Power Lunch - Recession Obsession, and Lost In Space? 4/20/23

Episode Date: April 20, 2023

Stocks and bond yields alike are sliding today amid more signs of weakness in the economy. We’ll tell you one stock’s warning you may not have heard about, and could be a telling sign for where we go from here.Plus, SpaceX launched its Starship rocket for the first time today, but it blew up mid-flight – and on live television. Is just getting it off the ground a success, or is this a setback for the space race? We’ll debate. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Welcome to Power Lunch, everybody. Glad you could join us alongside Kelly Evans. I'm Tyler Matheson coming up. Stocks sliding today. Bond yields down to. More signs of weakness in the economy, perhaps. And one stock's warning you may not have heard about, but could be telling a very important story for the markets. Well, plus a spectacular failure or is it? SpaceX launching its Starship rocket for the first time, but it blew up mid-flight live on TV. It's just getting it off the launch pad the success, or is it a setback in the space race? Before that, let's get a check on these markets, which are, Dom, would we call these session highs? We see the Dow down 59 points. The NASDAQ down about a quarter of a percent today. Let's get to Dominic for some of the movers of the day, along with Christina Ports and Eveless. Dom, you go first. All right, so, I mean, the lows of the session were down 32 for the S&P, so I guess you could say we're generally positive off that level.

But we'll kick things off on the mover's side with the biggest percentage decliner in the S&P. And that's telecom giant AT&T. It's down about 10% right now after it reported earnings. that actually slightly beat estimates, the revenue slightly missed. Free cash flow is the concern. It came in below expectations, but AT&T did reaffirm its full year forecast for that set key free cash flow metric. Nonetheless, those shares down 10%.

On the positive side of things, check out what's happening with the steel things, the steel companies. New Corps, one of the biggest gainers in the S&P after the steelmaker reported results that were better than some analyst's forecasts, helped along by strength in demand from non-residential construction customers. So a dynamic to watch their new core up 6.5%. Fellow steel maker, steel dynamics, also one of the bigger S&P 500 gainers. After it too delivered results viewed as more upbeat, it also raised its dividend by 25%.

And that was all thanks in part to strengthen its steel and metals recycling unit, among other things. So steel dynamics, new core, two of the bigger gainers, watch steel. Christina Parts of Nevelas, what are you seeing from the New York Stock Exchange? I'm seeing that chips are leading the way today. Lamb Research, what makes way for fab equipment, is up about 8% on earnings beat yesterday and one of the best performers on the S&P 500 as well as the NASDAQ. Interestingly, though, Lamb did lower its June quarter revenue forecast for two particular reasons. You've got U.S. export restrictions on the sale of certain technology to China,

and that's hurting their margins and the overall weakness in the chip sector. A sentiment echoed by the largest chip contractor in the world, TSMC, earlier this morning, In their earnings report, TSM is calling for a bottom in the second quarter of this year with a gradual recovery in the second half, and that's helped by Apple's new iPhone 15. TSM shares are up almost 4% at the moment. Nonetheless, LAMS results are also helping other semi-cap equipment makers like KLA Corporation up almost about 5% applied materials, also up 5%. And I'll quickly mention Tesla because we have to since it's trending at least 9% lower 9 and a half almost at this. point on a more than 20% year-over-year drop in both earnings and net income. Thank you.

Thank you very much, Christina. Thanks. All right, we are a week into earnings, and our next guest points out an unnoticed, but a critical warning from a major company we don't often talk about. Could have big implications for small businesses, jobs, and the economy. Let's bring in Jim Tierney. He's CIO of U.S. concentrated growth at Alliance Bernstein and Mike Santelli also joins us. Jim, you are focused on a pre-announcement, a warning,

let's call it, from the tech reseller CDW, not a company we talk about a whole lot. What did they say and why do you see it as so important? So CDW is a great company. They beat expectations for years and years. So when they say something like they said the other day, we pay attention. And that is instead of the U.S. tech market being flattish for the full year, they're now expecting it to be down high single digits. their revenues will be impacted too, but there's a real industry statement here.

Mike Santoli, if Jim is correct and there is a broader industry statement here, it could have big broad implications for the overall market, not to mention for the tech sector. It was the tech sector, of course, that really led the market in the first quarter. Yes, it was, Tyler. I mean, it certainly has implications for how able and willing, maybe smaller and mid-sized businesses are to continue to invest. And obviously, the credit crunch that we're somewhat anticipating based on what's going on a regional banks feeds into those concerns.

It is also worth noting that the average tech stock didn't do anything special in the first quarter. It really was the handful of global leaders, less the kind of CAPEX equipment names. But I think we're all on alert for something like this. And we have these sort of waves of slowdown and weakness running through different parts of the economy in a kind of asynchronous way. We've had, you know, maybe a bust in an hour of recovery in the making in things like home building and housing. At the same time, we're starting to see some of the stronger areas of the market come off the boil.

