Power Lunch - Market Rally 11/14/23

Episode Date: November 14, 2023

The latest CPI report came in flat month-over-month, and less than expected as consumer prices fall. Markets seem to be declaring victory in the fight against inflation, thinking this could mean the Fed is done hiking rates.We’ll dig into the details, including what it all means for markets and your money. 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 Maths. We've got a rally on Wall Street. CPI coming in flat compared with the previous month and less than expected. Markets seem to be declaring victory spike in the ball in the fight against inflation and thinking this means the Fed is really done hiking. That's why we're seeing this big rally in stocks today. Take a look at the 500-point rally on the down nearly. We're up about 570 at the highs, up 1.3% right now. Also, strong earnings from Home Depot. helping the performance there. And it's the underperformer. The S&P is up 1.7%. 4489. The NASDAQ up better than 2%. And the yield on the 10-year note dropped sharply after that report. It was at 461. It moved down to about 445. That's still where we're hovering. As you can see, that

pretty cliff-like move lower, really. The rally pretty widespread. But the best sectors are those that benefit the most from that drop in interest rates, real estate utilities, and consumer discretionary. The real estate sector up 5% today and as mentioned Home Depot adding more than 100 points to the Dow on its own after results. There's the stock move. The latest is up 6.3% almost helping it turn positive year to date. We'll have more on that in a moment. All right. So is this morning CPI report and all clear for the markets? Let's bring in Greg Branch, managing partner at Veritas Financial Group and a CNBC contributor in our own Steve Leasman also joins us. Greg, welcome and Steve you as well. Let me begin with you, Greg.

Greg, is the market getting a little too giddy here over just one inflation report or what? I think so. I think so. And let me start by saying that there are positives in this report. The housing component coming in softer than we've expected and we've seen that that's good. That's unique. But by and large, this is not a unique CPI report. Yes, it is below consensus. Yes, it's only 20 basis points of core growth monthly. month over month, and I think we need to focus on the month over month to exclude the base effect. But it's not unique. We have seen 20 basis points before. I had those arguments all summer that were on a new trend around the 2% inflation level, and it just didn't turn out to be that. And so either we needed something unique to justify this market reaction, like 10 basis points or 15 basis points, that would have been unique.

Or we needed to see that this is the new trend. And we can say neither of those, based on what we've received because we've seen it before. And the trend is 30 to 40 basis points. Of the last 12 reports, it has been 20 basis points three times, and the other nine times been in that 30 to 40 range. So I'm not sure how we're spiking the ball here. And more importantly than what I think, I think you're going to see the Fed come out as they have for the last two weeks.

It said, you guys are not saying what we're saying. What we're saying is we don't think that we've done enough to be finished. And I'll quote Kashkari, Boston Powell, They all said the same thing, which is any near-term expectation for rate cuts is not grounded in reality. There may be, Steve, an argument that many make that we're going to stay higher for longer. And there's nothing really here that says we won't. In other words, it may, today's inflation report may suggest that the Fed may not increase rates from here, but that doesn't mean necessarily that rates are going to come down or that the Fed is going to lever them lower.

Well, there's a whole series of calculations running from this report, and I agree with Greg. The market is asking the data to be more consistent than it actually can be and believe that the Fed takes a consistent message from this. I don't think it does, and I wouldn't be surprised if a string of coming reports that we don't end up having one that goes the other way on us and causes the market to go pricing new risk on this, especially the way the market is priced right now. It's just not the way the data work. That's really the problem. But on this issue, the Fed, if the trend does continue and the extrapolation that's coming from this number does come to pass, the Fed is going to have to cut rates. And that's because obviously the nominal rate is one thing, but the Fed is ultimately aiming for some form of a real rate here. That's the way the calculations work.

And today, effectively, the Fed got more tight because it didn't change the nominal rate. rate and the inflation rate came down. So the real rate went up today. And over time, the way the market is priced right now, I don't know what the right number is, but it has 100 basis points of cuts built in for next year. The Fed has something like 28 built in. But again, that was the September forecast. We'll see again, it does point to the importance of the December forecast that's coming up. There are the probabilities. You can see there for rate cut probabilities coming up. But I'm more interested in the total. The next one, guys, if you have it there, which is the cuts that are built in for next year, 100 for the market and

28 for the Fed. I suspect the Fed's number will go up, but there's one more inflation report from here, and we'll see if that trend or the extrapolation the market is getting from this number turns out to be true, Tyler. Steve, there was one part of the report that is raising plenty of eyebrows. It's the drop in health premiums. I forget exactly what they call the category, down 34% year-on-year. You know what's going on there? Well, we do know that this is the time of year when the government comes in and it redos its health insurance inflation forecast. There was also, I believe, a change in methodology.

