Power Lunch - Learning From Earnings, and Closed Door 8/22/23

Episode Date: August 22, 2023

Retail earnings reports are still rolling in. While tech earnings are telling us about the impact of AI. Are corporate profits, and the economy, strong enough to send stocks higher? We’ll discuss.Plus, we’ll ask the CEO of Masonite if the company is seeing a slowdown, as fewer people move out of their homes amid soaring mortgage rates. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

All right, welcome to Power Lunch, everybody. Alongside Kelly Evans, I'm Tyler Matheson. Coming up today, what are we learning from earnings? Retail reports still rolling in, tech reports, telling us about the impact from AI and more. So are corporate profits and the economy strong enough to send stocks higher or not? Plus, the impact of soaring mortgage rates on the housing market. Well, that's the CEO of Masonite, if the company is seeing a slowdown as fewer people move out of their homes. They don't want to give up those mortgage rates that,

to start with a two or a three, Kelly. They certainly do not. Tyler, thanks. Let's get a quick check on the markets where we're right across the board now, as the NASDAQ has given up its earlier gains. The S&P down 13 to 4386 today, and the Dow is the laggard down a half percent. We're just off session lows down 181 points. Both Microsoft and Activision are higher, though, after they're making some concessions on their deal in an attempt to win UK approval.

This is on kind of the cloud gaming side of things. We're talking about 1% half a percent gains. I think October is now the deadline. for review of that new offer. And Zoom shares are lower, but off the worst levels of the day after their results, which beat and the company raised guidance, but analysts still think their return to growth will happen slowly. The stock is down only 85% from its November 2020 highs.

That includes today's almost 2% drop tie. All right, the tail end of retail strength. More companies reporting signs of weakness from the consumer, along with continued impact from increasing amounts of theft. Courtney Reagan has the details. Hey, Courtney. Hi, Ty. Yes, it was a mixed bag for retail today with both results and then subsequent stock moves. But one commonality continued pressure from shrink, specifically theft from organized retail crime.

Here's what Macy's CEO Jeff Gennett told me in an exclusive interview on Squawk on the Street. The bulk of that is the change in organized theft. And just the organized function of you've got elements that are coming into stores and they're stripping them of big categories and they're doing it in bulk. Similarly, Dick's sporting goods executive chairman Ed Stack told me theft is going up and he expects it may get worse this year. So the sporting goods retailer has taken, quote, a little bit bigger reserve to account for it. Stack says about a third of the margin pressure was from shrink. Interestingly, while shrink has been a pressure for lows for years, unlike Macy's and Dix, executives told me today, Marvin Ellison says shrink from theft is flat year over year at lows.

And then on the consumer, Gannett told me there is continuing. pressures including credit card delinquencies back to pre-pandemic levels at Macy's and student loan forgiveness that is ending soon. Consumer pressure is the driver behind Macy's conservative forecast. Ellison told me the pressures on the consumer he says are more about consumer confidence and sentiment. While they feel good about personal balance sheets, they're just kind of waiting to see what's going to happen in the macro environment. Ed Stack, however, said he isn't seeing any deterioration in the Dixporting goods consumers, whether lower or

higher income despite somewhat disappointing results in the quarter, Kelly. Courtney, thank you very much. We appreciate it. And of course, we'll see what that means as we hear from Foot Locker and some others this week. Let's talk tech, though, with Invidia, the big report coming tomorrow after the bell. What have companies said so far about turning the possibility of AI into actual revenue? And can anyone match their strength, Steve Kovac, who has been looking into this for us? Yeah, it's really all about Nvidia. But look, we began this year, Kelly, talking all about AI, just tons of hype and promises. but Q2 earnings season, investors wanted to see results and honestly most failed to deliver. Microsoft is the best example of this during its earnings calls.

Shares were punished after execs said co-pilot, that's the AI tool for office apps like Outlook and Teams. It won't generate meaningful sales this fiscal year. Meantime, Microsoft said it needs to spend a lot of money over the next year, building out the infrastructure for all of these AI projects. All of this coming after investors said Microsoft's shares sort. just a week earlier when it announced the pricing for co-pilot at $30 per user per month. So the lesson here, guys, it's not enough to just put a price tag on your AI products.

