Power Lunch - Market Matters, Awaiting Apple & Amazon 8/3/23

Episode Date: August 3, 2023

The market is continuing to react negatively to Fitch’s downgrade of our credit rating. Jamie Dimon told us it doesn’t matter, but stocks seem to be saying it does. We’ll explore.Plus, Apple & Amazon are set to report earnings today. We’ll discuss the key things to watch from each of these potentially market-moving reports. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Good afternoon, everybody, and welcome to Power Lunch. Alongside Kelly Evans, I'm Tyler Mathis. Coming up, markets continuing to react to that fitch downgrade of the United States credit rating. Stocks, once again, a little bit lower. They have vacillated some today. Bond yields are up, way up. Jamie Diamond of Chase told us it just doesn't matter the downgrade, but markets seem to be saying it does. Plus, Apple and Amazon will report after the bell. The key things to watch for from each of these. potentially market moving reports. A lot on tap. Tyler, first let's get a check on where we are at the moment.

Vassilating. The Dow originally erased 160 point loss, turned positive, but it's down 20 again. The S&P's down six. The NASDAQ hanging on to about a one-point gain. Qualcomm is on pace for its worst day since the pandemic depths of March of 2020. It's down 9% after disappointing the street

with its forecast for fourth quarter revenue. It's hit by a slowdown in smartphone demand. Expedia also getting hit today, is better than expected, but revenue wasn't. Bookings falling short of high expectations and the stocks down almost 16%. And of course, we are watching the yield on the 10-year note among other parts of the spectrum. The 10-year now up at almost 419, another big jump today, starting to get back near those October highs, which Rick Santelli warned us about yesterday. In fact, let's get back to Mr. Santelli amongst the traders in Chicago. What's the chatter today, Rick?

Wow, the chatter is so many issues, so many plates in the air, whether it's tomorrow's number or what Fitch did yesterday or how much the markets move. Just consider this. The Fed raised rates a quarter point on the 26th. On the 27th we had GDP much stronger, first look at second quarter. That's where this chart begins. So basically, twos for that whole run up to today are virtually unchanged. But tens have moved about 30 basis points. Tuesday 10 spread has gone from minus 100 plus to now under minus 70. This is huge.

So many say, what's going on with higher rates? Well, there's a lot of channels, but I'll give you the easy one. The biggest curve trade in history was the Tuesdays to 10 spread, and many spreads had inverted. Now you're looking at the other side of the mountain. And if you look at tens, four and a quarter on the 24th of October, high yield closed. That is the whole thing. And if you look at 30s, it's 438 on the same section. Let's go talk to a trader, shall we?

Hi, Jason. Hey, Rick. It's good to see you. Good to see you, too. Listen, so much to talk about so little time. So it looked like equities had a minor reversal today, but they've had some object of late. What are you looking at going into tomorrow's Big July, Jobs, Jobs, Jobs, Jobs Report?

Yeah, it's quite impressive how well equities have held up today, you know, with the cost of servicing the debt being a huge. topic now and uh... fitch disagreeing and downgrading u.s. debt has made it more and more expensive so the last time we saw this happen we had a five percent sell off so this muted like one to two percent it's it's pretty impressed that the stocks have held up uh with tex especially being the sector that uh has done really well in the last couple hours now if you had to pick a whisper number tomorrow they're looking at 200 thousand ish and if you look at a chart of jobs they definitely have come down a bit what do you think for tomorrow and how could it move

the markets? Yeah, it's hard to see this market cooling down right now. I think the number's probably going to be impressive and jobs are going to keep being gained. So I think the Fed will have more the same. Yep, the Fed will have to make a decision based on the cost of servicing debt versus the job economy. And you know that, Jason, that's all anybody is talking about, okay? People were saying Fitch is wrong. Okay, let's define wrong. In 2011, last time there was a downgrade on the debt of the U.S. We're fed funds, you know, zero to 25. Quarter of 1% where are they now five and a quarter.

Surfacing debt is going to reach a trillion faster than any of us would like. And that is not a good thing. Carl, back to you. I'll pick it up, Rick, thank you very much. So bond yields are rising. Stocks are trying to. They reverse some earlier losses. If Jamie Diamond and Warren Buffett say, don't worry about the fitch downgrade, should we really?

Let's bring in Kevin Mon for some thoughts here. He's president and chief investment officer at Henyon and Walsh Asset Management. And, you know, I'm a little sympathetic to the idea that, you know, there's something to be said about Fitch's arguments here. Maybe the timing is a little bit weird. But it does seem like we're going to shine more of a light in the months to come on the deficit and the debt situation. What's the investor implication, do you think? Well, I think the downgrade by Fitch really shouldn't have caught everybody by surprise.

