Power Lunch - Power Lunch 9/8/22

Episode Date: September 8, 2022

CNBC’s Tyler Mathisen, Melissa Lee and Kelly Evans take you through the heart of the business day bringing you the latest dev elopments 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 along with Courtney Reagan. I'm Tyler Matheson, and we will continue to follow the events out of London and the worldwide reaction to the Queen's death and historic rain. But now we turn back to the markets, a little more than 90 minutes to the close, and let's get to Dom Chu to bring us up to date. Markets right now, Dom, little change. Little changed, but we've seen both sides of that equator up and down overall. If you look at the way things are playing out right now, Tyler, to your point, we're seeing fractional gains for the the market indices up down around just the half percent mark. The Dow Industrial's 31,715, the last trade, up 135 points, about one half of one percent. The S&P 500, this is key,

approaching back towards that 4,000 mark, up 16 points, nearly half of 1 percent. Now, it's important here for the S&P because this is just about the level that we were at when there was a big debate brewing about whether or not we would see a rise towards that 44, 4, 4,500 mark or down towards the 3,600 mark where we kind of retake out those lows that we saw back in June. The composite index for the NASDAQ, the real underperformer, only up about one quarter of 1%, 18 points of the upside, 11,810, the last trade there. From a sector perspective, here is how things are playing out. We are seeing some relative strength in outperformance in certain parts of the market.

Financials and healthcare in particular, both north of 1.5% gains there. Meanwhile, technology the laggard, hence the composite index underperformance, and the Communications Services Index around there down about one-third of 1%. So it has been more of that mega-cap technology trade and communication services media trade that's been underperforming after it had a great day yesterday. Remember snapping that multi-day losing streak. So that's the state of play on the sector side of things. If you take a look at some of those overall fields for what we have with regard to key parts

of the market, look at the Spider-S&P 500 bank ETF, right? Up about 2% J.P. Morgan Chase, Bank of America, Wells Fargo, C. Citigroup, some of those mega-cap money center banks that are all up two and a half to three-some percent. If you look at one of the reasons why interest rates could play into part of that story, we are seeing some movement in various parts of the yield curve. And generally speaking, the trend, say for the 10-year treasury notes or other parts of the curve, have been at least drifting a little bit to the upside. If you look at those bank stocks, that could be one of the big driving forces behind that trade. And again, the two-year note yield higher nearly three and a half percent,

3.49, the last trade there, and the 10-year note yield is still drifting higher, just a hair below 3.29%. So if you look at the overall picture, Tyler, very much a focus right now on what's happening, not just with rates, but the overall impact on the markets, the bank stocks in particular, and of course, tech and communication services because of the valuation side, what higher rates would do to the valuations of some of those companies. So we'll continue to watch that as you head towards the closing bell time. All right. Thank you very much.

I'm sure we'll see you again on these remaining minutes of, Power lunch. Earlier today, Fed Chair Jerome Powell said the central bank is ready to do whatever it takes to get inflation under control. And our next guess says inflation is peaked and that the market is pricing in, however, another three-quarters of a point rate hike. Doug Butler is portfolio manager with Rockland Trust. Doug, why if inflation is peaking in your view, do you think the Fed is so determined to raise interest rates by three-quarters of a point? I think the Fed is realized that inflation has peaked, but that doesn't necessarily imply that they're going to pivot their policy. They're not ready to pivot yet, much the same as we're not ready to put away our shorts up here in Massachusetts,

even though the high temperatures have probably already been reached. It's making sure that you still have that option to still cool down the economy. But yes, do I think that inflation has peaked? I think it has peaked. And I think the Fed runs the risk of sort of continuing to worry about the last fight and sort of beat the drum on inflation, and they might beat the drum enough to cause of the second. Yeah, I guess you could say, I mean, obviously oil prices have come down, gasoline prices have come down, and you can point to some roll over in some of the other constituents of inflation. But coming down does not mean that inflation has gotten anywhere close to where the Fed would like it to be, which is an argument for continuing to be aggressive with interest rate hikes.

Indeed. Their concern, their target rate historically has been, you know, 2%. I think that it'll get down to 3 at some point next year. And it'll be down in the 4th, I think, by the end of the year. But again, they need to see it sort of start to happen before they really take their feet off the breaks. Before I turn to Courtney, is there a disconnect between what's going on with monetary policy and what has been happening with fiscal policy? In other words, the Inflation Reduction Act spends a fair amount of money. Now, it says that over time it will be paid for in the form of higher taxes on the wealthy and in other forms.

