Power Lunch - Power Lunch 7/20/22

Episode Date: July 20, 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.

Good afternoon, everyone, and welcome to Power Lunch. I'm Tyler Matheson. Kelly will be right along. Markets are adding to gains today, or at least several markets are, on some optimism over earnings, and now Tesla takes the wheel. Elon Musk's company reporting results after the bell, closely watched, of course, will this be the catalyst to keep the stock's momentum going? Plus, have rising mortgage rates and persistently high prices finally chased homebuyers out of the market. A key indicator of demand falls to a new 20. 22 year low. We'll look at the impact on the economy and more. Kelly. Tyler, thank you.

Hi, everybody. Let's get a check on these markets. As he mentioned, we're seeing some follow through on yesterday's big rally, mostly in the NASDAQ, up 1%. A 4% gain over the past two days. The S&P is only up four points right now, and the Dow is down 120. So what's driving tech higher? Mostly software and chips.

Salesforce, Nvidia, AMD, now up another 3.5% up to 175. that's about $30 above where it was trading a couple of weeks ago. The communication services sector of the S&P also doing well today with some big recognizable names leading the way. Like Disney, up 3%. Not enough to help the Dow, though. Meta up 3% Netflix, the best stock in the S&P after its results weren't as bad as feared. Tyler, it's up 5.5%. All right, we start with the stock that investors will be watching closely after the bell. Tesla expected to report a drop in its second quarter profit as it recovers from an extended shutdown.

at its important Shanghai plant. But the stock has been under a lot of pressure down about 30% this year, starting, however, to see a recovery in the past month or so, up 14%. Colin Rush is managing director and senior research analyst at Oppenheimer. He has an outperform rating on the stock and a price target of 1,291, quite a gain from 739 now. Colin, we'll ask you how you get to that price target in just a minute, but it would seem to me that if you're going to sell roughly 100,000 fewer cars in a quarter, you're going to, than you did, than previous estimates, you are probably not going to have the profits you might have had.

Without question, you know, there's a lot of operating leverage in this platform as they scale up units. And I think what investors are going to be looking for tonight is not necessarily what the two Q results look at or look like, but really more what the company looks like a year from now as they ramped. of their Austin and Berlin facilities. And what we're expecting to hear from them is around tack times, learning cycles and acceleration and actual production there. And as folks get a sense of what those factories are really going to produce at, we can get a sense of the margin and the profitability. Based on the delays that buyers are seeing from Tesla, I expect demand is very high right now. Yeah, it's an important element that I think a lot of folks are missing around

EVs. Some of the recent studies that we've seen are looking at 14 percent. of consumers are looking to buy an EV, you know, in the U.S. and Europe, we see the delta between an internal combustion engine and a base vehicle and an EV being around $16,000, $17,000 right now with the advantage to EVs in terms of total cost of ownership. And so we think demand is really off the charts and well in excess of what any capacity, you know, Tesla and the industry combined can really serve right now. So we think pricing is going to continue to be strong. And we'll see how some of these other platforms ramp up and what sort of hiccups they run it to. Colin, what do you say to those like Boris Schlossberg last hour who mused,

we may never see 1,200 again for Tesla? How do you justify a price target above that level? Yeah, this is a really important question because the earnings leverage and the margins are really what get us there. You know, there's, you know, certainly well north of $50 of earnings power on this platform as they scale up to, you know, to, you know, multiple millions of units a year in terms of production and we'll start layering on some of the recurring revenue that they could with insurance and the full self-driving. And so as we look at that and the multiple that you can put onto that sort of earnings power, there's easily room to get to our price target here.

And what we're watching for tonight are signs that they're going to get into the 30% plus gross margin realm on the manufacturing and really can start executing on monetizing some of those recurring revenue stream. The fundamentals of the business, of course, and the profit power of the business, of course, are the most important factors that would determine what the stock price is. But there's another factor here, a bit of a wildguard, and that's the CEO, Mr. Musk. How have shareholders viewed Mr. Musk's involvement with Twitter, the fact that he's going to be sued, the fact that he is certainly going to have some distraction factor going forward? Is that being priced into the stock now? And if so, how does that cloud dissipate? Well, I think a lot of investors aren't overly concerned about it.

