Power Lunch - Mixed signals, housing pain and a big bet on Vegas 12/1/22

Episode Date: December 1, 2022

Recession or soft landing? The stock and bond markets seem to have different views. Plus, more housing pain in 2023? And the CEO of Vici Properties joins us to explain his big investment in Vegas. Hosted by Simplecast, an AdsWizz company. See https://pcm.adswizz.com for information about our collection and use of personal data for advertising.

Welcome to Power Lunch, everybody. Along with Contessa Brewer, I'm Tyler Matheson. Great to have you with us. Here's what's ahead on a busy Thursday. We've got conflicting messages. The Dow trading just about 20% off its yearly low, but the bond market is signaling a recession. So who's got it right? The stock market? The bond market? We'll discuss that. Plus, rolling the dice, Vici properties marking one of the largest U.S. casino deals this year, really any year, buying up states in two major resorts. It's Vichie's stock up 12% so far this year. The CEO will be here with us to talk about the risk and reward of doubling down on Vegas. Contessa. Well, Tyler's stocks are mostly lower ahead of the jobs report tomorrow. You see the Dow right there off three quarters of a percentage point or 250 points.

The S&P 500 has dropped two-tenths of percentage point now in the NASDAQ composite, just barely hanging on in the green. The Dow weighed down by shares of Salesforce after the company said it's COVID. CEO will step down. And you can see their sales force is off by 9.5%. The meme stocks, though, they're on the move. AMC entertainment is up 20%, more than 20% this afternoon, bedbath and beyond up 8% both moving higher. Tyler. All right, contest. The big question everybody wants to answer to is recession or soft landing. And right now, the stock and bond markets seem to have different views. Let's bring in our market watches, Bob Pisani, looking at the

right side that stocks seem to be referencing. And Rick Santelli with what the bond market is telling us as that yield curve is really negative. Bob, let's begin with you. Well, even the stock market has differences of opinion on this, but the price action certainly is bullish. Just take a look at this chart of the S&P 500 for the year, Tyler. We've been in a very serious downtrend. But we're about to break that above that blue line. That would be an up trend in the market here. That's where we see to be heading. Look at the good and the bad. There's a lot more good news than bad news for stocks recently. The S&P 500 has been way off of the lows there, about 15% recently. Two-year yields are in a downtrend. The dollar's in a big downtrend. It's below its 200-day moving average.

Here's the problem we have. Earnings are going down. This is not good. Stocks up, earnings down. Somebody's wrong here. We have a lot of big analysts out there that have been lowering their numbers, including J.P. Morgan today, which dropped their estimates for 2023 on a gloomy economic analysis here. Goldman Sachs, Barclays, J.P. Morgan Bank of America, they're all below the analyst consensus for 2020, or $231. Some of these are significantly below down 15 or 20%. That's a very big disparity. What's going on here? Well, the problem is the strategist community is very, very gloomy about the economic outlook for 2023, and they think that's going to spill over into the stock market. Here it is, very typical, J.P. Morgan, they had their comment today for 2023 just out. He said,

They said, we expect the S&P 500 to retest this year's lows as the Fed over-tightens into weaker fundamentals. And, Contessa, that's the problem right now. Somebody is wrong. The stock markets acting like they don't believe there's going to be any kind of very serious hard landing. Contessa. Bob, thank you for that. Let's go right to Rick Santelli for more now. On the CME and the Groups HQ in Chicago, we're talking here about what the yields are doing, Rick.

Yes. And you know what? Just today's data alone shows us how difficult this is to try to define which markets more correct. If you look at today, we had good, bad and ugly. Look at the good today. Income and spending were very solid up 7 and 8 tenths respectively. You had the lowest level of prices paid in the ISM since May of 2020. The bad construction spending posted its second negative read of the month and the ugly.

Both S&P and ISM PMIs both under 50, first times of the same. It's May of 2020. Look at a two-day of two-year and realize our high watermark in early November on a yield closing basis was 4-72. We're currently at 427. Look at a two day of tens and realize every maturity is now below yesterday's low yields. Why is that important? Because yesterday was a huge day. No give back.

