Power Lunch - Power Lunch 2/9/23

Episode Date: February 9, 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.

All right, welcome to Power Lunch, everybody. I'm Tyler Matheson, alongside Kelly Evans. Coming up, are we about to see a wave of deals in pharma? After one of the slowest years in recent memory, Pfizer, Merck, others could be on the prowl for takeover targets. Our panel will discuss what it means for those companies and the biotechs that could be on the shopping list. Plus, big news made on CNBC this morning. Activist Nelson Peltz calling off as proxy fight against Disney. He says the company did what he wanted. so he wishes Bob Eiger and the board well, but will investors like what they got?

We'll get to all of that and more. But first, a quick check on this market as the gains this morning have quickly disappeared, Dow's down about 105. All right, let's go to Dom Chu and go through some of today's movers. I see Tesla is on the list there. Absolutely. Tesla's actually up as we're hitting session lows right now for the stock market. They're solidly higher in the day, not far from the best levels of the session right now. As you can see, some of the upside today being driven.

by headlines with regard to a fatal crash involving a Tesla Model S in Texas back in 2021. Now, U.S. auto safety regulators determined that the accident was not not tied to the use of that controversial autopilot feature on some of its cars. That alongside some optimism about the stock, Tesla heading into the EV-makers investor day in early March are helping the surge. And by the way, at current levels right now, you can see

we've now officially more than doubled off the lows that we saw just back in the early part of this month. Next up, you've got shares of a firm which are going in the opposite direction. The fintech company with a primary focus on that buy now, pay later consumer financing trend is losing about roughly a fifth of its value today on the heels of a disappointing earnings report. The company also announcing it's laying off roughly 19% of its workers. By the way, down 18% is off session lows for that stock. And we'll end on Hesai, which is up 14%.

You've never heard of it, maybe, but this is a Chinese company which makes sensors for self-driving cars. It had a highly anticipated public debut today. The company sold 10 million American depository share units for $19 a piece. That was the high end of the range. But this is one of the more high profile. Tyler Kelly, China-based IPOs listed in the U.S. Since DEDY's crash back a couple years ago. So watch those hay-sized shares.

It'll be an investor focus. I'll send things back over to you. All right, Tom, thank you very much. Despite recent political tension, China does appear to be on the verge of a big comeback economically. According to the Financial Times, global investors bought $21 billion worth of Chinese stocks in a record start to the year. And our next guest says China's reopening is helping fuel his optimism on the global economy. Let's bring in Jim O'Neill, former Goldman Sachs chief economist, currently a senior advisor to the Chatham House.

Jim, welcome. Good to have you with us. Growth and inflation. Let's get your ideas about both of those globally and how China and its reopening will affect both of them. Well, thanks for having me own. You know, on one level, it seems to me pretty straightforward, just like we saw virtually anywhere in the developed or developing world, a country that came out of an aggressive lockdown had a huge cyclical recovery. So whatever China's long-term problems are, and obviously there's quite a few challenges, something else would have to go really badly wrong in order to stop a very large. bounce very quickly. And from what I can see, not that I'm in the business the same way I used to be, from any, any bit of evidence I see, it's pretty obvious China's bouncing back already.

Just even here in London, somewhere as distant, you know, you can see evidence of Chinese tourists all over the center of London already. And you can see it in their own spending habits and all the rest of it. So China's comeback, so China's comeback is certainly going to help growth globally and in individual countries. Is it going to hurt inflation, however, through pressure on commodity prices or oil consumption or whatever? So that's the obvious thing one would worry about, given the historic role China's played over the past 30 years increasingly in many commodities and, of course, everything else. But what I find absolutely fascinating is despite this now being a month old story,

commodity prices have not risen. So either the commodity markets are being really blind or there's something else going on. And I find myself leaning towards the slightly more optimistic angle of that. And partly because of when I did a PhD way back decades, if not centuries ago, during the second oil price crisis. and what economists would call the long-term elasticity. I found out before I'd finished my PhD,

conventional wisdom was just so wrong. When you get a huge price shock, consumers and producers actually go through the process of responding more than people realize. And so it might well be that below the surface, that's going on in the energy markets right now. and you can see it obviously with European gas prices where they're actually fallen so far from the highs

and we see it with some evidence of the European economy too. So it might, and the other thing that is possible is that this bounce from China isn't going to be involving the same kind of frenetic activity in things like house building that it did in past cycles. But I'm slightly surprised. I would have thought by now we would have seen a bigger influence and commodity prices and it's not happened.

