Power Lunch - Power Lunch 7/14/22

Episode Date: July 14, 2022

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 https://pcm.adswizz.com for information about our collection and use of personal data for advertising.

Welcome to Power Lunch. I am Courtney Reagan and today for Tyler Matheson. Volatility grips Wall Street, inflation fears, recession calls, bank profits squeezed. Our market pro this hour says there are reasons to be bullish and has a list of stocks that could be winners in this uncertain market. Plus a power call. Who has the leverage in the Twitter must legal battle? Well, top analyst is putting his money on Twitter, calling it a short-term buy. We'll speak to him in just a few minutes. Hi, Kelly. Hi, Courtney. Welcome. Thank you and hi, everybody. The Dow down 629 points at the lows. We've about chopped that in half right now. Still a 1% drop for the major averages. The NASDAQ down half a percent. Energy, once again, the worst performing sector as oil prices continue to pull back. APA, EOG, Halliburton, among some of the hardest hit about 5% declines here. Elsewhere in tech shares of Apple turning higher midday while some of the other big tech names remain lower, although Microsoft now joining the green list as well. Alphabet, Amazon down fractionally and the financials down much more. After being pulled down by those earnings results from JP and Morgan Stanley, JPM Morgan in particular, those shares are down 4%. But both of these stocks are trading at 52-week lows. Their results today amplifying those recession and slowdown fears, JPM halting buybacks, Morgan Stanley reporting a slump in investment banking revenue. Let's get out to Leslie Picker with more in the message these banks are sending. Leslie?

Yeah, Kelly, despite these weaker than expected results, it's actually a fairly mixed message that we're getting from today's earnings. On one hand, the consumer side of the economy appears to be intact. J.P. Morgan reporting debit and credit card sales volume up 15 percent. Deposits are up 9 percent. Loan growth is solid. And Jamie Diamond saying on today's call that business credit has never been better, at least in his lifetime. And James Gorman noted that the banking sector is much stronger than it was last. Last time, there was a, quote, reset back in 0708. But then there are other aspects of the business that showcase the ripple effects of the market volatility and business confidence being a little shaky that we've seen recently. Investment banking revenue took a big slump at both firms propped up in part by trading. Corporate C-suits have been much more hesitant to sign deals and have pushed back closings resulting in these big slumps that we're seeing in Q2. JPMorgan also saying today that it was temporarily suspending buybacks amid the Fed's stress test results and adding to its reserves. Both firms reported roughly 28% declines in net income during Q2. Both firms also posting that rare miss on both the top and bottom lines, each one only doing so once in the pandemic and since the pandemic began, Kelly.

Wow. And Courtney. And is there anything, Leslie, that you would add about? kind of the underlying consumer or business demand and sort of those underlying trends aside from capital markets and asset prices? Yeah. So interestingly, on the media call, executives from JP Morgan did break down the difference between kind of discretionary spending and indiscretionary spending in light of inflation.

And they said that, yes, they are seeing a big pickup in indiscretionary spending, this idea that people are going to, of course, be spending much more on gas and food in like. of inflation, but they're also seeing a really big pickup in discretionary spending as well that, you know, on trips and luxury items and things of that nature, which give them a sense that this consumer spending trend that we're seeing kind of from a macro picture is actually pretty strong when you look through, you know, what's going on under the hood as well. Yeah, absolutely. Leslie, thank you very much, Leslie Picker. Kind of the same story for a much smaller regional bank might be under the radar, but tells us

something about what's going on with the economy out there. Shares of Washington Federal are trading higher after reporting record quarterly results. Shares are up nearly 2%. The company saw 33% jump in earnings, margin expansion, and loan growth. Here to talk about their view of the economy rates and recession is Brent Beardall. He is the CEO, and it's good to see you again. Brent, welcome. Kelly, good to see you.

Thank you. So let's build on that. You know, as someone who's less insulated or more insulated from capital markets, what do you see going on with consumer and business demand? Yeah, no, it's a very different story for the giant banks of J.P. Morgans of the world than a regional bank in our eight Western states. It's unbelievably strong still. As you noted, we reported 15% year-over-year loan growth. That's loans outstanding. Demand continues to be incredibly strong. And then if you think about it with what the Fed did during the pandemic, bank margins were just squeezed and we were operating under record low margins. And then with rates going up, that's actually a positive for bank. banks, and our margin bumped up from 2.8% to 3.2%. So as a result, it translated to record earnings per share for us. Brent, I think so many of us are trying to figure out what all of these macroeconomic pressures really are meaning for the consumer, when it really boils down to how they're