There's certainly some shorts that are pushing that narrative. But a lot of the folks that are along the stock understand the ups and downs of Elon and the benefits of his leadership and then some of the risks that are associated with it. I think a lot of this is really priced in. I think that stock movement has really tracked what's going on with production and gross margins, you know, historically, and there's a very easy way to track that. And so as we look out going forward, I think, you know, some of the distraction coming off the table for Mr. Musk is important for some of the sentiment and some of the short stories,

but really what's going to drive this stock is ultimately financials and performance on the production. Take us through the competitive outlook for Tesla. Last night, I was watching the All-Star game. There were a tremendous number of advertisements for the new electric Chevy Blazer. an SUV that is targeting the model Y, I guess. And there are a lot of other competitors out there from Hyundai and from Kia and so forth. But and yet, and yet, if you go out on the roads around the New York City market, in terms of electric vehicles, it's got to be 10 to 1 Tesla. Yeah, without question.

You know, Tesla is the leader in terms of producing electric vehicles and producing them at a profit margin. And that's really being driven by their expertise in a few areas. one, the battery, the integration of the battery with the power train, and then the overall system operation, which is really a software challenge, and the vertical integration that they have to put in all this together. And so we've seen them, you know, struggle with some production in the past, and that's well documented. And there's a learning cycle that's going on between, you know, amongst all of the auto AAMs

right now, moving from one technology node to another. And it's really an entirely different beast, a different, you know, fundamental architecture of how you make a car, even if some of the function is very similar in terms of what the does and some of the body that's that's very similar but the actual guts of the car is extremely different and so we're going to watch what happens with a lot of these oems and what we've seen so far some of the early vehicles you know i've had some hiccups they've been you know kind of underwhelming from a performance perspective and we're really watching some of the premium brands with their new issuance you know like mercedes coming out with some new vehicles and and other folks like rivian

that have you know vehicles that look very very attractive that are going to gain some market share as they just start to ramp up production and see how really competitive those platforms are. It's going to be fascinating. The Tesla offering. It's going to be fascinating to see what happens in the auto business over the next 15 or 20 years. We'll all be watching. Colin Rush, thank you very much. We appreciate it.

Thank you. Let's stick with clean energy. This hour, the president, is expected to unveil new steps to address climate change, which some hope to give a boost to a number of areas of the market. In a new note today, J.P. Morgan says they have a positive outlook on the alt-energy space into the second half of the year. Joining us now with some top energy picks, the man behind the research,

Mark Strauss, U.S. Alternative Energy and Services, senior analyst with J.P. Morgan. Mark, it's good to see you. Let me just start with what some analysts describe as a nothing burger from the president's announcements this afternoon. Do you have any hopes pinned on that? Good question.

It's hard to speculate on what might come out of it. I think there is some optimism that there could be some incremental spending potentially on domestic manufacturing. I don't think people are going as far as some of what Build Back Better would have provided as far as long-term extensions of tax credits and whatnot. But what I can talk about is the institutional investors that we are talking to, to your point about a Nothing Burger, are not baking in any kind of upside from Build Back Better

or any type of executive order. So if there is nothing, then I think there is some support for the stocks here. Anything positive would be upside from the stocks in our view. We're showing four of the names that you are kind of most favorable about. And maybe Array is a good place to start because it's one you think is an upward inflection in its profit margin. So especially in the absence of any further stimulus or policy support that's coming, why do you think Array, which is the only one in the green today, it's up 4% is an interesting choice here?

Yeah, so Array is a utility scale tracker company. Utility scale has been a bit more volatile than residential solar. Array has some very company-specific catalyst that we're looking for. They ran into some issues with their margins, kind of in early 2021. one, with the way their contracts were structured, it left them subject to a lot of risk with raw materials pricing. They fixed that last year, but they had to burn off a lot of that backlog that they had booked.

2Q is now finally the point where we get to where all of that prior vintage backlog is burned off. And I think that some of the by-side investors that have been skeptical about the margin recovery will have it in front of their face and can't ignore it in more. Talk to us a little bit about the residential installers, Sun Run and Sonova. Yeah, so Sunrun and Sinova are two of the largest residential solar installers in the U.S. They're exclusively focused on the U.S. and some of the territories. Leaders in the space, they're downstream owners and operators.

