Power Lunch - Power Lunch 12/29/23

Episode Date: December 29, 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.

Welcome to Power Lunch and Happy New Year alongside Kelly Evans. I'm Dominic Chu. Today is the last trading day of a very, very good year for the markets. We'll give you all the numbers, including the records which could still fall and what will drive the market, Kelly, in the year ahead. Plus the big stories of 2023, AI, Taylor Swift, remember the regional banking crises, and our prediction on which stories will be so big that we'll be talking about them at this time next year. As Dom mentioned, a banner year for stocks, ending with a bit of a whimper, though. All the major averages lower on the day, the NASDAQ by a little less than half a percent. Now, when you zoom out for the year, you get a 13 percent gain for the Dow. But by far, the worst of the major three averages.

If you look at the S&P 500, it's up about 24 percent. And we are still watching its weekly number because if it holds on to gains, it would be nine weeks in a row, the longest winning streak in 20 years. Wow. But the NASDAQ has been the real outperformer this year. See that number in the left-hand corner of your screen. If that tops 44%, that year-to-date number up there, it would be the best year since 2003.

In the green there, okay, so we're four-tenths of a percent away from that. Yeah. Oh, wow, we're going to be close. It's going to be close. Despite the strong year, though, for the markets, one of our next guest says the narrow leadership and high valuations could make for further gains, and it could make it more difficult, but he's still keeping an overweight on equities.

embedding on the U.S. versus international. Here to explain is Chad Morganlander, senior portfolio manager over at Washington, crossing advisors, and Sarat Sati, the managing partner in DCLA, managing partner, also a CNBC contributor. Sarat's going to be our guest host for the hour, so he'll be weighing in throughout the course of the hour, Kel.

This is going to be an interesting discussion, and maybe Chad, we'll start with you on this. Just how good of a year was it, and do you think there's any chance it continues in 2024? So first, Happy New Year to all. Yes, I think that the markets can continue to hit higher highs. That's on the back of strong economic growth, strong earnings growth. Yes, valuations are quite high with a earnings yield of 5%. But you had that Powell pivot that basically aginned up risk markets. We think it will continue into January, February, and March. into January, February, March,

Sarat talked to us a little bit about, you know, what you're feeling here into the new year. So I do think valuations are stretched, and I think the key here is the market so dependent on the Fed, because that was the pivot for equities to actually go up. And I think you're not going to get multiple expansion. You have to have earnings growth, and we still have some geopolitical uncertainty out there.

So I think you have to be very careful as to what you own, because if things are priced at perplexed, especially the MAG-7. And they can perform just fine, but I think there's opportunities elsewhere, and you just have to be careful after a 24-per-run, at least in the S&P. The only thing, though, that, well, I think you're, so is the January bias confusing us a little bit about the larger trend in markets? I was thinking back to our discussion yesterday. We talked about how, yes, the MAG-7 are up a lot this year, but going back a couple of years, they're only up 8% from 2021 or 2022 levels. So are we kind of only getting half the story if we talk

about gains this year when we know that 2022 was the reverse. Yeah, because if you look at it from the peak, which was literally two years ago, so many stocks, and I saw something where, so like 72% of stocks haven't hit that level again, but the Mag 7 have. Interesting. So where do you want to go? And I think what's also happened is because we had this quote, Santa Claus rally, everything rally, come January, February, people are going to start repositioning again. You had tax lot selling, but you also have people not selling because you didn't want to pay taxes. going into the end of the year. So you get a combination of that, you get everybody coming back, working in January, and then we're looking forward. We have an election year, which has uncertainty.

We have two wars going on that we don't really focus on that much because what could they do to commodity prices or just generally trade. So I do think that Goldilocks is priced in at this point. So it doesn't mean to be out of equities. It means, I would say a couple of things. Make sure you're in your allocation and make sure that you are diversified. Because at this point, to be so focused and concentrated, it could actually hurt your returns. Although, Chad, it was interesting to hear Art Cash in last hour and asked about the year he thought we'd have, said he thinks it's going to be a pretty good year,

quite simply, as we know, from the history of the presidential re-election cycle. I mean, honestly, he said, you know, it's going to be tough to fight the historical precedent for that, and it's usually a good one. Well, you have that. You also have falling inflation. You have three massive fiscal stimulus programs, all converging at once. And then lastly, you have the business investment cycle in tech spending,

which we believe could be a multi-year tailwind for S&P earnings. So that bodes well on the positive side. On the negative side, consumer spending credit growth from consumers is decelerating at a pretty rapid pace. So consumption patterns could be a little bit of a headwind. in 2024. Chad, what's interesting about that, though, you bring up the retail spend, the consumer spend, the health of the consumer balance sheet. We've had folks all over our air and elsewhere in news media and business news talk about the the withering or the weakening of the U.S. consumer over the last two to three years,

and they've claimed that it's because of weakening stimulus dollars. They're no longer there. They've already used the balance sheet. Yet consumers kept on spending, and they did again this past Christmas season. So what's to say that they don't keep on doing it again in 2024? Well, there was a little bit of an artificial get-up and go that we all watched and saw in the earnings of some of the retailers. And that has shifted a bit. And you could see that through the earnings of Target as well as Walmart.