But is that, do you see a disconnect between fiscal and monetary? policy or not? I think there's a bit of a disconnect and that that goes to show that, you know, the fiscal policy is always going to tend to be more accommodative because, again, that's what A wins elections and B keeps people in jobs. But the Fed maintaining the tightening the tightening stance is in good position here. The fear is the fear we have is that they take it too far. So last time we talk, there was talk of 100 basis points in the 75. I think the risks here are sort of the upside risks are not being counted on enough. So things like reopening in China, things like rates getting sort of raised, but then sort of curtailing. This is, I feel this is definitely our last

75. We might not even get a 50. Yep. Doug, so if you believe that inflation has indeed peaked, and if the market is pricing in a 75 basis point rate hike, what are some investments that you're looking at, help our investors make smarter decisions here? Sure. I think one of the things, and I think the names that I'm going to bring up, have all suffered so far this year. All of us who own stocks end up owning some that don't work out.

These are all stocks that have been down more than 30% this year and some of them much more. Trex is a name we like as a mid-cap name. And it's been beaten down, especially this year because there's been inventory de-stocking, fears that housing is going to completely roll over. We think that, yes, housing is going to slow. But do we think that Trex is going to have very negative sales growth is going to fall off a cliff? Are we stopping making new homes?

No, because look, rental, you know, people still need housing. And we've underinvested in housing for all the past 10 years. So it's really, this is a catch-up phase. We think Trek still has room to run. Nike's another name. It's been hurt badly in China, but it has really good runway ahead of it, especially if China goes away from the zero COVID policy and reopens and their economy gets going again, and consumers start spending there again.

Plus, we think, the unappreciated upside of their direct-to-consumer business. Look, that's not my thing. I don't customize my sneakers. but there's certainly the Gen Zs and millennials out there who do a lot of it, and it's a great margin business for them. All right, Doug, thank you very much. We appreciate your time today. Doug Butler.

Thank you. Well, now to the bond market, Rick Santelli, tracking the action. Bonds digesting not just Powell, but a big rate hike from the ECB. Yeah, you know, there's so many issues today in the marketplace, whether it was initial jobless claims at the lowest level since the end of May, the ECB with a whopper three-quarter of point rate increase. All of this and then add in shortly thereafter. Testimony questioned an answer from the chairman of the Fed,

and there was plenty of volatility to go around. Look at an intraday of two-year note yields. A lot of volatility between 8.30 Eastern and 9.30 Eastern, as you see. And if we go further down the curve, let's look at what 10 years did. They were much more tame than the short end. For most of the day, the yield curve was either flattening or re-inverting. And as you look at this chart from August 1st, we just have been sailing higher, almost a 45-degree, very smooth line of rates going up. But here's the key.

When you open it to June, we have been unable in long maturities to take out that mid-June high yield. In this case, it was a bit under 3.5%. In the UK, where they raised rates, in the ECB where they've raised rates, we see long-dated has not taken out their highs in mid-June either. Look at Boond yields. Their high in mid-June was 177. They're at 173. But the big story today, like in the U.S., it's the short maturities that have the most hot trade going on with higher yields.

Two-year boons closed at 1.33%. That's an 11-year high-yield close. And finally, one would think that the euro currency would have been very volatile, and indeed it was. But when all the smoke cleared, virtually unchanged. Tyler, Courtney, back to you. All right, I'll pick it up there. Rick.

Thank you very much. And oil is closing. for the day bouncing back after a big drop yesterday and Pippa Stevens is at the commodity desk. Pippa. Hey, Tyler, oil erased early losses making back some of yesterday's decline that saw U.S. oil settle at its lowest level since January. Brent crude is still holding a below $90 right now with WTI right around $83.50. Natural gas prices also advancing. While they've pulled back, they remain sharply higher on the year. Platt's analytics estimating that global oil demand from gas to oil switching could jump by more than 80% as producers look for alternatives. And speaking of other energy sources, uranium stocks are bouncing as nations worldwide signal the importance of nuclear power, the URA and URNM, both in the green, with the latter now up double digits on the month.

Each contains companies at different stages of the production process. You've got Camaco and Kazadamprom, which are major producers. Then there's more speculative plays like Paladin Energy and Denison Mines. Now uranium energy is one company focused on U.S. production. CEO Amir Adnani telling me the company's site in the Powder River Basin is ready to go, but that uranium prices are not quite high enough to incentivize production. Spot prices are right around $51. pound, and he said they need to top 60. Guys, back to you. Pippa, thank you very much.

