Power Lunch - Power Lunch 4/3/24

Episode Date: April 3, 2024

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

Good afternoon, everybody, and welcome to Power Lunch alongside Deirdreboza. I'm Tyler Mathis. I'm glad you could join us. Well, the vote is in, and Bob Iger wins his board battle with Nelson Peltz. But the challenges from Disney are far from over. We will discuss how the company moves on from here. Plus, we will hear from Greenlight Capitals. David Einhorn will get his take on the markets, the Fed, and much more. But before we get to all of that, let's check the markets. They're bouncing back slightly following. Yesterday's losses you see right now, the S&P 500 is up about a third of 1%. but the NASDAQ is the outperformer up half a percent. Intel is falling 7 percent after saying its foundry business lost $7 billion in 2023, Tyler. All right, let's start though with Disney and the high stakes board vote there.

The results, we've just gotten them in the last hour. The media giant winning its proxy fight against Nelson Pelt's long running fight there. The shares are down about 2% on the day and sliding since those results came out. For more here, let's bring in T.D. Cowans, Doug Pruits. Doug, welcome. Good to have you with us. Thank you. What does Disney need to do now? Well, what they don't need to do is deal with this anymore, which I'm sure is a relief for management and the board. This has been, I've been a bit surprised at how much time they've spent responding to this because I didn't think that Peltz had much of a chance of gaining traction

and it doesn't appear that he did. But now they're back to running the business and they still have the same problems they have had before, which are really industry problems, that direct-to-consumer streaming is just economically inferior to the old linear bundle model, which is going away. And they have to try to figure out how to manage through that. Did Peltz win even as he lost? No, I don't think so. I mean, Disney did some things that they would have done anyway. I mean, Iger was going to come back and cut costs, no matter what activists were saying,

and he did that. You know, I don't think that, I don't think that what Peltz did change the way they're thinking about the business. Do you think he had anything to do, though, with the rise recently in the stock price of, I think it's 58% since the lows last October and 30 some percent so far this year?

Do you attribute any of that to the possibility that Peltz was going to prevail here and, and hasten? whatever transformation is going on? No, I don't think so. I've talked to a lot of investors. Nobody expected he was going to win. Disney announced a lot of news on their last earnings call,

which mostly was good to very good across a whole range of things, right? There was the sports JV. There was some updates on their animated film slate. There was the JV with Epic. The announcement they gave guidance for the first time and I don't know how long, right? Like, there was a lot of good news on that call. And to the degree that they had an incentive to jam as much good news in there as possible because of the Peltz proxy fight, you know, that may have helped the stock a bit. But all that stuff was going to happen one way or the other.

And they still have to deliver, right, Doug? I mean, you talked about some of the industry problems, but there's a problem that's very unique to Disney here, which was a major reason. Peltz and even other activists were going after the company. Succession. Are we any closer to a plan? Not apparently. And look, I think Pelt had some legitimate criticisms of Disney, particularly things that happened in the past. But, you know, the problem is how do you place Bob Iger?

They've been trying to do it for 10 years. I think it's very difficult for multiple reasons, not least of which is bringing someone in from the outside into Disney, which has a very, very strong, unique culture, is risky. And so then you're sort of down to internal. candidates. And if there isn't anyone internally you think you're stepping the role, you've got a bit of a problem. Right. Well, there's been some more developments, at least reported on some of those internal candidates. At least some names have been bandied around, Alan Bergman, Dana Walden, Josh DiMario, Jimmy Patero. Are you encouraged by any of those names? Do you think that they could be another Bob Chappek or they can sort of do what he wasn't able to?

They could be another Bob, right? Well, it won't be a Bob, I guess. Look, Pitaro has run ESPN, which is sort of its own unit, separate from the content creative side of Disney. I would have a hard time seeing him step into that role. I'm nothing against Pitaro. It's just not his background. You know, somebody like Dana Walden, possibly. You know, she hasn't been at Disney for that long, right?

But even there, it seems like a bit of a stretch. there's nobody that sort of rises to mind, obviously, the way that, you know, Tom Staggs did back in the day. Let's talk a little bit about the stock and where you see it heading. You have a market perform rating, I understand, on it, but a price target below where it is today, $100 a share. Can you untangle that one for me? Yeah, look, I think, you know, in the low 100 range, the stock is probably trading about where it ought to be given all the, sort of developments that have happened, you know, the secular challenges that they face in some of their businesses, but also some of the good news that had recently, some of the cost cutting.

