Power Lunch - Power Lunch 10/30/23

Episode Date: October 30, 2023

CNBC’s Tyler Mathisen and Kelly Evans take you through the heart of the business day bringing you the latest developments and instant analysis on the stocks and stories driving the day’s agenda. “Power Lunch” delves into the economy, markets, politics, real estate, media, technology and more. The show sits at the intersection of power and money. “Power Lunch” gives viewers a full plate of CNBC’s award-winning business news coverage, plus a healthy dose of personality from the show’s anchors and the network’s top-notch roster of reporters and digital journalists. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Good afternoon and welcome to Power Lunch, everybody. Alongside Kelly Evans, I'm Tyler Matheson, and we've got a big market day. The Dow up about 500 points. And coming up, the auto strikes are almost over. GM reaching a tentative deal with the UAW after Ford and Stalantis did as well. So do these deals set the U.S. auto industry up for success or crippled the companies with long-term costs? Plus, President Biden issues an executive order on artificial intelligence. It covers safety, civil rights, and maybe the big deal.

threat of all from AI. Will it take humans' jobs away? We'll discuss the impact this could have with a great panel. Kelly? Looking forward to that, Tyler. But first, let's get a check on these markets. The Dow is leading the way with a one and a half percent gain of 506 points today. The S&P, the NASDAQ gains are now approaching about 1.2 percent. The Lagerd has been the Russell 2000s. McDonald's reporting results this morning, beating on the top and bottom lines. Same store sales up more than 8 percent. Thank you to higher menu prices. You can see, of course, that's helping the Dow. The shares are up about 2%.

And a real estate deal to tell you about realty income buying Spirit Realty Capital for $9.3 billion. No relation to Spirit Halloween, by the way. They own more than 2,000 properties, mostly retail stores and warehouses. That stock is up 8%. The Acquire down 5% today. And as Tyler mentioned, GM reaching a tentative deal with the union to end the six-week strike.

Although General Motors shares are only up about a third of a percent right now. Ford is, I'm sorry, Stalanta is still positive, Ford is negative. Let's get right out to Philobo for more details here. Hi, Phil. Kelly, for the UAW, this has worked out better than I think many expected it to be like this. And when they started these negotiations, take a look at what they have won from Ford, GM, and Stalantis. Roughly speaking, we still need to see the final details from GM and Stalantis. The length of the contract, four and a half years, a pay hike of 25%, over 30% with cost of living,

higher starting worker pay and higher pay for temporary workers who are a big component for the big three and a boost in retiree benefits for the 150,000 approximately UAW members. What's next? Ratification votes. They will be going over the contracts. Ford already started that process. Ford workers started that process last night. We'll see that with GM and Stalantis. And over the coming weeks, we'll see ratification votes taking place. For the big three, they can now begin gradually resuming production. And the production that they've lost, they'll start to make some of that up through overtime. But it's going to take some time before they can make up everything that was lost. And they won't make up everything that was lost during this strike.

And that's what we're going to see for GM Ford and Stalantis. Finally, take a look at shares of the automotive suppliers. They have been beaten down as this strike has gone on, bared out with a note saying that the end of the strike is a moderate positive for the auto suppliers. But really little in the auto space is working right now, guys, whether it's the auto suppliers, the auto stocks, dealers facing a different situation, so they're in a little better shape. All right, Phil, thanks very much.

And here to continue our conversation on the impact that these deals may have and the road ahead for the automakers is Tom Norion, Global Auto Analysts with RBC Capital Markets. Tom, welcome. Good to have you with us. I guess what investors wonder is whether these settlements are currently baked into the stock prices we're seeing and how they will affect the stock price going forward. Yeah, I think we've done some math on this to show that the net impact of a 25% increase in labor costs. Remember, it's over four and a half years is actually only about 100 to 150 basis

point negative impact to profit margins, which is no small matter, but basically your 7% margin, let's say, goes to six. So I think they'll be able to digest it. The bigger issue and probably why these stocks have not been up that much on the news of the deal being struck is the EV slowdown. That has been plaguing these stocks all last week and into this week. It's a much bigger story, a much longer-term story than this. We're going to have a pretty quick snapback, I think, to this in terms of production. It may not make up the whole loss, as Bill is saying, but certainly I think this is secondary to the bigger story in autos, which is the EV slowdown. So let's talk about that. Why is there an EV slowdown? And is it in part because in the U.S. market especially,

there is still a heavy, heavy interest for SUVs and heavier vehicles. And that is not an area that, so far at least, has been really penetrated by the automakers. Yeah, that's one of the key reasons is the form factor. You know, a lot of fuel folks don't know this, but the biggest driver of the, the biggest driver of the, battery range is not actually the size of the batteries, the aerodynamics of the car. The reason why Tesla didn't really make an SUV or didn't go aggressively in it, they're not very aerodynamic. So that is one factor. The bigger reason though, I think is the early adopters, the people who bought the $16,