looking at their own home balance sheets, for instance. What is the impact of inflation for you for loans? If everything is more expensive, do we need to take out higher loans? Or is the cost of taking out a loan also, of course, more expensive. And so then that dampens demand. It does dampen demand somewhat. But I think it all goes back to the question on is, is there a recession on the horizon? And I do believe a recession is likely in the next few quarters. But I don't think a recession is necessarily a bad thing. I think it can be a good thing. Simply put in my opinion, the economy has been too hot for too long. We've gone too far, too fast. And a recession just means we're going to tamper that a little bit, which I think is a good

thing. And I think it would be good for consumers. We've seen record increases in home prices. And if we had even home prices be flattered, maybe down five or 10 percent, that's a buying opportunity for consumers. You think a recession would actually be good for consumers? I think it could be, yes. We all struggle with recency bias, right? We think about the last recession being a great recession and what that meant to consumers. And I don't necessarily go. believe that's in the cards this time. I think a recession is merely a cooling of the economy, which could actually give consumers a break on prices. I totally take your point, Brent. I guess the question I would have is about the labor market where some people might go, all right,

fine. So the tradeoff is at least I have a job. I'm making 8% more. I get to work from home or work on my terms or what have you. What happens if that changes the balance of power and people lose their jobs on top of everything else that's happened? You know, that certainly is a risk. And the question is how many people could potentially lose their jobs? But I see the labor markets in our eight states as being incredibly strong and resilient to what's coming. Most of the businesses that we bank that we speak to, they are still in search of good quality candidates, highly motivated candidates. So I don't see that as a high likelihood. Brent, overall, your tone to me appears pretty positive.

You said that you just reported the best quarter in your 105-year history of the bank. as you look forward and as we still have a lot of uncertainty, potentially a hundred basis point rate hike on the table, what does it look like for your business? If I'm an investor in Woff, Fed, what should I understand about your expectations going forward? You know, we've worked really hard over the last 10 years to become a commercial bank where we actually benefit from rising interest rates. So I think this quarter showed with what the Fed has done in the last six months, it was a huge benefit to our net interest margin. And if the Fed does continue to increase rates, likewise, it would be the benefit to our shareholders, as well as I think regional banks in the Western U.S.

at least. All right. Brent, thanks so much for your time and walking us through it today. And again, a counterpoint to what we've heard from the big guys this morning. Thank you. Appreciate it. Thank you. Brent Beardall of Woffed.

So given those signals from the banking sector and today's volatility, how should investors pick stocks joining me now with the outlook for the market and top picks? Mark Luchini, he is the chief investment strategist at Janney Montgomery. Scott. Mark, thanks so much for joining us. here today. So obviously, we had some disappointing results from some of the big players. And name like Woffett actually put up a pretty strong quarter outside of the bank stocks themselves. What did you read from what the CEOs had to say about the state of the economy and then how

that plays into your investing thesis here? Well, I think, Courtney, uniformly, including the last guest that you had on, you hear about the strength of the consumer. And I think that's going to go a long way to either helping to avert the recession or at least perhaps, as our base case, looks out and prospects on what the economy is likely to look like, keep it relatively mild. We don't see the kind of excess as you normally would in a recessionary climate that would make a more severe outcome seem particularly likely, however, it's still plausible. So while we're braced for a worse outcome, we still think it's the consumer that is going to be able to come to the rescue that is in the position,

assuming once again we don't see further deterioration in economic activity, the kind of job losses that Kelly alluded to that would obviously even cause more severe reaction on the part of consumer to draw back in from their spending habits that we're seeing quite strong at the moment to lead into a more severe outcome. So as a consequence, we still believe that equities are poised. And while struggle over the next couple of months as we see inflation perhaps begin to subside and give the Fed some relief off of its aggressive policy campaign, lead toward a year-end rally. and therefore that should be something that investors should be positioned for and not allow themselves to be, if you will, de-risking into the face of what has been, albeit a very difficult market, one in which perhaps opportunities are setting up for. So what gives you a reason to believe that we're going to see a positive bias to the upside? I guess what would be the catalyst to move us higher when it seems like day after day we just see red across the screen for the broader indices, at least by and large.