So I do think we're – it's sort of the reason the market has remained somewhat stuck and the cyclical parts of the market have sort of taken a breather. So I'm curious, Jim, when we talked last time in February, we talked about Charles Schwab being a beneficiary of higher rates and so forth. Obviously, then the SBB problems hit. Do you look at the stock today and still think it's well positioned as they try to ride through the worst. of the storm, or would you move to the sidelines until we have more clarity? I think they're in great shape. The metric that we look at most closely is net new assets to the firm. And in the first quarter, their clients, as well as new clients, brought $130 billion of net new money to them. So the trust is there. It's a great franchise.

Final thought from you, Mike Santoli. As you look forward over the next couple of weeks, what are the risk points for the market? Well, I mean, clearly we have the bulk of earnings reports yet to come. So far, the hurdle's been low. Companies have been able to beat it. Yeah, it's been sloppy with some big caps out there. But in general, I do think you have the possibility for more potholes from that direction. You're starting to see a little bit of ratcheting of concern priced into the market on the debt ceiling sort of standoff.

We know this drill. We know it's never paid to buy credit protection against. the U.S. government, yet people are doing it again. It didn't seem smart in 2011, but they're doing it again because of a just-in-case sense out there. So I can imagine those things working against the market, at least potentially. And look, we have slowdown data points coming through in the form of, you know, the unemployment claims even today and things like that. So the question is, are we slowing down to sort of a flat line or a stall, or is it going to be something worse, where it's a recession, where it's a retrenchment, and second half earnings estimates are under

more threat. That's, I think, we're going to get some clarity on some of those things, at least in the next few weeks. All right. Thanks very much. Jim Tierney. Mike Santoli, we appreciate it. Now, yields are falling today on those weak economic numbers. Mike mentioned. Philly Fed, jobless claims. Rick Santelli is polling the traders about this at the Cibo. Rick.

Absolutely. And, you know, if you look at a week to date of tens, if we would close here, all maturity's treasuries are basically at the low-yield close of the week. And if you looked at initial jobless claims, they were 3,000 away from the worst level since January of 22. Continuing claims were at the highest level since D's of 21. Philly Fed, down eight months running lowest levels since May of 2020.

And finally, I'm out of breath. Leaving economic indicators, let's call it an even dozen months in a row negative and minus 1.2, the weakest month over month since April of 2020. There's the setup. Jason, what's going on here? Yeah, it seems like with these weaker numbers, the marketing kind of wanted, you know, the Fed to stop all the rate increases, but that's not happening. It's priced in for 25 basis points, so maybe the market's a little scoop by that. To me, you know what? I like going to the macro. Okay, everybody is saying potentially a recession, yes or no? Do you believe at some point in the next three quarters that we have better than 60% chance of a recession? I do. I think it's a greater chance that we have an unchanged year this year, which puts us back at 38-half in the S&P.

so few companies, the top 20 companies, the S&P, have accounted for 90% of this rally. So the market breadth really isn't there. Not everyone's participating, and I think there's a bigger likelihood that we see some downside in the future. You know, and many think that a lot of the bad news is priced into stocks. We'll have to see. Jason, thank you. The exchange, back to you. Thank you very much.

We appreciate that. Rick Santelli. All right, coming up, two corporate stories we're watching. First, Tesla's income and earnings, dropping more than 20% from this time last year. So the question is, is demand slowing? Plus, while everyone always seems focused on growth names like Tesla or Apple, stable staples, like McDonald's are sometimes overlooked. That stock has been hitting new highs regularly, including earlier today.

We'll take a look at both stories when power lunch continues. Welcome back, everybody. For years, Tesla has been at the head of the EV charge, but with more and more players in the space, its supremacy could be at risk, and the company is feeling it. It's cut prices several times since January as demand slows. Then the stock is one of the worst performers today after its earnings report. Profit margins in particular, Phil Lebo has everyone worried. Yeah, and when you look at those margins, we're talking about gross auto margins. In the fourth quarter, they said, look, we think they're always going to stay, not always, but we think they're going to stay north of 20 percent for the

foreseeable future. That's not what happened in the first quarter. And look how much they've compressed over the last year. In the first quarter of last year, the gross auto margins excluding credits were 30.0 percent. They have dropped all the way down to 19.0 percent in the first quarter of this year. And it's easy to see why. The average transaction price, what they're selling the vehicles for right now, on average, it was $47,207 in the first quarter. That's a decline of $5,367 compared to the fourth quarter. In one quarter, it went down more than $5,300. Now, Elon Musk has said, look, I will sacrifice margins as long as I can continue to keep the volumes up and continue to sell vehicles, hopefully at a pace of 1.8 million vehicles this year.

