Power Lunch - OPEC+ Production Cuts & Rising US-China Tensions 4/3/23

Episode Date: April 3, 2023

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Welcome to Tower Lunch, everybody, alongside Contessa Brewer. I'm Tyler Matheson. Coming up, OPEC surprises the market with a cut, sending oil prices higher and energy stocks up along with it. Meantime, NASDAQ pulling today after a strong recent rally in tech. We'll break down what all this means for the markets. Plus, the U.S. accused China's spy balloon of collecting intelligence from sensitive military sites. Well, now Taiwan's president will visit with American politicians on U.S. soil. Where do relations with you? China go from here. We'll get to all that and much more of it first. To check on the markets now, you can see the Dow Jones Industrial's up nearly three quarters of a percentage point, but the S&P is in the red, flattish, NASDAQ, down a percent, and you've got the Russell 2000 off by half a percent. Let's get to Christina Parts and Nvelas for more. Hi, Christina. Hi, Contessa.

Well, the NASDAQ, like you said, trending 1 percent lower, and this is after a very strong rally last week. It is the worst industry when compared to the S&P and the Dow. The Fed Pivot, though, still a strong narrative, but I want to get to the sectors that are trending lower. Autos, the biggest lagger on the NASDA driven, of course, by Tesla. It's about 7% lower now. It posted record deliveries driven by price cuts, but concerns about sales growth still remain. Then you've got EV rival. Lucid down 3% as well. Shares of software, HR firm, paychecks. That stock is trending about 3% lower. There's some mixed feelings from Wall Street. You got Barclays analysts that kept an underweight rating with a price target of 109. The shares are

111 right now. And then Bank of America just downgraded the stock to hold on worries of an economic slowdown. Bank of America also downgraded payroll firm ADP to underperforms saying the stock tends to lag as unemployment starts to rise. And then lastly, you've got retail names leading the NASDAQ higher, dollar tree up, what, 3% Walgreens, Ross stores. All of those names are in the top five rankings day. It could be due to some new 13F filings that we got that show some hedge funds, took some bigger positions, or it could also be a sympathy move after Macy's got an upgrade from JPMorgan. Macy's shares 6% higher. Tyler. All right, Christina Parts and Evelas, thank you very much. Now to the big surprise this morning in the markets, a production cut

from OPEC Plus, oil soaring energy stocks, gone along with it. Pippa Stevens joining us now. Why'd they do it? Well, starting with just this move, which took the market completely by surprise, since no one thought this was going to happen, given that the group had previously indicated it would hold production steady despite the recent weakness in prices. Not to mention, the meeting was actually slated for today. So yesterday, the group announced a voluntary cut of more than one million barrels per day beginning in May. Saudi Arabia will cut output by 500,000 barrels per day with other nations also curbing production. Additionally, Russia will extend the 500,000 barrel per day cut it announced back in March.

And this latest move is on top of the 2 million barrel per day. cut announced last October. Now, Saudi Arabia called it a precautionary measure aimed at supporting stability in the market. Firms, including Eurasia Group, said its signals OPEC Plus will defend higher prices and support Moscow. The announcement leading to big gains for crude with WTI retaking the $80 level and energy stocks are the best group today, with producers leading those gains. Marathon Oil, APA, Conoco, and Hess all sharply higher. But Nat Gas is actually going in the other direction down another 5% today after posting its worst quarter on record down more than 50% for the year. I put this in context for me. Like, how big of a deal is this in the broader

global picture of what we need for oil and where demand is going? Well, I think it speaks to the growing importance of OPEC and its allies and how they have spare capacity so they can really be in charge of this market, particularly since China is such a big and growing part of that and they are closer. They have more proximity. They're increasing the relations. Saudi Arabia and are building refineries now in China with both co-investing. And so they are, you know, using their power to wheel price action. Now, in terms of what it actually means for barrels, they have been underproducing for their quotas.

So we might not actually have all these barrels coming off the market. But it's still significant. And it also means that maybe they see some demand weakness looking forward and that the market they see is actually not as strong as some people say, which is why they preemptively took this cut. Got it. Pippa, thank you very much. Appreciate that.

