Power Lunch - Market Rotation, Does Prime Pay? 7/18/24

Episode Date: July 18, 2024

We’ll dig into why and how retail investors are trading, and whether or not they could be left holding the bag. Plus, Amazon is facing backlash over claims it’s ‘Prime Day’ discounts are nominal at best – if they even exist at all. We’ll get to the bottom of that. 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 alongside Kelly Evans. I am John Ford. And to paraphrase, Ferris, dealer, the markets move pretty fast sometimes. One minute everybody's piling into mega-caps and small caps. Today, everything's selling. We will look at how retail investors are trading and whether they could be left holding the bag. Plus, companies facing social media backlash. First, it was McDonald's over prices and Chipotle on portion size. Now TikTok is burning up with videos claiming Amazon's Prime Day is a scam, and we will try to get to the bottom of all of that. First, let's get a check on these markets, which are heading lower across the board today. The Dow, the worst performer, down almost a percent now, still above 40K, the S&P down 36, the NASDAQ, and the Russell 2,000s are down as well. But still a big split between it and the NASDAQ over the past week.

You can see their rustles of 4% NASDAQ down too. Another example of how fast things can change in the markets for years. InVIDIA has been a chip darling, and Intel has been an also-ran, but over the past month, Intel has jumped. Invidia has sung. For more on the moves and chips, let's get to Sima Modi. Seema. You said that chip makers are trying to regain ground after yesterday's sell-off, Nvidia, analog devices, NXPI, all higher, but I would note significantly off the highs of the day.

And Taiwan Semiconductor, take a look at this chart and just turn negative despite a strong second quarter earning speed and brighter third quarter outlook. Its CAPX guide did not wow the street. However, CEO CC Way said AI demand is quote hot and that all of its customers want to put AI functionality into their devices, customers, including Google, Qualcomm, Microsoft, the big hyperscalers that kick off earnings next week. But as you said, check out Intel up another 4 percent, now up 2 percent. It was one of the only chip stocks that ended higher in yesterday's trade on this idea that its investments in U.S. foundries will pay off as geopolitical tensions rise. And the stock is on pace now for its third straight weekly gain, which would be its first

three-week rally since the end of 2023. Wall Street currently has about 14, buys, 30 holes, and four sell ratings on the stock. It has been a laggard this year. Guys, investors now awaiting former President Trump's R&C speech tonight and whether he will take aim at the broader industry. Back to you. Yeah, Seema, it's so interesting how much Intel had been underperforming for a while after some of the FAB announcements, the Chips Act announcements that had been in the higher end of the 30s, and then it went way down, I think, to the high 20s even. And so in a way, this is a catch-up separate from some of those AI names that you mentioned, like Nvidia, AMD, even Broadcom.

Yeah, given the political environment and now geopolitics really entering the narrative, it looks like investors are trying to be more selective and looking at which companies have an opportunity to diversify away from some of the Asian suppliers. And if that's the case, Intel and Global Foundries seem to be top of mind, given the investments that have been making here in the U.S. And I also saw another analyst just look at from evaluation perspective, Intel, looking better than some of the other names like Nvidia that have run up so much. All right, Seema, thank you very much.

Seema Modi. And check out the Russell 2000 ETF, the IWM, down today, but up 4% in a week. A lot of this goes back to that CPI report showing a significant slowdown in inflation. Kate Rudy has more on the move from the big to the small, Kate. Hey, Kelly. Yeah, so individual investors have had a key part. And all we've seen around small caps in this rally, Tom Lee, a fundstract. calling it small cap summer.

These are stocks with a market cap, typically below $2 billion. And according to some new data from Vanda Research, there has been record daily inflows into the Russell 2000. And then ETFs like IWM and TNA, this was all sparked by that softer CPI print. And then higher expectations as well for a Fed rate cut. It does come during what is seasonally,

a pretty slow time for this kind of market activity around retail trading. Lower rates are also seen as beneficial to some of these smaller companies. part of why you're seeing that rotation. Typically, though, they also have a higher debt load. So part of the interest rate story there. And then there's been increased expectations, of course, of a Trump victory that we've talked about in November. Retail participation has a much more direct impact on the performance of some of these small cap names versus any of their

action in the mega-cap tech names. And retail investors, speaking of mega-cap, had really been overly indexed, aggressively over-indexed to that group. When it comes to the Mag 7, there has been a narrow buying, at least this week, of those names, The Magnificent Seven, that's again, according to Vanda Research. One exception, though, guys, Tesla. Vanda cites possible excitement around Elon Musk's support of Trump or the Fed's prospects as well, helping some of the more rate-sensitive names. Crypto stocks have also emerged as a bit of a Trump trade.