As a matter of fact, we keep going in the trend of lower yields and higher prices. And if you look at the three months versus tens, the real recess. session spread. It's approaching minus 80. It's the most inverted in 22 years. And all of this gets sent home by just watching the behavior of the dollar. Simply speaking, the dollar doesn't like rates going down. It rather have rates go up. It was down 5% for November alone and add another 1% for today's session. These are huge moves. Tyler, Contessa, back to you. All right. So, guys, the construct here is that the stock market is saying one thing, which it did in

November, and to a lesser but significant degree in October. And the bond market is saying something distinctly different. Is it possible, Rick, and then I'll get, Bob, your thought, that both could be right here. Oh, absolutely. I look at it like

the stock market and many investors have reached the conclusion whether right or wrong that we've seen peak rates and peak inflation. Remember, the high water market intends is a whisker under four and a quarter from about the third week in October. We have 75 basis points of cushion. About the same, about 50 basis points of cushion and other maturities. What that tells me is that the Treasury

complex knows that we're going to slow. It doesn't know how bad that's going to be or how debt and spending eventually and ramping up issuance will affect that on the back end. In the stock market, well, if we're at peak inflation and we're at peak rates, well, we've seen some pretty decent data. And it's going to continue to do well right up until we start to see the recessionary impact show up in more numbers. Bob, your reaction to that. Could they both be right? Bonds signaling recession, stocks, maybe looking past recession. Not necessarily recession, though, bonds. You could have a slowing in the economy without a notable recession. The debate in the stock market community is over the earnings situation and where we're going on that. There is an

analyst community that is extremely gloomy in the last few weeks and believe that earnings are going to drop dramatically in 2020. But the stock market, excuse me, the bond market could be signaling we're having a slowdown in the economy, but not necessarily in earnings collapse. And that's sort of where the debate is. The stock market seems to be saying, okay, maybe a slowdown, we can handle that, but no earnings collapse. And that's going to be a key. In a real recession, earnings typically drop 20 percent. Some of these analysts seem to be believing that. the stock market saying right now, we don't believe that. But Bob, one question for you, though, when you're looking through all of these economic forecasts from the analysts for next year, how much of that is based on data from a month

or two months ago? Well, that's a good point. So you have these year-end forecasts, so 2020. So J.P. Morgan, 2023 forecast out this morning. That's assembled by a committee over a very long period of time, a month or so. They're using estimates and data that's probably more than a month old. It's just how you put it together. And the data has changed significantly.

We're moving more in the direction where inflation is clearly showing signs of abating. Still too high, but abating at least. And the stock market is reacting to that most recent information. That's what's beautiful about the stock market. It's a real time, every day guess on where things are going to be in the near future. And so far, the data is supporting the bullish position of not to be. such a serious recession or maybe even a soft land. It's a beautiful thing. It's a beautiful thing.

What's that saying? A camel is a horse designed by committee. So there you go. We'll leave it on that on the idea of the investment committees. All right. When it comes to, thanks guys. When it comes to recession signals, our next guest says it's complicated. What isn't?

But even if a recession comes, it will likely be modest. And stocks are headed for a healthy bounce back either way. So he says. So says David. Katz, he's chief investment officer at Matrix Asset Advisors. You heard the conversation there. You say it's complicated. I agree with that. It is. But what about if you're looking for the stock market to have a nice 20-23, what about Bob's point that an awful lot of market watchers are looking at an earnings slowdown? It's hard for stocks to make headway when earnings aren't. Well, for an individual stock, yes,

But for the market in aggregate, there are a lot of other factors. So if we're right that we're going to have a either modest recession or just a slowdown, and the Fed is going to be less hawkish next year, not raise rates aggressively, and inflation has broken, which we think is happening, we think the market's going to focus on those positives and be able to have a PE expansion, even with earnings being a little bit lower. And we think the market is going to start to look at 2024 earnings, which are going to be in a nice recovery mode.

If you go back to 2020, earnings were down very sharply, but you had a very strong market because the market looked beyond the slowdown in earnings and it looked to the recovery in 2021. We think that's going to happen in the upcoming year. David, we've talked to a lot of advisors who have been talking about just basically tying a knot in the rope and hanging on. Are we still in a period of time where we need to be thinking about how to play defense, or is it time to start thinking about how to play offense going into 2023? So as the market sell-up got deeper, we thought it was a good time to switch from defense to offense. We still think you want to be positioning yourself for offense.

