's because on the way up, the rally typically is just as extreme as the leg down. So what we've seen historically is in the first month of a bar market, of a rally off a fair market low, the S&P rally to medium and median 15%. And over the next six months, it's about 30%. So investors just have to take a wait and see approach to the market and weigh

the pros and the cons. And there are certainly, you know, well, the historical playbook doesn't necessarily hold suit. There are some positive signals within the market that we've been noting as well. And so you've got to take the good with the bad and inch in here as you see. Let me get a quick response to something I heard in the last hour, and that was one of our guests saying that the GDP number out today sort of indicated that maybe the economy is doing a little better than some people thought. Number two, that I believe she was starting to sort of sense, her spidey sense was that maybe we're in one of the later innings of the interest rate hike cycle and that after November, perhaps the Fed will not pause, but maybe change its language a little bit. and that that may be one of the reasons why the market is moving the way it is. Do you sense that at all? What would you say to that individual?

Well, so I think that's a great point. So the fact is that the market low happened, the intraday low happened the day of that CPI report, which basically killed all hopes as far as sentiment was concerned that inflation was abating. So the ball was there for the bears to take this market and take it much lower. And they went the wrong way with it, so to speak. And we ended up rallying. So that kind of signal from the market tells you that perhaps, you know, while the market is looking forward, when, you know, investors are looking at the headlines and that they're not market positive,

but the market is looking forward. And inflation numbers are going to start coming in here, we think just based on the comparisons in things. So I think in that respect there, the prior guest, what they were referring to in the last hour, would make some sense. Paul, I'm looking at a couple of your recent purchases, Generac and Tesla. You're getting in when a lot of other people were ditching out. Why? Well, so in these rallies, whether it's a bare market rally or if it's a new bull market. I mean, we don't know. Nobody knows. But in these kind of rallies, it's not the attractively valued stocks or the defensive issues that see the strongest rallies coming out, that see the strongest performance. performance during these rallies. It's the stocks that are the most beaten down. And it's hard to think of a stock that's more beaten down than Generac. It tripled off its pre-COVID highs and now is down over 75%. The stock is trades about 13 times earnings. And while it faces headwinds because of residential housing, over the long term here, we look at, you know, backup power as say what air conditioning was in the early 70s. It was a luxury home in the 70s less than. Half of new homes in the early 70s were built with air conditioning included.

It's now 96%. I think if you go, you know, 50 years from today, I think most houses are going to have some backup power, especially if the grid remains as unreliable as it is now. And Tesla's another name. It fell 20% in the span of seven days earlier last month. It's down 50% from its highs. The overhang of the Twitter deal was really weighing on shares. And with that set to close, you know, this week, I think some of that overhang will be removed from the stock.

And that should benefit the stock going forward. Yeah. And if you listen to the Ford's conference call yesterday, I mean, the traditional OEMs are all in on EVs. And Tesla is the leader there. They're going to be playing catch up for years. Paul, it's great to see you. Thank you very much, Paul Hickey. You too.

Thanks. All right. Coming up, Kimco Realty coming off, a strong core issuing upbeat guidance. The stock is up about 13 percent. this month, and it could benefit big time from the Kroger's Albertson's deal. The CEO joins us next. Plus, meta doubles down on the metaverse, spending especially, despite growing calls to pull back.

Is Silicon Valley addicted to growth at any cost? Before we get to break, auto-related stocks hitting all-time highs in today's session, AutoZone, genuine parts, and O'Reilly Automotive. Look at that, up almost 4%. We have more power lunch in two minutes. Welcome back. Solid quarter for Kimco Realty, the largest publicly traded owner of grocery anchored shopping centers in the country. Occupancy rates are higher. Rents are up. The company's top tenants include Home Depot, Walmart, Albertsons, and Kroger.