All right, let's turn now to China. The infamous Chinese spy balloon that floated across the U.S. in early February was able to gather intelligence from several American military sites despite President Biden's efforts to block it from doing so. So how will this impact the U.S.'s already strained relationship with China and a couple of more developments coming this week on that front. Let's talk to Dennis Unkavik. He's a partner at Meyer, Unkavik, and Scott, and Michael O'Hanlon. He's Director of Foreign Policy Research at the Brookings Institution. Welcome to both of you. you gentlemen. Mr. O'Hanna, let me begin with you, and let's talk quickly about this Chinese spy satellite. Was that satellite really in and over U.S. airspace, or was it in space? And don't we do fundamentally the same kind of things and gather the same kind of intelligence that the Chinese were gathering over on our military installations? Yeah, those are good questions. There is some ambiguity about who owns the air when you get up above 50, 60,000 feet. Now, I think the United States is perfectly within its rights to assert that it's our sovereign territory, but we don't have completely rock-solid international legal

foundation for doing that. And in any event, I think we therefore have to sort of modulate the criticism of China. I have no problems with President Biden having the balloon shot down. I think that was understandable. But I also don't find it completely surprising or indicative of aggressive intent that China would try to get away with this sort of exploitation of a gray area. And more generally, I think we have to learn in the United States' strategic debate how to push back against Chinese actions that we don't like without demonizing them or calling them a new axis of evil as Senator Lieberman recently did in an op-ed. I think the rhetoric is getting a bit overheated. And this particular action, this particular incident required, I think, a firm

American response, but also understanding both sides are constantly trying to exploit ambiguities in the law or opportunities for intelligence. It's just a little bit the nature of the business. You know, Dennis, Mr. Hohan, just raise the idea, access of evil, a phrase that goes back to the Bush administration. You do certainly have now three countries, it would seem, Russia, Iran, and China that are acting in concert against the interests of the West and the United States. True, false? What? I think the West has to accept the fact that China and Russia and Iran to a lesser extent

are now bound together very closely. So as a result, I'm not going to use that phrase, which I think is a little bit overblown, but the fact that they are no longer close to us other than economically, I think is a fact of life. So you had Xi Jinping going to Russia to meet with Putin. Now you have the Taiwanese president, Sai-en, coming to the United States to meet with Kevin McCarthy. I'm just curious, what do you think, Michael? Is this a situation where we're going to continue to see tensions ratchet up and explain, if you will, why Taiwan could be the linchpin in this?

Thank you. First of all, I think Dennis makes a very good point, because if we think back eight, ten years, Russia and China were working with us to apply sanctions against Iran in a way that then made possible the Iran nuclear deal, whether you like that deal or not. The dynamic was that Russia and China worked with us at the UN Security Council to apply sanctions in a way that would be unthinkable today, given the nature of relations. So I think that's an important point. On Taiwan, you know, the really fact that's a very fact that fascinating question for me, given that China made such a strong reaction already last summer, and that Taiwan has presidential elections coming up in January, and China doesn't really want to

help the more nationalistic party, the DPP. Typically, the DPP benefits when China is seen as over-punishing Taiwan as being overly threatening. So I'm going to be fascinated. I'm not going to make a prediction. Sorry, I don't feel smart enough, but I do suggest that we all watch very astutely the Chinese reaction. My guess is that they will be upset, but they will ratchet it down a half-notch from what they did after the Pelosi visit. I guess the real question for our CNBC viewers is that Taiwan is pivotal to chips and circuit boards here in the United States. And you saw last week, President Biden using the Defense Act to try and lower some of these obstacles to chip production and try to make sure that no matter what happens with China, that the U.S.

military has what it needs. So within that context, what do you think, Dennis? Are we looking at a situation here where we have to throw all of the eggs into the Taiwan basket because of how important they are to our own national defense? Contessa, I think it's going to be at least four years before the United States can regain as much of the chip production, particularly the five nano chip ones that are the most valuable ones. in the near future. And so my concern is that if China is really going to put pressure on Taiwan, they're going to want to do it over the next two to three to four years.

Because as you know, there are, I think, six chip plants being built now in the United States and maybe more on the horizon. But those are multi, multi-billion dollar things that take a long time to put together. So, Xi Jinping, since he got his third leg on the stool now that he controls China, in my opinion, more than Mao. What's happening is, is he knows he's on a short string in which Taiwan can still put economic pressure on the United States. Michael, let me conclude by asking you this. A former president of Taiwan is now on the mainland of China on what is being described as a non-official visit. What the hell is he doing there? Well, he is from the KMT Party, which used to fight

the communists in the civil war. That was the Kulman Tom. but it is now seen as the more pro-China, pro-do-business, get-along, avoid confrontation party, in contrast to the DPP. President Tsai is from the DPP, but she's a calm person. She's assertive at one level, but she's unlikely to make a reckless decision. However, she leaves office next year, as I mentioned after the January elections. And the frontrunner to replace her, Vice President Lai, is seen as much more assertive and much more willing to perhaps push,

maybe not the independence agenda per se, but moving in that direction. China doesn't want him to win. So China is going to try to remind voters in Taiwan of the benefits of voting for the KMT. And obviously, President Ma feels similarly. So it's a pretty fascinating dynamic, and the elections aren't that far away. January is only nine months away. Yeah, Dennis, thank you for being with us. I might add one other quick thing. President Maugh was the first president, present or passed, I think, to visit mainland China since 1949. And he was there last week, and he was talking about a peace initiative.