Even though the markets rallied 15% off its lows, there's still a lot of really good companies that are down 40, 50%. So we think you can look through the market, find strong businesses, strong finances, low valuations, and pick them up here. We wouldn't chase yesterday's rally, but I'm sure there's going to be some sort of negative data points in the next few weeks. The market's going to get negative again, sell off. We'd be buying into that weakness. But on a stock-by-stock basis, there are really a lot of companies that are very attractedly priced here. And it looks like you like a fair number of what we would describe as classic tech growth names, Amazon, Google, I believe it's Medtronic and Truist Financial. Why that interesting group?

So a lot of the high-flying tech stocks have been taken out and shot this year. So we've always looked at Amazon as a great business and very richly priced. We started buying it in the last few weeks because it's selling at the low end of its price to sales and price to EBIT. The stock's down 45%. We think from these levels, you've really limited your downside from here. And on a 12 to 18-month basis, we could see the stock 30 to 40% higher. Alphabet is a great company with great long-term prospects. yet it sells it's 17 and a half times next year's earnings.

Whenever you've been able to find and buy premium companies at those type of prices, you do really well. In terms of MedTech, Medtronic, is it 14 and a half times earnings. They've had some short-term glitches and bumps in the road, but we think they get their act together in the next 12 months. That's got 30% upside, and it's paying you with 3.5% yield while you're waiting. The last piece are the banks. We think this is going to be the sweet spot for banks.

You've got higher interest rate. They've got good credit quality. And you've got a lot of loan demand. And you're buying these stocks at nine times earning for the four and a half percent yield. Our favor right now is Truist, U.S. Bank for Bank of New York, all very good companies, very attractively price. Although there are questions about mortgage demand, which we see still softening, even with mortgage rates, declining just a touch.

What about consumer staples right now? I gather that you've lost some enthusiasm for that sector. So consumer staples have done great this year. We had a lot of them going into the year, so we've enjoyed the ride up, even though the market has gone down significantly. However, we think a lot of them are fairly or fully priced. So we have been taking money off of Consumer Staples. If we're right that the market's going to do better next year, you're not going to want to have their defensive characteristics. We think actually they probably will be a source of funds as people get more excited about the market and put money back into those other sectors that we had just discussed. So we'd be taking some money off of them. I see. Thank you so much for sharing your insight and perspective with us, David Katz. Thanks a lot. President Biden and French President Emmanuel Macron just wrapped up a joint news conference. Let's get right to Kayla Taushy with those headlines.

Kayla, did they achieve anything of substance? Well, Contessa, this first official state visit for President Biden focused with the president of France on two countries in particular, Ukraine, where there is still a war that is near. a year in length and China where there's been some high-level disagreement on how far to isolate China as they pursue some industrial policies to onshore manufacturing. First on Ukraine, President Biden made some news by saying that he would sit down with Russian President Vladimir Putin to negotiate an end to the war in Ukraine if he believed that Putin had a legitimate and genuine interest in ending that war. Here's President Biden in his own words.

I'm prepared if he's willing to talk to find out what he's willing to do, but I'll only do it in consultation with my NATO allies. I'm not going to do it on my own. President Macron said that the West would not be pushing for any negotiated outcome that Ukraine itself did not support. On China, Europe and France in particular have been critical of the Inflation Reduction Act and other legislation out of Washington that incentivized manufacturing coming back to the U.S.S. United States saying that it penalizes that type of activity from the continent of Europe and from countries like France specifically. President Biden acknowledged that and said that there would be tweaks made to the law that would incentivize Europe to take part in some of that activity. And finally, on a potential rail strike that could happen as soon as next week. Well, President

Biden said that he would be renewing a push for paid leave legislation that he says all workers should have access to, but he says that for the rail industry specifically, that the deal that is on the table that grants them one day of paid leave is better than other options that the industry had put forward in those negotiations, and that having those workers strike would cost 750,000 jobs and tip the U.S. into recession. On that note, he defended his call on Congress to intervene to force the parties to accept that agreement. The Senate at this moment is taking up consideration of that. Guys, back to you. All right.

Well, watch for the Senate decision coming. out of Capitol Hill. Kayla Taosci at the White House. Thank you for that, Kayla. Coming up, the biggest property owner on the Vegas strip is getting even bigger. The CEO of Vici Properties will join us to discuss his major casino deal and the future, Sin City. Plus, Morgan Stanley is slashing its housing outlook, putting a number on how much prices will correct in the next year. And as we head to break Netflix, extending its gains up another 4% today and rallying. on comments from Reed Hastings that you heard right here on Power Lunch. He, of course, is optimistic about the company's ad-supported future.

