Power Lunch - Power Lunch 2/21/23

Episode Date: February 21, 2023

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

Good afternoon, everybody, and welcome to Power Lunch. Alongside Kelly Evans, I'm Tyler Matheson. Coming up today, stocks sinking to start the shortened week. Rates rising. If the Fed stays higher, will stocks go lower? Well, that's what's happening at least now. We've got all the big movers and market reaction covered for it. Plus, worries about the consumer. One of the things weighing on stocks, we'll dig into Home Depot in Walmart's earnings, and we'll talk to the head of a regional bank about what trends he's seeing. But first, let's get a check here, as we're at session lows across the board. Dow's down more than 600 points. We're coming off of three down weeks in a row, and we're up less than 1% now for the year.

Well, let's go over and check in with Dom Chou. Give us all the news on what's moving at this hour, leading with Home Depot, Dom. You got to, right? Because traders and investors are highly focused on that consumer trade. The two massive retailers, part of that main event, they're moving in different directions, at least right now. Dow component Home Depot taking a hit, you can see there. Well, it was taking hit, you can see.

On better than expected profits, on slightly weaker than expected. revenues, but it's the full year sales and profit forecast for Home Depot that were viewed as disappointing. Now you've got fellow down component Walmart, which is also now moving higher by nearly a percent, America's biggest traditional retailer and private employer posting better than expected profits and revenues, but it also gave a weaker than expected outlook for the full year. Nonetheless, those shares higher. Couple other ones to watch. Shares of Dillard's taken a hit despite an earnings beat, but what's being perceived as a weaker result from the holiday shopping season, which showed flat sales growth at established store locations. So those shares off 15%.

But then check out one more. This is shares of Molson Coors. The beer and liquor maker is up on a tough market day after profits topped estimates helped along by its ability to raise prices to help make up for rising costs and other factors. Up 3% though. Kelly Tyler and the down tape seems kind of good. Now, Christina, parts of nevelace. What are you watching on the tech side of things? Well, the NASDAQ right now is the weakest indecy today on fears of higher rates. But big picture, we look back on the month. It's only down about half a percent. Weakness, though, from China price wars weighing on the NASDAQ 100, PDD,

which operates Pinduoduo, the shopping app, down almost 10%, a little bit 9.2% at this moment. After JD.com said it'll spend $1.5 billion in subsidies to better compete. Fears of a price war and margin compression adding to that Czech tech sell-off, or Chinese tech sell-off, I should say, Chinese ETF, K-Web negative, just the past three weeks in a row. Another sector, though, taking a hit, semiconductor. Sentiment has pretty much taken a negative turn as of late because of weaker server demand, weaker memory prices, and lack of improvement in Chinese consumption.

So that's driving the SMH lower, just down for the past four straight business days, Western Digital, which is more on the memory side, three straight weeks of declines. Intel, down almost 50% from its recent highs. Even Qualcomm, which is all the way down here, down a little bit over 2% after announcing, even though it announced a new software service to keep. tabs on the supply chain in real time. You can see. See it read though. And isn't it though? Christina, thank you very much. As mentioned, the market's reacting to earnings reports from two big retailers today. Walmart and Home Depot. Let's bring in CnBC.com retail and consumer reporter,

Melissa, Repco. It's almost unfair they both report the same day because are they both telling us the same kind of thing? Melissa, I mean, I'm just looking at the fact that Home Depot is the worst stock in the Dow while Walmart's the best right now. There's some similarities, but there's some differences, Kelly. The one similarity is in general, both companies were saying they realize they may have to work harder in the coming months to get consumers to spend, that consumers aren't spending as readily as they were a year ago, even six months ago, perhaps. But they have a different kind of consumer. So Home Depot said a lot of their customers are homeowners, and so they may be more insulated if there's an economic slowdown. And they may also say, hey, I don't want to move because I don't

want to get a new mortgage because of higher interest rates. So instead I'll stick with the fixed mortgage I have and I will fix up the home that I have. Walmart, on the other hand, is seeing a shift to groceries and not as many people buying discretionary merchandise. So fewer sales with things like electronics or apparel or home goods. So those are some of the differences. And you're absolutely right. And thank you for highlighting that. It is interesting to see the shares reacting as well as they are. And they did say that it's not just the 100K consumer. They're seeing some more strength in a little bit of the lower income spectrum. Why do you think the shares are holding up so So with Walmart, I think the shares tend to be holding up because Doug McMillan spoke today on the earnings call.

