Power Lunch - Power Lunch 10/7/22

Episode Date: October 7, 2022

CNBC’s Tyler Mathisen, Melissa Lee and Kelly Evans take you through the heart of the business day bringing you the latest dev elopments 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 https://pcm.adswizz.com for information about our collection and use of personal data for advertising.

Hello, Tyler, hello everybody. Welcome to Power Lunch. I'm Contessa Brewer. Here's what's ahead. Stocks falling after this morning's jobs report. 263,000 jobs added. It was fewer than expected, but the unemployment rate and the participation rate both fell. With the labor market remaining tight here, will the Fed fight back harder against inflation? And oil back above $90 a barrel.

It doesn't help. OPEC cut its production target to keep prices high. We're going to hear from Ron Insana, who says the U.S. needs to fall. fight back and his take coming up. Tyler. All right, Contessa, I'm Tyler Matheson. Welcome everybody. We're seeing markets fall after that jobs report, fears that the Fed won't be able to take its foot off the break. That's sending stocks sharply lower today. Today's action comes after a very strong start to the week. Remember that? It seems like such a long time ago. The S&P 500 still, however, up nearly 2% for the week, even with today's 2.5% decline.

Chip stocks among the worst performers. We just talked about them on the exchange as AMD comes out with a revenue warning. That's dragging the whole sector down, and we will have more on these names, Contessa, coming up in a moment. All right, so Tyler, markets have been desperate, of course, for a jobs report that will make the Fed's job a little easier. But so far, not so much luck. Non-farm payrolls increasing to 263,000 for the month of September. That's just shy of the 275,000 that Wall Street was expecting. but the unemployment rate fell to 3.5%. That's 0.2 percentage points lower than expectations,

and the labor force participation rate also falling. And then average hourly earnings growing by 5% compared to last year. And when you look at all of that together, fewer workers are making more money. Ultimately, that leads to higher inflation. Let's bring in Keith Fitzgerald. He's a principal at Fitzgerald Group. Keith, good to see you today. So you get the jobs report out today. you see the market reaction. How do you put this together in any kind of cohesive strategy moving through October and toward the end of the year? I'm juggling because the use of cohesive and Fed in the same sentence don't necessarily come to mind right off the bat. You know, the way I look at this, the data, the Fed,

they are as wrong about rates and labor as they were about transitory. So I look at a report like today and say, where can I buy that makes sense given a longer term time horizon? chips are getting shellacked. I don't think the fed's on target. So I'm going to go into the fight, not away from it. Okay, what does that mean to you? How are you getting into the fray? Well, for example, let's take AMD. Revenues are still up 29% year over year. Everybody's flipping out because they supposedly aren't going to meet guidance. Well, you know what? That's the sign of prudent management. They're adjusting ahead of time. 90% of the world's data has been created in the last few years. They are a key player in managing that. And that genie is never going back in the

bottle. So I've got a longer time horizon. That's key on, that's right on my radar. That's the kind of thing I like to buy when the markets get carried out feet first. Well, you can see how the stock is reacting today, down 12% as AMD pre-announced revenue and margins that were lower on weaker client segment revenue. This pre-announcement stuff is just, I guess it's what, take it on the chin early, don't wait for earnings? You know, I think that's one way to look at it, but I look at it this way. companies figured out by accident last quarter that they can engage in the politicians game, spin control. So they're coming out with preemptive announcements, trying to mitigate the damage ahead of time. And what they should be doing is saying, hey, look at all the other stuff that's actually still working for us.

But they're missing that opportunity, my humble opinion. Let's talk about a couple of stocks that you do like right now. I think AMD you have a somewhat contrarian view on that may do better than they thought. But Pepsi is another one you like. Well, Pepsi and Tesla both. You know, if you're not paying attention to stocks like this, at times like these, I would submit that you really aren't in it for the investments. You're in it for the specialization or the Las Vegas style trade. These companies are both in high demand from consumers. They both got great numbers on the table. And all of everything else is a side show, Tyler. Well, so what is it? A lot of people are down on Tesla. You know, it's been down for a long time. What do you see? Is it trucks that is going to be a big thing for Tesla, you think? Well, it's much more than that.

I mean, you know, the only thing that pooh-hooers have gotten right about Tesla for the last decade is they've continually underestimated Elon Musk. What the street doesn't like about him is the fact that he plays by his own rules, he's got the cash to do it, and he makes bold, sweeping moves at times when the market doesn't expect it. So I like a Maverick. I like that idea. It's returned thousands of percent over the last decade.

