Power Lunch - Recession or no recession, what’s wrong with consumer staples and the SPAC market has gone silent. 5/19/22

Episode Date: May 19, 2022

Why aren’t investors finding safety in Consumer Staples? Stocks like Kroger, P&G and Kraft Heinz are all down more than 7% in the past week. Is the sector being unfairly punished? Plus, mega cap tech stocks with single digit P/E ratios. Are they buys at these prices? And, why a market watcher says she sees no recession ahead. Hosted by Simplecast, an AdsWizz company. See https://pcm.adswizz.com for information about our collection and use of personal data for advertising.

Welcome everybody to Power Lunch. I'm Tyler Matheson. Here's what's ahead on yet another busy hour for a Thursday. Searching for safety, many look to consumer staples, but that sector now under attack too is the group being unfairly punished and is it no longer a place to hide. Plus, cheap mega-cap stocks. Some well-known names have price-to-earnings ratios now in the single digits. These are big-name companies. Are they a bargain hunter's dream? Well, we're going to look for some opportunities. throughout the hour. Kelly? Tyler, thank you. Speaking of opportunity, we have some green back on our screens. It was looking dicey an hour ago. A little bit better right now. The NASDAQ back in positive territory by 55 points. The S&P, only three points negative right now. The Dow is down 111. Still, to put this in context, we saw markets down with the Dow and down nearly 500 points earlier, and it's on

track for its eighth straight week of losses. Its longest weekly losing streak ever, so again, we're hopeful that the very least we can get some kind of bounce today. Now, Apple is struggling. This is noteworthy. While a lot of big cap tech stocks are holding up, Apple's still down 2.3% while Tesla is higher at 716. Netflix is higher up 4.5%. Even Amazon up about 1.5% today. And the yield on the 10-year, which was above 3% yesterday morning, back to 284 on the session today, Tyler.

All right, Kelly, as the turmoil continues in the market, so let's take a quick look at how much we have fallen. from 52-week highs set just about four months ago in January. Let's start with the Dow. It is down just about 16% from its yearly high of nearly 37,000. It comparatively is the best of the bunch. The S&P is off about 19% from the highs set on the second day of trading this year. But don't forget that the overall market index masks the fact that more than half of the constituents of that index are down more than

for the year. But on average, it's a 19% number. Nasdaq, the worst of the big three, down 29%. This is big cap tech, has come tumbling down. And finally, we don't want to leave the little guys out. There's the Russell 2000 off 28%, just a point less than the NASDAQ. So, will this downturn be hitting a bottom anytime soon? Or are these dramatic swings and overreaction? Let's talk to Lindsay Bell, Allies' chief investment. and markets and money strategist and a CNBC contributor. Lindsay, welcome. Great to see you.

Great to be here. Yeah, fantastic. You know, one of the things that typically tells investment strategists like you, whether we are at a market bottom, is volatility. It sure seems like we've had a lot of volatility, but is the VIX, the fear gauge, signaling that we're at a bottom? Yeah, I mean, the VIX is the most obvious thing to look at when you're looking for, or a bottom. And usually what we see, when the market's nearing a bottom, the VIX is closer to the

45 range. And we've had a trouble seeing the VIX get that high, although in the 30 range, it's certainly high. It indicates that there's going to be big up and down days exactly what we've seen over the last two and a half weeks. We've actually seen two percentage point moves up or down in the index in the last two and a half weeks on 46% of days. So that doesn't feel very comfortable. and it looks like the volatility is here to stay. And we've had intraday swings. I mean, it's not just whether you end up or down by 2% or more. Within the days, we've gone from 300 up to 300, 600 down or vice versa.

So you see a lot of intraday swings that have been very, very crazy. The put-call ratio is another sort of tell-tale. What is it telling us right now? Yeah, the put-call ratio, it got close to. extreme levels at the end of April. And it's since come in a little bit, though, in the last couple days is moving back up. The point here to watch is that the put call ratio indicator, it shows that there's also nervousness in the marketplace. It hasn't yet reached really extreme levels in the 1.4, 1.5, say range. So we're keeping an eye on it. And it's moving closer to there.