So clearly you've got a strong, as, you know, we just heard from Michael, competition between these two, and it'll be interesting to see where it goes. Dennis, thank you very much. Michael, thank you. We didn't even get to Ukraine. I heard you, Michael, last week on the BBC. Brilliant interview about Ukraine, among other topics. We hope maybe the next time we can get to that.

Thank you. you both very much. Thank you. Shares of Tesla falling today, even though the company reported record deliveries. Phil LeBoe joins us now. Why is that, Phil? Well, you're looking at a stock that has run up, what, 80, 85 percent over the last three to four months. So it's under some pressure here. I think largely because people are waiting for the Q1 results. We'll talk about that in a little bit, but today is also when we got Q1 results, really for almost all of the major automakers. And when you look at it, most of the deals, most of the numbers were pretty impressive. GM, Hyundai, Honda, all reporting stronger sales in the first quarter. The outlier being Toyota down 8.8%.

Not a whole lot of impact on the stocks today. As for the most part, we knew what these numbers were going to be coming into today. Now let's talk about Tesla. As you mentioned, Contessa, record deliveries for the first quarter. There you go with the auto stocks. Tesla, record deliveries for the first quarter of just over 422,000 vehicles. The consensus ranges between 421 and 432, so roughly speaking in line there, though it was short of the facts that consensus at 432, up 4% compared to the fourth quarter of last year. The big question now for Tesla, what happens with margins when they report the results on April 19th? That'll be after the bell on the 19th. The number people are looking at guys, about 20.5%. Anything above that

is going to be viewed as good news. Anything below that? It's a different story. Finally, take a look at shares of Rivian, the company reporting Q1 deliveries and production numbers today. The deliveries, just under 8,000 vehicles, that is a decline compared to the fourth quarter. That decline, guys, is one reason why CFRA put a rare strong sell on the stock. They're moving that rating down to strong sell on Rivian. There you see shares trading just over $15. What is Tesla doing on pricing, Phil, these days? They've been cutting prices, they've been putting prices back home. on what? Yep. Well, as of right now, we have not seen a price action in a while. And there's two markets you want to look at, Tyler. There's not only here, which we're focused on because we're

here, but China, brutally competitive in China in terms of the EV market. That's what people are probably more focused on because that's where you're going to see the price cuts kick in. We'll also see some of that here. But I think we're waiting for Tesla to say, okay, what can we offer from the EV tax credits when they're announced on April 18th? Then you might see them decide, do we have to raise prices, cut prices, etc. All right, Phil, thanks very much. Phil LeBoe reporting on the autos.

And coming up in the high-risk, high-reward startup world, 5% returns wouldn't usually get people excited. But in 2023, one company is helping business invest their excess cash in treasury notes. With 5% on the 6th month, who could blame them? That story is next. Plus, McDonald's stock, an all-time high as the company's corporate employees sit on pins, and needles awaiting I haven't heard that phrase in a long time.

It's a great one. Pins and needles. Awaiting potential job cuts. That's coming up on Power Lunge. 18 minutes past the hour. Let's get a tech check with Deirdre Bosa. Hi, Deirdre. Hey, Deirdre. Hey, guys. You teed it up perfectly before the break. The startup world

is supposed to be high risk, high reward, but it has certainly changed amid rising interest rates. And the kind of deals getting done has changed, too. And today, maybe in a sign of the times, a startup getting funded is not promising to change the world. It's just helping tech companies invest in boring treasuries, or maybe we should say relatively boring treasuries. Zamp Finance, it is a treasury management platform that partners with BNY Mellon to allow

companies to invest surplus cash in U.S. Treasury bills and notes, essentially acting as a corporate treasurer, letting the startup focus on what it does best is core operations. Now, here's why that's interesting. The implosion of SVB Bank was a wake-up call. Yes, startups, they need to innovate, and disrupt, but it's also now clear that they need to think about protecting their cash against bank failures and other uncertainties. So who is backing this startup? Maybe even more interesting. Zamp's latest $20 million round had participation from the CEOs of Uber and DoorDash,

as well as Marcelo Clare, a key architect of SoftBanks Vision Fund and a former executive chairman of WeWork. In other words, these are the people who have run some of the most unprofitable tech companies or funds in recent years. So kind of the poster children of high risk, high reward. The idea that the executives that ran these companies and funds during that low interest rate boom times, that they're now bullish on treasury management really underlines 2023 as the era of conservative spending and cost cutting. Meanwhile, it has another indication of the age of austerity for even the profitable mega cap tech companies.