Investors want to see sales come in soon, but the major payoff may not come for some time. Story slightly different at Google hasn't really revealed how they'll make money from AI, but has made promises that its core search business will benefit. Most of the optimism around those earnings, though, were due to the return in digital ad spending. And it's a big bag, mixed bag for the rest of those AI names we were talking about all year. Apple CEO Tim Cook told me a few weeks ago, AI plays a role in the company's products, but all that's mostly under the hood from those products. Amazon touted some customer wins, companies like 3M and HSBC, using AWS AI tools, but nothing

on sales. Meta, though, has talked about some AI features like image generation or chatting with virtual avatars, but its biggest contribution was releasing its model. for training AI to the world for free. Now, InVIDIA guys, like you said, and poised to be the only real beneficiary from this AI boom, at least in the short term, when it reports tomorrow.

But you have to think the whisper... So last quarter, let's just remind everybody, they raised their... Guidance of big time. From $8 billion to $11 billion for this court. And now everyone's going, well, could it be 12? Could it be 15? I mean, that...

And we keep hearing these reports. So this country's buying up chips. This organization's buying up Nvidia chips. I just mentioned Microsoft, building out their cap-backs, that means Nvidia. So there's no one else. No, and it's just a question of how high the number really is relative to the whisper expectations. Exactly.

If we could say it that way. They're going to have to really crush it. They will. Steve, thanks, Steve Kovac. As earnings remain in focus for investors, our next guest is expecting no or very slow EPS growth for the next couple of quarters. Let's bring in David Bianco here. He's DWS Group America's CIO.

David's good to see you again. And I guess Envidia isn't the whole story. is it? Well, it feels like the whole story lately, and certainly it underlies so much of the excitement of the market for AI. And when we hear from Navidia, I'm sure they'll paint a very bright long-term outlook. And of course, investors will want to see what they do near-term, given how demanding the valuations are.

But there is more to the U.S. equity market than these tech and digital and artificial intelligence tightens. And for most of those other companies, we expect this stall in the U.S. earnings growth to continue at least for the rest of the year and into early next year probably the first quarter. But earnings growth should pick up later next year and we'll probably do about 7% earnings growth out of the S&P. However, with where interest rates are, and especially if the 10-year yield keeps heading upward, I'm not sure that's enough earnings growth up against these valuations. So what you seem to be saying is that the valuation

require a level of earnings growth that may not be sufficient to support the prices. So the E's aren't as good as the P's need them to be. That's right. I mean, we're way past the point at this stage, given the PEs, at about 20 for the S&P 500 overall, well above 20 when you exclude financials energy. And then these interest rates, the bond market is putting up some of the best opportunities as an alternative to equities that we've seen in in a couple of decades at this stage. So it's now at this stage we need more than they're not being a recession or earnings not going down.

It's time for the S&P to deliver very high single-digit earnings growth. And I think the tech sector is going to need to deliver 20% earnings growth next year to support these valuations. So the implication of what you say there is to me that you expect the market to correct. equities. Yeah, we do. We do. We think it's going to be a tough autumn because we do not expect the Fed to talk about cutting interest rates anytime soon, and it's really possible another hike comes.

But more importantly, the long-term yields, 4.3% on the 10-year yield, 2% on 10-year tips rates, long-term real yields. This is the type of interest rate environment that normally comes along with a 16-year, 10-year tips rates, 17, 18, PE, not 20. So these interest rates, without a rapid acceleration in earnings growth very soon, are going to make a tough autumn. And I think, unfortunately, the deficit is contributing to the anxiety in the bond market. And over the coming year, I think you'll have a lot of politicians talking about probably a need for higher taxes. The deficit, because the deficit requires a lot of new issuance.

correct? And if you don't have the bidders in the market, one bidder being the Fed, another bidder being China, another bidder being Japan in the market at the same levels that they have been, the end result is almost definitionally higher interest rates, correct? That seems to be the path the market's on. And at this stage, we are still at interest rates that are still well below historical norms. So it's hard to know where the ascent in long-term yield stops. We do think there's very good reason for the 10-year treasury yield to stay more in a four, about four and a quarter percent, so, you know, maybe back up a little bit here. But it's going to require the Fed sticking to its guns on its 2 percent inflation target, no higher, definitely not 3

percent. And I hope we'll hear more from Chair Powell, from at Jackson Hole, about how committed they still are to that 2.0 percent long-term inflation target. Or I guess maybe the question, you know, I don't think he's going to get into a lot of theoretical stuff, David, but he might try to give us a sense of how focused they are on getting inflation back to 2%. You know, are they going to settle for something higher? Are they going to wait? You know, if the economy looks like it's weakening, you kind of know that's going to do a lot to take care of inflationary pressures, maybe to kind of hear him sketch that out a little bit. Yeah, I think you'll probably hear, again, that event is more conceptual nature, research in nature. It's not for policy announcements.

