Power Lunch - Picture-Perfect Ending To 2023? 12/22/23

Episode Date: December 22, 2023

Stocks are holding onto gains today, with the major averages on pace for an 8th-straight positive week.Can the Santa Claus rally keep up momentum through the end of the year? We’ll debate, and give you some top picks for 2024 too. 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. I'm Dominic Chu. Stocks are holding on a gains right now for both the day and for the week. This will be the eighth straight up week for the major averages. As you can see, there, we're kind of flirting with some moves, fractionally higher. This is a streak which dates back to the end of October. The averages up at least 15% over the course of that span. The Dow overcoming a huge drop in shares of Nike today, the company cutting its sales forecast, blaming cautious consumer spending, among other. things. It's also outlining cost-cutting measures to the tune of $2 billion over the next few years. Nike's troubles are having an impact on its customers and competitors as well. Check out Foot Locker, Under Armour, among some of the names sliding in sympathy with that Nike trade. And a big pharma deal as well. Bristol Myers is buying Karuna Therapeutics for $14 billion. That deal gives Bristol access to Karuna's experimental drug to treat schizophrenia. Now, we start with the market rally today. Stocks are higher. And on page, for back-to-back monthly gains with the S&P on track for its best quarter since the fourth quarter of

2020. So can the good times keep rolling into 2024? Ron Insana is a CNBC senior analyst and commentator. He's also the chief market strategist at Dynasty Financial Partners. And Mike Bailey is Director of Research at FBB Capital Partners. Thank you both for being here with us. Ron. Let's start with the bigger picture right now. This market rally was one that maybe some people expect because there are quote unquote seasonal factors at the end of every year that make it kind of a positive time for the markets. But a lot of people didn't call the massive rally that we saw for the balance of 2023. What gives and can it hold? Fed's done. Period. And that's the reason why. That's it. I mean, I can't identify any other reason. It's not like they're, you know,

raising guidance on earnings in such a dramatic fashion that, you know, you're going to see the market rip on that basis or that there's any other thing going, you know, aside from the economy, not falling into recession and the economy not falling out of bed. Really underlying this, Dom, I think, and I wrote about this on CNBC.com today, all the measures of inflation are moving towards the Fed's target far faster than anyone had anticipated. You take today's core PCE over the last six months it's annualizing at a 1.9% rate. What else do you need? So everybody knows the Fed's done.

Everybody believes the Fed cuts next year. And so that's reason enough to rally. All right. So the market rally predicated in large part by what's happening with the Fed. Mike, this is a scenario now where if you're an investor and you say to yourself, I saw huge gains over the course of 2023, I don't feel as comfortable putting money to work, though. But sometimes the momentum keeps on going. Do you feel as though this is one of those scenarios that Ron just laid out where the Fed is done and it's an all clear sign for the markets overall? I think directionally, yes. I think in general, everything that Ron said, I tend to agree with. inflation is coming down. That's good. Markets like that. The Fed is kind of being investor-friendly,

saying there's a pivot coming, an investor favor that. So the question is, what happens next year? Is this going to be significant momentum? Are we going to see a repeat? You know, our Magnuson 7 stock's going to do the exact same thing again? That seems a little bit unlikely. You see that this massive outperformance from some of the tech tightens out there. However, if we just try to put these pieces together, you know, what's happening? Macros look pretty good. The Fed is cooperating. people have jobs. They're out there. They're still spending. If you look at stocks and look at the expensive or cheap, they're just a little bit expensive. It's not terrible. So that's a pretty good setup. I think we put all those things together. If you're a long-term investor, I think you stick

with markets. There's, you know, a good, good odds of another good result next year. Maybe not quite the massive bull market you've seen in 23, but I think there's enough positive things out there to keep folks in the game for next year. You know, it's interesting because, Ron, we're putting that kind of chart up there for the CNBC Magnificent Seven, those mega-cap tech media, telecom-type names that have driven the bulk of this rally. This is one of those scenarios over the course of the last year where people have talked about a broadening out of the rally, that more than just those magnificent seven stocks are outperforming.