We do believe that the consumer will be sturdy. But the big-ticket items, for example, like housing or autos, that we believe can continue to be somewhat slower as consumer credit growth just decelerates. Again, not the end of the world, but that could be a little bit of a headwind. And that could be one of the reasons why perhaps Jerome Powell, which on thunderstruck that he did, made his massive pivot as he did, which the markets reacted to. So I think you have to be careful here because if what's going to happen is you're going to get employment, unemployment go up, that means wages are not going to go up as much. And two things could happen.

One, if they go up, you can get into a stackflation area. And one is if they actually go down, the consumer is going to say, unlike two years ago, I don't have a tailwind behind me. What is my backstop? So I think being on the retail side, being on the services side, which we had such a great run in, I think those are where you have to be somewhat tempered. Speaking of tempered, there's an expectation that the run, in artificial intelligence and that ecosystem cannot sustain itself, and for good reason. Is there anything to show you right now that there is a significant slowdown in momentum for a company like Nvidia, which is hands down the best performer in the S&P and the NASDAQ so far?

So full disclosure, we own Nvidia, we own Microsoft. I don't think you're going to have that. But when the bell rings, we don't know when that is, those stocks could have huge multiple compression. And again, I'm not saying it's going to happen shortly, but when it does, So we own it, but just make sure its size is important. And I do think you have such a great tailwind behind that because, I mean, you've got with Microsoft with copilot, Nvidia, with the chips that nobody can make at this point. So the demand is still there.

It's just that at some point we'll look at it and say, hey, are these valuations sustainable? And Chad has Alphabet, Texas Instruments. How does Accenture get in the top three list that otherwise looks like that, Chad? Yeah, you know, you're talking about artificial intelligence. Over the last several years, I listened to hundreds of publicly traded companies give investor presentations. Every other word out of their mouth this year was about artificial intelligence. So their boards are going to be pressing towards investing to gain a tremendous amount

of productivity. Accenture will help these publicly traded companies convert and become more productive. That's going to be a huge amount of capital spending, tech spending, and Accenture, they're going to get their fair share. very low expectations on growth, at least built into the stock price. We believe that this could be a multi-year type of tailwind. Interesting. We'll leave it there. Gentlemen, thank you both, Surat.

We'll see you in a moment. Chad Morgan-Lander. Thank you. Happy New Year's Eve. Happy New Year. Let's get to the bond market now because Rick Santelli pointed out yesterday, the 10-year yield is going to close the year very close to where it started. Believe it or not, after everything we've been through, Rick? Yeah, I find that truly amazing.

After everything, after being down into the 330s, after being up at 499, no major close above 5%. Now look at a two-day chart of tens, and this is really important. So we breach 380. If you blinked, you missed it. So we nipped off a 379% 10-year trade after a very poor seven-year note auction. And as you see on that two-day chart, we've never really gotten back down to those levels again. Now, I'm not saying that that auction is so super important and reverse the entire market, but it did going into a holiday season.

It does underscore some dynamics we're going to pay attention to next year. Auctions are going to take on a heightened importance. And if we look at Fed Fund futures for January of next year, 2025, two years out, technically as of today, still 23. And the reason I picked it is we peaked on October 19th and 10-year yields on a closing basis. Yes, 4.99%. We could argue if there was a 5% intraday violation at night. I don't think there was. Others would debate it. But that's not the point. You see how these Fed Fund futures have moved? That's something the Fed's going to have to deal with. Because if they're building in these eases, the market's going to have to be addressed by the Fed. And it brings another point I've said so many times. Fed Fund Futures is just another contract, like T-bills, like any short-term contract. That chart looks a lot like any other chart in the Treasury complex, and I think that's very significant to keep in mind. Rick, what else do you think we should be keeping in mind?

We haven't talked a lot about the dollar, but that one, you know, I feel like it's worth dwelling for a moment on the fact that we went from it being super strong to kind of weak in the last couple weeks of the year. Well, you know, a lot of it obviously is interest rates. We've seen a very, we witnessed one of the most aggressive moves by the central bank to push rates up, and the dollar is the beneficiary of that. But it's going to get a lot more dicey for next year.

One prediction I make is right off the bat. I don't think there's any doubt that we're going to spend some time under 100 in the dollar index. I think that would be a sure thing. However, even though our central bank may be easing, and that will, of course, take away some of the horsepower to the dollar, there's going to be a relative value trade against all the other currencies and their economies. even though Europe may not be on the same easing cycle as us or various economies in Asia. Ultimately, I think the dollar will benefit from the fact that the U.S. economy in 2024 should still be one of the best of breed throughout the globe.