However, I think we'll hear how their research over decades has made it very clear that if inflation stays above their target for too long, the bond market doesn't forgive that and doesn't forget that, and you can get an inflation risk premium coming into the bond market, bringing interest rates even higher. So I think the Fed knows that there's a lot of danger to allowing inflation to stay above their target for longer, and this is why I think they will. reiterate the importance of that. All right. David, thanks for joining us today. It's good to have you again.

Thanks. Thank you. David Bianco. All righty, coming up, the oil market could be in for a rude awakening come the fall. At least according to cities, Ed Morse. He's bearish on the sector. We'll speak with him next. Plus, the China chess match continues. Commerce Secretary Gina Ramondo to visit China next week. We'll break down what to expect there when Power Lunch returns after this. Welcome back to Power Lunch. One of the big swing factors for the economy, certainly for inflation, is what happens with the price of oil

sitting around $80 a barrel right now. Lots of different factors pushing and pulling on it. Let's bring in Pippa Stevens to explain. Hi, Pippa. Hello, Kelly. Well, prices are pretty much flat today amid some pretty thin trading activity, but there are a lot of forces at play here. So one thing to watch is Iranian oil exports, because those are up to 2.2 million barrels per day so far in August, according to data from Tanker Tracker. That's up from 1.2 million barrels per day back in January, so that could be offsetting some of the weaker output that we're seeing from Saudi Arabia. Another thing to watch, of course, is hurricane season. So the California refineries did weather Hurricane Hillary later downgraded to the tropical

storm without any major incident. We also had Tropical Storm Herald, which made landfall today on the Padre Island off the coast of Texas. We also have four other tropical storms brewing in the Gulf of Mexico right now in the last 24 hours. So Franklin is still active, and Emily and Gert have been downgraded. And this all comes as NOAA upgraded their forecast earlier this month for an above average hurricane season. So we are halfway through hurricane season without any major incidents to our infrastructure so far. But we are now approaching peak hurricane season.

So that is certainly something to watch. And then finally, European natural gas price is now up more than 60 percent so far this month on ongoing fears that if this strike happens at the Australian LNG facilities, that will drive prices even higher. So you can see up another 7.5 percent today. All right, PIPA, thank you very much. Pippa Stevens reporting. Oil may be on a tear this quarter, but our next guest says he's bearish now. And investors should short crude through 2024 because supply is outstripping demand. Joining us now is Ed Morris, head of global commodity strategy at city research. Ed, welcome. Good to have you with us. Good to be back with you. You just heard Pippa's report there. And one of the things she pointed out, interestingly, is that Iranian exports are up markedly since January. I believe it was 2.1 million barrels from one point something. And you say, among other things, that figure on more of this to come, that there will be more supply from what you call the fragile five, including Iran, Iraq, Libya, Nigeria, and Venezuela next year.

A surplus of supply and demand that you don't think is going to come back as fast. Have I summarized your argument pretty well? You got it exactly right. The supply side is probably more important than the demand side at the moment, but we can't underestimate what's happening on supply. Non-OPEC supply is rising this year by more than demand, and we think non-OPEC supply is going to rise by about a million barrels a day next year in a world where our economics team sees 2% GDP growth or about a million barrels a day related to oil demand growth.

when we've got not just non-OPEC countries, but we have the fragile five. And Pippa talked about Iran. She could have also talked about the others. We have another two or 300,000 barrels a day expected coming out of Iran by the end of the year. We have Iraq, which has a pipeline down for geopolitical reasons. The three countries involved in that pipeline, or the two parts of Iraq and the one other country, Turkey, involved in it, have every reason to get the pipeline up because they get more money by doing so. And that's going to add 450,000 barrels a day to current Iraqi exports.