Bitcoin has seen a spike in the last month or so as the former president and his VP pick. J.D. Vance have signaled friendlier posture towards that industry. but retail investors interestingly are actually selling those names. Vanda points that out, says they're actually looking to lock in some profits here, guys. You know, I'm telling you the retail trade, they're the new smart money. What they do, I'm going to do. So they're out? They think it's over?

By the way, I know you wrote about this in your newsletter, so I feel like this is topical. Yeah, I mean, it's interesting. It's a bit of a catch-up trade because they, like many others in the market, were so indexed to mega-cap. But, yeah, it's interesting. Yeah, the old smart money, dumb money, I actually really don't think is applicable in this part. They've been, I mean, ahead of things like Nvidia. There's been some really interesting examples where they've been pretty prescient on some of the market trends here. So, yeah, it's a group to watch.

And also, it speaks to some of the sentiment in the market. I know a lot of hedge funds watch what retail traders are doing. But it doesn't always work out to do the opposite. It's actually come back to buy some of the hedge funds. I think maybe it's too soon, Kelly. Thanks, Kate. I think it's too soon to call retail the smart money. If they had called the downturn in 22, then okay, maybe.

But chasing the popular names higher doesn't exactly make you smart. I don't. Let's see what happens when the market really turns. I was impressed at the huge involvement in the market, basically at the lows in the pandemic in 2020. There were a lot of people. Remember the Great Depression 2.0? And a lot of the wise people, the institution was saying, no, no, no, no. And the retail traders were in there pounding the market higher.

And so to your point, maybe it's a lot easier to ride stocks long than short. But nevertheless, it's been a pretty good ride. Some of that smart money also bought AMC and game style and various prices. But, you know, I'm not saying depending on where you bought it. Beyond meat, okay. Well, we'll see. Beyond, despite stocks being around session lows, the Dow is still up 2% this week, the S&P and NASDAQ tracking for the worst weeks since April.

Our next guest says there's potential for the S&P to decline, even as the average stock in it goes higher. Joining us now, Jack Ablin, Chief Investment Officer at Crescent Capital. Jack, good to see you. This wouldn't be the first time that happened, right? No. In fact, if we go back to 2000-2001, that exactly happened. Now, I'm not suggesting that we're in an internet-type bubble here, but I will say if you look at, for example, cap-weight minus equal weight, cap-weight has outperformed equal weight by more than a lot. 11 percentage points or so over the last six months.

That's the widest spread since 2000. And so if we dial back to 2000, 2001, what happened? Fed started raising rates at that time. That took a lot of the air out of the Internet stocks. The S&P actually declined around 20% in 2000, 2001, and yet the average stock increased 8% over that timeframe. So what we're telling clients is, look, We don't get nervous if we see the S&P declined.

It's not necessarily, quote, unquote, bare market. The average stock, as we start moving down in market cap, could actually advance over that same time frame. So, Jack, how should investors play this, given that if you look at the Russell 2000, it's higher, ostensibly because smaller stocks there are more likely to be carrying short-term debt. And as interest rates come down, that's less of a burden for them to have to pay more for that. But if we run into an overall slowdown in the economy that's more than some would hope for, small caps are also likely to get more hurt if things slow down. So are there certain sectors, certain industries that are also likely to get relief from lower rates

where investors should be aware? Yeah. I mean, so let's take, for example, the S&P equal weight. One of the things we're doing is similar to the equal weight. We're looking at quality. We're still focused on quality. but we're broadening our reach. So if you look, for example, at the large-cap X MAG-7,

it's debt-to-ebit-DAs around four times, whereas the MAG-7 debt-to-Ebit-Ti is less than one. As you mentioned, small-cap Russell 2000, that debt-to-Ebataz nearly six. And so here's a great way to play, you know, an easing environment. Plus, one of the other things, We do have some fundamental justification for what we'll say the average stock or the S&P X MAG7.

