Power Lunch - Recession Risk Rises 4/12/23

Episode Date: April 12, 2023

Fallout from the U.S. banking crisis is likely to tilt the economy into a mild recession later this year, according to the Fed minutes released today. That comes after CPI data cooled in March.Are markets and the Fed now on a collision course? And what could that mean for you and your money? We’ll explore all of the angles for you. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Good afternoon, everybody, and welcome to Power Lunch alongside Kelly Evans. I'm Tyler Matheson. After a big inflation report this morning, we await Fed Minutes just seconds from now, about 18 seconds. Markets will are well off the highs of the day. Dow's up about 153 points. The NASDAQ as well as one to watch. It had been up 1%. Gave up those gains. The two-year yield had been below 390, went back over 4%. And the dollar is weaker. Let's get to Steve Leesman with the details from the Fed Minutes now and some market reaction. Steve? Minutes to the Federal Reserve's meeting in March show that the staff says the effects of the banking turmoil would likely lead to a mild recession later this year.

It sought a recovery from that recession in 2024 and 2025. The staff had previously seen the recession as a possible alternative to its baseline forecast. Now it seems to have elevated that to the baseline forecast. The staff expects inflation to step down markedly this year. and slow sharply next year. We usually don't begin with staff, but this is a pretty big change right now in the forecast for the staff. It says the forecast is tied to the banking conditions, which are uncertain. It also says the Fed officials themselves in the meeting saw banking turmoil likely leading to tighter credit conditions, and it saw banking turmoil likely weighing on growth,

jobs, and inflation. The outcome of these banking failures and stresses of the bank system we're seen as uncertain during the meeting. The banking problems we're seen as limited by most participants, however. They did factor into policy, and they would factor into policy. They said if they affect jobs, inflation, and growth. Some officials would have hiked 50 bases, if not for the bank stresses. And in the absence of the bank stresses, Fed officials would have raised the outlook for the funds rate as well, and it caused them to lower the outlook for the future funds rate.

Economic risk were weighted to the downside, inflation risk weighted to the upside. One more thing here. Pishpitz also saw the labor market is very tight. Wages were slowing only gradually, and inflation was seen as unacceptably high. Kelly, Tyler. All right, I'll pick it up from there. Steve, thanks very much, and stick around. We'll get more reaction to the Fed minutes. But first, a couple of legendary investors speaking out on the Fed earlier. Here's what Warren Buffett had to say earlier today on Squawk Box. I don't know what they precisely should do. Nobody does. And they follow conventional wisdom and all of that. Sometimes it works out and sometimes it doesn't. But since 1942, you know, we've made all kinds of mistakes in this country.

And we'll continue to make them. But somehow the system works pretty damn well. I'd rather own stocks and bonds over many years. Meantime, Chairman of ISI Group and one of the most respected economic forecasters of the mall, expressed some caution this morning on the economy. I've been in the recession camp. You've got the rates. You've got an inward deal curve and the money supply is contracting.

You need to take a step at a time. And I feel confident that the Fed should pause and then see what happens. All right. Let's bring in Diane Swank now, who is chief economist at KPMG. Diane, welcome. Good to have you with us. Where are you on whether there will be a recession or not? Are you there with Ed Hyman or not?

I am, actually. And I think, you know, the credit stresses that we've already seen are additional tightening in the pipeline. And there really is this sort of unknown unknowns out there of how much tightening it will be. And I actually would prefer the Fed take a pause. I wish they had taken a pregnant pause at the last meeting because we just don't know how much credit tightening is in the pipeline. But I think that's very important because that's going to really delineate who wants to hike rates one more time at the May meeting and who does not. And I think we're likely to see another quarter point hike given how high inflation still is.

and where it is relative to expectations, it's not come down as rapidly as the Fed would like, and they're still going off the sort of assumption that it will remain more sticky. That said, there are many people on the Fed that are now sort of breaking and saying, you know, we really need to take in these financial conditions. I was at the Economic Club yesterday with Austin Gulsby, and he was talking about the need to assess these conditions and sort of get some perspective on how much tightening is in the pipeline and how much heavy lifting that credit. it tightening will do for the Fed.