Google also still cutting, but just around the edges. Snack bars and staplers are the latest under pressure. I don't know if you saw we have it here, Generalize those. latest article, but even staplers guys are getting cut out. Take away my coffee. Take away my desk lamp.

But leave my stapler. You will pry it from my cold dead hands, as Charlton Heston once said. Remember that movie office space where the guy's going around and he's like, but my stapler, who's got my stapler? Did you take my anything about the stapler? That's going to be it at Google, right? That if you

are cutting down on staplers, everybody's going to be searching for them. Does that, I wonder, if that's going to be a problem for team morale? Stapler. Well, you could argue that maybe the masseuses that were cut in the last round is worse for team morale. But in all seriousness, guys, I mean, that is serious. The masseuses were cut.

But in all seriousness, yes, team morale. On the other hand, though, I mean, Google has done less cuts than some of the other big tech companies. So while you may lose your stapler and your snack bar and your lunchtime masseuse, you might still have a job, right? analysts, Wall Street, often say that maybe they should be cutting more. Back to your first, back to your first topic, which was the use of T-bills as a place for cash

for corporate treasuries. And I understand it. I mean, I understand the idea that these companies are afraid that they may fall victim to a bank issue like Silicon Valley Bank. At the same time, they most certainly have fallen victim to the idea that bankers don't want to pay much on deposits at all. And so they're going out into the Treasury market where they can get 4% or more on their idle cash. That's a great point because even if you're not worried about a bank run or a bank failure, this whole episode has taught these startups. Okay, they're parking millions of dollars in most cases for seed rounds,

latest fundraising rounds in the bank. And if you're not earning anything on that, why not put it in a short-term T-bill? Right? So there was sort of this financial literacy here in the Valley that, you know, proper cash management. That's what this company does. Says you as a founder, you don't have to worry about it. Just worry on the disruption or whatever you're trying to create. Let us handle sort of the short-term investment.

So at least you're earning something. Deirdre Boza, hide your stapler. See you. Thank you, Deirdre. Thank you, Deirdre. All right, still to come, tech not the only sector being forced to cut costs and take staplers. Reports that McDonald's is temporarily showing its U.S. offices. as it prepares for layoffs.

That's not just a statement. You can't go to the office. What we know is next. Plus, caffeine-free and waste-free. Clearly, I'm not caffeine-free today. A war in the coffee space to reduce the amount of plastic pods in landfills. I'm all for it. It's a good thing.

Yeah. That's today's clean start. We'll be right back. Bond yields lower on this first trading day of April, following one of the wildest quarters for bonds in the long career, I'm told. I haven't been tracking it as closely. as you have. Been working since he was six years old.

Why don't you tell me how this factors into your long career? Hey, I've been watching bombs since Jimmy Carter was still president. I remember the handoff with the hostages when Ronald Reagan was elected. So I go back a bit. And as you look at an intraday of two-year note yields and look at it 10 o'clock Easter, you see the way rates drop? Well, that was because ISM was weak. 46.3.

Week is since May of 2020. But here's the point. Open that chart up. Let's go all the way back to the end of February. And what's fascinating here is that since the end of February, you can see the high and low for the month. The difference between the high-heeled low-close is 130 basis points. I have never seen a month that I can remember that had a closing range of 130 basis points.

Now, Paul, Paul, you can't be on. on the phone we need to talk. All right. Eric, Paul Aronson. Paul, thank you for joining me today. This is a simple question. I look at what's going on and outside of the S&Ps of NASDAQ today,

blur your eyes. Today it's the Dow. But for the most part, the three indices have been doing rather well. Would you agree? Yeah, it seems like we shook off the regional bank scares from a few weeks ago. And... Listen, we've shaken so much off Elvis Presley would be pleased with the markets.