The CEO of Walmart said they're a bit of a naturally hedged company. They sell a lot of different things. They sell groceries and they sell other types of stuff. Plus, they're getting into new businesses like advertising, which Walmart called out today as a growing part of their business that's helping them through what may be a choppier time. So that may explain some of the resilience of that stock. Whereas on the other hand, you know, home improvement saw so many gains during the pandemic. And I think in general, Wall Street may say, you know, are those days behind it? Because it had such a boom.

Right. How can it be sustained? Melissa, hang on for just a minute as we bring in a little to talk a little bit more about what these disappointing results say about the state of the consumer. Let's talk about it with Marshall Cohen, chief retail analyst at the NPD group. Marshall, welcome. Is it so much that the consumers have stopped shopping or spending or that they are spending on different? things like groceries as opposed to general merchandise, like services, dining out, like other things besides apparel electronics and so forth? So the consumer is certainly being pressed from both sides. You know, most people aren't making more money, but they are spending more money on things like food and beverage, which are having the highest level of increases in prices.

While that's abating it somewhat, it's not going to go away. So we're going to continue to see. elevated prices in food and beverage. The consumables, things like consumer package goods, just think of paper towels, cleaning supplies, that's pretty pretty level. But what is happening is that products that people are able to buy on discretionary needs, that's where they're pulling back.

So if we're spending more on food, we're clearly seeing the impact on discretionary. So think about what happened also in what we, I call the COVID carryovers. If you upgraded a television, or if you certainly bought products to make your home look better while you were living in it more during COVID, that upgrade cycle or even the replenishment cycle has now been sped up, and we're going to have to wait a while until those people upgrade as well.

So that's why you're seeing a lot of these businesses that are not necessarily full service and full assortment, slowing down a little bit. Walmart has a huge advantage, much like the big box retailers do, in the sense that they're selling a wide variety of product. That's why the future looks bright for them because they're not pigeonholed into one particular business. No, they're all over the waterfront there. In something you wrote recently, Marshall,

you said that 2023 will mark the return of the store or the year of the physical store. Certainly Home Depot and for the most part, Walmart are regarded as leaders in the physical store area. Their numbers weren't all that good. On what do you base your assertion that this is going to be the year of the physical store? So looking at the fourth quarter and the holiday results, we clearly saw something shift. The 16-year momentum that the online environment had in gains in sales has finally leveled off across almost all of the discretionary categories.

And what that means is online is leveling. if we're buying pretty close to the same level of product, we're spending about the same in most industries, maybe a little less here and there. The thing that's happening is online is slowing, but stores are gaining. We're now more social about shopping again. And without the new products that are in the market,

there's just this absence of newness. The consumer is going back to stores to kind of figure out, what do I need to buy? A lot of people didn't know what to get for holiday gifts. They had to physically go into the stores to shop. to figure it out. Right. Melissa, what would you add?

One of the things I wanted to add, just bouncing off the comments that Marshall made about discretionary income is that people are also shopping sales. That was something that I spoke to a Walmart CFO, John David Rainey, about. He said that actually there was a pickup in those discretionary merchandise categories as they went on sale after Christmas. And so maybe as people see a good deal, they're still willing to spend. But again, you know, a little bit more reluctant to pay that full price. Marshall, what's the kind of tease up or do a little bit later, but what is the staying power of the consumer, you think, the way that things are currently?

You know, I never sell the resilience of the consumer short. They always seem to surprise all of us, even when we hear all the bad and bleak news. Keep in mind that when the recession hit, the consumer was six months behind the physical recession declaration. And we're not going to be in a recession for another few months simply because we had a good GDP report. So the recession word isn't going to come around for a while. So the consumer looks like the first half of 23 will be there to spend on things they need. When the back end of 23, and as we get closer to election buzz and distraction and all that that's going to happen, you're going to see the consumer probably start to shift. And that's barring any economic challenges that get thrown at them on the back half of 23.

Yeah, very good. We appreciate it, guys. Thank you so much. Marshall Cohen and Melissa Repco. And as mentioned, we'll have more on this consumer. We're going to stay focused this time from the balance sheet point of view, looking at their savings, looking at their debt levels. Are we seeing any cracks emerging? You can see the bank stocks down about 2% today. We'll talk more about it with Valley Bank CEO Ira Robbins after this.