$70,000 Tesla's, those guys are kind of done already. Now we're into like at the main street, you know, the buyers of the EVs who aren't as, you know, EV friendly, they don't realize charging is actually everywhere. They think they need 300 miles of range. So it's a lot of education for those buyers to get comfortable with it. Lastly, I would say pricing. I think overall auto pricing needs to come down. You heard what Elon said on his call as an affordability issue, high interest rates.

So you put all these three things together. I think that's what's causing a slowdown. So let's go back to these. That's very interesting explanation. And I buy it completely about the early adopters having gone in at a higher price point. and now you have a mass market that you have to exploit and tackle. Let's go back to the big three. What's your view of those three stocks?

Yeah, I think it's going to be a little bit challenging in the near term. I don't know how long the near term is. You know, you have price mixed. That's my biggest concern for these companies. It's been up like 30, 35 percent from 2019 to 2022. I mean, a lot of sectors are seeing crazy inflation, right? but you're seeing affordability hit some consumers, high interest rates, etc. So I think price mix coming down will be difficult on profitability.

Now, a lot of this is already priced into the stocks, but it's difficult in a cyclical industry to tell folks to buy auto stocks when numbers are coming down. So I think it could be somewhat challenging. And they have to figure out this EV slowdown. A lot of them, like Ford notably is very heavily invested here. If EV demand doesn't come in, it's going to take more losses. So, yeah, unfortunately, I think in the near term, it's going to be kind of a slug fest. Price mix probably will come down, and it may keep books at the sidelines.

Tom, I've been thinking a lot about Toyota lately and whether the hybrid approach is being vindicated. If it looks like consumers are actually kind of turning towards that option is the best way to hedge and kind of get both the range, but also the peace of mind of having, you know, gasoline supplies in their way. I know they've obviously done everything up to the minivan at this point. And for years, it looked like hybrid was going to be the wrong approach and the market was unforgiving about it. I wonder if the tide is turning now. And if it is, who else does that favor? And what does that mean for the investments that Ford and GM have made? Yeah, this is definitely the hot topic all day is now there's an emergence of hybrid. I think it could be near term, certainly.

And take a look at Toyota's profitability. It's done really well by not capitulation. and doing EVs and maybe it's a smarter approach, right? Wait for everybody else to slug it out and get the cost down and then do EVs later. That might be. And take a look at Stalantis. It's another example of a company that has somewhat underinvested on EVs. And in the U.S., it's Jeep and RAM. They don't really have to electrify those.

So a hybrid approach has definitely worked well for Toyota. Maybe being underinvested on EVs is smart and you see Stalantis benefiting. Take a look at Stalantis stock chart versus Ford and GM over the past few months. and you'll see a very big contrast there. So you may be on to something, but ultimately, I think these are all near-term dynamics. Some people are playing this thesis. Let's wait it out. Steve, cost come down, then we'll go all in.

So I don't really know the answer to that, but we do know. Let's not forget. Electrification is happening. It's just, I think we've hit a little bit of a slow patch. Maybe hybrids could be a near-term solution. All right, Tom, thanks very much. Tom, Norion. We appreciate it.

Good. So interesting. The end of those auto strikes. Good news for the chip makers, which supply chips for cars that were held up as production was hampered. Let's get to Christina Parts in Nevelas for a look at which companies could be breathing a sigh of relief, Christina. But also, it comes at a time. It sounds like that maybe the industry is at risk of being oversupplied as it is. Exactly, which is why I was going to flip your question on its head and say that some of these, you know, hardest hit chip names might actually not.