so it could be an indicator that we're starting to get washed out. So we'll keep an eye on it, but we haven't reached real extreme levels just yet. And my notes say look for fewer than 20% of equities to trade above their 200-day moving average to suggest that we are at or near a bottom. We're not quite there yet, are we? No, not quite there yet either. At about 28% of the index is trading above its 200-day moving average, moving in the right, direction, which is so weird to say in the right direction, to indicating that we're getting

closer to a bottom. So something to keep in mind, usually we might need a 10 to 15% level to feel a little bit better about reaching a bottom in extreme scenarios like the great financial crisis or even the pandemic low. There was like one or to three percent of the index trading above the 200 days. Is there any of the telltales that you follow that is in fact signaling that we are at or have passed the bottom of this phase? Well, when I look at bearish sentiment, and maybe even the put-call ratio is it gets a little bit closer, but when I look at AAI-I-investor sentiment, it's been pretty, pretty bearish since the end of April, just like the put-call ratio that I mentioned. It's improved a little bit, but it's very negative by historical

standards. And that could be an indicator that we're starting to get to this point where everybody thinks that the worst is here. And that could be a point of turning. But there's still a lot of uncertainty left in the marketplace. It all comes down really to inflation and what Fed policy actions actually turn out to be. And we just, there's no way in telling where that goes from here. So I think volatility is here to stay for the next several months, especially now that we're entering a period where earning seasons has winded down here. And also, the economic a calendar is going to start getting a little bit light next week. Obviously, we're getting the PCE inflation indicator. I think that could be the next, the next big thing that the market's watching

and could jump on and have another big intraday move on. So you just need to be mindful of that. We have to wrap, but I want to ask you, there are all the numbers, there are the indicators. What does your gut tell you real quick? My gut tells me that we have definitely, definitely have a lot of volatility, big moves ahead of us. But I'm hopeful that, you know, we can move. up from here, at least, you know, somewhere between that 3,800 level and 4,000, we'll probably bounce around from that and then eventually, hopefully, be able to move up as we head into the latter part of the year. All right, Lindsay, thanks very much.

Lindsay Bell, appreciate it. Ally. All right, now we've got to talk about the staples. When investors search for safety amid volatility, consumer staples are supposed to be one of the first groups they turn to, but that is not playing out right now. Names like Kroger, P&G, Kraft Hines, Hershey, and Smucker, are old-Eld more than 7% in just the past week. Why? Let's bring in Nick Modi, RBC Capital Markets Consumer Staples analyst. Nick, what's ailing them? Yeah, I mean, well, look, first of all,

the consumer staple sectors actually performed quite well year-to-date relative to the market, and you see the relative valuations at roughly 20%. That's double what the historical average was. So investors have been hiding out in these names. And I think what happened with the recent news from Target and Walmart is it kind of put a little bit. bit of a scare in those money managers, portfolio managers, that flooded all that money into the space thinking that there was going to be no earnings risk. But as we've been saying on the show and for the past few months, you know, it's going to get pretty tough for these companies as we get deeper into the year as pricing that they've announced may not make it to the market because of

the margin pressure their retail customers are feeling. And I do think just looking at some of the work that other RBC analysts have done that we could have some more issues with inflation in the and agricultural side. So, you know, kind of tease that out for us. What does it mean for the potential further downside for the names that you cover? Yeah. So I think my biggest issue has been a lot of these companies have announced price increases that would be necessary for them to hit their guidance for the full year. And as we're kind of rolling through the next few months, I think it's going to be harder and harder for some of those price increases to get through. Don't get me wrong. This sector definitely has pricing power. But we're now on.

or fourth or fifth round of pricing in some instances. And so as those price increases get tempered, it might create a P&L gap later in the year. And again, I think I'm early. I think this is going to be more of a second half situation as we come back from the summer. But that's really what I worry about. And as that happens, we still have a pretty high relative valuation versus history. So there's still some downside here if indeed these companies do have downer revisions. Are there companies that are more insulated?

from price, cost increases, cost rising, than others and therefore might be good places for your money. Yeah, absolutely, Tyler. So, you know, coming into the year, our theme was three things. We want U.S.-centric mobility and mobility in general because we do think people are going to get out and about as COVID kind of starts to become more of an endemic issue versus a pandemic issue. We like companies that recruited a lot of customers during the pandemic and are actually holding on to them. And then certainly companies from a cost structure standpoint that have less exposure to some of these costs that are inflating the most. And so out of that basket, you know, we've come up with names and we've spoken about them on this show, you know, Coca-Cola, Estee Lauder, Cody, Constellation Brands. I mean, those are some of the ideas that we've been sticking with for the year.

And Nick, do you feel comfortable at these levels, whether, as you said, your team is a little concerned about the inflation outlook, then we also have others who are concerned. concerned about the recession outlook. You know, what does the scenario analysis imply? Yeah, I mean, this sector is always going to be defensive, right? The question for money managers is, are there other defensive sectors that might have less earnings risk? And I think that's kind of maybe the realization that occurred yesterday when we saw those results coming out of Walmart and Target.