Stay with us. Welcome back to Power Lunch, higher rates, starting to put pressure on consumer balance sheets. As Walmart CFO, John David Rainey, told CNBC today, quote, the consumer is still very pressured. balance sheets are running thinner, saving rates are declining. And my next guest has the view from regional banks, which are seeing the impact from higher rates, as mortgage apps are down 15% as well from last year. And auto loan demand is dropping.

Let's bring in Ira Robbins, the CEO of Valley Bank. Ira, it's good to see you again. Great to see again. Thank you for having me. If I didn't preface it at all, how would you describe the consumer right now? Definitely a bit more challenged than when they were previously. However, as you see, residential rates have begun to increase or have really increased. on them, which is impacting their overall demand on the residential rates.

Used auto prices have begun to come down, but they're still at levels that were above pre-COVID. So the consumer is definitely a bit more challenged as to what their affordability is today. Because some have argued higher rates are such a help for the consumer because maybe you're getting more on your deposits or maybe you're getting more on safer investments or that kind of thing. Is there any truth to that? I'm not so sure. That's really true. I think for someone living on a fixed income, higher rates are definitely a good thing for them as they think about what type of retirement income that they're going. going to have. But for the general consumer, as we think about the debt levels of most of our consumers, higher rates aren't necessarily a great thing. As you look at your borrowers, are you

seeing any erosion or deterioration in their ability to pay? Are you reserving more against loan losses? Do they all seem pretty healthy and up to date on their loans? Yeah, thankfully, the consumers that we have, and even the commercial customers still seem very, very strong. You really look at areas like Florida and some of the areas in the south, and demand has been significant. And the balancing to these consumers, corporations have been very, very strong. I think there's going to be a difference as to how we think about credit quality playing out across the United States.

I think some areas in the Northeast where there's been contractions of population growth are going to have a bit more of a challenge than areas like we've seen in the south, though. What makes you, because to me, Ira, you sound more cautious than some of the CEOs certainly who have come out from the hotel space or from certain. You know, what makes you more cautious? What are you seeing? You know, I don't look, I'm a huge optimist. as to sort of where I think we're going to end up long term.

So I'm not cautious about that. But I do believe that there's this perspective that rates are going to come down and as a result of the long end rates coming down, everything's going to be fine. I don't necessarily believe that's going to be true. I believe the long end is going to stay higher for a longer period of time.

And one of two things is going to either have to happen. Either there's going to need to be a recalibration as to where that long end is, or people are going to have to get comfortable with what that ultimately begins to look like. Because if you recall where these long ends are, they're still relatively low compared to where to where we've historically been.

You mentioned something that was tantalizing there about the Northeast. Elaborate, if you would, a little bit. You said that population declines. What are you seeing in the Northeast that caused you to insert that into your last answer? It's interesting. One of the things I look at a lot is sort of where we've seen population growth and where housing permits have actually gone. And you look at the South, we've seen permits only be about half of where population growth.

is. So there's still significant growth when we think about where housing is going to end up from a pricing perspective. That's said in the Northeast, population growth has largely mirrored where we've seen housing permits increase. So some of the increase in those areas aren't going to necessarily be as strong. As a result, there's going to be some credit quality issues. You're going to have a rising tide in areas where there's population growth, and you're going to have some differentiation in the markets where there hasn't been the population growth. Very interesting. So Carolina, Georgia. Yeah, yeah, where I was this weekend. You can see it.

You can see a lot of building going on down there, and you can see people moving in. Talk to me a little bit about net interest margins and how higher rates are helping you there. So they've definitely gone up over the last few quarters. I think from a general perspective, though, banks have probably hit their peak as to what the net interest margins are going to generally look like. We're competing with the Treasury from a deposit perspective. So deposit betas, which is the increase that we have on our deposit costs versus where the market increases. have actually gone up a lot more than where they were historically expected to actually increase. So margins, I think, from this point throughout 2023 are going to really trend a bit down.

How much have you, how much, if at all, have you increased the rates you pay to savers? CEDs, money market funds? Too much, I would say, from an investor perspective, from a client perspective, that are probably not enough, but they've definitely increased dramatically. Funding's a huge issue for everyone in the market today. And we look at liquidity and we look at the money supply. And we're still sitting at $4 trillion of money supply and greater than where we were on a pre-COVID level, which is huge. That said, a lot that's sitting in the Treasury today.