And we think deb bottlenecking in the South and the pipeline itself will carry more oil. So add another 500,000 barrels a day to that, assuming that Iraq is not going to be particularly interested in abiding by their OPEC plus cut pledges. Then we have Libya where we haven't had any disruption in a long time. The biggest country externally that's there has announced that the four-year force measure it had and not drilling is over and they're going to start drilling again. And the government, even though they divided once more oil and they plan to grow production capacity, Nigeria, which was down to about 1.1, 1.2 million barrels a day in 21 and 2022, all of a sudden had peace in the Delta after the most recent elections,

and they're not only above one and a half, they seem to be above 1.7, which would be the highest level that they've had since pre-pandemic. Wow. And finally, the last one of these is Venezuela, which saw production crashing from $3.6 million a day down to $500,000. That was in $500,000 was about a year ago, and they're now steadily up to about $850,000,

So more than that, we think they'll hit a million by the end of the year. So, yeah, the Fragile Five alone are going to have more oil in the market a year from now than we think demand is going to be. Ed, are we, so when I was trying to unpack the IEA report, I think from last month, they made it sound like, but maybe I was understanding that we're already in a deficit. There was like 103 million barrels of global demand, maybe 101 of supply, and that Saudi is the big part of that, you know, deficit. So, you know, like you said, you kind of sketched out a picture where it sounds like plenty of non-Saudy suppliers are able to put plenty of product on the market. But I'm just trying to figure out, you know, how on the one hand they make it sound like we're in deficit. We're drawing down inventories of all kinds. Prices could really whip around and kind of push to the upside.

But, you know, why you aren't more concerned? Well, they don't actually have, you know, quite a deficit that you think they do. You get a deficit only if you add in a production. number for OPEC countries, which they don't have as part of what they do. But what we're really seeing the first six months of the year was a build in inventory, both inventory on land and inventory in the water. And the efforts to pull back on production that started earlier in the year, including a big chunk of it for the month of May, didn't stop that inventory draw, a build from happening. We, of course, had an inventory draw in the summer. We normally do.

do and the extra million barrels a day and the added four or five hundred thousand barrels a day from Russia is what has caused this deficit. We have peak oil demand in the month of August. We almost every year have it in the month of August unless the world is recovering from a recession. So we think, you know, pick oil demand in the month of August is not really showing the big pull on inventory that we thought it was going to. And indeed, you know, the amount of supply coming into the market. including from the U.S., which is currently estimated at $12.7 million a day.

The EIA has it at 13.1. We have it at 13.2 by the end of the year. So even the U.S. is going to be adding to the supply in the next four and five months. All right. Well, I guess that's not quite as desperate a picture. It maybe means we can take some price spikes and inflationary pressures off the table. It would be great news, Ed. We always appreciate you bringing us the fuller, the other side of things. I will say what we heard earlier, the hurricane season is here. So, you know, we can't make this a certainty until we get to October.

True. No, that's a great point. Ed Morris with City Research. Thanks for joining us today. All righty. And coming up, a call to arms. The soft bank-owned chip designer, Arm, set to go public seeking a massive valuation. Certainly compared with its sales levels, we'll dig into the company's new to release

financials when Power Lunch returns. Welcome back to Power Lunch Arm Holdings. finally had its filing to go public yesterday afternoon. That means releasing financial details. And, well, they aren't maybe as exciting as you would think for the most exciting IPO or biggest one in two years. Dear Jabosa, looking into that in today's tech check, Deirdre? Yeah, so, Kelly, this could be the largest IPO of the year. So the stakes are high here, not just for the IPO market at large, but for SoftBank itself. A lot of the chatter out there, you said around that F1 filing is around arms declining revenue growth. And, you know,

narrowing profitability. So if you value the company like a chip company, the one that it is now, i.e., it drives most of its revenue from the smartphone market, it looks closer to an AMD, more in line with the rest of the chip industry. If you think that ARM is the next AI play, then sure, maybe it gets closer to an Nvidia-like multiple, but the evidence isn't there right now. And convincing investors of that could be tough for Massasana and SoftBank. Investors in this case might be wise to remember that his recent, that his, remember his recent IPO history. He and SoftBank are behind some of the biggest IPO disappointments in recent history. There's Uber.

And of course, we work in both cases. He bid them up too high in the private markets for the public markets just to value them significantly lower on. Kelly and Tyler, Massa son may be running the same playbook here once again in a private transaction. Arm was valued at $64 billion. And again, as I made this comparison, that is closer to an NVIDIA-like valuation than it is the broader chip space. Yeah, when you look at people are talking and you said about it last night on fast money, I believe it was.

Valuation is somewhere between, anywhere between 40 and 80 billion. I don't know what the number was. That's a broad number. And their revenues are a little north of $2 billion. So that puts a multiple of sales really, really high. Yes, that is certainly the case. And then you look at all the risk factors as well. You know, I outlined the reason why this isn't an NVIDIA right now.