And I think that ultimately the dollar will get to around 96, 97, and the dollar index. And I think it will find support there. If I had to make a prediction, I think at the end of 2024, the dollar index will close right at 100. All right, the macro state of play right now. Rick Santelli out in Chicago, happy New Year, sir. Happy New Year to you and all our terrific viewers. All right, coming up on the show, check out Cheers of Royal Caribbean up 160% so far this year, one of the best performers in the S&P 500.

But that travel enthusiasm did not seem to extend to airline stocks, especially in the second half of the year. We'll like it one possible reason why. In 2023 was the year of, yes, Taylor Swift. She was everywhere. concerts around the world, at the movie theater, and for a few hours each Sunday, she was very visible on your TV on NFL games. We even spent a lot of time talking about her on a business network. We'll explain why she was such an important economic figure and force when Power Lunch

returns after this break. Welcome back after years of strong consumer spending, even amid sky high inflation. Some companies are now starting to see the limits of their pricing power with names like FedEx, Target, and General Mills, slashing. sales outlooks and facing slipping demand. CNBC.com's Leslie Joseph's is here to chronicle and discuss. Where else is this cropping up? We're definitely seeing it with airlines, although it seems to be

the rule that if you're booking your own airfare, you don't really see it. I think that's kind of the rules of travel. But capacity is up. There are a lot of constraints during the pandemic, and companies are now adding a lot back. Airlines are one of them. And they're finding that consumers are looking for

cheaper options and they're a little bit more price sensitive. We're coming off the holiday season. retail sales looking pretty good so far, but we're going to get into January pretty soon, and that's going to mean, you know, people might be doing some belt tightening. I wonder, though, because CEOs across the industry have cited the excess capacity as being a headwind for the overall industry. Wouldn't they then just want to cut capacity in order to boost prices? And isn't that going to stoke the ire of regulators and policymakers and politicians in Washington and consumers, but then be to the, I guess, benefit of shift?

shareholders who are shareholders of these companies. What are the crosswinds here? What are the cross currents and how exactly does an airline company even navigate all of these conflicting issues? Yeah, that's a good question. With airlines, it's usually what's good for you as a consumer is bad for investors when you're looking for a deal. Airlines have gotten a lot savier at cutting capacity, you know, where they can in order to boost revenue and boost fares. Southwest is one of the companies that has discounted fares a little bit more deeply throughout the fall. think of Tuesdays, Wednesdays that would be possible or popular with business travelers that it just

has not come back in the same way that it was pre-pandemic. And they're looking at restructuring their network a little bit so that they're using their planes on days where it is more popular. People are really going back to their pre-pandemic travel patterns, looking at holidays, looking at peak travel times and things like that. So, one of the questions I have a lot of investors have is whether this means that the top line is stalled out in terms of our revenue growth expectations for the next couple of quarters. and if it means that earnings growth, again, has to come from cost cutting and the kinds of things that could kind of circle back in a negative way on the economy.

Yeah, I mean, I think operating efficiency is going to be really important, especially coming through COVID. So you're going to start cutting slack. I think you're going to see expenses. And this is where the technology companies say productivity is going to be really important. So do people have to travel as much? Do you then do the work at home or, hey, we can do the Zoom calls? I think also with input prices coming down, that's going to help a lot of customers. companies as well because they didn't have to necessarily pass that on.

You'd had to do that during COVID, but all of a sudden, you know, oil was in $90. Every other input was going up. So that's where the best companies are going to have to use the best algorithms to see, you know, coming to the airlines, I think it's going to be important because all of them had their costs go up this year if you talk about wages, right? But oil is back down to 70. Can they maintain the ability not to increase, you know, their roots? That's going to be the most important thing.

And also will they go into cost-cutting warfare? Look, given the consolidation of the airlines, they don't really compete that much with similar roots. So this is going to be kind of their moment. Can we be profitable? And investors have not given them the benefit of the doubt. You had, you know, United's up 9%. None of these stocks have real, they're still single-digit multiples, even though they're making a ton of money. Would you buy any of them?

So we own Delta. Okay. And I think Delta's got the... Which is, by the way, the best performing large airline in the S&P 500. Right. But Delta is one of the best fleets out there also. They have one of the best routes out there. United got hurt because of all the far east exposure they had.

Delta is European, South American. They have that. But they really have to execute at this point to show that even if demand is coming down, we can make money and we can increase it. Now, given that all the wages have come through, the pilots got a nice raise, and they all deserve what they needed to get. But now can you make money? And then to your point, if you make too much money, what happens?