They were on negative watch for quite some time. And it just followed suit with the downgrade by S&P some 11 years ago. But it is now a split rating. We have to remember that Moody still has the U.S. had a AAA rating and a stable rating as well. So I don't think the implications on debt markets or debt servicing are that great right now. But psychologically, it does make everyone start to question how strong is this economy right now. And if the Fed continues to raise interest rates in the face of it,

Nazat only is going to make it cost more for the U.S. government to serve. their debt, but what about the U.S. consumer that put $180 billion on their credit cards last year? Right. That are now facing credit card interest rates of 21 percent. Each time they raise by another 25 basis points, that makes the cost of servicing that debt only go higher. And if the consumer now has to pay off credit card debt as opposed to spend, the economy is going to slow down further. And perhaps now we're starting to talk about recession again. Well, I don't mean to strain the parallel here, but there is something that reminds me

this year of 1987. I am not suggesting that there's going to be a crash in the market, but you had a market that was rising, and you had a world where interest rates were rising. And eventually the two collided, and the market didn't like it. What do you think, as we head to the fourth quarter of this year? There is a day of reckoning coming for the U.S. economy. Even by the Fed's own projections, they believe GDP growth for this year is going to come back to 1%. They're also forecast, the Fed funds target rate next year to come down to 4.6 percent. And in the following year, Tyler, come down to 3.4%. So if I'm doing the math correctly, yeah, they're coming down over

200 basis points in the next two years. The Fed doesn't cut rates if the economy's doing well. They know what's coming, and this is an intended consequence of all their rate hikes. But if we as investors know that rates are going to be lower over the next two years, that yields are going to be lower over the next two years, and then inflation is going to come down, all of a sudden now, you can start seeing very attractive investment opportunities in both stocks and bonds with that two-year outlook. You just have to get through the next six months. So what do I buy and sell? A couple areas that we like right now on the stock side of the equation are in the sectors of technology and also the sector of health care. Healthcare you can play through different ways. Large-cap

pharmaceutical companies such as Mark pays an attractive dividend yield at 2.7 percent, have been growing their dividends over the last five years at nearly 10 percent. If you want a smaller-cap pay, look at some of the smaller cap biotech names and the pickup and a m&A activity that's taken place there and then when i look at technology of course the a i side you have the microsofts of the world you have the alphabets of the world but how about analog devices they've had a five-year dividend growth rate of 11 percent have a dividend yield around 2 percent and they're in that all-important chip space focusing primarily on industrial chip manufacturing industrials in the automotive services area so those are different ways to play this slowing economy

lower rates and the opportunity for growth over the next two years. It's a weird situation, though, because now you have people worried, okay, well, what if we don't have lower rates? You know, what if, so maybe we can show the dollar here as well, the trading action the past couple of days. You have dollar under pressure, bond yields moving up. This feeling of almost can we really absorb the issuance required to kind of fund the deficit and at what price. The fact that we've been funding it with T bills at five and a half percent, of course Warren Buffett's happy to buy them. who wouldn't buy a five and a half percent, right? It's a gift, but then the flip side of that is what it's doing to the deficit. So, you know, I guess the real question here is, can we be so sure that we can go back to kind of the old normal of lower rates and that happy environment for tech stocks and all the rest of it instead of something a little bit more chronic?

If we're patient, we can, but I think this should also remind investors about the benefits of diversifying your portfolio geographically. If, in fact, the dollar is under pressure, if it continues to weaken, if we cut rates and that brings down the value even further of the U.S. dollar, well, then there's opportunities abound internationally, both develop markets and emerging markets. So maybe now is the time when you start diversifying your portfolio into sectors such as technology and health care, into different market caps, such as smaller cap, which is lagging large cap right now pretty significantly and also go overseas. I mean, and I guess to put it a different way, it is a little weird because you have two possibilities when something like the fitch down, happens. You can either have a flight to safety trade globally where people go, oh, geez, you know, and they buy treasuries and they buy and they bid up the dollar, or you can have the opposite. And it is worth noting that we're seeing the opposite lately. The 30 years moving up, obviously, Bill Ackman says he's shorting it, trying to market time. These things are not going to

go there. But the reaction this week has been one that tells you not that we're benefiting from a flight to safety trade globally, but it seems to be the opposite. Yeah. And I think if you look over the next two years again, if I can continue with this two-year outlook. You look at the 30-year and the 10-year treasury, they're coming in by about anywhere between 25 and 50 basis points. That's it over the next two years. The shorter end of the curve, Fed funds are going to come down by over 200 basis points. So all that movement's going to be taking place in the shorter end of the yield curve. So should I buy short-duration bonds, short-duration treasuries today, a two-year treasury? I think if you're looking over the next two years, you want to be in the longer end of the