I think that we got so much good news in February that, you know, there might be a little bit of a lack of further good news flow for a while. It was sort of they, they said everything good that they almost possibly could have said. You know, look, obviously if they have some movies come and be successful at the box office. That helps things. They have a somewhat light release like this year, but they do have Insight Out 2 coming in June, which will probably do very well.

They have Deadpool coming in July. That's not really necessarily a Disney family-friendly film, but it is important to Marvel franchise. Inside Out is. Maybe not Deadpool, but I'm looking at it to Inside Out. And then you got Moana 2 coming later in the year, which is one of the big prizes they laid out on that call. Another family favorite.

Doug, let me ask you about something else in the media space. because we did just get some reporting there. Paramount and a potential exclusive deal with Skydance, what kind of implications might that have across the landscape? I mean, the Skydance angle has been talked about for a while. I think a lot of it comes down to whether it's a deal for just NAA or for all of Paramount. If it's just NIA, then you're sort of swapping one majority controlling shareholder for another. And I don't know that that really changes anything from a Paramount shareholder perspective.

of it, it might ultimately, depending on what they do with the assets, but it doesn't immediately change anything. I think the problem remains that there just, there isn't, you know, again, everybody has the same problem, right? They spend too much on content and too much on streaming, and they need to reduce what they're spending. So that doesn't make it really appealing to go out and spend a lot of money on the content asset right now.

Paramount is going to have to, I think, ultimately probably have to manage through this without getting a white night rescue. All right, Doug, thanks very much. Doug Coitz. We appreciate your time today. Thank you. Let's dig a little deeper now into Disney's future as well as the bigger picture media and streaming landscape. Ben Silverman is chairman and co-ceo of propagate content. He's also the former co-chairman of NBC Entertainment. We pretty much expected this result from the Disney board, Ben. We just talked about some of those industry issues and that is profitability aside from, you know, the Netflix's in the space.

What are you expecting in the year ahead? Well, I think, you know, the strikes, which also affected the production pipelines plus the kind of culling and cutbacks that so many of the big companies made in their content investment is going to end up becoming a problem for them. Because if you want to sustain your subscribers or your members and you want to keep growing audience, you're going to need to deliver them original content to fuel that. machine and I think you're going to see in the latter half of the year a lot of reinvestment in content and commissioning of more original productions. I

know that a number of those platforms actually were the good on the on the side of the strike having unlocked some actual cash for them and I think they need to look at how they're going to invest and utilize cash to get more original content to sustain their subscription and ambitions. And I think you've also watched as a number of the platforms have started to kind of cross license their content to each other, which is another way for them to be making money. But you've got have originals in those pipelines to be able to grow the rerun value down the road. Right. Original content, that's expensive. You talked a little bit about licensing. There's also

the introduction of ad tiers that we've seen over the last year or so. How does that shake out in terms of profitability for some of the platforms that have yet to reach that? Well, clearly there's going to be companies better at it than others, and you're watching a company like Amazon that could potentially have billions and billions and billions of advertising revenue because they're directly advertising in the store. We've always looked at the opportunity for transactional advertising, and that kind of platform will open that up. And I think there'll be a lot of money coming in.

And then in turn, they'll want to invest in other categories. They're going to want categories like food. They're going to want categories like lifestyle. They're going to want categories like sports to drive to those advertisers, not just the subscribers. And I think that's going to unlock a ton of more money into these systems that hasn't really fully been recognized or, you know, earmarked yet in terms. of the Wall Street. Let's talk about, we have a Kiron up there, Ben, a moment ago saying,

are streaming bundles the future? So let me get your reaction to that in light of the sports mini bundle that's been announced in the last month or so. Will there be, for example, news bundles? Maybe a news bundle red and a news bundle blue for those who lean right or those who lean left. Will there be a women's mini bundle?

Whatever. What do you see happening here? I get, are we recreating who? which was our defensive move. Recreating cable. Yeah, you're recreating cable. We're going to old school. All of it. And I think, you know, there's a huge regulatory, you know, issue, right?