He's into electrical trading, car production. Do you like a Maverick who arguably is overpaying for Twitter? I don't know that you can fairly say he's overpaying for Twitter because you don't know what his plans are any more than I do. So I agree with you. I think that's currently the question on my mind, but it doesn't bother me because I think he's going to reinvent that space and he's got something in his mind that he hasn't yet made available to the public. All right. Well, we will see.

It is going to be interesting to see no matter what. Keith, thank you so much for your insights today. Keith Fitzgerald. We appreciate it. For more on the jobs report in the state of the economy, let's bring in Mark Morial, former mayor of New Orleans and the president and CEO of the National Urban League. Mark, welcome.

Good to see you. I sense that you are worried in this report, particularly about what is happening to black workers in terms of wages, in terms of unemployment, in terms of hiring. You know, Ty, I think it's important to look at the report on balance. What I really see is this consistent, robust job creation. I see that notwithstanding the fact that black unemployment is still twice as high as white,

it is down to a level not seen since before the COVID recession. I also see, according to report by Brookings, that the wages for those in the bottom quartile has increased faster than those in the top quartile, which means the beginning of maybe some changes in this sort of income gap that's been persistent in the American economy. So I think it's important to look at every report with balance. There's a tremendous amount of good news in the economy. The fastest recovery post-the recession in modern times. An unemployment rate and robust job creation, which is at a strong tick. The first of the first year, the first of the recession, future of infrastructure investment, chips and science investment, renewable energy investment

by the government, which will incentivize and encourage more private investment, bodes well for the future. The yellow lights, the caution notes, are all around inflation and the impact that inflation will have and questions with respect to whether the Fed really has the tools in its toolbox to tap down inflation. I do not want to see uneasily. unemployment become the weapon against inflation because that does not bode well for the future of the American economy. So this is about calibration. It's certainly about balance. And it's about what level of inflation we can truly tolerate while sustaining growth and job creation. Yeah. Well, you've got unemployment, what, at 3.5% in the most recent numbers. And that is a tremendously low number.

if you really look at it there. I mean, I guess the Fed's tools are a little bit crude. It's monetary policy, its interest rate policy. I mean, is it monetary? When I'm thinking of monetary policy, I'm thinking of quantitative ease and quantitative tightening. They've been taking money out of the system. But prior to that, they've been really pretty much flooding it in, and that's probably as much as anything, why inflation is as high as it is.

You know, Ty, you know, one of the things we all should keep in mind is the global nature. of the United States economy, interdependence of Europe, Asia, even Latin America and Africa, where the factors and the products that we buy or that which is used to manufacture the products that we buy indeed come from, how finance works. So the American economy may be one-fifth of world GDP. In 1960, it was half of world GDP. So the ability of Fed policy to impact, if you will, those things that are as a result of what is happening in China or in Europe due to Russia and Ukraine may be somewhat limited. I am not a doom and gloom person. There are a lot of chicken littles with PhDs running around predicting gloom and doom.

That's not where I am. Where I am is caution and certainly modulation, but we've got to continue job creation. We've got to continue growth in the American economy. We've got to continue to address the difficult issues of, if you will, wage gaps and wage inflation and the black wealth gap and the racial wealth gap, while at the same time continuing growth that's going to benefit all. We're better able to confront the difficult challenges of the American economy if we're growing. Right. It would be going at a sustained and consistent pace. So I see green lights.

I see some yellow lights. Okay. We get your Pollyanna take. I've been accused of being a rather cheerful outlook kind of person, too. Mark, that being said, you've got a lot to like here. I mean, wages are going up. So where are the people? Why aren't people showing up and wanting to participate in the workforce?

We're seeing that tick down again by a tenth of a percentage point here from August. The rate was 62.4%. Yeah, it's a small, yeah, contest. It's a small decrease in the labor force participation rate. It's been a consistent, I think almost stagnant labor force participation rate. What are the reasons hard to tell? One thing is we have an aging population. So we have certainly people who are not necessarily participating on a month-to-month basis in seeking a job.

Number two, there remains workers who, for whatever the reason, want to stay close to home or at home for whatever the reasons are. You know, I talked to some folks last night who say we cannot, we have seen workers choose no job versus a job where they have to come into the office. I think it's a variety of factors, but I wouldn't make much of a one-tenth of a percent decline in the labor force participation rate. I think the issue is the long term. The long-term labor force participation rate has been stagnant for quite some time.