Curve. Yields are going to be coming down. It's going to impact the shorter end of the curve, and you want to be able to maintain and lock in those longer. Well, that may be true, but also if you think these yields are going away and that this is the only time to get, you know, 5% or I don't know where the two year is now. I mean, and that, you know, you fast forward the clock, you're going to be down at 280. Well, then you'd want to get it now. Right. If you want to even go into shorter-term CDs, you can look at that. Those are even higher. The yield curve is still inverted by nearly 75 basis points, but then you have the reinvestment risk when those shorter-term products come due, and where do you put that money into the market when yields are expected to be lower? So you need to build a balanced portfolio. Municipal bonds is a great area right now because of the supplied demand and balance that exists for municipal bonds, particularly for high net worth investors. But the stock side equation, again, the next six months are going to be choppy. next year is an election year. That's going to create untold levels of volatility. But if we look over the next two years, again, when rates, yields and inflation should be lower, I think the markets will be higher. All right, Kevin, thank you very much. Good as always to see you. Kevin Mon. Coming up, the A's have it to big tech earnings on deck. Apple to report its third quarter in a row of declining sales. Can it turn demand around? Plus Amazon, the other A, also after the bell, while retail usually takes up the bowl.

of the attention. Wall Street actually focusing big on cloud this time around. And as we head to a break, a quick power check on the positive side of the S&P, Clorox up nearly 6%, whiter whites, gaining following positive results on the negative side, DXC technology down nearly 30 percent, cutting its outlook, analysts saying progress within the tech consulting firm is reversing. We'll be right back. Welcome back, everybody. Apple earnings on deck. The stock up nearly 50% for the year. It's a strong run like many of its big tech peers. Yet iPhone demand expected to be weak once again when the company reports later this afternoon. Steve Kovac is in Cupertino with a preview of what to expect from Apple's earnings. Hi, Steve. Hey, Tyler. Yeah, like you said, revenue is going to be down for the third straight quarter.

And that's despite the run we sit down the stock up nearly 50%. Also, very expensive about 30 times. forward earnings. And like you said, demand has been really tough on not just iPhones, but all consumer gadgets throughout the industry this year. And the real question going into this earnings report is going to be whether or not we see some guidance from Apple on the recovery in that demand. So look, we're also expecting to hear some gross stories out of countries like India and Indonesia, but again, not enough to make up for those more important markets like China, which has had some very troubling economic data over the last couple of months, which is the opposite story over in the United States.

So one thing I'm curious to hear from Tim Cook, Tyler, is any kind of outlook or commentary on the strength of the U.S. economy right now. And then besides iPhone sales, which is, of course, the most important segment, but services is another thing to watch. We already saw Tyler last week, META and Google report a strength and a resurgence in advertising. Apple could benefit from that as well, potentially through their apps. store apps and then also a resurgence in things like gaming could also help with

app store revenues. Look, in the forward-looking guidance that we're expecting to hear on the call, not formal guidance, mind you, but just some guideposts to get us through into this current quarter. Morgan Stanley analysts expecting a resurgence in growth in that services division, which is very important part of the Apple story as they kind of hit this plateau on iPhone sales guides. All right, Steve, thank you very much. And we'll be waiting for your reports later today. For more on Apple, joining us now is Chris Sankar. He covers chips and IT hardware at TD Cowan and has an outperform rating on Apple with a price target of $220. Chris, welcome. Good to have you with us. What are you looking for from Apple today? What kind of

guidance can you give us? And I guess we should note that this, I guess it's their third fiscal quarter is usually or historically, this June quarter is historically their least favorable one. Yeah, hey, Tyler, thanks for having me. Yeah, a couple of things I would say, number one, yeah, to answer your last question first, yeah, June quarter is typically their seasonally slowest. Usually what happens in the June quarter, they usually push the inventory of iPhones to make up for the new iPhone that's going to be launching in September. So that's why seasonally June is the weakest. We actually have June quarter revenues down two percent year over year. we're actually expecting September to be up one percent year over year coming off a drop of June levels.

Overall, iPhone data points are still being relatively healthy, you know, despite the fact that smartphones have been like extremely lack last year this year. So the stock is up very strongly this year. There we see, I think, 47 percent year to date. But it has certainly slowed over the past month or so. What would you expect it? How would you expect, you've got a $220 price target on it? it, but how would you expect it to react after today's report? Oh, man, that's a tough question.