And that is earnings. Over the last four quarters, all earnings growth was fueled by Mag 7 growth. I mean, Mag 7 earnings were up over 50% for three consecutive quarters year over year. As we move into the next four quarters, that's converging. It's coming down to around 20% and S&PX mag 7. earnings growth is actually ramping up from negative to call it 15% or so on average over the next four quarters. So not only will we get the benefit of lower rates and, of course, easier financing conditions, but we should have some profit growth underpinnings of that valuation. As long as we're not in a slowdown, Jack, that seems to be, it's obvious to say,

but it is unusual to see the unemployment rate rise point, you know, by, seven-tenths of a point and kind of say, well, no, that's it. It's just an adjustment and everything's still going to be fine. Yeah. So, you know, we're looking at really the two metrics we're tracking. Obviously, CPI is not only trending lower, but it's also lower than expectations now for the last three months in a row. The other thing we're, we are looking at employment and employment growth. And while year-over-year employment growth is slowing still certainly positive, we're seeing two elements that support employment going forward. One is NFIB. This is the small business survey of users of small business owners looking to hire over the next six months. That's starting to tick up.

The other is among mega caps CEO sentiment, which has also been a pretty good indicator of the direction of hiring. That's also rising. So that's a question mark. I think that we could see an environment. If the Fed does start to reduce as the Fed funds futures expect, September, then perhaps in December, we could get an environment where inflation is trending lower and the jobs market is still hanging in there. Makes sense. Jack, thank you. We appreciate your time. Thank you. Thank you. Joining us on the markets. Coming up, the keynote moment of the RNC, Donald Trump

set to speak and conclude the convention tonight. What can we expect to hear from the former president, especially with speculation swirling around President Biden staying in the race. Power Lunch will be right back. Welcome back to Power Lunch. Former President Trump is set to formally accept the Republican nomination for president at the RNC tonight as pressure for President Biden to drop out of the race intensifies. His speech tonight will also follow a big speech last night from his running mate, J.D. Vance as well. Here to talk more about the impact for investors, Andy Blocker, is Global Head of Public Policy at Invesco. And Andy, it's widely described as the end of the old Republican Party and the start of the new.

Absolutely. The picking of J.D. Vance is doubling down on the populism that has made Trump so popular. And I think if you're looking at its policies, there's a lot of things there that are going to be of interest to all of our investors. And what do you think that, so kind of just starting with this and then we can kind of get into whether this will be the actual winning ticket in November. What does this ticket represent to you? And in what areas is it most different from the current administration? Well, I think on the trade side, it's different, but it's not. So it's different in a sense of they're going to escalate what they've been doing with respect to the tariffs with China. Notice that Biden did not remove any of the tariffs on China, and he's actually increased some of them.

But I think broadly speaking, when you talk about if you go globally with the proposed 10% with everyone, which is really not, it's not, it's serious, but it's more of a negotiating open bid, but some of those countries will receive 10% tariffs. So it's much more robust in its tariffs. So from that perspective, I think the other thing is, in an interesting way, I think that if Trump follows J.D. Vance's lead with respect to the populace bent, big tech, large companies, banks, they're not going to get a free pass in this administration. I mean, they're going to have some openings and some things, but there's not necessarily going to be a free pass like they might be under another administration.

Andy, I'm curious, though, how much do you think of this is a populist flavoring versus an actual substantive policy shift? We've already heard Trump as a presidential candidate this time around talking about things like a flat tax, sales tax. Those things would hit the people who purchase things and spend a bigger part of their budget on that. a lot more, and that includes the working class. And then, you know, he's not certainly as pro-union as the Biden administration has been, though J.D. Vance did mention unions in a sort of big-tent way last night. And the Republican Party hasn't exactly been pro-social safety net. So how much of this is really a policy shift versus a tonal shift? No, John, I think that's a great question. And so, look, I think right now what we're trying to do is sort through all of this.

I mean, right now, what we're doing is we're cross-referencing Trump statements with representative with Senator Vance's past beliefs with Project 2025 with the R&C platform. There's a lot there. There's certain things that are common among all of them. We know those are happening. We talked about tariffs tax cuts for corporations and individuals. But beyond that, when you get the specifics, I think there's a lot of more. movement here, and we're not certain yet the specificity of what's going to happen.