And for us to be able to compete against that, we have to compete against where treasury rates are. Yeah. Well, you've got a six-month bill at what, 5%, which is a very appealing number, you know, for a lot of people. Yeah, and it's a great return for some of them. You know, for us, the challenge becomes is how do we continue to fund residential mortgage growth, commercial growth? If we're competing against the Treasury at 5%, there's an expectation that we have to make two, three, four percent above that. So to sit there and say that our rates are going to go back down to below 8 percent, doesn't make sense when the Treasury's at 5 percent. Wow. Quick final question, Ira. What are you seeing from, I don't want to call them small businesses, but for the corporate clients that you deal with, what's the health loan demand look like there?

Great. You know, for the clients that we've dealt with, and this is pretty much true in all the geographies, the small businesses are still doing very, very well. There's a lot of demand for their products, and we haven't seen the pipeline contract at this point. Wow. Well, that's an unequivocal positive, and small business was one of the weaker parts in 07, so it's quite encouraging to see it hang in there this time around. Ira, thanks for all your time today. Really appreciate it. Thanks so much for having me. You as well. Ira Robbins, Valley National. Always good to check in with him. Already further ahead, the train industry under pressure following that massive derailment in Ohio.

A public view on these companies was already divided following labor disputes late last year. Now, multiple government agencies and lenders, leaders, excuse me, calling for Norfolk Southern to be held responsible and detailing how. We'll discuss that. And as we head to break, check out the shares of some rail companies over the past month. We will be right back. Welcome back to Power Launch, everybody. Stock selling off today. We are near session lows.

Down almost 700 points. The S&P 500, it's down 2%. All 11 sectors in the S&P 500 are lower as it declines back below 4,000. Energy holding up despite another big drop in natural gas prices. Joining us now with more, Pippa Stevens. What's happening in that gas? More on that in one second. But starting first with oil,

which is trading a little bit lower in a pretty tight range ahead of tomorrow's Fed Minutes release. The WTI contract for March delivery does expire today, so we're seeing a little bit more activity in April, which is trading at a bit of a premium. But that gas is the big mover down more than 8% and fall into the lowest in September 2020 and really in danger within falling below that $2 level. And we've talked about how this is because of the Freeport facility being offline. That's about 2% of U.S. demand as well as the weather. Now, drilling down on that weather point, as this chart from Bank of America shows, you can see that demand this winter has been about 1.3 billion cubic feet below last year, and it is well below the five-year average.

And so that means that the situation in storage has swung from a 300 billion cubic feet deficit at the end of last year to now being about 9% more than the five-year average. This comes as U.S. production hits record levels. All of that means this is an oversupplied market. It is, I don't know if we have enough superlatives to talk about. Let's boil it down. So people in California in particular, because of some of wonky factors there are getting $800,900,000 heating bills this summer. I think they're getting a $50 rebate from the government to try to save this.

I mean, the energy producers say relief is coming, but they must be going, why is PIPA telling me that the net gas price is down 80% from the highs that I'm paying as much as a mortgage for, you know, maybe. we just have to have these feed through with a lag. This has been an incredible about face here. Yeah, and this is Henry Hub prices, and we have to remember that there are different types of markets based on your region. So to your point, in California, they've had some pipeline issues, they've had stock production. And so as much as, you know, even two weeks ago, their prices were five times higher than Henry Hub. So it really is a regional market based

on the available infrastructure. So just looking at Henry Hub doesn't tell the whole story. But, you know, I think one thing that's going to have to happen now to rebalance the situation is that producers are going to have to cut up. back. We heard that from EQT. They think the market's going to be oversupplied all year and that 2024 is when things will start to rebalance. And yet the equities are done okay. I mean, they're not a disaster. You know, it's interesting. You would have thought, okay, well, if the price of the commodity is down 80 percent, the stock would be too, and that's not really the case. I think one thing is that a lot of producers do hedge their levels. So they're probably hedge at this point at a much higher

level, maybe more so around the $4 level. Also, longer term on the strip, you can see that in the January of 2024, prices are above $4. So there is this bet that USLNG, once we can ramp up that infrastructure, that will be a catalyst to push prices higher. But honestly, at this point, it's like, how low can you go? Every day, it's a... What's been going on in Europe with natural gas? Yeah, so they've also been saved by the weather.

Their TTF futures fell below 50 euros per megawatt hour for the first time in 17 months last week. And so it's also a weather story there. And what's interesting is we might see some demand increase from switching back to NAC gas. You know, not gas is so expensive last year, so producers switched or power companies switched from that gas to coal. Will we see that trend reverse this year? Yeah. And again, this is big disinflationary pressure. It will, it's a lag, obviously in that gas, but at least on the oil front, gasoline front will be a big help if it stays here.