You know, I'm trying to figure out the next day of reaction. But let me increase it this way, right? One of the benefits Apple has had is early into this year when you got in, there's generally a view that we might end going into like a recession or a hard landing. So people usually tend to gravitate towards safety stocks, and Apple is definitely one of them, given a strong free cash flow generation, extremely solid balance sheet, net cash north of 50. billion dollars. So I think those are basically having what's attractive. What has been added on top of that is a fact that many investors expected iPhone to start slowing because you're seeing weakness

in the non-premium smartphones. If you look at the Chinese smartphones like Apo, V or Xiaomi, etc, you've still not seen a recovery yet. And Apple has remarkably been resilient. Even I would say even some of the the numbers that came out have been pretty strong for Apple. So I think that's also kind of like added on top of the safety stock value of it. Everybody talks about AI. And nobody's doing anything about it.

No, everybody talks about AI. Do you expect Cook or anyone on the call today to talk about Apple and AI or not? You know, I'm pretty sure either the question is going to come up and they're going to give an answer. You know, they're kind of a little more, I would say, non-asked,

about their gen AI plans. But keep in mind, you know, the chips that Apple designs, the A-Series and the M-Series, has a neural engine built into it, which can actually benefit influencing portion of AI. And also they introduce some of the AI algorithms in the A-11 bionic chip, which was actually launched in 2017 for the iPhone. So there are some AI capabilities already built into some of these chips. The question is how much you want to extrapolate beyond that. You know, this is a company that is largely driven, obviously, by iPhone sales, but that's not all they do.

They have earbuds. They have iPads. They have Macs. What about that side of the – and people don't pay as much attention to that side of their business. Talk to us a little bit about that. Yeah, sure. So, you know, clearly you're right. I mean, iPhone has been the cash call for the longest time, and it continues to be, and that's been remarked to be resilient.

If you look at some of the hardware side of the business, whether you talk about iPads, airport, wearables like watches. I would say they're going to be down year over year this year because last year was a very strong year. And this year obviously had a factor in the macro. So I think because of that hardware business would be down, we think anywhere in the down tend to high teens range on a year-over-year basis for the full year

compared to last year for all of these other hardware categories, but services is still going to be pretty good. All right, Chris, thank you very much. We appreciate your time today, and we'll be watching, as you will, Apple's results later today. But that's not all. Amazon also reports after the bell. That's stock also up about 50% on the year. Lots of writing on the cloud business, though. Let's get to Deerja Bosa with more on what to expect. Hi, Deirdre. Yeah, Kelly, let me tell you why the cloud business is so important. It makes up less than 20% of Amazon's total revenue, but it is the profit engine. It allows Amazon to make bets on all these other businesses from streaming, even how it got advertising off the ground, groceries, etc. It really is key to that fly. wheel. So Wall Street is expecting growth of about 10% and that has come down significantly over the last few years.

Six quarters ago it was about 40% and that's slowly come down down. If it's lower than 10% falling into maybe the mid single digits, that could create some worries on Wall Street that maybe it's not just the softer macro backdrop that's hurting this business, the profit engine of the company, but maybe there's something fundamental here like increased competition from the likes of Microsoft and Google. Another thing is that you. that we're going to be watching, investors certainly going to be watching, is KAPEX spending. Remember that Amazon spent all this money during the pandemic to essentially double its logistics footprint. Now it has to spend on cloud infrastructure to allow its AWS, its cloud customers to

take advantage of this AI shift. So that'll be interesting. We'll be on the lookout for that. Between Microsoft, Google, and Meta, their earnings call, it was mentioned 37 times. So we'll see what happens on the Amazon call. And lastly, Kelly and Tyler, just want to flag how Amazon has has done versus the other mega caps. It's outperformed this year. But if you take a look at a 12-month basis and even a five-year basis, Amazon has been the underperformer. Investors have really wanted to see that fiscal discipline, that efficiency. So that is also going to be in focus at a time when, you know, spending might be going up. Back over to you. I thought it was a nice gauge of sentiment says something about the Times Dear Joe. Bank of America, I think it was their trading desk

earlier this week said the most asked about retailer reporting Thursday after the bell that we are getting is not Amazon. It was floor and decor who shares are up 63% this year. So you could say, okay, maybe the cloud community is more interested in the retail community, but either way. Yeah, I mean, remember too that their core business, right, it doesn't make nearly as much money. And at a time when investors are interested in profitability, that's AW. It's also advertising, by the way, but a much smaller business at this point. Growing fast, though. Deirdre, thank you very much, Deirdre Bosa. Further ahead, a very important IP.

Content is king, especially right now as the strike rages on in Hollywood. After the success of Barbie, our media giants clamoring for established IP with a built-in audience. We've got details when Power Lunch returns. Welcome back to Power Lunch. The energy stocks are leading the S&P as the price of oil rebounds again today. Everything wrong is happening. Rates are higher, PIPA, oil is higher, the dollars week. What's going on?