And here's an interesting point. You know, we know the consumer is strong right now. We see it, right? We hear it. But things are evolving quickly. there's this thing called revenge spend, right? And my friend at Alpha Diver, Hunter Thurman, they basically use neuroscience to help understand

what consumer behavior is going to look like. And what they would suggest is that consumers have so much pent up demand to get out and live because buying things and having experience makes you feel better, that we're going to see this kind of irrational level of spending on services and experiences for the next several months.

And then when people start realizing how much they paid for them on their credit card and start coming to reality, there's going to be a day of recognizing, there's going to be a day of reckoning, and I think that's going to happen as we get past the summer. Wow. All right. Again, kind of reflecting there, the nervousness across the sector you cover in consumer staples. Nick, thanks so much. I like that revenge spending. I've had some revenge lately. I really have some anger.

Going on any revenge trips? Undecided as of now. All right, Nick Modi, thank you very much. Coming up, the SPAC market. Remember that? It's going silent. The CNBC Post SPAC index, down about 40% year to date. Look at what happens next as hundreds of SPACs face deadlines to make a deal or return the money. Plus, big cap stocks with price to earnings ratios under 10. Are these bargains worth buying? We will talk trading JP Morgan Verizon and Novartis in today's three stock lunch when power lunch continues here on CNBC.

Welcome back to Power Lunch. I'm Christina Parts Nebula. We want to get a check on three key areas of tech trying to rebound after yesterday's selloff. In cybersecurity, names like Sentinel 1, Octa, CrowdStrike, and Fortnite are all in the green this morning, or this afternoon, I should say. And then you've got Cloud and Enterprise stocks also jumping with big games in digital ocean holdings, Zoom Video, Twilio. Fastly is also higher, though. It's still down more than 20% in May. And we'll end up. on some chips, which are more mixed today, but still seeing some strong moves in synopsis, cadence design, monolithic power. There you have it. Tyne back over to you. Christina, thank you very much. The IPO and the SPAC markets have pretty much gone radio silent. Just 34 IPOs have priced this year down 77% from this time last year. The Renaissance IPO ETF down 25% in the past month. The CNBC SPAC Post-deal Index is down almost 20% for the month. And a deadline is fast approaching for SPAC deals to get done.

Let's bring in Santosh Rayo, head of research with Manhattan Venture Partners. Santos, welcome. Good to have you with us. Thank you, Tyler. Before we get to some of the declines, a little bit of background here, when a SPAC goes wanting for a deal, after about two years in typical cases, what do those SPAC organizers have to do? Return the money to the investors?

Absolutely. They just have to return the money and the cost of setting up the SPAC. You lose that. That's an invested capital. You can't get that back. So you just have to return it. That's the whole idea. You have two years and to get it done. There's enough time. Many of us remember what went on in 2008, 2007, 2008, in the real estate market, auction rate securities, other kinds of of esoterica that cratered. Is there any possibility that the SPAC market, if it falls apart, could be the kind of tipping point to a real financial crisis and turn what is now,

not necessarily an economic crisis, but turn it into a much more distinctly financial crisis? Now, I don't think SPAC market is that big to really cause that kind of a turbulence in the market. Right now, they have a credibility, problem. They need to really establish themselves. They got a bad, they did not perform well. Everyone's turned off. No transparency and no disclosures and all that stuff. So although I think the rules are going to change, the proposed rules, if they're enacted, I think it's going to make it much more

viable investing in SPACs. But right now there's a credibility problem and they have to prove it. And just for data, out of the 600 or so SPACs in 2021, 400 plus are still looking for a partner. So that's big thing. I mean, they have to find, they have about anywhere from seven months to 19 months to get it done. So let's see what happens. But there's a problem. But that was the question I was going to ask you, how many SPACs are out there looking for deals? And you just answered, you said two out of three of the ones that were introduced last year are still vacant SPACs. Let's say SPAC. Absolutely. And what's happening is now these companies, these SPACs, will get desperate at one point.

They're moving down the line, going to series A, series B, CDC, earlier stage companies, and even tapping the international markets to get some good targets. So I think you're going to see all of that. There are good companies. There's a lot of good work being done. Great technologies out there. But you just have to find them.

I think that's where credibility and performance will come in. And I'm sure it will happen. It's an exit option, but not for everyone. It needs to be well tested and be careful with that. I'm just wondering about the ripple effects, Sancho, because it's weird this would be happening where liquidity is drying up. Investors don't want IPOs, and yet SPACs are forced to get a deal done. So I guess it's a lifeline to startups who are freaking out they won't be able to have an exit. But at the same time, if investors turn up their nose at these offerings, what's going to be the fallout from that?