Stock up 43% since the ad-tier format announcement in October. Power Lunch? We'll be right back. Blackstone shares are off 6% after announcing a deal to sell its share of MGM Grant and Mandalay Bay on the Las Vegas Strip, Tevici. The deal values those property assets at $5.5 billion. Vichy shares initially rose on the news, but now you can see have moderated and pulled back somewhat down a percent. Look at its performance, though, year-to-date.

The best-performing read in the S&P 500, you can see it's up almost 13 percent, and compare that to its biggest tenants. Caesars and MGM resorts off 44 percent and 17 percent, respectively, year-to-date, even though the tenants are making money hand over fist, whatever, what they pay for rent stays the same, no matter how much money they make. With us now as Vici CEO, Ed Potoniak. It's great to see you today. Tell me why it matters that you're buying out Blackstone's steak, 49.9%. Why does it matter to you to own 100% now of MGM Grand and Mandalay Bay? Well, first of all, Blackstone came to us, and they only came to us a few weeks ago. We're able to get this done very quickly, Contessa.

And we were very excited about the opportunity once Blackstone presented it to us because it obviously simplifies our structure. But it gives us total ownership of two of the most iconic assets on the Las Vegas Strip, the MGM Grand and Mandalay Bay, and two really iconic assets at an end of the strip that's becoming more and more vital, especially because of the impact of Elysian Stadium, which has become more and more of a magnet of attraction in Las Vegas being, for example, the place where Taylor Swift will do her shows in Las Vegas. And as I understand it, when there's a big entertainment star like that, the caliber of spender that you get in Las Vegas also increases. I'm just curious. You got to structure this deal

in a way that you're assuming some Blackstone debt at a very attractive rate. So doing the math, you paid something like 17.9 times next year's rent. Would that have been lower had you not been able to assume that debt? Would you have been able to, I mean, if you had to pay 6% instead of 3.55%. Yeah, the debt was a very, very attractive piece of this package. And you really think about us buying both property and a piece of paper, which is to say the CMBS debt that's on the two assets. That CMBS debt is going to bear interest for us. Well, it already did bear interest for us as a 50.1% partner in the JV at 3.55%. And that is obviously very attractive financing. It runs at that rate through 2030. It'll adjust slightly for 2031, 203.

But because that debt is so inexpensive to service, what we're really doing when you simplify all the numbers of this deal is we're paying about one and a quarter billion dollars of equity for what will be after debt service just over $100 million a cash flow. And in the real estate business, when you simplify it to its essence, you want to know what is my cash on cash yield? If I put a dollar cash in, what kind of income yield am I getting after debt service? And at 8% cash on cash yield, this is a very attractive deal for that. Vichy owners. So let me, let me ask sort of a freshman question here. You're the biggest

property owner in Las Vegas on the strip. I think a lot of people would not know that. That's right. You're quiet, sort of below the, although I keep saying so. You keep saying, people like Contessa know this, but a lot of people don't. Tell me how it works. You own the land, right? Yes. You own the buildings. Yes. Right? But you have operators who operate the businesses there, right? They pay you rent. Is that how it works? That's exactly right, Tyler. And do they furnish it? Do they? They do. And not to get too technical about it, we own what's called the real property. They own what accountants would call the personal property, which is the furniture, fixtures and equipment that they use to run the building. We want to be invisible, and we are

invisible to the people who work there. Right. And most importantly, to the guests. And we want to be invisible because our operating partners, like MGM and these two assets, like Caesars, like our Apollo partners of the Venetian, they create magic every day. They're running some of the most dynamic businesses on Earth, and we want them to be totally free and unfettered. So let me ask you this. We showed some stock prices there of the operators, of the MGMs and Caesars. If Vegas is so hot, which it is, right? Why are those stocks so cold? I am baffled. They are utterly mispriced. They They are the most dynamic leisure hospitality entertainment operators on earth right now. They are looking at a year next year, 2024, that will be an insane year of activity in Las Vegas.

2020. It starts with the resurgence of full convention activity, CES, Con Expo, two rounds of the NCAA tournament, further conventions throughout the year. We have this new thing called F1 coming to Las Vegas in November. But you're not taking a share of that. This is part of what investors are looking at and you might get your rent every month. Your tenants are going to make money hand over fist. I mean, is it still a good investment? If you're up so much because you've had steady rent all through the pandemic, where's the growth coming from?