And there may be some demographic factors playing into that. We have heard some CEOs saying that they've had to reverse course because trying to get people back into work did not work. And they want people back in the jobs more than they want people back in the office. So Mark Morial, thank you so much for joining us. Thanks, appreciate it. Nice to see you. Good to see you, sir. All right. Ahead on the program, Wall Street warnings, AMD, cutting its outlook, blaming supply chain woes and slumping demand.

that stock down more than 10% worse day since March of 2020, and you remember that month. And new reports say FedEx is seeing volume declines across every segment around the world. We'll dive deeper into those names when power lunch returns. But first up, next, oil on the rise. Crude hitting $92 a barrel of the XLE energy ETF best week since November 2020. This is tensions with OPEC heat up. But our next guest has a way for the U.S. to beat the group at its own game, he says. And as we head to break, check out the alternative energy EV names.

Lower today, Rivian, down 9%. All right, crude oil on the move hitting $92 a barrel as the U.S. and the White House respond to OPEC's planned production cut of 2 million barrels. Our next guest says now is the time to beat OPEC at its own game. CNBC contributor Ron Insana says the U.S. needs to ramp up production among us. other things to bring energy prices down. Ron joins us now. He's also a senior advisor to Schroeder's North America. Do we have the capacity to ramp up production in such a way that it would make a material difference? And you know the... I think so, Tyler. I mean... Okay, go ahead. And we're heading to 12. Go ahead. I'm sorry. We're heading to 12.3 million barrels a day by next year. In the piece,

I also suggest that the federal government, like it does with other commodity support system, should four American producers only put a floor under the price of oil that's drilled here, $65 a barrel, let's say, and allow them to make sure that they remain profitable, particularly in the fracking community, but then produce flat out so that the global price of oil actually drops and hurts Saudi Arabia and Russia. It's time that we break away entirely from the Saudis. They're in an alliance with one of our two principal adversaries, and I think we should do everything we can to pull the rug out from underneath everybody who depends on oil, as a source of budgets, whether it's in Saudi Arabia or whether it's Vladimir-financing a war. Up production, put a floor under domestically produced oil so that marginal frackers or other marginal pumpers of oil would be impelled to stay in the market. But you know what the response is among the environmental movement.

But they're going to say this was anathema to them. And the Democratic left, and many in the, in the, I almost said Obama, the Biden orbit would oppose this. Yeah, but we have, so Tyler, we have a short-term problem and we have a long-term problem. A long-term problem obviously has to do with climate change, with green energy solutions and the like, none of which will solve what is not just a domestic price problem, but a global supply problem, particularly in Europe. We should be in a position where with greater transmission capability, more pipelines, more oil, even more natural gas, we should be able to help out Europe and others who need those supplies, bring our own price of gasoline down, and do everything we can to beat the Saudis and Russia at this game. There's no other time than the present, should have started 50 years ago during the Arab oil embargo. We've missed our opportunities on many different occasions.

I think it not is just not just all of the above, but even go with the nuclear option, no matter how long that takes, start building modern nuclear power plants, which are among the cleanest sources of energy around, and do both short and long-term things that would be advantageous to the U.S., both from an energy policy perspective, but also a foreign policy perspective as well. Okay, so while you're building the pipelines and installing the rigs and exploring more places to drill, Ron, what's your idea? about the way that the administration says it will use the strategic reserve as a tool? That's what it's there for. I mean, if you're having an oil crisis, use the strategic petroleum reserve. Granted, it's been drawn down rather dramatically. And listen, if prices come down, noticeably, the administration could then start to restock it at much more favorable price levels than we have today. So I think there really needs to be some, and I hate to use this expression out-of-the-box thinking around where we sit right now, both in the short run and in the

long run. And again, I would even do business with the Venezuelans and the Iranians and get them back into the nuclear deal and let them produce oil as well or let Chevron go back into Venezuela. What's the difference between doing business with Venezuela and Iran versus Saudi Arabia and Russia? The enemy of my enemy is my friend. So we may as well take advantage of that geopolitical axiom. So let's talk a little bit about, I mean, In the United States, we became the world's largest, I mean, I agree with you. We became the world's largest producer of petroleum, right? Right.

And then in 2014 and 2015, the Saudis decided to flood the world with oil to drive U.S. frackers out of business. Russia joined the party later on and continued to push down the price of oil until the United States fracking community was forced into an untenable situation where we saw multiple bankruptcies. We saw some consolidation. And now, instead of drilling, they're returning money to share. So I think just in the short run, again, two, three, maybe even five years, we engage in a policy like this.