We've got the Dow Jones Industrial Average down about a percent again here today. So what's going to move us to the upside into your end? What is the catalyst that starts to turn the tide the other way? Well, Courtney, I think the one thing that we know there's a bull market in at the moment is pessimism. And so when conditions are so bad that it seems as though they can only get worse, it doesn't take necessarily news to go from bad to good, but rather to less bad, which might be enough to catalyze a more positive impulse. back into the equity markets. Now, I do think it's going to take some time to develop because I think

the real key is going to be inflation. And if we would happen to stack a couple of months of inflation ratings that show some relief on the price hiking front that we've under, you know, taken over the last several months to clocking 40 year after 40 year highs, that may offer some hope that the Fed could offer some kind of a doveish outlook either by expectation or through a rate hike that's less severe than the ones they've likely imparting come later this month or already have. And I think collectively, that would be the impetus for valuations, which are relatively inexpensive at the moment, to provide a catalyst for not only prospects for perhaps earnings growth looking better in 2023, but also perhaps a multiple expansion.

Quick follow up to that, Mark, if that's how you see it playing out, then why in particular stay bullish on energy? Well, I think there's some idiosyncratic characteristics there, Kelly, that make it a I mean, obviously right now, all the concern is raging around demand destruction. And that's true, not just for oil, but really across the entire commodity complex. The fact of the matter is, supplies are still exceedingly tight, even accounting for some demand destruction. And I still think the prospects for earnings growth in that space, even as oil prices have come back below $100 a barrel, are quite extraordinary. And as a consequence, I still think that's a place that investors,

given the fact that they've moved back so far down to trendline averages, should find an opportunity to nibble at, if not necessarily take a bigger stake in to take advantage of what I think are going to be prospects for higher world prices as we move through the back end of this year and into next. All right. Mark Lachini, thanks for your time. Oh, you're welcome, Kelly. Joining us from Jenny Montgomery, Scott.

We've got some breaking news out of the Fed. Now, Steve Leesman with the story. What's happening, Steve? Yeah, Kelly, not the Fed itself, but the federal Reserve Inspector General, which looked at, as you remember, trades made by former Vice Chair Richard Clarita and Chair Jay Powell that were matters of public interest here. And they found that Clarita did not violate the laws, the rules, or the regulations, as well as the Fed Chair. On Clarita, the report said he did fail to report several trades in 2019 and 2020. He then went

back and appropriately, the IG says, amended those filings. And they said, they said, the trades were in broadly diversified mutual funds and that the IG was satisfied that Clarita acted in good faith and that these were inadvertent errors and omissions. Richard Clarita at the moment this IG report came out, issued a statement of his own, saying he was gratified by the conclusion of the IG investigation and said that he had gone above and beyond what was needed for ethics. On Powell, it said he did not violate trading rules or the trading blackout rules. there was an issue of Powell trades that were made by his trust during a blackout period. The IG finding that neither Powell nor his spouse had any knowledge of those trades which were done in order to make charitable investments. They did say the investigation of senior bank officials is ongoing. We still don't know the status of investigations into two Fed presidents, Robert Clareta and Eric Rosengren,

which you'll remember were Fed bank presidents, not Federal Reserve Board governors. Kelly? Two follow-up questions, Steve. The first is did Clarita go back and amend or explain his actions after that? I forget, was it a media report that they were disclosed? Did he do that after they were disclosed or beforehand? And secondly, as it relates to Powell, wasn't there also some question of his trading in municipal bonds? And is that the disclosure you're referencing?

Or was that more simply a question of whether he should be able to retain that ownership once they started to backstop the muni market? Okay, so I cannot answer the first question. It looks like he went back in on May 14th, 2021 and those amendments. And I can't say precisely, Kelly, I will find that out for you and send you a note on that as to whether or not that predated or post-dated the public disclosure of this. In any event, the IG was satisfied by the amendment. He does cite a rule that does allow an amendment of these forms.

As to Powell, you're right. he owned municipal bonds. This is not covered in here. But I will say Powell himself came forward and said, hey, I should not have been owning these bonds when the Fed was in the process of owning them. Remember, our reporting was that Powell owned these bonds before the Fed started buying him and did not make a change to his portfolio in that time period. This IG report does not address that those are two awesome questions, Kelly.

No, we appreciate it. Steve, obviously an issue that's been percolating for some time and maybe even delayed his confirmation, which then given. and everything the feds had to do, it had big macro implications. Steve, thanks very much for that. We appreciate it. Sure.

Steve Leesman. Coming up in a market hammered by macro concerns, the top analyst calls Twitter, an appealing near-term buy. The battleground stock is today's power call. Plus, Cigna downgraded on slowdown concerns. Costco upgraded as a standout amid growing uncertainty, and Conagra says demand is weakening.

