Power Lunch - Jobs Jitters 4/6/23

Episode Date: April 6, 2023

The jobs market is showing signs of cracking. Weekly jobless claims are on the rise, following a weak report on payrolls from ADP.All as Wall Street awaits the big government employment report due out tomorrow. We’ll look at what these ‘labor pains’ mean for the Fed, markets & the economy.  Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Good afternoon, everybody, and welcome to Power Lunch. I'm Tyler Matheson. Coming up today, the jobs market showing signs maybe of cracking. Weekly jobless claims rising. That comes after a week report on payrolls from ADP, and now the markets are waiting for the big government employment report. That one is out tomorrow. We will look at what these labor pains could mean for the Fed and, in turn, for the markets in your money. For today, stocks are mostly higher. The Dow just turning negative by two one-hundredths of a percent. And for more on today's movers, let's get to Christina Parts and Evelace over at NASDAQ. Hey, Christina. Well, Tyler, we are still closer to those best levels of the day,

despite that little drop in the Dow that you're seeing. The NASDAQ on pace to snap a three-day losing streak. But when you pull it out and talk about the week, the NASDAQ and the S&P 500 are expected to end this three-week win streak. and unfortunately close in the red. Meanwhile, the Dow, which we did see drop, like you said, down seven points. It's still expected to end on a positive week for the third time in a row. But let's talk about energy and health care names.

They are leading the pack this week. Clearly defensive plays, like as you mentioned, investors digesting all this recent job data and the job data pointing to a cooling economy, so they're getting a little defensive in their plays. But it's communication services, big tech, and the regional banks today pushing hire ahead of upcoming. earnings that are starting next week. First Republic, Western Alliance, both at least about 3% higher. Just yesterday, Western Alliance said that their deposit outflows are stabilizing,

so investors do like that. And speaking of deposits, JPMorgan Islands downgraded Comerica to neutral with a price target of $44. And they originally had a $75 price target, so that's pretty big. And they cite concerns of weak loan and deposit growth. Comerica shares are around $41.35 at the moment. Micron chipmaker leading the NASDAQ 100 could be this buy the dip mentality after micron got hit by China's warning that it was looking into security risks with Micron products. So the shares are up about 3.8 percent. And there you have it, Tyler. Back over to you. Christina, thank you very much. Let's get a little bit more on jobs jitters that are hitting the market this day. This morning's data showed 228,000 new claims for unemployment insurance in the latest

week and the revisions to the previous weeks, adding to concerns as we look ahead to tomorrow's big payroll report. Steve Leesman joins us now with more. Explain the numbers to us, Steve. I'm going to do my best here, Tyler. But here, let me just start off with the headline here, the Department of Labor today. It issued revisions to jobless claims that told a very different story about the job market, one that shows it is weaker than previously believed. The government's annual revisions to seasonal adjustment in the jobless claims showed that since the beginning of the year, there were 312,000 more applications. That's that our orange line there for unemployment insurance that originally reported. It was the largest

upward revision since at least 1991. The bigger story is what economists thought was a flat number. That's the blue line is now a rising number. Again, the orange line. The ladies department said the surging claims during the pandemic created pretty big distortions in the seasonal adjustments. So it brought those back down. It believes it has corrected them now. All of this raises the question of whether the consensus for tomorrow's payroll report of $2,000, $238,000 is. to Rosie, the HR software company, home-based writing, a once-hot economy is showing signs of a slowdown. Core indicators are shown none of the seasonal growth we've seen in prior years.

Here's their numbers. They show the number of employees working shifts shifted down compared to February. Last year, the home-based data did not show such a dip. BLS data has beat the consensus for 11 straight months. Forecasters keep betting. The job market is going to slow. the job market remains resilient. But this data now suggests some real potential slowing with the question of whether it's enough to stop the Fed from hiking. So Tyler, you can take a-

Well, I guess that's the pregnant question is what does this mean for what the Fed might do. The job numbers themselves, even a revision to the number of claims is not enough for the Fed. They have to see it happen in inflation. And the route that they see is slower job growth, slower economic growth, means less wage pressure, less wage pressure, means less inflationary pressure. But all of that is a process, and it's a process that I think we know is taking more time than had been believed. Were you surprised to see the level of these revisions? Yeah, I'd never seen them before. I mean, anything like this.