It was way more, I thought that people were making in a slight increase to the CPI from that number. So I don't exactly know what's going on there. I know that you had doctors visits were down and hospitals were up from a health standpoint. And then this health insurance number seems to be kind of out of whack. What I don't know, Kelly, and I'm sorry I don't know this, is the overall effect on the CPI from that. For sure. Although, would you say, Steve, that alone would be reason to discount the lower reading? I don't think it's enough to discount the lower reading.

I think there were a variety of things in here. When I look at the services XX Energy and housing, it has come down. The housing number came down, Kelly. That's the thing. And I'll give you the two broader forces that we're looking for here. The first is for lower wages to work the way in the lower services inflation and for lower housing costs to work their way in. We know the numbers are out there for lower housing.

So that's really been the touchstone here, that lower housing number that's really excited the market. Greg, does the rally we're not necessarily the rally we're seeing today, but the rally we've seen today and all month, does it have legs? I don't think so. And I think Steve said the key word. He said extrapolation. And so recall this rally was really kicked off by that jobs number, that 150,000, or if you want to adjust for strikes, 180,000.

And I'll make the same argument there. And I think the argument Steve's making is that we just can't take out these singular data points and extrapolate them. Was 150,000 or 180,000 less than what consensus was looking at? Yeah, of course. Was it less than September and August's mid-2020s? Sure. But it wasn't less than June's 105 or July's 157. And so the Fed doesn't have the luxury of apparently what the market does or what FedWatch does of saying this is the new trend. They just don't have that luxury and history has proven that to be the right approach. Kelly just brought up the healthcare component of CPI until that's a trend.

And the heavy work, the heavy lifting has been done by use auto and been done by airfares. And that's really been the key areas of disinflation. And I think the Fed would like to see that as a trend that we're seeing other areas contribute, like the housing that Steve and I have brought up. But until they actually have evidence of that, until we have a sequence of data points pointing in that direction, they just don't have the liberty to extrapolate the way that apparently the market does. All right, Greg Branch, Steve Leasman. Thank you, Graham.

Go ahead. Kelly. Final thought. Go ahead. Yeah, I looked it up, Kelly. I'm sorry I didn't notice ahead of time. Health insurance is 0.53 waiting in the index. So it's a big change, you're right,

but I don't think it has the ability to create a big change in the number today. Now that's going to get people all riled up all over again. They go, what do you say? 0.5% of my spending is on health care? That's what it says. Relative importance of health insurance, 0.53. There we go. Kelly, I think we feel that every month, Kelly.

feel that every month. Yeah, yeah, yeah, yeah, especially this time of year. Steve Leasman, Greg Branch, really appreciate it. Thank you both for joining us today. Let's get to the bond market and that strong reaction to the CPI print. Rick Santelli, what do you make of it? Well, I think it definitely was good progress, but it's sort of like a Pink Floyd song, us and them. On the us side, people that really watch the Fed, watch the numbers, watch the economic data points, where all those Fed members, what they see is that zero presents the upward trajectory of CPI inflation is now flat. But that does not mean we're rolling back prices.

That's the them. The middle class, most people, food and energy and the notion that prices are still much higher than they were is going to have a political ramification, if nothing else. We've made big progress, though, except for one area. Look at the year-over-year core. That's X food and energy at 4%. Haven't been below 4% since May of 2021. and you can see it's on the sticky side.

But 2's 10s, 30s you see on the chart, dropped rather dramatically. We're making progress. And if you look at since September 1st on a 10 year, we're on pace for the lowest yield close in about seven weeks. Mike, what's going on? All right, so we had a huge number today.

How do you and traders more attuned to volatility and equities? How are you looking at this? The market loves it when volatility recedes, when the chance of uncertainty recedes. We had had a sell-off recently, related to these rates, we're selling go four and a half up to five percent. Kind of bounced against five percent.

The market sold off because of the fears we were going to go to six percent, seven percent. We obviously didn't hit anything really much above five. And what is interesting is that this number, these inflation numbers, tell us that that's not in the cards anymore. So that kind of takes it off the table. The interesting part about that too is the Fed funds rate were predicting about a 15 percent, not very high, but a 15 percent chance that we would have to hike rates in December.