Well, for us, it'll come through both same store rent increases, which actually are very strong for us relative to other net lease reits. It will also come probably see from acquisitions of the kind we've just done today. I also want to finish by not forgetting that in 2024 we get to host the Super Bowl. That's a big deal. The way to think about how to value real estate, Contessa, is that the value of the real estate is very contingent upon, very predicated upon the success of the business that operates within it. The more successful the business of the operator is, the more likely the operator is to stay there. So the lower the vacancy risk.

The stronger the operator. One more. Are you putting too many eggs in the operator? this basket? No, no, no. We think that the Las Vegas ecosystem is a singular ecosystem on Earth, right? It has competitive advantages that really we don't see being overcome. It was the fastest airlift recovery in the world. The first place in the world to get past 2019 airlift. It's got infrastructure. I'm looking at it right here, for those of you can't see it home. It's got infrastructure that could not be built again anywhere else on earth. The one place on earth that comes close is Macau.

And as you know, because you cover it very closely, Macau is a somewhat problematic place right now. Yeah. So it means that Las Vegas gets to sort of be the gaming capital of the world while Macau rests. Ed Pitoneack, thank you very much for coming in and explaining the deal for us. Thank you, Contessa. Thanks, Ed. All right, coming up, a CEO sit down, the feud between Elon Musk and Apple's Tim Cook ending as soon as it began. The Twitter owner withdrawing claims that Apple was removing his platform from the app store, but the brief TIF reigniting discussions about Apple's app power. Plus, Apple, one of the few tech firms not announcing massive layoffs, at least not so far,

but the companies that cut costs early may benefit in the long run. We will explain when Power Lunch returns. Welcome back to Power Lunch, everybody. The world's richest man and chief twit, Elon Musk, averting a feud with the world's largest company. Earlier this week, Musk accused Apple of threatening to remove Twitter from the App Store, a move that would have been catastrophic, according to Twitter executives. Musk went on the offense, is there any other way with him, criticizing Apple and its CEO Tim Cook for censoring free speech and targeted its monopolistic control of the App Store.

But as of last night, the conflict between the two Tech Titans apparently has dissipated. Elon Musk tweeting that he met with Mr. Cook and had, quote, resolved the misunderstanding about Twitter potentially being removed from the app store, clarifying that Mr. Cook never intended to do so. So there, Contessa. Well, let's get to Bertha Coombs now for a CNBC News update. Hi, Bertha. Hi, Contessa. Here's what's happening at this hour. The Senate right now taking up consideration on amendments to a bill to avert a national railway strike. After voting on these amendments, the Senate is expected to vote on the bill later to.

The House already passed legislation to avoid the strike and the bill would head to President Biden if it clears this Senate hurdle. Yale University is being sued by a group of students and an advocacy group for what they say is, quote, systemic discrimination against students with mental health disabilities. The zoo claims that students struggling with mental health were not properly accommodated and that school policies force them to withdraw to seek treatment. Yale has said it has been reviewing its withdrawal and reinstatement process and has increased resources to support students. And new numbers from reinsurer Swiss re-showing Hurricane Ian was the second most expensive storm on record after Hurricane Katrina. Ian caused between $50 and $65 billion in insured damages after it made landfall in Western Florida in late September with extreme winds torrential rain. and storm surge. You've got prices that have gone up there, Tyler, and a lot more density.

More storms in Florida is going to need a lot higher pay. As you say, density and highly valued pieces of property in many cases, Captiva, Sanibel, Naples area, Fort Myers as well. Bertha, thank you very much. All right. Further ahead on the program is Beyond Me, Beyond Hope. The company losing around $13 billion in market cap from its initial valuation. we will break down the losses. You want to talk about big declines. We're going to trade some of the worst performing S&P stocks in November to see if any are worth buying on the dip.

And after the break, Morgan Stanley slashing its housing outlook. Data points more and more to a housing recession. The strategist behind the call joins us next. Power lunch will be right back. We've got breaking news out of the Chicago Fed, and Steve Leesman has it. Tyler, thanks very much. The Chicago Fed announcing at this hour that Charlie Evans, as reported, will step down in January and be replaced by Austin Goolsbee, the Chicago economics professor, who is a frequent guest on

CNBC. He is the former CEA chair for President Obama, and Evans will step down in January. Goolsby will step in, Evans stepping down after what will be 15 years on the Fed, Federal Reserve, as Bank President of Chicago and many years in the Federal Reserve system, including his head of research in Chicago. And then Goolsby will step in, and I believe get the vote at the late January,

early February 1st meeting. I'm pretty sure that's when that first vote will happen. But Chicago does have a vote next year, so he'll step right into it. They have the vote, I believe, every other year. And Goolsby, what can you say about Goolsby? I think he's obviously comes from a Democratic administration, has been concerned about inflation of late, not really complaining about the Fed doing too much.