They do not make any of the products. They are buying product and simply installing them for customers. So they have had a lot of cost headwinds that have been top of mind for investors this year. You've had panel prices increasing. You've had labor prices increasing. The cost of financing has gone up for the overall space. The important thing to remember, though, is that you look at the average price of electricity, utility prices in the U.S., they are increasing even faster. You look at the average from the latest data that we have is from April, from the EIA,

where they talk about about a 7 to 8 percent increase nationwide year over year. You look at some of the key solar markets, California, Hawaii, Texas, Florida, the Northeast, you have seen even larger prices, price increases year over year. That is allowing these companies to increase their prices to the homeowner. the homeowner still has a value add because they're still saving money versus the grid. Right. And that's helping to offset the cost for Ron and Nova. Yeah, we'll see in the long run if this is a catalyst.

Mark, thanks so much for your time today. It's great to have you. Thank you. Mark Strauss. All righty, coming up this hour, whether it's a slowdown or recession. One sector has historically outperformed the market and we'll tell you which one it is and the best way to play it right now. Plus, another round of housing data shows.

the sector is continuing to slow down as mortgage demand hits a 22-year low and home sales fall. With housing accounting for about 15% of GDP, what does all this mean for the economy? We'll take that one apart in just a moment. Well, whether we're headed for just a slowdown or a recession, history shows that one sector tends to outperform others, no matter the circumstance there. So should you get in now. and if so, what names should you consider? Let's welcome Kevin Mon, President and Chief Investment Officer

at Henion and Walsh Asset Management. Kevin, it's always good to see you, and the sector in the spotlight right now is health care, and you see two basic ways to go at it. One would be through large pharma, the other would be through biotech. Obviously, these sectors hold up because people keep getting sick,

no matter whether the economy's good or bad. That is true. I think we will soon learn, Tyler, that the economy has fallen into the technical definition of a recession. We learned that first quarter, real GDP fell by 1.6 percent, and second quarter GDP is estimated to have contracted by another 2%. Two consecutive quarters of negative real GDP growth meets the technical definition of recession. We also know that the yield curve is currently inverted, with the two-year yielding about 20 basis points more than the 10-year. year treasury. The yield curve has predated a recession in terms of inversion every time going back to 1955. So I believe that we are in a recession right now in health care based upon our research

here at Smart Trust has been one of the sectors, has been an outperformer during periods of economic slowdowns and recessions. Now, if you're aggressive, maybe you wanted to tack it through the small cap biotech route. If you're a little less aggressive, you want to be a little bit less aggressive, you want to be a little bit more traditional and defensive, then you'll look at some of the larger cap pharmaceutical names, Tyler. And these, and repeat that fact for me about how health care has performed in prior downturns. Yes. So health care has been one of the top three performing sectors during previous slowdowns and

recessions. For those of the viewers out there wondering right now, how do I access health care? Well, if you want to play the large cap pharmaceutical route, Tyler, names. that we like at Smart Trust include Merck and Bristol Myers. Both of these large-cap pharmaceutical companies have yields of about 3% and continue to have excess cash on their balance sheet, which they may start deploying. In fact, Bristol-Myers-Swift recently announced the acquisition of Turning Point Therapeutics. On the small-cap biotech route, well, we like names such as Axum Therapeutics or Corona Therapeutics.

These are smaller cap biotech names that provide therapeutics or treatment for central nervous system disorders. Both of these companies currently have drugs in the FDA approval pipeline and may be of interest from some of those large-cap pharmaceutical companies with excess cash looking to deploy that cash and actually acquire these solutions. So two ways to play the health care route. And I think both will hold up very well in the face of an economic slowdown. Kevin, what if I told you I didn't think we were in? a recession in the first half of the year, and I don't think we're in one now. I would just suggest that you look to the actual data, Kelly. What feels different this time around, and I agree with your contention, is that the employment

market is still holding relatively firm, and we also know that the consumer continues to spend, but we're starting to see slowdowns in both of those areas as well. We know that initial jobless claims are starting to tick higher, and we also saw that the Federal Reserve recently revised their unremise. employment target for the end of the year up from 3.5% to 3.7% as relates to the consumer, yes, the consumer drives the U.S. economy, accounting for 70% of our economic growth. But they're now starting to dip into their savings and put more on their credit cards to withstand those inflated prices. We've got 30 seconds or so. I assume you expect the Fed in July will

raise by three quarters of a percentage point. What do you see as their path going forward in September November and then December. What will they do then? Great question, Tyler. I think they turn less aggressive in the face of this economic slowdown, which I again believe will meet the technical definition of recession. By the end of the year, we see the Fed Funds target rate at 3%. So if they raise by 75 basis points in July, which I believe they will, that's only 75 basis points of additional hikes for the balance of this year. All right, Udhamon. Kevin Mon. Thanks, Tyler. Thanks, Kelly.