I think there'd be a lot more consolidation and mergers if we weren't looking at the screen being literally those seven companies or these companies controlling probably 90% of what the world is seeing. And certainly Americans are seeing. And I think, you know, there's a lot of regulatory. you know, headache and concern about further mergers. And I think those mergers probably need to happen for these companies to really be able to be successful and efficient and to deliver. But they will probably not be allowed to merge. So they're going to do these virtual kind of JVs and partnerships. And then are we going to be in a situation like Disney and Comcast just

about who's going to buy out the other piece of cooler? Yeah, right, exactly. You know, when it works, they're going to want all of it, and they're going to, and someone's going to be annoyed that they are partnered with their frenemy across the street. So it'll be very interesting to see. As a consumer, I'm annoyed because I do see this as the return of the bundle. And it feels like the price keeps going up and you have to sign on for more and more. So, Ben, what if these mergers, this consolidation can't happen? What's the net impact for the consumer? Are we just going to end up paying more?

It's incredible how much the pricing has gone up. even though we thought it was going to go down. I mean, there are some alternative services like YouTube's cable service is less than what my cable service was. But to have an all in one place, I am a Comcast subscriber, and I love the platform. I love talking to my remote. I love the interface. I love the access to all of the content in one place, but it's expensive. and then I also add on my other subscriptions,

and I'm more than where I was before. And then I look at certain outlets and places I have service bundles with like Apple, and the amount of money I'm spending across my music, news, cloud, TV, starting a rival cable. And so it's really a lot of those. You are so saying how I feel. I feel oversubscribed in my life. I mean, I'm just totally oversubscribed. to everything, whether it's Apple Music or Spotify or Netflix.

We'll go over it, Tyler. We'll go over it. And they keep throwing me off. And they keep throwing us off. And then you go back to you. I'm like, I just reentered my password yesterday. What's going on? So it's quite, you know, it is challenging.

NBA lead pass, all this stuff. I'm going to talk to Tyler. There's a place where you can just kind of tick off and unsubscribe. I need therapy. I need therapy. Ben, thanks, my friend. Lie on the couch. Lie on the couch.

Good. Thank you. Yeah. And be sure to catch David Faber's exclusive interview with none other than Disney CEO, Bob Eiger. That's tomorrow at 9 a.m. Eastern Time on Squawk on the street. You won't want to miss it. Oceanside, New York's own Bob Iger. Coming up, Scott Wapner, sitting down with Greenlight Capital David Einhorn. That is right after this short break. We'll have him right after this. Welcome back to Power Lunch, everybody. Let's get right to Scott Wapner, live at the Sone Investment. conference across the way in New York City. Exclusive interview with the value investor, David Einhorn. Hi, Scott. Tyler, I appreciate it very much. It's good to see you, David. Thanks for being with us today. Oh, it's a pleasure. Thanks for having it. Your 20th Sone presentation, I heard you say on the stage.

You've been a loyal supporter of this event. Yeah, it's been a fantastic thing. It's a great cause. It gives money where it's really needed initially with the pediatric hospital in New Jersey and then later into research. And it's become like a New York, uh, institution. within the community and I feel just grateful every year to be invited to be part of it. Yeah, we're proud to be a part of it as well. So your idea today was Solve, a European Chemicals Company based in Belgium. We're going to see a move on the pink sheets here. Belgian market, obviously in Europe is closed now, so it's thinly traded as people look at it. How large of a position is that for you? We have a little bit over 5% of the company.

Okay, and what attracted you to that name specifically? Well, we have a habit of looking at spinoffs. That's been a core investment strategy for us for many, many, many years. We've probably invested in 50 or 60 of them. And it's actually the highest returning strategy we have within our portfolio. Our IRA and spinoffs is probably somewhere approaching 50%. And so we can identify only a few each year where we think they're really misunderstood, they're really misvalued. It's hard because there's large disclosure that people don't want to bother to read. And And people often don't like it because they like the other part of the business. And so you get like a new shareholder base.

And sometimes you just get a really attractive entry price. You teased in your January investor letter a new long position. And you didn't reveal it then because you were still accumulating it. Is it different than what you revealed today? No, that is the position. That is the position. So we learn about it today. That's right.

This started trading in early December. Okay. And we started buying it then. And then it had a little bit of a spike. And so we stopped buying it for a little while. and then we finished accumulating it, and we stopped buying a few weeks ago. Okay, so you said 5%. I mean, it's a top 5 position then for you because that's what you suggested at the time that it was going to be.