Yeah, to some extent, there is no liquidity problem in the private markets. There's enough liquidity out there. I think there's about $230 billion worth of dry powder out there. About $630 billion was invested in the private markets in startups. So there's a lot of liquidity out there. So that's not the issue. I think now what's happened is the bar has been raised. The companies have to prove and the business models have to be sharpened, and all that stuff, which is good.

I think this pause is good in the long run. It's healthy, not only for SPACs, but for the business models. or other potential IPOs. You really need to clean up because you know what's waiting at the end of the line. The public market is not, it's not going to relent anymore. They're going to be very strict about certain things.

They want transparency. They need a path to profitability in a reasonable time, not like way down the future. So I think that's all that is there. They know all that and they know the rules of the game right now. So they need to perform.

And it'll do. I mean, this is a good thing in the end. All right. We'll leave it on that note. Santosh, thanks. Thank you. Thanks back. Wow.

Stocks are lower once again today, although we're seeing, I don't know, they're trying to climb back. More convincing is the move in the home builders. We've got them up anywhere from 3 to 4 percent, D.R. Horton, KB. Home. That's despite another seemingly bad piece of data, we'll get the full details. Plus, shipping of railroad companies are down again today and having a terrible week. What do these freight fears tell us about the economy that's still ahead on Power Lunch? Welcome back to Power Lunch. existing home sales fell for the third straight month in April to the lowest level since the start of the pandemic,

while prices don't show any signs of coming down. Diana Oleg has the details. Diana? Well, Kelly, both higher mortgage rates and the ongoing shortage of homes for sale are taking their toll on existing home sales, which were down over 2% month to month, down nearly 6% from a year ago, and as you said, the slowest pace since June of 2020. And that month was artificially low because it was at the start of the pandemic. pandemic before sales suddenly took off. Now, the supply of listings continues to weigh on the market down over 10% from a year ago, but rising interest rates also now factoring in. These sales numbers represent closings, so signed contracts in February and March when rates were rising. The average rate on the 30-year fixed mortgage started February at 3.66% ended March at 4.78. It is now hovering around 5.45, which is why the Realtors chief economist Lawrence Yun says he expects sales to drop first. further because higher rates haven't fully done their damage yet. Tight supply continues to fuel prices, the median price of an existing home sold in April, $391,200, another record high and an increase of nearly 15% from a year ago.

Of course, that is skewed by what's selling, mostly on the higher end, where there's more supply, while sales will be weaker going forward. So far, we're not seeing any let up in those prices, likely because of that supply situation. For those who can afford the little that's out there, the competition real estate agents tell me it's still very strong. Back to you guys. Diana, why are the builder stocks up despite this report and given everything that's going on with rates and prices? Well, part of it is because of that supply situation we're talking about if there's low supply in the existing market, then buyers have nowhere to go but to the new construction market.

But also it's because these builder stocks have been so beaten down. They've got nowhere to go but up. They're down 30% year to date. Wow. All right, Diana, thank you very much. Diana Ollick. Let's get to Frank Holland now for the CNBC News Update. Frank. Hey there, Kelly. Here's what's happening at this album. Well, would be the nation's strictest abortion law is now on its way to Oklahoma's governor for his expected signature. Today, the state's legislature finalized its approval of a bill that prohibits nearly all abortion, starting at fertilization. It's very similar to a Texas law and that individuals can file a civil suit against providers and anyone who aids or abets an abortion. The governor, a Republican, has promised to sign any anti-abortion bill that reaches his desk. The head of the FDA tells Congress today that the nation's baby formula shortage will start to ease in the next few days, but it will be a few weeks until supplies get back to normal.

And the Greek electronic composer Vangelis is dead at the age of 79. He is known for his Academy Award-winning score for Chariots of Fire. The 1981 film tells the story of two British runners at the 1924 Summer Olympics. He performed the music himself on a bank of synthesizers, quickly flipping switches and pressing foot pedals. In his words, I work like an athlete. What an iconic song. It was an iconic song and a great movie at that. Frank, thank you very much.

Thank you. Ahead on Power Lunch, we're going to get you caught up on the markets as the Dow is slip sliding once again. Down about 1,400 points in two days, nearly 3,000 points in two weeks. But the NASDAQ actually in the green today for us. change. So does that mean tech is going to turn around first? But you just stick with the defensive names as volatility continues. That's what's coming up on Power Lunch and more. We'll be right back. Welcome back, everybody. 90 minutes left in the trading day as the market tries to rebound from yesterday's steep declines. Let's get caught up across stocks, bonds, commodities, and a no recession call.