I remember during the financial crisis, he was the CEA chair and talked a lot about the government programs, but also putting in economic incentive. So he does come from that Chicago school as well. Tyler? All right. Thank you very much. Steve Leasman, Austin Goolsby, in as the head of the Fed in Chicago. Thanks, Steve.

Well, we have less than 90 minutes left in our trading day. So let's get to caught up on where the market stand. out. We're seeing the Dow Jones Industrials off by a little more than half a percent or 198 points. The S&P is barely in the red down 0.08 percent and the NASDAQ composite in the green by a tenth of a percent. Financial's the worst performing sector, Bank of America, Wells Fargo and JPMorgan all lower on the day. The B of A is off by two and a half percent. The others down by two and one percent respectively. Oil adding to its gains up just under one percent. at $81 a barrel now. OPEC plus meeting this weekend and markets accounting for at least a chance of an output cut.

The falling dollar also contributing to the gains in crude. There you see at WTI up three quarters of a percentage point. To the bond market where yields are falling after that weaker than expected inflation report, the core PCE rising two-tenths of a percent. And that's less than expected. The yield on the 10-year note now just sitting above 3.3. 3.55 percent, Tyler. All right, let's turn to the pain in the housing market. In the last hour, we hear that Wells Fargo is cutting hundreds of jobs in its mortgage business across the country. This is pending home sales yesterday,

dropped by nearly 37% year over year, worst annual decline in 20 years. Housing starts also fell 4% in October. Existing home sales dropped 6% in October, falling for the ninth straight month. And our next guest says, it's going to get worse. He just cut his housing outlook for the year.

Next year, Jim Egan, U.S. housing strategist at Morgan Stanley. It's going to get worse. Why? Well, thank you so much for having me on. And I think you just mentioned... I think you just mentioned a lot of the statistics pending home sales, existing home sales, housing starts, that we do think are poised to get worse in the year ahead.

When we talk about our housing view, we characterize it as a bifurcated view where housing activity, so sales and starts, is poised to fall further and has a fair amount of room to fall, whereas home prices, we think, are a lot more protected here. It doesn't mean that year-over-year home price growth stays positive, but it does mean that it stays a lot more protected than the drops we see in housing activity. Why is that? Explain that to me and explain the relationship between those prices and interest rates. In other words, I'm guessing that if interest rates are going up, prices can't go up quite as much as they would when interest rates are lower.

Well, I do think that affordability does play a pretty big role here. When we think about affordability and some of the inputs there are going to be prices, mortgage rates, as you're mentioning, incomes, affordability has deteriorated more over the past 12 months than any 12-month period that we really have on record. and we have confidence in that data back to the mid-1980s. But if we think about the follow-up question there, it's whose affordability just deteriorated? Current homeowners, in our view, an overwhelming majority of them have 30-year fixed-rate mortgages. Most of them were allowed to – were able to purchase their home or refinance their mortgage in 2020, 2021, when rates were a whole lot lower. We think their affordability is in a very good place. That affordability deterioration is for first-time homebuyers, prospective homebuyers, or are going to have trouble-step

into this market. If we think about what that means for existing homeowners, they're just going to be a lot less likely to list their home for sale. Moving becomes prohibitively expensive. They have to take out a much larger mortgage. Why would you move if you've got a 3% mortgage to a house that's probably equally priced to yours or maybe higher and pay a higher mortgage rate unless you have all cash, which some people do, not me? I mean, exactly. And if you think about how that flows through to sales, if I'm not listing my home for sale, then I'm also not buying a home after I sell that. So that kind of exacerbates the drop. We have sales falling to their lowest levels since 2013. If we index the affordability deterioration this time around to what we saw during the great

financial crisis, sales are actually falling faster this time. And we think that that continues through the middle of next year. But on the other side of this coin, if those homes aren't being listed for sale. And existing inventories are close to their lows of the past 40 years. That's as far back as we're comfortable with that data. If those homes aren't being listed for sale, if they aren't being sold, then home prices are a lot more protected. Months of inventory are only at about four right now, which is a pretty healthy market from that perspective. We think that the quality of mortgage underwriting has remained very robust. Lending standards have actually tightened since the beginning of COVID. So we think that the risk of distress, kind of defaults and