Well, oil is higher because Saudi Arabia said today it's going to extend that one million barrel per day production cut into September. So that would be the third month of that output cut. And remember, the Saudi energy minister called this the lollipop back in June when they first introduced it, saying it's a market sweetener. Russia will also extend its export cut, although that is tapering down a little bit. And I think what's really interesting here is that the market was more or less anticipating that Saudi Arabia would extend this cut. but they also said that they could extend it even further or extend it and deepen it. So once again, showing that for the first time, they're really taking matters into their own hands. This is outside of action from the broader OPEC Plus alliance.

And so this is Saudi Arabia acting on its own and saying we really want to put a floor on those oil prices. So that's moving. One other stock to watch today is Sun Run. That company up about 11% today. So it was heavily shorted into earnings. And I don't think that it's optimism around the overall solar. market because their Q3 guidance was pretty muted. They didn't give any type of big projections for growth this year. But they did say that their battery storage, battery storage attachment

rates are growing, and that's positive. That's higher margin for them. They introduced cash targets for the first time. So I think it's more specific, company-specific story rather than the industry as a whole. These are storage batteries that go where, that who uses? So it's for homeowners. So when you get solar and storage. And so California changed their net energy metering policy back in April. And so now it's much more advantageous to have storage as well. And because that helps California. They have all of those grid problems. And so it behooves them to encourage consumers to get not just solar, but also that energy storage.

So if you can store your sunpower, this is a big leap forward. Exactly. And also, if you're looking for grid reliability and the idea that your power will always be on, just having rooftop solar is not enough. You also need storage. Because if you only have panels, if the main grid goes down, your system will also go down. It will only work if you also have storage. So if you're looking for it to ensure, you know, power reliability, then you're going to get storage.

All right. Thank you, Pip. Appreciate it. Let's get to Bertha Coombs now for a CNBC News update. Bertha. Hi, Tyler. Former President Donald Trump took off from Newark Airport just moments ago as he travels to the nation's capital to face charges in his latest criminal indictment. Trump is accused of breaking the law by attempting to overturn the 2020 election.

He's expected to appear before a judge at 4. p.m. Eastern time. It's possible the Supreme Court could take up a debate over bathroom access for transgender students in Indiana. That's what a federal appeals court said today when it upheld a lower court ruling that trans students in the state must have access to the bathrooms and locker rooms consistent with their gender identities. The appeals court suggested the high court may hear the case or cases similar to it. And as someone tried to reach you about your car's warranty, we all get those annoying calls. Well, the people behind some of those annoying robocalls are being slammed with a big fine. The SEC said today, an international

network of companies were responsible for five billion robocalls to 500 million numbers over just three months in 2021. I'm sure I was one of them. The agency wants to find them nearly three million dollars for the operation. But Tyler, they'll move on to asking about student loans, which, you know, sometimes I pick up the phone and I say, paid those 30 years ago. Five billion calls, three million in fines. That sounds a little too low to me. I would mail them harder. Bertha, thanks. Appreciate it. All right, getting malls out of their pickle. After the break, we'll take a look at one company using storefronts and malls to build courts for the very popular sport of pickleball.

Power lunch will be right back. You look at pickleball, you don't really think it's anything until you go on the court and you see everybody having a great time and so many people from all ages can play. So it was one of the things that I pushed back on early, but he was just like, yo, just come check this out with me and you see where it's going now. Well, that was NBA star Kevin Durant at CNBC and Boardroom's Game Plan Summit, discussing the incredible rise in the popularity of pickle. ball. And where's the game going now? Well, to the mall. Our next guests are trying to solve the

problem of old shopping malls by turning them into pickle malls. Joining us now to talk about it are West Shaw, the CEO of pickle mall and Steve Coon, the founder of pickle mall. He's also the founder of Major League pickleball and a former hedge fund manager. Steve, let me begin with you. How fast is pickleball growing? I've never seen a sport grow at the pace of this sport. It's so much fun. to play and you get to play with a wide variety of people and have the best time. This is an absolutely exponential growth. It's unbelievable. And so, Wes, what led to the idea of taking over old, sometimes dilapidated, sometimes vacant mall space and turning them into pickleball courts? So it's kind of twofold, one of which is in residential areas,

there is a noise problem, and then there's a lack of courts in the east. US. Right now in America, for every one pickleball player, for every 270 pickleball players, there's one pickleball court. It's just a huge lack, it's a huge gap in supply and demand. The other aspect of this is malls need something to bring people in. They need entertainment concepts that are going to bring in people from a larger market trade area. And that's ultimately where it came from. So, Steve, how many of these facilities are you operating now and how many do you plan to have, let's say three years down the road. We are literally having a grand opening Saturday

here in Tempe, Arizona, at Pickle Mall, Arizona. That's our very first. We hope to have seven or eight open by the end of this year and 30 or 40 by the end of next year, depending on how fast I can get West to get that done. And even with that, we will not be meeting the demand. The demand is absolutely massive. We have a great partner in Simon Properties,

the biggest mall owner and developer in America, and I think they value what we're bringing to the mall. We're bringing experiential, which means that it's bringing new people to the shopping mall. So, West, what do you think, let me ask you this, where in the malls do these courts go? Do they go into old Saks Fifth Avenue stores or Bedbath and Beyond's or what? Exactly. So actually, this store originally was a J.C. Pennies that went out and then transitioned to an at-home and has been sitting vacant for six years. So it's 104,000 square feet that have just been sitting vacant in this mall, not bringing in any traffic.