We're tackling the recession trade in today's three-stock lunch. Welcome back to Power Lunch. How will Twitter's courtroom drama play out? A new call from Rosenblatt says Twitter could win the fight. It's a change from their previous stance and it results in a ratings upgrade to buy and a new target of $52 a share. Twitter is currently around 37. Barton Crockett joins us. He's senior analyst and managing director at Rosenblatt. Barton, you have to put your legal hat on for this one. Correct. You know, but it's interesting. I mean, I think in a market like this, you'd rather be wearing a legal hat sometimes in the fundamental hat. have. Fair enough. What leads you to think they could prevail and what does prevailing look like? Well, I think that what we saw in Twitter's lawsuit against Musk was a detailed elaboration of everything they've tried to provide him in terms of explaining the issue that he's objected to most, which is SpamBock calculations. And what we see is that they've done a lot to show him what they do, how they calculate it, have invited him to take a look at what they do. He hasn't necessarily

fully participated. But what I see there is an effort at openness, at transparency, that seems to be lied, the one hope that Musk would have to get out of this deal, which is that Twitter was being, you know, not really disclosing fairly that they essentially had to be fraudulent. And I think that the level of disclosure on spam bot, which is where, you know, biggest objections are, you know, kills that argument. I had many concerns about Twitter's disclosures, you know, based on what Musk had been saying. And after reading what Twitter says and reply, you know, those concerns have really evaporated. And I think in this case, the judge is likely to push Musk to complete the deal as agreed. And I think that's a great near-term setup in a market where, you know, there's a lot of

things that aren't going against you. But here we have a judge going for you. And Barton, if you do believe then that Twitter will prevail over Musk and your upgrading shares from hold to buy and the price target to $52. It sounds like you believe that not only will they prevail, but at the price at which at least close to, where Elon Musk had offered to purchase in the first place. Correct. I mean, Twitter's asking for everything, and I believe that the judge will, you know, stand with them,

that they deserve everything. I think a modest kind of haircut of 3% or so would be consistent with some other contested kind of deals that we've seen settle out. You know, I think about Tiffany and what happened in that situation. It's a comparable discount. to that, a recent situation that, you know, I think you can look at here. You know, I think that the only reason Twitter would even compromise a little bit is just the time value of money if this gets must to kind of, you know, face the inevitable a little

bit quicker. What would be the downside risk then? Of course, I know you all sort of model this out as well. If we're sitting right now at about $36 a share, we're not really far from where Twitter had been trading on the trend line before Elon Musk had made this offer. So let's say you don't own Twitter now and you follow your advice, you invest in these shares here. What would be the downside if this doesn't go through? Will the price fall much further from where we sit? Well, look, if there's no deal, I do think there's a ton of risk in Twitter's equity.

I think their businesses being damaged as we go through this. They're not able to give people retention bonuses. So they have attrition. The ad market, if we're going into recession, is weakening. And, you know, so I think that there's downside if there's no deal. I do think, though, that we're highly likely to see a deal. Another thing that could happen, though, to, you know, submarine a deal is if, you know, the unknowable, what happens if Musk completely decides to ignore what a court orders him to do here? And that, I think, is probably the most unknowable thing here. But, you know, one thing we do know is that all of corporate America acts as if this Delaware court has power. And so the question is, can, you know, can Trump buck that?

I think they have the ability, you know, for fines and for, you know, orders, you know, perhaps even, you know, some other kind of penalties that certainly, you know, will see them tested, I think, in this situation. It is fascinating. It will be studied, I'm sure, by many business executives and business schools for many years to come, regardless of the outcome, because it has been so atypical. Barton Crockett of Rosenblatt Securities, thank you for joining us here. We like bold statements. I like your thesis. We'll see what ends up happening. Well, coming out, more on today's market volatility, investors growing more and more worried about inflation, the Fed, and a recession. Plus, we'll take a look at three names that could either crumble or climb in a market downturn. And as we had to break, check out material stocks. It's one of the biggest laggards today, CF industries, Mosaic, Newmont mining, showing the biggest declines. Newmont down about 5%, Mosaic, about 6, and CF around there as well.

All those names anywhere from 30 to 45 percent off their highs. We'll be right back. Welcome back, everybody. Market is down, but let's get a look at some of the names in the green and bucking that trend today, moving higher, including the likes of First Republic Bank, Las Vegas Sands and Qualcomm. Modest declines. Qualcomm, though, is up almost 4% right now. First Republic is off the highs, but another bank name that is positive today. Let's get out to Kate Rogers now for the CNBC News Update. Kate? Good afternoon. Kelly here's what happening at this hour as the Buffalo supermarket where 10 black people were killed in a mass shoe. two months ago prepares to reopen tomorrow. A federal grand jury has just filed federal hate crime charges against the white man accused of that massacre. Immigration and customs enforcement agents are now being told to take additional steps to ensure they are not unintentionally separating parents from their children at the southern border. The new procedures are the latest in a series of steps the Biden administration has taken.