foreclosures that exaggerate the drop in home prices. We think that's also a pretty contained this time around. So we think home prices fall next year. They fall about 4%. Sorry, go ahead. Well, what about insurance prices? Because as I've been reporting in Florida, we've seen sales falling through because the price of covering your property is unaffordable. How much are you looking at that as a factor across the nation? That certainly plays a role. And we think it plays a role as well on the demand side of this equation as to where demand can step in. And as we've mentioned, our forecasts on the demand side are pretty weak. That just contributes to that weakness. But the constraints in supply, we think that the fact that fewer homes are going to be transacting,

the low listing volumes, the low distress that we see in this market, that keeps prices more protected. Now, the 4% drop we're calling for next year, that only brings home prices back to where they were in about the fourth quarter of 2021. So I will say that the cutting of forecasts was more on the activity side, not necessarily on the pricing side. Jim Egan, thank you so much for joining us. Appreciate that. Thank you so much for having me on. Coming up, our tech companies already seeing positive impact from cost cuts. We'll discuss that. And be sure to check out a special edition of The Tick at 3 p.m. Eastern today on your second screen. Dom Choo and our team of traders will show you what the pros are doing in the market and how they're doing.

doing it. Sign up at cnbc.com slash pro talks. Welcome back to Powerlunch. As we enter the final month of the year, the Dow down about 5%, the S&P 500, down 15, and the NASDAQ by far the worst, off 26% in 2022. Christina Parts of Nevelas joins us now from the NASDAQ with more on tech's weakness. Hi, Christina. Hi, Contessa. Well, more than 189 tech companies laid off employees just last month alone. That's more firms than September and October. Over 53,000 people laid off within tech in just one month. You had Twitter cutting 50% of its workforce, meta and Lyft cutting 13% of their workforce, and the list continues, which begs the question now, why is it all happening

right now? You have online demand that surged, so tech companies just kept hiring over the past three years. But now we have a slowdown, and that slowdown brought a slowdown in ad spending coupled with more expensive debt because of higher interest rates. And companies are also realizing they may have overspent on projects. Take for example Amazon's Alexa unit seeing the most job cuts, meta's VR reality labs or Zillow offers a unit that no longer exists. So what's left now are leaner companies. Bernstein analysts for example found Uber has seen the greatest growth in employee productivity over the last three years because it cut jobs early and increased

prices. While SNAP stock is down 77% year-to-date but it managed to grow its revenue per employee year over year in the third quarter after announcing a 20% headcount cut back in August. Demonstrating, Contessa, that growth at all costs will no longer cut it in today's market. Well, and it's true that Christina investors seem to like cost consciousness. Activist investors truly do. These tech layoffs have more than doubled, as you mentioned, from October to November. Is this an indication of what's to come? We talk about it a lot on TV, and maybe that skews what. the overall market is really telling us, but you have bankers and analysts for Morgan Stanley and

Goldman Sachs are saying no. And that's because info tech companies account for 26% of the S&P 500 market cap. That's why we talk about it. But the tech labor footprint is much smaller than that, less than 9% of total employment. And I'm really generous with that definition of tech, right? Really some other places are saying it's even less than 1%. So it's not large enough to cause a meaningful slowdown. And even Janet Yellen, the Treasury Secretary yesterday, at the New York Times deal book said tech has faced some of these out-of-the-ordinary factors just over the last three years, an unprecedented boom, and then coupled with a slowdown and then a massive drop in ad spending.

Yeah. And Contessa? Thank you. Thank you. All right. November was a pretty strong month for stocks, despite the economic uncertainty, but there were some names that didn't fare so well. Are they worth picking up now?