It's end markets right now is smartphones. That's where it derives a lot of its money. But also, this is a company that is very much tied to China. Gets a lot of its revenue from there as well. And you know what? It doesn't have any control over its unit there either. So that's a risk for investors. But, you know, Massasan has always been won to try and get as much value as he can.

That hasn't worked recently. So he needs this win. He needs this to be priced well to get out there. Right now, though, it's looking a little dicey. We will see, though, because another side of this are the anchor investors that are going to come in. It's been rumored than Amazon or an NVIDIA could get into this name as it goes public. And that could provide a boost of confidence to public market. And we're looking at NVIDIA there up a paltry, 1,200 percent since May 24th, 2017.

Deirdre? You know, that could have been Masa Sen's investment as well. back in I think it was 2017. He invested in NVIDIA. He sold the stake, made a gain of about $3.3.3 billion. That's a lot. But had he held on, Tyler, it would have been worth a heck of a lot more. That would have plastered over a lot of errors that he has made over time. It would have plastered over, probably. We were giving him some more credibility for this one. Well, Dee, good to see you. I bet I'll see you later. I just have a feeling. All right, thanks a lot. Let's get to Bertha Coombs now for the CNBC.

News Update. Bertha. Hi, Tyler. Here's your CNBC News Update for this hour. Facebook parent meta under scrutiny from Congress. As recalled baby products linked to more than 100 infant deaths are still for sale on Facebook marketplace. That according to lawmakers who sent a letter late last week to CEO Mark Zuckerberg asking about how the company monitors product safety. The lawmakers say federal regulators have made thousands of requests to take down those items. did not return a request for comment. Meta's Twitter clone called Threads, which launched last month and quickly shut up,

the app rankings before losing ground, is now launching on the web today, a desktop version giving users access on their PCs. In a blog post, the company said that in the coming weeks, it will be improved to look more like the mobile app. And Lionel Messi is driving soccer ticket prices. higher for late season games. According to Ticket IQ, secondary markets are seeing a 1700% price increase and for all remaining away games combined. Average ticket prices are up more than

a thousand percent compared to last year. Boy, he is really putting U.S. soccer on the map here. He sure is, and he has been playing magnificently and clearly demonstrating his worth. I don't know whether he's worth 1,700% increases, but that's pretty good. He's been playing very well. Bertha Coombs, thank you very much. Ahead on Power Lunch, homegrown. Rates continue to climb, but as people prepare to stay in their current homes for longer, some improvement names are holding strong, namely Masonite, higher by nearly 30% for the year.

We'll talk to the CEO when we return. Welcome back, everybody. The 10-year yield still sitting at those 16-year highs, so let's get. out to Rick Santelli in Chicago for more. Hey, Rick. Hi, Tyler, but today there's a bit of change of the guard on the Treasury complex. Two-year note yields, which had relinquished the leadership role, have taken it back. Look at a two-day chart of twos versus 10 spread. And what you'll see is today it's moved about a handful of basis points.

And maybe the fact that Jackson Halls at the end of the week may have something to do with it, as investors are a bit nervous because they're not sure what the first. fed's going to say what the Fed's going to do or how the Fed may view the future regarding the labor market and all the seasonality issues that make all of us scratch our heads at some of the strength that still remains. And if you look at two-year note yields on the next chart, we are flirting with 5%. This is a big deal. Why? Because since August of 2007, there have been only two closes and two-year note yields above 5%. Okay? And those have both been recently, as you see on that chart. 507 is the current high yield close, and its failure

about the beginning of July really started the curve deinverting. So as you look at this, look at 10s, which crossed that important level from their fall high yields at two-year didn't just last week. So now look at all the ramifications going into Jackson Hole. You see the LQD ETF there? That's the investment-grade corporate ETF. And, It's at the lowest level of the year. Lowest level since November of last year. So why are investors running away from investment-grade corporates? Well, let's throw a 10-year chart on top of that since the beginning of July, and you could see why.