Steve, did this morning's numbers change in any way the market's anticipation of a rate hike in May? And what do you think not only they will do, but what they might say in May? I don't think it really

changed very much. You did have the headline coming down a little bit more than expected, but it's the Fed and the Fed chair pointed us to the Corps, and the Corps didn't show as much improvement. But Tyler, I think we should maybe, I'd like to talk about this issue of the Fed hiking while the staff is forecasting a mild recession. I don't know if it's the same thing as a president overruling his joint chiefs of staff about going to war or whatever or something like that.

But the staff said mild recession as a result of these banking hikes, banking stresses, and the Fed went ahead and hiked anyway. It sounds to me like Diane would have sided with the staff. I know a lot of other folks would have. So it's an interesting development here that the Fed decided. that a mild recession as forecast by the staff was, I guess, okay relative to the need to fight inflation. And so they went up a quarter anyway, despite the forecast of recession from the staff. I think that's a pretty important, a significant development. I'm glad you flagged it, Steve, especially because Mary Daly also this afternoon said she expects will avoid a recession.

So clearly weighing in with her own point of view. Diane, unpack this for us a little bit. So these are the Fed minutes, but we also have this Fed staff projection that Steve's talking about of a mild recession later this year. What are these two separate things and what is the typical kind of interplay between them? Well, there's no question the staff briefing is really important. But I think also we have to sort of go back up and remember what the Fed released for their forecasts in the last meeting, in March meeting. And that was for 0.4% growth, which is essentially a recession in 2023. So the mild recession scenario is one that many within the Fed with the increases in unemployment, although not.

huge by any measure and, you know, but enough for NVER to declare it a recession. The Fed already had that baked into many of their expectations and felt that was necessary. They don't always say the quiet part out loud. I think the closest they came was, you know, the eight-minute, 34-second speech by Jay Powell at Jackson Hole, but also when Jay Powell a little over a year ago first used the word soft-dish instead of soft when we're referring to the landing. So I think from the Fed's perspective, they expected many of them thought they need a mild recession, which is why we've been betting on a recession, hard to time. But the bottom line is, this has been their goal. And I think now the question is, can they actually calibrate it?

And this is where the division comes from. The doves are voting more in these meetings this year. The doves, many of them are coming back and saying, listen, we're willing to take a recession, but, you know, we've got this additional tightening. Do we need to go that far this fast? And that's where the break is going to be. So I think you could get a rate hike with dissents. And I think that's going to be a very mixed message to financial markets, but you're already starting to hear it in the communications from those that are going to be voting at the next meeting.

Steve, react to what Diane just said, and I'm struck by the words of Ed Heimann earlier, an economist whom I really, really respect over the years. he forecasts a recession, as you heard, and it wasn't necessarily a gentle one either, if I heard the subtext of his remarks. He pointed to banking stress, he pointed to inverted yield curve, and he pointed, among other things, to a contracting money supply, which is sort of the third ace in the hole that comes onto the table here. So take that mush of a question and make a souffle out of it.

Well, first of all, this business about a mild recession, I don't know how you can quite forecast. It's a bit like saying I'm going to jump into the mud hole and I'm only going to get a little bit dirty. Right. Once you're in the mud hole, you know, you don't know how dirty you're going to get once you start to contract. So I think that's a, you know, I don't know how you know it's going to be mild. These recessions can have lives, you know, lives of their own and have dynamics all their own. So I wouldn't necessarily bank on the mild recession bit. I think that I don't buy the money supply thing.

I'm a bit of an agnostic on the issue of money supply. we were one of the first things you learned when you became a Fed reporter was that things with the M equation in it didn't help you understand monetary policy at all. It was a change that Greenspan made in the early 90s, and I'm a little bit reluctant to go back and go back to the earlier time when M aggregates helped us understand it. So I'll leave that to the side. I just think the issue here is, you know, why do you hire 300 economists if you're going to kind of ignore them? That's, I guess, the question I have today. If they say mild recession and that's baked in, I disagree a little bit with Diana that zero four is the same thing as a negative number. I think there's a big difference with a negative number. So I would just argue that if you're already headed for a recession, you know that's going to have an impact on inflation. That it speaks for reasons for caution. And the Fed seemed to ignore that. And just real quick, getting on what you were talking about there, I do think that there is, as Diane was suggesting, a sort of doveish wing developing,

because there's a doveish argument out there. and it is centered on these backing conditions. Yeah, I see Diane nodding there. Alas, we have to leave it there. Diane Swank, Steve Leasman, thank you very much. Let's get some more market reaction to these minutes now. Rick Santelli, over there with the traders at the sebo. Rick, what's the word?