That's right. It's a top 5 position. Wow. How often are you looking to buy stocks in this current market? All the time. I show up every day trying to figure out what stocks to buy. Most days I'm not successful, and I don't find anything that I want to buy, so it's really exciting when we do find some new opportunities. I mean, you said on the stage that it's a great time to be a value investor, but at the same time, you have a view about the value investing industry, which you suggest is dead.

Can you elaborate on that? Yes. The value investing industry and value investing are two completely different things. The value investing industry are my former peers that were paid money to manage money for other people, that spent their time researching stocks and trying to identify undervalued companies to buy. Many of them operated in long-only institutions like mutual funds and stuff like that, and they used to be paid lots of money to identify these stocks. Well, with the shift to indexing where trillions of dollars has been redeemed out of those strategies, those people have lost their jobs and they've lost their assets under management. So there's a lot fewer people right now looking to try to buy undervalued companies.

So for the few of us that are still doing it, it's kind of a unique time. It's a much better situation than it was when there was all. of this competition before. That being said, you have to recognize how the environment has changed, how markets are functioning, and what it means to be a value investor. Value investing, this is the idea of buying things for less than they are worth. And right now, because there's so little money that is actually pursuing strategies of trying to determine what things are worth and buying them for less than they're worth, there's many securities that are radically misvalued and undervalued. And you're able to identify just a few

securities a year, such as Salve, which is the new one that we're presenting today, that is so radically undervalued because there just isn't a professional industry trying to identify and purchase these things. So the opportunity comes to us and we can buy a company of this quality with pretty much a double-digit dividend yield while we wait for the business to improve its operations in the few years. How have you adapted to this new environment that you articulate? I mean, some may have, you know, thrown in the towel, taking their ball and gone home and said, I'm like, I'm done. I've been doing this a long time. I don't need to do this anymore. You're obviously not one of them because you're still here looking for value stocks every day. But how have you adapted? Right. It was very hard because we didn't realize what was happening for the first few years of this transition. And we were doing what we were doing before. And it just wasn't working. And we had some poor investment years of returns until we eventually sorted this out. But around 2019, I think I kind of got a hang of what was actually

going on in this dynamic. And what we can't do, see, is that our business before was trying to figure out, like, what these long-only investors were going to buy six months or 12 months before they would. So if we could buy a company at 11 times earnings, and the earnings could be 15% more than people thought, and you'd realize that the people, these long-only funds would realize this. They were on every call. They had analysts covering everything, and they're paying careful attention. So that things came out better than expect. not only would you get the return from the 15% growth in the earnings, you get a re-rating of the multiple as these institutions would come in and buy the stock. So our business fundamentally was figuring out what those people were going to do six months to a year before they figured out that they were going to do it and then riding that along.

Now, if those people don't have any money because they're all in passives and index funds and they're not paying attention, companies can announce better results and nobody cares. So we can't buy things at 11 times. I hope the earnings are 15% better, hope we get a 14 multiple at the end and make 50 or 60% over 18 months, that opportunity is not there. So we have to buy things even cheaper. So the idea like we have today, we're buying a stock right now that's below seven times earnings, and it's paying about a 10% dividend yield. So it doesn't matter if those other investors figure it out, because we're happy to just collect 10% if that's all that we wind up doing. You've declared the markets, quote, fundamentally broken. That's sort of the terminology that you've used. Obviously, you've adapted as you said, well, because you're coming off of a really strong year.

You're 22% net of fees, which I think followed one of the best years that Greenlight has ever had. So you've made the move, but you've also suggested to me that because you think the markets are fundamentally broken, that means fewer companies are going public, right? That's one of the ideas that you have, this change has reverberated through the whole market structure. Yes, absolutely. When I say that the market is broken, what I'm saying is there's not enough money that is being dedicated to investing, trying to identify undervalued companies and reward companies with new capital that have good opportunities for growth and to punish companies that don't have such