And does the idea that these are corrections, at least in part, driven by trying to make up for some of the distortions of the pandemic? Does that fly with you? That makes sense. That makes sense. I mean, the data has been massively messed up by the pandemic, Tyler. It's been something that's we've been going back. forth on for a very long time. Even the job numbers that we think are right, this return of leisure and hospitality, we don't know how strong the job market is. What we do know is that the

leisure and hospitality business, which lost a lot of workers, is trying to bring a bunch of them back. Right. And that means 98,000, 100,000, more than that job growth from leisure and hospitality every month. Yeah. Steve, we are not done with you. Oh. You're going to stick around as we bring in Surat Setti to talk about the markets, the jobs report tomorrow and some equities that he likes right now. What do you make of these jobs numbers and the possibility that tomorrow's big report may show some slowing in the jobs market? Is that kind of inversely good news for equity holders? I don't know if it's going to be good news because I think what that's going to foreshadow is what earnings is going to do. And if companies are shredding as we've seen and you've seen a huge amount coming at least starting in technology,

companies are going to say, hey, we need to cut costs. And if we're going to start with wages, what's going to be next? Is it going to be cap X? Is it going to be cutting back on travel? So I think that's where we're going to see the next quarter. Earning season is going to be really important. We're in a quiet period, so you don't really hear anything. And I think that's where investors are starting to get a little more defensive.

And you're seeing money move into health care, move into staples, and really kind of wait and see as to what the cyclicals are going to do, what are technology stocks going to do, and then also the financial services sector. And you've also seen money moving into fixed income for a change into T bills and so forth, right? Absolutely. And again, there was a rent store in there because when we had the quote, you know, little mini banking crisis, people, it was an impetus to move money straight out of, you know, sitting in 0.1% in a bank because people were not sure it was confident. They were confident to be there. So money's moved into treasuries, money's moved into money market funds. and I think the weight and C period. Now, the counter of it, Tyler, is if you're a contrarian,

there's so much pessimism out there, right? It's very negative. If you look at the yield curve, you look at what companies are talking about. But we haven't really seen that big issue, and maybe it comes with commercial real estate, maybe it comes with something else. But there could be some opportunities here, I think, if you're a long-term investor.

I see Steve nodding here a little bit, comment or question? You know, it's interesting to think about what a soft landing is from the stock market point of view. You can think about it from an economic point of view, which is, you know, the Fed is able to beat back inflation by without causing a recession or a major increase in the joblessness. I think the stock market way of thinking about it,

and I wonder what Surat thinks about this, is can you get through this process without a major hit to earnings? The companies still remain profitable through this process. Because when you ask Sarat, is this good news, is this bad news? Be careful what you wish for, right? If I told you the Fed was going to cut rates, you'd be happy. But if the Fed is going to cut rates because the unemployment rates up by a percentage point,

and the wages are not rising, the economy's not just slowing. And here's really the question. You know, you think about landing a plane, you've got to go through 10,000 feet, you've got to go through 5,000 feet before you get down to the ground. You know, what's happening, and I don't know if they have just a job growth chart in the back, a plane change in the payroll numbers, is we've been riding very high, 200,000, 300,000. with that big 500,000 back in January, we need to get back to 100, 150,000. It seems to me the market has priced in passing through normal all the way to what was, remember the movie, it was Abby Normal, the Abnormal, passing all the way, a young Frankenstein, that was. And getting beyond that and crashing right away, rather than the potential for the plane to level out.

So, Surat, the first thing you mentioned when I asked about whether these numbers could perversely or inversely be good news. You said, well, it depends on earnings. So let's point to a couple of companies where you think earnings, well, they may be underestimated or where you think the earnings are going to be resilient and strong. I know you have a couple of names in mind. Yeah, so there's a, you know, one of the things that people are not really looking at are spinoff. So Glaxo spun off Helion, which is in the consumer space. I mean, here you've got a defensive company that has a lot of upside growth in their products and also cutting costs, trading at a below market multiple and paying off debt. So I like that story. And I think it's very defensive, but yet it could provide value.

The other one is your parent, Comcast. I mean, if you look at the recurring revenue of cable and the ability to raise prices, you know, 2 to 4% a year, plus you've got the upside of NBC universal there that really has no, you know, if you look at some of the parts, it doesn't have a lot of value. considering kind of what's happened to all the streaming places. Comcast has, you know, close to a 4% dividend, solid balance sheet, management's focused on buying back shares. And it's, you know, at the end of the day, it's a family-run business that really cares about shareholders. So in an area where Steve's talking about, we could get some turbulence. You want companies that are what I think, the market's underpricing, that have potential to grow.

And then you can actually sit back and say, hey, when the market, if it does, pull back. I can buy other companies, but I want to buy quality companies in the same time. Because timing the market is just going to be impossible. All right. Surat, thanks very much. And once again, Comcast, of course, the parent of CNBC. Sirat Sethi, thank you very much. Thank you. Steve is still sticking around. Talk a little more about the jobs report. And make sure to tune in to Squawk Box tomorrow morning for special coverage of jobs in America. The markets may be closed, but Squawk Box is working. I assume you're working.