A lot of that was based on this report. This report obliterated that number. We are effectively at zero percent chance we're going to raise rates. We've taken out a real volatility catalyst out of the marketplace. And as we know, the market loves when uncertainty recedes. No, and I can't disagree with anything you've said there. Here's my two things I want to bring up. The thing that drove us up in many ways was termed premium expansion

and the notion of servicing the debt. Have those issues gone away? We have not seen anyone react to those ideas. I think those are all very valid concerns. We always seen the market react to the government shutdown issue. So these issues kind of come into play, and until the market reacts to them, there's really not much to do. As far as what you're saying, I think are all valid things. I mean, industry rates are still much higher over an 18-month period.

That said, we're really just kind of reacting in the short-term news. Inflation is lower. The market is way, way higher. How do you view Fed Fund futures? This is the last question. We're almost out of time. Is it something that you're looking at is painted in permanent marker? How do you look at that down the way?

The next meeting matters, because that's an event. And when we go further out, three, six months away, there's lots of events the next three to six months. It's hard to really look at those numbers with any kind of make a decision around them. That said, in the short term, it looks like a lot of those like interest-rated, interest rate-related catalysts are kind of abating. Excellent. Mike Palmer, it's always a pleasure talking to you. Tyler and the gang, back to you. Rick, you're the only person who can throw in effortlessly a Pink Floyd reference into a Bond report.

Amen, brother. I love it. And a discussion about term premium. And term premiums. Coming up, one of the biggest complaints of this country's health care system is that it deprioritizes patients to benefit the providers. Now a new investigation from Staten News alleges United Health pushed employees to allow an algorithm to cut off Medicare patients rehab care.

We'll have more on that story next. Then further ahead, tracking travel trends. Even with inflation cooling a bit, many prices remain high. That and geopolitical tension across the globe is travel-based-based. a slowdown. Power Lunge will be right back. Welcome back to Power Lunge. As we continue to look into stocks moving in today's big rally, take a look at the chips. The SMH semi-ETF hitting an all-time high helped by NVIDIA, which is aiming to continue its record winning streak. Christina Parts and Nevelace joins us now with more. And it's not just InVedia, Christina. No, but we're going to start

with Lucky Number 7, the number of years since NVIDIA's longest winning streak. And right now we're hitting that 10 days in a row winning streak. The stock is up 245% year-to-day. It's the best S&P 500 performer. And it's approaching its all-time high, intraday high, I should say, which is 50266. You can see it's at 494 right now. And this is all heading into next week's earning print, which is out on Tuesday. Big question is, I thought all of the AIA hype was already priced in.

So what's driving the stock? Firstly, yesterday the company announced an updated GPU, the H-200, with even more memory than the previous version. You know, the one that's on back order with 30-week lead times, and the one two Elon Musk once said was harder to get than drugs. The only pitfall is that this new chip, the H-200, still has less memory than AMD's new AI chip, which will have a big reveal in just a few weeks and shipped out in Q2 to customers.

But overall, there's been a return to the AI trade, especially from hypers. We've seen demand from Microsoft, meta, just a few examples. In 2024, for example, NVIDIA estimates of a consensus show about $60 to $80 billion in data center revenue. That's a huge gap when you compare it to the $2 billion expected for AMD's data center revenue. Lastly, and also the biggest overhang for the stock is in VDIA's export or the export controls and restrictions for China. Right now, China contributes 20% of NVIDIA's data center revenue and these export controls could hinder that.

But NVIDIA did just create three new workaround chips that. below that threshold and can be sold to China, which means that revenue stream is somewhat intact. Impressive. And speaking of Nvidia, its monster run has helped fuel WWE superstar Charlotte Flair and team Wu to the top of our 2023 stock draft. The standings go all season long.

She took Nvidia first. She took meta second. She has a commanding lead ahead of both Tori Dunlop and Erica Sullivan by more than 30 points. Woo. Woo. All right, widespread AI adoption has taken a lot of decision-making out of the hands of America's workers. But a new investigation alleges one health care giant may have been giving the algorithms too much power.