So can you be truly populist and have tax cuts for the rich and a flat tax for the working class? Does that work? Well, in Washington, it's not about purity, right? It's about direction. So if you think about it, this is still not your father's Republican Party. All right. So they've definitely moving away, but it's not going to be in total.

And I think what they're trying to do is obviously appeal to a greater swath of people and increase the tent. And so that's why I think they're doing this direction. So, Andy, what do you make of what's going on on the Democratic side? Well, look, there's a lot of, I guess the right word is tumult in the, in the, on the Democratic side. So, look, I've seen a lot of volatility in campaigns, but I think the last three weeks, I haven't seen anything like this. So right now, where we are is over the weekend, right after the attempted assassination of President Trump, you saw that the campaign to move Biden aside, it went away publicly, but it was still an underground operation, which we saw reported last night. So that's number one. Number two, you're looking at some of the polling in the AP.

I think 65 percent of Democrats now want Biden to move aside. So I think that's the direction. But I think as you've heard over the last few days from a number of people, the person who needs to make that decision is Joe Biden and him alone. So that said, a lot of pressure can be put on him, right? And it appears to be being put on him right now. Is the best path forward? I guess I could ask it to you from just kind of an electability outcome to let Harris be the ticket

and then sort out VP later on. Look, she already polls better against Trump than Biden has. So look, I'm not going to get into the predicting game. I think right now, if you look at the general direction, that would be the answer. But I'm not sure that's where Joe Biden is. So until Joe Biden decides that, that's not even really a question. So once and if he decides that, then I think the simplest path is to go to Kamala Harris, because you get a lot of advantages with that.

She's a national figure. She's run for office before. You kind of know where a lot of her weak points are. And also, you get to keep all the money that they've already raised. So I think that's a simpler thing, but who knows what's going to happen in the next couple days? So the way things are trending with Trump's numbers up, what does that mean for, say, energy? What does it mean for manufacturing?

So for energy, I think we're going to go back to where we were the first time around, but even more. So I think he's going to be for all energy all the time, allowing opening up fields for drilling, making sure that fossil fuel has its place at the table. I think manufacturing, he's going to try to protect certain sectors that may be disadvantaged with respect vis-a-vis foreign companies. So that's part of his tariff plan. So I think this is all positive from that sense.

The other flip side of that of the tariffs, obviously, as you know, is that it's inflationary. And so there's going to be a mixed bag here with respect to some of those policies. Yeah. Locker, thank you. Still more than a couple months left to go to see how this works out. Meanwhile, U.S. shoppers spending a record $14.2 billion online during Prime Day, but complaints growing online over the quality of the deals with more and more claiming that price changes are nearly non-existent on most of the so-called deals. We will dive deeper into the story when Power Lunch returns.

Welcome back to Power Lunch. Checking the markets here, the big stocks and the small ones, fairing especially difficult today. The Dow is down more than 1% that translates into more than 400 points, 425 or so. The Russell 2000 is also off a percent and a half. It's just about giving up Tuesday's big game, though it's still well above the level from,

see, last Wednesday, Thursday when it was trading above 2050. The S&P 500 and the NASDAQ down fractionally. And in the bond, market. Yields are moving slightly higher. Rick Santelli, joining us from Chicago with more there, Rick. Yes, John, and slightly is a perfect word to describe what yields are doing to the upside today. Let's start at the beginning. Continuing claims, sixth consecutive week above $1.8 million. And if we pull out a chart, we could clearly see that we are now at levels that we last saw in November of 21, let's call it, three and a half years.

If we look at what's going on with the Tuesday 10 spread, if there was ever a trade, I think, really is the election trade. This would be it. Why? Because less than a month ago, the 25th of June, we're at minus 50 basis points. We have cut that in half. That's a one-month chart. And we're holding on, and it does reflect the notion that we're going to see debates and issues of taxation and the budget and spending and entitlements and welfare, all are going to focus on interest rates in many ways.