It's been very evident in just the last three to four weeks where we've seen the equal-weight S&P 500 really rally to try to value. And the Russell 2000s. Right, and the Russell 2000. So my question is this. If it now becomes a scenario where it's healthier because it's broadening, what parts actually lead the way besides that technology trade. So I'm not going to worry too much about leadership because I think at the end of the day,

for most people, it's still an S&P play, right? And a lot of people worry about concentrating. We're just actually talking about this as Dynasty this morning. A lot of people have worried about the concentration of the Magnificent Seven. They're waiting within the S&P. Much unlike oil stocks in 1980 or even tech stocks in 1999, these are companies that are dominant in their position, cash-rich, probably won't be unseeded from what they're doing in their dominant role,

effectively underwriting artificial intelligence, right? So I worry a lot less about that. I worry a lot less about leadership. You're getting a breath thrust, which whether it was Ned Davis or Marty's Wag, they both talked about that over the course of market history. And so, like, you can play the indexes, and I think not worry all that much about,

let's say, the Magnificent Seven being a source of funds, as opposed to the five to seven or $8 trillion that's on the sidelines coming in and buying the market. So I think, you know, I don't get too caught up. in that stuff, particularly because these companies, while they could have a hiccup, seem in many ways, Dom, to me, less vulnerable than, like, oil companies, which are commodity price-driven, versus these guys, which are sitting on massive piles of cash. The cash generation part, I think, Mike, is a huge part of this, because a lot of companies

have been focused on by investors for their ability to generate free cash flow, be self-sustaining, not rely so much on capital markets. When you take a look at some of the stocks that you cover, the ones that you look at that go in a shopping list, what stands out to you and what types of companies are ones that you would key on for abilities to maybe get outperformance in 2024, Mike? Absolutely. So as we sort of parse through the index, look forward to potential winners and losers, in general, some of the things that we like to see are, you know, can companies exceed investor expectations quarter after quarter? That does mean a lot of beating and raising. So when you do that, that changes investor expectations.

A lot of times that can increase evaluation. We're seeing that. We are seeing that with a A lot of the companies in the Magnificent Seven. Amazon's very interesting. They've had a lot of ups and downs, but there's just this massive kind of improvement coming in the e-commerce piece. There's a long way, there's a long runway there. So that's a look, it's pretty interesting. There are other companies, Apple, for example,

is doing pretty well, just not seeing those significant increases in quarterly results that are outsized in terms of relative expectations. So there's a mixed bag there, but in general, I would agree with you. There are a lot of massive cash generation going on in these big companies. they're not relying on some commodity input. They've got big barriers to entry. So I think they'll continue to grow. The question is, are they going to grow fast enough to match investor expectations,

which keep ratcheting higher? Ron, yes, sir. What types of companies, stocks, sectors, industries, do you think are the most compelling stories for 2024, for better or worse? I think what's interesting, what's happening here is despite the fact that everybody thinks we're late cycle, early cycle stocks are doing very, very well, right? So having, and again, I'm not touting this because it doesn't really, it's not available on Amazon, but a book that I wrote in 2000 called The Message of the Markets, right?

Instead of trying to impose my view on what's going on, I'd rather let the market tell me what's happening. So consumer discretionary has done quite well. You're starting to get a little bit under some banks, even though commercial real estate exposure next year may very well be an issue. And I think the market's going to tell us where the gains are going to come from. And they're already starting to hint at that, that the market's looking a little more early cycle than late cycle. which is counterintuitive given where we are. But if the Fed is indeed cutting next year, as many of us expect, then you'll start to see that play out in the typical more early cycle stocks than the late cycle stocks.

And so one other note, I don't know if we'll have time later, just on the inflation item, PNC puts out the 12 days of Christmas basket. And how much it is. It's up 2.7% this year versus 10.5% last year. So everything's kind of moving in the market's favor. That's not to say we're not going to have a pullback. It's not to say we won't have a mild recession. or anything like that out there in 2024.

I just think that we're getting more tailwinds than we are getting headwinds now. Fourth year of a presidential cycle is also second best year in the period. So kind of got to play the odds there. All right. Gentlemen, Ron Insana, Mike Bailey, thank you both very much.

I wish you both a happy holiday season. All right. Now let's get a quick check out to Rick Santelli in Chicago for the latest on the bond market reaction to this morning's big economic data that we just mentioned. Right now, Rick, it's interesting only because that PCE data to Ron's point.

is just another data point that shows that things are slowing down. Is the market our traders cheering the moves there, and what can we expect in the coming weeks? Well, I think just look at equities. Right now you have one equity, the Dow moving in the negative territory, the other two are not on their best levels. The yield curve is mixed with short maturity yields a little bit lower

and long maturity yields a little bit higher. That mixed package is telling you the truth. People could annualize these short-term three-month and six-month on the monthly yields or the monthly rates on some of these inflation numbers. But nobody knows whether inflation is going to be linear, Dom. And 3.2 percent on core, PCE year-over-year. I'm sorry, it still has a three-handle. The Fed's objective is two. So what we could roarshack this any way you want.