It's called credit risk. Right? Because 10-year note yields are the highest quality, at least with the sovereign stamp on them. And, of course, corporate debt, considering some of the S&P bank issues going on, a little less interesting to investors. Kelly, back to you. Rick, thank you. We appreciate it. Rick Santelli. Rates on the 30-year fixed mortgage also continued to climb, rapidly approaching 7.5, maybe even 8%. Those higher rates impacting sales of existing homes. Diane Oleg has the latest read for us. Hi, Diana. Hey, Kelly. Yeah, existing home sales dropped more than expected in July to the slowest July pace since 2010. This count is of closing, so contracts likely signed in May and June, when more.

mortgage rates went from around 6.5% to well over 7%. The realtors are blaming higher rates, as well as still tight supply, just 1.11 million homes for sale at the end of July. Down close to 15% from a year ago, supply is now at the lowest level in nearly a quarter century, and that short supply continues to push prices higher. The median price of a home sold in July was $406,700. That's up 1.9% from July of last year. Remember, prices had been weakening at the end of last year, started this year due to higher rates. But it seems like demand is just pushing past that higher rate effect and then pushing prices higher.

Competition still very strong among those that are in the game with three quarters of homes sold on the market for less than a month. We did see first-time buyers get back in a little bit, 30% of sales up from 27% in June. And that's being reflected in a jump in FHA mortgage demand, which first-time home buyers like because it has a lower down payment, Kelly. Indeed. anything they can help out on that front. Diana, thanks. As more homeowners are more content staying put in their own homes rather than taking on a big new mortgage, could this be an ideal

time to embark on home renovations? Let's ask our next guest, who is head of a leading manufacturer of interior and exterior doors for residential and commercial markets. Joining us now is Howard Hecky's, Maysonite CEO. Howard, it's great to have you here. Welcome. Thanks, Kelly. Glad to be here. You know, I was doing some due diligence and picking out some doors on your website before we. Why are the doors so big these days? I go by new homes that are being built and they have these massive front doors that are like 10 feet wide. Aren't they beautiful? They are.

People are changing doors finally for many, many, many years, hundreds of years maybe. Doors haven't evolved. And we think it's important that doors can and should evolve and help solve life and living problems. And by the way, Kelly, style is one of those. evolutions. And so you're right, eight foot high doors, wide doors. They're certainly becoming more in trend. And we have a lot of other exciting things that can help solve life and living problems, too. So talk to me about what you're seeing in the bit. So here's the really curious thing and why this stuff is so fascinating. We already got the boom like two years ago, right? I look at the

share price of Generac and, you know, Home Depot and lows and all this. And it's telling us, as much as there might be a steady pipeline of people who are going to stay in their homes and and change their doors, this is nothing like it was two years ago, at least in terms of the share performance. What's actual fundamental demand like right now? Demand is soft. However, it's exactly as we expected it coming into the year. So we expected a housing cyclical, and we expected a bit of a down cycle, as I think everybody did. So we prepared for that. And knowing that demand was going to be soft, we built a playbook to protect our margins and to continue to invest in strategic growth initiatives for the company. And as a result, we're able

to deliver, I think, very solid financial results we reported a couple weeks ago because we expected and prepared for a bit of a soft market. Yeah, your EPS was up versus the estimates, though your net sales were down, as I read it, 3% year over year. How much is or are rising interest rates sort of trickling through and affecting your business to the extent, for example, that people are staying put and maybe not moving into new homes with new doors or, or, or, maybe not doing the remodeling project that involves new doors? Yeah, Tyler, you're absolutely right. Mortgage rates certainly have an effect on that. In fact, I read a statistic recently that said 83% of people that had just bought a new home in the last 12 months or were going to sell a home in

the next three months, we're going to embark upon some kind of remodeling project. And so when you think about existing home sales being down 16% year over year, that obviously limits the people that are doing those projects. Now, what's interesting, though, is, as people have spent more and more time in their homes over the last several years, doors are now becoming a visible thing. In fact, we used to call doors the invisible man of the home because people don't even know what their doors look like. But now that they're spending more time there, they realize that solid core doors, for example, can provide more privacy, or there's ways to increase security or connectivity. And so people now, doors have gone from

invisible to valuable. So despite fewer projects, we think doors are becoming more interesting projects for homeowners. That's an interesting thing. You know, one notices when you walk into a home, I'm not knocking this at all, but a good solid door really makes a great impression. And whether these are interior doors or exterior doors, you can tell the difference. You can tell the difference and quality. Now, obviously, there are some buyers, I'm sure, who you serve, who want a lower end or a lower price product, and that's fine. But the quality door with the solid core that when you shut it, man, it makes that sound. It feels good. Feels better. I agree with you, Tyler, and people are now appreciating that more. And it's not just the feel. Like I said, it's sound. That solid core door

is made with 70% more sound dampening material. And when you're trying to work at home and be on a Zoom call and your kids or your dog or your pets are on the other side of the door, that sound dampening is also important. So as I said, doors are starting to serve a more important purpose in homes and we're there to help drive that. Yeah, that sound damage is very helpful these days because nobody wants to hear me rail about the New York Yankees watching their games. It's a good thing. Howard, thanks. Appreciate it. Howard Hekis. Thank you very much. Base tonight. Ticker door, by the way. Huh? Ticker door. Tickr door. Is that true? That's right. You