You know, the word is that volatility is quite volatile, and we'll get to that with gem in a moment. But if you look at yields, look at the intraday of twos, look at how much more work we've done to the downside, especially when you pair it up with a two-day chart, and we're under 4% for the most part after the minutes. The minutes were fascinating, but in many ways, they're old news, according to traders. And if you look at 10-year no yields, you know,

we're hovering at levels darn close to the lowest yields since September. Not to mention the dollar index already on pace the close at the lowest level since February 1st, but open that chart up and you can see going back, it is teetering on some levels we haven't seen since April of last year. Let's go find Jim. Jim, what's going on? All right, here's the deal. We had the minutes. What did you think? What did your shop think? What do traders generally think about the minutes?

No news is good news. It's a nothing burger. And in our world of volatility, you know, nothing means up. Okay. So when it comes to CPI, in my opinion, we could argue about a tenth on core year over year, but generically, it all moderated. So the only issue is, is it moderating fast enough? Tell me to the trader's perspective. Yeah, look, we went from zero to five percent, whether it's five, five, and a quarter, 4.75, it doesn't matter. We're still lagging through the economy here, watching what's happening. In the meantime, it's spring, the flows are back. Hedges are, you know, long put, short call, short stock. And as we get towards expiration, the dealers are buying that stock. Oh, yeah, they have to cover back their shorts, and it cycles up going into expiration.

I guess your final thought, if it really isn't as important, whether it's four and three quarters, five or five and a quarter, to the ultimate terminal rate, what is the biggest, new issue on your radar screen. The Fed will have to take the wealth effect out of the market. They're going to have to come back and start talking the market back down. They're going to have to start taking yields back up that have been overdone in the back end of the curve. So I'd expect that from the Fed as we look forward to early May in the Fed meeting coming. And I look forward to continually hearing from the CBO about how big our current fiscal deficit is compared to 2022. It's like $400 billion higher. Stop spending if you want inflation to go down.

Tyler, back to you. Rick Santelli, thank you very much. New numbers now from the Treasury about the deficit. Kayla Taoshe has the numbers. Hi, Kayla. Hi, Tyler. Well, Treasury regularly releases statistics about how the government is financing itself. And this month, the Treasury's statistics showed that the federal deficit swelled by about 96% between March of last year and March of this year, essentially standing at about $432 billion in March.

It stands at about $1.1.3 billion. for the first half of the fiscal year. So why is that? Well, government spending rose about 13% even as revenues coming into the government fell by about 3%. And a big part of that is the cost of servicing the federal debt interest payments up 32%. And the government is now estimating that it could pay around $900 billion in interest alone just this year. Treasury officials were asked whether some of this data changed their expectations for when the U.S. could exhaust its extraordinary measures and could see a new deadline in the debt ceiling debate. Officials said no that essentially this is all in line with their forecasts, no new expectations, but certainly

this is all going to be up for debate in the coming weeks, Tyler. All right, Kayla, thank you very much. Coming up, a hot button issue, shares of Cirrus Logic. Down on rumors that Apple plans is abandoning plans to use the company. more high-tech buttons, really non-buttons, on its iPhone. We will discuss in today's tech check plus an executive emission decision. The White House releasing the most stringent auto-emissions proposal to date. We'll talk about that and the implications when Power Lunch returns. Welcome back to Power Lunch, everybody, and it's time for Tech Check. Let's talk about a big example of Apple's power, that when it makes a seemingly minor decision, they can have a pretty major impact.

Christina Parts the Nevelis and Steve Kovac are here with us now to dive into this latest chapter. Christina, what's going on here? Well, serious logic. The stock is down, what, 12% right now? Why? Because one really, really popular Apple analyst, Ming Chi Kuo, he put out a report today saying that Apple is no longer going to change their buttons on their iPhone 15 to a solid state. So what that means? And we, Steve and I, I know.