Yeah, we're calling it Great Friday. Great Friday. Not not not, not. Not. Well, it is good Friday, but it's also great Friday. It's also great Friday. 8 a.m. Eastern Time. That's tomorrow on CNBC. Let's turn now to housing and other lending issues where higher rates have dampened buyer optimism and supply

continues to be a headwind, as do prices. Our next guest from the lending space says buyers are facing a tough environment. But we're going to get out of this sooner rather than later. Let's bring in Doug Lebda, founder and CEO of the platform lending tree, along with Steve Leasman. Doug is also a friend and a fellow supporter and sufferer of the Virginia Cavaliers. I know you were with me that day when Furman hit that shot against us. Anyhow, let's get on to.

But you're not angry. No, we're not angry. We're happy. We won in 2019. We're good. Let's talk about what you're- It's great to be here. Thank you guys both.

Great to have you, man. Let's talk about where you're seeing lending and whether there's growth, whether it's leveling off, residential mortgages, home equity lines, refinancings, take me through it. Yeah, so you all were just talking about the Fed, and it's clear that the Fed is getting what the Fed wants with the housing market. What you're seeing is home prices have definitely leveled off. They're not rising like they were.

And in some markets, including, like, for example, San Francisco, home prices are actually down by 10% or so year every year. Application volume for purchase and refinance is down a lot year over year because rates are up. a lot year every year. So what you have now in the home buying segment, imagine you own a house, it's gone up in value, but you've got a 3% mortgage from several years ago, and you want to move. Most consumers focus on the payment that they're going to have to make, and so you're going to have to find a much cheaper house in order for that financially to actually pay off for you. So you sort of have a stall. There aren't a lot of new homebuy.

buying and the sellers aren't necessarily selling. And so what you have on the lender side is lenders are moving into home equity very aggressively and also getting very creative with the types of products that they're coming out with. For example, a six-month arm, which we've never seen in the market before, is now out there. What do you think unlocks? You said the system seems to be a little bit locked down or frozen in place. What unlocks it? I think it's either rates falling or home price is falling. So if rates fall, then the affordability is there. And if you think about it, we always like to focus at Lending Tree on what's the borrower benefit. So if you're refinancing because your credit score has gone up, you might be able to get a better rate than you had

before. But if you're refinancing to take cash out, that probably doesn't make sense at these rates. It doesn't make sense, as I talked about before, if you're going to get a higher payment by buying a new home, that's not really a benefit to you. So you really need the benefit to be there, which is our home prices coming down, which will make people buy them, or rates coming down, which will make people afford them. Doug, how do you figure out, or how does the market figure out where the two sides meet? Right. you got a chunk of the increase of the monthly payment is from the higher interest rate. And the way to arbitrage that is to a lower price.

Do they meet in the middle? Do they meet more towards price? Do they meet more towards the higher rate? Oh, I'm not sure I know, but I think it's good old-fashioned supply and demand. But what you are seeing right now is on the rate side, there's a definite variability in rates. So competition matters. And you see lenders willing to, you know, take lower and lower margins. So I think on the rate side, it can definitely help more than it can on the buying side.

But honestly, that is not my expertise. Okay. One more question, which is there's some amount of home sales and home buying that has to happen regardless of the rate. People move their jobs, they have kids, they do things. Do they right now keep their homes off the market waiting to see where things shake out? And at some point, can neither side hold the line anymore? Some people do, but most of the time people will sell because they can't afford to have two homes at once. So people will generally sell and move and take the pain of what you have of what you need to do.

But there are, you know, the good news is also if you're moving, there are some markets that are actually getting more and more affordable. You know, we've seen, obviously, a lot of people move into more rural areas or more low-cost areas at much lower prices to overall find the borrower, find the benefit for you to save money. Doug, great to see you again. I have a feeling you'll be spending some time watching the Masters this weekend if I had the guess. Anyhow, have a great weekend. It's the best three days of T-Ey. in America. Talk to you guys soon.

See you soon. Doug Lebda of Lending Tree. All right. Thank you, Steve. Pleasure, Brett. All right. You're excused now. We've had you now for 16 minutes.

That's great. He starts to charge by the minute, and so it gets expensive. News alert now from the IRS. Kayla Towshi has the story. Kayla. Hey, Tyler. The Internal Revenue Service is mapping out how it plans to deploy $80 billion in new funding over the coming years. It's seeking to ramp up enforcement and also revamp the agency's outdated technology.