Let's take a quick look at the energy complex. Now, we've got some major moves today. There's been a lot of intraday volatility. And oil is taking a leg lower in just the last few minutes. You can see there it briefly went positive. Now it's dipped by 1.7%. That does at least put us back below 103 on WTI. Nad gas, other story.

Flip side of the story. It's been soaring into the afternoon. It first started about an hour ago, hanging on to nearly a 10% jump to almost $8 per million BTUs today. The chip stocks are also rallying, helping to lead tech higher. Let's look at these one-week gains in Vitya up 17% all on hopes the chips bill will pass Congress or is it. Either way, we'll get the latest next. Now, the news, not so good for the home builder stocks lower across the board as a key housing number hits a 22-year low.

But what about prices? Talk about some all-time highs. We'll dive into this housing market disconnect next. Welcome back to Power Lunch. chip stocks leading tech higher today. The SMH, ETSF, is up 2% today and 10% in a week. Elon Moy, joining us now to explain the 52 billion reasons these stocks are rallying. Elon? Well, Kelly, that is how much money Congress would provide to shore up domestic semiconductor manufacturing under the Chips Act. Now, this bill has cleared its first

procedural hurdle in the Senate with strong bipartisan support, and it's looking increasingly likely that it'll pass through both chambers by the end of next week. Now, the latest version of this bill strengthens the guardrail surrounding funding for companies that benefit. I spoke with Commerce Secretary Gina Ramundo at an event this afternoon, and she told me her department will be able to claw back money from companies that break the rules. There are strong restrictions on what they can use the money for. They cannot use the money for stock buybacks. They cannot use the money to build manufacturing facilities in other countries.

There's really strong guardrails around no investments in China. Businesses also appear to have lost out on two key provisions. It doesn't include a retroactive reinstatement of full R&D expensing. And a 25% tax credit for fabs and tooling equipment doesn't cover chip design. That would have been a boost for companies like AMD and Navidia. But, Kelly, many of the measures boosting science and research across the country have been added back to this bill. Guys? And I know we spoke about this briefly, Elon, but while Intel is an obviour.

beneficiary? What about the likes of NVIDIA and the others? Yeah, so the issue there is that those companies designed chips, but they don't manufacture chips. And that tax credit only benefits companies that actually make the chips or make the tools that you use to make the chips.

So what those companies are saying is they aren't going to benefit directly, but others say, hey, look, this is an indirect benefit. This is going to increase the supply for chips in the U.S. It's going to increase demand for those chips here in America. So, you know, those companies will get a benefit one way or the other.

Yeah, Intel, Nvidia up 4% today while Intel is barely struggling to stay positive. Elon, thank you very much. Elon Moy, in Washington, let's get to Bertha Coombs now for the CNBC News Update. Bertha? Hey, good afternoon, Kelly, and here's your update at this hour. Senators announcing two bipartisan bills designed to close gaps in federal law and prevent future candidates from stealing elections. The first would clarify the vice president's role in counting election.

college votes, raise the bar for members of Congress to object, and try to prevent fake slates of electors from interfering in the process. The second is aimed at protecting election workers. An attorney for the family of Jalen Walker, the 25-year-old black man, killed in a hail of police gunfire last month in Ohio, is calling for the Department of Justice to investigate Walker's death. An autopsy shows that Walker was shot at least 40 times by eight actions. police officers at the end of a car and foot pursuit that began with an attempted traffic stop for minor equipment violations. And a total of 100 million people in the United States under heat alerts today in 28 states from California to New England. Texas alone, Dallas, Houston, San Antonio, and Austin have experienced more days of 100 degrees Fahrenheit this year than they typically do over an entire summer.

Got to feel for those folks, Tyler. Oh, look, that's a happy dog right there. Go, baby. All right. Thanks, Bertha. Ahead on Power Lunch, we will go around the markets for an update on stocks, bonds, and oil. And as the markets attempt to follow through on yesterday's rally,

will take a pulse check on everything. We'll also check in on housing as a key sign of demand falls to a 22-year low. Is the once red-hot real estate market finally getting ready to do something the weather There isn't. That is cool off. Power lunch, we'll be right back. Welcome back, everybody. 90 minutes left in the trading day. Let's get caught up across the markets on stocks, bonds, commodities, and the housing market after this morning's data deluge. We'll start with Bob Bassani with the latest on stocks.