The markets have an opinion, and the opinion is mixed. If you look at a two-day-of-toos, something should jump out at you. we're inside yesterday's session. Okay, but if you look at two-year-on-the-week, two-year-on-the-week is down about 13 basis points as we trade. But look at tens. Tens have a higher high than yesterday, so it's not an inside day.

And if you look at the week, you could clearly see that on the week right now, 10-year yields are down only two basis points. So we want to pay attention to the long end. The long end's going to get a whole lot stickier. The short end, of course, is moving with the Fed, and it's already had a rather big move. We don't talk about the dollar index enough. Right now, if you look at a year-to-day chart, we're down 2% on the year, and we're closer to the lows than anything else.

And maybe what's most important is, once again, that chart looks a lot like the interest rate charts as we're on pacing the dollar index for the lowest close in five months. Back to you. All right, Rick Santelli out in Chicago with the latest on the bond market action right now. Happy holidays, sir. switching gears now to Nike. That's on track to have its worst day in 26 years. 26 years. Its shares are plunging right now 11% plus in the session. The worst performer in both the Dow Industrials and the S&P 500 on disappointing second quarter earnings and lower fiscal full year guidance. It's dragging down other athletic focus stocks and sympathy. But our next

guest remains bullish saying that Nike's size and its scale gives it a competitive edge over its peers in the long run and expects investors to buy it on weakness. So joining me now for more on that story is Simeon Segal, senior retail and e-commerce analyst at BMO Capital Markets. Simeon, this is a big deal. I mean, this is a Dow component. It's Nike. It's one of the biggest brand names in the world. And it's just shed over 10% of its value in one day. Why should investors buy the dip? Good to see, Dom. That sounds very, very grinchish. So listen, I think everything you just said is fact, but what's interesting is if you draw that stock chart out a month, you'll see we're flat. And so I think we should not ignore the fact that right now what Nike has done, and to be

fair, the market and my group in general is up a lot. But to think that we're down the most in 26 years, but we're also flat to three weeks ago, I think is an important point of context. And so what I thought was really interesting last night, listen, I get the stock being down today that we should not ignore that. But what I thought was interesting, I think there's three store, three distinctions we have to make. I think we have to make the distinction between what they actually did last quarter versus what they guided to. Last quarter was, the quarter they reported was great. Where they guided is what's taking the fear, what's taking the shares down. I think the second thing we have to do is revenues versus profits. And this is a big conversation because Nike

historically has been, let's grow, let's grow, let's grow. The revenues are the disappointing point people are talking about. Operating profit dollars was up 15%. That is a big number, especially for a company with Nike size. They're making more money. So I think that's number two. And then number three goes back to kind of all the points before this, the segment right before. It's the change in multiple versus the change in numbers here, I think is worth putting into context. And so asking our question saying the stock has run a lot, it's now given you a little bit of a breather room because they're telling you things are going to be more concerning go forward, which is Nike's part for the course. And now we have to just recalibrate and say, okay, where do we go from here?

I think from here we go up. Speaking of recalibrate, that's what Nike is doing or that's what it says it's going to, do in the coming years with its cost structure. They've announced restructurings that are trying to save about $2 billion worth of cost over the next few years. Take us through what exactly that plays out like in your models and why would Nike take these steps if in the longer term they still feels as though that growth picture is intact? Or is there now a recalibration of what the street should expect for Nike's growth prospects given they're acknowledging their costs are maybe a little bit more aggressive than what they thought they should be? So the answer to that's probably

yes on all fronts. It's not normal that you hear of a $2 billion cost cut that in the same sentence they say, but we're looking to reinvest those savings into fuel growth. So normally, this is a very different restructuring. Normally restructurings are we have a problem, we need to fix it, let's do that, and then we'll go from there. This one sounded like, to your point, we need to just move things around so that we can take those dollars and allocate them to growth. But I think your question makes a lot of sense, whether that's the right thing, whether whenever you do a restructuring, unfortunately, this is obviously going to involve people. And so when you're restructuring people, when you're restructuring lives, does it

make sense to immediately flip those dollars around and grow? Or should you analyze why we are where we got here? You and I have had this conversation around this D to C. I mean, my team published the report D2C is not all it's cracked up to be. And we believe that. I think we're seeing it. I think the same way that I just said, there's a distinction between revenue and profit. And now finally, Nike, we're seeing maybe the revenue falter a little bit and the profits are exploding in a good way. That wasn't the case last year. Last year, when we saw these huge revenue beats, sometimes they were followed by dollar declines when it came to the profits. And so I'm hoping that this restructuring is an acknowledgement that we need to drive this business in a healthy way.