Let's begin with Bob Bassani and this choppy trading session, Bob. choppy but at least not insane three to two advancing the declining stocks we're kind of right in the middle of the trading range tech's doing better although apple's down two percent keep an eye on that one what everybody's watching is the boring old consumer sector which used to be boring and hasn't been recently there you see chlorox down again today chlorox 155 to 139 in like two days that that's an awful lot folks Kimberly Clark 138 to 128 or so these are low beta stocks they don't move very much That's why people are startled by these moves in the last couple days. Big Pharma, the last hiding space that everybody's in.

Merck was at a new high just a couple of days ago. A little bit weaker, but I wouldn't say dramatically so here. This group's still holding up pretty well overall. I think the big call of the day, the best call of the day, Citigroup talking about the railroads, lowering the ratings on the railroads. Demand backdrop, weakening going forward. And this is what they should be doing, which is talking about lower earnings. Remember, earnings are estimated to be up 9% this year for the S&P

500, they're way too high. They've got to come down. At least city is making a call on this in their little sector right now. Meantime, you notice the metals have been bouncing. They've been a little more stable the last few days. That's because the news out of China has been much better about what's going on in Shanghai and the least they're trying to reopen Shanghai at this point. And that's being a bit help. S&P 500, just remember the intraday low last Thursday, 3858. We're well above that right now. And who knows? We could go positive very, very quickly. Wouldn't that be nice to have a positive day? Guys, back to you.

A rebound. Bob, thank you very much. A positive day in the bond market where the yield on the 10-year is sinking as investors look for safety. Rick Santelli tracking the action, Rick. Yes, rejected 3%. Let's look at a week to date of tens, and you could clearly see yesterday. We literally just popped slightly above 3%, and that was it. And if you open the chart month to date, we've had three closes above 3% on this cycle.

and it's something to pay attention to, it's obviously good psychological resistance. Now, if we consider the fact that the dollar is down over a penny today, and European two-year notes, known as the shots, basically closed an 11-year high yield yesterday. What does all that mean? It means there's a lot more hawkishness sweeping through Europe, and it's having an effect on the currencies.

Let's look at the Euro versus dollar. That's a month-to-day chart. It's on pace to close at the best level since the 5th of May. And if you look at pound versus dollar, also best level since 5th of May. If you look at the dollar versus the Swiss franc, yeah, that's the dollar down at the bottom. It's at the lowest level of the month. And all that, of course, is a big change as the European Central Bank seems to be getting pushed towards being hawkish, along with the Swiss National Bank, and, of course, the Bank of England, who's already tightened on more than several occasions.

Kelly, back to you. Rigg, thank you very much. Now let's turn to energy. Oil closing with a gain today of about 2%. What's it mean for gas prices? Pippa Stevens has more. Pippa? Hey, Kelly, gas price is always in focus these days. And we did see a late morning reversal for oil with crude climbing here into the close. And now on track for a fourth positive week. This comes after two negative sessions, which Richerbush and Associates attributed to broader market action versus anything on the fundamental side. The firm pointed to margin selling and other. commodities and assets as sparking those declines. And they said that rebounding Chinese demand, as well as harsher Russian sanctions, still support the Bull case. With that in mind, both WTI and Brent are right around 112 per barrel for a gain of about 2.5%. And sticking with energy did want to note that we're seeing broad gains across clean energy stocks today. The I-share's global clean energy fund up more than 4%. The Invesco Solar Fund advancing 5% with Scholl's technologies,

end phase energy and maxi on solar among the top gainers. All of those, though, still well below their recent highs. The Global X wind energy fund and lithium fund ticker lit, also advancing today. Kelly, back to you. Pip, a quick question. You just showed Brent and WTI, and yesterday for the first time Brent closed higher. Why is it that, I'm sorry, WTI closed higher. Normally Brent's at a premium. Why is it that WTI is suddenly the one with the higher price tag? Well, some of that is thanks to contract expiration, the WTI contract does roll today. So the one for July delivery is a little bit lower here. But also some of that premium is now built into declining U.S. stockpiles.

So we are seeing them trade a little bit closer in tandem, as you said, for the first time in two years. Very interesting. Pippa. Thank you. Pippa Stevens. Well, my next guest sees no recession this year, although she is sticking with a defensive strategy that includes those staples we talked about earlier and also health care and utilities. Let's bring in Quincy Crosby. She's chief equity strategist at LPL Financial. Quincy, great to see you again. And why stay defensive if you don't think we're going to have a recession?

Well, we're in a, you know, in a, what should I say, a soft patch? The soft patch can lead to a recession if things don't ease up in terms of inflation, if things don't ease up in terms of the supply chain. So it's just a cautionary. But with that said, we're viewing. very much looking at the growth sectors, the ones that have been beaten down. And it isn't a question of if, but it's a question of when that we will start moving inching towards that. So explain more about where you think investors should be positioned right now.