The IRS says it will hire 19,000 new employees in just the next two years, including 7,000 in enforcement, where it will expand audits primarily of high net worth individuals, complex partnerships, and large corporations. The IRS commissioner says since 2010, enforcement staff has fallen by 30% while filings have increased by 14%. And the growth of those three categories has grown by the most. and the IRS estimates it could unlock $160 billion in what it calls evaded taxes. The agency is also hiring customer service personnel to cut down on wait times, engineers, and data scientists with the goal being digitizing tax returns, archived records, and communication between the IRS and filers. So that means, Tyler, potentially, potentially very soon. No more of those letters piling up in your mailbox.

All right, Kayla, thanks very much. Kayla Towsy reporting on the IRS. Coming up, if the economy enters recession, many shoppers may trade down to Walmart. Now, the company is working on ways to keep those customers when the economy improves again. Meanwhile, shares of Levi Strauss down nearly 15%. Today, on pace for the worst day since March 2020. We'll get a full retail wrap-up next on Power Lunch. Welcome back, Walmart.

Looking to the future, the company betting big on automation to boost productivity and profits. Melissa Repco back in studio after attending the company's investment. investment community meeting down in Tampa, and I know one of the things that stood out to you, Melissa, is how much automation Walmart is bringing to its distribution centers. Yes, Walmart really emphasized how it is using automation to boost profits and how this will be a major push in the coming years as it tries to kind of squeeze every drop out of sales. Of course, as sales are moving online, those sales become more expensive. And so it's looking at ways to do that more smartly, and one of the ways is by speeding things along

with the help of robots. And that certainly implies fewer people. Well, that is a question that came up. And I asked Doug McMillan, that CEO, Doug McMillan, and he said he does not anticipate that it will actually shrink the number of headcount, but it may shift them to other parts of the company. So instead of having as many people at the fulfillment centers or the distribution centers, like the one we saw, and both are being automated in different ways, they might be helping with curbside pickup orders. They might be personal shoppers at the store running around once those robots help replenish shelves and either packing them in a box or getting them ready for someone to pick up outside the store. How much of today's sort of fulfillment, let's put it that way, is automated this way versus how much they want to have fulfilled this way in X years?

For Walmart, it's still extremely early in the process. So we saw one of the distribution centers, but ultimately they plan to roll that out to the other 41 of the kind of the shelf stable, the non-perish, distribution center. So think things like diapers and Campbell's Soup. That's the kind of thing that we saw these robots putting, they were taking them out of trailers and putting them together into pallets that were organized by department, by aisle, so that when they arrive in the back of the store, that worker can unpack them, get them to shelves more quickly, and of course then make it possible for those personal shoppers in some cases or customers to buy those items. To buy the items and get them quicker. Let's move on to Levi's a company you've been following. margin declines forecast for 2023. They say promotions are starting to bite.

Yes, promotions are definitely a factor here. And what we're seeing again with Levi is that inventory continues to haunt them. So their inventory still remains high year over year. It was up 33%. That is better than the 58% of last quarter. But still, that is a big number. And what that means is really it's dealing with excess goods to sell in an environment where a lot of wholesalers like Walmart are ordering less. jeans, fewer items. And so that means that Levi is stuck with them. It's stuck in the warehouse with that stuff because the stores can't accept it. The store shelves are already full. Interesting story there. We're going to talk more about the inventory glut in a few minutes. Melissa, thanks. Thank you. Lisa Repco. All righty, growing signs of a recession, a ADP data pointing to a slowdown,

jobless claims rising and the big jobs number on deck tomorrow. Rick Centelli will give us the Traders' Take next on Power Lunch. We'll be right back. All right, welcome back to Power Lunch, everybody. Markets rising, despite those jobs worries we've been discussing, all three major averages set to close this shortened week in the green. Let's go to Bob Pisani at the New York Stock Exchange. What's going on, Bob? We're basically flat for the week, believe it or not, Tyler, despite all these worries.

And I just want to show you my vote. Stock of the week is pretty obvious. It's Caterpillar. Caterpillar is the proxy for cyclicals and for economic growth in general. Look at this all all over the place. It was 212 a couple weeks ago. It goes to 230, and we're back to 209. It's down 8% this week.

That's the economic worries of a hard landing. Take a look at the defensive stocks. Most of these names, there you are, longer term for Caterpillar. Most of these defensive names have had a great week. Merck, Walgreens, United Health. They're starting to flatten out a little bit. I think there's going to be a lot of debate about the economic direction in the next week or two as earnings come in. Finally, everybody down here is trying to game the jobs report for tomorrow.