The U.S. and Israel signed a new security pact today reinforcing their common front against Iran, President Biden pledging to use, quote, all American power to stop the Islamic Republic from acquiring nuclear weapons. And thousands more doses of monkeypox vaccine are expected to soon begin shipping to the U.S. after federal health officials completed an inspection of the Denmark plant where they are being manufactured. Kelly, in court, back over to you. Thank you very much. Kate.

We'll head on Power Lunch. A spending shipped, how inflation is impacting consumer spending habits and which retailers will come out winners. Plus, a seed of doubt. Apple is facing a major test as it sets to release a new product. Will recession fears dent sales after this? Welcome back. 90 minutes left in what's been kind of a rough trading session today. So let's get caught up across the markets on stocks, bonds, commodities, and a major spending shift.

We'll start with stocks off the lows, but still underwater today. Bob Bassani at the New York Stock Exchange with the latest. Bob? And we're at the highs of the day, believe it or not. Now, yes, the S&P 500 is 15 points underwater, but a lot better than it was earlier in the day. Things turned around a little bit in the middle of the morning when Fed Governor Waller came out, implied he would support 75 basis points in July, though he said he's still data dependent, but the market did lift a bit on that.

I'll tell you two things that happened that were very interesting. The growthier part of the market moved up. That's tech stock. So here's a very active ETF, the Investco QQQQQ trust, that's the NASDAQ-100 essentially. it's gone positive for the day. So look at some of the big tech names. These were all down notably in the first couple hours of the trading day. Now positive Apple, Qualcomm, Advanced Micro Terodyne.

These are the big leadership stocks in the technology group. The other sector, and the bottom line here is the Bulls really want to buy growth. They want to rally in the fourth quarter in growth stocks, and they keep nibbling on these tech names. The other thing that moved was there's an inflation play at the same time that's going on where people are nibbling on inflation plays, That's a consumer staple names. The Costco's, the Walmarts, the Pepsi's, Cisco, the food company, Cisco, all moving up today.

So it's kind of two parallel trades, but don't kid yourself. Two big sectors are at major lows here today where the big names are major low. Those are banks. Of course, Jamie Diamond at JP Morgan talking about a range of outcomes on the economy moving down. And we saw Citigroup Goldman, Fifth Third. Most of the big super regionals like Regions Financial Key Corp also at 52. week load. The other sector is a global sector. And these are the big global industrial names. I love watching these names because most of them get more than 50% of their revenues overseas.

Illinois Tool Works, Dover, Packar, Honeywell. It's a very long list, including companies in the U.S. like Norfolk Southern that are U.S. base, all at 52-week lows. And of course, this is the essentially global slowdown slash recession concerns that are now very much manifesting themselves in the U.S. stock market. Absolutely, and will be top of mind throughout earning season, Bob Banks. Let's turn now to the bond market where, again, this discussion about recession and rates and inversions. Well, it rages. Rick Santelli with the latest action.

Rick? Wow, there's a lot of different movements on the yield curve today. You have two and three year yields down on the session. Price is up. Look at an intro of two. And you can see after the 8.30 Eastern date, it really gave up some ground. Combined that with Waller's comments that Bob just outlined. Maybe it isn't going to be 100.

It underscores the importance of tomorrow's retail sales. And then you look at the mid part of the curve where yields are up. They're up on five, sevens, tens. And as you look at an intraday of 10, you can see what I'm talking about. We're still up, not a lot, but we're up a couple of basis points on the session, though maybe the most important dynamic is still can't get over 3%. Then you have 20s and 30s. Their yields are lower on the session.

Remember, yesterday's 30-year bond auction was a blowout in terms of demand. It really underscores that, you know, we can really keep a lot of this pretty simple. The market believes there's most likely going to be a global recession. And that global recession will probably be sent to us from Europe, if not from our own shores. And, well, look at December Fed Fund futures. Yesterday, their prices dropped to contract lows. Okay? That means more Fed.

Today, some of that, not all of it, is getting taken out, which goes along with Waller's headlines. And then finally, one week of the Eurovers of the United States, dollar. Third session in a row, it's toying with parody, which is 100, the moving force there, Italy running into problems. Mario Draghi trying to resign. His letter of resignation not accepted. He's going to speak to Parliament tonight. There's a lot of moving parts here, but I think Italy is the new Greece and the euro currency is very nervous about it as it's hovering at the lowest levels in two decades. Kelly, back to you. Remarkable still to see it there in black and white or

red and white, I should say, Rick, thanks. Meanwhile, recession talking, It's definitely weighing on oil again. Let's get to Pippa Stevens for the latest on we saw prices in the low 90s of barrel today, Pippa. Yeah, Kelly, it was a wild day for oil. At one point, both WTI and Brent traded below where they closed on February 23rd. That, of course, was the day before Russia invaded Ukraine. But they've since recovered the majority of those losses. Check out this chart at WTI 24 hours.