So it's not happened yet. Why isn't it happening? Or does that tell us something? I mean, it's not out of the question that the global economy could be going into recession as soon as this year. So I do wonder if that's the signal that we're getting is even with China's reopening priced in, even with that activity coming, if the US is slowing sharply, I don't know, you tell me what's going on in Europe, but that there's a bigger headwind out there than

many realize? Well, I don't really, I mean, that obviously would be a possibility. And that's probably what the consensus we're thinking in November. But again, my latest, I emphasize I'm not in the business day to day in the same kind of crazy intensity I was for 30 years, but it's still in my blood. And so if I look at all the high frequency indicators that are pretty reliable, actually the evidence of in Europe is partly linked to the government. prices, but also because exports to China are so important, the evidence coming out of Europe

is there is going to be no recession. In fact, and I noticed my old crowd and some others are no longer forecasting a recession in Europe. So, and you see the same sort of thing in other parts of the world too. So yes, of course, the US might end up going into a recession if the Fed really puts the brakes on, but you guys probably spend all day every day debating it. the markets don't really believe that the Fed's going to keep doing what it said it's going to be doing. And that's another part of why I think there is some grounds for a bit, and I have to say,

I'm slightly worried, I'm sounding such an optimist. I don't really, there's mammoth issues structurally. But for this year, you know, I think there's quite a bit of evidence that the inflationary pressures are slowing more than people are talking about, including the consensus at the Fed. And as a very famous US macro investor once said to me, the only thing you know for sure about the Fed is when the evidence is changing in front of their eyes, they change what they say they're going to do. And, you know, I think that's quite a wise thing.

But, you know, obviously, I think the next inflation read, I'm not sure when you guys have got it, it's coming pretty soon, right? I think that's going to be a really big thing for all global markets, as will be the ongoing evidence of the speed of China's recovery and what's going on in commodity prices. But so far, it is remarkably benign in my view. Well, on that note and a very positive note, it is, we thank you, Jim.

Always good to see you. I think I should go and have a lie down. I think you should. Just take a little pressure off there. Good. Thanks so much, my friend. Have a good evening. All right, Jim O'Neill.

And coming up, folks, Nelson Peltz, going from Grumpy to Happy, the activist investor ending his battle with Disney doing it very publicly here on CNBC, saying the company did what he wanted. But will it pay off for shareholders? Plus, the NASDAQ up 13 percent so far this year. Some of the last years big losers have been the leaders this year. But have they come too far too fast? Perennial question, we'll talk valuations when Power Lunch returns.

Welcome back to Power Lunch. It has been about a month since Nelson Peltz launched his proxy fund. fight at Disney. And after Bob Iger announced restructuring and cost-cutting plans, on last night's call, Peltz has already declared the fight over. Here's what he had to say to our own Jim Kramer earlier today. Listen. This was a great win for all the shareholders. Management at Disney now plans to do everything that we want to them to do. We wish the very best of Bob, his management team, the boys. We will be watching. We will be rooting. And the proxy fight is over.

The proxy fight is over. Declaratively stated there. For more on what's next for Disney, let's bring in Sean McNulty contributor at the Ancler. Sean, welcome. Did Mr. Iger achieved at least one goal, I assume it was one of his goals, and that was to quiet the proxy fight of Mr. Peltz at all. But did Eiger's moves add up to enough to write Disney and put some juice in the stock? Yeah, I mean, it was up 5% last night. He said all the right things. Bob's a pro. He nobody needed to say Nelson Peltz was the, not the ghost in the room,

but he directly started the call saying Fox was a good deal. And that didn't say Nelson's name on the call, but it was in his opening three or four sentences of the call. And look, you have to cut costs. You don't need Nelson Pell's to tell you that. Bob Eger knew that already, but Nelson can come on to CNBC this morning and say, he listened to me and thank you so much and I'll be on my way, which is what Bob had to do to get that done. The annual meeting is on April 3rd, so that is one thing off the list now. So, you know, Bob is a lot ahead.

Where are the cost cuts going to come from? Marketing, marketing, marketing, marketing. That's a $1.25 billion in marketing costs are the first order of business. And layoffs, as you reported, 7,000 layoffs. So labor and marketing are two first main sources of cuts, $3 billion in content. There was no deadline put on that. And sports is excluded from that.

So, you know, that could be the Hulu deal that they may not do. That could be cutbacks at, you know, at 20th Century Fox Studios. You know, he was very, he's at general entertainment. So what is that not? Marvel, Star Wars, animation, Pixar. So you're talking, you know, that could be ABC Network. That could be free form.