Let me give you my take. The big fear is the hard landing. priced in. The economic date has been weak. So a much weaker number that anticipated is what would drop the market. So we're expecting $240,000. You got $150,000. That wouldn't be good. So the market wants Goldilocks. Goldilocks will be just modestly below expectations. Not too strong, but just a little bit weaker. That's the Goldilocks number. What is that? I don't know. $200, $2.25 something around there. Remember the market's expecting $240,000. Tough game in this one out, Tyler. Back to you. I'll have a great weekend. Bob Pisani. Let's get to Chicago.

and Rick Santelli to see how the economic numbers are playing out in the bond market. Hey, Rick. Hey, where's Waldo versus Frogger? Here we go. Here I am on the trading floor. And what a wild day. Those benchmark revisions going back years really changed the complexion of much of the labor market, especially considering there's many lagging indicators with respect to employment.

Initial continuing claims are not two of them. And the irony is that initial claims is actually lower this week because the revisions the last week were so much higher. And if you look at twos, if we close under a 377 yield, that will match 10 years as a seven-month low yield close. We're very close. We're also close to Jason. Jason, you have a minute? Yeah, let's get involved. Listen, I don't know what traders are talking about regarding all the facts, but big revisions, three days closed in the U.S., four days closed in Europe, and we're releasing the biggest number maybe ever after those revisions. and there really isn't anything open.

Yeah, it could be an interesting day tomorrow. If this job's number comes out hot, we could see a real sell-off in the equities. We've had a 170-point rally since last Tuesday. A lot of that baked into people expecting rates to be cut. So if this number comes out hot, you know, Jerome might stay on plan and keep raising rates, and the market probably won't like that.

So, okay, let me get this straight. So you believe if tomorrow's number is hot, that's going to still keep the Fed guns hot despite the notion that claims have been ticking up a bit. So that's the battle we see. That's of my opinion, yeah. I think if the number comes in hot that Powell have everything he needs to keep raising rates. What do you think?

I think that's kind of already priced in, honestly. You know, we only had a 25 basis point raise last Fed meeting. Do you think the Fed actually any time this year is going to be cutting rates? It's priced in, but I'm of the opinion that I don't think that's going to happen. I don't either. See, well, let's end on total agreement. After everything they've been through, I don't care what happens, they're going to stay higher for longer, if for nothing else, so they don't have to admit that they went too far. Tyler, back to you.

And thank you. And what other thing we can agree on that guy had a cool jacket? I like that. All right, the electric vehicle race leading automakers to try and snap up the metals they need to build batteries. Pippa Stevens joins us now with more. Pippa? Well, Tyler, as the EV race heats up, we're seeing more and more agreements between OEMs and upstream miners as automakers look to secure key. key battery minerals. We're talking specifically about lithium, nickel, and cobalt, since those go

into the battery. Now, this map on your screen from the Wilson Center shows global reserves, and as you can see, lithium, which is the purple, is concentrated in Chile, Argentina, and Australia. Key miners include Albumarl, SQM, and Gongfeng. Turning to cobalt, which is the blue, the vast majority comes from the Democratic Republic of the Congo, with some also in Australia. Glencore and Valle are miners, both of which are also involved in nickel. Australia and Indonesia are top nickel producers, with reserves also in Brazil and Russia. But while these minerals are all over the world, as this next map shows, refining and processing is heavily concentrated in China. And that's one reason automakers are now working directly with miners.

They want to move away from this dependence. It can also help with exposure to price risk after lithium's huge rally, and with some also warning we won't have enough of these materials, it's a way to secure a supply. In addition to Valle, Ford also has agreements with BHP, Ionnier and Lyontown Town Resources, among others. GAMS teamed up with Glencore, Lithium Americas, and Leibniz, and Leibniz. While Tesla's suppliers, Tyler, include Alba Maro, Levant, and Glencore. All right, Pippa, thank you very much, taking us on a tour around the globe. Let's get to Simumodi now for a CNBC News update.

Hi, Tyler. Here's what's happening at this hour. House Speaker Kevin McCarthy and Senate Majority Leader Chuck Schumer have invited South Korea President Yun Sukiel to address a joint session of Congress on April 27th. That's the day after his state dinner with President Biden at the White House. His visit marks the 70th anniversary of the alliance between the United States and South Korea. Michigan's former House Speaker, Rick Johnson, has been charged with bribery for actions while he was the head of the state's marijuana licensing board. Johnson has agreed to plead guilty to federal charges that he accepted. more than $100,000 in bribes to approve licenses for marijuana facilities. The case marks one of Michigan's largest public corruption scandals during the last three decades.

An adult film star Stormy Daniels says she would, quote, absolutely want to testify against former President Donald Trump if his hush payments case goes to trial. She told interviewer Pierce Morgan that she would, quote, look forward to that opportunity if it came about. The former president pleaded guilty, not guilty, to 34 felony counts. of falsifying business records earlier this week. Tyler back to you. All right, Seema, thank you very much.