The two companies that are just announcing their merger. Big beneficiary, potentially, the Kimco could be of the Kroger Albertson's mega merger. Joining us now for a first on CNBC interview is our friend Connor Flynn, the CEO of Kim Co Realty. So why don't we start with Kroger and Albertsons? How does this help you, apart from the fact that I understand your company has some equity in Albertsons? Hi, Tyler. Nice to see you. Thanks for having us. You bet. Kimco had a phenomenal quarter this quarter. We're very proud of the team and the results really speak for themselves. We are uniquely positioned to benefit from the Albertsons-Kroger merger. Actually, dating back

over 10 years ago, we made a strategic investment in Albertsons and have seen the fruits of our labor really pay off. We actually generated over 300 million of proceeds from selling close to 11 million shares of Albertsons prior to the end of the quarter. And we still have 28.3 million shares remaining in Albertson. So as the Kroger and Albertson's deal moves forward, we're in a great spot to have ample amounts of liquidity, really at a time where obviously capital is going to be king, cash is king. Kimco is sitting pretty there. Remind me if you can ballpark it out. There's the Albertsons brand. I believe they have Safeway, Acme, Kings, a bunch of other jewel, if I'm recalling. And then there's, of course, Kroger. How many, from this complex of now

combined stores, how many of those stores are big tenants in your, in your malls? So our grocery anchor shopping centers typically have a grocery anchor in them, either from a Kroger, it could be an Albertsons. It also could be. be a Whole Foods or it could be a Trader Joe. So Albertsons has a number of different flags, as you said. If it's out west, it's typically a Safeway or a Vaughans. If it's in the east, it's typically an Acme or a jewel where Kroger has a number of different banners as well. The way the deal was structured, it's going to be a really solid combination of two powerhouse grocery chains coming together to really deliver hopefully a lot of value their customers.

Now, we'll have to wait and see as the approvals run through their normal course of action. Kimco is going to be in a good spot regardless if the deal gets approved or not because Kroger's a better credit. So if they do merge, we'll get a better credit with the combined entity. But if they don't merge, we'll still have, you know, two wonderful grocery anchored operators continuing to be actually thriving in this environment. If you think about how the consumer is behaving today, the grocery stores still provides a tremendous value. As inflation starts to hit a lot of different areas of the economy, people may look to trade down. And one of the ways to trade down is really cook for yourself. And grocery stores are still benefiting from that.

I'm looking at your top tenants here. The biggest one on the list currently, and this is before the Kroger Albertson's combination, is T.J. Max. And at the bottom of that list is Walmart with a little more than 1%. A lot of these companies are going to face scrutiny in their next earnings reports about how the holiday shopping season went, whether consumers are still spending, whether there's strength of these consumers moving into 20%. 23 in the prospect of recession. Are you recession proof? Are these tenants that will still pay the rent to you no matter what comes down the pike with recession? We are very fortunate to have investment create tenants across our portfolio, specifically the ones you mentioned there. You know, Kimco as a whole is a defensive play. You think about it, we're everyday goods and services,

essential goods and services. So we like to think we're well positioned for what may comes next. You know, the economy is obviously anybody's guests right now with the inflationary issues that are rippling through. It is interesting to think, though, that our retention levels are 20% higher than they have been for the last five years. So the value proposition of the store in our shopping centers is actually being recalculated by our retailers because they're not just selling the product out of the door. They're now fulfilling those online orders and using the store to do that. And that's why you're seeing the supply and demand really be in our benefit as we're able to lease up space really rapidly.

The pricing power is there on our spreads, and the occupancy continues to grow. And retailers are really embracing the Omni-Channel world. The other thing that I wanted to ask you is that, according to what I've read, this deal with Albertsons and Kroger is going to provide you with a billion or so of capital after you harvest it all out. Is there a way for you to deploy that now in this time when capital markets are all but frozen that takes advantage of what we know is a lot of empty retail storefronts, especially in malls. Do you have an opportunity in front of you because you have that cash?

Yeah, we do have an opportunity. We have to actually live by the REIT rules. We're a real estate investment trust. And this is a unique situation. Not a lot of REITs are in a position where our investment in Albertsons only has a hundred million of basis. And so it's worth about a billion three. We did just harvest 300 million. Now on the next billion dollars, we have to sell about three to 400 million each year in order to retain our REIT status. So we can't harvest it all at once, but we've done 300 million just this past month. We feel like next year we'll be able to do another three to 400 million and then the year after that, another three or four hundred million. You know, we're reaching all-time high occupancies. You mentioned the enclosed malls are a very

different segment of the retail world. The gross rancored shopping center is in, in, in perfect position to take advantage of the supply and demand and balance because we're getting the benefit of not only the TJ Max's, the Burlington's, the grocery stores, the Home Depot's, but we are seeing a surge in demand as well from some of the better credit mall tenants as well that are looking for open air shopping center expansion. So think of Sephora. We used to have Ulta Cosmetics be the dominant player and beauty for us. Now we have Sephora coming in looking to expand dramatically in open air shopping centers. And the same goes for other retailers. Connor, it's a really a pleasure to have. I want to ask Connor one more question. Okay, well then you go, yes, please do you. It's a really important question. Connor, is that where you usually sit? Is that your office?

