Power Lunch - Market Madness, Checking Out 8/18/23

Episode Date: August 18, 2023

Soaring bond yields, and falling stocks. That’s the setup for the markets right now. How worried should investors be about rising rates and the impact on tech stocks in particular? We’ll explore.Plus, Instacart is reportedly planning to go public, possibly as soon as next month. While ARM Holdings is also in the pipeline. Is the IPO market finally starting to defrost? We’ll discuss. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Welcome to Power Lunch, everybody. Alongside Kelly Evans, I'm Tyler Mathis. Coming up, soaring bond yields and falling stocks, that is the setup for the markets right now. So how worried should investors be about those rising rates and the impact on stocks in particular? Plus, Instacart reportedly planning to go public, maybe as soon as next month, arm holdings also in the pipeline. So will the IPO market finally, Kelly, unfreeze? Perhaps, Tyler, thanks. First, let's get a check on these markets if we want to start. about unfraising, we're going to have to see more green on this screen. We have six points of green

on the Dow right now, but the S&P is down four and the NASDAQ is down 40. All three averages are down more than 2% for the week. So that's the larger trend here. Shares of Blumen Brands, the parent of Outback, are gaining today as activist firm Starboard has built a 9.9% stake in the company. The shares, you're seeing popping about 6.5%. And they're up 18% over the past year. And the stock you just heard about everyone's talking about it. What are they going to going to say Palo Alto Networks. They're reporting after the bell first time in three years. An S&P 500 company has done that, I guess, on a Friday. Pretty rare. Are they trying to hide bad results? Showcase good ones? Was it just a scheduling conflict? We'll find out more in a couple of hours

and get a little preview coming up. The other big story catching Wall Street's attention are rising bond yields. The 10-year yield hitting 4.3% this week, highest since last October. Actually, about the highest in 15 years, really. So what does it signal about the economy and how should investors position. Jim Bianco is president of Bianco Research and Ron Ansana is a CNBC senior analyst and commentator. He's also chief market strategist at Dynasty Financial Partners. Welcome to both of you. Jim, I'll just start with you and please help us make heads. Is this a once in a lifetime chance to buy higher yields or no? Well, I think yields are going up because the market is not completely convinced that inflation is behind us. Now, it's not worried about 8, 10 percent or

Zimbabwe inflation, but it is worried that we might be in a three or four percent inflation world. And if we are, then you could be looking at bond yields that will be settling in closer to 5 percent than to 4 percent. And that's what you're seeing with the 10-year yield and with the 30-year yield. They're starting to drift towards that target. And ironically, it might be because the Fed is backed off of tightening, that the bond market is starting to get nervous. If the Fed's not going to fight the inflation fight, then it's going to fight the inflation

fight by selling off bonds. So I think that that's the big picture that's what's been driving bonds for most of the last several months as they've been moving higher. Ron, I sense you don't agree here. Not entirely. I don't disagree fully. I also think that the bond market has not ruled out the possibility of the economy will avoid recession completely and maybe accelerate rather than decelerate whether or not inflation goes back up. You look at the Atlanta Fed GDP nowcast, 5.8%. But they've been high forever. They've been high. And look, they could be two or three percent high at 5.8%. You're still coming at, you know, 3.8% annualized rates of growth in third quarter. No one expected that. Everybody was looking at myself included a couple weeks ago for sub 1%. That's not

happening. But let me get back to Jim's point here, and that is that maybe the inflation fight isn't done and that we're not going back to a 2% inflation rate. We're going to a 3% or a 4% inflate. Doesn't that suggest that the Fed will have to do more? We'll have to raise longer, raise more, keep them higher longer. Something I think you've said they don't need to do this. Yeah, I think if it's a 3%

inflation world, they don't have to do more because you have 200 basis points, 250 basis points of real interest rate built into that, which is a relatively restrictive policy. And if we... It's interesting, Tyler, if we go back, you know, a decade, right,

where we spent 12 years trying to get inflation above 2%, and then the Fed started talking about average inflation rates. If we were at 3% for some period of time, if you X out the pandemic and the immediate response thereafter, you'd kind of be where the Fed wanted to be in the first place, which is having an average inflation rate,

where it's been historically at about 2.5%. So I think, you know, I think there's more growth being built in, less recession being built in. Inflation I'm not sure about it. I still think, with the exception of a couple numbers in the next couple months, it may be sticky. It's still coming down. Jim, I guess we have to talk about, you know,

on the short end side of things, is it's really just about what the Fed does with rates, how long they leave them high when they start cutting? You think Jackson Hole will shed some light on that? Well, it should. That's kind of the big speech of the year where Chairman Powell or whoever is the Fed chairman is kind of gives their long-term outlook. Remember, a year ago was that famous eight-minute speech where it's been dubbed,

there will be pain speech. And subsequently, there was never any pain. And unemployment rate came down and stock prices went off. But I do want to come back to something that Ron said. I agree that a part of the equation here is that the economy is doing very well. And you're seeing that on Wall Street. They're all throwing in the towel on their soft landing and recession forecasts. And they're upping their forecast.