My point is, most people I talk to, say a recession's coming, but you don't seem to agree, and many people here don't seem to agree. Markets have definitely rallied, but I still think we're very data-driven right now. The Fed still keeps talking about the data, and down here we're seeing a ton of interest in the April 10th expiry, which, because of the holiday, is the first expiration that captures the non-farmes report on Friday. Now, I'm sure you saw weak ISM today. Price is paid under 50. You know, if you blur your eyes and take out COVID, But these are some of the lowest ISM headline numbers that we've had since 2009. I guess in the final analysis, can traders dance between the raindrops?

If we're going to have a recession but yet they're long, what's going to be the trigger for them? Well, we had the reflexive rally today with the treasuries ticked up with the ISM. Stocks ticked up. We're sold back off the highs from today. And I think they're going to wait and see what happens. The momentum's higher, but we get a jobs number that throws people for a loop. One number. One number.

One number. Contessa, one number can make so much difference. It's really quite unbelievable. Everybody better tune in Friday morning. I'll be here for that jobs report. Tyler, Contessa, back to you. Now I'm just setting the alarm. I want to see the traders dancing in between the raindrops.

That's going to be some great television. Rick Santelli, thank you so much. Let's get to Morgan Brennan now for CNBC News Update. I'm Morgan. Hey, Contessa, I'm Morgan Brennan, and this is your CNBC News update at this hour. Russian authorities have accused Ukrainian intelligence agencies for a St. Petersburg bombing that killed Russian military blogger Vladlin Tatarski on Sunday. The blast wounded more than 30 other people. Investigators say the bomb was hidden in a statuette given to Tatarsky shortly before the explosion. One person has been arrested in the bombing.

Malaysia's parliament approved a bill to end mandatory death penalty sentences. That could give reprieve to many of the more than 1,300 prisoners currently on death row. Under the new law, courts can now give prison sentences of 30 to 40 years for crimes that didn't result in a fatality. And, au revoir. Parisians have voted to ban four higher electric scooters from their streets, and overwhelming 89% of voters supported the measure. Many residents have cited frequent accidents and dangerous clutter on the streets for their resentment towards the scooters. The wheeled devices will disappear once current contracts expire. at the end of August.

Guys back over the day. I concur. I was reading about this over the weekend, and they've had hundreds of deaths on these things over the past couple of years. 21 million rides last year on those scooters. And they just dumped them, apparently. They dumped them when they're done. It's not good.

Well, the clock is ticking now. Apparently, they're going to be leaving those beautiful city streets of Paris in the next couple of months. No more le scut. Abiento. Abiento, le scoot. Morgan, we'll see it four. Okay. Thanks. Sounds good.

All right. Ahead on Power Lunch. We're going to be eating Power Lunch right up until 4. Markets higher. The Dow more than 200 points. Mega Cap Tech, the biggest contributors to the S&P's recent climb. Are the Bulls right? Should you bet on growth again?

We will be right back. Welcome back to Power Lunch, everybody. A split decision on the markets today. The Dow gaining, thanks to energy. But the NASDAQ, which had been the leader, is down nearly 1%. Let's get to Bob Pazani at the New York Stock Exchange. Hi, Bob. Well, we're starting the second quarter, and people who were anticipating some kind of modest sell-off, given the huge move in tech stocks are a little disappointed this day.

Although if you're bullish, you're going to be very happy. NVIDIA, after a 90% move up, you'd see some profit taking in the second quarter not happening. Microns down fraction, but Apple's been flatlining all day. That's pretty remarkable, given the moves, and Microsoft also only down 1%. Instead, what's under a little pressure is some of the discretionary stuff. Now, Tesla's in the discretionary group. That's a stock-specific story, but travel stocks have been weak all throughout the day because of the move up and energy that we saw, thanks to OPEC,

so Carnival, Royal Caribbean, Expedia, and the airlines like United and American, also to the downside. We have, though, saw some very nice moves up in some of the cyclical names last week. That is continuing a little bit. So Caterpillars had a nice little run. and GM generally have done very well recently. GM's down today. And some of the consumer names have done well. Last week has a good week for Coca-Cola and Procter & Gamble down otherwise prior to that. Home Depot also had a good week. And that trend is continuing. So that's given the bulls some

hopes of broadening out. Finally, the big movers today, of course, energy stocks. Exxon Mobile is only about 3% from a new high. So we'll keep an eye on that. But not a lot of big breakouts, Marathon Petroleum, one stock that is at a 52-week high. Guys, back to you. Sonny, thank you very much. Our next guest recommends staying fully invested, saying now is actually might be a good time to buy growth. Let's bring in Mike Bailey, Director of Research with FBB Capital Partners. Mike, it's good to see you today. What strategy are you applying to your market investments at this stage? So you're absolutely right. We do want to be fully invested. I think that's point one. I think a lot of investors either get scared or panic, et cetera, when you see these big,

big swings and want to consider market timing, that's not us. I think you do want to be consistently invested. So that's where we are. I think maybe a deeper question is, okay, you're fully invested, you're in markets. How are you going to play that? Are you going to keep writing some of the growth trade that's been working? Do you want to diversify it, you know, just in case that starts to slow down. It's a couple different angles. Generally, we are at this point splitting things sort of right down the middle. You do want to own some growth and some tech. However, what if there's a recession? Would if things slow down again? You want to make sure you've got some defenses in there to offset that.