This is our office. We just did our earnings call and our all-employee call, and this is our office in Jericho, New York, I like that you sit there. You're a man of the people. You sit there. Also, those ceiling lights kind of give him in a face. Come shop in Jericho.

We have a, he's got a halo effect here. Do you see it with the ceiling lights? Some of the best schools, one of the best school systems in America, Jericho, New York, correct? It's exactly right. That's why our retailers do so well here. All right. Connor, great to see you, man. Always a pleasure. Thanks for having me. After the break, high net taking high risks, despite the major slowdown in Bitcoin, a lot of wealthy investors are upping their crypto investments this year.

We're going to discuss those details next. Plus, further ahead, tech might be struggling, but industrial earnings really provide some positive news. Look at Caterpillar. Beating expectations, having its best day since March of 2020. We're going to trade that name in today's three-stock lunch. We'll be right back. Bitcoin has lost half its value this year and has been pretty steady near the lows these past few months. But some high net worth investors aren't quite ready to throw in a towel.

Kate Rooney joins us now. So who are they? Why do they want in? Kate? Hey, Contessa, that's right. The bear marketing crypto is looking like a bit of an opportunity for some of of the professional investors, high net worth investors out there as well. According to an annual survey from Fidelity Digital Assets, about 58% of institutional investors

bought cryptocurrencies in the first half of this year, even as Bitcoin at the same time fell about 60%. That total was up six points from the same time last year. 74% say they planned to invest at some point in the future. High net worth buyers drove those results. Almost half of those surveyed say they now own crypto. Financial advisors with the next biggest group and then pension funds and endowments still have the lowest allocation. They tend to be the most risk averse of those groups.

The top reason for buying right now, more than 40 percent, say they see crypto as an asset with high potential upside or as an innovative tech play. And despite its correlation with the NASDAQ and QQ, a quarter of institutional investors are still banking that it's something that's uncorrelated to some of those other assets out there, including the NASDAQ. I asked the head of research of fidelity about that and that report in general, and that sort of dichotomy between being uncorrelated in those assets. Clients, he says, in this case, tend to be longer-term investors. They're willing to wait for some of those other use cases to play out. The biggest barrier so far, half of respondents here say it's still price volatility, keeping them out of these markets.

They also mentioned lack of fundamentals to gauge its value, security, market manipulation, and then regulatory risk. back to you. All right, Kate, thank you very much. Kate Rooney. Let's get to Bertha Coombs now for a C-NBC News Update. Bertha. Hi, Tyler. Here's what's happening at this hour. In Santa Cruz, California, several schools have been locked down while police investigate a report of an active shooter. Police say no injuries have been reported. More than one in every 60 American adults is suffering from long COVID. That according to a study from Massachusetts General Hospital, study also found people who were vaccinated were less likely.

to report long COVID symptoms. And for the first time ever, conservative Republican Liz Cheney has endorsed a Democratic candidate. Cheney is voicing support for Michigan Representative Alyssa Slotkin, who is in a tight race for reelection against Michigan State Senator Tom Barrett.

And the first woman to ever lead New York Fire Department has now now has a job on a permanent basis. Laura Kavanaugh has served as acting commissioners since February. New York's bravest are still overwhelmingly male. Just over 1% of the city's firefighters are actually women. Tyler.

Great for her. Good for the NYFD. Appreciate it. All right. Ahead on Power Lunch, Silicon Broke. Meta's cash bleed raising a serious issue in the world of big tech. So why doesn't Silicon Valley know how to stop its spending? Plus, speaking of big tech, Amazon earnings on deck, the e-commerce giant,

seeing a big slowdown in its retail business. Will economic headwinds? results. We'll be right back. All right, 85 minutes left in the trading day. We want to get you caught up on the markets on stocks and bonds and commodities. And this question, should Silicon Valley change its culture? Let's begin, though, with Bob Bassani at the New York Stock Exchange. We've seen a lot of optimism today in the markets, Bob. Yeah, and here's something you don't see very often contest. The Dow's up 1%. The S&P is down a half a percent. And the reason that's happening is heavy weighting in tech and communication services in the S&P 500, and they're having a tough day.