You know, Deuter did the story on arm holdings. They're tickers, A-R-M-arm. Now, who was the genius, he thought. Came up behind that one. That is thinking, baby. All right, Commerce Secretary Gina Ramando, set to visit China next week, meeting with senior Chinese officials and U.S. business leaders for high-level discussions. Could this be the beginning of a thawing of relations between Beijing and Washington?

We've had a couple of already high-level connections. Secretary of State was over there a couple of months ago. We'll discuss when power luncheon continues. All right, welcome back, everybody. Commerce Secretary Gina Raimondo said to visit China next week. She'll be the latest Biden official to visit China following Secretary Yellen. Joining us now, Andy Rothman, investment strategist at Matthews Asia. Andy, welcome. How important is this visit? Who's going to be there? Who's she going to see? And what are the expectations?

I think the visit's important as a continuation of the recalibration of the Biden administration's approach towards China, which really began in April when China Yellen gave a speech about U.S.-China relations and continued with Secretary of State Blinkins' visit and then Yellen's visit, now Romando. Overall, there's been an improvement in communication, and I think an effort on the part of the Biden administration to try and reassure China that, well, the U.S. still has significant security concerns. It's not trying to contain or slow down China's growth. Are the Chinese hearing that message?

Well, my impression from my trip to China in May is they're hearing it, but they're not necessarily believing it because they're getting a lot of mixed messages. Yeah. Well, that's kind of the interesting thought there to me is that that's why I asked it. Are they hearing it? Are they believing it? Because on the one hand, we seem to be stroking them in terms of commercial relations and business. That we have not lifted tariffs. and some would argue that Biden has been tougher than Trump was on China.

And then on the other hand, while we seem to be struggling them on the business side, we seem to be using the stick, not the carrot, on the security side. Yeah. I mean, personally, I think that the approach that the U.S. government is taking right now is misguided. I think that China does not seek a confrontational relationship with the United States and the rest of the developed world. It certainly is taking steps that are not consistent with the way that the rest of us view the world. But I think if you look back over the last several decades, providing incentives as well as guardrails to China has led to a tremendous improvement in their behavior abroad. to end their behavior at home, and that's really benefited most Americans.

So I hope that the Biden administration's recalibration will continue back to a more constructive path. We had a guest on yesterday on Fast Money, who made the case that the Chinese economy is facing so many headwinds right now, perhaps most notably the unemployment rate among young people, that Xi Jinping's internal tactic may be. to try and distract the internal population. Look at my right hand here. It is the fist.

We've got a crisis in the South China Sea. We're going to be aggressive with Taiwan to distract the population. We've got a national security issue here with China and Taiwan to distract the population from the economic headwinds that are at play domestically. Does that make any sense to you? No. I mean, I understand the attractiveness of that theory. It's great TV, but I don't think it works on several levels.

First of all, I don't think the Chinese economy is in that bad shape. Clearly, the economy is weak. Clearly, the Chinese equity markets have been weak for an extended period of time, but we hear too much of use of the words like crisis. Think about it this way. In the second quarter, inflation adjusted real income growth was up 8% after a 4% increase in the first quarter. In the first seven months of this year, spending on services is up 20%. My friends in China tell me it's really difficult to travel on vacation this summer because

everything's booked. So parts of it are slow, parts of it are okay. I think one of the things we have to remember is that we've been over COVID now for a couple of years, but China's only started getting over COVID since January. So it's going to take a little bit of time, but it's the economy is not in a crisis right now. That's very interesting. I mean, final question and quick answer, if you wouldn't mind, do you believe the economic numbers that China publishes? I mean, people would, a lot of countries would love to have 8% growth in a quarter. I mean, most would. Yeah, that was real income growth. Sure. I don't take at face value any of the statistics come on it China, but we have lots of ways of looking at them. For example, we have no reason to

believe that they're manipulating data on rail traffic or on movie box offices. But we can also talk to companies there, which I did a lot when I was last in China in May. I talked to my friends who tell me that, yeah, they can't get a train ticket because everything's booked. We can look at data coming from American companies there that are showing us in certain parts of the economy things are doing well. So to the decimal point, no, but are the trends apparent there? Yeah, I think they are.