see a rebound. And the reason for that, let's start with the stocks. The SMH has been down, what, 8% since the UAW first announced its strike in mid-September. Silicon carbide makers will speed down, what, 36% STM electronics on semi, down about 29% analog chip names that are also exposed to the auto sector, faring even worse, down double digits, Texas Instrument, hitting a 52-week low today. And yet, few of these chip makers actually commented on the strike. And that could be because of the longer car design cycle, which would have less of an impact because most of those orders were put in place

a long time ago, with analog devices CEO saying, and their earnings call, quote, the effect on our business so far has been very de minimis. And NXP saying, we've experienced this in the past. That didn't really have an impact. So to your point, Kelly, the issue with a lot of these auto chip names

is auto demand. Texas Instrument and Intel. Both said last week the sector is still resilient, but bears, including your previous guess, point to the frequent price cuts at EV-Leader Tesla due to weaker consumer spending. Even on semi-issued a disappointing Q4 outlook this morning,

and part of that reason was because of weak EV demand coming from Europe. Although we know auto production, or I should say we, the analysts are saying auto production is expected to grow 8% in 2023, slowing EV penetration does present a risk to a lot of these auto-exposed semiconductor names and could result in a cost. cautious earning call from Wolfspeed, which is out tonight and Microchip reporting next week. So it may not necessarily be that breather you're hoping for. Yeah, and on semi is one of the worst stocks in the market today after they sounded like they said,

you know, they expected some kind of normalization of the oversupplied market, but then low demand because of high interest rates has kind of extended that timeline. Precisely. So I think I should have mentioned that interest rates do play a big role in all of this. On semi-CEO was on our network around 11 a.m. and really tried to convince the audience that although EVE demand has started to slow, specifically more in Europe, he believes the entire pie, the portion of market share that can grow from EV, is only going to grow in 2024. Let's just see, because there seems to be, I was just reading a note right now from one analyst saying,

he's thinking maybe the second half of 2024, so there could be some weakness just in the following seven months or so from now. So it seems like there's a lot of debate about auto demand at the moment within the chip space. All right, Christina, thanks very much. Christina Ports and Eveless. Thank you. You got it. Up next, the ghost in the market machine.

Despite strong data and somewhat resilient consumer and better than expected earnings, investors are still selling names they feel are too vulnerable in the event of a crash. That said, markets are climbing today. We're near session highs. The Dow up around to 500 points right now, 505. Much more on the markets when Power Lunch returned. Welcome back, everybody. Stock's rebounding strongly today after a slow and,

and persistent sell-off in recent weeks and months, which has come despite the strongest quarterly GDP in two years. Also, consistent consumer spending and inflation backing off just a bit. So Mike Santoli is here to explain it all to us. Mike? Yeah, Tyler, and obviously the market always attempts to look ahead several months at least and maybe anticipate an inflection point in the way the economy is going to go. But this current period, especially the last three months, has been pretty stark paradox between very, very weak. economically cyclical stocks, and a very strong here and now economy based on the data.

Look at the consumer discretionary group as an equal-weighted index, as well as transports over the last three months, down close to 20 percent each. That, remember, was a 4.9 percent GDP quarter that we recently had reported. So the question here is, does the market have it right or have we overshot in the short term? That equal-weighted consumer discretionary ETF is trading at about 12 and a half times forward. Obviously, those earnings could come down if, in fact, the economy hits a speed bump. And everything, of course, is hinging on the rapid move up in bond yields. The market implicitly is saying the economy can't easily handle it.

Earnings next year are too high based on what yields have done. That, to me, is the debate at this point, especially when you consider earnings forecast over the next 12 months are up over the past three months by a few percent as the S&P 500 has fallen 10 percent, Kelly. Indeed. Michael, thank you. As stocks are jumping today, people are selling bonds, sending yields higher. Let's get out to Rick Santelli in Chicago for more, Rick. Yes, yields are higher and stocks are dramatically higher. Imagine that. And when we look at that outside session we had a week ago, it has proved to be highly accurate. If you look at the 23rd, the 23rd had an outside session. And since then, and by the way, that's the only close above 5%. Since then, the range has been 20 basis points, $499 to $4.79. Why do I pay so much attention to that?

Because there's so much excitement in things like the TLT and all the issues and all the brokerages and all the institutional investors saying, ah, that's it, the high yields in. And we're seeing big inflows as many look at these juicy yields and say, wow, I want to get involved. And all that may be true, but you can't read that much into the market. Is it a top? Well, until we close either below four and three quarters or above 5%, this is kind of no man's land.

And if you consider the fact, as Mike was just pointing out, 4.9% GDP in the last quarter, and nobody's expecting the Fed to raise rates? What I hear is, is the Fed doesn't believe their own numbers or their own models, because with the price GDP index moving up from 3.2 to 4.2 and nearly 5% GDP, they should tighten if they believe the numbers.