And then we've got to worry about it creeping back up again, maybe. Pippa thanks. Pippa Stevens. We appreciate it. Let's get to a CNBC news update with Christina Parsonableness. Christina. Thank you, Kelly. And good afternoon, everyone. A federal judge says victims of the 9-11 attack.

tax deserve to be made whole for the nation's worst terrorist attack. But seizing $3.5 billion that have been deposited at the New York Fed by Afghanistan before the Taliban took over is not the way to do it, even though President Biden has designated the money for victims' families. The Biden administration is planning new sanctions on around 200 Russian individuals and entities this week, according to the Wall Street Journal, as the war in Ukraine nears its one-year mark. And the Supreme Court today heard oral arguments on whether to narrow legal protection for internet companies. The family of an American student killed by terrorists in 2015 is suing Google's YouTube for recommending Islamic State videos and thus helping to recruit jihadist

fighters. A lower court rejected the suit based on the federal law known as Section 230 that protects companies from liability for material posted by users. Kelly, back with you. All right, Christina, thank you. Ahead on Power Lunch. More on today's big stock declines. The Dow was just briefly down more than 700 points as interest rates move higher. And check out shares of Manchester United. seeing a pretty sizable pullback today, down 12% coming off an 80% run in the past three months as they sift through multiple bids to buy the team. We're back after this. We're seeing a sell-off, down 670 now on the Dow on Wall Street more broadly as well.

Very close to turning negative for the year, the Dow, that is. Bobazzani following the action. Welcome back, Bob. He's at the New York Stock Exchange. How are you? Good, Tyler. Had a nice week off in Mexico, wonderful country. I think the important thing about today is You have combined the disappointment with Home Depot with two-year yields at a 52-week high, over 5%. A lot of comments on that on the floor today. And you've got a rough day. It's really about consumer discretionary stocks. So Home Depot, it really has not moved on that 297, 298 level all day. Any attempt to rally has been very, very short-lived over there. So housing-related stocks, Lowe's, Mohawk, Lenore, Stanley Black and Decker, all of those stocks have been sort of, in the low end of the range here for the S&P 500. At the same time, other consumer discretionary related names, autos, for example, General Motors, Ford, advance auto parts, genuine parts, anything like that, 3 to 5% declines overall. There's not much in the gainer list, but it's basically defensive names.

So people remarked very quickly how Walmart bounced back. You got a defensive stock in a slowing economy. Even though there were some things to pick about on the earnings report, that's the key story here and other defensive names. General Mills had positive comments as well, but Kimberly Clark and Hershey and other names have been holding up. Procter & Gamble's been holding up, Merck's been holding up, and I think that's the key here. Defensive names just either flat or not down as much at this point. As for the S&P 500, well, we're in at least one week down trend that we've been seeing here. But remember something, we are still up on the year here, up about 4% for the year.

So we are down about 1.5% for the month of February, but still up about. 4% for the year. Kelly, back to you. A different mood. Bob, thank you. Let's turn to the bond market now, which is, you know, it's like down, dim the lights. Let's get the intro music going. Rick Santelli, what is going on today? Well, it's all about two-year note yields today. It took three and a half months, but it occurred today. I'll tell you what I'm talking about. Look at it intraday of two-year note yields and look at how it's climbed. Currently just a whiskers shy of 4-74 is the high yield. significant? Well, if you look at a year-to-day chart, first of all, notice that it really

started to get turbo thrusters on February 3rd, as you see on that chart. But open the chart up, what's important today is we're finally taking out that November 7th high yield close that was at 4.72%, which means we are now on pace for a fresh high yield close and two-year note yields going all the way back to July of 2007. And it's technically significant, meaning if If we close above that level, look for many technically related trades to look for an even more aggressive upside to yields, downside to price in the short maturities. And if we look at how it's affected Fed Fund Futures, we see another low close on pace for August, the fulcrum there.

And finally, and I like this chart the best, Kelly and Tyler, if you look at all three of the major stock indices, on top of the two-year note, the last time it closed, it closed, At that yield, you can see that the NASDAQ, the S&P, and the Dow, in that order, are higher than they were the last time the two-year note traded that yield. Back to you, Tyler. And Rick, just before we let you go, is my memory, you know, serving me? Did you once convert your truck to run on Nat gas? Yes. Oh, yes.