That's their guidance and their target. Here's Musk on the conference call talking about his decision on margins versus volume. We're taking a view that we want to keep making and selling as many cars as we can, despite this being an uncertain macro environment, this is a good time to increase our lead further and will continue to invest in growth as fast as possible. Did you take a look at shares of Tesla? Remember, they are the worldwide leader in EV sales. They have 17% market share worldwide.

BYD is the next closest. And they've got a little bit of a cushion there. Remember, BYD obviously doesn't sell here in North America, but it is starting to sell in Europe. and, of course, it's nipping at Tesla's heels over in China. Bottom line is this, guys, we are in the midst of an EB Price War. We're definitely seeing it in China. We're starting to see some semblance of that here in North America, and you're seeing it also in Europe.

Sacrificing margin for market share, how does a 19% margin compare with, for example, Ford or GM? Well, you got to go with, let's take operating margins. When you take their operating margins, they're probably double. what you would get for Ford or GM right now. So yes, they are still among the industry leaders and really among the mass auto market players. They are the industry leader. That said, Tyler, the reason the stock is under pressure

is because there's very few on Wall Street who can say with confidence where they believe the margins will settle out. Do they gross auto margins settle out at 18%, 17%, does it go down to 15%? And that's the reason why the stock is under pressure. The obvious math tells you that if you cut costs and you don't commensurately cut expenses, excuse me, if you cut price and you do not

commensurately cut costs, your margin is going to go lower, right? So maybe there are cost cuts that he can affect. Well, and that's a tricky area. Now, look, they already have among the lowest cost of goods, among any of the automakers in the EV market. And they are leveraging that as much as possible. But we've seen what has happened, whether it's with lithium, whether it's other commodity prices, and they continue to expand. They have a new plant that's going to be coming online in the next couple of years in Mexico. Now, their idea is, or their goal, is to build a low-priced model out of that location. You know, this is what you have to do if you're going to continue expanding your EV volume and your development of products. Phil, just a quick mention. There's

some word that they also weren't present at the Shanghai Auto Show. And we know that there's been so much more EV competition in China. That's one area where despite having a major factory, you know, they've lost some ground. Do you think that that becomes a big problem for the stock going forward? Well, first of all, I don't think it's a big deal that they weren't at the Shanghai auto show. I've been there in past years. I think they've had a booth there. Elon Musk rarely goes to auto shows around the world. That hasn't hurt the perception of Tesla as. as the leader in electric vehicles. So not being at that show is not that big of a deal.

I think the bigger deal in China is the fact that, A, you've got a ton of competition, and B, remember, a lot of that competition is Chinese. And the Chinese government is doing what it wants to do in terms of supporting and helping out its companies there. And we're seeing that in terms of incentives, et cetera. I think, guys, we're starting to head towards a world. You're going to start to see these markets become much more regionalized. And we're seeing it already here with our EV.

incentives. I mean, we don't offer any EV incentives right now for any vehicles built overseas. That's the world that we're headed towards. Absolutely. Phil, thanks. We appreciate it. All right, Phil. Good discussion. Thank you. All right, McDonald's reports earnings next week, but before the company gives their spin on how things are going, the franchisees have weighed in, and now we know what they're loving and what they're hating. And Kate Rogers has the results of a new survey. Hi, Kate. Hi, Tyler. We'll start with the stock. McDonald's continues to fly higher and higher into earnings as both investors and analysts seem very confident in its ability to continue to perform in a downturn. Oppenheimer recently calling it, quote, battle tested for its performance

in previous recessions thanks to its lower price point and benefit from any consumer trade down. This quarter coming up, we're going to hear how the Cardi B an offset meal performed around Valentine's Day as previous celebrity order meals, including Travis Scots, have helped to boost its business. The company also announcing this week a change to its Big Mac, including toasting its buns, and melting cheese and onions on the grill to enhance its flavor. You mentioned that recent survey from Kalinowski Equity Research, taking the pulse of a small group of 20-plus owners representing about 200 locations.

The owners are feeling confident about the next six months. It's scoring 2.74 out of five. That's the highest level in more than a year. The relationship with corporate scored 1.29, signaling, rather, some tensions remain with the team in Chicago. Remember, the company implemented a new grading system and overhauled its franchising rules in the last year. Some operators continue to express

their frustration over that despite the strength of the U.S. business. But once again, as you can see, investors really piling into the stock continuing to run it up. Back over to you. And what about menu items, Kate? Is that part of this discovery process? Yeah. So McDonald's had a chicken Big Mac out in the UK and Canada for a limited time. And it was asked about in this survey.