good situations because the professional industry of figuring this stuff out has largely been eradicated. And so the main problem that comes from that is you just wind up where index funds or other strategies, they're going to buy whatever is the most overvalued thing because they get the biggest weight in the index. So new money comes and overvaluation becomes more overvalued, undervalued becomes even more undervalued, and values actually diverge from fair value rather than come to fair value. But there's other ramifications of that. Once you have the largest shareholder in every major important company be a passive fund, shareholder activism becomes nearly impossible to improve corporate governance. Because if you go to one of the

index funds and you say I have an idea for how this company could improve that will make the stock price go up they just kind of look at you and go well we want all the stock prices to go up they don't and they don't have anybody on those proxy departments that even know how to value a company let alone vote index shares in that kind of way another thing that's come obviously is is the IPO market the S&P is making highs right we're in a favorable economic environment yet where's the IPO market why aren't companies able to come public and the reason is

is companies used to do these things called road shows. And they would come to these managers, these long-only managers. And they would say, hi, I'm the mid-cap manager of the such-and-such fund. Would you like to buy my new stock? And if that person isn't there or they don't have any new money, there's no one to buy that stock. And so you have a closed IPO market, even in the face of really, really favorable market conditions otherwise.

I want to talk about some other positions that you have within the market, because one of them, frankly, surprised me when I read one of your letters, which suggested that you, quote, committed to the turbulent regional banking industry, and you bought more New York Community Bank in the fourth quarter. So I guess I sat back and said, wait a minute. Einhorn's supposed to be the guy who's saying, no, the regional banks are the ones with all the problems because of commercial real estate, but then you buy New York Community Bank. Why? Our theory was when they did the acquisition of the failed banks that happened roughly last March, we bought all of the regional banks

that were the purchasers of the failed banks because we thought that they would get really good discounts. And we did it several times, and all of them except New York Community Bank worked. But when New York Community Bank came out with their result and took their charge, we immediately just sold all of the stock and we exited actually a very small loss. Oh, you did?

Okay, so you're gone from those stocks. In terms of the market overall, you've spoken before about bubble baskets of names and names that have gone parabolic because of various trends that happen to be going on at that particular time. Now, obviously, the focus is on AI. You made jokes about AI during your presentation today. Steve Cohen was on our network today, said this is not like 1999, that there's no bubble in the market. AI's durable. That's the word he used and would lead to greater

productivity and efficiency. You agree with that? Do you think we're in a bubble? What's your view? No, I don't particularly think we're in a bubble. We covered our bubble basket stocks in the first quarter of last year. And right now, all of our shorts are idiotic. syncocratic ideas based on situations with the particular companies that are involved. We don't have any basket short positions, right? Interesting. You're still willing to short stocks, too, because that's been a meaningful change in the industry, too. Why? We do. I think it adds a lot to our risk return profile. Shorting provides cash for you when the market goes down, because everything goes down,

and then you have new money to invest in other things. And I think we add value also by creating alpha in our shorts, sorting things that actually just go down. I think I saw as well that you a position in the GLD? Is that still current? Because you talked about gold for many years. You were talking about gold before it was fashionable to be talking about gold and now we are, you know, we keep going up. Yeah, and we own a lot more gold than just the GLD. We own physical bars as well. Why so gold is a very large position for us. Why have you made it so large? Well, because I think that there's a problem with the overall monitoring fiscal policies of the country

and that both policies are systemically too loose. I think the deficits are ultimately, ultimately a real problem. And I think that this is a way to hedge the risk of something, you know, not so good happening. You think the chances are high of something good, you know, not happening? Well, I think it's a question of when and when we don't know. But in terms of the idea that the fiscal situation is not sustainable and the monetary policy is low in order to support the fiscal situation, they think these are self-evident. And it's clear to me that this is just a math thing. It's a good. Knowing when this is, I don't know, because it's a, reflexivity. As long as the market is confident in what's going on, everything is fine,

but the minute that that changes, then there's a real problem. So lastly, let's talk about rates real quick and what you think the Fed's going to do. How many times are they going to cut this year? I think fewer than they're priced in right now. So fewer than three? Sure. Do you think there's a chance they don't do anything? There's a chance.

I think inflation is re-accelerating. I think there's a lot of indication of that. So you think there's a chance they could do nothing? You think there's a chance they hike? Seems unlikely. I don't think they're going to want to do that before the election. They seem very politically motivated to try to keep the president in power. It's a rare opportunity to sit down with you.