A Ford F-150 truck with some friends in Oklahoma. We did that, I believe it was in 2013 or so, 2012. and we converted it so it was a dual fuel vehicle. We did the conversion in five and a half hours, didn't do anything to ultimately change the structure of the engine or the fuel injection. And all you had to do was hit a little button on the dash and you could go from regular gas to NAC gas. And if you were going 60 miles an hour in that truck,

you'd never even know the difference. So do you still have it or was this like a one-time thing? It was one-time thing. It was purchased by some friends of mine that were in that. business. We did the conversion on live TV over about a five-hour period and after that I do believe they auctioned the truck off so I still don't have it. But I have worked on other vehicles and my kind of near and immediate family. It's something that's quite easy to do and farmers have been doing it for decades converting some of their farm equipment to run on mac gas and propane gas.

If these prices stay where they are, I might be watching a YouTube video. Thank you, Rick. I'll come right over here, how we could do it in a weekend. I got a minivan. It doesn't have great gas on. Rick, thank you very much. Rick Santelli. Thank you.

All right, let's talk a little bit more about the markets. Our next guest, seeing potential for a rotation back to high quality, reasonable growth stocks. Let's bring in Marianne Montaigne, portfolio manager with gradient investments. Marion, welcome. Good to have you with us. Can stocks make forward progress with rates rising the way they have been over the past month or so? Yeah, I think there's certain stocks. You know, we're always stock pickers, so there's certain ones that can do well, even if the two-year rate is heading higher. And a few of them, they're durable growth stories. So one that we hold in both our core growth and value portfolio strategies is United Healthcare. And this is a health care insurer. We think we can get as much as a 25% increase in the United Health Care. the value total return, that is, over the next 12 to 18 months.

And part of the reason is because their optimum growth, which is healthcare technology, direct to the consumer, is now about 50% of their earnings. It's a fast-growing part of their business. And, you know, they've been beating revenue and earnings estimates quarter after quarter. We think they'll continue to do that. And we just think that's a great story. It's also Minnesota-based, as we are. So you call that a growth and a value stock, or it's a...

in both of your portfolios. So you like the price and you like the growth. Another one that's on your list is Constellation Brands. That's much more sort of consumer focus. We've been talking a lot about the consumer today. Yeah. In fact, today is the opening day for the Consumer Analyst Group of New York. It's about 660 people in attendance. I used to be president of that group. And I'm quite familiar with the consumer side of things. I constantly Brands stock today, what's going on with Molson Coors, and they've seen some acceleration in that fourth quarter for Molson, and we expect to see that in the quarter that ends February for Constellation. So with a 3% yield, we think that total return of 17 to 18% is likely over the

next 12 months. Here, we're looking for volume growth to accelerate to the 6 to 6.5% range. a very healthy number in consumer land. And that's going to be during the important summer months. And in addition, they should see high teens EBITDA growth as their cost pressures are alleviated and they get some leverage out of their expenses. So let's widen the lens and talk a little bit about the macro environment. When interest rates are rising with indications that the Fed is going to continue raising those rates, number one, when you have the yield curve,

inverted the way it is, rates at the level they are, and talk of a recession coming in the second half of the year. Talk me through that. Are you in that camp that sees a recession? And if you are, then doesn't that make it doubly difficult for stocks to make headway? Well, a lot of people are looking at two data points that have come out in the last couple of weeks, and that's how they're coming to that conclusion, and we're not. So one was the jobs report back on February 3rd, very, very extraordinarily strong. We don't think that's going to recur at all,

nowhere near that. The second is in terms of labor, I'm sorry, I'm forgetting the second point, but maybe the consumer price index. We just don't think that those rates are continuing. We think that prior, large hikes and interest rates are starting to dig in to the economy, and we think that that's going to continue to play out, and that the Fed will not have to raise rates at an aggressive

rate going forward. So we don't think they are going to put us into a deep recession in the second half. We think there's already, oh, one of the points is that in terms of job openings, they now match the number of people looking for work. So we think that there's a further likelihood that we are going to see the contraction going on in the very, very, very near term, and that will prevent rates from going much higher. We'll see that it is paying off. But people just don't believe in that for the most part right now. So we think we can have a good year. Again, we know that inflation is digging into people's ability to spend. We saw that at Walmart's earning, today, even though they were very strong, the outlook was more muted and also at Home Depot

because the consumer has started to pull back on consumer discretionary spending. Okay, Marianne, thank you very much. We appreciate your time today. Thank you. Marion Montaigne. Now, the rail industry is under pressure after that Ohio train derailment, leaving at least 15,000 pounds of soil and 1.1 million gallons of water contaminated. How much has Norfolk Southern been responding to this disaster? We'll hear directly from the CEO next. But first, as we head to break, during February,