We'll trade them in three-stop lunch. Okay, it is time now for $10. Today's three-stock lunch, the drinks have been poured. The S&P coming off a strong month of 5% in November, but today we're taking a look at some of the names in the index that had a less than stellar month, among the worst performers, Warner Brothers Discovery, Tesla, and Advance Auto Parts. So let's trade these names, shall we,

with Scott Nations, President and CEO of Nations Indexes. Let's go first, Scott, to Warner Brothers Discovery, a company that is in the midst of a real spasm of cost, cutting. That's right, Tyler. It's really messy. They have new leadership. They're cutting a bunch of jobs. They're doing other drastic things like killing CNN Plus, just essentially on the first day. And, you know, drastic is not necessarily bad, particularly when you're facing this sort of mess that you often are post-merger. And so they're doing the right things. They have great intellectual property. And that's the reason I would be buying Warner Brothers Discovery again, great intellectual

property. It's down 50% year-to-date. And so you're going to get a great business at a good price. If there's any caveat, it's that they have a bunch of debt. And so the money they're saving from expenses needs to go to pay down that debt. Okay, next name up. And this is a name that while its stock may have declined over the last month, the attention paid to it has not. Tesla. Yeah, but it's attention for all the wrong reasons. People love the cars and they love Elon Musk, but if his attention is focused elsewhere, then he's not going to be running Tesla. I'm not so sure about that, Scott. I'm not so sure that everybody loves Elon Musk anymore.

Well, but Tyler, that's relatively new. You know, start of the year, everybody wanted to be Elon's best friend. And now he's clearly focused elsewhere. But even if you think about just the operational issues at Tesla, every time there's good news, it's reflected with bad news. They want a ramp production, which is great, but they're just, they're recalling 435,000 cars in China. They're the leading EV manufacturer, which is great, but other names are catching up, and they're going to deliver their first semi-trailer truck to Pepsi

this week, but it's three years late. And so if the CEO is focused elsewhere, I would be holding Tesla. Again, it's a great brand, and people love the cars. They may not love Elon as much, but it's still a great brand. Okay. All right, let's move on to advanced auto parts. I don't know whether they have parts for Tesla's, but maybe they do. Well, we're saving the worst for last. If you look at the operational metrics for advanced auto parts, it's just a real mess.

Margins are horrible, particularly compared to competitors like O'Reilly and AutoZone, as is cash flow. Revenues were flat in the third quarter, which might be fine, except earnings were down by more than one-third, which means margins continue to erode. Starbird took a big stake in 2015, tried to turn the company around. They threw in the towel at the end of last year. They started buying when the stock was 171 a share.

They said it could be worth double that. It's actually lower than 171 right now at about 150 a share. 11.5 PE, some people might think that it's a bargain, but it's cheap for a reason, and that's because it's coming in way behind its competitors. All right, Scott, thank you very much for that. those profiles of Warner Brothers, Tesla, and advanced auto parts. Scott Nations, thanks. Is Beyond Meat Beyond Repair? The stock down more than 80% this year. We'll dive deeper. Next.

Cheers of Beyond Meat have lost 78% of their value this year. Is the stock Beyond Hope? Is the company Beyond Repair? Pippa Stevens is looking at whether Beyond Meat can bounce back. Hi, Pippa. Hey, Contessa. Well, Beyond Meat was once a Wall Street darling going public in 2019 with a lot of fan But the stock is down sharply for the year and now 94% below it's July 2019 record high. The company's market cap has gone from more than $14 billion three years ago to $930 million today. So what's gone wrong? Well, Beyondme face company-specific as well as industry-wide challenges. It's dealing with higher input costs and rampant inflation, which has prompted consumers to switch to cheaper

products. The company spent aggressively and several key executives have departed in recent months, and that's all within the backdrop of a broader slowdown within the plant-based product industry. Now, in October, the company slashed its full-year sales outlook. It also announced a second round of layoffs with around 20% of its staff cuts since August in an effort to reduce expenses. Now, Beyondmeats cash burn has slowed, but over the last year, cash has decreased by 9, 4,000, $396 million. And as of Q3, the company had just $390 million in cash left. Now, management has said it's targeting positive free cash flow at some point in the second

half of next year. But guys, there are a lot of questions around whether they can meet that goal. Yeah. So, Pippet, it's interesting. Other companies, you've got to wonder if they're facing some of these similar issues and why the interest in alternative meets has waned. Yeah, is just a fad? Yeah, I mean, there was so much hype around it a couple years ago.

Everyone wanted to try it. It was a novelty product. You know, it was on the shelves and grocery stores. It was the pandemic. People wanted a new experience. But now, kind of some of the benefits are particularly on the health side are being questioned. So that's led to a reduction in the overall market size. And the novelty is kind of worn off.

And it's more expensive. I think people are looking at the cost of what they're spending at the grocery store and all that and thinking, I got to cut back. PIPA thanks. All righty, thank you all very much. for watching Power Lunch.