Okay, so you've got Johnson and Johnson as your pick for defensive. You've got PNC Financial in the bank sector, which I don't know if you would get pushed back from that, considering what's been happening in the bank situation. And Infinion, which is sort of a, what is it, cyclical semis? Tell me what kind of overall strategy fits all three of those? Absolutely. So questions, you know, what's going on here? What sort of ties all these three together?

Really, it would be sort of durable growth, and really we do like to see a reasonable valuation. So we start at the top Johnson Johnson. It's a good business. It's almost the opposite of the bi-tech trade we've seen. So tech's been going up. Kind of boring defensive companies like Jane J and J. Really taking a hit. Company, nothing's really going on with it.

Valuations looks really attractive. So that's something you can own in defensive. Let's continue to diversify. You probably want to own some cyclicals. Regional banks definitely getting beaten up for sure. I think something like a super regional, in particular, of PNC is pretty compelling. If you like dividends, it's pushing a 5% dividend yield. I think that pays for you to wait a little bit for somebody's problems to roll off. And then last piece, again, that diversified

idea, you want to own some tech. So in Féon, a little bit off sort of the front burner for most investors, foreign company. So it is cyclical. The semiconductors are selling. However, there's a long-term growth theme, which is really power semiconductors. So think EVs, think electrification, think renewables. a lot of that, there's a slow burn that's really going to help companies like that, such as Infiniot. So those are the things, companies we like at this point. Elaborate, Mike, if you wouldn't mind about Johnson and Johnson, which for many, many years, was the bluest of blue chips. They have the talc litigation that is ongoing. They have other litigation that is not insignificant.

Talk me through that and whether this company still retains the blue chip status that it has always had or whether it is in some sense, a highly tarnished blue chip. Absolutely. No, so it is certainly a challenge for the company. And when you get into litigation for some of these big caps can go in a lot of different directions. I think as we look at the company, I followed it for a long time. I used to be a health care investor. Really, they've gone through ups and downs here with litigation.

I think the area that we would focus on is, frankly, cash flows. So if there is some worse than expected litigation that Jane J has to pay for, unfortunately, they may not be doing as many buybacks or dividends, but they can really kind of point that over towards funding some type of settlements. I think that's probably unlikely that you're going to see some type of litigation. It's so massive. It would throw off capital allocation, but it is a risk. I do think, though, a lot of that litigation is linked to the consumer business. Jane J&J is spinning it off. Certainly there could be some ongoing litigation there, but I think at a minimum, some of that management distraction moves away and the core kind of drug and

device business continues to grow at JNJ. J. All right, Mike, thank you for the explanation. We appreciate it. Mike Bailey, thanks. next. Coffee cleanup. Nearly 25 billion coffee pods used annually may wind up in landfill. We will take a look at one company working to create a biodegradable solution. Clean start is next. Well, if you love coffee, you probably like at least coffee pods because they're easier, faster and less messy. I hate that messiness. But they're not cleaner, not when it comes to the planet. Diana Oleg has more in her continuing series on climate. startups. Hi, Dai. Hi, Ty. Yeah, Americans alone use roughly 25 billion coffee pods for year,

and the single serve market just continues to grow. Now, some companies do offer recycling programs, like, I send my pods back every month, but not everyone does that, and not everything gets recycled. Now, one startup is saying, don't recycle. Just trash the pod. The single serve coffee market has grown by 40% in just the last five years, and it keeps going. Names like Nispresso and Kyrig lead the pack of competitors. But a startup called Brewy is distinguishing itself as a clean coffee. With a pod that the company claims degrades in landfills far faster than plastics because it's infused with a bioenzyme. That enables the pods to simply be thrown in the trash.