That could be FX. So we're waiting on that, but you're going to see, A, a marketing, because he said marketing cuts several times on that call. He clearly came in and said, you guys are spending way too much on marketing. You don't have to. That's $1.25 billion. And then the labor costs, I think, were $750 million, probably by end of fiscal year, which would be, you know, the fall or certainly end of year, Tyler.

So a couple of the, you mentioned several of the properties, including Pixar and Marvel and a couple of others. that, Star Wars, that seem to have gotten a pass on this round. Is that likely to persist, or could they ultimately be on under a scalpel's knife? I mean, he said they're spending too much on, you know, those things, and you can interpret that as you may. Does that mean fewer series, or does that mean the budgets go down? You know, again, he wasn't clear on that. So it wasn't unscathed, but he said he focused on general entertainment as his first area and the main area of those $3 billion of content.

10 cuts. So, you know, it's not, look, nothing safe in 2023 in the media business, but you're not going to cut back on Star Wars. And Star Wars, quite frankly, he has to get that going again. There are no Star Wars movies in the pipeline right now. So that's priority number one. Avengers already has a five-year plan. I doubt he's going to cut that back. So I don't think there's too many cost savings to get from those franchises, maybe a little bit in animation, things like that. But there's not a lot you can cut because that is he's a franchise guy. You know, he's not going to look there for the main cuts to start. Yeah, he kind of said it's general entertainment where he doesn't want to sort of compete.

And what do you think is the significance of breaking off ESPN into its own unit? Laura Martin last hour suggested that maybe he would look for a co-investor down the line, raise some cash. Maybe that co-investor could be a league itself or another media company. What are your thoughts? Yeah, he said he didn't want to sell it. He didn't say he didn't want another investor. So you're exactly right, Kelly. You know, he's very big about it.

It's not going to be a separate line until later this year. It cannot, maybe not until fiscal fiscal year, quarter four in the fall. So a little bit more on that, you know, I don't, it's honestly, it's also to recognize how important sports is at the company. And if you're looking at the future of broadcast, what is everybody saying? News and sports. So maybe he's planning a flag saying sports is a pillar of the Disney company going forward, much like, say, Netflix said gaming is a third pillar of their company. So it could be prepping for, you know, what's the future?

of entertainment, it's not in broadcast TV, it's not in cable TV, sports will survive that, and he wants to maybe give that, you know, it's due course in the earnings or the company. It's interesting when you make a move like he is proposing here, which is to sort of separate ESPN as its own business, it makes that business more conspicuous, doesn't it? And potentially in a good way and potentially not in a good way, if you were living at ESPN. But one of the things he didn't say in terms of cost cuts was it didn't talk about cost cuts at ESPN for rights fees or or other things. Yeah, I mean, a lot of that, the deals are done.

You know, we can't go back on it. The only deal out there is the NBA. And as he said on the call, you know, the NBA is very, very important to ESPN. Is it the same deal they have now? You know, maybe not. Warner Brothers Discovery is having the same kind of issue in that they're also cutting back, but the NBA is going to want to double their fees. So, you know, but the NBA also doesn't want to go to just.

streaming directly. They need that wide audience up at ABC. And the still potent, you know, cable networks at ESPN for viewership. So, you know, that's going to be the thing to watch is the NBA deal. But everything else, he can't touch sport. You know, the deals are done. So there's not much to pick up because there's not much you can do about it. There's a lot going on in the NBA today. Trade deadline, three o'clock. Sean McNulty. Thanks a lot, my friend. Good to see you. Further ahead, New York rents are near record highs. What's keeping them up? People will keep paying them. January seeing a big uptique in signed uptick, she said, in signed leases. We'll have more on that. But first, the semiconductor ETF, the SMH jumping 20% to start the year.

Despite announcing some layoffs, that sector holding strong compared with broader tech. We've got more coming up on Power Lunch. Big tech in the spotlight has firms layoff workers in order to cut growing costs. What about job cuts in the semiconductor industry? That's sort of the leading indicator of all this, isn't it? Christina Partsenevillis is here to discuss. Would you say it's a leading indicator? Given how much attention we give towards big tech and all the job cuts and we've been talking about it and we wonder, is that indicative of how the market is?

But when you compare it to semiconductors, the cuts are actually a little bit smaller and not as deep. So we know, you know, a firm... So they're deeper relatively in semiconductors. Well, no, they're not as deep. Not as deep. It's more of like high-level jobs. For example, there was Western Digital. They had over 200 cuts and the role of technologists and principal engineer were the number one jobs cut.