Big divergence between the Dow and the NASDAQ today, Bob. Yes, and that's because tech's having a moment. The bulls are having a little bit of a moment at the expense of more defensive sector. So let's take a look at the S&P 500. It's been a nice little run here considering, what was it, June 16th low, 3666, were what, 8% off of the low? So the Bulls are having a little bit of a moment, and they're having a little bit of a moment because they're arguing for growth stocks. They're liking tech stocks again. They're liking tech stocks.

Take a look at the sector's distribution here because they think there's going to be a bright shining future in the fourth quarter in 2023 when the Fed is done with this rate hike cycle here. So look at ARC. We've had a great run. I mean, Kathy Woods, a main flagship is way, way off of the lows in the middle of June, more than 20 percent. Consumer discretionary, I know the growth sector, tech, growth, and the chips are doing really well. You heard just recently from Elon talking about that chips bill going through here. That's helping today on top of that. And the banks are doing a little bit better. All right, not much of a growth group, but you get the point. They're picking at growth. Meantime, see Kathy Woods? I just want to show you some of this Twilio and Spotify. You know all your favorite names here. from Kathy Woods, Roku, Shopify, they're just having great moments. The last few days, they've all been rallying rather dramatically. Again, the concept buying growth for later in the year. Why is there this big divergence Kelly was talking about? Because look at the more defensive sectors. Healthcare is just getting clobbered today. United Health is a main reason. Look at that. 15 points. Do the math on this, folks. 15 points. You know, you're talking about 100 points in the

Dow potentially. Malina, Merck, Humac. All sectors of sub-sectors of the health care group are trading down today. The same with consumer staples, which have also been acting rather poorly in the last few days as growth, as technology has had its day. Kellogg, Colgate, you know, the favorite names in Smucker, which is one other favorite classic there, high beta consumer staple name, all moving to the downside. So a lot of bifurcation here and a lot of hopium about growth later on in the year. Kelly, back to you.

Yeah, that's a very interesting tilt, Bob. Thank you. Let's look at the bond market for some more clues. Now, Rick Santelli tracking the action at the CME. People are raving about this 20-year auction, Rick. Well, they are, and they should, but do remember, the reason it's the highest yield on the curve is because it's not the most popular, most highly traded maturity on the curve. And the bigger the auctions, the deeper the amount of supply of any given security,

the more it's traded. And liquidity is pushing yields down in the other. maturities but it is definitely in many ways some of the best action that we have seen oh my mic did fall I apologize everybody here it is anyway well if you look at the following charts look at the intraday of two year okay the inter a 20 year you can see it was off the charts the auction was great now let's look at the path month of date of two year it just keeps steadily climbing as a matter of fact all yields now are very close to hire on the day they've come a long way like

stocks. Now look at a month to date of tens. A completely different path, but it's turning higher. Why? Because next week we have a Fed meeting. It's starting to do the Fed dance. Finally, high yield for a while was the big talk. Well, right now we're at a six-week high-week high-year should we stay here for the YG, the high-yield ETF. And we see the spreads are narrowing as well. And finally, a two-week chart of the euro currency. It is really under pressure today. Italy is weighing on it. How their politics are going to pan out is anybody's guess. But it's a lot. is a positive for the greenback, which once again is hovering very close to fresh 20-year highs. Kelly, back to you.

Rick, can I hypothesize with you for a moment here? You bring up the high yield and it seems to be trading better. You bring up the 10-year yields and they're drifting higher. I mean, Bob Bassani just told us health care staples, all the defensive parts of the market are underperforming. This feels, all to me, kind of risk gone, kind of bullish in terms of the fundamentals. What do you think? Listen, I couldn't agree more, and I think that the market is agreeing with you. Why? Okay, consider this. 324 last and two-year note yields. Their high close is 347. 10-year note yields currently are trading 304. Their first back-to-back 3% closes on pace for it for the month of July. But their high-yield close is about 47 base point tire just shy at 350. The market agrees with you. We are now starting to think more about what's on the backside of the tightening cycle. And I think that's why many investors are starting to get friendly,