I know climate activists will be very upset. I know environmentalists will be upset. But we have to figure some way out of this in the short run in order to ensure some long run, you know, opportunities in cleaner, greener energy, whether that requires a sort of Marshall Plan or Manhattan project to do it is also a consideration. But I think we really have to go pedal to the metal here to make sure that we number one, not that we rely fully on Saudi oil, but they're not in the driver's seat and that Russia can't finance its military aggression with highly priced crew. Yeah, I totally agree with you that energy policy is national security policy. It always has been, but I think we've acted naively about that over the years.

Absolutely. Right. Ron Insana, always great to see you, sir. Have a good weekend. You too. Thank you, Bob. After the break, passive, aggressive retail traders shifting away from buying single stocks and toward ETFs. We'll take a look at some of the biggest flows this week. Plus, further ahead, chip and fall. AMD shares lower after issuing significant warnings to investors. Let's just that. When Power Lunch returns, the Dow down just about 600 points right now off 2% on the day.

Welcome back to Power Lunch. Time for our weekly ETF tracker. and this week we look at ETF market as a whole and see where the money went amid this market volatility. The ETF market took in 14 billion of net inflows this week, and it started with a bang. It's ending with a big decline after the jobs report worries about the Fed and about what earnings season will bring

when it starts for real next week. And let's take a look at the three funds which took in the most money this week. All of these had a billion dollars of inflows. Spider's short-term T-Bell, and the Vanguard Total Market ETF, as well as SMP 500 Fund. The data comes from our partners at Track Insight. More information available on the F.T. Wilshire ETF Hub.

Now let's get to Bertha Coombs for the CNBC News Update. Bertha? Hey, Contessa. Here's what's happening at this hour. The Uvaldi School District has suspended the entire police department for, quote, a period of time. This comes nearly five months after the deadly elementary school shooting that left 19 students and two teachers dead. Officials say recent developments in their investigation

led to that suspension. A new coroner's report out of Iran says that 22-year-old Masa Amini died of organ failure due to a, quote, underlying disease and not due to any physical blows. Amini's family, however, said they believed that she was beaten while in the custody of Iran's so-called morality police after she defied the country's strict dressers. Code. I mean, his death has sparked widespread protests across the country against the government's strict laws governing women. And a new report from the Department of Health and Human Services estimates that COVID vaccines prevented over 300,000 deaths among seniors in 2021. The report also says the reduction in hospitalizations likely saved more than $16 billion in medical costs. Contessa,

Tyler, back here. All right. Thank you very much. Bertha. Ahead on Power Lunch after a significantly rough September. It is no shock that October is continuing with the volatility. Huge rallies on Monday and Tuesday. Today, deep in the red, as we've been saying, we're going to continue to watch the markets with less than two hours left in trading. Plus, CBS health problems, the pharmacy getting a downgrade from the Centers for Medicare and Medicaid services. We will trade that name in pre-stock lunch. And the final day of our power playbook. Today, we look at... Staples, one of the better performing sectors this year, not the company, the sector.

Down 13%, however. The names may not be inflation proof, but will they hold up better than most in a recession? The Dow right now, down 655. I think that's the low of the day. Somebody tell me in my ear, yes. Yes. The Dow. And NASDAQ off almost 4%.

We'll be right back. Don't go away. We have 91 minutes left in the trading day now, and we want to get you caught up on the markets, the stocks, bonds, commodities, and the last page in our fourth quarter playbook. Today, we're looking at consumer staples. First, Bob Pisani, the markets are sliding right now, Bob. What's behind this big drop-off? Well, essentially, it's a technology-led sell-off.

Remember, we're still up about 1.5% for the week for the S&P, and so is the NASDAQ, but only fractionally right now. I just want to show you the sectors that are impacted the most here. This is what I call risk off day. What's risk off day? see metals down, Kathy Wood's Arc Fund, transportation stocks, semiconductors. These are all cyclical groups. And so when they're much weaker than the S&P 500, that's a risk off day. And that's what we're seeing today. I want to just point out some of these energy stocks. It is remarkable to see these energy moves. $77 in oil a couple weeks ago, $92 and above today. You'd think there'd be big

moves up in energy stocks. And they've had a move in the last two weeks, but not really, Today, I think this may be some global growth concerns weighing on them as well. Big Cap Tech is really the story. AMD's down 12%. It's the worst performer in the S&P 500 on that lower guidance. Remember, that's about PC sales that they're talking about. So AMD's down 12%. That's weighing on all of the semiconductors sector.