And so we do need to move some things around. They believe, there is no question they believe they are still a growth business, even at this revenue scale. But generally, that does take some time. What I think, as I get comforted for the stock, ultimately the stock numbers have to be driven by the bottom line. Nike doesn't trade on a revenue on multiple. It trades on profitability. And so what you and I need to see is we need to see that for those profit dollars going up. And I think that's where we're going based on what we saw last night. Let's look ahead to 2024. There are perhaps fundamental catalysts on the horizon in the coming year for it. Some folks have talked about the emphasis on pro sports. Some people have said it's an Olympic year that could

drive some interest and some marketing surge on that. What exactly do you think is the positive catalyst to watch in 2024? Yeah, so when it comes to the top line focus, listen, the beauty of Nike is there's always going to be pro sports. So we have cycles, whether it's Olympics or not. And so when you happen to catch one, if there's enough marketing behind it and you have the right newness, then you're going to win because no one can compete with their size and scale of that marketing budget. But the newer newness there is very important. Nike needs to be selling product that's compelling and they sound very excited about what they have coming up. And so I think that that's from the top line

and that's what we owe that that's hopefully what these catalysts will drive. What I'm more excited about personally is this focus on profitability because that's a catalyst you can control. And so forcing someone, convincing someone, persuading someone to buy your product is very hard and they're very, very good at it. Being able to look inward and say, okay, every dollar that I'm going to drive, I'm going to make sure that I make money, more money on that. That is a very under your control lever that you can believe in and you can take to the bank in a much more seamless way. All right. Simeon Siegel, BMO Capital Markis with a take on Nike.

Thank you very much. Happy holidays, sir. See you as well. Good to see you. All right, good to see you. Coming up on the show, the trickle-down effect from the attacks on ships in the Red Sea, the bottom line, it's going to cost you more money eventually. Plus, major technology firms are making big cutsbacks to their spending on diversity, equity,

and inclusion initiatives, and which holiday movie. is one on your must watch this this weekend. I'll give you my pick later on, but all that's coming up later on in the show. Welcome back to power lunch attacks by Iran-backed Houthi militants on ships in the Red Sea are continuing to wreak havoc on global trade. Hundreds of large vessels are now rerouting around the southern tip of Africa, adding 10 to 15 days onto their journeys from places like southern China. Those attacks are driving up fuel costs, shipping costs, logistics managers, now being quick. quoted with freight rates of $10,000 per 40-foot container from Shanghai to the UK,

whereas last week that same cost was $2,400 to $10,000. For more, we're now joined by Paul Brazier, the vice president of Dreyage and Intermotal at ITS Logistics. Paul, thank you very much for being here. Dreyage and intermodal, that's trucks and stuff that's all besides trucks, shipping containers all over the place. What is the view right now about just how impactful these attacks in the Red Sea could be to upsetting the entire global supply chain? Are we due to have another COVID supply shock like we did over the last couple of years?

Well, it will be problematic, Dom. Right now you're seeing and reporting on the spot market rates increasing for the freight that's being rerouted from Asia, to the U.S. via the Suez. That spot market pricing you're reporting on now will be impactful, but you're also going to see charges that'll be passed on to the shippers and ultimately a consumer as soon as force majeure provisions in these contracts get triggered. So the additional cost to move these under contract will go up and to avoid the distance that someone's going to have to go via the Cape of Good Hope.

You have a lot of shippers now that are utilizing trans-Pacific routes from Asia to the U.S. West Coast, and those all have to float under the spot market. And those rates in 2023 under contract were $1,200 to $1,200. And as recent as 48 hours ago, those have gone up to almost $3,000. hours. Paul, I'm glad that you brought that up because that's one of the big questions that I had. It seemed, you know, maybe intuitive for a layperson like myself, that if you're trying to ship goods from Asia to the U.S., say, for example, that you don't necessarily have to go through the Indian Ocean, the Atlantic Ocean, through the Suez, the Mediterranean, you could just

go across the Pacific. Distance-wise, logistics-wise, and everything else, is that the better way to go if you're doing something intermodal, right? where the containers go from China across by boat to the Pacific, but then they're going to the West Coast ports as opposed to the East Coast ports. Take us through what all that looks like economically. So those are going to have to be booked in the spot market. So you're going to see rates increase drastically as more freight gets moved over into those trade lanes. Now, once that freight does get to the U.S. West Coast, it's going to have to then,

either be moved inland via truck or rail further east or the locations in the greater port region that they come into. 2023 underutilized all of the West Coast. So there's a lot of underutilized equipment and operations that could see a huge swell in volume and demand. And that could cause what we saw post-pandemic, just from congestion, additional fees, charges, and et cetera. So that inflationary pressure on just the ocean rates is going to be there. You will have inflationary pressure if a lot of freight comes over in a huge wave going into the U.S.