But elsewhere, not so much. Industrials are having a great day. Look at Caterpillar on the earnings report. Boeing rebounding after yesterday, not an earnings report today, but recently. Honeywell, great report, McDonald's Good Report. Those four stocks, that's basically all the gains in the Dowell Jones Industrial Havage. Merck got a new high. That's an historic high at $100, and that's the earnings report.

but other earners that we had reporting either after the close yesterday or this morning also had generally good results. Service now, Southwest Air, Auto Nation, Anheiser, Bush, all decent earnings on the, as we had about halfway into earnings report. It'll be Friday, late Friday or early Monday when we get halfway there. The problem is just big cap tech in general. Now we're waiting for Apple after the close, but you saw what happened to Meta, Amazon, Microsoft, the weighting of these stocks in the S&P 500. We're talking about the biggest stocks that are out there.

That's why the S&P is essentially down today. Finally, on Mobilize, I just want to point out something rather distressing about IPOs. We had a great start to MobileI. Priced at 21, ended up about 25% on the day. And you see it down 6% today? Contessa, this is a very sort of distressing trend with big IPOs. They tend to pop on the first day. Most IPOs are up 10 to 20% on the first day.

But the following days, they usually tend to sell off. This is what we call the aftermarket performance is a bit disappointing. That's what's happening with Mobile Eye. Contessa. All right, we'll keep our eye on that. Bob Pisani, thank you. Let's get to the bond market now where yields are falling on signs or maybe hopes that inflation is starting to slow. Rick Santelli has all the action there.

Hi, Rick. Hi, Contessa. Well, there doesn't need to be so much hope. The hope is what inflation may do down the road. But when you look at a 4.1% GDP pricing following 90s,000, following 9%. It's pretty hard not to get a little optimistic. Look at an intraday of two-year note yields and obviously their yields peaked right around 830 Eastern. All global interest rates started to come down due to those dynamics. And if you look at a two day of tens, looks like

we're on pace for the first close in two weeks under 4%. And when it comes to boons, there's a two day of boons, big drop, three-week low yield close. And the ECB, of course, met today. They had their second three-quarters point rate in a row. They raised rates to a level that we haven't seen in over a decade. And by some of the wording changes, it looks like the ECB is going to be less aggressive. The recession seems to be spreading. And when does QT start? Very blurry there. And if you look at Boons and you open the chart up, you can clearly see first time we're going to close under 2% since the 4th of October. GILTS, five-week low yield is all sovereigns move in the same direction. And finally, here's a three-day chart of the recession spread, three months to

10-year, on pace for its second inverted close. Right now hovering six bases points, Inverted. Contessa, back to you. Rick Santelli, thank you very much. Oil higher once again today trying to get back to 90 bucks of Barrel Pippa Stevens at the commodity desk. Hi, Pippa. Hey, Contessa, oil is extending yesterday's gains with Bren pushing back towards $100. Now, earlier today, the dollar hit its lowest level. level in a month, which gave oil a boost. A strong dollar can impact demand since it makes oil more expensive for foreign buyers. WTI is up 1.4% at $89.11. Natural gas, though, falling once again that November contract does expire today with the more actively traded December contract

trading at a premium right around $5.90 per MMBTU. Now turning to energy stocks, which are having really a monster month, up more than 20% in. in October. Conoco, Hess, and Marathon Petroleum hitting all-time highs today. Exxon also hitting a record ahead of the company's report tomorrow morning. Chevron will also post-quarterly results tomorrow, while next week we'll start hearing from some of the drillers, including Devin and EOG. Contessa. Thank you for that. And turning now to what we're calling Silicon broke. Talks of cost cuts, layoffs, hiring freezes across Wall Street as America braces for recession and yet tech giant spending more than ever before. Take meta. Cap X spending expected to grow

nearly 70% this year from 2021 and hiring 3,700 new workers last quarter. And yet shares plunging on its earnings miss down almost 25% on the day. Wall Street is screaming. We're not accepting growth at any costs. Why isn't Silicon Valley listening? Let's ask Jim Stewart, New York Times columnist and a CNBC contributor. Do you, do you, Do you think that these big growth companies, Jim, are they incapable of belt tightening? Well, they're clearly capable of it. The question is, do they want to or will they? And I think what they really have in common we're seeing now is there's incredible disconnect