I've played a little pickleball, Steve, and I must say I enjoy it because it's about my speed. I don't have to run as far as I would on a tennis court. I think it is an easier game to play, for example, than tennis or paddle ball. I agree with that. And here's another thing. in an hour of pickleball, you hit the ball 10 times as much as you do an hour of tennis. And look, to tennis people, I love tennis, I like to play, I like to watch it. But pickleball for a lot of people is a really fun thing.

Because you get to hit the ball so much, that's joyous in it of itself, but you also get better quicker because you're hitting the ball a lot. So, gentlemen, I have to confess, I tore my Achilles tendon last spring, not playing pickleball, but when I went to my doctor to have it repaired in surgery, I asked him as I often do, how's business? He said, the best thing for my business in the last two years has been pickleball. Here's what I would say to that. There's been some stories about pickleball causing a wave of injuries.

What I would say is the reason that's happening is because we have tens of millions of people having fun, getting out and exercising. The health benefits are vastly, vastly higher than any health costs. So I find those stories a little silly. But if you have led a sedentary life and you're going out and pickleball involves a lot of bending and reaching and putting, you know, maybe unfamiliar pressure on your knees and quick movements on the Achilles, you can see where if you're not accustomed to it, you might pop a knee every now and then. It's definitely a possibility. But that's what exercise is. That's what exercise is.

Sure. You can run. I remember the CrossFit getting the same treatment. I think pickleball is making people joyous, making people's life much more fun. They're getting exercise. Yeah, I think that's story. I think I inflame my Achilles tendon playing golf of all things,

just walking around. So, I mean, you know, I don't blame pickleball for it at all. Kel? Wes, and I would just observe, by the way, this, you know, my husband's having a harder time finding tennis partners because everyone's playing paddle. and pickle and the next generation, you know, they're all doing these sports instead of tennis. And anyway, just as kind of a side note, so West, one thing I do appreciate is having more stuff to do at a mall.

How many more malls do you envision yourself being, and you're in an old Stanford, Connecticut mall where it's, you know, they've had a lot of new stuff like this. How many more malls and locations do you expect to have? And by the way, how much does it cost to play? Yeah, so right now we're hoping to have at least 50 locations after year two. And then for a cost to play, we have a membership option that's $99 a month here in Tempe, Arizona. And then for our drop-in rates, it's $8 to $10 per person per hour. So it's accessible to all income levels and demographics. I thought you were going to say $99 a year.

Wow. All right. How often do people come on the monthly membership? Right now, we just opened up our monthly memberships on Monday afternoon, and we've already had 60 member shows. Wow. We'll play. People, big of a lot people will play every day.

They do play every day. They do tend to play. They get hooked. They get really addicted to it. It's, it is fun. And I think it is good that you're doing it indoors because that thwock of the ball, if you're in a neighborhood, it might keep you awake at night if you got people playing close by.

West and Steve, thanks very much. Good luck with the new venture. Thank you very much. Appreciate it. You're very welcome. Really are seeing it everywhere. You do? Oh, yeah. Outside. They're converting tennis courts in Brookdale Park to pickleball. Exactly.

Yeah. Coming up, franchise fuel. Franchise brands are helping drive results for America's corporations. The Super Mario's, Mario Brothers movie leading to blowout earnings for Nintendo. Barbie's been a boost for Mattel. But will the tank run empty if the Hollywood strike drags on? We will discuss when Power Lunch returns. Welcome back in the media space right now. It's all about the IP, especially as.

Strikes create content scarcity. Mattel and Warner Brothers seeing huge success with their Barbie adaptation, so much so that they're already planning films for other products like Polly Pockets. Can't wait for that one. And Hot Wheels. A Nintendo also seeing similar success in film with Mario Super Mario and in its games with its newest sequel to Zelda. It's not all positive, though. Hasbro selling its film in TV units as the Hollywood Writers and Actor Strike goes on.