Nvidia is getting clobbered, AMD, and even the semiconductor capital equipment stocks, like applied materials are down. Microsoft is unusually weak today. It's not normally, you don't see that very often. the Microsoft down 5%, Apple loss a week. You might think, boy, there must be really heavy volume, and there isn't. It's about normal volume. It's just a lack of buying interest right now. So where are we?

The real simple problem is inflation is not coming down fast enough for the market or the Federal Reserve right now. There's no shift in the hawkish-fed tone that we've seen. And as a result, we're entering earnings season in what I call stock purgatory. The valuations are all up in the air. Is it 13, 14, 15, 15? times forward earnings. What's the number? We don't know. Is that earnings right? It should be up 4%, 6%. Should it be flat? Should it be down 10%. Unusually wide cluelessness? And that means dispersion of opinions, dispersion of estimates, and that means more volatility for the markets.

Guys, back to you. Well, you know what purgatory means? You have to just sit and wait till it's over with. Bob Bassani, thank you. Let's go to the bod market where bonds are selling off now, along with stock, sending those yields even higher. And Rick Santelli joins us now. Hey, Rick. Hi, and we have to go back to the beginning of the story to really understand markets today. You know, if you go back to 830 Eastern when we're releasing the September jobs report, 3.5% was the U3 unemployment rate. And we've had several 3.5s. But to find a lower one, you have to go all the way back to the spring of 1969 to find a 3.4%.

lower rate, higher Fed terminal rate. That's all anybody's been talking about today. Look at the intraday of twos at 830. You can clearly see the big leap in rates. And if you go to the tenure, it's even more exaggerated. And if you look at boons, guilt, anything, even at the Bank of Japan who keeps their rates so tight. If you look at JGBs, all the same move everywhere.

Now, what did that do to the Fed Fund's horizon? Well, the pivot is still at April of 23 Fed Funds. futures. That's where the price stops going down and starts going up. When it goes down, that's more fed. So last Friday, we had a terminal rate in April of 4.645%. Today, 18 basis points lower, more fed, 4.465. The high water market, the most aggressive tightening was the week of 923 at 4.695. And finally, what did all that do to the dollar index? Zoom, zoom. Here's one week of the dollar index. It turned it around up on the day, up on the week. Contessa, back to you. A lot of information there, Rick. Thank you for helping us get through that oil closing for the

day, getting back above 90 bucks a barrel. Pippa Stevens at the commodity desk now for us. So Pippa, what are you looking at? Hey, Contessa, well, oil is popping today, capping off a huge week after OPEC and its allies announced that two million barrel per day production cut. And we're once again hearing calls that oil will soon be back above $100, although, although a global downturn could still challenge that narrative. Let's check on prices here. WTI is up 4.5% at 92-47, brand crude at 97-84, for a gain of 3.6%. But the move in prices for refined products is even more extreme amid outages. Gasoline future is rising almost 11% on the week and heating oil, which is a proxy for diesel, jumping 19.5%.

On the heels of this strength, we've seen huge gains across energy stock. with the sector up about 15% for this week. We're seeing gains really across the board, but the upstream players levered to oil prices are the standout. APA, Marathon Oil and Devon all gaining more than 20% this week. And finally, take a look at Exxon, the energy giant just now dipping into negative territory,

but still up about 16% for the week. Wells Fargo just reiterated its overweight rating on the company and lifted its target, saying Exxon will continue to benefit from strength in its. upstream division. Contessa. All right, Pippa, thank you very much for that. We continue to see that sell-off accelerating across the markets right now. The Dow Jones Industries now off 675 points or 2 and a quarter percent.

You've got the S&P off 2.8 percent in the NASDAQ composite now, 3.78 percent approaching the 4 percent mark as we head into the weekend. To the power playbook, today the focus on consumer staples roughly flat for the week after falling to a fresh 52-week low last Friday. but it's down only 13% this year. It's out performing the broader market, names like Lamb Weston, Archer Daniels, and Hershey lead that eighth ETF even higher.

Well, here with his fourth quarter playbook is Nick Modi, the managing director at RBC Capital Markets. It's good to see you today, Nick. Let's talk a little bit about consumer staples. On a day like today, when you've seen the broader markets plummet, it probably seems like a safe haven bet for a lot of investors. Yeah, absolutely.

I mean, but let's not. not forget that right now consumer staples are trading at almost all-time highs relative to the S&P 500 in terms of valuation. So these stocks are very, very expensive, but there's no question that when the market becomes risk-averse, this sector tends to benefit, which is why you're seeing it outperform so much on a relative basis. What's the difference between a consumer staple and a consumer's discretionary stock? Because I have to confess that I'm sometimes perplexed by it. I mean, I see Hershey on the list. I see Coke on the list.