But that could be fostering too to an excess demand or extra demand that is pushing in prices higher, which is inflation. And so the market, I think, is getting more and more worried that we're going to be in, you know, if you add real growth plus inflation, a high nominal world. And that's what these interest rates are reflecting. Furthermore, if you just take a look at four or five percent interest rates, if the economy is accelerating, it's a big sign that these rates are not restrictive. We could go through models and say, hey, look, if they should be restrictive, it's 200 basis

points above this or that, it's not because the economy is accelerating and it's telling us in real time that it's not hurting. And the other thing, though, we talked about this a couple weeks ago, the fact that the economy is less interest rate sensitive because you're sitting on a three and a half percent mortgage and not moving corporations termed out their debt, you know, issued long-term debt at much lower yields. Refinancing risk except in commercial real estate is not that large. The other thing I point out that we haven't discussed, quantitative tightening has been going on for over a year now. The Fed has reduced its balance sheet by over a trillion dollars, which means they are not a net

purchaser of U.S. Treasuries. And so when you look across the curve, with the Fed not being in the game, that's going to just, by definition, put some upward pressure on rates. Because you're taking the biggest buyer out of the market. Yeah. And look, I don't think we're out of the woods on a couple different fronts. When you look at China, when you look at Russia, when you look at Argentina, there are some external factors that if we have a summer like 1997 or 1998 or a fall like 1997 or 1998, some of this could reverse itself very, very quickly. Rates would come down. The benefits after an event would redound to the United States. We'd get lower rates, the Fed would stop raising, and we'd have some concerns about some sort of global, not quite systemic, but global financial

event that changes the outlook a little bit. Jim, how do you factor China into your thinking? Well, it factors in a couple of ways. They're the second largest owner of Treasury securities behind Japan. Their problems have been accelerating their selling of Treasury securities, and I suspect that that will continue. And until they get a handle on what's going on, I think that you're going to see more repatriation of dollars back to China in the form of one.

And so that's going to be a problem. And I also might throw in Japan, also kind of the same thing. Their interest rates are going up big in Japan right now on the long end of the curve. They're the largest owner of treasuries after the Federal Reserve. And if they're getting more attractive rates in Japan, they're going to sell U.S. Treasuries and they're going to keep their money at home. So all the big buyers right now have big incentive to be sellers of treasuries. And that isn't going to turn around anytime soon. Although households could pick up the other side of that. Well, given the yields that you see that are attractive

to households and institutional investors who for years have been star for yield, insurance companies, banks and others. The one thing I would say where I would disagree with Jim is if there's an event in China, whether or not China wants to sell, they may not be able to sell U.S. treasuries, and everybody rushes into the safety of the U.S. dollar and U.S. treasuries if you have a global financial market or economic event. And so, you know, look, Japan's 10-year yields are 60 basis points. So they may be relatively attractive at home. They're not attractive on a global basis. And so you don't get to see people necessarily rushing to buy Japanese bonds when you can get 5 percent here. All right.

Gentlemen, thank you very much. Jim Bianco, have a great weekend. Ron and Sanna, same to you. Thank you. Good to see you. You too. Right. Could the sudden rise in yields cause another problem for the regional banks? Leslie Picker has some exclusive data on the potential risks. Leslie. Hey, Tyler, they seem to already be having such an impact. The jump in yields having an adverse impact, in fact, on bank capital, particularly for regional banks at a time when they really can't afford it. Since the end of June, the move in the seven-year yield has resulted in a 60 basis point hit to, aggregate capital ratios for the three dozen banks between $100 billion and $700 billion in assets. That's according to exclusive data we commissioned from Goldman Sachs on this very topic. The move in the seven year amounts to an estimated debt worth $12 billion to capital just in the last six weeks and a 10 percent impact to book value of the aggregate group, Goldman

said. The impact is more pronounced for regionals than the largest U.S. banks because they manage their securities portfolio differently. Higher rates, though, all across the board. have been impacting the liability side of the balance sheet, causing banks to pay out more for deposits or risk customers putting their funds in higher yielding areas elsewhere. Think money market funds. Meanwhile, banks are tightening their lending standards, which could, coupled with higher deposit rates cut into their margins. And of course, the largest elephant of all in the banking

industry right now is the prospect for additional regulation with looming capital requirements, at least those that have been proposed, that are much higher than current levels. And that's specifically for that $100 billion to $700 billion range. And then there's also these loss-absorbing rules that are coming down the pike potentially within the next month or so. So altogether, this helps explain why the KRE down more than 6% week to date. It's been a very difficult week with all these headwinds, Tyler. Although you also think, well, it's not just the regional,

but I don't want Goldman to take a tally of its own hit to book value or anything like that, Leslie. But I don't think that big banks would escape some of this, even though they have, you know, higher net interest margins and things like that. So it's been surprisingly quiet on that front, really. And it's, I don't know, I guess that it's just not as acute a problem as it was a couple of months ago, but the funding issues still remain. Yeah, the yields in and of themselves, that seven-year yield that I pointed to, that's primarily the larger impact, the outsized impact is for the regionals.