Finally, we have the Bank of Japan meeting tonight for the beginning of its meetings. The dollar yen? Well, the dollar is down a bit today after a very rare close above 150 last Thursday. Does this mean yield curve control is going to be under review? We can only hope so. Kelly, back to you. All right, Rick, thank you. And that has been a big part of what's going on in global bondland.

With a big week ahead, a Fed decision, jobs data, more tech earnings, stocks are Allieing today, but our next guest says investors are building in caution in case the data and earnings start to worsen. He's picking stocks that allow some margin for error in case a recession emerges quicker than expected. Let's bring in Mike Bailey, Director of Research with FBB Capital Markets. It's good to see you, Mike. And by the way, just curious, what makes, what do you think accounts for the very positive tone today? No, you know, I think we're getting a bit of a break last week. It was sort of, you know, just markets were getting hit left and right by bad news.

You had Google out there, meta was pretty mixed. hey, things are okay. You know, one of the bigger companies out there was McDonald's. Our rings are pretty good. Certainly doesn't have a whole lot to do with the tech companies, but absence of bad news from big tech and people are waking up, you know, it's a brand new week, maybe they had a nice weekend. Hey, wait a minute, tech is trading at a nice discount now. So maybe folks are getting a little bit more excited about it and they're putting their money where the mouth is today. Do you think that's prudent of them? So it depends. I think for us in terms of, you know, do you want to buy the dip,

do you want to buy some of the big tech stocks after they've taken ahead? Depends where you're coming from. So if you're maybe underweight, you're equity allocation, now's a good time. Go take a look. Stocks in general are trading cheaper than they have over the past 10 years. That's pretty compelling. That's a good time to take a look. The other angle is maybe now's the time to buy the dip and add to quality. So maybe there's something you've been hanging on to anchoring to a stock for a while. Maybe it's a loser. You're struggling. Get out of it. Try something new. There's a lot of quality companies out there trading at a discount. Hep C, McDonald's, you know, companies like that, exceeding investor expectations

and trading at a discount that builds in some cushion in case we hit a recession. So it's a good time to add to some of these quality names. You mentioned Pepsi and McDonald's. In the last week or so, there have been some people who have been talking about how the weight loss drugs may sort of curb the appetite for those companies and for those stocks. Are you a subscriber to that, train of thought? Totally disagree. Completely disagree.

We've certainly, we've heard the haters out there. I was a health care analyst for a long time, so I'm familiar with some of these drugs. There's a lot of questions out there. How many people are going to take these GLP-1s, OZMPIC, we go, et cetera. At this point, even if the bullish Wall Street estimates are correct, you're maybe talking about 5% of the U.S. population. A lot of those folks don't go to McDonald's. They don't drink Pepsi products.

So I think there's a lot of fear built-in. People are selling now. They're going to come back later and figure out, hey, wait a minute. If these companies are still here, they're still growing, and you're getting some of that opportunity to discount. So we really would push back and see that a little bit differently. I know we have results coming out from Apple and Nvidia later in this cycle here. Let's talk specifically about Apple, which is a company you own.

What do you think? So good company, I think, of the mega-cap tax Magnificent 7, this is one where we are seeing a bit of a slower growth period, I think compared to some of the others. So it's a good company. It is kind of transforming into almost a consumer company. Very nice recurring sales on the services side. You're paying for that. It's got a pretty full multiple. So it's a good company.

It's got a very nice growing dividend. I think for us, if we had to make one or two decisions, we might buy something else. We might buy an Amazon or Google here. But Apple's a good company. Put it away, you know, something again good to own for the long term. But, you know, I think we'd rather at this point tactically stick and add to some of the other. That's a very honest answer. And I have to say, tonally, one that sort of surprised me.

You don't hear, you usually hear people saying about Apple, it's a great company, not a good company. Yeah, you know, I mean, there's certainly a debate out there on Wall Street. They've got an excellent track record. I think for us, you know, growth is pretty critical and exceeding investor expectations. They've done a great job historically. Maybe they're in between product cycles at the moment. So again, good company, longer term,

but if you wanna buy something right now, what business is really growing, exceeding expectations and trading at a discount. There's a couple of those out there. Again, Amazon, maybe looks a little more compelling, Google also more compelling. So really you wanna make sure you're diversified within that mega cap tech.