I see Pepsi on those. Those seem to me to be sort of discretionary purchases some of the time as opposed to Staples. How do, where do you draw the distinction, draw the line? Yeah, I mean, Tyler, the way you have to think about it is everyday groceries that you might put in your basket, right? And so one could argue chocolate is discretionary for some people, certainly not for me. But, you know, the reason why it gets grouped in with Staples is because it has much more. of a stable buying behavioral pattern versus some other categories that may not be as frequent, like buying a washing machine or a refrigerator or a television, right?

So I think that's really the delineating line. So you look at a general mills. People are going to keep buying cereal, constellation. They're going to keep buying beer, P&G. They're going to keep buying diapers or detergent. Yeah, that's correct. And look, every company has its own nuance, which is why stock picking becomes so important in an environment like this.

So you have to really get into the nitty gritty on category exposure, private label exposures, geographic exposures, pricing power, innovation pipeline. So there's a whole host of things that have to go into this algorithm that you have to really think about when picking these stocks. Okay, so we're going to ask you then, Nick, to get into the nitty gritty. Then in this group, who do you like? Who do you think has staying power? Who do you think will outperform the market even if we get past this initial fear phase? Yeah, so I think you have to understand, I guess, and you guys were just talking about

ETFs and passive investing, you know, themes and thematic investing is becoming very pervasive right now, right? I mean, it's really what's cutting across most industries. And so when you think about it within that landscape, Europe is going to be a problem. Currency is going to be a problem, right? Not having pricing power is going to be a problem still, even in 2023. So the names that we really like are very U.S.-centric in nature that have pricing. power and have some kind of company-specific nuance that I think will lead to some upside in

terms of earnings and revenue as we go forward the next 12 months. So those three names that we think about, Constellation Brands, Kyrig Dr. Pepper, and Hershey are three names that we would kind of categorize in that grouping. And then when we're talking about continued persistent inflation, you know, you just heard Tyler say, look, General Meals, people are going to keep buying cereal. I keep pushing back on that a bit just based on my own childhood and the way that I saw my mom choosing off-brand general store brand. Yeah, like that if the price pressure becomes too much, people opt for different categories. Do you see that as a looming pressure for Coca-Cola for General Mills and the like, Hershey? Well, yeah, and you'll notice. So I don't necessarily

believe that'll be the case for Hershey, which is why I put is the only food company that I put in that bucket. I mean, if you think about packaged food in general, they're mostly U.S. centric companies. So theoretically, they should kind of be in this grouping. But I do believe, and I agree with you, I do think that as we roll into next year, there's going to be much more promotional and pricing pressure on the category than that we've, you know, not seen in the last 12, 18 months. Importantly, I think there's going to be also some pressure from private label as we roll forward. Right now, what's happening is that consumers are going from out of home, into home. And so that's benefiting the packaged food companies. But I think as we roll into

2023, we might have a little bit more pressure from private label and promotions. All right. Nick, Moody of RBC Capital Markets. Nick, thanks for the advice. Yep. Thanks for having me. Up next, AMD, slashing guidance. Warning about slumping demand, that's rippling through the tech where we'll dive deeper next. Also, check out Bitcoin. The cryptocurrency cannot keep its head. Does crypto doesn't have a head? Yeah, I think it does have a head. Above that 20,000 line.

Isn't that the one with a little double dollar time? Yeah, as we had to break a reminder, it is Hispanic Heritage Month. We celebrate with our CNBC teammates and contributors. Here's Norwegian Cruise Line CEO Frank Bel Rio. I've been both very lucky and very blessed to be Hispanic, and I were proudly. Being a Cuban refugee in the 1960s and growing up in Connecticut, one of the things my parents instilled me in a young age, was the standard of excellence.

Whatever you do, be the best at it. Work hard and great things will come. And if I could only give someone two pieces of advice, that would be it. Reach for the stars. We can all get there. All right, AMD shares leading the S&P lower after the company warned of a drop in PC sales is going to hit earnings. Also, the U.S. formalizes a sweeping new set of export controls

aimed at preventing companies like AMD and, from sending chips to China for national security reasons. The SMHETF, down 5%, on pace for its worst day in a month, with all 25, all 25 components lower, and you see it down there nearly 6%. Let's bring in Vivek Aria, he's senior semiconductor analyst at B of A securities. Let's take the individual company thing first, and then we'll get to the question of export embargoes second. what are the individual company factors that are causing these firms,

blue chip companies like Nvidia, like AMD, to stumble so? Thank you, Tyler. I think the semiconductor industry has this habit of making you feel amazing and awesome for three years and really awful in the fourth year. And I think we are in that fourth year. And what's causing the awfulness this year is a weaker consumer, rising rates. and as you mentioned, additional China restrictions. In the specific case of AMD,

I think the weakness is really the PC market, which is kind of the hangover we had once we came out of COVID PC sales, which used to be 260 million a year from an industry perspective, went to 340 million, and now we are trying to get back to what used to be pre-COVID levels. And I think that's what hurt Intel, that's what hurt a lot of memory companies, and now it's AMD's turn.