The larger banks, they do tend to take a little less duration in their securities portfolio. So some of those have rolled off more organically, whereas, you know, the regionals, they do tend to have a little bit more, or they did strategically choose to take a little bit more duration. So they're seeing more of an impact from that. But to your point, the larger banks are the ones that are going to see an outsized impact from this regulation. They're the ones, you know, according to the Basel 3, they're going to see a higher capital requirements. That points me to the sort of the nob. If I'm saying, what's the takeaway here? The takeaway to me is this.

banks have seen their, and particularly mid-sized banks, may have seen their capital dented because of a higher interest rates. And there may be more government regulation boosting capital reserves here. The two of those things taken together are not good news for mid-sized banks. They're not because the higher the capital buffer you need to have and the more, you know, because if you have a dent to capital, you need to find another way to raise that capital, That comes from, of course, loanmaking, which is a profitable business for these banks. So you don't want to see, you know, your ability to be lending crimped by some of these actions, which, of course, is what we are seeing right now, which is really by design from the Fed,

but it's the banks that are, you know, kind of the ones that are in the middle of it. All right, Leslie, thank you very much. Leslie Picker reporting on the banks. Interest rates will be a hot topic, of course, next week at the Fed's annual summit out in Jackson Hole. They know how to pick a nice place, so as folks on the Fed. CNBC will be there with live coverage. That will be Thursday and Friday next week. Coming up, the not-so-magnificent 7. The collective value of Alphabet, Amazon, Apple, Microsoft, Tesla,

NVIDIA, and META, it's down by $632 billion in August. So is Big Tech still the bet for the market, we'll ask? Plus, it's the Wild West in this market with some big moves today. The good, Ross stores up 5% leading the S&P. on a strong beat. The bad deer down the same amount, 5% drop on earnings with investors asking, has the tractor boom peaked? And the downright ugliest key site down almost 15% today on a disappointing outlook and getting price target cuts at Wells Fargo and Morgan Stanley. Stay with Powerlunch. Stock market rally this year is largely attributed to a handful of technology companies,

but that party seems to be coming to an end, or at least over the past couple of weeks it has. out of the so-called magnificent seven, five stocks are down more than 10% from their annual highs. Led by Tesla, that one is down more than 30%, and with bond yields reaching multi-year highs and with the higher-for-longer narrative at play in the interest rate world, how should investors position their portfolios from here? Joining us to discuss is our own Mike Santoli and Mike Bailey, director of research and investment committee chair at FBB Capital Partners. Mr. Bailey, let me ask you first. What do you think? Is this an enduring slide in these stocks? Only two of them are not down more than 10%. Amazon and Alphabet, but they're close.

That's right. It's a tough spot here. So, you know, we've had this massive run here the first few months of the year. We did see three of these names really outperforms significantly. And in particular, sentiment really blew up. I would kind of take the group down to a smaller group of call it three amigos. So you've got, Tesla, Nvidia, and meta, just massive increases in sentiment. You know, it almost sounds kind of childish, but the bigger they are, the harder they fall. So we've really seen a lot of compression back in terms of sentiment falling for those three. We've seen sort of a follow-on effect for some of the others. But I really think it's that sentiment driver. It can run up really high quickly, and you can also see a reversal. You know, looking in terms of what investors should do, I think these are generally good companies.

I think you can pick your spots. The one name that jumps out for us, it happens to be, you know, more of a modest correction territory is Amazon, compelling growth. Interestingly, you can buy Amazon but the same multiple as Costco. So for us, that's pretty compelling. Two retailers out there, I think Amazon's got the lead in terms of long-term growth. So I think there's some of these names you can still own. Mike Santoli, can the market go higher if these guys don't?

The math becomes pretty tough if they don't participate at all, especially if they just keep going down. But a few observations. One of them is you talked about the declines, peak to trough, from these stocks, the overall S&P is down 5%. So clearly it's not going down dollar for dollar. And yet we're talking about correction here. Well, yeah. Some people are, and this is not by any stretch a correction.

I mean, maybe for those stocks that have gone down 10%. That's right. I mean, it's not yet, broadly speaking, in any appreciable way. Now, I'll say the NASDAQ 100, which essentially is dominated by these seven stocks, was a 36 percentage point advantage year to date one month ago over the equal weighted S&P 500. Now it's 28% percentage points. In other words, it's given back six percentage points of outperformance that had built up into mid-July to now.