We have just gotten a news alert on Twitter. We're going to go to Julia Borsden, who has more details. Hi, Julia. Hey, Courtney, yet another twist in the Twitter saga. This one about the whistleblower, the Wall Street Journal reporting that the whistleblower Peter Zatko agreed to a roughly $7 million settlement with the company in June. What happened here, according to this Wall Street Journal report is that after he was terminated, he and Twitter negotiated a settlement over basically a payout of his contract. This kind of thing is not unusual with some of these big corporate jobs. So they agreed to a $7 million payout to sort of pay out the rest of his contract or

part of his contract. And then he signed an NDA. He then later filed his whistleblower complaint, which then gave him the protection of all those whistleblower laws, which enabled him to file that complaint despite having signed. the NDA. So yet another twist here. We saw Twitter shares go up on this news. They've since come down. It doesn't really impact things, but it just gives us more insight into the relationship between Twitter and the whistleblower Peter Zacko. Back over to you. All right. Thank you very much, Julia Borsden. Up next is a three-quarter point rate hike from the Fed. A Dund Deal. We'll bring you the latest words from the chief, J. Powell. Stocks are seesawing today. They're now up as much

as 200 points and down 260 at the low after Fed Chair Powell vowed to fight inflation until the job is done. Steve Leasman joins us now with more on Powell and the rest of the Fed speakers we have heard from lately. Steve. Hey, good afternoon. Tally. Yeah, Fed Chair Jay Powell pretty much sticking to his Jackson Hole script, that hawk his script, and saying the Fed intends to keep raising rates and keep them there until the job of bringing down inflation is done. Powell said nothing that leaned against market pricing for a 75 base point hike in two weeks. He cautioned against the notion of backing off too soon and also underscored his concern about the public's inflation expectations becoming unanchored. The longer that inflation remains well above target, the greater the concern that the public will start to just naturally incorporate higher inflation into its economic decision-making. And our job is to make sure that doesn't happen.

And we're committed to doing that job. Powell added that the Fed is deliberately seeking below trend growth in part to soften the labor market and help lower inflation. Meanwhile, Chicago Fed President Charlie Evans saying he sees the funds rate topping out at around 4% likely by next year. And that's in line with the market. But he hasn't decided if the Fed needs to go 50 or 75 at the meeting in two weeks waiting on that inflation report next week. Still, he said he thinks that once the Fed. hits that peak rate, it ought to keep it there for a while. Courtney? Thank you very much, Stephen. Stick around with us if you would. Let's turn our attention now

to a previous Fed chair, current Treasury Secretary Janet Yellen. She just finished speaking at a Ford plant in Michigan today promoting the administration's economic agenda. Elon Moy joins us now from Washington. Bob Bassano also joining us from the NYSC. Elon, let's start with you. What did we hear from Yellen? Well, Courtney, her role here was really to lay out the overarching principles of President Biden's economic agenda. She did say that the most immediate challenge is restoring price stability. And there was one line in her speech

that really jumped out at me when she said that the cause of inflation is global, but that the pain of inflation is personal. And that really signaled to me that Democrats are looking at inflation. They realize that this is a political liability heading into the midterms, and Yellen had to connect the dots

between the recent pieces of fiscal legislation that Democrats have passed to try to grow. them in some sort of economic model, which she is calling modern supply-side economics. Now, there's a lot of debate about what that entails and how effective it might be. But if there's a through line between what Powell said and what Yellen said, it's really about trying to come up with ways to incentivize a durable economic recovery and not just chase growth. Bob Pisani joins us now.

What is the market saying today and what has it been saying in recent days, Bob? Well, the big debate is about whether we're at peak Fed hawkishness, not really peak inflation. I think you can make a reasonable argument that we are at or near peak inflation. We'll get the CPI numbers next week. But peak Fed hawkishness, no, I don't think so. And that's very clear in Jay Powell's comments today when he said history strongly cautions against premature loosening of monetary policy. That's going to be the big issue. And I think the public is coming to believe that Powell is going to stay higher for longer.