So a lot of maybe at the Ph.D. level. And the reason for that, and this is based off of experts and all the analysts reports that I've spoken to, is that semiconductors are in a unique spot when compared to big tech, especially here in the United States, because they need to downstream their business. They are no longer just going to be designers on American soil that outsource all of their chips to TSM and wherever. Instead, they are going to bring that manufacturing here. So that's what makes it so difficult for them is to change that dynamic, that business dynamic, like going from having all these PhDs to designing it to now hiring the workers, the builders to build in the United States.

Yeah, I think, again, it raises the question. So is what's going on with big tech, you know, unto itself? In other words, I mean, this was where we probably saw the biggest blow. I just can't stop thinking about Google and what's going on there this week. And the drama at Alphabet over this botched AI rollout. And you think this company has how many thousands of employees and is it even relevant for what's now going to be the next kind of job? generation of tech. So there's bloat, but maybe in semis to your point, maybe there's not as much, or maybe the hammer just hasn't dropped yet. I mean, it does seem clear we've moved from

kind of shortages to gluts. Of course, right. We can't predict the future. So we could see a lot of cuts come, especially with the CAPEX spending, decreasing across the board with AWS, Microsoft, meta. You know, you're starting to see that weakness within industrials and semiconductors. But overall, the cuts haven't been massive. With the exception of you got micron that's laying off quite a bit, 1,300 globally and Intel keeps revising their numbers. But overall, you'd expect it to be a little bit worse if we're going through this downturn. And part of that could also be because of the optics. A lot of these semiconductor firms are expected to receive funding in the next few months.

Through the government. So $53 billion in funding that will be spread out over several years. And imagine how that looks. You're getting taxpayer dollars when you're laying off employees at the same time. But I got to see, we reached out to Mike Ron. Hey, what do you think of this? Because you guys are laying off so much, but you're also going to apply. for funding. And they said it's, and I'm paraphrasing right now, that it's, a lot of it is, you know,

the short-term pain for this long-term gain so that they can become more nimble. Let's cut a few of the, you know, peripheral jobs. And I'm going to be doing this story tomorrow, but a lot of the tech workers are finding jobs within eight weeks. So they're not necessarily as bad as we might expect. But that's why there is a little bit of a difference right now in what's going on in the job. Are they going from big companies to smaller companies, those tech workers who are finding out? This is for tomorrow. So there is a focus on defense that I will be sharing some insight to be everywhere. And some of them are getting, I don't want to reveal all the information.

Hold on. That's the tease. Okay, fine. Let's leave it. We'll hold it there. All right, Christina, thanks. Thanks. Good to see you. All right, let's get to Frank Holland now for a CNBC News update. Hey there, Tyler. Here's what's happening at this hour. Three days after a massive earthquake struck Turkey in Syria, more than 20,000 people are dead and at least 75,000 are injured. rescue crews are still looking for survivors.

The six-year-old boy was freed after spending 80 hours buried in the rubble. A new study has found a large number of school kids dropped out during the pandemic and they never return. An analysis by the Associated Press in Stanford found 240,000 students across 21 states who are no longer enrolled in school. And for the very first time, sales of spirits have surpassed those of beer here in the U.S. The spirits trade group says, Hartlaker's market share has gone up for 13 years in a row and just narrowly edged out. beer in 2022, though a beer trade group says beer is still technically number one. Rising interest in spirits has gotten a boost from the growing popularity of cocktails, including some pre-made concoctions. And Tyler, I know you contributed to this with some of

your McCallin purchases. Yes, indeed. I have. Frank Holland, thanks, my friend. Thank you. All right, ahead on power lunch. Too far too fast. The NASDAQ higher today. So are valuations getting ahead of themselves? And as we had to break, a reminder, just two days left in the 2022 CNBC stock draft. Thanks to Netflix, Ryan Reynolds, the mountain goats hold the lead. There you see it, up 38%. We'll talk to the winner Monday after the Super Bowl. We'll be right back. Welcome back to Power Lunch, everybody. A big reversal for markets today. The NASDAQ had been up more than 1% at the high of the day, and now it is down about two-thirds of percent. Pepsi shares are higher as the company beat on earnings and increased its dividend. The company's CFOs, the company's CFOs,

says consumers are cutting back on big purchases but still looking for affordable treats, presumably meeting a bag of Doritos. There will be a few of those consumed this weekend, I would guess. And MSG Entertainment jumping nearly 15% today. This is the company that owns the Knicks in basketball, the Rangers in hockey, saying it's Christmas spectacular. That has the Rockettes in it, doesn't it, Kelly? I think so, yes.