They tested it also in the U.S. The poll asking franchisees, if it should be sold here in the United States, 81% said yes. They said chicken gives them more flexibility with toppings and buns. It's also more profitable, but some warn now isn't the time because they also have that new better burger in place. A lot of them seem concerned about operations and making sure that they're bringing a good product to their customers. So some back and forth there, but chicken Big Mac seems like they do want it, guys. But you know, if you could from the Whopper stuff, they all say like this new, is that true at Burger King, K?

The new Whopper is like flying off shelves or whatever we'd call it, flying off of the grill. Flying off the grills. Yeah, Burger Kings in a very different situation here. McDonald's U.S. business extremely strong. Burger Kings is in a bit of a turnaround there. So definitely trying to enhance the product to get consumers to purchase it more. But all of these names are going to be on watch, right, in the next year or so because consumers, as we said, tend to flock to them during these downturns,

turn to them as trade down takes place. So they could wind up doing well in the next six months to year. All right. Kate Rogers, thank you. We appreciate it very much. Steel ahead, danger for Elon Musk. After a successful launch, SpaceX's new rocket exploding mid-air. As of late, many companies have been lost in space facing technical or financial failures.

Is this lunch good or bad news? We'll be back after this on Power Lunch. Welcome back to Power Lunch, everybody. Let's go to Bob Bizani at the New York Stock Exchange for more on today's trading markets in the red, Bob. Yeah, and we're trying to get out of the trading range. We can't. 4120 to 414. It's a very, very narrow range overall for the S&P 500.

part of the problem is we're losing some of the leadership, particularly things like energy stocks. Remember, energy had a fantastic run. Oil was 83 last week. Now it's down to 77 or so. And so these oil names have been down all throughout the week. That's a problem because that was a big leadership group. Regional banks kind of a disappointment this week. Generally, they're having to pay more for deposits, driving reduction in revenue guidance,

the net interest incomes generally down. Now, we're going to have the Huntington Bank share CEO on just a few moments. We'll get some more from him. But the good news is they're down today, but they're up two or three percent for the week. So stabilization is what I would say is going on with the regional banks. Homebuilders are having a great day. In fact, a great few weeks here, lower treasury yields helping. And we had some great reports from D.R. Horton today.

So we've got three big names at 52-week high today. So here's where we are for the earnings. We're 20 percent through. We've got about 80 companies reporting so far. 78 percent are beating. That's about the average of who beats. The amount beating 4.9%. That's about average, too, in the last three or four years.

60% are beating on revenues. That's below expectations. Kelly, if you want to know where things are going, right now, Q2, Q3 and Q4 earnings are stable. That's really what everybody cares about. No wholesale reductions, no increases. Really just a little stability. We need a little more data for the next week or so before those numbers are going to move.

Kelly, back to you. Yeah, that AT&T in particular, Bob Banks. Oil is also down today. What about OPEC Plus? OPEC Plus, what do they call it, PIPA? OPEG Plus, OPEC and its allies. And, yeah, I mean, oil is down again today, and it's now all but erased that post-cut pop that it saw after that surprise moved from OPEC and its allies. So a couple of things going on here.

First, from a technical perspective, Dennis Kisler at Block Financial said that the run might have simply been just too fast, too far too fast, creating a chart gap, which is now pressuring oil. it did fall back below that $79 level, which had been a key level of support. And so the next level here to watch is the 50-day moving average at 76-55. If it crosses below that, then the narrative has kind of shifted in favor of the bears. But then on the fundamental side, one thing to watch here is diesel futures, because those are now at their lowest level in more than a year falling to the lowest since January of 2022. And that's really important because diesel is known as the workhorse of the economy.

It powers trucks. It powers heavy machinery. We saw in the latest earnings report from FedEx that their volumes were down. J.B. Hunt said earlier this week that their volumes were down by 5%. And so it's kind of almost flashing a warning. Yeah, I was going to ask you that if diesel is doing that going down, what does that tell you about the economy? Well, it means that there's less demand for goods. And so J.P. Hunt's CEO said that very much right now people are still focused on services rather than goods. And yeah, he actually said that they need a recovery in the economy, particularly the goods economy in order for their numbers to improve.

And so diesel is kind of the first area that starts to show those cracks since it's trucks and machinery. You think about the interconnections of the economy and you go, okay, well, you want to know how the economy is going to. Well, look at diesel, demand for diesel fuel. Because if trucks are carrying less and they're making fuel runs and they're, the demand for diesel is going to go down, the price is going to go down, and it tells you that the economy is so true. is not firing on all. It's interesting stuff. I'm talking about it when it's at extremes, which we also saw last year when there were fears of a diesel shortage.