So has that changed the overall leadership complexion of the market? Or is it just really that's where more the air was underneath these stocks? We hit August. The overall market was a little bit stretched. We are definitely dealing with at least what the implications are of higher bond yields, but also a faster economic growth. These aren't the ones to own if you think the economy is re-accelerating. So I think all that's in the mix.

But it is very difficult for the S&P 500 to perform without them stabilizing or rebounding. Dan Niles, the tech investor, tweeted an hour ago, bond market stabilizing, covering half our shorts today, expecting a short-term bounce next week, doubling meta position, buying Apple and so forth. So Mike Bailey, how important are stabilizing rates to the next leg of this move here? I think it's pretty relevant. I mean, if you look at really the overall market correction and the magnificent sense, seven kind of take down, that's coincided with the rise in rates. So I think rates are definitely critical to the conversation. If you get something unexpected out of Jackson Hole next week,

if rates continue moving north, that could be a challenge for the broader market in general and some of these big tech companies, which are pretty rate-sensitive at this point. Our guess is we're not going to see that significant move up in rates from here. We saw a little bit of give back even from yesterday. But that's kind of a black box. We're going to have to wait you see what comes out of Jackson Hole next week. What would you add to that, Mike? Well, you know, Kelly, you are one of my several great adversaries in the debate about how rate-sensitive growth stocks are.

I'll just point out that they kind of detached coming into this year. If you looked at the Treasury market versus NASDAQ 100, obviously it matters, but it's not to me the one thing that matters, especially when you're talking about the super profitable large companies like the apples and Microsoft. I would say from observation, it feels to me like it matters minute by minute more than it matters month by month. That's exactly right. If that makes any sense. No, you're right. We're locked into a point where the main swing factor in whether I'm going to take more or less risk in stocks and in big growth stocks is, are yields going to become unhinged

to the upside or not? Right, right. And so that's why you do get that tactical relationship. But if you go over a longer period of time, I mean, I looked at the last few times the NASDAQ 100 traded at like 25 times earnings, which is where we are. And the 10-year yield was anywhere from the current level to 1.5% to 5%. And then if you want to go back to the late 90s, then you know, all the math doesn't work, basically. No, it's true. All right, Mike and Mike, Mike, Santoli, Mike Bailey, thank you very much. And you can get more of Mike Santoli's market thoughts tonight at 6 p.m. on taking stock. Mike and Josh Brown will discuss all the issues facing the markets. And it says right here, they're going to have fun doing it. Is that? It looks like we were having

fun in that moment anyway. That is, that is two guys having fun. We'll see. Can you, can you give Well, tell me what Josh is going to be wrong about, and I'll tell you what we're going to do. What you're going to be right about. Coming up next on Power Lunch, some headwinds for wind turbines, wind turbines, not turbines. The offshore wind industry is navigating uncharted waters, inflationary pressures, and rising rates pushing up overall costs. Details are next. And further ahead, college tuition costs are growing well beyond what many families can afford. It's driving many Americans further into debt.

We've got the details when Power Lunch returns. Welcome back to Power Lunch, everybody. Time now for our ETF tracker. This week we look at gold funds. Despite the rising yields and the concerns about China, gold is down about 1% this week. And the gold ETFs seeing net outflows of $373 million over the past week. This is according to our partners at Track Insight. Gold miner funds from iShares, Sprott, and Van Ack all down 6% this week. More information available on the F.T. Wilshire ETF hub. if you want to go and learn more about those gold ETFs. Kelly.

All right, pretty much every business and every industry has been grappling with the impact of inflation. But with the off-wind industry, it's one of several issues as it tries to meet ambitious production targets. Pippa Stevens joins us now with more of the headwings. And, I mean, it is surprising, Pippa. Tell us what's going on here. Yeah, well, I see what you did there. So the offshore wind industry is really right now at a turning point, because after years of falling costs, which made it competitive,

with other forms of energy, prices are now on the rise, so much so that some projects are no longer economically viable. The problem is that increased costs along the supply chain, that includes everything from raw materials for turbines to specialized installation, is bumping up against the rising cost of capital. As Aaron Barr from what McKenzie told me, it makes a lot of projects uncompetitive. Developers are trying to renegotiate contracts

with some walking away entirely. Now, this creates a big issue over the long term, because pinched profits means companies don't necessarily have excess capital to reinvest in supply chains. And even if they do, they might not want to jump in given an uncertain market and delay timelines. And so we have these really ambitious goals for offshore wind, but nobody's reinvesting to build a supply chain. Also want to ask you about shares of Hawaiian Electric. What's going on there? So that is jumping back today up about 13%.