Brought in big dollars during the holiday quarter thanks to higher ticket prices. Go Rockettes. Let's get to Rick Santelli now for our bond report. Rick. Well, Tyler, we had a very nasty 30-year bond auction. I gave it a D-minus in terms of a grade for demand. And as you look at a two-year note, skyrocketing and even steepening its assentire after 1 o'clock Eastern, that also played negatively to the chart you just showed for the NASDAQ and the other equity indices.

If you look at the 30-year, the antagonist in this case, you can clearly see how it moved. higher. It ignited the entire long end of the Treasury curve yields to go higher, and it took away some of the inversions. As you see, twos versus tens was on its way to minus 87 and it has reversed hovering around minus 82. Any close of 82 and a half base, minus 82 and a half basis points or more negative will be a fresh four-decade inversion. Fed Fund Futures, the fulcrum, has gone from June, July, August, now September. The further out it goes, the more fed it's bringing in the way the markets are pushing these things. So right now, you could see all the prices going down every month until you reach September, and they stop going down.

So let's use that chart. This is a year to date. It's hovering at 9487. It is never closed lower than that. And the lower it goes, the more Fed were bringing into the equation. And finally, my surprise chart. When I traded bonds in the 80s every Thursday at 2.30 Eastern, they release months. It used to be the biggest variable moving interest rates. Those days are long gone. M2 isn't as

famous as it used to be, but I will throw this chart up. This chart goes back for decades. M2 year-over-year percentage changes turn negative, and here's a good reason to consider the notion that we may be looking at a recession and less inflation down the road. Tyler, back to you. Very interesting. That's a measure of liquidity there. Thank you, Rick. Rick Santell. Well, the oil market is closing for the day, and guess who's here? Pippa Stevens. Hi, Pippa. Hello, oil is lower. Seventh straight week of inventory bills.

NAC gas, though, is higher after we saw a draw there, making back some of yesterday's losses. But I did want to point out shares of uranium company Camaco. They are jumping 6% after the company reported results. They gave upbeat guidance, said their increasing production. But I think most importantly was last night, they announced a 12-year agreement with Energoatom, which is Ukraine's state-owned nuclear facility. And so they will be supplying all of that uranium that comes after President Zelensky on Sunday

said that he is sanctioning the Russian uranium industry. And so now the utilities will have to compete for the remaining uranium on the market. And so that's also boosting the URA and the URNM today. It's a great point. Just to go back to oil for a second. Did you say it was a seventh street week of losses? Of building inventory.

Oh, of building inventory. Yeah, yeah. But that's partly why we've seen such pressure on the prices. we were just talking about this with Jim O'Neill, who's scratching his head a little bit to say, well, why if this is all pointing towards more economic activity, more global, you know, demand, why aren't these prices responding higher? And this is what Ed Moore said a year ago when he said prices were going to fall. He said there's going to be just a ton of inventory build.

And so maybe we know the supply piece of it before we know yet what the demand piece will fully look like for the rest of this year. And I think we're still waiting on the China numbers and to see what happens there. That's a huge catalyst that's been pushed to the back half. It keeps getting delayed of, you. when this big boom is going to come. So I think that's also a key fact to watch. But, you know, people aren't driving as much. Also, interestingly, 18% of the slowdown in fuel last year was because of more efficient vehicles.

Wow. So that's playing a little bit of a role. And, you know, once you add up all these kind of smaller things, it does start to chip away at the demand side. Yeah, efficient vehicles, electric vehicles. Yeah, exactly. And people staying home more. Yeah. And that's what Jim was saying, too, that as he goes back over the decades, the response to oil price shocks is actually bigger than people realize.

And I think you're absolutely right on the electrification piece of this last year. Pipma, thanks. Good as always to see you. Stocks are unable to hold on to their gains today, but they are off to a nice start for the year. For the NASDAQ in particular, up about 13 percent. A bunch of strategists are questioning valuations, though, if they've gotten ahead of themselves, especially for some of these riskier growth names. Let's bring in Richard Bernstein now.

He is the CEO in Chief. Rich, I've been looking forward to talking to you for weeks, literally. Welcome. I'm glad you're your chief investment officer, Richard Bernstein, advisors. Because I remember on this show last year in the summer, you like perfectly called what was going to happen in the back half. What do you think is going to happen now? Well, thank you, Kelly. I think you just cursed me for for 2023 with that accolade.