Right, exactly. All right. Well, you'd be fun at a party. You talk about this stuff. Everyone loves diesel and cracks spreads. Oh, yeah, bring that up. Right. All right, Pippa, thank you very much.

Crax spreads and cheese. Google making some changes to better position itself in AI. CNBC.com's Jennifer Elias has the details. Hi, Jennifer. Hi, Tyler. Yeah, that's right. So just in the last hour, Google CEO, Sundar Pichai sent out a company-wide email describing a number of changes that will position the company to compete in AI as this time where competitors

like Microsoft are increasing, you know, what users can expect going forward. And it's potentially threatening Google search engine. So today's announcement is that they are merging to separate groups together. That is deep mind a company that Google bought in 2014 for a reported $500 million, and that has mostly been separate in Alphabet's OtherBets, as well as Google Research, which has been internal. So bringing the two together, which historically have had reported tensions as they try to remain independent, is going to be interesting, and it's the latest reorganization we've reported

that will hopefully the company hopes will position itself to convince. compete as AI accelerates at a breakneck speed we've seen lately. All right, Jennifer. Thank you very much. Jennifer Elias reporting for us from San Francisco today. There you are. Let's get to Contessa Brewer now for a CNBC News Update. Tyler, thank you.

Democrats on the Senate Judiciary Committee are moving to advanced judicial nominees. Even as Senator Diane Feinstein remains on medical leave. Seven Biden nominees moved through with some GOP support today, while Chairman Dick Durbin chose to delay some judges who lacked bipartisan support and wouldn't get approved without Feinstein's decisive vote. Greenland is losing ice at a devastating pace, according to a new study. Researchers used 50 different satellite estimates and found the ice melt is in hyperdrive. Ice sheets are shrinking at record rates. Experts warned that as the ice melt accelerates, so does rising sea levels and more destructive weather events, which then, of course,

cause more ice to melt. It looks like Las Vegas is getting a professional baseball team. The Oakland A's will buy almost 50 acres near the Las Vegas Strip to build a 30,000 seat stadium. The baseball commissioner has thrown his full support behind the move. Vegas, of course, is rejoicing. Oakland, not so enthusiastic. The mayor says all talks with the team are off and the city's moving in a new direction. Now, the A's still need to work out details of the public-private partnership, but they hope to be playing in their new home by 2027.

Vegas as a sports capital. Tyler, did you ever think you'd see it? I actually, it was just sort of inevitable to mean that you would, but here's the thing. That stadium had better be, have a roof and be highly air-conditioned. Yeah, well, I think that's the plan, a retractable roof so they can play, you know, if it's at night and it's nice, you open it up. Look at Phoenix. I mean, like, they know how to do it there. I just was at a Diamondbacks game.

Lovely. You sit with the roof open when it's nice outside. They close it up when it's too hot. Very nice. Contessa, thank you. Sure. A head on Power Lunch. Despite Banks, the Fed, and even the White House, do it?

everything they can to remedy Americans' bank failure fears, most remain unconvinced. That story is next. Welcome back, everybody. While the bank crisis seems to have dissipated for the moment and the big banks report a stabilizing environment, a new CNBC All-America survey finds that still less than half of the public feel their money is safe. Steve Leesman is here with the results. Steve?

Yeah, Kelly, some extraordinary results. Americans deeply divided on whether they think their money is really safe. in an FDIC insured account. And that represents a big change from the great financial crisis. Just 47% of our 1,000 respondents in the CNBC All-America survey tell us they are totally or mostly confident in their money is safe in the event their bank fails. 47% say they're only somewhat or not confident at all.

That's a big drop from the 65% who are confident when we asked the question a few months after the failure of Lehman Brothers in 2008. Relative to 2008, Democrats, they've not changed their view with 63% confident, but the confidence of both independence and Republicans, well, they both fell sharply with just over a third of each group feeling secure. The public was similarly divided over the FDIC's decision, a backup non-insured depositors in Silicon Valley and signature banks with 43% saying it was the right thing to do to avoid a bank run, 43% saying it wasn't wrong because it encourages risky bets by banks, 15%, so they were unsure. So it's unclear why so many Americans

lack confidence in FDIC insurance could come down to skepticism. about the ability of the government in general to make up for the losses, or it could be part of a general decline in trust in American institutions found in our poll and others that affects everything from views on the Supreme Court to Congress. And now it appears, Kelly, the FDIC. Wow. All right. Thank you very much, Steve. And boy, that is so true. The confidence in all kinds of institutions is low. Well, let's zero in now on a regional bank that has been holding up very well.