And you can see that big dip, which sent prices tumbling 6% hitting a low of $90. and $56. The contract also fell below its 200-day moving average for the first time since December before bouncing off that level, and we did see similar price action in Brent. But both still remain sharply lower for the month, and we have this growing disconnect between the price action and the state of the physical market, which a lot of people, including Dan Yergan last hour, say remains incredibly tight. So essentially, recession fears are driving this narrative, although we have also started

to see some demand declines amid high prices. WTI is down half of 1% at 9586, with Brent crude down a third of a percent at 9920. Guys, back to you. Yeah, Pippa, the August future for his WTI still holding below $96 a barrel. Thank you. Well, it's turn now to retail. A new report from Deloitte shows more than half of parents are worried about inflation hitting back-to-school spending. 37% of those surveys do expect to spend more. And clothing tops technology for items most in demand. So, which, apparel names will get potentially the biggest boost. Susan Anderson, a senior retail analyst at B. Riley Securities. Susan, it's great to have you here. I guess, first of all, do you agree

with sort of Deloitte's assessment based on speaking to consumers that clothing will be a hot and in-demand item going into back to school? Yeah, thanks for having me. I think it will be because we're going to probably see a decline in electronics. So that's going to help the consumer a bit, But I think some of those dollars will go into other categories, such as apparel. And apparel didn't see as robust of a growth the past two years that we saw in electronics. So I think consumers are still trying to catch up. And particularly since kids do grow every year, it's something that needs to be replenished. So I think they will put some of those extra dollars into apparel.

So I think it's going to be the bright spot of back to school this year. That is the key, right? Kids do grow, regardless of the economic environment. You can't stop that from happening. And so speaking of that, as we're speaking about apparel more broadly, there's been a lot of discussion, sort of the waning a leisure trend as we return to our life and events and traveling and we want to be more dressed up. But when that pertains to back to school, that's probably not the same thing, right? So what winners could be, or who could be in store to be a winner, I guess, going into back to school here for apparel? Yeah. So we are focused on those value offerings. Just given the inflation pressure on the consumer, you may see. consumers trade down. They are looking for value. So in the kids space, we really like Carter's and Children's Place. So Children's Place also benefits from uniforms while they had a great year last year. I think it's going to be another strong year this year. Even more kids will be going back to

school this year. And then Carter's is also a company that offers value kids apparel, but also has a really niche in the baby market. And last year, baby births were actually up for the first time since the great recession. So I think that adds a little bit of a buffer too in other areas that may see weaker demand. And then in the teen area, we really like ANF. They have the Hollister brand, which we view as more of a value teen offering. Our pricing surveys show that they always come in below American Eagle and PACS sun. So I think that teen parents will be looking for more value and they could benefit from that. They also offer more fashion versus American Eagle, which is very levered to denim. So But while we expect Dinan to be very strong this year, last year was a robust year for denim.

So I don't think it's going to be as strong. I think even teens are going to be looking for some fashion offerings to add to their wardrobe this year. Interesting. So Carter's Children's Place in Abercrombie and Fitch among the winners that you see for the back-to-school season. As you're talking about value, I can't help but think about the names that come up so often when we're talking about inflation and potential recession like the TJX, like the Ross stores. And then maybe I know it's not in your coverage universe, but players like a poshmark or a threat up, could those be denting any of the demand here at the more traditional retailers for consumers that are very value conscious?

Yeah. So, yeah, while we don't cover the off-price retailers, it could be a destination for consumers this year. Because once again, we expect some trade down to be happening, particularly in that mid-to-low-income area. and potentially they could look to those, you know, those resell sites for even more value this back-to-school season. All right. Susan, thank you very much. We appreciate it today. Great. Thank you. Susan Anderson with F.B. Riley. Well, coming up more on this market volatility, the Dow Jones Industrial Average is lower here by about 4 tenths of a percent. So we've actually pulled back a little bit or improved from where we were, at least at the start of the show, in the NASDAQ composite. Check that out.

hanging on to positive territory by 3 tenths of percent. Coping with costs. CNBC's new All-America survey revealing how Americans are dealing with that aforementioned inflation. We'll be right back. Welcome back, everybody. Some news on the Bank of America front. The company was fined by the OCC and the CFPB for more than $200 million. B of A accused of unfair and deceptive practices related to the administration of a prepaid card program to distribute unemployment insurance benefits.