So it's not really a new data point. It's just hurting different companies. at different times. But on the positive side, what I will say is that their data center business is holding up very well. It's, you know, up over 40% this year. We think they continue to take share from Intel going into next year. And I think the valuation at mid-teens PE for one of the leading compute franchises, I think still remains very compelling. So we continue to like this talk, but we understand that consumer weakness could be an overhang in the near-up. So the PC issue was really demand getting pulled forward by the pandemic, right?

Or am I wrong, which I often am? No, I think that's really it. I think there was a lot of demand pull forward. And in the first half of the year, you know, as the industry was starting to come out of the shortages, a lot of inventory was built up. And now many of the customers, you know, given the weak macro conditions, are just unwilling to hold even the level of inventory that would have had in a normal consumer period. Because those customers are looking at, you know, all the infationary headwinds in the U.S.,

They are looking at all the turmoil in Europe, and they're looking at all the lockdown situation in China. So that customer confidence is not there, and whenever the customer confidence is not there, it just forces them to bleed more inventory than they would have in normal times. Before I get your – like I said – go ahead. I'm sorry, I interrupted you. I beg a pardon. No, I was just going to say that I think at the PC market, what is priced in now is a run rate that is now below pre-COVID levels. So from our perspective, I think a lot of the PC weakness is now priced into these stocks. So before I get to NVIDIA, which fascinates me, because it was such a darling in the market for so long, or maybe not for so long, but for a long time, I want to talk about those export controls. How big a headwind long term is that likely to be for American producers? Sure. So the first point I would say is that, look, the friction between the largest designer of semis, which is the U.S., and the largest buyer of semis, which is China, is not a good thing for a global industry.

I understand and appreciate the reasons why we are seeing these restrictions. But we estimate that the effect is about 5 to 7% for the industry. And the reason is that a majority of the chips that are actually shipped to China are really for consumer applications such as smartphones, such as PCs. They're not really for some pure, of course, we ship a lot to the supercomputing market, but that's a much smaller end market in China. If I take the global supercomputing and the global discomputing and the global defense markets, it's not more than 10% of semiconductor demand. So even if I assume half of that is in

China, the impact is about 5% or so. So I think the headline impact seems to be a lot more, but when you actually work through the numbers, the impact is concentrated into names such as, you know, and V-VDIA, a few of the semi-cap equipment names, but from a broader industry perspective, it's about a 5% headwind. Very quickly, if I might, Nvidia from Golden Child to problem child, is it an enduring problem child or is there a turnaround? No, I think with Nvidia, look, the key is that we are still in the first 15% of AI adoption in the data centers, and that's a technology that's going to have very wide usage, not just in cloud computing, but automotive, you know, metaverse in every part of our life.

And this is a company that has the best solution out there. So we are still very bullish on Nvidia. But like I said, the other half of the business, which is consumer, that's where the headwinds can be in the near time. Vivek, fascinating conversation. Thank you. Vivik, Aria. We appreciate it. You know, Bob Pisani said purgatory.

Vivek actually put a time on it. He said, you know, you had three good years. Now you've got a year. A year of purgatory, okay, if you know it, then you just got to hang on. You've got to hang on. After the break, more on the markets now. You look at the Dow. We've got the Dow industrials off 2 and a third percent, almost 700 points.

The S&P 500 is off 3%. NASDAQ composite off almost 4%. We'll dive deeper into these market declines. trade some of today's key newsmakers and movers. This is Power Lunch. We'll be right back. Welcome back to Power Lunch. Stocks falling sharply today, what we're always looking for opportunity here. Till Ray, giving back some of yesterday's gains after the president seemed to soften the stance on marijuana.