between normal market disciplinary forces and these big tech companies because they are, most of them have controlling shareholders who do not need to listen to the marketplace and don't really even listen to their own boards of directors if they don't want to. And another fascinating thing about them, like a Zuckerberg or a Bezos, they are so rich, even if their stock goes down 25 or 50 percent, that they're not personally particularly effective. I don't know that they care whether they're the richest person in the world or the third richest person in the world. They're still phenomenally rich. So they're living in a world that is disconnected from the average investor, let alone the average person. What you're just,

describing is basically an emperor who looks out at the kingdom that he has built and says, I don't need to listen to my advisors. It doesn't matter that I spend proficately. I'm going to continue to do what I think is best in order to grow and retain control of my empire. And you see it happening even outside of this mega cap names. I mean, Draft Kings has a founder that also has all the voting power where this comes. Are you going to start to start to see a switch from investors who get spooked by that kind of structure in and of itself, Jim? Well, they've certainly been ignoring it over the last decade when, you know, as long as the stock price was going up, I don't think anyone really cared about it. But I think, yes,

there is going to be a renewed focus on corporate governance and a look at how these people are responding. I mean, I think another big issue that's particularly true of metal, the stock is down 24, 25% today. And they've done a terrible job of communicating to investors what to expect. And also, what is the rationale for this spending? I mean, I'll give them the benefit of the doubt that they are genuinely acting what they believe is in the best interests of the company and shareholders. But they have not been able to explain that to the average person. You know, what is this? But also, aren't shareholders just in it for the short term? Like, you know, you get all of this pressure quarter after quarter after quarter to show results when I've heard CEOs say,

I'm trying to build a long-term vision here. How am I going to come up with the next big thing if I don't invest the money in that now? Well, Amazon is kind of the classic example of that shareholders let them lose money for decades. But they did a good job of explaining where they were going in the end. And I think others need to follow that lead. I think a lot of investors in these companies are long-term. I mean, I know plenty of people who bought in early with Google Alphabet, bought in early with Facebook, hoping it would be their Walmart, you know, that they could, you know, hold it for 15 years and retire. And, you know, for a while it looked like, yes, these things were going to pay off. So there, you know,

long-term holders have done very well until this year in these companies. And I think shaking, this is now beginning to shake that long-term mentality. Cheryl Sandberg left. A simple question, Jim. Does Meta have a Zuckerberg problem? Well, I don't personally know. Zuckerberg, but I think there is a sense that you need with these, let's concede that he's a genius, he was brilliant at seeing the potential of Facebook. Does he have the discipline to run a mega cap company like this? It would be asking an awful lot for one person to be able to do all these different tasks, to be both a visionary and a great chief financial officer, for example. So I think investors,

they're very reassured at Alphabet, for example, that they have Ruth Corr at as the chief financial officer. Somebody they know, they trust, Wall Street knows her. She's an adult in the room. I don't think Facebook has, now that Cheryl has gone in particular, has a figure with that kind of stature on Wall Street. The question is, will they get someone like that? Do they have someone like that?

And again, if they do, they haven't really done a good job of communicating. This has clearly has always been the Zuckerberg show, and you either go with him or you don't. Interesting answer, Jim. Thank you. As always. Great to see you, sir. Nice to see you. Jim Stewart. We'll be right back. All right now, the Dow is having a very nice day. It is up about 300 points. It was up higher earlier, but $299 is pretty good. The NASDAQ is down more than 1% meta figuring in that, big name tech stocks dragging down that index. Meta, as I mentioned, it's really just getting crushed. There's no other way to put it.

Amazon also lower ahead of results after the belt today, not before, after, down 3%. Amazon, 4 and a quarter percent. Some key things to watch the impact of Prime Day there at Amazon. Foreign Exchange head wins, the growth rate for AWS, the state of advertising, which others have seen big declines in. Contessa. Well, after the break, Caterpillars, cows, and cloud computing. And Contessa, let's just throw it all together.