not only to the equity markets, but I think you're going to see a lot more of the buying side approach some of these auctions. All right, Rick, thank you very much. Let's turn to energy now, which is one of these kind of odd spoil sports, because when demand looks better, PIPA, then oil prices start to rise, and then that kind of spoils the environment once again. What are we seeing with crude today? Yeah, well, oil is dropping just now into the close as the front month contract for August delivery expires. The September contract also down, but not as big of a move, although it is under $100. Now, earlier we did get weak gasoline data. Product supplied, which is a proxy for demand, was roughly 8.5 million barrels per day last week. That's down 7% from last year's

levels. But today is really all about Nat Gas. Henry Hub prices surging 10% and crossing above the $8 mark just now, now up more than 13, really even 14% here on the week. Scorching temperatures are driving demand. Urquot, which oversees Texas's grid, expected to hit its 11th peak load record of the year today. And power prices are surging, and July is on track to be the state's costliest month ever, and it's not even August. Meantime in the UK, prices surging 29% today, up nearly 40% on the week, Kelly,

as Europe's energy crisis intensifies. Watching that one so closely, Pippa, thank you very much, Pippa Stevens. Let's turn to the housing market where we had weak data, but is it a sign that sellers are or aren't still in control here? Mortgage demand falling to 20-year lows, home sales falling from May to June, but prices setting a new high in inventory at a record low. Is there a possible soft landing in the housing market instead of a crash?

Let's ask Mark Zandi. He's the chief economist at Moody's Analytics. It feels, Mark, more like we're going into a deep freeze than we are going into a crash. Yeah, I think that's a fair way of putting it, Kelly. I mean, home sales, housing demand really took it on the chin. 5.1 million is, you know, I expected home sales to weaken, but that was weaker than I had thought. But it makes sense, you know, with the higher mortgage rates conflating with the higher house prices, first-time homebuyers just can't afford to buy in.

They're locked out. And trade-up buyers, they're kind of locked in because, you know, if they sell and buy, they got to get another mortgage at a higher rate and their monthly payment's going to raise. So, and then you've got investors, a lot of those folks, I don't think they're selling, but I think they're going to the sidelines thinking that they might get an opportunity here down the road. So demand is really weakening very rapidly. And you're right. I think housing is going into the deep freeze?

But is demand weakening very rapidly. I mean, I get that buying activity is drying up, but mortgage rates basically started to peak back in March. And in June, we had home prices hitting record highs. I don't think many people would have expected prices to still have some significant momentum behind him. Inventory, we're down to like 13 or 14 days. I mean, that's a record low. So it very much feels like there's still real demand out there and there's not enough supply. I don't think we're seeing the kind of drop off in the market more broadly that people might have thought a couple months ago when rates started to spike.

No, not so. I mean, I think house prices have peaked. I mean, you're looking at the median price, and the reason why that rose is just compositional. You had a lot of more homes selling at the high end of the market, a lot fewer homes selling at the low end of the market because first time I'm barbers are locked out, and that causes that price measure to jump, to increase. But the underlying price dynamics, they're weakening very rapidly, and I would be surprised. And by the way, sellers aren't going to give up on their price very quickly. I mean, they've got a price in their mind as to what their home is worth. If they look at Zillow and they see the highest Zillow price they ever sold, that's what their home is worth. For them to give up on that price is going to take some time.

So, you know, demand goes down first, home sales and the next – and the inventories actually are rising. I think seasonally adjusted inventories are actually on the rise. If you look at inventories across the country in the most juiced markets coming up into this, they're up quite a bit. So, you know, I think everything is coming together suggests that in coming months, and certainly by the end of the year going into next, we're going to see some real house price weakness. Now, having said all of that, I'm not arguing crash. I'm just arguing there's a major come up and so coming in with regard to house prices. I think the market's under a lot of stress. Yeah. Guess who sent yours truly a Zillow listing on yours truly's home today? My wife did. Here's what it's worth. So I can't get that number out of

my head, Mark. You're damn right about that. Right? Not that I'm not going to give up on that. No, no, I'm not selling because then I'd have to go buy something even more expensive. And it's just not worth the headache. There you go. But at any rate, if there is a slide in prices, do you expect the slide to be greatest in those cities in the Intermountain West, maybe Florida, where the price gains have been greatest? Yeah, that's absolutely right, because that's where affordability is going to be under the most pressure, right? Because prices are really, really high. You mix in those higher mortgage rates and the monthly payment is just, out of bounds. The other thing is a number of those markets have really gotten used and you've

got flippers coming into those markets. Remember the flippers before the financial crisis? We're not in the same league as that, but there are folks that, you know, if you go to Phoenix or you go to parts of Florida, Atlanta, they're buying with the clear intent of selling very quickly. They'll get rung out very fast and that'll bring prices in much more significantly. So in those markets in the southeast, Texas, Mountain West, I would expect to see some meaningful price declines. Nationwide, you know, maybe prices go flat for a couple, three years, let incomes and everything catch up. But in those juice markets, I think you should buckle in. We're going to see some price to cost. All right. Mark Zandi. Thanks, man. Appreciate it.