I appreciate your time very much. Thanks for being with us. Thank you, Scott. All right, that's Greenlight's David Einhorn exclusively here at the Stone Conference. Tyler, I'll send it back to you. Fascinating conversation, particularly for me, that part where you talked about index funds and how they are in and of themselves sort of changing the market structure. Scott Wapner, thanks.

All right, to watch Scott's entire exclusive interview with Mr. Einorn. You can head over to CNBC.com slash pro. Watch the whole thing there. And another famed investor. Joining CNBC today, they mentioned him. Point 72 Chairman Steve Cohen weighing in on AI details in today's tech check. We're watching the yield on the 10-year close. It hit its highest level of 2024 following the ADP report this morning

and ahead of Friday's big government jobs report. Let's get over to Rick Centelli and Chicago for more on today's action. Rick. Yes, Deirdre, a big wild day in treasuries. It started out. Well, it started out, as you pointed out, at A15 Eastern, 184,000 jobs. But maybe the biggest move was prices paid in the ISM report on services. As you see on that chart, that is the lowest level of 53.4 on prices paid since March of 2020.

And if we look at the intraday of tenure note yields, you can, see the three big moves. At 815, ADP jobs come out and up, up, up goes interest rates, especially on tens. Then right around 10 o'clock Eastern prices paid, rates go down. A little afternoon. Powell speaking, sounded awful dovish to me. Rates moved down again, but maybe the most important aspect is if you look at pre-good Friday before those PCE data points came out, we are still significantly higher. And I still contend it's all about inflation. and how it's not moving down fast enough. And if we look at a year-to-date of tens,

we now closed yesterday above the breakout levels of 4.2, excuse me, 4.33%. We could retest that. If we stay above it on a weekly close, look for rates to most likely move higher. Tyler, back to you. Rick Santelli, thank you. Let's meantime get over to Christina Parson-Evelas

for a CNBC News update. Christina. Thank you, Tyler. Well, the world biggest chipmaker that would be TSMC, Taiwan Semiconductor, has suspended work at its construction sites in Taiwan after the largest earthquake in 25 years rock the island early Wednesday morning,

killing nine people and stranding about 70 minors in two rock quarries. Israeli minister Benny Gantz is calling for new elections in September amid widespread protests in the country. Gantz says the election will serve to renew public trust in the government. A longtime rival of the prime minister, Gans joined Netanyahu's government after the October 7 terrorist attacks just last year. And star wide receiver Stefan Diggs is reportedly on the move. A trade is being finalized to send the four-time pro bowler from the Buffalo Bills to the Houston Texans

and a deal that could also include draft picks for both teams. Diggs will now catch passes from reigning rookie of the year, C.J. Stroud for the upstart Texans. I won't pretend as if I knew all of these names, but I don't. You did well with them. You did very well with them. Christina, thank you. As we had to break, a quick power check on the positive side, GE Aerospace. trading higher following its spinoff from the broader GE. On the negative, Ulta Beauty tumbling on disappointing sales forecast.

That's your power check. We'll be right back. Welcome back to Power Lunch. Stocks are trying to shake off second quarter struggles as higher rates continue to weigh on the market and concerns about inflation linger. Atlanta Fed President Rafael Bostic telling CNBC he sees only one rate cut this year

and he doesn't think that will happen until the fourth quarter. Meanwhile, billionaire hedge fund manager Steve Cohen, saying, He thinks it will be difficult for the Fed to get inflation back down to its 2% goal. He's expecting three cuts. Take a listen. I think the market expects three cuts. I think that's the number. I don't disagree with that.

I think inflation's been, you know, somewhat contained. And I think, I mean, ultimately, what it'll come down to is that a true statement or not. You know, we think the Fed thinks they, you know, eventually is going to come down to 2% inflation rate. What do you think? I think that's going to be hard. Our next guest saying she thinks the market would be best served, assuming three cuts is optimistic. Joining us now, Julie B.L. Chief Market strategist with Kane Anderson Redneck. Julie, let me ask you, where are we on inflation?

We heard Powell speak today as well, and he said that the recent data doesn't materially change the overall picture, but at the same time, we've been tracking commodity prices this week in particular. Is that going to have an impact at some point? Yeah, I think that's commodities could really ruin the party for everyone. in the sense that where we've seen the most stubborn inflation has really been on the services side. And that's actually pretty typical in normal economies where services tend to run a little bit hotter than goods. But if we're on top of that having commodity prices increasing, that really filters through the entire supply chain. And that causes problems in terms of being able to bring down pricing.