CNBC is celebrating Black Heritage through the stories of some of our teammates, contributors, and leaders in business. Here is CNBC contributor and Odyssey Capital Advisors' Principal, Jason Snyd. By definition, being a minority is fewer than, but not necessarily less than. You know, as a young professional,

I thought I needed to assimilate into the rooms and teams and boardrooms, that I participated in, but realized early on that diversity is a superpower and is additive. So I encourage you to show up as your authentic self. There's so much value in that. Welcome back to Power Lunch, the Environmental Protection Agency, ordering Norfolk Southern to clean up the Ohio derailment site and pay all the necessary costs. And get this, if the company fails to comply, they'll have to pay triple the amount. Norfolk Southern CEO, Alan Shaw, spoke with our Morgan Brennan about the company's cleanup efforts. Take a listen.

I've come back multiple times. I've drinking the water here. I've interacted with the families here. I know they're hurt. I know they're scared. I know they're confused. They're looking for information and who to trust. I encourage them to ask questions.

I think when they really dig into it, they're going to see that all the testing, whether it's done by the EPA or local health officials, or our independent contractors show that it's safe to return to this community. And my commitment to this community is we will continue with the environmental remediation. We've made a lot of progress. Well, be sure to watch Morgan's full interview with Norfolk Southern CEO, Alan Shaw, today at 4 p.m. Eastern on closing bell overtime.

Let's dive a little deeper into the crisis now with Americus Reid. He's a marketing professor at the Wharton School of Business and a CNBC contributor, America. And I mean, already to you, there's so many things here that this company has done wrong. Walk us through it. Yeah, I appreciate the opportunity, Tyler and Kelly, first and foremost. This is a mess because one of the things that is very clear in the research is that most crises are actually smoldering. They don't just show up all of a sudden. And so what that begs the question of is to think a little bit about, well, should you have been prepared for this? And it's one thing to sort of try to overmanage rare events. It's another thing to say, hey, you know what,

we're in the industry of actually moving toxic chemicals by rail. So maybe it might make sense to have a plan that maybe one day one of these trains will actually derail and spill some toxic chemicals into the environment. So consumers will expect you to have done that, that calculation. And there's really three important things that are really critical here in terms of the brand new brand crisis playbook. And that is, number one, you have to validate the concerns. And we saw Mr. Shaw in that club talking about, say, we feel your pain. We feel that, you know, we know things are hurting. But he's talking about the aftermath. He's talking about what has happened in terms of testing the environment to make sure it's safe for consumers. What he's not

describing Kelly and Tyler is the idea that if you just go into your little Google machine and everybody's got a cell phone in their pocket, you can see that the federal Railroad Administration has reported that Norfolk Southern has had upwards of 20 of these train derailment crises since 2015. It took me five seconds to figure that out on the Google machine. And so when you stand up in front of consumers and you ask them, you plead with them, trust us, we're going to work with you. We understand your plane. We're validating your concerns. You also have to show action. In other words, you have to not only say, say, here's what we're doing right now, but you also have to be very clear on moving forward.

These types of things, they should not happen when you know you're in the business of doing this sort of transportation and the like. And so consumers are expecting that, and you got to just do more than just say, hey, we're sorry, you have to come up with a way to control that narrative. How much time does a CEO in this kind of circumstance have to get to go from an F grade, which you give this company to an A grade. In other words, if that gentleman had come out and been appropriately sensitive and action focused on within X hours, how would that change both the results and your impression of their response?

It's a great question, Tyler. The answer is you have zero time. In this day and age, information travels around the world in a second, because of how we operate in social media. And every single consumer has that cell phone, and they're spreading information. So you don't have any time to have a plan or to come out and wait and be silent. The old playbook says, hey, don't say anything because you don't want to start creating litigation before you have to. That's the wrong way to look at it.

You should jump out immediately to the third point of crisis management, Tyler, and try to control that narrative. How? Sure. Oh, I'm sorry, Mary, because I was just going to say, how do they change a narrative when it comes down to the facts that you mentioned? I mean, they can't change the narrative about how many trained arrailments they've had. This is absolutely correct, Kelly. They can't change the narrative of the past. What they can change is flooding the airway with messages about the plans for the future, such that. I mean, there's a limited amount of oxygen out there. So if there's all this bad stuff in the history, you have to push that out of the purview

of consumers' expectations and perceptions with this new story, if you will, about what you're going to be able to do moving forward and why you're going to do it and how it's going to be effective. In other words, our go team is on the way now to the site in East Palatine, Ohio. We are going to house people. We are going to remediate. The checkbook is open. You've got to do that immediately.