Because the government comes after you saying, hey, we subsidize you guys through COVID as well. So, Leslie, we've talked a lot about yield management and revenue management being huge for airlines. They've got to be more savvy about it. Does it translate into hotels and cruise line operators as well? And the reason why they all do yield management, they all try to find ways to maximize the amount of revenue per stay, per night, whatever it is. Why are those companies positioning better in terms of the market expectation versus airlines? Is it something to do with the fact that they are better at perhaps squeezing more out? Or is it just because our propensity as consumers is to go to hotels and cruise lines,

and we don't really care about how we get there? Yeah, that's an interesting question, too, because hotels do have more competition from Airbnb, whereas airlines, it's like how are you going to get to California from New York? You don't really have a lot of choices. But airlines kind of came back a little bit faster. There was a lot of domestic travel, and there were these other options out there when maybe hotels were more shuttered,

especially in business centers. But cruise lines were much slower to come back than the airlines. So, you know, customers are going back to those. those sorts of vacations. We're going to see a lot of that throughout the winter when we get into cruise season in the Caribbean. So it's just kind of a timing thing, I think. And then with hotels, airlines too,

maybe they don't want to fill the plane, but they want the maximum dollar for every seat that they can fill. We'll see how many dollars they get with this kind of pricing pressure. Leslie, thanks. We appreciate it. Leslie Joseph. All right. Well, coming up on the show, Contrarians are coming up short in a few cases this year.

Highly shorted and unprofitable names. like a firm staged a massive comeback. We'll have that story of the short stop when power lunch returns after this. Welcome back. There have been some bumps in the road to the clean energy future. We're seeing it in the demand or lack thereof for electric vehicles. We're also seeing it in clean energy and solar. Those stocks have had a rough 2023.

So what does 24 bring? Let's turn to Pippa Stevens now for more. Pippa. Hey, Kelly. Well, solar stocks rebounding a bit this month on expectations of a Fed pivot, but still posting a third straight year. losses hit hard by higher rates. The TAN Fund and I-Share's Global Clean Energy Fund down more than 20 percent and seeing their largest outflows ever since launching 15 years ago. But 2023 also saw

record solar installations. So how can both of those be true? Well, residential consumers are more price sensitive, so there's higher interest rates have put a damper on that part of the market. But utilities are still building out the green grid and investing in solar. So looking ahead, analysts say to stick with the larger players. Goldman and Cowan, both like First Solar and Shoals, technologies, with J.P. Morgan pointing to tracker names like Array and Next Tracker. Now, when we think about renewables, solar and wind come to mind, but there's actually a lot of other ways to gain exposure, including electrical equipment companies that Bernstein calls the picks and shovels of the energy transition. That's names like Quanta Services and ACOM, both of which are hovering

around record levels as well as Jacob's solutions and Eaton. Kelly, a lot to watch here. Indeed. And I wonder, I mean, we also turning to Surat Setti for some kind of investment feedback here. You know, a lot of people knew these stocks, the newer ones, the transition names, were not as reliable business models. What would you say, though, about those who are maybe thinking, do you go traditional for 2024? Do you try to pick through this for some value? What would you do? So I think you look at cash lows, and I think interest rates were really the main driver of this, because companies that are not going to be profitable, at least in the next six months or 12 months,

investors are just not going to pay attention to them. It's the same thing that happened to the IPO market. When you have rates where they are today, the cost of capital is so high for all these manufacturers and companies that it's really hard for them to even get capital at a decent rate. So you have that, and then the consumer also, which we just kind of mentioned, was that's harder for them to do. So I would stick with companies that are profitable or just about to turn this big of it on.

Do you like the energy, the traditional energy, the Exxons, the Chevron? I do. And we own Chevron. We own Pioneer EOG. And I think at $70, they're making a ton of money. The balance sheets are in great shape. And, you know, unfortunately, we're just one drone strike away

from oil popping another 10 or 15%. At $70 with two wars going on and you don't have any issues. But, you know, it's like a hedge in our portfolio. These are great cash-roll companies. They're very disciplined. as to what they're doing. And I think you can make profits on them. And the multiples are down, too. So the earnings are going to go up. You don't need multiple expansion. You get, you know, three, four percent dividend yields. So as part of a diversified portfolio, I think you should have some of that

exposure. I think a lot more investors are thinking that way, especially after 2023. I was going to say it could be like 2021 all over again. So having a part of your portfolio, and given kind of where they are, I think that helps. All right. Thank you very much. Sarat and Pippa Stevens. Let's get over to Julia Borsden for our CNBC News Update. Good afternoon. and happy new year, Julia. Happy New Year to you too, Dom. Well, South Africa launched a case today in the United Nations top court seeking a genocide order against Israel. The country is asking the court to demand Israel halt its attacks in Gaza.