And this yield curve trade shows there's going to be more sluggishness for rates to go down on the long end, which will reflect some of those focuses and conversations. And finally, here's a one-week chart. It was just one week ago. We saw a cooler than expected CPI. You see it on the left side of that chart. And we have held those gains and actually increased them to some extent as we continue to hover in 10-year notes at a four-month low yield.

close. Kelly, back to you. Thank you very much, Rick. Let's get to Bertha Kuhms now for the CNBC News Update. Bertha? Kelly, Israeli Prime Minister Benjamin Netanyahu made a surprise visit today to troops in the Gaza Strip. Israeli officials say he received a briefing from the head of the Israeli military and spoke with soldiers and support personnel. It comes as the White House says President Biden is still expected to meet with Netanyahu when he visits D.C. next week despite his COVID-19 diagnosis. The president's doctor saying this afternoon that his symptoms remain mild and his vital signs are normal. He also added that the president continues to work as he self-isolates in Delaware. And local media in Bangladesh reported today that 19 more people have

died in violent protests. That brings the total number of deaths to 25 since Monday when violence erupted at the prestigious DACA University in the country's capital student activists are demanding an end to a quota system that reserves up to 30% of government jobs for relatives of veterans who fought for Bangladesh's independence in 1971. Kelly, back over to you. All right, Bertha, thank you. Bertha Coombs. After the break, weak sentiment for restaurant stocks hitting dominoes. Despite an earnings and revenue beat, the shares are down nearly 14% now, As consumers push back on prices and chains offer more value options, are investors getting more worried about profits?

We'll talk about that. And health care, the worst performing S&P 500 sector. Today, Lily is a big drag down 6% and 10% this week on concerns of growing competition in the weight loss of drug space. We're back after this. Welcome back to PowerLond. Shares of Domino's pizza down 13% today after reporting results. Kate Rogers joining us now with the detail of Kate.

Hey there, John, a mixed quarter for Domino. EPS coming in ahead of estimates while revenues right in line. The news weighing on the stock this morning, sending it down, as you said, over 13%. The company also temporarily suspending its net new restaurant openings due to challenges with its largest international franchisees, struggling in both Japanese and French markets. Now, Domino's did see U.S. comps driven by transaction growth and said its growing loyalty redemptions, particularly with its carryout business. Executives continue to note that this is, quote, just the beginning for the U.S. loyalty program relaunch, which is meant to be a multi-year comp driver, saying today's orders are tomorrow's sales this morning on the analyst's call. It also said it saw, in the face of

consumer spending, slowing overall, growing orders in both delivery and carry out in every income cohort, which is really key. That will be the theme of this quarter. Consumer sentiment and the impact of value in pricing across the board. New data from Placer AI found that McDonald's, Starbucks, and Chili's were among the names who saw a boost in foot traffic from limited time offers as value-hungry consumers flock to check-out deals. But keeping those consumers coming back beyond those limited time frames will be key, as this quarter has also marked some pushback against brands perceived to be holding back on portion sizes and raising prices, including McDonald's and Chipotle, just to name a few. Back over to you. Kate, Domino's was doing so well for so long.

I wonder to what degree this signals a shift in consumer spending or whether it, they're losing out to fast casual and different settings because they seem to be tracking right along with the Chipotle's and the Paneras, et cetera, for a while there. Yeah, it is interesting, John. And they do have a robust value platform as well. You can get two menu items for $6.99, a little bit higher of a price point, but seemingly more food there. I would say a lot of today's stock move, in my opinion, and listening to the call, kind of reading through analyst notes, was on that suspended international guidance. That weight on the stockman was a little bit of a surprise because the guidance was given out

just in December at their investor day. that's what you're seeing there. Pizza is still one of the cheapest ways to feed a family, and they have not raised prices in quite the same aggressive manner as you've seen fast food companies do. I think this quarter is going to tell us a lot about who's winning the value war and what brands customers are willing to pay more for. Actually, if you look at year-to-date stock performance, Kava and Sweet Green, which are two of the more pricey, quote-unquote, for consumers in terms of dining out names, those stocks are doing the best. I think they're both up around 100%. Love to see. I want anything, you know, I'm sorry, processed food people of the world.