But thank you so much. Look, I think we should be very careful in extrapolating January's rally. The markets are really trying to anticipate what they believe will be once again cheap and abundant liquidity from the. Federal Reserve. And I think that's a mistake. I think the world has changed. I don't think we're going back to where we were. And I think that people who are speculating, investors who are speculating in some of these, you know, more questionable investments, I think we're ultimately going to be disappointed this year. We just saw from Rick Centelli that M2 money supply has gone negative for the first time in quite some time. You saw a spike from 2020 a couple years ago when a ton of

liquidity was coming into the market. What are the implications? of there not being that flood of liquidity. Right. Yeah, well, Tyler, it's not just the Fed. If you look around the world and you look at, say, the percentage of yield curves around the world that are inverted, it is signaling that, you know, that there's a coordinated effort here among central banks around the world

to tighten liquidity tremendously. So, you know, one of the founding principles of speculation is you need liquidity. So I think that we have global liquidity contracting, and that's really not a good environment to be speculating. What does that mean segregated for me? What does that mean for markets? What does that mean for economies? Right. So I think for the markets, you've got an environment right now where people are trying to decide,

are we seeing some kind of fundamental shift from value to growth, or is this speculation? I obviously fall on the side that says it's speculation. Why? Because cryptocurrencies are rallying tremendously too, and there's no fundamental basis to cryptocurrencies than anybody could ever point to. So it clearly has to be a speculative rally. What does it mean for economies? We think it ultimately means that we're going to see a very gradual 5, 10, 15, 20-year shift. I know nobody cares about that, but a 5, 10, 15, 20 year shift away from these speculative assets, which we've kind of called Q-Winger Dogs in the Metaverse, two real productive assets, assets that really help the economy provide value added.

So, Rich, one of the things I recall from speaking last year was talking about sector rotation, and you started to kind of hint at this with maybe don't chase growth right now. But can you explain kind of again, what inning are we in here? Where should people think about being positioned and where should they definitely avoid? Right. So, Kelly, I think one of the real opportunities here that people are missing is to look outside the United States. I realize nobody cares about that either. But in 2022, 70% of non-U.S. markets outperform the U.S. in dollar terms.

I mean, it's just incredible. And the reason why is because the United States is dominated by tech, by consumer, by communications, and the rest of the world is not. But even if they're slow, rich, I mean, I totally. totally take your point, but is it something that can only work for six or nine months? Because can the U.S. slow substantially without dragging the rest of the world lower as well? Oh, fair point. But I think what people have to remember, Kelly, is that we always tend to think of non-U.S. markets in terms of countries.

And there's a huge sector effect right now in non-U.S. investing. Like if you look in Europe, what are the two biggest sectors in Europe? They're energy and consumer staples, right? So what outperformed last year? Energy and consumer staples. So there's a big sector effect in non-U.S. investing that's, I think, I would argue right now is more important than a country effect. Would you stick with energy?

So if you think the world is going to slow, you'd want to err on the side of those more defensive securities. Even if there's exposure to energy, for instance? Yeah. Well, energy is an interesting question because, you know, in your previous segment, you talked a lot about China, or at least you mentioned China. And I think we haven't really yet felt the full effects of China reopening. And remember, you're going to see activity first in pricing.

will follow second. So we're starting to see the activity in China. I think one should expect some of the commodity prices and things like that to react. That would be the next step. That would be the logical next step. All right. So much more we could ask. But we'll leave it there. Rich, thank you so much. It's great to have you on today. We appreciate it. Kelly, thanks for your kind comments. Richard Bernstein. And still to come, New York rent's not budging while many expected prices to drop inventory shortages in a strong jobs market, keeping activity high. We'll take that one apart for you next. All right, welcome back everybody. New York rents hitting their third highest level ever in January.

The median rent now topping $4,000. Robert Frank here to discuss. $4,000 is the median. That's the median. The average is now... For what size apartment? Well, that's the average apartment. The average for a one bedroom is now over $4,200. The average citywide is over $5,000.

What's interesting about January is we had these record highs in October, November. But everybody said, well, come January, things are going to come down because nationally things are coming down. New York is not budging. And in fact, we had the highest median rents in January of any January on record. Seasonally, this is supposed to be a very weak time. And in fact, we had a large increase, not just in rents, but in the number of people signing new leases. That was way up not just over December, but way up year over year. And so the question is, where all these people come?

Coming from, I mean, New York actually did increase its population since the pandemic. So more people live here today than pre-pandemic. You wouldn't know that by reading the headlines. And maybe it's returned to office. Now that people have to be back in the office. They want to live in the city. But the real issue here is supply. A lot of, we do see a lot of new construction in New York.