Israel said it quickly rejected the filing, quote, with disgust. The head of the Egyptian Red Crescent in North Sinai told NBC news that both the Rafa and Karam Shalom border crossings were open this morning. The official said that 103 trucks with humanitarian medical and food, aid entered Gaza as well as four trucks with domestic fuel. He added that 32 injured people were able to cross into Egypt with their relatives. North Dakota Governor Doug Bergam declared a statewide emergency today due to the ice storm that has been sweeping through the state. The storm knocked down power lines, leaving more than 20,000 people without power around the Christmas holiday. Bergam's news released also said that he is planning to ask for federal

aid through a presidential disaster declaration to help cover repairs. Back over to you. Julia, thank you very much, Julia Borsden. 2023 was a year of breakthroughs and surprises for the business world. It started and ended with a lot of AI and lots of dealmaking, plus a boom and weight loss drugs and Taylor Swift domination. After the break, we'll take a look back at some of the most impactful trends on stocks and the economy. Welcome back to Power Lunch. We've got about 90 minutes left in the trading year, everybody. A year that saw regional bank failures, tons of labor strikes, and of course the rise of AI. about some other stories that were important to markets and consumers and look at what to watch

for 2024. We all get to do a little bit of highlights of 23 predictions here with us still is Sarat Setti and CNBC's Steve Kovac joins us as well. Welcome to both of you. Steve, let's just start with you. Big year for your whole coverage space, really. But it started off, you know, far differently. Let's rewind.

Yeah, so, I mean, so much of the Magnificent Seven glow this year was, what, around AI, of course. But we got to rewind back to January where massive layoffs starting from Microsoft, Amazon, Apple's the only one that really didn't have those, or Nvidia as well, didn't really have these mass layoffs. And so while, yes, the AI story was very true for Nvidia, obviously on the software side, very true for Microsoft. Of course, the other ones, you know, less of an AI shine around them, but they really did listen to what the investors were looking for after just going bananas during the pandemic. over-hiring, over-spending, that all got slashed. I mean, over 100,000 tech jobs lost this year, so much of that concentrated, 27,000 alone at Amazon. We've made the point before, but it's worth emphasizing.

Imagine if we hadn't had generative AI come on the same. The discussion points, you know, the trends, it all would have looked very different. Yeah, very different. They gave them a whole growth narrative. Yeah, and I think it's worth looking back with the growth narrative and also this cost control and so forth that we're talking about the beginning of the year. that had its effect. I mean, that real concrete effects.

I mean, even Apple without the massive layoffs, they cut back as well. They, you know, they were investing in certain areas like AI, at least that's what they said. We didn't get to see any of that really come out this year. But look, they, everybody scaled back in their own way. And it was, I mean, there was a human cost of this. We even had, remember, Jen Elias, our colleague, Jen Elias, who reports on technology out here, had this great story about how many of these big tech firms out in Silicon Valley are cutting their diversity, equity, and inclusion budgets, right? And part of that is laying off

sometimes the majority of those DEI groups within those big tech companies. There was still the whole hangover of Elon Musk's Twitter purchase in October 2022 where he showed up with the kitchen sink and literally got 90% of the staff. That was the tone. Which, by the way, a month later, meta slash 11,000 jobs. Right, exactly. So, you know, they really got it kicked off. So you were highlighting the year of efficiency, which deserves to be highlighted. Sarat, what do you highlight? So for me, it's the, hey, we just came out of of a huge COVID issue, right?

I mean, people were down and about, and then you had Taylor Swift, the year of 2023. Just think about it was a feel-good for everybody, right? It didn't matter who you were, and then you add that on to the football area, but like what she did for our economy, what she did for people, not just in the U.S., but globally, it's something that we might not ever see again.

You know, it's crazy. Until the next album or the next floor. It's crazy, too, because for me, what it signified in watching all of the coverage around Taylor Swift and seeing all the eras tour venues and everything, was that I don't even remember COVID, the lockdowns, and the lack of travel and anything anymore.

All you saw were these massive venues all across the world, packed with people, elbow to elbow, kind of shoulder to shoulder, cheering on Taylor Swift, and it just made you feel like, hey, this is normal again, this is life again. It was pure positive energy, right? It was something that we needed, and it was something people could focus on

and not pull back down. I mean, time, woman of the year. I think you add all that and then you can say, look, you can do this as a businesswoman and look how she did it. And I think it's a great example for so many others out there that this can be done in a world where everybody's, you know, you can think about all the negatives that we have, but focus on this as a positive and we can kind of move forward. And it highlighted for a lot of the investment themes, not to make this pivot, but it really did when people could say, okay, yes, we have good slowing. Yes, the ISMs are in recessionary territory. Yes, but like look at obviously what's happening. People are going and spending on services and experiences and that was a huge investment player as well.