According to a stat news report, United Health pressured its medical staff to cut off payments for seriously ill recuperating patients in lockstep with a computer algorithms calculations. Denying rehabilitation care for older and disabled Americans. and ultimately leaving patients and employees to deal with the consequences. For more here, let's bring in one of the names behind that investigation, Bob Herman, a health care reporter at Statt News. Bob, welcome. This was a subsidiary, am I correct, of United Health, not United Health itself per se, that was governing payments to rehabilitation facilities and nursing homes, correct? Yeah, that's right. Thanks for having me. The company at issue here is called Nava Health,

and United Health bought them back in 2020 for a couple of billion dollars. And so even though it's a subsidiary of United Health, it's still intertwined with United Health itself. United Health is the largest provider of Medicare Advantage plans, which are private plans for Medicare beneficiaries. So anyone who has a United Health Care Medicare Advantage plan, ultimately their care is handled to some degree by NaviHealth. And this is the company that was using its algorithm to dictate the care that people got in rehab facilities. And so boil it down to me in simple terms.

In other words, if I have just had, let's say, major hip surgery and my doctor thinks I should have 10 days in a rehab facility, but Navahealth says, no, six days is all you get, then you're stuck. You're out after six days or you private pay the rest, right? That's right. Exactly. I mean, how you laid it out is pretty much how it went along. And the big part of this investigation is we knew that this had been going on. We knew that an algorithm was telling patients you only get 16 days in a nursing home, right? What's different is United Health had previously said, oh, the algorithm is just a guide. We don't make hard decisions. coverage decisions on it. But in fact, employees' job performance was based on adhering to the

algorithm. So if a doctor or the patient themselves thought they needed more care, too bad, the payment denial came. And to your point, they either go home or they spend down their savings to stay in a nursing home. And Bob, the 1% target here in particular seems to be the culprit, which was that employees were told to keep days within 1% of what was already. allowed or what have you. So anytime if they wanted to extend that they effectively couldn't because they were trying to hit that target. I mean, that's not so different from the kinds of targets we've seen pervade the workplace over the past couple of decades. Is it not? What makes AI in particular relevant here versus the if that target had existed five or

10 or 15 years ago? Well, the issue is it's to the point a 1% variance on someone's rehabilitation stay basically means that there is no variance. The algorithm is that's right. You stay in for this long. And 1% is basically means that the algorithm is the coverage decision. There is no wiggle room. And if you're a clinical care manager who is overlooking someone, and these are people who they can barely walk 10 feet, they can't go to the bathroom on their own.

And they're being told, hey, your care's up at this end, you know, at the end of this time period, you know, what are they going to do? So the difference is these clinical care managers, they felt pressured. Their job performance basically relied on them adhering to the algorithm. So are they really going to go to other physicians and say, hey, this person needs more care? Probably not because they knew that their job performance was going to be based on it. So human beings were making the ultimate decision, but they felt, and your investigation found, that their hands were effectively tied because if they didn't adhere to what the algorithm, rhythm said they were going to get an adverse performance review, including a potential termination.

That's right. And United and NAVA Health told us, you know, there's always physician medical reviewers at the end of the line. That might be the case and often is. But the people in front of them, these clinical care managers, these very experienced people doing therapies and rehabs, they had no incentive to really push from work here because did they want to get fired for extending someone's care? No. So it was a culture. It was a strategy to try and make sure that the algorithm eventually won out at the end of the day. And United Healthcare and its subsidiary said what when you confronted them with these findings? They wouldn't make anyone available for an interview. One of their top executives, Patrick Conway, he used to be a former top official in the federal government,

was not made available. All of this has happened under his watch. They stood by their Navi Health algorithm and the care that they provide, but they wouldn't give us any information about how the algorithm is composed, nor would they really offer any detail explanations about some of the documents that we showed and that we had obtained. So it was very minimal response. All right. Bob Herman, thank you very much with Stat News. We appreciate your time today. Thanks for having me. Appreciate it.

Further ahead, we've seen multiple warnings in the past week about the consumer this holiday season. Questions still linger. Will shoppers pay up for big-ticket electronics? That's one of them. Power Lunch will be back in two. Welcome back to Power Lunch. As stocks rally after this morning's Tamer inflation report, interest rate-sensitive groups have been gaining the most ground today. Pippa Stevens joining us with a look at the solar stocks, which you've got Enphase some of these names now up nicely today. They're up very sharply today, and it's not just solar. It's really all of clean energy. The tan is up more than 9%. As you can see there, we're also seeing gains in names like wind and hydrogen stocks.