And ahead on Power Lunch, media companies looking for the Golden Goose with more options than ever before and smaller attention spans. Media companies are buying up brands and properties with preexisting powerful fan bases. We'll explore that one next. Welcome back, everybody. It's been about a year since Warner Media officially merged with Discovery and began trading under the ticker WBD. The stock down 39% since then, though recently it has been on a tear. Most analysts are bullish about it. Julia Borsden takes a look now at the stock's journey.

Hi, Julia. Well, Tyler, it's been a roller coaster year since Warner Brothers Discovery started trading. And since then, the stock is down 46% from its 52-week high. But looking just at this year, year-to-date, the stock is up 55% far outperforming the indices, as well as its rival media companies. Now, despite those recent gains, the vast majority of analysts are still bullish. 57% have a buy rating,

39% have a hold rating, and there's just one analyst that has a sell rating on the stock. So that bullishness is driven by CEO David Zazov's cost cutting and also anticipation of the merger of HBO Max and Discovery streaming platforms. The company is expected to unveil the combined streaming platform on Wednesday,

Wednesday. Argus research saying, quote, the transformation and combination of Warner Media and Discovery creates a content powerhouse for the merged companies direct to consumer streaming services. Now, we also heard from Deutsche Bank. They said that they believe that most of the pain related to the merger is behind the company and they now see Zazlov as being on the offensive. Tyler. Interesting story unfolding even now. Julia, stick around. The key for Warner Brothers, as well as other media giants of the same ilk are its content. Gone of the days of indiscriminately buying content to fill out the library.

Companies now want sure things that come with a built-in audience. HBO, buying the rights to the popular game series, The Last of Us. It led to a hit, and it's even rebooting Harry Potter. Amazon bet big on established brands like Lord of the Rings and Tom Clancy. Paramount has Star Trek and is having success in the box office with Dungeons and Dragons. And NBC Universal, hoping for a Super Mario Brothers blockbuster thanks to its partnership with Nintendo and Sean on our team and his son Jack saw that movie. Two thumbs up there.

Joining us now, Elaine Lowe, staff writer at the Ancler. I mean, these are companies who are basically saying we're not going to take change. We're going to try and reduce our risk, right, Elaine, by sticking with brands that come with audiences attached. That's right, Tyler. In some ways, we are, and this is from talking to creative executives at studios, from show runners, from people making this content. In some ways, you could argue that we are in one of the most risk-averse content eras right now, partly because of this backdrop, right, of all the consolidation that we're seeing with the major entertainment companies, with the economic downturn that's resulting in thousands in layoffs,

and with the era of the stage of the pandemic that we're in, where theaters are still trying to bring these viewers, back into theaters. And so IP seems like a safe bet. You look at Super Mario Brothers. It's tracking for a $141 million five-day domestic debut, which is really solid. And you look at the box office numbers so far this year worldwide. What are the big winners? It's Ant Man 3, Creed 3, John Wick 4, Scream 6. These franchises have proven to be profitable. And the same goes for last year when you look at how well Top Gun Maverick and Jurassic World did. Yeah, I think that's really an interesting point, Julia. It's not just properties that come with built-in audiences.

It's properties that can become long-term franchises, repeats, you know, whatever it is. Franchises, yeah, it's all about what is this brand that we can build and continue to monetize. But I also think there is concern about superhero fatigue. You want to make sure that things feel fresh and new. And the fact that Top Gun Maverick was a familiar and beloved franchise, but one that hadn't had a movie out in so long, I do think that ended up working to its advantage. I would be remiss if I didn't point out that the Barbie movie

had a trailer that just dropped recently. Everyone's been talking about it. And to me, this is a perfect example of a property that is based on an incredibly popular franchise Barbie, but her first time in a live action film and with a very unusual take. The fact that the filmmaker, taking a very different approach to this, very tongue in cheek, sense of humor. I think that

combination of the familiar and the surprising is exactly what's driving so much interest in that film, which, by the way, is going to be released by Warner Brothers in the summertime month. So I think it's really important to sort of see how do you take something familiar, bring a new twist, so it doesn't feel old and tired. And Elaine, what's more familiar than Barbie, for goodness sakes. Absolutely. And speaking of Warner Brothers, didn't we just hear WBD CEO David Zaslav say last fall on the quarterly call that they're going to have a real focus on franchises, right? We're looking at Harry Potter. There's been talk of Warner Brothers developing a live action TV series around that title, Superman, Batman, Aquaman. You know, again, like these are the things

that that company is going to focus on amid all of the cost cutting and synergies that they're looking for, this is where the bets are being placed. And we don't see that just at Warner Brothers, but at pretty much every other major studio network and streamer across town, even if you look at Netflix where they've had some restructuring lately, it sort of suggests that they're going to be moving a little bit away from the independent film and documentary space. You look at Disney, obviously, they have an enormous well in the Marvel and Lucas film libraries to draw upon. But, you know, I think it's also worth noting that despite IP generally being lucrative and reliable, there are diminishing returns when you look at the way Fantastic Beasts that franchise has performed over the years. Or when you even look at Amazon's Rings of Power, which, you know, according to a Hollywood Reporter report yesterday, you know, has only a 37% completion rate, despite that being a nearly billion dollar investment for the company.