So they're in a bit of a tricky spot where they have to keep an eye on that and maintain a strong focus on inflation. because I think that has the long-term impact that could really ruin it for everyone. So is three cuts optimistic then? Yesterday we were at, I think, two and a half. Now we're back at three. What are you expecting for this year? Well, I think, you know, it's hard to guess. It's really going to be, it's really a factor of how data dependent the Fed is going to be.

There's a lot, there's not a ton of consensus on the Fed board among the officials, right? There are only 10 of 19 think that we're going to have three cuts. You heard Bostick talking about only one this year. next year for 2025, you have four members of the Fed who think we're going to be above 4% on the Fed funds rate by the end of 2025, right? So the consensus just isn't really fully there, and I think that's just a function of the data is kind of pointing in different directions. So I think for us as investors, the trick is focus on businesses that have low leverage and don't count on the Fed to save the day. So that's interesting. I guess I'm hearing you slightly as though

you're in the Einhorn camp, the Cohen camp, which is that you're a little skeptical that inflation going to get down to 2% anytime soon, which may stay the hand of the Fed a little bit. So if I'm characterizing your position correctly, how do you make money? You mentioned a couple of things here, low leverage is one, but how do you make money in a market like this? Well, I think what's really tricky is trying to figure out how valuation is going to be impacted by interest rates, right? And the place where valuation has been the most beat up is in the small cap stocks. And to me, that makes sense because earnings there are still not turning around and positive. right? Investors are flocking to where there's earnings growth. That just makes sense. That's logical.

That's normal. What we do see is within small cap, it's not a space you really want to invest in passively. You want to pick stocks kind of one by one. And you can see businesses that have solid growth behind them. Ollie's OLLI is the ticker is a great business that, you know, has the earnings growth in front of it. Same thing with the company Sertara, which does biosimulation software. Again, low leverage levels, solid earnings growth. those are the types of businesses that I think over the long term, you can really be well positioned in. Julie, we've seen a good year for long so far, fantastic first quarter. And tech hasn't been sort of having the leadership that it did last year. Is that a good indication to you?

And where would you be putting your money for the rest of the year, aside from those small caps? Yeah, I think the trick is really focusing on where you have strong fundamentals, right? And I think part of where you're seeing that softness in tech is that people are kind of recognizing that, AI has some positive near-term implications for some companies, but not for all. And so we are focused on businesses that can deliver near-term earnings growth as well as long-term earnings growth. That's real and materializable. I think positioning, too, is thinking about what sectors are going to protect you if there is any kind of downturn. Healthcare is kind of a tricky one, right, where pricing has been really under pressure. There's more government regulation. But you can find

good pockets of health care that are less impacted by that. I think it's a lot of, of a West pharmaceutical that does drug delivery. I think of a company like a Zenta that stores sample storage for large pharma companies doing their R&D. You can find these kind of quirky smaller businesses that have good earnings growth and a strong competitive position. Julie, great to see you. Julie Beale, thanks very much.

Thanks so much. You got it. Coming up is a four-day work week ahead. Steve Cohen seems to think so. And the billionaire says AI will likely play a big role in that move. We will share the details when power Power Lunch return. Welcome back to Power Lunch, despite talks of a bubble brewing around AI hedge fund manager and

Matt's owner, Steve Cohen, thinks we have more room to run. We're not in 99, okay? I mean, I don't think so. And so because I think it's a durable theme, I think, now it doesn't mean it goes up in a straight line, right? I mean, it may take a while for this AI theme, you know, actually to really take hold within companies and they're trying to figure out how to use it. Now, nearly everyone I talked to in Silicon Valley, they agree with Cohen.

They say that this isn't like the dot-com bubble of 99. It's more like 95. We're just getting started. But the problem this time around Tyler is that you can't invest in a lot of them. There's some big names like Open Eye and Anthropic. They're private. And then there's countless startups that are now just emerging. Y Combinator, they have this demo day of like the smallest, busiest startup companies that graduate

into this incubator program. They're kicking off today. and this year's batch, it includes 260 startups, and they say that more than half of them are building around AI in one form or another, which isn't surprising. I also thought that David Einhorn's comments on the IPO market were interesting. So are we going to be able to invest in the next Microsoft Google?