And when they end up in a landfill, they start to degrade. And they degrade in a handful of years instead of, you know, the usual 500 or 1,000. years. And he says they leave no microplastics behind. While Nispresso and Kyrig offer recycling programs and others like Halo, Grind, and Woken use compostable pods, Elias argues his technology saves time and effort. The Bruvi system is the most energy efficient way without having to migrate human behavior and without having to build new infrastructure for composting or doing anything else. Plastic pod waste is one of the primary reasons some people don't like the single serve systems. So investors see a huge opportunity in this. This market is really big. It's $8 billion

in size growing at 10% per year, which was primarily driven by the pandemic, which caused a lot of people to start working from home and drinking coffee from home. In addition to Terpsi Capital, Bruby is backed by the Merchant Club, Platinum Mile Ventures, Maroma Ventures, Cambridge, SPU. and nine yards capital. Total funding so far, $10.8 million. Now, make no mistake, this special plastic costs more to make and that higher cost is, of course, passed on to the consumer. Bruvi pods cost about 15% more than the competition, but the company's founder claims people are willing to pay more for a greener cup. I don't know. Tyler, are you? So they are still going these pods into landfills where he said they will.

degrade in a matter of a few years as opposed to 500 years? So it doesn't help solve the landfill problem. Right. But his argument is that all U.S. municipal landfills actually have a gas capture program. That is, they can bring in these gases. And some of those landfills actually turn the methane into clean energy. So his argument is that he's contributing to clean energy, at least in some of these landfills that are turning it into clean energy, but they all do have carbon capture programs. I see. Diana, thank you. Diana Oleg. Appreciate it. Well, Big Tech is cutting costs and McDonald's announced that it's planning layoffs. The stock, though, is hitting an all-time high ahead of that announcement. Kate Rogers is covering the story for us. Hi, Kate. Hey, Contessa. McDonald's set

to inform corporate workers of layoffs coming early this week. That's according to an internal memo to U.S. employees viewed by CNBC. The memo says it's temporarily closing its offices through April 5th so that it can deliver these decisions virtually to workers. A person familiar with the situation said the number would be in the hundreds in terms of workers impacted by those layoffs. The news was first reported by the Wall Street Journal. The email we viewed states, quote, we want to ensure the comfort and confidentiality of our people during the notification period. The company declined to comment on this to CNBC. Now, in January, we reported job cuts were coming at the Golden Arches as the company sought

to refocus and accelerate restaurant expansion. CEO Chris Kempchinsky told employees at the time this was designed to innovate more quickly and efficiently. He added that certain initiatives would be halted and deprioritized, but it was not clear what those would be. At the time, Kempchinsky noted the organization was siloed, and he called that approach outdated. He also said the pace of restaurant openings needed to be accelerated to help capture some of that uptick in demand McDonald's has seen over the last few years, particularly during the pandemic. This is echoed in this most recent email here from HR executives at McDonald's, underscoring the need to, quote, shift from legacy mindsets to new behaviors. As you mentioned, investors seem to like the news.

The stock has been trading at all-time highs today. Back over to you. All right. So let me ask you here, Kate, when we're talking about keeping workers at home ahead of layoffs, we were talking internally at CNBC today about the fact that often bosses want their people to come in and deliver the bad news so that there's sort of a kid-grimps. love touch to, hey, we know that this is rough and here's the resources that are available to you. Are you getting the sense that McDonald's is intentionally choosing a different strategy?

Yeah, certainly, it seems different than what we've seen. I think part of the reason this is remote, it's due to a busy week for travel, was one of the things that was noted in that memo, but also to respect the privacy of workers and not have it done in person here. I think it's important to note here, too. It seems to be somewhat different than what we've seen in terms of correcting some overhiring that's been done during the pandemic at some of these big tech companies. The U.S. business for McDonald's run by mostly franchisees has been very, very strong. Analysts really kind of like this name heading into a potential downturn here. And this is going to impact hundreds of workers as they kind of refocus and remove some of those silos

to expand in a more thoughtful way, it seems. All right. Kate Rogers, thanks for the reporting. Energy stocks leading the S&P after the surprise production cut will hit one of the movers in today's Three-stock lunch. Well, let's get to the three-stock lunch already. Take a look at some of the movers. Energy stocks in focus after OPEC Plus announced a surprise production cut. Chevron up 4% General Electric, also surging to a new five-year high today.