Mike Bailey, thank you very much. Appreciate your candor today. Thank you. All right, further ahead, following the earnings momentum this season, building up to be cutthroat, to say the least. Investors tougher than ever on companies, no more riding the coattails of price hikes and AI hype. So which names are on trend to beat results? We'll get you some technical support coming up soon. Welcome back to Power Launch, everybody.

Oil falling 3% today, even as fighting intensifies in the Gaza Strip. The threat of a supply disruption seems to be relatively limited. Pippa Stevens joins us now with more. Pippa. Today's drop is a continuation of what we've been seeing. As Rebecca Babin at CIBC, categorized it Friday is what if, Monday is what is. And so traders don't want to go into any weekend with so much uncertainty on the short side. And so we keep seeing prices rally on Friday.

And then come Monday when the conflict has not escalated, then traders start to back out of those positions. We also did get data out of Germany today in showing that their economy shrank in the third quarter. They are, of course, the largest economy in the Eurozone. so that does have re-through implications for oil demand. Then we have the Federal Reserve this week, this meeting this week as well. So a lot of unknowns in the market right here. Although all that said, the World Bank was the latest to warn today about what an escalation in the conflict could mean for oil.

What kind of escalation would be, would send oil prices higher? I assume it would be the involvement of Iran, something in the Straits of Hormuz, in the Gulf. Exactly. So those are the regions to watch. the Middle East beyond Israel and the Gaza Strip. And so the World Bank said that in their kind of worst case scenario, between 6 million and 8 million barrels per day production is taken offline,

and that would cause prices to jump 75% to over $150. So they are of the latest to say that. However, that remains a very far-out possibility, and their base case is actually that Brent averages $81 next year, as OPEC unwinds its production cuts, and then global demand slows. And so these are very far-out possibilities, but I think that, you know, people are warning. You can't just ignore what might potentially happen.

Quickly, has the market forgotten about Ukraine and Russia? That's a very good question, because that has more of a direct impact, but it just seems like, you know, the market is very frenetic. And so now that this is very much front and center, and that region is a larger producer, particularly now that Russia has been sidelined a little bit, I think that this region is seen as, if something happens here, the consequences could be that much more significant,

but you cannot ignore Russia. Ukraine. That is still very much in play and that's still impacting oil. And there, I guess you sort of say the market is saying, okay, it is what it is. And it has been that way for some time now. So it's not the new new. Exactly. And remember oil, but exactly. And oil spiked above 130 when that first happened. And so you give some time to see what the longer term impacts are. Hi, Pippa. Thanks. That's good to Contessa Brewer now for a CNBC news update. Contessa. Kelly, a federal judge in Texas issued a temporary restraining order today blocking homeland security from removing razor wire along the border that was installed by Governor Greg Abbott's administration.

The Biden administration argues the wire is a humanitarian and a safety risk. The next hearing in the case is scheduled for November 7. The Department of Education is penalizing student loan servicer Mojila for failing to send timely billing statements to two and a half million borrowers this month. That's when loan payments resumed after a three-year pause. Now the feds withholding more than $7 million in payment to the servicer and demanding forbearance for all affected borrowers until this issue is resolved. And Kim Kardashian is getting into business with the NBA. The league announced today her company Skims will become the official underwear partner of the NBA, the WNBA and USA Basketball. Skims launched its first men's line last week. The

company was recently valued at $4 billion. Basketball players, are real people, too. Tyler. I just don't know what to say. But that's a good one. Yeah. Okay, contest. Thanks.

Head on Power Lunch. The White House unveiling an aggressive AI executive order. We will discuss how they plan to handle the growing technological marvel and what it could all mean for the big tech firms involved. Power lunch will be right back. See you then. Welcome back, everybody. The White House rolling out a sweeping executive order today aiming to monitor and regulate the risks of artificial intelligence while also harnessing its potential. This marking the latest effort to

address the rapidly evolving technology that has sparked concern among world leaders. Here to discuss is Nile Patel, editor-in-chief at The Verge and James Pethakoukis, economic policy analyst at the American Enterprise Institute. They're both CNBC contributors, by the way, and Aymann Jabbers, you know him. He's going to give us the latest from D.C. Amen, why don't I kick it off with you? What did this executive order say? Well, Tyler, it's kind of a kitchen sink executive order from the Biden administration today. They're addressing a whole host of things and bringing in all sorts of elements of national power here, so to speak. They're using the Defense Production Act here in order to compel companies that are engaging in large-scale AI to share with them.