Well, right now, you know, it's still very much a trader's market. I mean, we see it every day. And I think that as long as they are defensive, the ones that, granted, they can lose you. We saw how Staples got hit yesterday. But nonetheless, the staples should be able to hold up a bit more during this volatile period until again, until it becomes clearer how the economy is going to unfold. And whether or not this growth scare is going to materialize into something stronger. Where do you think the best opportunity in the market is? Well, I like energy.

I think that you're going into the driving season. There is a shortage. There's no doubt about it. As Beijing comes back, as Shanghai comes back, I know that they're buying Russian oil, but the fact is there's going to be pressure on oil prices. I think all prices are going to continue to rise. So energy remains a favorite,

despite the fact that it's already performed so well. Would you throw anything materials or commodities related into that as well? Well, I would actually look at another area, which is the infrastructure. area, which of course includes just about all of those. You know, the country, we're not going into a, I don't think we're going into a deep recession. I think that we're in this slowdown, but the idea of having to rebuild the country remains. That's been, you know, a premise for both the Republicans and the Democrats.

And I think that is going to continue. It may slow down a bit, but I think it's going to pick up as it becomes clearer, you know, what the Fed is prepared to do and how hawkish they're prepared to. go. I think that infrastructure and all the various components for it are going to be a good area to be in, not safe, but a healthier area to be in. Quincey, it sounds a bit like you're predicting stagflation, a slowdown amid higher inflation. That's not good for corporations. Well, no. I mean, look, you know, there's easy stagflation. You could argue that pockets of the economy are already in a stagflation area.

position. But if you were to get heavy stagflation, the kind that we had years ago, no, it isn't good. And, you know, it's difficult for companies. There's margin compression. It becomes a much more difficult environment for the economy. I don't, we don't think that we're going to be heading in that direction. But needless to say, right now when you see days like yesterday, you can argue that it had the feel of force selling. And that actually placates you because if it's the idea that a hedge fund has to sell margin calls, at least that's the rationale as opposed to, you know, everyday investors just saying, I'm getting out at any cost. So we're going to keep our eye on that. But also, you know, this rhetoric from the Federal Reserve that they don't care about how difficult the stock market is. I don't believe that. One thing the Fed does not want, they want, they want. want financial conditions to tighten, but how about not tighten too much? And, you know, if we lose liquidity in the market, that tells you that the Fed has broken something. So they are following this. It is important. But you know what? Right now, the Fed should be

actually applauding the rhetoric because we're seeing demand is starting to pull back. And that should lead to lower prices. All right, Quincy. Thank you very much. Quincy Crosby. As always, we appreciate it. Coming up next, what the truckers are telling us about the economy, freight stocks, I'm big this week. Power lunch. Keeps on trucking. Stay with us. Welcome back to Power Lunch. I'm Christina Partinebless. We want to get a check on some moves within e-commerce, one of the hardest hit areas yesterday. Farfetch, Fiverr, DoorDash are some of the biggest gainers there in that sector.

We also have Wayfair, Overstock, Chewy, and Etsy. They're also firmly in positive territory today after falling more than 10% in yesterday's sell-off. Two of the ETFs that track those names, those of the tickers would be I-buy as well. as O-N-L-N. They're both on pace for their seventh straight monthly decline. So we'll see if today is a step in the right direction or just a pause in the selling. Tyler, it's back on you. All right, Christina, thank you very much that our transports extending their slide, now down about 6% for the week, rising fuel costs, slowing consumer demand. They are the major concerns here, but there's a school of thought that those fears are overblown. Frank Holland has a look

at the freight fears. Frank? Well, hey there, there, Tal. You can see that there's a lot of investors out there starting to believe that those fears may be overblown as well. We're seeing the stocks right here. We're looking at an Old Dominion freight line up almost 3% right now. We're also seeing a Werner Enterprises up over to a forward air, up over 2%. What are these companies have in common? Well, they help companies that put their freight in different ways as opposed to just point A to point B trucking, Old Dominion. They have customers put different loads on the same truck forwarder. That's the air logistics.

also warehousing company, they help people just adjust their supply chain. As I mentioned, something different than just point A to point B trucking. Now, about a month ago, we talked about a freight recession. We used some spooky fingers. We were really nervous about it because the rates were falling at the same time diesel prices were up. And guess what? Frail rates are still falling and diesel prices are still up. But something over here, you see a term we don't talk about a lot here on CNBC is the fuel surcharge. That's more than doubled over the last year. This is the fuel cost that trucking companies have their customers pay. to offset volatility in the fuel market, and it's based on retail prices at the pump.