And that's because when rates are higher, this industry gets hit on both sides in the sense that when yields are higher, why would investors stick around in riskier areas of the market for future growth when they can get it today? And then also a lot of these projects that we've talked about are very capital intensive. And so when rates rise, their cost of capital goes up. That's especially true in wind. Also probably some short covering today, just given how much these stocks are still down. I mean, it's amazing that these are also sharply higher today, but still in the red for the last month, which really tells you the extent of the fall. I did think one thing interesting in the CPI report this morning was that while energy costs overall were down electricity costs,

we're up for a third straight month and up 2.4% year over year. So longer term, that does bode well for the residential side of things because it is those utility bills that ultimately typically prompt consumers to go solar. But it really feels like we're not at a turnaround yet. And I think it's focusing on the utility side of things is probably a little bit of a safer bet right now. I just look at this and I think to myself, it's a good thing there's two parts of this rally today. You do have semis up. You do have tech up for sure. When you look at some of these names up, I don't want to call it the dash for trash. That's probably unfair. But there's a little bit of a sense of a second lease on life. But we've learned so much about the fundamentals of these companies

that unless rates are coming down sharply, you can't imagine that they can really turn back the clock here. Exactly. And we've seen this before. We've seen big rises in an ultimate downtrend. And so it feels like it could still be, you know, one of those scenarios. And also this area is not for the faint of heart. I mean, they rally and they drop and just these, you know, hugely vast price moves. And so, yeah, buyer beware, I think, for right now. All right, Pippa, thank you very much. Let's go to Bertha Kulms now for a CNBC News update. Bertha. Hi, Tyler. U.S. officials said this afternoon that they're working with humanitarian organizations on a podcast. possible third-party evacuation of Gaza's biggest hospital. Pushcoms as a doctor at the hospital claimed there were 36 babies in neonatal intensive care

trapped there. Israeli troops have been circling the Shifa Hospital for days, claiming Hamas is hiding inside and beneath that facility. UK police arrested a man on a suspicion of manslaughter today in connection with the death of an American ice hockey player in England. Adam Johnson died after a skate cut his neck and mid-game. The 29-year-old was a Minnesota native who played 13 NHATL games with the Pittsburgh Penguins. He was playing for the British Nottingham Panthers team at the time of his death.

Police did not name the man they arrested, but said he is in custody. And Paris is considering a crackdown on big vehicles in the lead-up to next year's Olympic Games. The city's mayor is going to let voters decide whether to institute a significant hike in parking fees for SUVs visiting the city. She says the move would make Paris friendlier to pedestrians and help the planet. Certainly not friendlier to those with big SUVs, Tyler. All right. Thank you very much, Bertha. Ahead on power lunch, trickle-down tensions between the Israel-Hamas war and ongoing Russia-Ukraine conflict. Tensions are high across the globe.

Is this global uncertainty discouraging some from traveling? And what does it mean for the industry overall? We'll discuss that and more when Power Lunch returns. Welcome back to Power Lunch. If you're traveling for Thanksgiving, brace yourself for potentially record crowds. It's expected to be one of the busiest Thanksgiving travel seasons in over 20 years.

According to AAA, 55.5 million people plan to go 50 miles or more from home. And nearly 5 million plan to fly over Thanksgiving weekend. That's up 6%. from last year and is the highest since 2005. Add in a potential government shutdown and you can only imagine the possible chaos Thanksgiving travel could see. The third busiest since 2000 perhaps, but in some cases, prices are also being slashed as low as $29. So let's talk a little bit more about what the impact could be here. Henry Hartveld is president of Atmospheric Research Group, a travel industry consulting firm. Henry, best of times, worst of times. What do you think?

It's a little bit of both, Kelly. It is indeed best of times that a lot of people are traveling, and that's good for airlines and other parts of the travel industry. Worst of times, if you're stuck in a long line at airport security or have a Zone 99 boarding pass to get on your flight. So all told, does this tell us the consumer is still in a fundamentally strong position, no matter what discounts we may see with airfares and the like? Yes.

Look, most people book their Thanksgiving flights a month or more in advance, and our research shows that people are prioritizing travel in their spending. Travelers like to travel. So that's good news for the travel industry. But there has been some short-term softness in demand. We heard about this on some of the third quarter earnings, and we're seeing this reflected in some of these promotional fairs. As you mentioned, fair starting at $29 in some cases. But overall, I think clearly Thanksgiving itself will be a solid time for airlines and, of course, for hotels and others. I do a little research myself, Henry. Where in the world are the $29 fairs?