Their safety testing results, that is, they'll have to come to the U.S. government and tell them how these things are testing. They're also going to invoke some standards and rulemaking procedures. They're also concerned about things like discrimination in AI and trying to make sure that there are federal guidelines around making sure that discrimination is not built into AI accidentally, so to speak. So it's a whole range of things here. And at the same time, trying not to sort of squash innovation and the development of this new technology, even as they're trying to channel some of the safety and negative consequences of it. All right, Neela, what do you think of what the administration has proposed here? How sweeping is it? How effective might it be? It is very sweeping, and it is pretty much a grab bag of things that, in particularly, industry has been asking for.

And when I think when you talk about effectiveness, we have a pretty dysfunctional Congress. We have the invocation of various executive authorities to make some of this go. But the place that's going to be the most effective is in letting the companies run. They have been asking for regulations here because they want to focus their competitive efforts in a dramatic expanding space. So if you know that if you're going to make an algorithm for landlords to screen potential tenants on a website, well, now there's some rules of the road. And the companies know inside of which boundaries they need to compete and they can compete ferociously. So, you know, Microsoft, Adobe, Google, they have been asking open AI have been asking for regulations like this.

I think this is going to give some stability to the market and we'll see another wave of competition. So let me turn to, let me ask you one more question earlier before I move on. This idea of somehow watermarking AI generated content. Is this doable? I don't, I haven't seen anything that says it is doable yet. Last month at the code conference, which obviously CNBC helped us out with, I had the CEO of Getty Images, Craig Peters. He said, look, the problem is not marking the good stuff. The problem is finding the needle in the haystack. And the haystack keeps getting bigger with all of the AI generated content we see in our feeds. So you've got to develop some technology to actually consistently mark the content in a way that regular people understand what they're looking at,

and everyone agrees to use, and then you've got to convince a bunch of people to care. I would put that right up against Mark Zuckerberg on the last meta earnings call, saying I can see a future where our feed-based products have as much AI-generated or edited content as anything else. That's the future of these networks. Whether or not a little bit of watermarking can stem that tide, I think technologically remains to be seen, culturally wide open. No idea if that can happen. James, I'm also curious about this angle here on international,

where it says developing standards for working on AI with foreign partners. For instance, I think some of the options would be disclosure if a major other nation comes and says we want to do a big sort of, we want to run your large language models, things like that. What kind of international disclosure do you think is appropriate and why? Well, I'm concerned that some of the, countries that might potentially be involved, who are competitors, perhaps military rivals may not be utterly forthcoming. I'm very concerned that these kinds of disclosure rules will rapidly become both internationally and domestically mandatory rules not just to mandate disclosure,

but mandate how these things are tested. Listen, we've been talking here that this is like a gift to business. They're going to be so happy. Well, the people who may not be happy are businesses companies, startups that don't exist yet. That now will have to compete with a perhaps a highly regulated, paperwork-intensive, costly regulatory scheme that just a few weeks ago, it seems like, was voluntary. Now there's mandates. Now there might be more mandates on the kinds of testing.

I think what we're seeing here is really a wholesale change in how America regulates digital technology markets. When our previous way, which is a light regulatory approach, gave America a lead in digital technology and all the big important technology companies. I'm not sure doing something else is a great idea. Amon, I assume that the Biden administration wouldn't see it that way. They would say that they're just doing what they see as responsible and not using too heavy a hand here. Yeah, look, their argument is you can't have the Wild West here in terms of AI

because there are safety concerns that you have to think about with AI getting potentially out of control, AI involved in bioscience, AI involved in national security. And so you do need some rules of the road. And to Jimmy's point, yeah, that creates increased costs and increased friction for startups and smaller companies in particular. But I think if you ask the Biden administration, they would say, you know, this is something that we just have to do with this new emerging technology. We have to give some rules of the road here in order to prevent all these negative consequences from being built into the AI industry from the beginning. All right. Gentlemen, for now, they made like seven Terminator movies. No one ever said, boy, I wish we had a light touch regulatory framework.