However, most large logistics players, they're actually paying something much closer to wholesale prices. So there's some price arbitrage, if you will. Let's look at how FedEx handles their fuel surcharge. Now, right here, we see when fuel diesel prices actually were just over $5 a gallon, that fuel surcharge is at 43.5%. As the fuel diesel prices rise, that fuel surcharge, I can't get the words out today, the fuel surcharge increases as well. So in some ways, it really offset some of the cost and not only the truckers pay, but in some cases, they can actually make some money on that fuel surcharge because, again, they're not paying those retail prices.

So their fuel surcharges are up, but the rates themselves are down. How is this likely to shake out in profits? Well, that's a great question. For some companies, they can actually make a little bit of money. Basically, they're almost selling diesel fuel to some of their customers because they're paying a much lower rate than you and I would see at the pump. And then also, there's a lot of disruption. I heard talk to one company. They basically told me that mystery creates margin. There's a lot of mystery about where freight's going. It's going to different ports. It's going in different ways.

A lot of different companies you can see right here are taking their freight to different ports they normally would. The freight that's going to the port of Los Angeles is actually down 7% year over year in April. But you look at a port of Houston, it's actually up 37% year over year. So that's really an opportunity for a lot of these companies. While a lot of investors initially are kind of nervous

because those diesel prices are going up and things are moving, and the port of L.A. and Long Beach, we're not seeing the same backups. It's actually an opportunity for a lot of different companies, because guess what? When our normal supply chain is disrupted, if you're a retailer, well, somebody's got to help you fix it. So if we go back one slide there to those surcharges, that's 44%, 47% of what?

Of their fuel costs or of the total bill that I would pay to ship, as my wife did yesterday, a broken baseball bat, back to DeMarini? Well, it's based simply on the price of diesel. So diesel's $5.0.073 a gallon, while the fuel surcharges at 43.5%. It goes up. So it's based on the fuel charge. So it's based on the fuel price. Absolutely on the fuel price.

It's a percentage of the fuel price. Because what truck and company wants to have the volatility, if diesel prices are moving up, they can't keep their rates the same, Tyler. So they increase this fuel surcharge to offset their cost. I see. All right. Frank Holland. Thanks very much.

Thank you. So you're going through tons of bleach. You're breaking bats. What is going on? The knob on the back came on. It wasn't getting hits. That's the problem. Defective back.

I don't know what's going on. Max sounds like a monster out on that diamond. The Dow is lower once again today. After yesterday's huge drop, we're still down 82 points. And that decline was the biggest in two years. Now we're on pace to close lower for the eighth week in a row, but we're looking for possible opportunity. We have some big name stocks, you know,

with price to earnings ratios in the single digits. We will ask our trader if these stocks are a buy. when we come back. Time for today's three stock lunch. We're going to dig into some really cheap mega-cap stocks with price-to-earnings ratios under 10. First on our list today is J.P. Morgan, the big bank, down just over 1% today.

Also on our list today, the telecom giant Verizon and the healthcare company Novartis, both trading higher this afternoon. These are clearly mega-caps with low PEs, joining us to talk about him. David Wagner, Aptus Capital Advisors, portfolio manager. Let's start with J.P. Morgan, shall we? Dave, what do you think of that stock at this price? Yeah, we're definitely doing some dumpster diving today, Tyler. But first of all,

you cannot look at J.P. Morgan from a P.E. perspective in my mind, given all the volatility around credit reserves, whether they're releasing them like they have for the last two years, or if they're really starting to build them like they started to do this past quarter. One must look at J.P. Morgan through the price to book lens. And if you do that, Tyler, I actually don't think the stock looks all of that appealing. At Aptus, we remain underweight banks right now. We're really expecting that credit spreads will continue to widen as earnings expectations see large haircuts across the entire market. And wider spreads can really punish bank valuations. And that's what we've seen here today with banks being down close to 30%. So, you know, typically economic growth

and rates move together. And so banks have, you know, either dual tailwinds, improving growth and rising rates or dual headwind, slowing growth and falling rates. And today, you know, we're really seeing a divergence as rates are rising, even though PMIs, well, they're really starting to fall. And when it comes to banks relative to performance, slower growth fears, well, they're more than offsetting to the benefit of rising rates, in our opinion. All right. So not necessarily scooping this one up. What about Verizon? Dividendend yield of more than 5% super low PE. Dave, what would you do with them? Kelly, I think this may be the first time I've ever said this, but I really like Verizon right now.