And Macy's popping after JP Morgan upgraded the company to buy from hold for the first time since 2015. Here to help us trade them all as Eva Ados, Chief Operations Officer at ER shares. Great to see you, Ava. Spill the details here on Chevron. Chevron is a buy, especially since OPEC cut production. This is helping oil stocks. And I like Chevron because they're well positioned with a European oil crisis. In fact, with their unique pipeline in Europe. And so I like their margins. They're at 15% compared to 10% for their peers. They have one third of the debt of their peers so they're not over levered. And I also like their revenue growth, which is at 52%. They've made progress in both the revenue growth

margins and their EBITDA. And so I think it's a good stock to own in this market. But underperforming its peers recently. It is. And I think that's also a good point here, because since they have been underperforming for a long time, I think it's good time for a reversal here, and we might see this coming. Well, let's move on to General Electric, which has had, of quite a nice run lately. Is it time to take profits? I think so, yes, so it's a sell. We need to recognize that this was the most valuable company back in 2000. And when Jack Walsh was running it, there was no better example of innovation and corporate growth.

But when he left, the company became bureaucratic and it's really hard to reverse their culture now. And so, in fact, their sales, their revenues are at the same level. They were 26 years ago. I think the trend is clear. I don't see things changing here. And since the stock appreciated by 50% since October, I think it's not a bad time to consider taking profits off the table. All right.

Our final name here is Macy's. What do you think about the big retailer? That's also a sell. Both of these companies were much better picks years ago. So I'm concerned with this category in general because for more than a decade, we have seen these big box retailers struggle since we have e-commerce now. And I don't see the trend changing. In fact, when it comes to Macy's, the stock price is at the same level.

It was back in 97. So you have to go back again 26 years to get the same stock level. And the revenues are at the same level they were in 2007. I don't think things will change here. So that's not a good buy for me either. Although I do recognize that the stock will oscillate. So it could be a short-term buy and provide some short-term returns. I don't like it for the long term, though.

Got it. Coming up on closing bell, Matt Boss, the JPMorgan analyst behind that call on Macy's, will be here on CNBC, so you won't want to miss that. Ava Ados, thank you so much for sharing your perspective with us. Clear, declarative sell by. Very simple. Right on it. Love it. All right. Coming up, will U.S. energy production levels ever hit pre-pandemic levels again? We will take a look under the Microsoft. Max. Oil's a big jump. It is the story of the story of the... the day, apart from the staplers being taken away from people at Google. Up 6% on OPEC surprise

production cuts. Dominic Chu is putting U.S. production under the microscope. You still have your stapler, right? The question is, is it a Boston or a swing line? A swing line? Yeah, I'm more of a swing line kind of guy. But the Boston had that nice heft to it. So with the oil price story being very bunch of focus today, what we wanted to show you was U.S. production. Now, we can measure it in millions of barrels, you know, over the course of a year. And, that sort of thing. But one of the other ways that we used to do it back in the day was through the weekly rig counts. Remember when we used to track those things?

Baker Hughes, which is a big oil services company. Sullivan used to do it. Come on. Every one o'clock on Fridays, right? That was when it got released. It was a big deal. And we've kind of let it go a little by the wayside. But given the fact that production is going to be in focus with oil prices right now,

we wanted to show you and viewers the context of where we currently stand with active U.S. rigs. that's a proxy for how much activity is going on for drilling and whatnot exploration and production in America. You can kind of see where we are right now. It's tailed off a little bit, and we are certainly not back to where we were pre-pandemic in 2019 and 2020. And what's a concern right now is are we going to keep on that kind of roll over trajectory lower if oil prices were to go lower? This is obviously also a proxy for not just the shale drillers out there, but everybody in general.

What I want to also tell you is if you take a look at a 10-year chart, oil prices, so take a look going back to like 2013, 2014. A lot of viewers might remember that back then oil was already in those dollars, over $100 per barrel, as you can kind of see there back in 2010. You see the sharp drop-off between 2014 going down towards 2050, right? That's where the rig count fell off. Well, that was significant because in the fall of 2014, we had it at one point over 1,600, active U.S. oil rigs, not even counting net gas, just oil rigs in this country.

And when oil prices kind of bottomed out in the early part of 2016 and around $25 to $28 a barrel for U.S. benchmark WTI crude, you saw those rig counts fall precipitously. It's funny. You've just answered the question I had looking at that prior graph. If you took that back another five years, what would you see in terms of rig counts? They'd still be ramping up. But again, we hit a peak for oil around north of 1600. It was something that Halima Croft brought up in the last hour on the exchange.

Oil companies and producers want to avoid kind of what they saw back in 2014 to 16, when we saw oil drop by 75% of its value. And then what do you do with production there? So there's a little bit of caution, I think, right now, in the oil business with regard to drill. I think, you know, every time you go under the microscope, I learned something. Thank you, Tom. Fantastic. Thank you.

Thank you for watching Power Lunch.