The retail investor sentiment surveys that were out this week are terrible, and retail investors believe that this is going to be a problem. Bullishness on the American Association of Individual Investors for the week down to 18%. Historically, it's close to 40%. That's some of the lowest bullish readings, Tyler, that we have seen in the 35 years that that survey is around. So I don't see this turning around until the public comes to believe that we are at or near the end of this aggressive commentary from the federal.

reserve. You know, Steve, the esteemed David Kelly, during one of our Fed meetings, I think it was June or maybe it was the one prior to that, said that the typical mistake the Fed makes is to go too fast, too high for too long. Logical? You agree? Disagree? Yeah, I think so. Look, everything here is different. You know, from Alam talking about modern supply-side economics, which, you know, it has to send a bit of a chill down your spine if you have any sort of support for a free market system. I think what I hope the secretary is talking about is this idea that for the moment, when we have the supply side constraints, there is a need for some government assistance to get the supply

side back to where it was, but that ultimately long term, this is not a plan or a program, because then you start to govern, you start to sort of border on this mercantilism idea, which is very much the Chinese model, which doesn't work all that well. When it comes to the Fed, yeah, there is a need right now, similarly, for the Fed to be hawkish, for the Fed to convince the market that it's going far, and going to stay there for a while until it rings out inflation out of the system. I think that what the Fed is saying is it's willing to sacrifice something when it comes to jobs, something when it comes to economic growth in order to get there.

But again, these are sort of moments in time, Tyler. I don't know that that will continue for all that long. At some point, they'll be able to pivot and bring down inflation or as Bob says, get the peak Fed Hawkins. We're just not there yet. All right, Elon, Steve, Bob, thank you very much. And coming up, a 50% rally in shares of AMD. That's the call from Stiefel. We will ask the analyst behind that report why AMD has an edge over the other chippers.

And before the break, shares of Amlinks, Pharmaceutical. Ampl? Amelinks. It's got to get that unpronounceable word. Pharmaceuticals, sorry, following a book by FDA advisors to support approval for the company's ALS treatment. Power Lunch will be right back, and I will learn how to pronounce Amelinks by then. We now have a statement from President Joe Biden on the death of Queen Elizabeth. Let me read part of it to you.

Her Majesty, Queen Elizabeth II, was more than a monarch. She defined an era. In a world of constant change, she was a steadying presence and a source of confidence. and pride for generations of Britons, including many who have never known their country without her. An enduring admiration for Queen Elizabeth II, United People across the Commonwealth. The seven decades of her history-making reign bore witness to an age of unprecedented human advancement and the forward march of human dignity.

He concludes by saying, in the years ahead, we look forward to continuing a close friendship with the King and Queen Consort. Today the thoughts and prayers of people all across the United States are with the people of the United Kingdom and the Commonwealth in their grief. We send our deepest condolences to the royal family who are not only mourning their queen, but their dear mother, grandmother, and great-grandmother. Her legacy will loom large in the pages of British history and in the story of our world. That from President Joe Biden just moments ago. Courtney. Well, in a hard left turn, shares of AMD are down more than 40 percent this year. But according

to Steele, the stock is poised to gain that back and more. The firm initiating coverage of the chipmaker with a buy rating as the company gains market share. Let's bring in Ruben Roy. He's managing director and senior analyst out of applied technology at Stiefel. You know, Rubin, I feel like so many of our guests are pointing to the chip sector. We know it's very important, but often they're looking at the SMH. Why are you calling out AMD specifically? What do you like there? Hi, thanks for having me, Courtney. Yeah, so on AMD, there are a lot of good things going on. The company is in its third or fourth year of really executing well on a product roadmap that we like. They're expanding their share away from consumer and into the data center markets.

And really the focus at Stiefel here with these set of names that we came out with this morning is on data center. And we think that's going to be a really big driver of growth for not just AMD, but the semiconductor sector in general over the next several years. And so when we look at AMD, you've got that expansion of, exposure to this market that we like, that's going to bring with it margin expansion, I think, over time, a really nice cagger, and accelerated earnings growth. So when we put all of that together, I think one of the things that's going on, I think Tyler and Bob were talking about investor sentiment. I think sentiment has gotten very negative across the space. And unlike some of its peers,

AMD is one of the few companies that really hasn't lowered its near-term outlook. So I think investors are a little bit worried about that, again, given some of the consumer exposure, But we like the product roadmap and we like the way the setup looks as we look out over the course of the next several quarters and even longer term. And how about Intel, obviously, doing this big groundbreaking on this headquarters in Ohio that's made an awful lot of headlines. Any of that playing into your thesis as they sort of look to produce more domestically for Intel? Sure. So on Intel, we have a hold rating on Intel and certainly rooting for the company. but we believe that the new management team at Intel has a bit of work ahead to catch up on a few years of some missteps and some market share loss to companies like AMD. And so while we do think that there are interesting things going on, Intel is going to be spending quite a bit of capital expenses on some of these factories that you're talking about in Ohio and elsewhere.