That was what was interesting in light of this was the idea that the IPO market is not thriving, flourishing, blossoming. And so a lot of these things may stay private for a lot longer than normal. What I hear from a lot of founders is that they don't necessarily want to go public because they're still in that building phase, right? And it's easier to do that in private than it is when you're kind of like a slave to the quarterly earning cycle. But Einhorn was saying that the road show is flawed now because you used to have all of these long, only managers, medium-sized ones, and they would be there to buy the stocks. But you don't have as many of them anymore. You don't have as many of them as people have gone into indexing and taken money out of the active space.

It'll be very interesting to see exactly what happens with all of those companies. All righty, folks, still ahead. Spotify users better listen up, the music streaming platform. That's another one of my subscription. You can't find it. Plans to raise some prices and some major markets by year-end. Shares rising 7% on the news. Our three-stock must trader will tell us whether now is a good time for that name plus a few others.

That's next. Time for today's three-stock lunch here with our trades. is Brian Vendig, president of MJP wealth advisors. Up first, Intel, the stock is down about 7% today. Brian, what is your trade on Intel in that foundry business? Thanks, Deirdre. Yeah, the news today was that the net operating loss was actually higher than expectation, Deirdre. So what I'm looking at here for me would be a sell on this stock, just because the news is coming out of Intel is just that they're still going through this reorganization. They have some really lofty goals to get to by the end of the decade. And I think with Ernie's coming up at the end of April,

it makes a little more sense just to wait here for management, learn a little bit more, and then evaluate things moving forward. All right, let's move on to Lowe's. Got a downgrade from an analyst at Gordon Haskett, citing valuation, your trade on Lowe's. Tyler, yeah, we saw those comments today, and I think they're a little bit more macro because they're concerned about the consumer and spending relative to higher gasoline prices and interest but I think we know that rates are telegraphed to potentially go down in the second half of the year into next year. That should really stimulate some things in the housing sector. And right now, as people are evaluating moves around their homes, we still see pretty good progress in spending

from consumers and wanting to make home improvements and also professionals trying to help. So I think from evaluation perspective, Lowe looks attractive. And this would be one that I'd put a buy on for myself and something that I'm looking at moving forward. Finally, let's talk about Spotify raising prices. This is Tyler's favorite story. Shares are at more than 6% today. Brian, what is your trade? I'd love to help Tyler out on this one, but I'm sorry, Tyler. I'm going to have to put a sell on this one. Just because the stocks moved pretty aggressively this year, up about 50% year-to-date. Definitely has made a nice recovery since it slows from a couple years ago.

But we know that it's a high forward PE. And in this environment, still, with rates being where they are, I'd like to look at something a little bit more attractive from evaluation perspective. And then secondly, we know that consumers are fickle as it relates to price. And so this jump that we're seeing today on the announcement that Spotify is going to raise prices, that might be good in the short term, but longer term, where the consumer's going to be when they look at their digital music choices. So again, something that I'll throw a little caution to and sell them the news, so to speak. Yeah, my issue with all these services, as they do raise prices, is I don't know how to cancel them. I mean, it's just hard.

They make it hard. You can't call somebody and say, I want to cancel. It's not like the newspapers. Spotify especially. We'll talk after the show. All right, good. Brian, thank you. Brian Vendick.

Appreciate it. More power lunch is next. Stay with that. We've only got a minute left in the show. Amazon's cloud computing division laying off hundreds of employees in its sales and marketing unit, as well as staffers who develop technology for brick and mortar stores. The move comes one day after Amazon said it's going to remove its cashier. checklist checkout technology from its U.S. fresh stores.

I guess those are their grocery stores. Been waiting for one to come to New Jersey where I live, but it hasn't shown up. It's like a whole separate line for them. I remember going to Seattle when they opened the first one. It's not as intuitive as you would think. You have to actually scan your app when you enter and leave. We talked during the break about Uniclau. If you haven't tried that out, that technology is pretty.

And there you just take it off the shelf, put it in a bin. Pay for it and walk out. You pay for it and walk out. It's pretty good. It's pretty good stuff. All right, folks. Thanks so much for watching Powerline. Closing bells, that's right.