On that note, Julia Borson joins us with, so it was refreshing to finally have. new movies about new things and not just superheroes all the time. But with the strike continuing, where else can people turn for IP? Well, I think the interesting thing here is that these franchises, whether it's Barbie or Hot Wheels or Polly Pockets or PJ masks, these are familiar franchises, but you haven't seen them in the movie format yet. And I do have to point out, the thing with Hasbro is at one point back in 2019, they thought they were going to make a big push into more mainstream entertainment. And they bought this studio E1 that does the last.

likes of yellow jackets and the woman king and these sort of more mainstream entertainment properties that are not associated with their brands. And they said, this isn't really core to what we do. Let's get rid of these entertainment properties that don't have to do with our brands. But let's hold on to the core family brands. So they are maintaining the ability to make content around the likes of their PJ masks, which is one that I found a kind of bewildering one as a parent. And then also Transformers. So for instance, Transformers was a how. hazard property that they turned into films way back when. And I think they're going to be really working on trying to expand other franchises in the same way Transformers has had a long

life. So I think this key thing here is familiarity without already being sick of it. What took Mattel so long to make Barbie? Barbie was one of these films that was in development for many years and they really wanted to do it right. They have done plenty of animated films for kids. Mattel has. Mattel has. Plenty of animated films for kids. But they hadn't made something. that really had this sort of broader cultural resonance, and they went down the road for a while trying to make Barbie with Amy Schumer, and then they landed on this Margot Robbie Virgin.

But I think that these films take years to develop. The Hot Wheels one is one that's been in development for years, and it could be a very big deal like this one. It isn't a resistance on Mattel's part to using their toys and their library of toys in movie settings. But they would still need writers, wouldn't they? Even for these, you know, you can't just say Polly Pocketlets to make a movie about. presumably you need writers for that. Yes, of course. And so these films have been developed for years. And right now, Mattel already has over a dozen other films already in development. So I don't know where all of them are in terms of whether the scripts have been turned in or there are just concepts that they're ideating on. But you're right. Right now we're in this weird period where we could see a lull in the kind of content that's coming on to TV because the TV industry is going to be hit first from the strike. And that's where we're going to see the first impact. But all of these players, whether it's Hasbro,

looking for the next Transformers movie or how to turn another one of their properties into a film, or whether it's Mattel, they all need writers. And those studios that have managed to just finish shooting things, they're in better shape. And I think for the fall, we won't see film release schedules impacted. We will see TV releases impacted. Yeah. So what will they do? How will the broadcast networks of which we are apart, how will they compensate for the dearth of content?

This fall, it's going to be a big focus on reality TV and sports. Of course, we always talk about how valuable sports is. This is another example of why sports is so valuable. Pickleball, there you go. Exactly. A more docu-series, I think you're going to be seeing a lot more docu-series, more perhaps professional pickleball or whatever that might look like. But I do think that when you're looking at the impact of strikes,

TV's going to be impacted first. There are some TV shows that have already been shot. Netflix, I'm sure, has many series that they shot and they're sitting on, and then you're going to see the film, whether it's based on a Hasbro character or not, those film, the impact will really be felt next year. Yeah, it's going to drag on. Julia, thanks very much. Good to have you in house.

Always great to be here. Great to have you here. Well, the NFL, speaking of, this is perfect. The NFL preseason kicks off tonight with the annual Hall of Fame game in Canton between the Jets and the Brown. Brian, are you going to watch tonight? I can't believe it's tonight. He's a Jets fan.

It seems like a great excuse to check on our stock draft standings. Check out shares of Boot Barn, surging on a big beat for its fiscal first quarter, move higher in boot, helping push the Rutgers Investment Club into second place, making up ground on WWE superstar Charlotte Flair, who continues to lead the competition. And coming up, we will trade some other big movers of the day. It's time for a fresh three-stock lunch after the break. We'll be right back. Time for today's three-stock lunch. We are looking at three big movers on earnings. And here with our trades, Victor's. Victoria Green, G-squared private wealth, CIO, and a CNBC contributor.

Victoria, welcome. Let's start with Clorox. Shares are up on a second quarter beat. How do you feel about this company? Look, there's no hate on Clorox. They did phenomenal, strong beat. My problem is the premium you're paying for this stock right now. They're trading about 40 times, multiple versus like a unilever at 14, 15 times,

Kimberly Clark around 20 times and even Procter Gamble at 26 times. So it's just you're paying so much money for this stock. They also have a history. The last two earnings, they've had a really nice pop on their earnings announcement, and then they've given it right back. They did that in February. They did that in May. And so it's just something I'm just not believing this,

and I'm a seller of this rip, mostly because of the price that's trading out, and the multiple is such a premium over its peers. Why is it getting that multiple versus its peers? Is it growth rate, or what are people looking for here? Some. I mean, the lifestyle sector has done well. It finally grew 15%.