Huntington Bank, Columbus, Ohio, of 9 percent over the last month, trading a little bit lower today, by the first quarter earnings and revenue beat this morning. Steve Steinhauer is chairman, president, and CEO of Huntington Bank. Steve, welcome. Good to see you. I'm just going to begin with a simple open-ended essay question. How's business? Business is good. As you saw with our first quarter and earnings beat, we had good revenue growth. We grew average deposit balances for the quarter, fourth quarter in a row, long growth that this year will be a mid-single digit if we keep it on track. So like what we're doing, we've created a lot of value, I think, during this interim six weeks just by doing the things that we do well, executing our strategy and our plan.

You're seeing deposit inflows. That's good. You've got a diversified deposit base. That's good. You're seeing some loan and lease growth on the order of 1%. Whether that's small or larger than normal, I don't know, but positive is better than negative. Lone growth. is better than no loan growth. It is. If you annualize, we're somewhere around a 5% annual loan growth, which with the general sentiment that the economy may be slowing feels about right to us. Our customers have some degree of increased concern in the last 60, 90 days from where they might have been at the end of the year.

Curious, if you could kind of talk a little bit about deposits and non-interest-bearing deposits where you guys seem to fare better than most, what's going on there? But we've, Kelly, we've had a focus on what we call Fairplay banking for the last 12 years. It's a very, very significant effort on our part to make our customers in an advanced stage. We have great features, functions, easy-to-use accounts, our mobile's number one in the country. So we offer a lot of value to our customers, and we expect to grow our checking account customer-based, both consumers and businesses every year. And we've been doing that for more than that.

a decade. Curious as well. Just executing the plan. Yeah, absolutely. And I think at a time like this, having a plan on deposits is going to obviously pay off. That part of the crisis seems to be kind of moving to the sidelines now as the focus moves to credit quality. And when we spoke to your colleague at Woffed, Brett Beardall, he said, you know,

they're still leaning aggressively into the residential space multifamily, some single family. What about for you? I mean, how's your exposure kind of broadly speaking? speaking, and where might you be kind of pulling in the reins a little bit, and where are you still eager to let it ride? Well, we are a source of strength in the communities. The regional banks like Huntington are very, very important to the cities and towns that we serve, and we will be a source of strength through any cycle for our customers.

We're looking to continue to lend and grow. Having said all that, we've got a little over 13% of our portfolio, total loan portfolio, in commercial real estate. half of that 13% is in industrial and multifamily. We feel very good about those sectors. We've got a little over $2 billion in office in the office portfolio is, I think, going to play out over many years. We think we're well reserved and we've got very good relationships.

So we're not particularly worried about office. That's the sector that gets most of the attention. Comparatively, we're well under the median in terms of overall concentration in commercial real estate and 50% of the average on office. So we're well positioned. Where we're trying to be very careful is in commercial real estate broadly because interest rates are up, cap rates are up, value is lower. And then just a couple of other business areas. Healthcare, for example, long-term living, the inflation over the last couple of years in wages has not caught up, reimbursements have not caught up with that inflation. So that would be another area we'd be cautious about.

That's interesting. Steve, we appreciate it very much today. Great to be with both of you. Thank you. Steve Steinauer, Huntington Bank. Steel ahead, lost in space. SpaceX's Starship rockets suffering a mid-air explosion this morning after its historic launch. And of course, this is just weeks after Virgin orbit declared bankruptcy. Why the next frontier for the space industry still seems light years away. We'll be right back. SpaceX's long-awaited Starship rocket suffering a mid-fight failure.

after successfully launching CNBC.com space reporter Michael Sheets is at the launch site for us. Michael, what did you see? What did you hear? What are the results? Well, I was about five miles away from the launch site when it lifted off in front of crowds of thousands that were rathered here at South Padre Island. And there was a little bit of a moment of tension while we were watching for it to lift off. We saw the engines ignite and it sat there for a moment. And then it started to slowly rise into the sky. and eventually disappeared into the Texas Sun. And shortly after that, they issued the flight termination system,

which detonated the rocket and caused it from going elsewhere. But this was a largely successful flight in SpaceX's view because of the fact that they were able to get it off the ground at all. But, Michael, were they planning to blow it up the whole time? They weren't necessarily planning to blow it up, but this was a rocket that was going to be destroyed one or way or another. It was aiming to fly to the coast of Kauai, off of Hawaii. Didn't make it nearly that far, but it did make it about three and a half of minutes or so into flight,

which by their metrics for a rocket that stands nearly 400 feet tall, is twice as powerful as the Saturn 5 that launched the Apollo missions. That is a great metric of success, and we'll give them a lot of data to move forward and make more progress. All right. Michael Sheets, thank you, sir. Despite all of this opportunity, space has been a tough frontier, financially speaking, Virgin Orbit, recently filing for bankruptcy after failing to secure funding. With us now is Ron Epstein. He's a research analyst at Bank of America Securities. It covers the space area. How significant was today's launch for you, Ron? What does it tell you?