Bank of America says it partnered with state clients to identify and fight fraud throughout the pandemic. Shares is still down about 2% on the session. Well, runaway prices are top of mind for Americans. That's according to the latest CNBC All-America survey. Steve Leesman is back with us with a look at how Americans are coping with these higher prices everywhere. Hi, Steve. Hey, Courtney, yeah, inflation is by far the number one concern of Americans these days. And respondents to the CNBC All-America Economic Survey saying they're taking

A series of steps to make ends meet, and those steps, not boating well for economic growth in the months ahead. Take a look, 54% saying the cost of living is another number one concern. That's double. The next one, which is a new entrant in the list here. Abortion, 27% is the, say it's the top one or two concerns for them in the United States, followed by immigration, border security, crime, and jobs, and unemployment, which is usually higher, but now is lower on the list given the low unemployment rate. How are they coping?

65% taking a cut to the discretionary items, entertainment, movies going into concerts, eating out. 61%. Sometimes that's less discretionary. You're driving less. 54% reducing travel. 41% spending less on groceries. And maybe most ominously for the road ahead, using credit cards, 32%. There's higher interest rates to pay and bills to pay later on. And many Americans are not just doing one or two of these things. 47% say they're taking at least four of these actions to get by. More so, they think things like environmental rules should be changed to ease inflation.

Take a look. We asked folks if the 800 respondents, that is, should environmental rules be relaxed to help with gas prices? 50% say yes, 42% saying no. And what about a special tax on oil and gas company profits to offset higher energy bills? Well, a little more support for that. 58% saying yes, 32% saying no with 11% not sure.

The longer term danger here for the economy is Americans' cost-saving efforts could end up lasting, even if the price spike goes away. Courtney, I'm not sure we go right back to where we were, even if gas prices go back down, I don't know, two or three bucks. I know. I always think about that, right? Any of these companies have gotten away with charging us more to help offset. Their costs are not going to go back to where we were. Steve, I had a couple of questions as you went through that. I was surprised that Americans were going to be cutting entertainment and travel when so many of us seem to be, spending there because of other things. I mean, look at what's going on with Heathrow Airport and all the travel demands. So I guess that was sort of my first thought. Was that surprising to you?

Well, I think the way to look at that, Courtney, is that number might have been higher if there wasn't so so much pent up demand for travel and leisure right now. I think there is a huge demand for that. I think a bunch of people said, I am going come hell or high water, especially as you know, Courtney, when it comes to those canceled visits to relatives. I think that's a big part of You see people that canceled stuff during the pandemic that didn't go and see people they love or maybe have to see, I guess, in some cases, of course. In that case, they probably did them. Also, there's those trips to Disney that people are going to take, and maybe they had the budget for it. So it is 54% are cutting back.

I think that number could have been higher if not for the pent-up demand out there. Interesting. We have to go, but I also did find it interesting that Americans are okay, easing environmental rules, but they also want the oil and gas companies to pay a little bit. more to help them, sort of helps the consumer on both of those, right? Well, thank you, Steve. Coming up, three Cs in today's three-stock lunch, Sina, ConAgra, and Costco, which will hold up in a recessionary environment. Power lunch, we'll be right back. Welcome back, everyone. Time now for three-stock lunch. Today, we're focused on recession risk. ConAgra lower after missing revenue estimates and citing how higher costs are squeezing margins. Sina, lower. After a downgraded

Jeffries on macro pressures and Costco. Higher on an upgrade at Deutsche Bank, who says its membership model will outperform in this uncertain environment. So here to help us trade them is Tom Leiden. He's vice chairman at Vettify. Tom, three very different stocks, but let's kick things off with ConAgra. It's what of a lot to chew on here from their earnings release. You're right, Courtney.

There is, Steve kind of just made the case for investors cutting back. And ConAgra has a lot of great brands, a lot of expensive. of brands. And as they message in their earnings, costs are going up tremendously for them. Supply chain issues, freight costs are forcing them to raise prices. And with that, you're seeing lower sales. I think we all know a lot of the brands, the Chef Boyardees, the hunts, the bird's eyes of the world. But today, with inflation right around the corner, a lot of investors and purchasers around the country are going for lower prices. brands, and I think we're going to see more of that. Most importantly, this stock has not done

anything in five years. And if it's not doing well, when the markets are doing well and the economy's doing well, I think during recessionary times, it's going to be challenged. All right. So let's move on to Cigna then, which is also getting downgraded on recession exposures. You know, this isn't maybe necessarily the first name that would come to mind on macro concerns. But there you have it, and the stock's down 3% today. Yeah, Kelly, it's a good point. The good thing is they recently sold a business to Chubb for $5.4 billion. That was a good win.