All seats. We're going to hit. That's three big movers in today's three stock lunch. Time now for the one, the only three stock lunch. Today we are going to sip on some names all higher after topping third quarter earnings estimates. We got your caterpillar reporting robust demand, including a 33% jump in North American sales from last year. We got McDonald's seeing traffic rise at its U.S. restaurants last quarter. And Service Now saw servings per earnings servings, earnings per servings per year.

share coming in 12 cents higher than analysts expected. Here to help us trade them all. Lee Munson, President CIO of Portfolio Wealth Advisors, Lee, welcome back. Why don't we start with Caterpillar? They got a nice story to tell. I love Caterpillar, nice blue chip. This is why you buy old economy stocks and recessions. So I love the numbers. Here's the thing. Look how this stock has performed this year and how it has been rewarded for beating estimates. And here's the other thing about sentiment. And oh, and by the way, I love that China, it's not a big part of this. It's 5, 10% of their sales, and it wasn't absolute horrible. But notice that they went from reducing $300 million with the inventories of dealers to increasing $700 million in dealers, meaning that they sold a lot

more stuff to these dealers on the books, and the bears were quiet. Nobody wanted to point that out. Nobody wanted to needle it. I'm bullish, so I'm not needling too. But I think it tells you so much about sentiment when you can have a situation where inventories dramatically rise and there's not a bunch of gadflies pointing at it. Everybody just says, I'm glad we beat. I'm glad they're still selling and I'm glad that they can push through those price increases. All right.

What do you think, Lee, is McDonald's also a recession special? It is. Now, I admit, bull markets can get tiring after about nine months. And months ago, I was on with you guys talking about McDonald's about the theory that was people shift down. and trade down in recession, a company like McDonald's will work out classically. Guys, it's so nice that that thesis still exists, that some things didn't break in the spare market and are still the same.

They're raising dividends. Notice that Europe still was strong. Europe was not a disaster. Nobody's complaining in senior management about the strong dollar, which I love, it shows you that they know how to manage. And also, we fully rode off Russia, and that wasn't a surprise on how much money they lost. So this is just classic. I think you want to buy this or a thing like.

caterpillar. Don't trade it. Just buy it. Hold it till we're in and onto the next growth market, so to speak. I just love this stuff. Let's look at number three, and that is Service Now. The stock is jumping. Let's take a look at the stock chart, shall we, Lee, and then get your response to it. As we see, that stock is up 13%. Am I chasing something that's already left the station, or what? It might be short squeezes. It's a service no. That's my tagline for the day. Here's my issue. For 10 years, we've been sold to billed goods by private equity that as long as you change the company into software as a service and made a subscription model that you're recession-proof.

Okay, and that the debt isn't a problem. I agree with that concept, but that's not talking about the price of stock. You've got a $400 plus stock that's making pennies, a few dimes per share. So if this thing was growing at 20%, give me a nosebleed $100,000. PE, not 500. And the other thing is, it's not its first day of the rodeo. Most big, large firms already use their HR software. So while they still have some growth, this thing's going to start to moderate. And it's not growth at any price. Again, it's just too rich. And I just would rather find something that's a little bit more realistic in terms of valuations.

All right, Lee, always good to see you, sir. Thank you very much. Lee Munson. Up next, Elon Musk has a message from Madison Avenue. on the eve of his Twitter deal. That's next. Elon Musk may be trying to reassure advertisers of his intentions in buying Twitter. He says the platform cannot become a free-for-all hellscape. Musk tweeted, quote, the reason I acquired Twitter is because it is important to the future of civilization to have a common digital town square where a wide range of beliefs can be debated in a healthy manner without resorting to violence. That's his quote. The tweet comes on the eve of his deadline to acquire the company and follows a Wall Street Journal report that advertisers are concerned about whether

content will be moderated and whether conflicts of interest arise. It's interesting to say that he doesn't want it to become a hellscape, but he does want more lively, fiery debate to be allowed to proliferate. And I'm reading here over your shoulder, a range of police committee to read it in a healthy manner without resorting to violence. Well, words are not in and of themselves. violence. It's sticks and stones. The question to me is whether the words

incite violence. The violence is the action. How do you make the tie then between what is on a platform and published? I think of these companies, this is a big controversy point of view, I think of these companies as publishers, publishers, not just anodyne communications platforms. So how do you tie the violence to the rhetoric?

It's a hard one for me. Wow, and the reality versus intentions may be different, but at any rate. So why don't you all go away now and think about this for the next day, and we thank you for watching Power Lowe.