That comes after the company said it is not, the goal is not to restructure, but to endure as a financially strong utility. So they said they are seeking advice from experts, which is due course of action in a situation like this. This is, of course, after the Wall Street Journal reported earlier this week that they were seeking out restructuring advice. Yes. By the way, sort of off topic, but, you know, Hurricane Hillary at the same time, what are you hearing in terms of the potential damage? This one could hit Sunday or Monday. It sounds like rains are going to be equal to years' worth of rain in some parts of the southwest and maybe what Los Angeles could be, you know, directly affected. It seems to have come.

When do we have Pacific storms? This is the dry season. Yeah, exactly. And this is, once again, these indications of, you know, dislocations in the extreme and the frequency of these types of weather events that then threaten all of our crops. You know, they threaten refiners out in California. And so I'm not hearing too much on that quite yet. I think there's still a lot of focus on what's going on in Hawaii right now.

But, I mean, all of these mega events just ruin infrastructure, ruin lives. And it's very devastating to see how they're increasing in frequency. And you look at Hawaiian officials, you know, We saw the resignation, obviously, of was it the fire chief who didn't put off the sirens today? But again, when's the last time they dealt with a wildfire? So when you start talking about when's the last time California dealt with a hurricane? I mean, there are people here. Hopefully everyone has a disaster readiness plan for literally every possibility you could think of at this point, because that's what the headlines seem to bring.

And I think the issue is that if you want to harden your grid, that costs a lot of money. So in order to do that, you have to go to your regulator and get the approval to increase your rates. And people don't really want to pay higher rates. And so you are at a little bit of a difficult situation where you need all of that money to do that. But that comes with consumers feeling pinched. And so the regulator, you know, I spoke to one person who said the regulator is equally to blame here because they also play a role. And I was talking about whether- For Hawaiian Electric in particular, that's an interesting point.

And also, you know, governments don't want to shoulder these things either because if there's an issue, then they don't want to be the ones on the head. They don't want the ratepayers who are taxpayers who are voters to get angry at them for greenlighting a rate increase. Great point. that may ultimately be absolutely required. Pippa, thanks. Appreciate it. Let's get to Leslie Picker. She does it all.

She does the banks. She anchors. She's got a news update. Here she is. I'm going to tell you what's going on around the globe, too, Tyler. Here's your news update at this hour. The Bureau of Alcohol, Tobacco, Firearms, and Explosives has deployed a team, including an electrical engineer to investigate the origins of the catastrophic Maui wildfires.

This, as local power company, Hawaiian Electric, faces growing scrutiny of its electrical polls and whether they may have triggered the fires. U.S. officials say nearly 500,000 Ukrainian and Russian troops have been killed or wounded since the start of the war. Russia's military losses are around 120,000, while Ukrainian deaths are estimated at 70,000. Russia's military is larger than Ukraine's with three times as many troops, but officials warn it's difficult to estimate as Moscow undercounts its war dead, and Kiev doesn't disclose official figures. And the New York Times reports former President Trump will not participate in next week's

Republican debate hosted by Fox News. Instead, he plans to sit down for an online interview with former Fox News host Tucker Carlson. Tyler, I'll send him back to you. All right. Thank you very much, Leslie. Ahead on Power Lunch, the IPO shopping cart is filling up. We've seen the NASDAQ and NYSE battle it out for listings. Now a major IPO set to kick off the fall.

That one is next. Welcome back. Instacard is reportedly planning a September IPO, finally. And it could publicly file its plans as soon as next week. He could get a glimpse into those financials. It's been a long time coming for the grocery delivery startup. Could it crack open a window for other listings more broadly? Dear Jabosa has the details in today's tech check. We've been talking about it all year, Deirdre, them and Birkenstock.

They're going to kick things off. I feel like I've been talking about this. I've been covering this company for years and years. Always this question of will there, won't they? And keep in mind, this is a company that has been around for more than a day. decade. It's become a household name and it's raised billions of dollars in venture capital. So it has taken an unusually long time to come public, as Kelly said. And if we do get the IPO filing, as soon as next week, we will finally learn how the business model works.