West Coast and having almost this group think situation where almost two. Two weeks worth of freight comes in all at once. Now we're having to scramble to get that moved inland. And we're advising our clients to not join that train wreck, right, get ahead of it, and find some other routes via the Gulf of Mexico, Panama Canal, and the East Coast to make sure that they don't join any huge congestion issues that we might see. Paul, Paul, before we let you go, within the industry, the conversations that you have, I'm just looking for a sentiment or feel, do you feel as though, or people in the industry feel as though if a so-called task force were created internationally to try to protect some of these vessels through the Red Sea and the Gulf of Aden? Is there any sense that there's even a chance that that could work, that they could kind of make these things safer to go through those channels?

or is this all something where you have to really just re-root now and hope for the best later on down the line? Yeah, you have to reroute. As logistics professionals, we have to, you know, hope for the best, plan for the worst, and hoping that, you know, government entities are going to create safe passage isn't the best to keep goods flowing. So our advice to our clients is to utilize, routes trans-Pacific from Asia to the U.S., and then make sure that you're hedging where you're entering the U.S. and not putting all your eggs in one basket. And hopefully this does not go that long into the future, because the longer this goes, the more potential we're going to see

for these per-container rates to spike even further. And more importantly, going into 2024, we're under contract season right now with ocean carriers and shippers. And this is going to have a long term effect on inflationary pressure, on container costs, because your inking deals now with all this uncertainty in the market. And now we're going to be seeing this stretch into 24, early 25. All right, Paul Brazier with the latest there on what's happening with the Red Sea. Thank you very much. Happy holidays, sir. Same to you, Da. Thank you. All right. Ahead on power launch is a game over. China announcing new rules possibly to curb spending on video game platforms dealing a big blow to one of the world's biggest gaming markets.

We'll get those key details coming up. Power Lunch is back in two. Welcome back. The White House this morning releasing long-anticipated guidance for tax credits tied to the emerging hydrogen industry. Pippa Stevens is here with those details now. This is a big deal because it could be a lot of money for companies that could really depend on it. Yeah, we're talking about $100 billion in credits here. And this guidance is very much delayed.

We started talking about it last, you know, March. And the reason why it's taken so long was because there are so many different opinions on what the green hydrogen tax credits should be because there is this sense that they'll either make or break the industry. And so what we saw from Treasury today is that they did guide in terms of the strictest environmental standards. And what we're talking about here is the electricity that's used to actually produce the hydrogen. And so the debate centered around three key things. It's additionality, regionality, and time matching. And so what Treasury said today was that it has to be, the hydrogen has to be used with, new clean power that's added to the grid, not more than three years old. It has to be in the

same region as the hydrogen facility. And it has to be matched on an annual basis up until 2028 and then an hourly basis. And it's especially that third point, the hourly basis, that some industry players say is just way too strict, way too stringent, will deter, you know, billions of dollars in funding and just will not let this industry get off the ground. That said, people on the environmental side of things have said, what's the point of having these credits, you know, if we aren't strict because otherwise the fear is that then you'll be adding so much more maybe, you know, coal or natural gas to the grid in order to make the hydrogen. So this is the proposed guidance.

There's now a 60-day comment window. We're probably here a lot, but this has been key for the industry and they've been waiting a long time to hear this. A big debate, I'm sure. All right. Thank you very much, Pippa Stevens, for that. All right, let's get out to Bertha Coombs for a CNBC News Update. Good afternoon, Bertha.

Hey, good afternoon, Dom. The Biden administration announcing today that it's reopening two key international crossings to rail traffic after shutting them down for five days. More than half a billion dollars in rail freight was halted along the Texas border as a record surge of migrants looked to cross into the U.S. Combined, El Paso and Eagle Pass account for nearly 36% of all cross-border rail traffic in the past year, according to government statistics. A Congressional Oversight Committee has launched an investigation into the military's Osprey program after the crash in Japan that killed eight members of the Air Force. Special forces virtually the entire fleet remains grounded worldwide. And Sean Penn's disaster relief charity is reportedly laying off nearly 30 people. According to a Bloomberg report, core response is cutting costs in anticipation of a $20 million deficit.

for the year ahead and told employees this month that fundraising was slow this year, citing among the reasons a business week investigation over financial management and its response to alleged sexual harassment. Meantime, Dom, I hope you have yourself a very merry Christmas, and maybe Santa will bring you one of those Patrick Mahomes golf carts. I just want one that looks like a 49ers golf cart, and I'll be just fine. At first, there you go. Merry Christmas to you as well. Thank you very much. Well, coming up on the show, pay your way, buy now, pay later is booming as more and more consumers opt for installment payment plans, even for everyday purchases.