We have to leave it there. And as Julia pointed out, superhero fatigue. is not to be underestimated here as well. Thanks to both Eva Julia Boorston and Elaine Lowe. Shares of Comerica down 40% this year as investors sold regional banks during the crisis. But now with the dust seemingly settling on this name, one firm calls it a strong buy. Does our trader agree? That's one of the names. We're trading in today's three-stock lunch. It is now time for today's three-stock lunch. We take a look at a couple of stocks in the news. Use Costco down after reporting first monthly same store sales drop in nearly three years.

The regional bank Comerica is up after an upgrade from Raymond James. And Mosaic, the leading producer of crop nutrients, is among the day's biggest losers after a downgrade from JP Morgan. Here to help us trade them all. Delano Soporu founder and financial advisor, New Street Advisors Group. Delano, welcome. Good to have you with us. Let's start with Costco, which I think you call a buy. Yes, Tyler.

I do like that trade and happy spring to you. You know, you just mentioned comparable sales down. I think the good news for Costco, they're primarily food and as a good food retailer, which is going to be obviously resistant to some of the potential weakening of the consumer that we're seeing. Also, if you look at them, they're also a higher, generally higher income customer base, which, you know, plays well in the hands during this time. They have over 68 million paying subscribers subscription holds for them. So I think it's a good buy here, especially if you look at it.

what the future holds for Costco. Let's move on to the bank Comerica upgraded today. What do you think here? Yeah, this one is the one I would fade. We already know what so much is going on in the regional bank space with a lot of interest rates, risk that's been exposed. You know, on the good side for Comerica, they have, you know, strong, they have a lot of deposits to loan space and availability to use,

even though the average retail balances, they are continuing to go down, and they're losing a little bit of deposits. So I think they're going to see increased operating and funding costs. This is one I'd stay away from, especially with the volatility in the space. There's still more to be seen when it comes to the regional banks. So I'd be cautious here. Let's move on to the final name on our list today, and that is Mosaic. Yeah, and this is one I like and I've been holding.

And I think, you know, there's still a lot of geopolitical risk here. And, you know, if you look at China increasing exports and, you know, there's a lot of analysts that are looking at, you know, the risk and the conflict with Russia and Ukraine, like a potential potentially put pressure on mosaic on their earnings. So the things I like about it, it's a strong income and dividend play. And I think that's the reason why you want to buy. They're putting a lot of their free cash flow back to shareholders with dividends and share repurchases, even if earnings are declining a little bit.

So that's the play here. It's more of an income play here. Delano Soporo, thank you very much for being with us. Three-stock lunch for a Thursday. All right. Still to come, I will speak with former FDA Commissioner Scott Gottlieb. We'll be back in two. The power lunch, pharma on a roll this week, up more than 5%.

Best performing group in the market. And what a week from Johnson and Johnson agreeing to pay nearly $9 billion to settle talc claims. And Eli Lilly set to give Ozempic a run for its money with its own weight loss drug that some are calling the King Kong in the category. Plus the end of more COVID-era restrictions. Joining us now to discuss all of it. Dr. Scott Gottlieb, former commissioner of the FDA and a CNBC commissioner. Good to have you in the house, Scott. Good to be here.

Good to see you, sir. I know investing is not really what we have you on to talk about, but I do wonder whether from where you sit, you think the changes in drug, the drug pricing regimens brought on by the Inflation Reduction Act are already been taken into account by company management's and investors. Yeah, look, I think that the legislation basically took the drug pricing debate off the table for the time being.

So this was a big overhang on the sector, it was weighing on the sector, no one was sure what the government was going to do. Now that it's clear what the government did, I think it's now priced into the stocks, and that's helping put a bid, I think, under the industry. Now, that said, there are going to be impacts. I think what's baked into a lot of these stocks right now is the impact on sales and the impact on R&D investing. You've had to take down some of those estimates.