And you can't be afraid of what your chief counsel or lawyers may be telling you. 100% correct, Tyler. But lawyers are going to tell you to shut up because every word you say is going to end up documented and it could be another dollar amount that ends up in a liability sort of case. And so what you have to push against if you're at C-suite leadership is to say that, I understand that there's legal ramifications for coming out and giving information. But what we understand is it's just validating concerns initially and then making sure that the brand does not fall under additional crisis.

I think lawyers are going to be angry with me for saying that. And with you too. So I'll call you later if we as much. America's, thank you, Americus Reid, joining us. It's a tough situation. Very much looking forward to that interview. And maybe he will give more of the candor that people are seeking. All righty, still to come, contradicting the consumer cracks while key retail retailers are warning of rough times ahead.

General Mills forecasts growth. We will trade that name in today's three-stock lunch. Bring the milk and the berries. Welcome back, everybody. Time now for three-stock lunch on the tasting menu today. We've got three big movers. Wells Fargo raising its price target on the pharma giant regeneron and maintaining its overweight rating. General Mills higher following positive earnings report from that company and a boosted forecast. And shares have docusigned lower following a downgrade at UBS.

Here to help us trade them all. Ava Ados, chief investment strategist at ER shares. Ava, welcome. Let's start with regeneron. What do you say here? It's a buy. It's an entrepreneur of health care company. which has been a long-term fault for us.

We like it because it shines in both good markets and bad. And so it's a company that has seen its revenue is increased 30 times in the last 11 years. And its net income margins 50% above its sphere. So very good fundamentals. They invest 30 to 40% of their gross profits into R&D, which makes me believe they're likely to maintain their edge in the future. All right, Regenerate, Clear Positive. What about General Mills?

Speaking of Clear Positive, especially in a tough market. So this is a safe bet in the tough market like this one, in a vulnerable market like today. So it's a good company to own. I would say it's a fold or a buy given the risk profile of an investor and their view on the market. So it's going to outperform the SNP in a volatile market. But if we see growth come back, it's certainly not going to provide great outperformance. All right. And let's go finally to DocuSign, Eva.

This is a sell. I know this company once had great promise and potential, but however, they never made the profit. Even during COVID, which accelerated the growth, they made no money, never capitalized on their growth. And so unlike other companies such as Adobe, which is in the same category, and one third of their revenue drops to their bottom line. This is a company that makes no money. SG&A is very high. Key executive compensation is very high and not justified by the non-profession. And also there R&D is significantly high, but has not been yet translated into key innovative

technologies. That's why it's the sell. I'm surprised they haven't had more of an activist pressure, Ava, given what you're describing. Not yet. Yeah, seriously. Eva, Ados, thank you so much. That does it for today's three-stock lunch. Up next we'll take a look at some stocks trading above their recent averages might put them at risk of a reversal.

Stay with us. Welcome back, everybody. The Dow, down more than 700 points. lows. Dominic Chu is looking at some names, which might be in particular at risk of a reversal. So, I mean, this is all about the momentum, right? The stocks that have arguably gone up the fastest may be the ones that could be due for the bigger falls here. So what we decided to look at was the broader S&P 500 in general and looking at the longer term trend lines. So a lot of traders use the 200-day moving average, that longer-term trend. Right now, just to kind of give you a

reference for the S&P 500, that level stands at just around 3941. All right, if you take a look at Well, they pulled the chart down, but that was where it was. If you look at that past where we are now, where are some of the stocks in the S&P 500 that are the most above their moving average on a 200-day basis? In the S&P 500, 25% above their 200-day moving average, 17 stocks fit the bill in the S&P 500 like that. Amongst those names that are the most in terms of relative strength above where their longer-term trend lines are, take a look at some of these.

There are names that you know. Boeing shares are about 27%. above their 200-day moving average. If you look at NVIDIA on the semiconductor side, about 28%. Netflix, we've talked about just how strong it's been since the lows that we saw last year. 34% above its 200-day moving average. United Rentals on industrials, 40% and wind resorts, 48%. So could they be some of the ones that fall the most because they've risen the most?

InVIDIA reports this week. We know hotels. Everyone's been bullish on. Yeah. Nice to have you here, Dom. Good to see you. Thanks for watching Power Lunch, everybody.