Who is flying them? And at what time of day are they going? Well, this was a fair that Southwest Airlines offered for a limited time. And you had to either be an early bird or a night owl. The fares were only good on flights departing, if I remember correctly, for the promotion before 7 a.m. on selected days of the week or flights leaving late at night. So clearly, Southwest was trying to fill in seats that otherwise were going empty. Were they on limited routes or were they on, were they system-wide? I believe they were on a number of routes all across the country, but I don't want to say definitely that they were everywhere in the country.

And so I just want to put these numbers in context for the viewer. Was this a promotion that was native only to Southwest, or did others, other of the so-called discounters, the Spirit, the Frontiers and others, were they following suit and doing the same thing or something similar? Well, Southwest did this on their own. Now, other airlines, I've not seen $29 fares on some of the deep budget airlines like Spirit and Frontier. And this was a limited time promotion.

You had only a few days to book your flights, and the fares were available for a very limited window, which is typical for a promotion of that time so that airlines don't dilute sales that people would pay more money for. Is this Henry maybe telling us something about Southwest? Just last night, one of the analysts who covers the space put out a whole note about their struggles and basically how post-pandemic that airline is no. nowhere near as strong as it was pre-pandemic for a variety of reasons. They might have to do mass layoffs for really the first time in their history. So is that maybe telling us this is more of a Southwest-specific problem as opposed to a weak spot in the consumer or travel market? Yes. I mean, look, having worked in airlines before, $29 fares to me now as an industry

analysts, are alarming because it's clearly a cry for help. The airline is not seeing the bookings materialize quite in the way it wants. And it feels that the only way to do it to get those bookings is basically by the business. And of course, Southwest sort of system breakdowns are fresh in many people's minds. Let's talk about the possibility of a government shutdown next week. What would that mean for travelers? TSA employees, would they still be showing up or what? Yes.

So, you know, there couldn't be a worse time for a potential government shutdown. If it happens on the 17th, it all goes into effect this coming weekend. And so what this would mean is the good news there is the TSA Airport Security screeners, air traffic controllers are deemed essential. So they show up for work. But the problem is they don't get paid as long as the government is shut down. So they get paid retroactively once the government reopens. Other things, though, for example, there are roughly 1,000 new,

air traffic controllers that the FAA desperately needs, their training stops immediately. Investment in new air traffic control systems and replacement software. That stops immediately. And the ability for people to work overtime may be severely limited. So it could be a real problem for travelers during the peak travel week of Thanksgiving. All right. Well, we thank you for your insights today. We really appreciate your being with us.

Thank you. Henry, we thank you. All right, coming up, consumer questions, the latest inflation reading shows prices starting maybe to ease overall. And we're going to dive into where they're falling fastest than the sectors that are still holding strong. Power lunch will be back in two. Welcome back. The CPI inflation data shows prices easing up for consumers.

But if we dig a little deeper, electronics in particular have fallen over the past year. Let's get out to Jane Wells for more. Jane? Hi, Kelly. Yeah, I'm out of Verizon store in Stockton, California, and forget whether or not inflation is cooling. We've had the opposite going on for months in consumer electronics. If you look at the latest CPI numbers from October, computer prices were down 6% year over year, TB prices down 9%. Smartphone prices down 12%. One reason is that people are holding on to their phones longer. Like me, this is an iPhone 8. How long have you on your phone? About five years. Four years. Four years. Three year. I've had it nine years. What's holding you back from getting a new phone?

Money. Well, okay, let's talk money. Because going into the holiday season, service providers are giving devices away like crazy, even more than usual. At Verizon, you bring in an old Apple or Android phone. You'll get a free new model, plus free tablet, free watch. Worth about $1,700, but you have to sign up for a service plan that maybe costs around $90 a month. Customers are trading down in certain categories, whether it's buying more store brand, buying smaller quantities, but they're using that saving to trade up in certain categories.