The concerns are science fictional. The concerns are science fictional at this point. Let's make that clear. So, Nilei, you think that we needed the regulatory framework to prevent the Terminator ending. And James, you think if we get the regulatory framework, that that ushers in apocalypse now. No, here's what I think, is that this entire effort is based on one kind of like regret that. social media isn't more heavily regulated. I don't think that necessarily is a great idea. Or they're science fictional. These are science fictional concerns influenced by culture about the idea of AI convincing us to create killer pandemics. And now we're going to this embryonic industry,

we're going to submit to put it into the loving embrace of America's administrative state. And I don't think there's enough focus on harnessing this technology. That is like fully nonsense. If you look at the embryonic industry, it is billions of dollars worth of research and development. over decades to get to a point where you have a GPT4. This is not new technology. This is stuff that has been building for a long time. And it is the people who are building the technology.

Given where it could go, it's embryonic. They're the most negative about it's potential. Given where it could go, it's embryonic. They're the one saying we need this. They are the ones saying this could end the world. Yes, the established players and the incumbents are saying we need this. That's a very old story. It's saying, here's an executive order based on the Defense Production Act.

This is the lightest of light touch. A next president can wipe this away with a pet. The voluntary commitment is a month ago. This isn't a re-regulatory. Now it's a little bit heavier. I didn't hear the last point. Well, I understand that you want to live in like anarcho-capitalism, but this saying, hey, you've got to do some red teaming exercise and be transparent and we should figure out

how to tell people if they're looking at real images or generated ones, which, by the way, I don't even know if it's possible. That's not a lot. Right? And it's the industry that has asked for these rules so they can go compete without about being worried about being undercut by less moral competitors. Well, gentlemen, this was... I'm not impressed by industry asking to be regulated.

You are very impressed by that. I am not. It's a very old story of incumbents saying regulate us. And then we'll use our... Then we'll use our Washington offices to work and shape that regulation to our advantage. It's an old story. You may never have heard of it, though. Gentlemen, we will continue this.

Good conversation. Neelay Patel and James Pethakus. We thank you. And the relatively quiet, Aym and Javers. Amen, thank you as well. That's right. You bet. Coming up, shipping supply chains are still recovering from the impact of the pandemic.

But droughts and record low water levels could ensure the industry never fully recovers. We'll discuss in today's rising risks when power lunch comes right back. Whatever you're wearing, eating, or putting in your home, the odds are those good spent some time getting to you by ship. And the supply chain disruptions we saw post-pandemic may pale in comparison. the disruptions we could continue to see because of climate change. Diana Oleg explains in her continuing series on the rising risks. In the Panama Canal this past summer, severe drought caused authorities to reduce the daily number of ships traveling through. That resulted in severe backups that hit supply chains.

At the end of September, they did it again. A similar reduction in 2019 cost global shipping as much as $370 million. That same year, record low water levels in the Mississippi River disrupted transportation of agricultural goods, costing about a billion dollars in losses. All of this is not lost on MERSk, the world's second largest container ship company. We firmly believe that climate change forces a great threat to the shipping industry and the consumer overall. We are definitely seeing disruption happening all the time. About 90% of traded goods are carried over water and maritime trade volume is expected to triple by 2050 as demand increases. This as shipping is at increasing risk from tropical storms, inland flooding, sea level rise, drought and extreme heat.

Well, actually imagine that if the port has an impact, that we are not able to unload the cargo here. There's a downstream impact to the supply chain and also towards the upstream. So it's all connected. The impacts of climate change on ports alone, from damage to disruption, could cost the shipping industry up to $10 billion annually by 2050 and up to $25 billion by $2,100. Of all the transportation sectors, shipping is one of the most vulnerable to the effects of climate change, whether it's out at sea and canals and rivers or even coming here into port. But shipping is also one of the slowest to cut carbon emissions. In September, Maersk unveiled its first container ship powered by green methanol, which emits less CO2 than traditional vessels.

24 more are coming, but the fuel is both expensive and scarce. The technology, you could say it's ready, it's there, but it's a major shift that is needed, and it will take a lot of time. Hortzilla is a global technology and energy company building engines for the marine industry. Even if we have engines ready for new fuels, the fuel needs to be produced. That needs to be significant investments made. And it needs to be green fuels. It means it needs to be produced by green energy.