Instacart is essentially an intermediary. It connects customers with personal shopers who shop and deliver groceries from local stores. It sounds asset light, but other public gig economy companies like Uber, DoorDash, they have proof that it's actually really hard to profit from such a model. Instacard, however, may have something that they don't, and that is an established higher margin advertising business. If you look at who's actually running the company, it's a lot of ad execs poached from Facebook, Fiji Simo. She was one of the highest-ranking female Facebook execs, and she took over for founder of Puehometa in 2021. Before her, they had an former Amazon ad chief in charge of all of the company's revenue. Now, Uber and Dash, they're just starting to

chase this model, but investors, they like it. So will they like Instacart's least? in advertising, and more importantly, will it help separate Instacart's financials from other gig economies, companies? We could soon see, on the other hand, though, competition has only intensified for Instacart with gig companies and huge retailers like Walmart and Target vying for a piece of the grocery delivery pie. However, Wall Street responds, though, guys, to the filing and the eventual IPO will be significant for the IPO window. Meantime, Arm could also be filing as soon as next week, and it's expected to be the largest this year. It could all be happening, Kelly and Tyler after a long freeze, a long pause. We'll see, though, the NASDAQ, right, hasn't

exactly been off to the races over the last few weeks. So it's interesting timing if we do get these ideas. Teandra, how does the advertising piece fit into the puzzle here? Why is it a cash generator for Instacart? We don't know for sure, but let's take Amazon's advertising business, right? You could imagine a similar model. You search for things, and companies can pay to have their product listed, higher above. That's essentially how it works on Instacart as well. You're shopping for milk. And milk brand puts its product pays to have its higher, its product higher up on that search page. So we think it's high margin. If you look at Amazon, right, this business grew so quickly out of nowhere, but we do not know. We don't know what the margins look like, but we do know,

and I've been covering this company for a very long time that they've been ahead of this. They've been building out this business as well as an enterprise business for grocery companies, grocery retailers that don't want to run their own sites. So, That is something different than what we've seen from the likes of Uber and DoorDash that we know how their model works. A lot of the money, a lot of the losses come from their marketing and how they pay their drivers and what they charge their customers. So let me ask you this. Did the management that you refer to the person who came in from Facebook was an advertising-related individual who replaced the founder? Was she brought in in part to take this company public?

I assume she must have been. Yes. The short answer, I don't know that they would say that so specifically, but it got to a point where Rapporteur Meda, he's the one that founder of the company. He was CEO for a very long time. He said that he saw the opportunity. I remember interviewing the two of them together when this change happened.

He said that she's the person to lead the next leg of this journey. And they've always said that they were going to go public. It wasn't important for them to do so at any particular moment. They would go when they are ready. But I should also mention their CFO comes from Goldman's He spent a long time bringing companies public, so they do have the people in place. It's whether the markets and investors are willing to accept this company for how much. Oh, that's very interesting. That's an interesting piece there as well.

Deidre, thank you, as always. Good to see you. Thanks. Still ahead. Back to School, Blues, the price of higher education rising to levels more than most average family is going to afford. That's not exactly news, but we'll reveal the latest college board figures in ways you might be able to help cover some of these astronomical costs when we return. I will be listening very carefully. Well, you probably know this already. Paying for college is becoming more and more of a challenge for many families as tuition and room and board climbs north of $50,000 on average for private schools and much higher for many. Sharon Epperson here to discuss, I am all ears. I am on

received. Well, Tyler, you know, the average sticker price for college has been rising, but most families don't pay the full price. Tuition fees, Room and Board averaged around $23,000 at a four-year in-state public university for the 2022-22-23 school year, according to the College Board. Going out of state costs almost double that amount, more than $40,000 on average. And a private college averaged over $53,000. Now, that doesn't even include books, transportation, and other expenses. At some private universities, the total cost of college is now more than $80,000 a year. Yet a new report from Sally May finds the amount of money that families actually spent on college costs last year was about $28,000, up 11 percent, though, from the year before.

Families took out loans and borrowed money to cover about 21 percent of the cost. About 29 percent of college costs were covered by scholarships and grants, free money, and meanwhile, parents and students' income and savings covered about half. Tapping 529 college savings plans, leveraging private scholarship, and appealing for more financial aid if you need it are some ways that can help families pay for the rising costs in college. Why are the costs rising? So you just cited a number that said that the average family is paying 11% more year from year, just in one year. All right, now, inflation's 5%, 4%, whatever it is. Why is that?

I think in some cases what the financial aid experts are telling me is that that colleges are not having as great an endowment. They're not having as much money they are coming in. And so that is something that is impacting them. Because the markets have hurt them or because a donorhip has not kept up? I think it's a combination of both. And I think they're going elsewhere to find people who can full pay. And that's why we're seeing a rise in international students in a lot of universities. They need students who are going to be able to pay the full sticker price.

But most American families, thankfully, don't have to. I think the idea of paying from out of pocket from your own savings and such is something that people say that they don't want to do, but they're also not doing things that are tax-advantaged ways for them to save. We talk about 529 plans a lot, and only 30% of families use 529 plans to pay for college, and less than $8,000 on average. So there's not a lot of money going into some of these vehicles that can help people put that money away. Many families say they just don't have it to stay. Final quick question. Maybe many colleges are space constrained, but couldn't they help their finances if they expanded their admissions?