All right. Well, T-Mobile has its own giveaways like a new top of the line. Samsung phone. If you add a line and, hey, if you noticed your Netflix bill going up, increasingly service providers are bundling things, streaming services at a discount or for free, is to try to make people think they're actually saving money. If you have a Netflix subscription already, if you're paying for Apple TV Plus already, and you get a phone plan that includes those things for free, that's starting to take costs away from other parts of your life. Okay, you can take a look at the trend in sales, at retail sales and consumer electronics and appliances with the new CNBC NRF monitor. Wedbush's Seth Basham says computer equipment bought during the pandemic maybe due for a new upgrade. grade, but he's worried about things like student loan debt guys. And so is KeyBank. KeyBank thinks student loan repayments this year could be a $55 billion headwind. Of course, that's assuming people pay back their loans. Back to you. I wonder, Jane, I mean, you have an iPhone 8,

you say there, why people are not trading up as much as they used to? Is it because the phone, the phones have not gotten all that much better, so there's a less incentive to do it? Is it that cases and screen protectors have gotten better so your phone doesn't shatter when you drop it? What? I think, well, in my case, it's because this phone has been good enough, but now it's starting to slow down and I'm embarrassed because I don't have like

the three cameras on the back. And then you have to think about, well, gee, do I want to go out and spend $1,200 on a new phone? That's what makes, that's why these service providers are just throwing everything at you. this year even more than usual to get you in. I mean, I will- A tablet on top of it, but you do need to pay for a plan.

I will say, Jane, you should take a look. So we just, it's so uncanny that we have this report today because just three days ago, the husband went in for an upgrade, and Verizon gave him such a good deal. We both stood there for 15 minutes waiting to be like, no, what's the catch? I wanna see he got $700 off for the old trade-in.

And I mean, the bill for the new one was, if he had gotten a slightly lower model, he almost would have walked out of there with a free upgrade, I kid you. you not. We were stunned. He would have been making money on it. We were stunned. We couldn't believe it. I have spent so much time this morning calculating what my current plan is, what it would be to upgrade through that. Should I try this a Verizon thing? What about going over to T-Mobile? I mean, that itself, I feel like I, you know, I need to get a spreadsheet going. Jane, treat yourself to a new phone. Please. It's okay. You need the three cameras, the lenses. You don't want to be. It's so embarrassing. Yeah, it's really.

So old. Treat yourself, Jane. Jane Wells. Thank you. All right, sticking with the consumer, Home Depot reporting and earnings beat up 6% following the results, even despite some concerning signs. So can home improvement hold strong even as the housing market slows? Courtney Reagan has the detail.

Hey, Cort. Hi, Ty. So Home Depot did put up the fourth straight quarter of negative comparable sales, but the Home Improvement Retailer did call the year 2023, the year of moderation for the American homeowner, it did add $47 billion in sales over the last three years. That's hard to continue in perpetuity. But Home Depot executives say, look, higher interest rates are keeping more homeowners or would be homeowners from moving. So they're also deferring larger, more financing required type of remodeling projects. But other factors are still fueling Home Depot's business.

Elevated rates are keep is keeping, I should say, housing turnover low. But CFO Richard McPhail told me turnover is not usually a main driver of growth for Home Depot. But since a homeowner that moves spends twice as much in a year as when they don't move, it is at least a pressure. But he says, quote, demand for remodeling, that balances out that pressure that you see from lower housing turnover. We don't quite know how to quantify that balance. Their customers are still doing smaller projects, he says, like painting or swapping out backlash, rather than, say, renovating an entire kitchen. McPhail told me, quote, the consumer, and particularly the homeowner consumer, who is our customer, is healthy. They're employed. They've seen

income gains and wealth gains in recent years. They have excess savings and they remain engaged. We'll be able to get in even more detail next week when we talk to CEO Ted Decker of Home Depot in the 1 o'clock hour. Make sure to tune in for that. Also looking forward to what they have to say about Christmas. Kelly, I don't know if you knew this, but they are the largest seller of Christmas trees in the world. I have gone there like two out of the past five years, actually. Usually in desperation. Yeah. I didn't realize it was more than just me.

Courtney, thank you for now. We appreciate it. Our Courtney Reagan, still ahead trading the trillion dollar club. We'll ask our trader which of the mega-cap tech giants he's buying here, which he's not. Power lunch will be right back. Time for today's three-stock launch. Today we have a big cap tech shuffle with Apple, Alphabet, and Microsoft in Focus, the trillion dollar club. We call them here with our trades as Quint Taitro, founder and president of Jewel Financial.