So who's actually cashing in on the trends? We'll find out when Power Lunch returns after this. Welcome back to Power Lunch. The way we pay shifted dramatically this year, arguably over the last several years. Kate Rooney joins us now for today's tech check with the, So look at what's in store for the payment space in 2024 and specifically with that buy now pay later trend. Yeah, Dom, so that's been one of the big payment trends to watch in the New York. You've got buy now pay later, also mobile, direct bank payments. And then, of course, AI. Everybody's talking about it.

Buy now pay later, though. We'll start with that. It has seen the biggest transformation by far of the group I mentioned there. According to Adobe, it saw more than 40% pop over Thanksgiving weekend. Overall, it was up about 15% this year. These installment payments, they used to be for big ticket items, like a Peloton or a couch, for example, but as consumers start to feel a bite of higher interest rates, some of these interest-free options are becoming everyday spending tools. Some of the top categories this year for Buy Now, Now, Pay Later,

groceries, toys, and cosmetics. A firm has been the main beneficiary here. It's up more than 400% this year. Square and PayPal, as well as Apple, and the card companies also compete in this space with their own offerings. And then you've got mobile shopping, another trend that really took off this year, up 14% or so in the holiday season. It hit a new record, according to Adobe. Smartphone shopping made up more than half of all holiday sales for the first time during this holiday shopping season. Shopify and Amazon, they could be key winners for this trend. And then you've got direct bank payments. That really gained momentum. Linking directly to your checking account, it's been a win for merchants. You're increasingly seeing utility providers, especially

offering discounts for consumers that opt in. It's a way to also limit credit card interchange fees and then AI Dom, the CEO of Plaid, spoke to Zach Paray. He told me it's on the rise, but it is a trend that comes with both pros and cons. On the positive side, a lot of consumers are excited about having everything from chatbots that help them save to better tools to help them analyze their spend and decide where to put their money. On the negative side, it is a big accelerant of fraud. So fraud in financial services is at an all-time high. This is an area where we as an industry have to come together and really push on it. So both sides there.

But Dom, a big loser in the space this year has been the store credit cards. Those originations were down 17% amid higher rates. That's according to Equifax. Back to you. All right, Kate, they might have to up some of those bonuses they pay out for those store cards in the future to compete. Thank you very much. We'll see you soon. Have a happy holiday.

You too, Dom. Thanks. Coming up on the show, tech giants like Meta and Google, made deep cuts to diversity, equity and inclusion initiatives in 2023. After making very bold promises for those initiatives in the past years, we'll get the full story when Power Lunch returns after this. Welcome back over the past few years. Companies in all industries have been beefing up their spending and support for DEI, diversity, equity, and inclusion programs.

But a new article featured on CNBC.com right now says that technology companies, including Alphabet, the parent company of Google, also meta platforms have made big cuts to those DEI programs in 2023 so far. So joining us now as the author of that piece on CABC.com, Jennifer Elias, who reports on technology out in the West Coast. Jennifer, thank you very much for being here. Can you take us through what exactly is the cut,

why exactly the cuts are happening the way that they are right now and just how big in scope could they be? Right, Dom. So what we have found is that tech companies, including many of the fang companies that we know, made large commitments to underrepresented talent and third party organizations in 2020 amid the George Floyd murder. What we found this year is that a lot of them have downsized some of their commitments. They have cut DEI orgs, which means things like people who are in charge of recruiting and retaining underrepresented talent,

cutting people in those positions. and then as well as backing down from some of their sponsorship and participation in some larger tech conferences that help increase this representation in the tech industry. And so it's sort of been across the board in many different DEI respectives at these companies. And the reason they're giving is generally cost cutting, and a lot of them are sort of telling organizations

and sources that we spoke to that it's a measure of cost cutting and that they don't know when they'll get their budget back, but some have told us that they've cut their budget by as much as 90% that was designated for DEI initiatives and for increasing representation in the tech industry, which is important because that ultimately determines how products will be made at these companies and what kinds of users will be taken into account.