Yeah, I mean, of course it's a significant factor. And like Michael said, I think any way you measure it, it largely was a success. The scale and scope of this thing, you can't underappreciate being two times the size of the Saturn 5, it's just a massive machine. And, you can't. Getting it off the ground and what they got out of it and learning for the industry is fantastic. And, you know, I would imagine here in the not too distant future, they'll get more success. And it's just space is hard. You hear that cliche again and again, and this is just more evidence of it. Why do you need a rocket that big?

What can it do that other rockets can't do? Yeah. So by having that much volume, you can bring the cost to get things into orbit down. So one of the humongous victories SpaceX has really had is they've been on the frontier, really, of reducing the cost to get a kilogram in orbit. And this, you know, the size and scale and scope of this, it allows you to do that. And then they have a broader mission where they actually want to go to Mars with this thing and refuel it in space. But, you know, reducing the cost to get a kilogram into orbit has, you know, birthed an entire commercial space industry and has allowed a whole new

concepts in terms of satellite technology, earth imagery, and other things to take place. Right. So this is all part and parcel with the revolution we're seeing in the space economy. Although you think we need a lot of consolidation now. And what are the takeaways from Virgin Orbit's debacle? Yeah. So if you look at kind of what happened at Virgin Orbit and what's going on more broadly in the space space, we will probably see some consolidation. And some of that has to do with things like companies running out of financing like Virgin Orbit did. And it's a space that has had a lot of startups in it. And those startups, some will make it. some won't, and some of that technology and talent is going to be absorbed by other companies.

Is it an investable space? And if so, where are the best investments? Yeah, it's absolutely investable. The companies that we like the most right now, if you look at Rocket Lab, that's a huge one. Rocket Lab is one of two companies that's been very successful in loss. It's really the only launch company that's publicly traded. That's one place you can go. And then if you look at some of the big primes, Northrop Grumman has one of the big, big growth drivers for them has been their space business. If you look at their space business, it's grown in the mid-teens over the last couple years, and that's been a big driver for them. So you can look at some of the big traditional players, but you can look at some of the very, very innovative, smaller players. Ron, thank you so much. Very insightful. We appreciate your time today.

Pleasure. Ron Epstein, Bank of America's Securities. And coming up, phones, payments, and plywood. AT&T, American Express, and D.R. Horton. Moving after reporting results, we'll trade them all in today's three-stock lunch. Get ready for the cocktails. Our lunch is back in two. Welcome back to three-stock lunch, everybody. We've got some big earnings movers on the menu today, like AT&T down sharply after reporting a slowdown and subscriber growth for its month-to-month cell phone plans.

Amex posting record revenue in Q1, but warning investors it's bracing for debt defaults. And it shares down about 4%. And finally, D.R. Horton is one of the best performers on the S&P after a top and bottom line beat, citing rise. demand. Let's trade these three names with Lee Munson, president and CIA at portfolio wealth advisors. Lee, welcome to you, AT&T. Is this a name that America shouldn't own anymore? It's kind of like a dumpster fire here. I'm not as concerned about subscriber growth. I think anybody who is going to go do some low-cost carrier at this point has done it. Here's what the core issue is. Their cash flows way off, right? They couldn't get the earnings,

even though we've got 18 analysts who know that thing inside it out. You know, It's a bad thing. Here's the problem. Just like some tech companies, just like the peloton's of the world, they pulled a lot of sales forward in selling the handsets, iPhones, Android phones. And so they, like a lot of companies, people don't want to upgrade. They finally have payments on their phone that no longer exist. And if we're going to go into a slowdown recession, whatever you want to call it,

it's not going to bode well for the stock, right? So that's going to hamper growth. Let me get down to what everybody at home is thinking. It's that dividend. That's why people owned it. But now that you can buy a three to six-month treasury and slightly below that dividend yield and that dividends in peril, I don't think it's attractive at this time.

I would love to buy this going like the lows of 18. I'd rather get a 7% dividend yield. If not, I'm just going to disconnect. All right, let's hang up on AT&T. Let's move on to American Express. Should I leave home without it? Don't leave home without it. And I'll tell you why.

If I had to own a credit card company, whether it's MasterCard, Visa, Capital One, this is the only one that I would own right now. Management's still saying, we're looking to grow 15% revenues this year? It's like, that's competent. Also, they had a blowout on their revenue. I like that they're getting Gen Z and millennials to get involved in these, you know, gold card, platinum card, all that stuff that has to do with luxury buy. They have a higher end clientele.