CVS shares down today after a government rating cut to CVS health plan could result in lower revenue. And Lyft shares fell yet another after another analyst downgraded the stock. Let's bring in CNBC contributor, Borges Schlossberg, managing director of FX Strategy at BK Asset Management. Boris, good to see you today. First, let's talk Tilray. So Tilray, interesting story, obviously, becomes very much a story stock now with potential federal legalization of marijuana. If that's the case, then I think it really does have a very bright future ahead. It's simply because it's one of the biggest brand names in the segment, and therefore, it's going to attract a lot of investor attention. It's actually improved its balance sheet a lot over the last year from a negative 100 million cashburn,

1002 million cash per to about negative 49. So they're moving in the right direction. But really, the story here is really going to be very much whether federalization of federal legalization of marijuana happens. In that case, you just simply have the story potential here for tilbury. So very speculative stock, but definitely has a tremendous amount of potential to the outside. Yeah, look at that decline today, though, down 18%. Let's move on to another. Go ahead, finish.

For sure. Yeah. Let's look at CVS. CVS getting hammered today on this Signify acquisition deal. The market really doesn't like it. I think they overpaid for it. But I think you've got to look past that because CVS is really trying to become the McDonald's of health care, which is I know an oxymoron.

But what I mean by that is that they really try to become sort of an all-in-one package for consumers, a very trust in Bradname in both health care benefits, pharma benefits, and then retail space. And long term, I think that's a very sound plan, especially given the demographic wave that we have of aging population. So to me, CBS now with a nice fat dividend, you probably want to sell puts against it if you don't want to own the position right now, but long term looks like a very good hold and a buy in my opinion. And our final name today, lift. Yeah, not much lift there. Sorry, I couldn't resist. I mean, a company is still running 135% of revenue in terms of costs. It's just, I mean, the question is, will this company ever become profitable? And I think the

answer is probably no. They've exhausted, I think, the whole last mile. segment, and unless they can reinvent themselves, I think that's what the market is seeing. The market is seeing that there's very little realistic path to profitability here, so the stock remains a dog and probably will remain so for the long run. Well, all three of these stocks, really having a dog of a day in the market today. Boris Schlossberg, thank you for that. All right, still to come, the holiday humdrum getting worse. We heard yesterday that retailers may not expect a strong shopping season.

Now the delivery giants are slumping on similar fears. We'll talk about that one when we wrap it all on. Shares of FedEx falling intraday on reports of another warning. Frank Holland joins us with those details. Hi, Frank. Hey, contestant, and Tyler. Well, FedEx shares are falling after that. Royda's report, citing an internal memo detailing the company's plans to issue a warning about falling holiday peak volume. UPS shares also falling in sympathy, falling even harder than FedEx, in fact. FedEx, though, has plummeted 25%.

And CEO Raj Subramanian issued a pretty dire warning on September the 15th about driest. dramatically lower profits and of a global slowdown that could lead to a recession. I've been in contact with FedEx just a short time ago. They say the company is updating individual contractors that operate its residential e-commerce focused ground unit, and they say those updates are an extension of the original warning from their CEO. Since then, there have been a lot of questions. Are FedEx's problems, execution issues, or a sign of something bigger?

And if you look here, even with today's warning, we haven't seen a major downturn in other stocks that are tied to holiday shipping. For example, Union Pacific and C.H. Robinson, they both get a major portion of their revenue from Asian imports, but their stocks not really taking a major move to the downside after that warning. Despite concern of a holiday slowdown, the forecast from Ship Matrix, that's the leading data provider, is for e-commerce to really be flat year-over-year, about 92 million packages per day. So again, the question is, are these problems FedEx's, or are they signs of a recession or something else? You know, Frank, it's interesting because when we're looking at the issue of the holiday shopping and shipping season. Last year, there were so many problems.

There were problems getting enough people into the jobs. Are you starting to see those labor squeezes shift aside if we're going to be at about the same rate that we were last year? You know what? That's a really wait and see. FedEx is not really doing any big holiday hiring, but UPS is hiring just about the same amount of people. And just earlier this week we saw Amazon announced. You're going to hire about 150,000 workers. Can they find them in this tight labor market? we actually saw unemployment go down today in the jobs report. But there are some questions about, you know, are there people out there that want to work

and just had kind of given up on finding the right job? Remember, we had the, I forget what it was called. When people just quit their jobs and walked away, are we seeing quiet quitting, things like that? What are we labeling it now? It needs a name, doesn't it? The great resignation. Isn't that what it was?

Yeah, I think it's something like that. The question is, do people want these jobs? There's not a question about enough workers right now, but do people actually want to take these jobs? All right, Frank, thanks. Happy weekend, everybody. Thank you for watching Power Lunch.