But a lot of it, I think, is a little bit of a holdover from the pandemic day. have such strong name brands that people still love their Clorox. And there are strong consumer staples stock. It's just hard times to be owning a high multiple staples in this cycle. Yeah. Yeah, it's 30 times. I mean, that's like the same as Microsoft at this point. How about PayPal, Victoria, big losses today down as much as 11 percent. A little more than that right now, even though results were in line. What would you do with the stock? This one I'm still selling. And it's for twofold. They couldn't even hit, but even after cutting 7% of their workforce, they couldn't hit that margin estimate of 22%

They miss on that. Their margins continue to shrink. They're struggling with their loan portfolio. They were trying to emulate AMX with those small business loans and they're having to write some off. And mostly they also don't have a CEO. They're still searching for their CEO. So the direction of this company may change.

And they're facing a lot of threats. I think over the next five to 10 years, Bintech is going to change dramatically. If you look at what Apple's bringing to the market, Google, and then even with the blockchain and the Bitcoin-type community may bring and how payments may shift, I just see there's a lot of threats. for the stock and just going to be difficult for it to continue to grow profitability and grow margins.

What are the other brands that PayPal owns? Venmo. Venmo's the main one. Yeah, Venmo's the main one. All right, let's move on to Etsy. Shares are down there, despite a headline beat on revenue and profit. So what do you think about Etsy? Esty here to buy. I think investors got disappointed by their lack of updated guidance, but it actually is a fairly strong beat. And if you dig into the numbers, they looked at their gross merchandise sales, and they grew in May. They grew in May. They grew in June and they gave guidance that they continued to grow in July. This platform has been investing a lot in improving their search, bringing in AI to help drive customers, and they are seeing new

customer growth. There were some really great green shoots in the customer growth side. So I think this thought for me is a buy. They've got great supports between 8082, and they've invested in their platform and continue to grow and bring on new customers. So look past the fact that they had no update to their guidance. It may be conservative, giving them some room to beat in the second half. All right, we go out on an upnote there. Victoria Green. Thank you very much. Thanks, guys.

And a lot more stories we want to hit with just a little time left. It's closing time when we return. Welcome back. Three minutes, four stories. Can we get to all of them? Let's start with the news about Bud Light owner, A.B. InBev, beating forecasts and seeing profits rise year on year despite the boycott that led to that sharp decline in sales of Bud Light.

The shares are up 1%, still down 5% year to date, but much more resilient, shall we? say, Tyler, then expected. Yeah, no, this is kind of a surprise coming out of the controversy over the influencer whom they embraced or did an ad around that seemed to anger both progressives and conservatives. Absolutely, and we saw Molson Corr, so many other beneficiaries didn't expect that they were going to be amongst those beating. Yeah, well, competition for travel spending is heating up, and the U.S. seems to be losing out, with many Americans choosing to head abroad. According to Hopper, International Airfare averaging $962. right now, that's a 10% increase from a year ago, while domestic round-trip prices are down 11% from a year ago to about $250 on average.

Meanwhile, Marriott reported growth in the U.S. and Canada, up only 6% year over year. While it's international markets, surging 39%. I think a lot of people who had postponed going to Europe over the past few years are now succumbing and going over there. The Instagram effect, I'm just going to call it. Yeah, it is. I'll tell you. And I'll tell you, one hot city right now, and as it has been, is Amsterdam. People are swarming there, and they're trying to keep the tourists away. Okay, it's not cool anymore. If you want to help yourself forget about a wasteful purchase, by the way, you should pay in cash. Stanford University research found paying with cash makes it easier to forget a regrettable purchase ever happened.

Bank rates as paying with cash can also lead to financial infidelity, like, ooh, hiding a purchase from your spouse. You know, obviously when you get a statement, it reminds you of the money you spent. I think paying with cash also makes you less inclined to do that. I agree. That sort of spontaneous purchase because you have to pull out bills. I'm like the opposite. Or writing a check? Right, exactly.

All right. And finally, it is getting harder and harder to bring home the bacon. Prices of bacon. That's pork bellies, really, is what it comes from. It's the cut of meat used for bacon. Prices going up. But it's not the same inflationary forces. we've been talking about. This latest surge comes in part because of a new California law that

requires pigs to be kept in larger pens for humane purposes. Yep, as we've already seen the move, if you buy free-range eggs, they're a lot more expensive than traditional eggs, but in this case, it sounds like they're not leaving the marketplace much of a choice. Yeah, no. So anyhow, maybe a little less bacon on the burger. Maybe that's the goal. Maybe you can't afford. Maybe that's not all a bad thing. Better for the pigs. Well, we've got a very flat market today, down a little bit, still feeling a little of the hangover, I would guess, of the downgrade by Fitch. Watch bonds, watch the dollar.

It's going to be a very interesting couple of weeks. And watch Power Lunch tomorrow. We're going to talk about the jobs and everything. Thank you for watching us today. Closing bell starts right now.