Thank. The Dow is slightly higher today, but lower by 12 percent so far this year. Fear of a recession, of course, we've been talking about it. One of the main drags on stocks up next. We'll hear from one investor who says the economy is strong enough to deal with a down. turn and check out Bitcoin's big bounce back up nearly 20% in a week. Coinbase up even more. Microstrategy two. Look at that graph. The crypto comeback when we return. Welcome back to Power Lunch, everybody. A lot to debate in the markets over whether we're in a recession or not or whether we're going to be in one or avoid it all together. Leslie Picker talking to one fund manager who thinks whatever it is, the economy is strong enough to handle it. Leslie. Yeah, Tyler, his main take.

takeaway is that this is nothing like 2008. I spoke with Joshua Friedman for our latest delivering alpha newsletter. He's the co-founder of the credit behemoth Canyon Partners. Friedman says that even if we meet the technical definition of a recession, two consecutive quarters of negative growth, that the economy is in such a strong position, it will be able to absorb the downturn. You have some people saying, oh, consumers are already in a recession. Well, consumers are facing higher gas prices, they're facing higher mortgage rates if they happen to have a need for a new mortgage. Housing sales are down. So in some respects, we're seeing contraction in certain parts of the economy. We're seeing inventory liquidations periodically. But we're not in some

awful recession. We still have unemployment less than 4%. We still have job openings that far exceed the number of people available to fill those jobs. And all I'm saying is a modest uptick in unemployment, a modest decrease in available job openings, doesn't throw the economy in anything like what we had in 2008, in my view. So despite having grown up in the distressed business, he's not expecting a wave of bankruptcies anytime soon. Instead, he said they've got, quote, comprehensive shopping lists of securities in other areas like secondaries, loan originations, and securitized packages. To watch the full interview and subscribe to our newsletter, click on the QR code,

there on your screen or you can go to delivering alpha.com, guys. Love that. Go right to the distressed guy and he says it's not distressed enough for us. Leslie, thanks very much. Leslie Picker. Markets are getting a boost today in part from better than expected earnings from Netflix. Dow is positive once again, only by nine points, though. Which stocks could be next to beat lowered expectations? Three contenders are coming up in three stock lunch. All right, folks, time for today's three stock lunch. We're going to look for what could be the next surprise earnings winners after Wall Street proved to be a little too negative on Netflix yesterday. We got Corvo, Skyworks, Esty Lauder, all down more than 30% this year, but can these

names stun investors too? Let's bring in Marianne Montaigne, gradient investors portfolio manager. Marianne, welcome, and why don't we kick it off with Corvo? Well, thanks, Tyler. To start with Corvo, it's in that semiconductor category where estimates have been cut pretty dramatically in recent weeks, and the stock's been downgraded around concerns for those semiconductor shipments. Also, Corvo generates about 25% of its earnings from, or sales, that is, from China. And that has just been so sporadic with their economic reopenings, without vaccines, without treatments. So the shares are trading very low, eight times. forward earnings, and that's a very low end of the semiconductor sector. But the stack price has been

dropping for a long, long time, and there's supply chain headwinds, there's cautious guidance from management. They're likely losing market share. So we would sell this name as we don't think it's reached its bottom yet. Wow. All right. So what about for Skyworks then, Marian? Well, Skyworks is a radio frequency chip producer. I don't know how many people realize this, but 60% of their sales, that's 6% of their sales are to Apple. So it's highly dependent upon that one company and all their new products, their latest iterations. We've heard strong things about their latest product in terms of acceptance. and we notice that they are gaining share in Android phones as well, both in the high end and the mid-tier side of Android. So that reduces the dependence upon Apple, which has always kept their multiple toward the low end of the sector, P.E's.