But a lot of it is brand new condominiums that sell for very high prices. And what's happening now is that they're kind of languishing in the market, but as are the buyers. We've got two new groups of renters. One is the wealthy people who would normally buy are sitting on the sidelines waiting for prices to fall. I'll rent until these prices come down on the new condo that I like in Hudson Yards or wherever. Exactly. So they're renting. And then also I've heard this new cohort, which are people who have moved to Florida for tax reasons but still want a place in New York.

So they would otherwise be owners here. They're living in Florida, but they still want to rent in New York City. So that's priced out everyone. And what we saw in November, December, where rents were too high because nobody was renting. Leases went down. What's surprising is these prices are high and people are paying them because we had a big increase in the leases. So this means that prices are not going to come down in Manhattan at least for the next few months. It's amazing how things have changed from three years ago in the spring.

When people were leaving Manhattan, rents were cratering, and now they are back at or above all-time highs for January at least. Yeah, and this has a big implication for the CPI because we know that rents are important for CPI housing costs. And Manhattan, New York City is the largest housing rental market with over 2 million rental units. So this means that at least that housing component of CPI is going to still have that upward pressure from New York from keeping it down. Interesting thought. So this makes the Fed's going to hike rates and make life worse for everybody else because Manhattan doesn't have enough apartments. Exactly. Yet another reason they hate high prices of Manhattan. All right, Robert.

Thanks, Robert Frank. Still to come here on Power Lunch, biotech looking for a booster shot. Big drug makers aiming to add products to their pipelines in order to boost sales. We've got the latest. And as we had to break during February, we're celebrating Black Heritage through the stories

of some of our CNBC teammates, contributors and leaders in business. Here is John Ford. A couple years ago, around the time George Floyd was killed, I created a course called the Black Experience in America. Originally designed it for our two sons, ended up opening it up to a broader audience by putting it online and creating an interactive experience. And really the goal is to chart out the people, the topics, the ideas that have brought us to where we are now. And I think by looking back at that, you can chart a more positive way forward.

Technology is a key part of that because it really expands the audience and intensifies the experience. Welcome back, CNBC.com, breaking out a list of stocks in the biotech ETF, the IBB, which have potential upside. They are loved by analysts with 75% of Wall Street saying to buy. Their average target prices indicate 35% or more upside. And all of these stocks have a market cap of $2 billion or more. We're looking at names like Denali, InSmed, Arrowhead, Relay Therapeutics. You can get the full list of names on CNBC.com slash pro. And some of those names could be on the shopping list for Big Pharma, according to the Wall Street Journal. Executives at major firms like five. Nevardis and Mark are hunting for deals, hoping to add promising drugs to their pipelines and replenish sales before top selling products lose patent protection. Here to discuss is the author of that piece, Jared Hopkins, along with our very own Meg Terrell. It's great to have you guys both here. Welcome. And Jared, I'll start with you. How close do you think we are to Big Pharma pulling the trigger here? Well, we could be close. A lot of these big companies are sitting on big piles of cash.

Pfizer, right, has about $36 billion in cash because of its product sales and sales from its COVID vaccine and it's COVID therapeutic. And these companies, Pfizer, Novartis, Merck, they have big holes to fill in the coming years from top selling drugs that are going to come off patent and going to need to be replaced and replace those sales. Sure. Meg, where would you say the clock is ticking most loudly? I guess, which companies face the biggest patent cliffs? Oh, well, that's a great question. So Merck, of course, has its giant cancer drug, Ketruda, which is expected to start losing patent protection probably in 2028. So that's going to be massive.

We also know that Abbe is already starting to lose patent protection on Humira. It's massive drug. And so we've already started to see competition come into the marketplace there. And Jared reported in his story today that Abbey has lifted that $2 billion self-imposed cap on dealmaking. Those are two big ones. But Pfizer, of course, as Jared was just talking about, they've got all that revenue from their COVID products, but they also have a massive drop-off in comparative revenue because COVID isn't generating as much money for them anymore.

So they have made this pledge to add a ton of revenue by 2030 through M&A. I think it's $25 billion in revenue, and they're about 40% of the way there. So they're going to be doing more. The challenge, of course, is are the right targets out there for the right prices? Jared, if I looked at Pfizer-Novartis and Merck, what one at a time are they looking to fill? What are they looking to fit into their lineups? Well, Novartis has a big hole to fill coming from its heart drug in Tresto. So they could be looking for cardiovascular drug.

They're looking for neurological drugs and some various pipeline fill. there. Pfizer is looking for what's called early to mid-stage drugs. These are drugs that are earlier in development that haven't been approved just yet. They have recently done some deals for approved drugs. These came through the acquisitions of global blood and from Biohaven, which got it to a migraine drug. Yet because they have said that, hey, there are sort of the profile of businesses that have this mix of approved or late-stage drugs might not be out there. that fits within the company where they could add value. They're looking earlier stage now.