And I think over the next several years, you know, we'll see. a wait-and-see story for right now. And so we are waiting to look at some milestones. And as we see those milestones, you know, we'll have a better assessment on that stock. In the meantime, you know, again, coming back to AMD, I think the product roadmap speaks for itself. We have new products coming up, both for client-side PCs and data center by the end of the year. And I think the market share gains that we've been seeing that company take over the last couple of years will continue. It has been a remarkable run for AMD, among others. I want to take you back to Intel yesterday. Our friend Carter Worth educated us that hold often means wink

sell. Does it in this case for you or does it really mean if you own it, you can stick with it if it is your taste to, but if you don't own it, stay away from it. Yeah, it's where the latter, Tyler. And I would say that, you know, Intel shares have also had a little tough time over the last six months or so, let's call it. And when you look at evaluation on Intel, it's gotten down to sort of near-trough levels, if you look at the way the stock has traded over the last five or so years. You do have a dividend deal. The company sounds like they're making it to that dividend payment, even with this capital-intense nature of the business coming up of the next several years. So, you know, with that in mind, you are getting paid to wait, and so, you know, the hold here means hold.

Well, Ruben Roy, thank you very much for your viewpoints there on AMD and on Intel. And a programming note, the Intel CEO Patrick Gelsinger will be on Squawk Bucks tomorrow. It's 7.30 a.m. live from the company's new plant groundbreaking ceremony in Ohio just outside Columbus time. That will be an interesting interview. Up next, we will trade three cheap stocks that Wall Street loves Power Lunch. We'll be right back. Welcome back to Power Lunch, everybody. Let's talk about some cheap stocks. How about that? CNBC Pro ran a new screen looking for companies whose forward PE ratio is lower than their historic five-year average and earn. earnings that are estimated to an increase by at least 10%. On that list right now, you've got Disney, you've got Lamb Research, and D.R. Horton, let's bring in Jeff Kilberg, founder and CEO of KKM

Financial, also a CNBC contributor. Let's begin, why not, with Disney. You like it, love it, what? I do love the mouse, Ty, and I think you'd be a buyer here, and it's really interesting. Today's the Disney Plus Day. And if you look at the stock, certainly it has some technical. support at $107. But what's interesting about today being the Disney Plus Day, they're going to have Thor, the Thunder and Love movie come out. But they're also having a live action reenact with Pinocchio starring Tom Hanks. So content is king. What's really interesting about Disney, I've talked everything about streaming and certainly the streaming, the subscribers, what investors are looking at. And they're looking at the end of 2024 tie. You see that number

near 250 million subscribers. So that aside, we haven't even talked about the reopening of the parks and all the other moving pieces, which we used to focus as and focus on as investors. So I like being a buyer here at Disney. I think it goes higher from 112 and above. Okay. Disney, you like. What about lamb research? Yeah, I'm a buyer here as well. The kind of co-tail, our friends at Stiefel, they talked about the chips.

Certainly lamb research has had a rough year, Courtney, down 41%. And if you think about the diversification of their customer base, right? They have Samsung, they have micro on that Intel. They do have some diversification, but it's interesting. I think if you look at where it is right now, again, it's a technical component of the 50-day moving average. It's in price discovery mode, but this is where you kind of have to take a shot. Yes, I know we're not seeing semiconductors really revealing a ton of relative strike. They fall out of favor.

We've seen people take profits. But Lamb is kind of those under the radar names that I like a lot, we like a lot, and I think it has the ability to move higher. Let's give it a quick thought finally from a housing stock, D.R. Horton. A few phrases, please. new home sales fell to the lowest level in six years time mortgage rates went up to six percent the highest level since 2008 i think there's more room to the downside on the stock unfortunately we have seen a rough year down 33 percent so selling staying away not touching wow that's very interesting and of course all those housing stocks are so many of them have been in the same boat

as d r horton jeff kilberg we thank you very much we appreciate your time today and for more on those stocks you can check out cnbc.com Well, it's a day that took a turn, Courtney, in the markets, but most especially globally with the death of the Queen of England. Very much so. I'm sure we're going to have many more coverage to come on that. All right. Thank you, everybody, for watching, Power Lunch.