So management has pledged to buy back 2% of its shares. They offer 2.3% dividend yield. This is a company we think is going to surprise to the upside and both revenues and earnings when it reports on the 28th. And it's trading at about a 45% discount to the S&P 500. So that's a buy for us. That's a buy for you. All right. Let's move on to Este Lauder.

Is this one a beauty? And I don't mean to be too harsh or lipstick on a pig. No, I think the PE ratio is beauty. It's about twice that of the S&P 500. That's really been keeping us away from this name, and we have not been adding to the Staples sector. It's just a company that should be benefiting from the reopening of the economy over in China. Think about travels. Think about duty-free.

That's a big part of their business, and it's a very profitable part of their business, especially in China with the emphasis on more lotions and potions, shall we call it, rather than the lipstick type of things, the color side of the bit, I mean. But, you know, even though we talk about strong travel in the U.S. and into Europe, we really need China to work for them. And so I think the earnings estimate, which you could drive a truck through, I mean, it's between 20 cents and 58 cents for the current quarter. You know, the midpoint could be beat, but I don't think management is going to have great things to say about their supply side and also their sales on the travel and duty. And as you say, its P.E. is high. So this is still an expensive stock even though the P.E. is fallen. Yeah, it's a beaut. All right. Thanks. Appreciate it, Marianne.

Marianne for more potential names that could surprise to the upside. Why don't you head to CNBC.com? slash pro. And coming up, crypto's big comeback, inflation's big hit to wages, and a huge jackpot. Some other stories catching our eyes today. We're back in a moment. Welcome back to Power Lunch, everybody. Time now for a few stories that have caught our eye today. And we're going to kick it off with crypto. Because in case you hadn't noticed, we've put together some pretty nice gains over there, Ty. Yeah, no, it's really amazing. Coming back 20 some percent in the past couple of days. $24,000 today for the first time since mid-June. Even with her. Today's rally. We're down 50% this year.

But the stocks have been climbing Coinbase is up 35% this week. Ether has a lot of people buzzing as well. Yeah, no. I mean, I think if you're ready for a wild Bronco ride, I mean, and we're not talking about OJ's Bronco. We're talking about a different kind of market. And we're not talking about the stock market either, which, you know, and a lot of people are taking this as a bit of a read on liquidity or growth, or whatever you're going to call it.

The market more broadly. 38% higher on Coinbase, as you see right there. Amazing. All right, let's move. We really want to talk about DoorDash, which is infuriating us all. But that's all right. We're going to talk about the federal minimum wage at a multi-decade low if you adjust it for inflation. This according to the Economic Policy Institute, recent analysis found that when accounting for inflation, today's federal minimum wage, seven and a quarter, is the lowest since 1956 in terms of purchasing power. The minimum wage back then was 75 cents, which is about $7.19 today. It's been nearly 13 years since Congress last hiked the minimum wage,

but 30 states have done so on their own. So incomes, that's one of the forces behind whatever gains there have been in incomes. Yeah, if they move on it now, wage price spiral, absolutely. The minimum wage actually moved ahead of the big inflation boom and was where we first started to see a lot of restaurants and everything respond by trying to price that in. Now, of course, we have it sort of breaking out more broadly. I'm happy that people are making more. I guess I'm happy that in the states, that some states have gone to a higher wage or base wage.

But the libertarian streak in me is anti-minimum wage. I don't see why an individual who wants to work for a price and a seller of labor who wants to pay a price, can't get together and work at whatever price suits them. You're not going to get an argument for me, especially in a day and age where people are outsourcing a lot of work, even service sector through things like Fiverr to places in the Philippines for two to three, $3, $4, $5 an hour. So it's leaking, it's happening, it can't be ignored. Yeah.

Anyhow, that's just a personal thought there. Well, there's always a lot of. Speaking of things that I really hate, the mega millions jackpot is now $630 million. And yesterday's drawing, four people matched the first five jackpot numbers, but no one had all six. So that's how we keep getting these soaring numbers. That jackpot was $55 million, the fifth largest ever. This one, obviously, even a little bit bigger now.

the next chance to win is on Friday. I have to go down to the merchant not far from here. No, don't do it, Ty. Why not? Don't support. This is horrible. Horrible. People's lives are ruined by winning the lotto.

Yeah. Well, I'd like to experience that ruination. My life would be fine. Then you could afford all the door dash. Yeah, that's right. DoorDash just is. Matt can go to town. It's eating me alive.

It's eating me alive. Thanks for watching Power Lunch, everybody.