If you take a company like Merck, they're looking to fill the whole of oncology pipeline. They're looking at neurological. They're looking to fill with where they have a vaccine business too. So these companies are all sort of looking a little bit running the gamut. True. Meg, is there, so from the investor's point of view, if it sounds like these deals are imminent

and some of these biotech companies historically aren't cheap, Do investors typically reward these deals? I mean, do they have to make these investments in the hopes of that next big hit? But what's the reality of how well they do typically? Yeah, that's also a good question. I think that generally the perception is that these massive deals, these mega mergers, which we haven't seen in a really long time, you know, and Merck's buying shearing plow and things like that.

We haven't seen those happen. You know, Pfizer tried to make that bid for Allergan years back. That didn't end up happening. So we haven't seen the companies make those huge deals and those probably aren't liked as well. You know, what the street and what the management teams are signaling they're trying to do and the street is looking for is deals that will add sort of near-term revenue. And if they're going earlier stage, they might be doing licensing deals or those are pretty small deals. They don't move the needle and they don't necessarily affect the stock price of the acquirer as well. I think what's going to be really fascinating to watch also from the valuations perspective for biotex is do some of these mid-to-larger cap biotech companies that have been perennial takeover target.

names like Biomerin, like Seagen, which was rumored to be in the crosshairs last year, these are 20 billion plus market cap companies. If those start to get acquired, that's going to move valuations for the biotech sector in general. Whether that actually rewards the buyers, though, will probably depend on the valuations, what they pay. Exactly. We'll leave it there. Thank you both very much today. We appreciate it. Jared Hopkins, Meg Terrell, on what could be a busy year. Yeah, very interesting. All right, consumers are taking inflation to heart under the microscope. It comes up. Thanks.

The Beatles saying, can't buy me love. Jennifer Lopez says love don't cost the thing. They're both wrong. Dom Chu, looking at that one under the microscope. Dom. They're wrong in certain ways, I guess, Tyler and Kelly. What we're looking at specifically under the microscope today is the rising cost of Valentine's Day, that love story specifically.

Now, when it comes to that, things are costing a lot more. There's no surprise there. We've been talking a lot about inflation over the last several months. Well, Valentine's Day this year will cost a lot more. And that's leading many Americans to contemplate whether it's worth it to spend some of that discretionary income on that romance side of things for Valentine's Day or not. Now, according to a recent trust pilot survey, a whopping 66 percent or roughly two-thirds of Americans surveyed said that they are going to spend less this year on Valentine's Day because of the effects of inflation. Things cost so much more like gas, like fuel, electricity, utility. of all different sorts. So because of that, they're going to cut back on spending for Valentine's Day.

What's interesting is where you are seeing some of the notable price increases with regard to goods on Valentine's Day. If you take a look at some of the data, chocolate bars now cost roughly 12% more today than they did at the same time last year. The other place to keep a close on what's happening with is dining out, up 8%. We know that food costs are going higher. We can talk about the makes maybe recent drop-off in certain commodities like eggs and milk and whatnot. But still, it's generally higher than they were last year. The place where you are seeing some notable price decreases, though, a dozen roses for your significant other.

Whether you stop at the way home, get back, well, you'll pay a little bit less for that this year. So roughly 5%. But I guess what it comes down to is it depends on discretionary. When we say discretionary, it means you pick and choose what you want to spend on. And in this case here, because of the headline effects of inflation, some folks out there are feeling a little bit less apt to spend on that. And by the way, this is scary. Around 41% of respondents said that they're probably just not going to do anything at all for Valentine's scary. That's called normal. My wife said, if you want to really show me how to love me,

get me a dozen eggs, right? That's like roses for this year. I don't know. For me, my wife is probably watching right now, like I'm sure your husband, your wife are right now, thinking to themselves, Wait a second. Are they going to skimp on Valentine's Day this year? And I'm going to say Kelly Ebbins says it's just real life. It's fine, everybody. We are busy people living busy. But Tyler has the real wisdom here. Ty. Should we skimp or not skimp or see? Don't skimp? Don't skimp? I think he's not a big flower guy. I mean, I like flowers, but I'm not a roses guy. I like to get arrangements instead of flowers. See, this is wisdom here. I'll take it. I'll take it to the bank. The roses are all inflated on Valentine's Day. Anyhow. We gotta say goodbye. Thanks for watching, Carlisle.