Now, Jennifer, 90% is steep. I mean, that's a massive amount of budget to cut. for anybody, whether it's DEI or any other unit. This all comes at a time, though, when we keep hearing about many of these tech companies and some of their enterprise business customers increasing their spending on things like artificial intelligence. So how exactly does that click reconcile,

or does it not with the spending in AI versus spending in DEI? Right. Well, that's part of the reasons that these companies and executives are actually giving some of these organizations. Some of these organizations, they're saying that DEI doesn't necessarily contribute to the bottom line, and yet they're going and investing a lot into AI, which a lot of investors and shareholders are expecting. However, this is a problem that a lot of organizations told me and sources told me, because if it's slowing down on increasing representation and retaining the people that are so important to making these products,

for all different people of all different backgrounds, they're also speeding up at the same time, doubling, tripling down on this technology, artificial intelligence, which we saw hit breakneck speed this year. So those two, you know, increase in AI, decrease in DEI, you know, history tells us that products, you know, we've seen Google and meta, for example, struggle with some of its image recognition technology in identifying black people, for example.

So, you know, it's not, it's, it's, it's very discouraging for a lot of these organizations. And, yeah, so, so they're looking at it as that. All right. Jennifer Elias, big trends in technology right now with DEI. And by the way, you can catch that full story up on CNBC.com right now. Jennifer Elias, thank you very much. Happy holidays. Thanks, Tom.

All right. Still ahead on the show, we've got some stocking stuffers for you as well. Our trader will give us his top picks for 2024. in a holiday edition of three-stock lunch, as opposed to yesterday's when I got a bag of coal from Tim Seymour. We'll be right back after this. Welcome back. Time now for a special holiday-themed edition of three-stock lunch. So we're here with his top picks for the new year is David Wagner,

portfolio manager at Aptus Capital Advis. So your first pick is Sintas. It's already up 30% over the year. What do you like best about Sintas and why are we talking about uniforms and cleaning supplies? This company has been an absolute juggernaut. Even back in the day when the farmer family was at helm, and even more so today with the new CEO, Todd Schneider. But I'm calling Neo-Sintos my stocking stuff for president of the year because, yes, it has a great core rental business. But I think investors really need to start focusing on the smaller parts of the business.

I think it's time that we need to recognize that the company has evolved into so much more than just a laundry and formed company. I mean, if you look at Sintos' most recent earning surprises, they've been driven by the smaller parts of the business for over a year now. I mean, just look at first eight. It doesn't have the capital needs of the laundry business, has better margins and it has, you know, consistent double-digit growth potential with a large market opportunity. I would have to say, you know, the biggest pushback you're going to get on a name like Sintas is going to be valuation with a trade net, you know, about 38 times forward earnings. but the company's scale gives ability to invest more versus their competition, which should continue

to create, you know, growth differential versus these peers. So that's why I continue to own this stock. All right. So that's Sintest. That's number one. Next up, you like Kemet Corporation as well. Shares of the health care and maintenance company are up 15 percent so far this year. Why Kemet? Well, I like it. No, I actually love this stock. You know, Kemet, it's a fairly unknown and under the radar company, but we all know both the subsidiaries of the company. on one side you have Vitas, which is the number one hospice company in America. And then on the other side, you have Rotoruter, which is the number one plumbing company in a very fragmented market.

And I think the market underappreciates two aspects of the company. First, how they've really been able to handle the current labor problem within the healthcare industry and the internal programs that they've utilized to successfully retain employment so they can grow ADC. But secondly, the consistency of the growth at Rotor, the water restoration side of the business, has turned the company into a double-digit revenue grower. So, you know, come Christmas, if you don't have a crazy cousin Eddie to empty a bathroom problem into your local street sewer, you know, because the potty was full. You can call Cam Ed. You can call Rotor because it's a company

with a competitive moat, a lot of pricing in elasticity, and a capital allocation policy that's probably going to make you more giddy than 15 glasses of eggnog. All right. So Cintas, Camed, and finally, it's Crowdstrike. Those shares have more than doubled already this year. Cybersecurity has been hot. Oh, it's been hot. You know, with any Christmas toy, hot Christmas toy of the year, there's going to be a desire and a willingness to overpay for something that's very, very flashy. And that's exactly what Crowdstrike is.