Quint, why don't we start with Apple to stock up more than a percent in today's session? Some unexpected news out of the anti-trust battle with Google, a witness saying Google pays Apple, 36 percent of its search advertising revenue from Safari and Google CEO's Sundar Pichai confirming it. What's your trade on Apple, which has had some rough days lately? It sure has. It's great to be here, first of all. Thanks for the opportunity. So this is not going to be a popular, but I think this is the one you sell. I think you take your profits in Apple. It's been unbelievable, but you're just not getting the value anymore. You're paying 26 times forward earnings for a company that's looking to grow at low single digits. They've levered up their balance sheet to two to one on debt to equity. And if you take out all those share repurchases, earnings have been lackluster at best. This is the one in an up market.

you want to take some proceeds and look to reallocate here. Ooh, ouch. All right. What about the other side of that story? Alphabet, their antitrust case isn't looking that good. Barclay says the company is likely to lose. Still, shares have been resilient. They're up 2% today.

Would you be a buyer here? Yeah, Kelly, with those Apple proceeds, that's the first spot I'm going to go. I'm not talking about different asset classes. You can keep it among the terra caps. And Google is ultimately one. It's facing some headwinds. And that's why it's sort of underperforming. not doing as well as some of the others as you'd expect, but you're getting the value here.

And if it does continue to shake on this antitrust, I think it produces an even better opportunity. You're buying this company 20 times forward earnings, and the projections are for 20% Kager or earnings growth over the next five years, hardly any debt, stellar balance sheet, $57 billion in cash. This is the opportunity you want to take the buy shares in Google. All right, let's move on to Microsoft shares this mega-cap tech stock up about a percent today. New 52-week high there, quit. What do you think of Microsoft? New 52, yeah, new 52 week, new all-time highs.

Tough to get bearish on the market when one of the largest companies is breaking out the blue sky territory. Exceptional balance sheet, less than half, 0.5 debt to equity, $144 billion in cash. You're paying 28 times forward earnings. Those projections are for about 15%. We think they're low for one of the first mover advantages in the AI space. Microsoft, a buy with the rest of those Apple proceeds here. Quint, thank you very much. We appreciate it today.

Thank you. Quintetrault, thanks. Differentiation for the Mag 7. Last month, we announced a new franchise CNBC Changemakers, an annual list highlighting female leaders making waves in the business world. The list will be unranked, focusing on accomplishments in the past year and feature women from across all sectors of the economy, including philanthropic organizations. The deadline for applications is this Friday. Scan that QR code to apply or find the nomination form at CNBC.com slash changemakers.

Power lunch is back after a quick break. Welcome back. We have a strong market day. The Dow right now is near session highs up 545. The S&P is on pace for its second best day of the year, popping 2% to over 4,500 now. at Stocks rally on that TAMC CPI report. And Tyler, we get PPI on deck tomorrow. You know, Papazani sent around an amazing note last week where I'm sure you saw it, where he talked about the long-held view that if you miss the best eight days of a rally,

you really miss the filet mignon of any gains that there are there. Here's another example of that. You could try and move things around and get cute. But if you miss a day like this where you're up 1.5% on the Dow, which has had the worst year of the three major ones. But if you're missing a 2% day in the S&P 500, you're missing a lot. And by the way, if you move to the sidelines just a couple of weeks ago on the S&P, you've missed a big move off the recent lows.

Then Russell 2000s, watch this as well. It's up four and a half, almost 5% today. Massive underperformer. In fact, the dispersion between the S&P and Russia has been unusually wide. So I guess the question for a lot of traders now is, do you play kind of the reversion to the mean trade here? Or is this just a one-day move? Not to, again, borrow the dash for trash phrase I used earlier, but there's an element of that in this market today.

Or the bar of the other cliche, the rising tide, is lifting all boats today. It has not done that with the Russell 2000 from much of this year. But you do wonder, I mean, is the market getting a little too quick on this inflation report and thinking, well, it's all over, the Fed is done? But rates may stay up there for a while. And the only thing I'd caution is that usually the end of a Fed hiking cycle is bearish for markets. Not bullish because it usually means the business cycle is ending. It's fine if this time is different, but that has to be your bet if you really want to go along on risk assets.

And look at that tenure now down to 4.43, what, three weeks ago, two and a half weeks ago, it was at five. So that tells you how much rates have come down. So it's been a busy Tuesday here. Yeah, let's hand it over. Thanks for watching Power Lunch. Closing bell starts right now. Thank you.