All the salads and what do you say? Yeah, the lamb meatballs. This feels like a helpful change. Kate, thank you. We appreciate it. Thank you. Kate Rogers. Our next guest says as second quarter earnings get underway,

sentiment for restaurants is the weakest since weight loss drugs took the industry by storm last summer. He says this time the weakness is warranted as the price wars intensified. Peter Saleh is managing director of restaurants at BTIG. Peter, we already seen it or are we just starting to get a taste of what these price mores might look like? Thanks for having. me on. Look, I think we're just at the beginning of these price wars. I don't think this is the end.

We are seeing McDonald's with this $5 meal deal and many of their competitors matching them. But this $5 meal deal is just the bridge to the new value platform that their plan to launch in the fall. And I think that will carry the advertising right through the balance of this year. So we're going to have a full year of just discounted price wars in the restaurant space, likely continuing into early next year. I don't think we're at the end. We're probably somewhere in the middle or the very beginning of these price wars. So then, Peter, let me ask you about Darden Chooey and what it might signal. Darden, of course, the parent of Olive Garden and others announcing that it's going to buy

Chui, the TechMex play there for $600 some million cash, I believe. Are we going to see more consolidation with that being the environment, going for scale to be able to control costs? Well, I think this has been Darden's strategy. to build scale. They believe scale gives them an advantage. They can buy food cheaper. They can leverage their scale on technology to drive margins.

So this has worked for Darden. I don't know if we'll see others in the space do something similar, but this is a rather small deal for Darden. It adds one and a half percent to earnings growth in two years out. It's a relatively small deal. I don't really think it moves the needle. And as you can see, by the stock performance, say, it doesn't really make much of a difference to Darden. Are the price wars priced into these restaurant stocks already, or are they going to intensify?

I think the fundamentals have yet to bottom. And I hate to say that things are baked in because I don't think we're there yet. Because we don't know what's coming yet on the value side. There could be even steeper discounts. So I don't think it's fully baked in yet. I don't think fundamentals have bottomed. I think it's still too early to own any of these QSRs, except for Domino's, which is our top pick for this year. I thought you didn't want to say baked in because you didn't want to make a dad joke about restaurants, but I guess I was mistaken.

I'm curious about what private equity might do in this environment, especially as we look at the smaller public restaurants, and you say that they're going to continue to be under pressure. If there's not consolidation public to public, might we see some go-privents? You know, that is totally possible. We could see some of that. We haven't seen the private equity community be very active in this space lately. And a lot of these names have been under pressure. So not sure what they're waiting for. But again, we're in a period where I think same source sales are getting weaker and not stronger. So that could put some of this stuff still on hold. I'm surprised that Domino's is your top pick, especially given the weakness now. That doesn't change your. your mind? Why do you think it's so well positioned? Absolutely. This is a good self-help story. Keep in mind, they posted mid-single-digit comps in the U.S., positive order counts in both delivery

and carryout. They're growing across income cohorts. They're not seeing any weakness across the lower-income consumer. This decline in the stock price is related to the cut in the international unit growth. It amounts to about. a nickel on next year's EPS, which if you're looking at $17 to $18 in EPS, and nickel is 0.3% of earnings next year. It is essentially irrelevant. Let me ask you. We're making too much of it.

Let me ask you about chicken. I know that there's been some issues with chicken health, and that's had some impact on the supply chain. I mean, how is the cost of food and the availability of certain ingredients affecting these restaurants? So, you know, over the past five years or maybe a little bit less, we've had some pretty significant inflation and restaurants have to have the price for it. You've seen McDonald's with the past five years, 40% price increases, Chipotle at around 30%. Most of the industry is somewhere around 20%.

I think this is the first year, 2024, where we actually have normalized inflation in that low single digit, two, two and a half percent range. So I don't think we have a lot of outsized inflation this year, which is a good thing. Labor, aside from California, is probably in that low to mid-single-digit inflation as well. So I think pricing is going to be more normal going forward. And I'm not too concerned about inflation on commodities, at least in the near term. All right. Peter Saleh, thank you. Meantime, the Dow is now down more than 480 points session lows.

The Russell down quite a bit too. Coming up, a $27 million mistake. Sam Altman says the San Francisco dream home he bought, more like a nightmare. I mean, he sold a lemon. Should have gone for an AI house. We'll dive into all of that in tech check. We're back in two. A lot of sympathetic home buyers of that one. Here's something chat, GPT, apparently can't do yet. Inspect your home and OpenAI founder and CEO Sam Altman might have found that out the hard way after buying a $27 million mansion that he's now calling a, Lemon. DeJerbosa is on the story for today's tech check. Dee. John, it is a very beautiful lemon at least. This is a video of the home from Architectural Digest four years ago, just before Altman bought it. At the time, this was San Francisco's single most expensive listing.