And with that money, they announced they're going to do a big buyback. Investors like that. And we're surveying advisors all the time, and we can also tell through the types of ETFs that they're looking at, they are looking for health care during these times and more money's moving into health care ETFs and also buyback ETFs. One in particular, the Investco Buy Bank Cheever's ETF, these are companies that checks both boxes. And so for right now, I'd say it's a hold, not a buy or a sell. It's really going to be important as they get over the cell that they had and the purchase of new stock.

What other things do they have up their sleeve? They're going to be challenged. And the final name here, Tom, is Costco. Deutsche Bank likes the membership model, think that has lasting impact potentially in recession, although the company did say they're not looking at raising those membership fees, even though it's kind of time to do so in the cycle. Well, you're right. And I don't know if you've been to a Costco in a while.

I was won this last weekend. It was packed. And when you talk about memberships, they've got a variety of different memberships as well. membership renewals continue to be at high levels and also the executive membership that's twice the gold membership is $120. But you get 2% of your purchases applied back to you. It doesn't take much to earn that back. I think the big thing when you look at Costco going forward is people during recessionary times are looking for bargains. They're going to buy in bulk.

We're in the middle of the summer. A lot of people are living off their grills. That's really key and critical. And I think one of the fun ideas that came out of Costco is they're very concerned or members are very concerned that that $1.50 hot dog and soda deal is going to stay. They're signaling it is going to stay, which is great. So between that and the pimento cheese sandwich you can get at the masters, they're the best lunches around. I was going to say I'm pretty sure the CEO just saying. answer that very emphatically on CNBC earlier this week and said, no, they're not raising the

price under any circumstances of that $1.50 deal. Thank you, Tom. Same for the rotisserie chicken as well. Did that go up a dollar? I can't remember, but there's a couple of loss leaders there that they know are psychologically important. Very important, right? Keep people coming in the door. Coming up, consumer confidence still waning. Spending could face a slowdown as recession fears grow. What does it mean for consumer tech names like Apple? We will be right back with the shares of 2% helping the market turned to that. Welcome back, everybody. Apple shares have reversed are now higher by more than 2% as they face their first major product demand test of the year. Sales could give us some insight about the health of the consumer, especially with inflation and recession fears swirling.

Steve Kovac is here to discuss. All right, Steve, so what is this? The MacBook Air? What can you tell us? Yeah, so, Kelly, I don't know if you remember where you were 14 years ago, but that was the last time Apple significantly updated its MacBook Air. And this new model, The reviews just dropped this morning. Our own Todd Hazleton says it's the best computer you can buy, and the reviews across the board are just glowing. So this is going to be a real test for Apple's demand as these recession fears sort of mounts. And there's all these questions, is Apple versus the recession? Who wins?

There are a lot of different theories going on here. What we do know is when it comes to the Mac line of business, this business has been screaming the entire pandemic as people are working from home and needed different kinds of computers. to do their jobs and so forth. But what we really need to figure out is now that we're in this possible recessionary environment, is that the man going to hold up. We're getting mixed signals all over the place. But the common theory we're hearing right now is the Apple customer is wealthier than your average customer, and they might be

able to hold up and keep that demand going. So what we're going to start looking for tomorrow, Kelly, is whether or not those ship times, how long those ship times lead out? Because if they start stretching to four, five, six, weeks, then we have a problem for Apple fulfilling that demand. Naturally, of course, I bought my MacBook Air last year. Here we go, the best cycle that we've seen in some time.

So awesome. What does this mean for the iPhone when we get the new model in the fall? That's really where Apple gets most of the attention, right, come September? Yeah, that's the real product. And normally we wouldn't even be talking about Macs, but since this is such a hot new product, this is something that we really should be paying attention to as a signal for what we can expect coming in the fall. Now, we're getting a lot of more positive signs out of the supply chain in China that things are starting to reopen and get that iPhone 14 that's expected to September out on time.

And so if that happens, that's a really good sign. Also in China, demand just keeps increasing for these expensive iPhones and the iPhone 14 is expected to do well, in part because China's own Huawei stopped selling these premium phones, Courtney. Wow, very interesting stuff. You know, we're going to follow closely when we get ever closer to that iPhone launch. Steve Kovach, thank you very much. And thank you all for joining us here on Power Lunch.