We had a huge discussion upstairs about it. And we managed to find an older phone. This is the iPhone 8 where this button here, you don't need to press down or anything. It's not a mechanical button. It's a pressure-sensitive button. So iPhone 15s, we're supposed to have these buttons on the side because it's cleaner. I know you'll get into that.

Oh, instead of the volume up and down. Exactly. You know, the hard ones, you're really struggling. You're pushing all the time and it's not working. And so Apple, according to this analyst, is Apple is going to stick with these original buttons because of technical issues. within the production line. And so that's causing Sirius logic to drop because they're a supplier for these phantom buttons,

like fake buttons. Yeah, the solid state buttons. I mentioned 88% of the revenue comes from Apple, by the way. So it's a big deal. Why don't they just put zippers on? Yeah, exactly, right? Right. So there's a reason behind this, Tyler.

Give me the reason. You're probably asking yourself, what's wrong with a regular old button, right? Yeah, I am. This is really interesting. Years ago when Apple first started doing this, I talked to someone at Apple, and they, told me, it's China. Chinese customers love to keep their phones in pristine condition because it's seen as like a prize item that they might want to resell, you know, two, three, four years down the road. And even though this isn't true, there's a perception that the more you

press the button that, you know, it wears out over time, therefore damaging the resale value. So it's really funny. They want to do this because there's no mechanical button, therefore there's nothing to wear out. It helps Chinese customers. It's just a selling point for them. You know, I'd be curious if it would actually work, though, because most people put a case on. And for half the reason, those side buttons get stuck is between the side buttons themselves and the case on top, you often kind of get slippage. And so to use a non-button button would maybe amplify those. Well, their pressure sensitive, too. So, you know, even with the case, as long as you got pressed down.

Right, exactly. Yeah. So then that just means what? You have to buy more products to add to your iPhone just to get a new case. Like we said, we had with all of the iPod beats and iPod pros and the charging cables. it's all away, but it's serious logic. The fact that the stock is having its worst performance in two years just shows, again, like you talked about at the top,

just the power of Apple and how many suppliers play into these iPhone 15s, which... And heavily revenue dependent. Again, this is just one of many suppliers, but 80% is not nothing, right? No, it's a huge... We talked about TSM last hour. Obviously, they're in the news another major Apple, part of the Apple ecosystem, if you will.

And one of the things that I think is surprised people is just going back to the big picture demand issue here. Sentiment on Apple in general in the market has turned kind of poor because they say, well, if we're going into a downturn, these are still expensive hardware items that people are going to slow their purchases on. So we see both Apple and Taiwan semi having this kind of post-pandemic slump that's a little bit bigger than expected. They're not able to withstand what seems like this post-pandemic turn towards the softer economy at the same time. Two points to that.

We have to keep in mind that Apple is the biggest client for TSMC, which is why it's really relevant to talk about their relationship. but I do think, and I know Steve has talked about this before, there's a difference between the iPhone 15, which is expected to be pretty good, versus, let's say, the Apple Macs and PC shipments, which have not been good. So for TSM, especially,

they're creating the three nanometer chips that are going to go into the iPhone 15. That's supposed to be a positive for the company and help ride it out versus all the decrease in PC shipments. We should ask our readers, I mean, our viewers, whether they prefer button button or a non-button. There's such a debate. Remember when President Trump's,

Trump got the new iPhone and he was complaining about the lack of Twitter or something. We moved away from Blackberry, right? And I loved Blackberry. I'm sure we could eventually move. But I'm just saying we're quick. We forget, right? We get used to things after a while. I have one of these electronic vehicles that is largely operated by a touchscreen, okay?

Yeah. And I will say that the touchscreen is fine. But there are some things that buttons and knobs do really. Bill LeBoe was talking about this just now. That's how some of these other. They're trying to differentiate themselves that way. It allows you to get your frustration out because if it's not working, I know I've crested a lot. I've got a lot of frustration.

A lot. We can talk about that. And by the way, Kelly, to your point about the demand story, we're going to find out on May 4th how well that iPhone demand carried over from the holiday quarter where they couldn't sell as many into the first quarter of this year, seeing if that demand held through now that there's production snarls are closed. Well, maybe that could either put some of these concerns to bed about the stock or not. So that'll be the May 4th. May 4th. Be with you. Here we go.