You had that you had the movies and you had Beyonce and, you know, you had a whole bunch of things that two years ago we were sitting here and we were said this is going to happen and be like, no way. We're going to be clamped down watching streaming movies or something. Writing our pelitons. You know, to do that and just look how that all reversed. So, I mean, so the nutty part to me is if you think about and the reason why I kind of always harken back to the COVID thing was one of the bigger investment themes that I saw in 2020. that really played out was this idea that healthcare was in focus because it was an underperforming sector, but not for one specific part of that market. And that was G-L-P-1, right?

Glucajun like peptides. It's the obesity stuff. All of those things that came in full force, it propelled many of these drug companies that weren't active as much in COVID vaccine development, production, and distribution. And all of a sudden it shifted the narrative away from a light, threatening kind of like, you know, respiratory disease all the way until like, hey, let's see if we can control diabetes. And at the same time, we can control weight. And control addiction and maybe improve cardiovascular.

It's a miracle. But to me, it was like, it was a huge story because as much as we talk about AI driving the tech narrative, anti-obesity and diabetes drove the pharma narrative in 2020. Also the fast food narrative. Yes. And the airline narrative. And everything else out there. And it just tells you research and development is still there.

and it's important. So, you know, in the healthcare sector, you never know who's going to come out with the next drug, right? So you have to bet on companies that have a development pipeline. But Eli Lilly is now the most valuable pharmaceutical company in the world. And it didn't have a COVID, real COVID presence. And remember when the Danish Central Bank had to react because the currency was strengthening because of Novo Nordus? I mean, these are the kinds of impacts we're talking about real quickly. We saw biotech obviously levitate the last couple weeks as well. And kind of all this optimism you guys are talking about. I don't know if that's, if there's any kind of part of that is interest rates again, right? Interstrates went to, when the Fed was raising, nobody wanted to touch a biotech stock again. And you can see that reflection. All of a sudden, we turned around.

Look at Moderna stock. Look at some of the other life sciences stocks that didn't have cash flow. They're all doing better. So it's amazing what interest rates can do. All right. Let's pivot and talk predictions for 2024. Steve, we'll start with you. It's still, when we talk about AI, it's still going to be a Microsoft and an Nvidia story for the most part.

A lot of people working on stuff. But as far as the company's actually generating real sales, there's that. And then, like I was telling you last hour, Metaverse, it's coming back, Apple headset coming soon. That's really interesting, something we all thought was kind of in the past. But with Apple getting in, you're just going to see a bunch more interest. It's just by the nature of the company. Would you invest around the coming of the, what's the headset called? Vision Pro.

Vision Pro, Sarat. I'd be very careful. I think these are not, maybe I haven't seen the output right now. The Snapchat glasses, the Google Glass. Those are all dead. But it's going to be, I mean, you're paying $1,000 for a phone. how much you're going to pay for something else in addition, right? $3,500 is, yeah, it's a big watch.

It's a wait and see. All right. What about you? What are your predictions? So I think the Fed and interest rates, and I'm not a firm believer that we're going to 2%. I think you've got wages that are still increasing. You've got housing that is still strong, and you've got too many things geopolitically. So I think the Fed is going to have to see where the economy is.

And then plus we have, you know, at some point people are going to say our debt is too high. So it's not that I'm so negative on it. I think the market's kind of pricing in the Goldilocks super scenario. And I think we just need to wait and see how it comes up. Dom Chu, you want to throw anything out there? I would just say geopolitics is the one thing that I'd be most curious about, about whether or not we do see any kind of a real impact because it's not to minimize what's going on in places like Israel, Palestine,

you know, Gaza, Ukraine, everything else. But the markets have shrugged all of it off and have for years at this point. So we'll see if it doesn't change. All right. Well, can we leave it on Taylor Swift? Yeah, I like it. I like it. Let's leave it on Taylor Swift. All right. Steve, thank you. Thanks very much, guys. All right. Many went into this year betting against a firm and then the buy now pay later theme in general.

That stock, by the way, has 22% short interest. It ended last year down 48%. But this year, it's a completely different story. It's going to be up just around 464% this year, but still way below its pandemic highs. We'll break down the moves and the roller coaster right after this. Crypto Watch is sponsored by Grayscale. Crypto investing begins with Grayscale. Welcome back to Power Lunch.

As we know, market sentiment can turn on a dime sometimes. We saw that as some of 2022's biggest losers became this year's biggest winners. And Kate Rooney is looking at some of those names and why they bounced back. It's a lot of negativity that's gone the other way. That's right, John. So affirm, it's been all about affirm. It's the best performing. tech name, at least among those with a market cap above $5 billion. It has quintuple this year.

And it's been pretty much a turnaround story. If you look back at last year, a firm was staring down losses about 90% at this time last year. Unprofitable tech names overall have been, had been some of the most beaten up names as the Fed started hiking rates now that cuts are on the horizon. Investors have now warmed back up to some of the riskier money-losing growth stories. A firm also a way for investors to get in on that buy-now pay-later trend. So BNP. PN. as it's also called, was up about 15% this year, and more than 40% if you look at just that Black Friday weekend alone. That's according to Adobe.