The rich keeps spending. I mean, just look at stuff like Urmez stock. It's been on fire, right? So I think that the issue with American Express isn't so much of the general slowdown is if they get the reserves, right, and also if they can get young people to pay 500 bucks a month to get into a lounge. And business owners, I have to say, I'm a business owner. I've one of those cards, so I can get into some lounge at Delta, LAX. It's very nice.

Those business owners aren't going to give up those cards anytime soon. It's the only stock in the space I like. In the space. What about the home builder space? has been such a strong spot lately, highlighted today by D.R. Horton. You like it? I do. So a year ago or so, I was on the show asked about this stock and some other home builders. And I said, if you want to speculate, this could be an early mover. But I was right and I was wrong. I thought it was going to be popping right now because the Fed might be cutting or talking about cutting right now.

As it turns out, the stock worked up, has worked out very well because, you know, we don't have any inventory. 30% of all inventory is new construction. So you look at a place like D.R. Horton and the other home builders, of course they're doing well because they're the only place that actually have a home that are available for people to buy and they're going to be building. Here's my problem with this stock. It's not that I won't love it. And I was telling people, you know, you want to roll the dice to do that last year, I would take your profits off the table because it's doing so well. So if you're up 30, 40, 50 percent in 12 months, you know, play with the house's money, take some profits on the table, and move forward with your life.

I love it on a pull back. All right. Lee Munson, thank you. Always good. Always enthusiastic. We appreciate it. And still ahead. Losing leverage workers were in the driver's seat under the great resignation phase,

but job cuts, recessing fears, and the end of remote work have suddenly given employers the upper hand again. When Power Lunch returns, we'll explore that and more. One more thing before we go. Recession fears, job cuts return to office, all tipping the scales from workers back to employers when it comes to so-called leverage in the workplace. Layoffs are up nearly fivefold to start 2023, many of them in technology. And we just learned of some more job cuts coming this time in media. Dom Chu here now with more. Hi, Dom. Native digital media, unfortunately. And it's for some of our journalistic colleagues over at BuzzFeed News and also Business Insider. both of those digitally native news organizations announced job cuts for BuzzFeed. They're going to shut down their newsroom completely for BuzzFeed news, cut 15% of staff.

And then for Business Insider slash Insider, it's 10% job cuts. And both companies in some ways referenced the growing economic concerns and headwinds that are building. But I want to kind of take you through the evolution of over the last couple of years what the narrative has gone towards. If you just go back to 2021 in 2021 and 2022, Axios ran a headline saying that workers' leverage is here to stay. Barron's ran a headline that said how workers gained an edge and why they won't lose it anytime soon. And then, of course, the New York Times saying workers are gaining leverage over our employers right before our very eyes. That has now switched to the headlines that you're seeing more closer to today.

If you look at what's happening right now, because of job cuts in the macro economy, Axios is now saying media layoffs loom large over 2023. Forbes just ran something about the layoffs at BuzzFeed News, shutting down insider cutting 10%. And right here at CNBC.com talking a little bit about the layoffs that are happening as of today as well. If you take all that and put it together with the number of other technology companies and media companies that have announced job cuts over the course of the last year or so, the name they just get more and more. And now we can add some of those names to it. The reason here that we're talking about this now is because with those building economic concerns, guys, you are now talking about a situation where workers may feel at least a little bit more on edge.

And of course, on this show, more broadly over the last couple of years, we've talked about work from home trends, hybrid work trends, whether CEOs could actually require their employees to be back in the office, and whether employers could just say, hey, maybe yes, maybe no, or whether employees could say, I'm not going to take that job and let's promote. How do you square those job cut numbers with the fact that the unemployment rate really hasn't moved down at all, and there is still job growth in the economy. There is, because when it comes to tech media and telecom, they are very high profile,

and certainly when it comes to the types of profile and weighting that they have in the markets, especially the S&P 500. But if you look more broadly across the economy, you're not seeing those same kinds of job cuts play out, at least not yet in industrial parts of the market, manufacturing. You're not seeing it in leisure and hospitality right now. For the most part, that revenge travel theme is still on. People are still going out and traveling and entertaining themselves. But whether or not this is the early stage of something that could be more dire is something that a lot of economists are trying to pay attention to right now.

Just real quickly, this story about Clearlink CEO, they're a Utah-based digital marketing attack company. They had this big kind of town hall talking about bringing people back to the office. And I mentioned if you're a dog lover, don't watch the show this hour. But the CEO celebrated the sacrifice of a worker who had to sell the family dog in order to return to work. I would just say, I'm a dog and animal lover. as you guys know, I have two dogs at home, and I would never want to give either of them up for anything. In fact, I worked to help pay for them. Management, don't test him. Tom Chu, thank you very much. We appreciate it. Thanks for watching Power Lunch. Closing bell starts right now.