In other words, let more kids in, particularly if in the case of a state school, an out-of-state admittee who is going to pay a higher price, double the in-state. I think you're absolutely right. And I think there's a lot of focus on the high, high cost of private colleges. universities and not looking at there are so many colleges in university that even now as students are coming to campus may be trying to raise their enrollment. Their enrollment is not where they want it to be. So in that case, families can be very proactive in negotiating what they want and what they need financially for their child to go to school. But again, if you're looking at a certain

group of select elite colleges, that may not happen. Sharon? Thank you. Sure. More reassured, less reassured? About the same. About the same. Not the same. Yeah. Talk about a full star. Gina Sanchez and the Fly Dynamic duo are getting dragged down in our CNBC stock draft standings by their top pick this year, which was PayPal. Does she want to do over or is she standing by the pick? We'll ask Gina in an extended three-stock lunch right after the break. Welcome back, everybody. Let's get to Christina Partsenevillus now for a market flash on Palo Alto networks, which reports results after the bell today. In what summer, calling a bit of an odd move. Christina?

Well, the company announced this, uh, their Friday afternoon earnings date on August 2nd. And ever since then, the stock has actually dropped about 18% on speculation that the company could be hiding something bad, since attention tends to dissipate on Friday summer afternoons, but not with our CNBC viewers. But there are other factors that could play a role in its recent stock drop. Firstly, Paulo Alto was added to the S&P 500 on June 20th, replacing DISH. It jumped 7% that day, so possibly coming down from that. Secondly, Microsoft announced in July would expand its cybersecurity offerings, which won't affect

this current quarter for Palo Alto, but could have longer-term ramifications. Lastly, competitor Fortnette's earnings were weak, and they guided lower-on-customer billings, which is a key metric for these cybersecurity firms, so that could be setting the tone for Paulo Alto. But maybe all of this negativity is overblown. In Palo Alto's press release, they did say they would provide full year or fiscal year 2024 guidance and update medium-term financial goals through 2026. So maybe, maybe they're being considerate to analysts giving them time to update their models and get great publicity since we

keep talking about. That is true. All right. Christina, thanks. It's time for today's three-stock lunch now. And here with our trades is Gina Sanchez, chief market strategist at Lido Advisors and a CNBC contributor. Gina, welcome. Let's start with Palo Alto picking up on Christina's report. Would you, you know, step in front of this much-Ballyhooed earnings report tonight? So, you know, she really hit the nail on all the really big issues for Palo Alto networks. This is one that Lido Advisors owns in their strategies, one that we've held for a long time. And the fly on the ointment for Palo Alto is that it is more overpriced than other stocks. So this is, but it is also a leader in its space.

And yes, Microsoft has definitely shown some massive growth on their side, and they have a distribution network that you don't want to mess with. So I think that that's going to be something for the future that Palo Alto networks will have to contend with. They're also contending with competition from Fortnite from CrowdStrike and their other competitive landscape. But they do still remain the leader. They are expected to slow. That is expected. And so I think that the secular play here is still there.

Cybersecurity is not going away. If anything, the demand for it is going up and will probably continue to go up as we continue to build out more and more cloud-based. apps and infrastructure. And, you know, I think that it will just moderate at some point. And so what really has to kind of start to find a space is the valuation. And that's the fly in the ointment. But it's still a strong long-term play. All right. We'll see if they can climb that multiple wall, so to speak. At a quick programming note, Pelo Alto Network's CEO, Nikash Aurora. We'll sit down with Jim Kramer on Mad Money on Monday at 6 p.m. Eastern. We're looking forward to it. All right. Next up, let's go to Deere, despite beating the streets.

earnings estimates earlier this morning. The stock is down 5% today on questions over how long the farm boom can last. What's the trade on deer here, Gina? You know, deer, another one that we own. This is one that definitely has, you know, some challenges into 2024. It has been riding off of sort of the, you know, of the supply chain crunch that they've had so they were able to fulfill more, you know, fulfill more orders. And that is showing up with really strong growth. growth, but 2024 is going to be a tougher year for them. So I think that this is a shorter term play right now. And you do have, there is some caution in the long run. All right. Let's move on then to Ross Stores. That stock jumping after beating earnings Thursday night after the bell, showing that

off-price retailers, you know, TJX, Ross, they're all, they're looking pretty good right now. Would you still buy it after this pop? So I think that this is still a play right now because I think the slowdown is going to continue. I mean, we talked about TJX last week. And I like this one as much as I like TJX and they're about valued about the same. You know, this one's a 21 times forward earnings. I think that that is reasonable right now. And I think that the demand for low-priced goods is going to remain as we continue to just soften. But we are still seeing consumption. So I think it's a good play. All right. Let's turn our attention, Gina, to some of the stock draft picks. We have first, InVIDIA. That was the first pick by WWE superstar Charlotte

Flair. It's put her in first place. The stock is up more than 50 percent since the draft. reports results next week. What do you think of Invidia? Well, so, Invidia was high on our list. Remember, we were the number 10 draft. So by the time we got to us, InVin was long gone. This is a stock that has been, you know, everybody has loved this stock as the cloud has continued to build out. It got this second boom with the generative AI craze, which also actually spurred real demand. So, you know, I think that this stock has a secular story that's not going away, but it has definitely gotten ahead of itself. I think that the multiple here could be at risk, but sometimes expensive stocks stay expensive for a very long time in secular plays.