I'm like that day six in my mic. Yeah, exactly. Christine and Steve, thank you very much. We appreciate it. All righty, coming up. Morgan Stanley has its eyes on the clouds. Upgrading MongoDB to buy. The name is up 20% this year, but they see more room to run.

Power lunch will be right back. Welcome back to Power Lunch, everybody. Stocks are higher across the board following those Fed minutes that we reported at the top of the hour. For reaction from the New York Stock Exchange, let's go to Bob Bizani. Hey, Bob. Tyler, three to two, advancing the declining stocks. The Fed Minutes did not change the stock market direction in the middle of the day, but a lot of discussion around here about this phrase,

banking turmoil would likely lead to a mild recession later this year. They're not acting like that in the stock market, though, because they're continuing to trade cyclical stocks higher. That would go against any kind of notable recession later this year. So stocks like Eaton, Cummins, really deep cyclical, global industrial names, material names like Dow Inc. an upgrade, which is a Dow component, upgrade over Piper along with Lion Delt today. So these material names are trading to the upside as well. Travel names generally are trading to the downside.

We had American Airlines come up with a comment this morning. They're expecting earnings one to five cents. The street has five cents. So that's been pressuring all the airlines. They're going to report April 20th, I believe. And Delta will be reporting this Thursday. So we might get some earlier comments from them about what's going on with the airline. You see the cruise lines also a little bit weaker. Also helping the overall market is not just the cyclical names, but defensive consumer stocks. Another new high from McDonald's. We talked about that yesterday, historic high.

But pharmaceuticals like Merck have generally been doing well, broader consumer names like Nike and Coca-Cola and Johnson. And Johnson and Procter & Gamble also doing well. So as we enter earnings season, where are we on the S&P 500? We're on the verge of breaking out. You get over 4124. get there. There's the last few months on the, on the S&P. You get into the range where we were in early February. That's the last time we really had strong momentum. And so Kelly, that would be the 41, 20, 41 40 to 50 range or so, which is right on the verge of breaking out right now. Kelly, back to you.

4117. Bob, thank you very much, Bob Bassani. Let's get over to Bertha Coombs now for the CNBC News Update. Bertha? Thanks, Kelly. Here's what's happening at this hour. The Biden administration put forward new privacy protections for women crossing state lines to access abortions. The proposal aimed at shielding women living in states where abortion is illegal is intended to prevent their health information from being used to investigate or sue people who obtain or facilitate abortions. Jewel, meantime, will pay over $400 million to settle claims by six states in Washington, D.C., that the vaping company marketed its e-cigarettes to underage teens.

New York Attorney General Letitia James says Jewel will also undergo severe restrictions on its marketing and sales practices. New York alone will receive over $100 million over eight years. And after months of speculation, Buckingham Palace officials confirmed today that Prince Harry will attend his father's coronation, while Megan, his wife, will remain in Southern California with their two children. King Charles III assumed the throne after his mother, Queen Elizabeth's death last last. year. Charles's coronation will take place May 6th at Westminster Abbey. That's going to be a very big day in the UK. Oh, that'll be cool to watch for sure. Bertha, thank you very much, Bertha Coombs. Ahead on Power Lunch, the Biden administration outlining strict new emission standards. Could

it put the cart before the horse, though, in terms of the battery before the vehicles, especially as most consumers just aren't ready to adopt EVs yet. As we head to break, listen to what Warren Buffett had to say about carbon emissions earlier on squawk. It's an enormous problem. It's an ever-present problem. And you really need somebody that understands the dimensions of it and what can be done with carbon capture. But you will not, you will be producing more oil in the five years from now or about the same

amount. And if you spent trillions of dollars now, you'd still be used. needing it. You can't change the world that fast. Welcome back, everybody. The Biden administration proposing the toughest auto emission standards yet. Phil LeBoe has the details. Hi, Phil. Hey, Tyler, you know, the EPA doesn't have the power to tell automakers you must build more electric vehicles, but it does have the power to set tailpipe emission standards. And by doing that for 2027 to 2032 and dramatically lowering the amount of emissions that it will require by 2032, It's essentially saying you're going to start building more electric vehicles.