And then there is short interest guys. So a firm is among the most highly shorted names out there short covering this year, has sparked some of the biggest rallies in that stock. It's also become a favorite among retail investors. So almost a quarter of its trading volume, at least in December, came from individual traders. That's according to Vanda Research. It was a very good year for a firm's top investors.

You've got Shopify, the e-commerce company, owns about 4%. of a firm. That stake is now worth over half a billion dollars. You got Peter Thiel's Founders Fund. That's the second largest individual shareholder. And then the company founder and CEO, Max Levchin. He's got a stake worth $1.4 billion. Guys, that was $250 million a year ago. So good return there. A firm, though, it's not the only money losing highly shorted name with a banner year. Coinbase sets the runner up amid this Bitcoin rebound. It's up more than 400% as well, guys. Just a massive run. They've both been on.

Kate, thank you. Kate Rooney. Coming up, a deluxe three stock lunch. Two traders for the price of one. We'll be right back to close things out. Welcome back to Power Lunch. Time for the final three stock lunch of 2023. And today we are going to look back at the biggest moves of 2023.

And first up is Salesforce. It's the biggest gainer in the Dow Industrials, doubling in value over the past 12 months. So here with our trades is Borish-Losburgh, BK asset management's managing director. of FX Strategy. He's also a CNBC contributor. And of course, back with us here on set is Sarat Sati of DCLA. Boris, you first. The thoughts on the best performing stock in the Dow, CRM. But I think there's a reason why CRM is best performing. It's really, really well positioned for this new economy. It has a very, very deep set of tools for all of the business transactions that are being done online. So it essentially helps people close business deals digitally. And its newest product,

which is the Einstein chat GPT. It's just a perfect example. It's already got 17% penetration of the Fortune 100. It's an AI tool. An AI is kind of like the perfect use case for Salesforce automation and CRM techniques. So I think from every aspect, it's really a great stock.

It is, however, very expensive and also very, very volatile. People have to understand that during the pandemic, the multiple contraction was from 30 to 15. So any kind of a tiny bad piece of news could be very, very dangerous. for the stock. My view is I love the stock, but I would much rather participate here with long-term options. So if you go 2015, you buy the 250-300 call spread. It cost you 20 to make 50. I think

that's probably the right way to trade it if you want to ride the trend up and control your risk going forward in 2024. Serrat, what do we think about Salesforce? Is this the way that you would play cloud slash AI? So I do. I like the company. We don't own it. I think Boris is absolutely correct. You buy it on the dip. So if you don't own it now, wait for because at any time in an earnings. If they miss, the stock is extremely volatile. All right. Let's move on then to a stock that's among the top losers in the S&P for 2023. It's actually Dollar General, the former Darling, the discount retailer on deep discount itself, down 45% year-to-date. Boris, is this an opportunity to pick it up?

I think so. I mean, DG destroyed its business by basically having understaffed stores and inventory is thrown all over the place and just killed a brand for a while. They have new management is really trying to work on that, to try to basically restaff the stores and re-inventory the product and make it much more viable and track more traffic. This is the first quarter where they've had traffic that actually increased, but the same store sales are still lower because smaller ticket items. On the bright side, they're opening up about 800 new stores in rural areas where they could be like the only merchant of choice and their inventory problems, obviously, new stores are not going to be a problem. It's really a question whether it can management execute.

The stock is up 30% from the lows. If management can execute an increased traffic, I think they can rebuild it. I mean, the bottom line is that discount business is a very, very good business model. Their business model is not the problem. It was execution as the problem. So that's really a bet on new management. If you want to go that way, I think you have a good chance here. What do you think, Rob?

I'm just not a fan of the retail side at this point. I just think where the consumer is and the money being spent is going to be very specific. So I think the stock's down. I think it's still got a ways to go. This could be one of those, let them execute first and then buy, is supposed to buy before execution. All right. And for the final three-stock lunch trade of the year, it isn't a stock, it's a commodity and it's gold. It's up 14 percent so far this year.