Companies just won't have as much money to reinvest. But where the impacts are going to be where the market, I don't think, has gotten insight into yet, and certainly the government doesn't have insight into is how companies are going to shift around their investments. to try to move away from sectors, they're going to be more subject to these price negotiations, which are really price controls into areas that aren't going to be subject to these kinds of price controls. So, for example, if you have a compound and you have two indications for it, one might be for a condition that's born by people in a Medicare population,

diabetes or some other condition of old age, another might be a condition born by younger individuals. Companies now might make a decision to go after that second indication rather than the first one to stay out of the price. Where they don't have to negotiate the price. Exactly. And I tease out that thought there that these negotiations, which is what was trumpeted as part of the IRA, are really price controls. What do you mean? Why? Well, look, they put out a document last week, their guidance on how these, quote, negotiations would happen.

And basically, they're going to offer the companies to take it or leave a price. There'll be some room for the companies to push back on that. But they're going to basically reference price to the lowest cost drug in the market, even if it's a generic drug. And they went into so far in this document as to say that companies can't talk about the suburb. absence of the negotiations, and they have to destroy their documents 30 days after the completion of the price negotiated. Because? They don't want to be bound by prior precedent.

So exactly what you'd want to do is to create predictability on terms of how the government's making decisions. The government's saying, we don't want to be bound by our prior decisions. So we don't want you to talk about our prior decisions, and we don't want you to retain documents on how we make those decisions. Let's move on to COVID where we got to know each other. Is COVID over? COVID's certainly not over.

I think the acute phase is coming to an end. But we still look, we have 250 people who are succumbing to the virus every day. We still have 20,000 hospitalizations. We're able to better manage it now. New variants coming? We're going to see new variants. This is going to be a lot like the flu. It's something we're going to have to deal with.

We're going to have to develop better therapeutics. We're going to have to keep people who are vulnerable to it, vaccinated, up-to-date on vaccines, so they're protected. 80% of the deaths, more than 80% of the deaths have been people who are 65 and above. So it's still impacting a portion of the population very severely. Let's move on to Johnson & Johnson and the Talc settlement, $8.9 billion. If I'm reading you right, you feel that this was J&J trying to make a problem go away, a problem that got out of hand because, in your view, there weren't enough studies or evidence to rebut the claims of the claimants in these cases.

Have I got you right on that? There was an evidence to support the claims. The problem was, I think, and I was at FDA over the period of time when a lot of this controversy was swelling, I think the problem was we didn't develop data quickly enough to rebut the claim, so it started to become folklore. And once it got out there, it became very hard to knock down. Very quick thought on the King Kong of Weight Loss Drugs, Munjaro, which sounds like a Disney character. Is it going to be as big as people say? Yeah, this is a Lilly drug.

I have confidence in Lilly's ability to market this responsibly. The data from the New England Journal of Medicine study that they published showed a 20% rate reduction. That could be quite profound for people who are overweight and have medical conditions related to that weight. It has already been approved as a diabetes drug. But diabetes and later this year will be approved, hopefully, for weight loss. And the data looks very good. I think this is probably going to dominate the category. Scott Gottlieb. Always great to see you. Good to see it. Hey, really nice to have you in the house. Thanks a lot. All righty, still to come. The Hot Topic on CNBC.com. A new exclusive results of a

supply chain survey are inventory gluts here to say that's next. Remember when because of supply chain issues, companies were complaining they didn't have enough stuff to sell? Now many of those same companies are dealing with the exact opposite problem. Too much inventory. It's all sitting in warehouse, eating into profits. Lori Ann Laraco joins us now with the results of a brand new supply chain survey. Before we get to the, what happened here? What happens is the fact that the consumer is not buying, and you had retailers overestimating,

if you will, of how much product that we were going to buy, and now it's just sitting. Now it sits, and it is a cost. At a lot of money, because, okay, so the survey is important to both the customers and the investors, because inventories provide real-time trade data on the health of the consumer, but it also increases the inflationary pressure because warehouse costs are passed onto the consumer. So according to this survey, the inventory glut is not going away anytime soon. 36% said they expect inventories to return to normal the second half of the year, and an equal percentage are expecting the glut to last into 2024.

In terms of dealing with the increased cost of storing the extra stuff, this is what the respondents are doing with this product. So they're either putting the product into the warehouses or they are putting it on the secondary market at a discount. This is going to eat into the profits of the retailers. And if the products that they aren't getting on the secondary market, they're actually destroying the product, Tyler. They're destroying the product.

So there's no advantage of them to discount the product because they've got to try and recruit as much cost as they can. Exactly. Right. All right. All right. Lori Ann, thank you very much. Thank you.

Thank you all for watching Power Lunch. Great to have you with us. Closing bell starts now. Have a wonderful holiday weekend.