The cut will be 56% in emissions if these targets are achieved by 2032. The EVs could make up 67% of the vehicles sold in 2032 in order for the auto industry to get to these new tighter standards. It raises the question. Can the industry get to that level of penetration in annual sales? Right now, just 7% of the vehicles sold annually are EVs. it's expected, according to LMC automotive, not to get above 50% by 2032. So there's a gap between what is expected and what the Biden administration is pushing for, and that's the reason that you're seeing a huge influx in the number of EV assembly plants,

battery cell and component manufacturing facilities, even battery recycling firms. You know, this is just a snapshot of where the industry is right now. This is what's in process, what's being built in this country. and everybody I've talked to it today has said, that is not enough. That will have to be doubled if we're going to get close to hitting these emission standards with more electric vehicles sold by 2032. Tesla, no doubt, is the beneficiary of the tighter fuel emission standards. Look, they have no emissions at all coming from their vehicles, tailpipe emissions.

So as a result, it's not going to have to make some changes. And as far as the other EV startups, as I call them, Rivian, lucid, fisc, Not much of a change in the shares today, guys, and you might think, why not? This should be good news for the all-electric auto companies, if you will, vehicle companies. Keep in mind, we get the new EV tax incentives kicking in next week, and some of these vehicles made by some of these companies may not be able to benefit from that. So that's the, you know, the two motions going here, one beneficial, the other one, they've got a ways to go. Why would they not qualify?

Because they're too expensive? either too expensive. In the case of Fisker, the vehicles, at least the first vehicles are made in Europe. They don't qualify. And so there's a number of things that are going to be kicking in next week that will make many electric vehicles initially either qualify only partially or not qualify at all when it comes to the new IRA tax incentives. All right, Phil. Thank you, Philobo. As Phil just explained with the EPA announcing their new emission proposal, will this speed the switch to EVs? According to Cox Automotive, nearly 7% of new car sales in the first quarter were EVs. That's a record high. But a new poll also shows barely a fifth of Americans are very or extremely likely to buy an EV, with many respondents citing a lacking of charging infrastructure as their primary obstacle.

Here for more on this shift is Michelle Krebs, Cox Automotive Executive Analyst, and Andre Shepard, Canter Fitzgerald's senior analyst. It's great to have you both along. Michelle, let's just start with what we know about how much of these. I think it's safe to say we've all been surprised at the speed to which globally we've switched to EVs. Will America always lag? It seems like that. I think we're asking a lot of the consumer.

One of the biggest obstacles to EV adoption here in the U.S. is the price. The average electric vehicle costs $58,000. Now, that's lower than it was last year at $66,000, but it's still higher than the $48,000 of a new vehicle. So it knocks a lot of people out of the math just knocks a lot of people out of the market. Sure. So basically, even though respondents themselves are worried about EV charging, you think price, I mean, listen, price can be solved. You know, at some point the government, as it's trying to do, can just start handing rebates out right and left. And it seems like what people and consumers are saying, Michelle, is that they're skeptical that even if they could afford an EV, that it's kind of ready for showtime.

Well, right. And I was going to say the second obstacle to adoption is that EV, charging infrastructure. It's growing, but one of the big complaints we're hearing now is that when people get to those charging stations, they aren't maintained, they're broken. So we've not only got to build out the charging infrastructure, we've also got to figure out a way to keep it maintained. Andres, can the charging infrastructure be ramped up sufficiently in time to meet what appears to be very ambitious plans from the Biden administration, which could, of course, in a new administration.

Right, and good afternoon. Thanks for having us back on. And so we think that is the case. You know, according to Bloomberg, there were over 10.5 million EVs sold last year. In the U.S., the number was over 800,000, which represented roughly a 70% increase year over year, and that's despite the economic environment that we are in.

As you alluded to EVs in this country accounted for roughly 7% of all vehicles sold, But in places like California, that number is significantly higher around 19%. And so we are seeing an uptake in demand, and we expect that to continue. And we remain bullish from both Rabin and on Lucid over the long term. I think the issue that we are seeing is around production and supply. Both Rabin and Lucid have guided how many vehicles they expect to deliver this year. For Rabian, that's 50,000. For Lucid, that's 10 to 14,000.