It's 9,500 square feet, city and bay views, four-sided infinity pool, wellness cottage, even a bat cave that leads into the garage. But in a lawsuit filed against Trun Pacific and its CEO, the home's owner accuses the developer of a fraud scheme to sell a home, quote, plagued by instances of poor workmanship and defects. Now, the suit points to issues like widespread presence of mold, leakage from that infinity pool, and effective piping that dumped raw sewage on the property. Before you feel too bad for Altman, though, or question his due diligence, Justin Ficoe, a Bay Area luxury broker who appeared on Bravo reality show,

a million-dollar listing San Francisco, now runs an AI prop tech. startup, he says that while the lawsuit could ultimately hurt the home's value, Altman does give it some star power, especially in a place like San Francisco. In Los Angeles, if Sharon Stone or Nicholas Cage sells a house, obviously that's going to be provenance for the house. And they live there a couple years and they sell it because they know they're going to make a profit. But Leonardo DiCaprio does this a lot. In the Bay Area, you know, if you're Elon Musk or you know, Sam Oldman or Larry Ellison, you could buy a house and you pretty much have the same kind of celebrity effect.

Fickelson pointed to Lorraine Power Jobs recent purchase of a $70 million home here in San Francisco as evidence that the luxury market is booming and the city is starting to shake off its doom loop reputation. Guys, I can tell you

I'm hearing less doom loop these days, more gloom loop because it is the summer. John, you know very well that the summers here are gloomy and not very hot. Yeah, I've heard the residential areas of San Francisco. have been just fine for a while now. It's those areas that are dominated by office that are ghost towns.

But it's quite nice where the multimillion dollar, well, they're all multimillion dollar homes in San Francisco, where the tens of million dollars homes are. Billionaires Row. That's what you're looking for, right, John. It's a Pacific Heights area. Where, by the way. I'm looking for, but yes, that's what I was trying to mention. That's where David Sachs held that Trump fundraiser as well.

And that's the area where Lori Powell Jobs bought that. $70 million home. Well, I think a lot of people who bought during COVID and are not that pleased with their homes wish they had Sam Holman's name power to help them in the resale market. Deirdre, thanks very much. We appreciate it. Dear Jorbos, coming up, speaking of home builders, they continue to gain as interest rates start to tick down. We'll ask our trader which one he likes best in three-stock lunch. Well, sidle up to the table. It is time now for three-stock lunch. And today we're taking a look at three names that could be most impacted by a potential interest rate cut from the Fed here with our trades, the CNBC contributor, Boris Schlossberg. He is the managing

director of FX Strategy at BK Asset Management. Turning first to the home builders, let's start with DR Horton. Shares are jumping double digits today, and the stock is up more than 25% over the last month. Boris, can we still buy it here? Yeah. First of all, you've got to love an upstock and a down tape. That's really, really bullish, I think. But generally, great company, right? It's performing it essentially on all-send. It's a leader in three out of the five markets. It builds in these very tempered climb markets, so it really can operate almost 10, 11, 12 months out of the year.

And it's just operating very well as far as manufacturing efficiency processes, all the things that are good, I think, as it gets bigger and bigger. The other thing I think I really like about a DHA is 70% of its housing production is 400,000 and under, which is the space where I think there's the greatest amount of demand and they'll be able to fill that very well. As you can see, their numbers, they beat the numbers. And I think going forward, it's all going to be roses for them as far as just the housing demand.

The only bad thing about the company is of valuation. People are concerned that it's a little bit run ahead of itself. And it's true. But, you know, all great stocks essentially always trade much more expensive than they should because markets are anticipating good things out of them. So I don't have a problem chasing it at this point. I think three to five years from now it's going to be a great, great stock. You've got three buys today. Horton's just one of them. Next is JPMorgan. Why do you like this one?