It's on track for its best year since 2020. It's not the digital stuff. It's the real hard. You use it in electronics. You buy it in bullion or cubes and coins. Is this going to be a trade for 2024, Boris? It could be. I mean, I think the greatest thing about gold,

is actually the price action, right? It's trading very, very well. It seems to be accumulating all the way to the end of the year. However, gold is just notorious for fakeouts. It's been flirting with this 2100 all-time highs three, four times already. To me, a real buy here, if you're kind of a long-term trader, is going to be if it breaks 2100 and holds it on a monthly closing basis, then I think you have a lot of confidence, as well as the fact that if you kind of look at the Chicago Mercantile Exchange futures market, and if it does two, you know, if it does two, you know, $250,000 or more contracts per day, that's also going to be a very good sign. There's going to be a lot of volume coming in. I mean, ultimately, gold is basically a fear trade on fiat, right? So if we have any problems with the deficit,

if we have any problems with interest rate coverage of the deficit, all of those things, and the geopolitics that could happen in 2024 could definitely make it skyrocket. But I'd like to see the price confirm all of this movement ahead of time, so it's not a fake out again. All right. So, Surat, without, let's not talk about gold for a second. Let's talk about silver. I was going to say Bitcoin. Which some people are calling the catch-up trade to gold because it hasn't been as much of a focal point. So I think gold needs to lead before silver starts to catch up. It's always been that case.

But I do like the gold idea. We own it, to your word of 2024, geopolitics. That's why you want gold as part of your portfolio. We own it through tech resources in Wheaton, but I think you want to have it as part of your diversified portfolio. All right. That's the final three-stock lunch of 2023. Boris Schlossberg, thanks for closing out the year for us.

All right, closing time. Kelly, this is going to be. be huge. Epic. Epic. And it's next. Don't go anywhere, people. Welcome back. It's our final closing time of the year. About three minutes. It's very better sweet. Three minutes left in the show. Several more stories to get through. So let's get right to it. Starting with drug makers, including Pfizer, Sanofi, and Takita planning to raise prices in the U.S. on more than 500 unique drugs in early January. This is according to data from healthcare research from Access Advisors. The expected price hikes come as the industry gears up for the Biden administration to discount prices for

10 high-cost drugs that we should mention as we talk about things for 2024. I mean, this is going to once again be a big part of the discussion. Look, health care is going to be really important. It's one of the most underperforming sectors. So I think the companies, as you mentioned, who did not participate in GLP are trying to raise prices, trying to get their valuations back up. And I think it's going to be interesting to see what the government does. It's also an election year, right?

That's the thing. The rhetoric always ramps up around this kind of year because of what's going to happen with regard to these types of headlines, how it resonates on mainstream. and then what politicians will do in response to that. And not to overly dwell on this, but I do think watch this space, the disruptive space, cost plus what Mark Cuban's doing. I saw even Dr. Gottlieb tweeting about it the other day, the amount of savings.

CBS is looking at something. Exactly, that we could get some going to a plan like that. CVS is making those big changes. It's all about using efficiency again, right, to say, what's your biggest return on investment? Wouldn't it be great if we could get some real efficiency and productivity in the health care space? Talk about transformative.

And speaking of transformative and all of those other things and efficiencies, Let's talk about Chinese tech company, Baidu. It says that its chat GPT like artificial intelligence product named Ernie Bot has surpassed 100 million users. Microsoft backed open AI said in November that chat GPT had about 100 million weekly active users. Here's what I would say, and this is kind of the more, not scary front, but it's a cause of concern. China is set up to have a good start and a good momentum trade on this because they don't have the same kinds of restraints. that we do on how we develop AI, meaning that they don't have any restrictions whatsoever. They'll train their large language models on anything. Copyright's not going to be an issue as much.

We have the New York Times suing Open AI and Microsoft. I don't think you're going to have that in China as much as we do here. The only thing you're going to watch for, just see what happened to Tencent and Alibaba is when the government decides that they want to do something. Crack down. They will crack down without anybody coming, and you'll just have a front page saying, hey, you can't use this information or this is proprietary. So that's why you get that discount for valuations in the Chinese stock. That's true. The other thing is that without Nvidia's top of the line chips, those algorithms are not as stable as they otherwise could be. So maybe they're doing an end run around this, maybe not. And we'll see how much of that ordering for Nvidia chips is really pull forward.

Well, and Invidia announced that they're actually producing chips for China. Right. Specific for that. Throttled down versions for China. Right, which does make a big difference in the pace of development. So anyway, multiple startups. This is our last story of 2023. The opportunity in the household food waste business, as federal and state governments are trying to reduce food and landfills, the federal government wants to slash food waste in half by 2030.

The business problem is whether people would be willing to pay to pay to send their trash away. Don't we pay taxes for this? I also pay a trash company to come and take my trash and recyclables away. What do you mean? In our town, you don't have municipal services that take away trash. We have to pay contracted companies to take our trash away my town. Yeah. Does that keep your taxes lower overall? It does keep on a relative basis, I think it does.

Did you know this? I did not, but then, you know, Mr. Rogers' outfit as well. So, you know. You don't like my outfit, guys? No. You can tweet me. If it's thumbs up or thumbs down to Dom's casual luck, maybe more of that for 2024.

All right. Thank you, everybody. By the way, to our whole production team, all the crew in here. Thank you all for your hard work this time. Thanks for watching. Power lunch. Closing bell starts right now.

Happy New Year, guys.