Being a value investor, I love to see companies that are trading at a discount. But more importantly, I like to see companies trading out a discount with positive EPS revisions. Owning a stock solely because it's cheap. Well, Kelly, that's never really been an investment thesis that I like to play. It needs some type of catalyst. Well, Verizon has that. The company just announced that they will have their first price site in over two. years. So I'm expecting an EPS bump of maybe 3% this year and 5% next year. And that's going to equate

to a positive EPS revision, i.e. A momentum catalyst. And as of right now, I don't think the management's guidance, well, it's accounting for that. And I think I'd leave on this note, you know, this stock, you know, it tends to perform really, really well during recessionary periods. I'm not calling for one, but obviously there's a lot of recession talk on the table right now. But Verizon is probably the safest telco name out there. And despite how defensive this telcoe, industry tends to look. What actually tends to trade really terribly during recessions because of the amount of leverage they have on the books and the slow growth characteristics?

So you couple that with what you said, Kelly, to five and a half percent sustainable and growing dividend. I like this stock. It's a rental. It's not an own forever, but at this juncture, Verizon looks pretty, pretty good. Thank you, Larry David. Let's go to Novartis. What do you think of that one?

Yeah, I think the key theme here for Novartis here at Aptus, it's clarity. We need clarity regarding the potential. spin-off or sale of their generics business. Luckily, you know, about a month ago, we found out that, hey, there could be some private equity interest here at 10x EBITDA. But we're also going to be clarity from the major team regarding the future of their pipeline. But the overall clarity will need to be around the simplicity of what their business model could look like moving forward. We know that generic companies, well, they tend to yield a lower multiple. The sale or spin-off would simplify the story a ton, which is a valuation catalyst, something that we look for here

at APTUS. But honestly, in my opinion, there's really no strategic benefit of having a generic business if you're Novartis. Yes, this company has been catching a bid because we've seen cheap European, you know, pharma companies, well, they've really been a positive place to hide. We know that EPS numbers, well, they're probably going to be just fine this year. But I don't view this stock as cheap at 14 times earnings. Yes, it's cheap versus its history.

But Navartis, well, they've been trading at these levels because of concerns regarding their pipeline moving forward. And most importantly, that the management team, well, they need to rebuild some credibility out in the market. So for us to get constructive, we need clarity around the generic business. We need clarity around the pipeline moving forward, especially because they have a record amount of cash on their balance sheet since they sold their steak and Roche. So, yeah, could there be a short squeeze in this name? It's been a heavily shorter name for European pharma companies for quite some time. But that's not an investment thesis on its own.

So, yeah, I'm staying on the sidelines here. Stay on the sidelines with that one. Dave, I love your kitchen. It reminds me of the days I was broadcasting. from mine at the start of those are those nice subway tiles aren't they there? I remember I hate going to looking for tiles. That was a worst. I love

looking for tiles. That is the best part. Fabrics watches. They've had a great earners for it. All right man, thanks a lot. Dave Wagner. Up next, we are not talking subway tiles. We are talking the yield curve. We will break down with the latest signals are telling us about the recession

probabilities. Stay with us. The best part. Welcome back to Power Lynch, everybody. Recession, no recession. That's been all the talk, especially this week as the market continues to sell off. Let's take a look at some of the classic recessionary spreads. This is the widely referred to, one, the twos, tens, and yeah, 24 basis points. So we're still hanging in there. It's certainly not negative where we briefly were a couple of months back. More significantly, Tyler, I'm watching the three-month 10-year spread. And if you want a no-recession sign right now, this keeps sending it. Look how high this spread is. We are off the highs of the year, obviously, but we are still at 1.8 points, which is about the highest levels we saw back to the economy and the economic expansion that prevailed for the latter half of the 20.

So this would be a flat or negative reading, and that would be an issue or an indication of a possible recession coming. When you get up here, you've got steepness, and that is where you kind of want things to be. Money is, let's look at the 10 year, just 10 year yield, shall we, just for today. Look at, it's come back down. There's a 10 year yield. Is that, is that right? No, that was the spread. There's a 10 year yield.

2.85. It was above three, not that long ago. And this tells me that people are going into bonds as a safety trade. They certainly are. But you know where we're not, we are not all the way back to below 2%, one and a half percent, any of those kinds of levels that prevailed around the start of the year. So again, no recession. signs coming from at least some of the widely or most closely watched yield curves.

The high pressure system over the Ohio Valley. Record high temperatures coming this weekend. If you missed any of today's show or past shows, you can subscribe to the Power Lunch Showcast wherever you get your podcast. We look forward to Dom's return with the Telestrator next time around. Thanks for watching, Power Lunch, everybody.