They recently just hit an all-time high. They're the worst performer in the Dowell today, but all of that aside. Yeah, and I think any down draft in JPM is an excellent opportunity to get along the stock. It is the preeminent stock in the banking sector. And it is one of those incredibly unique companies that is just colossal in scale, yet extremely good on one-to-one customer service, right? I mean, it's a testament to Jamie Diamond, how well that company is run. And if the only thing we've learned about digital economy is that to the winner go, the spoils, the market leaders tend to just increase their lead over time, especially if they're executing very well as they're doing with JPM. You know, their interest income is $91 billion.

They probably, you know, may have a little bit of a slowdown as far as underwriting goes, but they will make it up on capital markets as far as they come back. I will say the rumors about JP Diamond becoming Treasury Secretary will actually be a negative for the stop. maybe actually a negative of stock because he's such an extraordinary operator that anybody who fills his shoes might not be able to fill it as well. So to me, that's kind of an interesting red flag on that. But otherwise, great stock. Well, finally, let's talk about an asset that you will find in bars. I'm talking about gold.

Plus is settling above 2450 today. But some investors are already looking ahead to Gold 3K. Boris, do you buy it? Yes. Yes. You know, I've been very much of a bull on gold. I think gold, the story here is lower interest rates, of course, help it. Weaker dollar if Donald Trump becomes president helps it, and sovereign debt issues.

The fact that we keep growing our deficit continuously, it creates an underlying bit in gold. So you've got to be a bull on gold as you go forward. As he breaks $2,500, $3,000 is very much in sight. All right, shiny. Thank you, Boris Schlossberg, BK asset management getting us through those three stocks. All right, Dowd now down more than 500 points, by the way. Still to come, deal or no deal. online shoppers claiming Amazon's prime day discounts.

While they're fake, are they nominal at best? We will dig into that when we return. Welcome back. Let's get a quick check on your markets. The Dow is briefly down more than 500 points on a sell-up that's really picked up steam in the last hour or so. And it is broad base. It's not just the blue chips, John has discussed. We've seen it across the NASDAQ, the S&P, even the small cap rustles.

And Amazon is down as well as it's wrapping up its two-day prime day event. And for every social media post showing off a new box. lender, there's also one complaining about the prices and questioning whether Prime Day deals are actually deals at all. Annie Palmer covers Amazon for cbc.com. Today she's writing about the record sales the company saw. Let's start there. How big of an event was this for Amazon, not just including all the Kindles and echoes that they sell? Yeah. So once again, you know, Amazon is really touting, you know, the record sales that they saw during Prime Day. And they don't typically really release, you know, total sales from the event, but we can look at third-party estimates, like

those released by Adobe, that show that sales across the U.S. online topped 14.2 billion this year, which is topping their estimates. So Amazon has said again and again that consumers these days are looking for a deal, and we've seen that across multiple retail earnings as well. And it seems like a lot of these companies, every time they have some special event, they're talking about. Yes, we did record sales. It seems like it would be a really bad sign if they didn't. How do we really get a sense of, A, whether this has an impressive showing for Amazon overall, and B, whether some of the social media chatter is something investors should be concerned about. Yeah. So I think it's absolutely true that, you know, year after year, prime day is, you know,

a gangbusters sale event for Amazon. But I think what you're talking about is just some of the speculation, I guess, among consumers around whether these deal events actually have real discounts. And I think we're seeing more and more analysts or experts in the space really say, you know, make sure to do your research before you go ahead and buy that prime day deal. And a lot of folks will point to some online tools that are available out there that can basically show you sort of the historical price breakdown for a certain item so that you can actually see, okay, this item is actually being sold. for less than it was being sold for a month ago. So I think it's really an education issue.

But at the same time, you know, I think consumers are becoming, you know, smarter to the fact that, you know, maybe these deals really aren't the best ones out there. Yeah, it's going to be, I guess it's too late. Do they do the October prime days? Because they're going to have to be pretty careful now that people don't get screenshots of things whose list price suddenly jump to get a deal from now on. Yeah. So we don't know that they're going to have an October event again this year. But I do think that, you know, like you said, consumers are really educating themselves around whether, you know, they can actually save money from an item or deal. TikTok is like the new consumer reports.

Annie, thanks. Annie Palmer. Except probably half the people on there, if not more, are on the take. Thanks for watching PowerLand. Closing Bell starts right now.