It's a present that you're going to have to pay up for if you want to own it. All right. Sintas, Kemad Crowdstrike the Three Cs for his Christmas shopping list. I see what you did there. And Dave, if I had more time, I'd talk to you about the old course at St. Andrews vest that you have on right now. But other than that, hit them along the straight. Happy holidays, man. All right, coming up with the show,

the L.A. Dodgers keep swinging for the fences, and they keep hitting. Reportedly agreeing to a $325 million contract with a Japanese star, Yoshinovo Yamamoto, just days after eking that $700 million deal. With Shohai Otani. We'll discuss that much more when Power Lunch returns after this. Welcome back to Power Lunch.

Today, a Chinese crackdown on mobile gaming is leading to a stock sell-off, and Steve Kovac joins us now with more. more on that story. We usually talk about casino gaming. No, this is video gaming. And specifically online gaming. So Chinese gaming stocks, yeah, like you said, hit really hard. After new draft rules in China, regulating video games were released overnight for us. Tencent fell more than 12% losing more than $43 billion in market cap. Net ease down over 24%. Billy, Billy, down almost 10%. Now, all these companies generate significant percentage of sales from online gaming domestically

in China, hence the downside here. New rules part of a broader crackdown for the Chinese government on online games. For example, this one would block online games from pushing pricey digital purchases and rewards for signing in every day. Chinese regulators have previously proposed rules requiring games to register for government approval first and limit screen time for players under age 18 to a couple hours a day. Now, not impacting U.S. gaming sucks too much, though most are in the green, all in the green right now, as a matter of fact. But look, these ideas broadly are similar to the children online safety laws being discussed

here in the United States, especially on social media, not so much on gaming, like limiting screen time, parental approval for apps. But, of course, our legislatures don't really like to regulate tech as much, so nothing really happening here. It's also relative because it's the Chinese Communist Party. That too, yes. All right, so Steve, let's stick around because I want to get your thoughts on some of these things. I have thoughts.

Just a few minutes left in the show and several more stories we want to kind of get you in on. It's closing time. So first up, MLB.com reporting Japanese star Yoshinobu Yamamoto is set to sign a 12-year, $325 million deal with the L.A. Dodgers. Yes, the same ones. The pitcher had multiple teams bidding for his services, including the New York Mets, the New York Yankees. He'll be teaming up with countrymen, Shoe Otani, who signed, remember,

That 10-year $700 million contract with the Dodgers this past week, that is over a billion dollars in contractual obligations for two players. Are the LA Dodgers now the team to beat? Oh, yeah. NLCS is locked up right now, right? I mean, my poor Mets have no chance. And they've spent so much money as well, and they've proven that money doesn't necessarily buy championships,

but with show a, come on. I said this on Twitter or X earlier today. I said, what happens if the Dodgers don't win a world championship because of this. That's going to be... Look at the Mets for an example. The Mets had a great year, two years ago, this year. Horrible.

It's about how much they're spending. A lot of payroll. All right. Well, when Peacock streams its first ever exclusive NFL games, the fourth quarter is going to be commercial free. That includes tomorrow night's matchup between the Buffalo Bills and the L.A. Chargers

and a January 13th wildcard playoff game. Now, we should note, of course, Peacock is part of our NBC Universal Family and owned by CNBC Parent Company Comcast. But this is that deeper point. by media companies to try to latch on customers by giving them something that they wouldn't normally see on linear broadcast. Or also, how do you set yourself apart from Netflix?

The dominant player, just a couple days ago last week, Netflix released their stats, their viewership stats. None of these streamers can put up numbers like that. So they have to find ways to set themselves apart. One way is these exclusive titles. The question is churn. You know, when the NFL season is over, are you still going to stick with Peacock? They've got to get more sports involved, but Peacock is sports heavy.

So don't miss, by the way. holiday doubleheader of Enveral Action tomorrow. The Bengals take on the Steelers at 3 p.m. Eastern on both NBC and Peacock, followed by that Bill's Chargers matchup, which is streaming exclusively on Peacock 7.30 p.m. Eastern time. And in addition to watching football this weekend, many people will spend at least some time watching Christmas movies, perhaps chief among them, Home Alone on Disney Plus in December. Viewership of Home Alone and Home Alone, too, is 20 times in the month what it is over any other month of the year. So Steve, what's your must-watch movie? Elf. That's great. Elf. That's the only good

Christmas. My wife's favorite holiday movie is certainly, yes, Home Alone. And by the way, for me, I saw Home Alone in theaters. I'm going to drop this as a bomb right now. Die Hard is a Christmas movie. I agree with you. All right. Well, thanks very much for watching Power Lunch right now. We wish everybody a Merry Christmas, Happy Holidays. We'll see you on Tuesday. Closing bell starts right now.