Shipping accounts for roughly 3% of global greenhouse gas emissions, but it took until this past July for the international industry to finally agree to a net zero goal by 2050. It's actually a big step compared to where countries, wanted to go five years ago. But even with this big step, it's not, the goals that has been said will not bring us to the Paris Agreement, not bring us to the 1.5 degrees. So you could rightfully so, it's a step in the right direction, but it's not enough. In the meantime, damage control is the main focus. As we speak, the U.S. Army Corps of Engineers is using a dread ship to push out

silt in the Mississippi River near Vicksburg. Extremely low water levels are causing ships, there to run aground. And the chief of navigation for the Corps told local media, the low water level could cause a major financial impact. Back to you guys. Diana, thanks very much. And we'll see you in Washington on Wednesday. Technical support is next. Welcome back to Power Lunch. It's time for technical support. And today we're looking at some names reporting this week with earnings momentum. They were featured on the CNBC Pro. It means estimates are up about 15 percent in the last three to six months. They have a pretty favorable rating among the street. The majority give it a buy rating, for instance. So here to chart the three names we've whittled down are as Ari Wald. He's managing

director and head of technical analysis over at Oppenheimer. Airy, welcome. It's good to have you in the house. Oh, it's good to be here. The first name is Marathon Petroleum. The stock chart is already behind me. It's up 25% year-to-date. Are you a buyer? I am. So I think what we're trying to do here is blend earnings momentum with price momentum. And one of the best, In terms of price momentum, marathon's really been best of the sector. I mean, here's a stock that's coming off a new cycle high. That's a good thing. That's an indication of relative strength.

What we want to do when the trend is higher is by pullback. So as it goes into earnings here, I wouldn't say it's the most tactical where you have to buy it ahead of the tape. But if there happens to be a sell-off, I think it would mark a good opportunity. Specifically, looking at the prior breakout above the highs from early. this year. Very often, former resistance becomes support. It's a little bit higher than that. I didn't draw it so cleanly. Around 137. If you get a sell off into 137, I think marathon becomes tactical. And obviously the purple line here is the 200-day moving

average. So a sell-off into 137, would you stay on the sidelines otherwise? I mean, what if it's a good quarter? I think you have to be there for it. I mean, here's a stock that's been on our large-cap buy list since August of 2021. I'm not trying to time the ebbs and flows. I want to ride it. I want to stick it with my winners. MPC is a winner. All right, MPC is a winner. Let's move on to Aptiv then. Auto Parts Maker upgraded by JPMorgan recently. Auto Sector in general has had some stock troubles lately. What's your take on this one? Here's a great example. Not all earnings momentum is created equally. Here's one without good price momentum. And I think the sign here really

occurred in the summer. What was happening in the summer? You had a strong market rally, S&P at new cycle highs, Aptiv wasn't able to get it. Active was relatively weak, was below where it peaked earlier in the year, and then you see what happens. When the market tide comes in, the weak get weaker,

and that's exactly what happened with Aptive. Through this market sell-off, it breaks trend. It is now at a point where it's right at its June low if it can't hold there, not much to point to it until you get to the 2022 low. So for you, this might be more, if there's a positive reaction, you'd still be, I mean, how positive a reaction could make you a buyer?

Is there any point, you know, if the stock jumps 20% or something, or is this just a watchout kind of name? So I'm a fan of buy relative strength, sell relative weakness. With that said, if you were to move back above the 200-day average, that would be an incremental trading positive. If I was short this stock, I'd be thinking that as far as a level to derail my cautious view on the stock. All right, fair enough. The last stock is one that you picked because you're watching it. CME Group, what does this chart both the earnings momentum and the price momentum tell you? I wanted to bring this one back.

I was on last time I was talking CNB Screener, this one came up. And why we liked it so much was it was coming out of a reversal pattern. And it had consolidated sideways. And we were making the case it was going to break out to the upside. It did just that. And now you have a tactical pullback. It has come right back into the breakout level. There's a 50-day average right there.

And this is a broader theme as well. Capital markets, you wouldn't know it given the weakness in banks. Capital markets actually ranks as the top industry in our momentum ranks. Wow. So there's-based on what, debt issuance or futures activity? There's security and exchanges working within their CBOE, some of the Morning Star, the data providers. So whatever the theme is, the charts are telling the story. It's not just one or two names.

When it's across the board, there's action there. and CME group. It's also rated outperformed by Oppenheimer Fundamental Research. So for all these reasons, we like this reversal in trend. You see the 200-day average. You buy the pullback in anticipation of higher prices. And we'll leave it there. Terry Duffy must be happy. Ari, thanks so much. We appreciate you coming in today. Eric Wald. All right. More power lunch next as the Dow is up nearly 550 points. We'll be right back with more on the markets and some other popcorn.