Doing your reporting by walking around and asking people you know. I mean, that's a great way to do it. Thank you very much. We appreciate it, Andy. Andy Roth. Thanks. You bet. Meanwhile, shares of lows are higher despite mixed second quarter results today.

Spring projects are helping offset weakening home improvement demand overall. Maybe people are putting in some doors. Those shares and some other movers are coming up in three-stock lunch. We'll trade them right after this. Welcome back. It's time for today's three-stock lunch, kind of a top-us edition. just a little taste of each trade, really. Here with our trades as CNBC contributor, Michael Farr, of Hightower Advisors,

and CEO and founder of Farr-Miller in Washington. Great to see you, Michael. Let's start with Lowe's higher today after better than expected second quarter results. What's the trade here? You know, I'm long lows. I've owned it for a long time. I'm very happy I've owned it for a long time. I like that earnings report today, 456 versus a 447.

I think management's doing, have been doing a good job, 15 times earnings, growing earnings at 12%, Kelly. They've been growing the pro and online, and they've reduced expenses, and they've reduced what they call shrink, the shoplifting. They're managing that better with RFID little gadgets inside of the power tools that don't work if you steal them. Better job than a lot of the other retailers. I like this stock. All right.

Let's move on next. Michael, the Comerica shares of that regional bank down more than 3%. S&P Global cutting its rating on the firm. What's the trade here? I'm a seller, Tyler. Look, all of these smaller banks, and this now comes as a smaller bank, of a very difficult operating environment of basically, you know, lending money, borrowing money, taking in deposits. It's very expensive. They've got risk of deposit flight. The bigger banks at least have multiple lines of revenues, I think it'll be safer. It's a very hard place to make money. And I just think that even though it's cheap, I don't see it going up. And I think that the best

case is it's dead money for a while. I'm staying away from Comerica. Sell it. Well, we got to ask you about Tesla. Remember Tesla? But they were up almost 8% this week. We're gaining some ground after being down 11% last week on those price cuts in China. You know, is InVitya the new Tesla? What do you do with the stock here, Michael? Look, I sell it. I'm a fundamental old-fashioned guy, kind of. I want to see real numbers. Look at the numbers here. This stock's up 88% this year. It's 66 times earnings. The market cap is $740 billion. Ford has a market cap of $47 billion. GM has a market cap of $48 billion. That's $95 billion for Ford NGM versus $740 billion for this. I understand you believe in Elon Musk as a magician, but that's not the way you invest money based on the numbers

without magic. This one is a sell. So pat yourself on the back. Take your profits. Go out and have a nice dinner tonight. But this is a lot of long-term investment based on the numbers unless something magical occurs. I can't invest my client's money on magic.

Take your Tesla to dinner, Michael. That's what I'm saying. Yes. Take your Tesla to dinner, Tyler to dinner, Tyler to dinner. All right. Michael Farr. Good to see you, man. Nice to see you guys.

Thanks. Still ahead, Airbnb hosts and guests are scrambling as New York City begins a new crackdown. Short-term rental regulations could eliminate huge blocks of listings for visitors. We'll discuss that and more in closing time next. We only have 90 seconds left in the show and a bunch more stories we need you to know about, so let's get right to it. Thousands of New York City Airbnb listings are being removed in response to a looming citywide crackdown. Starting September 5th, hosts of short. term rentals, we need to start registering with the city so that they are legally available to provide stays.

And they must meet specific requirements, including not renting entire apartments and in some cases being home during the guest's stays. Airbnb has called it a de facto ban on short-term rentals while city officials say the changes are needed to combat New York's affordable housing crisis. It is a curious way at that. if the owner can't rent out an entire apartment has to be there? I think it's a terrible idea. I mean, we'll just have to see if there's enough backlash news in the policy, but they're going far down this road. Maybe not unrelated.

New data shows, speaking of New York, nearly a trillion dollars in business has left the city since the start of the pandemic. It's according to Bloomberg, about 160 firms have moved their headquarters out of Wall Street since 2019, taking nearly a trillion dollars in assets under management with them. Very interesting. Well, it's been a rough day for the Dow. as you see there, all in the red. Thanks for watching, Power Lunch.

Closing bell starts right now.