So you do have to, you know, if you're riding this stock, keep writing it. So that brings us to PayPal. Are you going to keep riding it? It was y'all's first pick, Flynamic duo with Diamond to Shields, down about 18% since the stock draft. Oh, second pick. Thank you. Thank you. Thank you for clarifying. This was the, you know, the leftover. You wanted it in video, but it's, yeah, it wasn't there. What would you do with it now? Well, to be fair, the reason that we chose, so we chose Google as our first pick, and that was really a story about continuing ad demand and, you know, strong play with the high multiple stocks while still having that defensive story. PayPal was about getting a cheap entry into e-commer. And if you look at PayPal, they had about a 13% growth in EPS last year, which is about their long run average. This year, they're expected to turn in 19% growth.

And that's with margins that are continuing to get hit because they're having more and more flow on Venmo, which is a lower margin business. And I think a lot of folks are really punishing them for that. But their forward earnings are 11 times for 19% growth. And I think that that is really, I still think that by the time we get to the end of the year, right, by the time, we head into the Super Bowl, which is when this time horizon ends, we will possibly have seen another rate hike. We've certainly, we will be at the end of rate hikes, and we won't be seeing any kind of meaningful rate cuts by that point. So I think that the high valuation stocks are going to be vulnerable, and this is one that's going to continue to deliver despite Apple Pay, you know,

competition, and despite margins, they're still going to turn in 18 to 19 percent profit growth 11 times, believe me, they're going to be investors that are going to sit up and take notice. All righty. Gina, thank you very much. Have a great weekend. Gina Sanchez. Appreciate it. There are so many stories we'd still like to get to, but so little time left, we will power through as many as we can in closing time when we come right back.

Welcome back just under three minutes to go and several more stories that we want to highlight today. So let's get right to it. We're tracking the Category 4 storm that's heading towards Southern California. Hurricane Hillary. It's expected to weaken before it reaches landfall, but will likely bring severe rains and flooding to the region this weekend and into early next week. If it somehow reaches California as a tropical storm, it would be a rarity. The last time that happened, Tyler, 1939.

Yeah, this is usually the dry or drier season in California. You think of California getting wet sort of November, February, whatever, but this would be very much of an anomaly. I don't, in my memory, think of a Pacific hurricane. No. And so, you know, in Los Angeles could experience. And this is, I think, Sunday into Monday. Hawaii has had them. Some of the southern Mexican coast has had them, but not. The only thing I would say officials in this whole zone, I don't know how we define this zone. Be well prepared. I don't know what that means. I don't know what that looks like. But, you know, here's the warning, if it's going to be bad.

Here it comes. All right. Perhaps the only time congestion is considered positive. The latest global traffic scorecard from the analytics firm, Inrix found that what city? it here. What city has the worst traffic congestion in the United States? Chicago has the worst. But analysts say that's actually a good thing, sure, because congestion signals economic activity. Boston number two followed there by, I think it was New York, Miami, Los Angeles, San Francisco, and Washington, D.C., where the traffic has gotten worse and worse over the years. They point out that only a couple of cities have come back above where they were some years ago. Chicago one of them and Miami another where the traffic is actually worse than it was pre-pandemic.

The thing you have to remember is if population grows, by definition, traffic gets worse every year, especially once the millennials did the exodus to the suburbs thing. So you have to build more road capacity just to literally not make it worse all the time. In the congestion pricing in New York City, we need to do a whole series on that. We will see what happens with that. That's going to be interesting. Well, how about this for globalization? First, we heard about Beyonce causing inflation over in Sweden.

Now, Ozempic is causing rate cuts in Denmark. Here's why Novo Nordus, the Danish company behind the drug, is taking in so much U.S. dollars, converting them to Kroner. It's raising the value of the Danish Kroner and affecting its peg with the euro, forcing it to now have to cut rates. One drug is making that much difference. I love it. It's amazing.

These little butterfly effects, you know, these single actions that can have massive. There's articles that there's one in the Times this morning about how they don't really know, they understand that the drug is very popular. really understand why it works. Yeah, it's creepy and yet the people are talking about saving them hundreds of dollars on their food bills. I mean, the enthusiasm is boundless. All right, everybody. On that note, thanks for watching PowerLine. See if the Dow can stay positive, or turn positive. Closing bell starts right now.