By comparison, Tesla delivered 1.3 million vehicles. last year. We don't cover Tesla, but they are guiding to deliver 1.8 million vehicles this year. So they're still, in fact, a market leader, although we are seeing that market share begin to diminish. And in our view, that's a result of them not longer having the best vehicles out there. You look at Lucid, and they've been able to achieve a battery range of 520 miles, which is confirmed by the EPA, and we think that's an important differentiator. So it'll be interesting to see how quickly these companies can continue to ramp up their production. Teslas are in the 320-3-30-mile range on the extended one.

But my question, Andres, was about the charging infrastructure. It wasn't about production. Because the thing, I own an electric vehicle, and I had installed a rapid charger at my house. There are a lot of people for whom that is not a viable option. And the only option they have is to go to a commercial charging station, which may not be convenient. And as Michelle points out, they may not work. They may be broken. or they may be full.

If you've got all these new cars coming online, we have charging stations here. We've got about a dozen of them. But if 50% of the cars in our lot are electric in five years, those 12 stations aren't going to be sufficient. Right, and that's a big point of concern. Interestingly enough, 85% of charging in this country actually takes place at home.

As you know, though, one of the big points of emphasis from the Infrastructure and Jobs Act is around building the EV charging infrastructure. To accelerate the adoption of EVs, we have to simultaneously build out the EV charging infrastructure. And that's why the government has allocated $7.5 billion in funding that will be allocated to states and to EV charging companies for that very reason, Tyler, to build that charging infrastructure.

The goal is to reach that $500,000 number by 2030, because what we're seeing is the biggest cause for concern for people in buying an electric vehicle is this range anxiety. So we have to inevitably build out the charging infrastructure. And that is what we are working to do as a country. Michelle, I guess just as a final comment, the market this year, how important is 2023 or what do you think is the most significant year? Some of these tailpipe rules don't go into effect, for instance, 2026, 2027. What do you expect will happen in the meantime? Well, we expect this year will be the first time.

that EV sales surpass the 1 million mark, we fully expect they'll continue to keep growing, whether it gets to those big numbers that we're talking about early in the next decade. That's the big question. Yeah, and that would certainly be a headline in the meantime. There's the market share forecast. Michelle Krebs, Andre Shepard. Thank you both for your time today. Thank you.

Thank you. All right. Still to come. Inflation seeming to cool just a little bit, but are we still facing a recession? We've been talking a lot about it this hour. the Dow losing nearly all its gains, still in the green, but the S&P and NASDAQ are in the red. Power Lunch returns after this. Welcome back to Power Lunch, everybody.

Today's CPI data came in cooler than expected. That caused some on Wall Street to believe that the latest read on inflation could make the case for a pause in the Fed's rate hike regime. Warren Buffett weighing in with his opinion on inflation earlier this morning. Inflation is always a possibility. And by inflation, I mean extreme inflation. And it's a possibility. I mean, just look at the countries and what they've done. So how should you position your portfolio in this uncertain environment?

Our next guest is making a case for dividend growers. Let's bring in Michael Clarfeld. He's portfolio manager with Clearbridge investments. Michael, welcome. Good to have you with us. The dividend companies that you recommend, they have the beauty of having some insulation against market turbulence and a steady income that can blunt the effect of inflation. That's exactly right. It's a challenging time for investors as we're facing two really separate headwinds. On the one hand, you have a slowing economy and concerns about what that can mean for earnings and a possible recession.

And on the other hands, we're trying to position for continued inflation and rising rates. And in a vacuum, you'd probably choose different tools to deal with one of those factors versus the other. But we don't have that luxury. So as investors think about positioning today where it's uncertain how things will play out and we're positioning against these two distinct headwinds, high-quality dividend growers are a good place to be. As you exactly said, the upfront yield provides strong downside support in a challenging market tape. And the dividend growth provides a meaningful headwind against inflation and rising rates and preserves purchasing power. I don't know whether this is really your Bailey Wick, but how much longer do you think we're going to be confronted by high or rising interest rates?

Or are we in the ninth inning of that cycle? Yeah, I think, you know, we all have our opinions on those, but ultimately this is an uncertain world and it's an uncertain business. And really the beauty of high-quality dividend growers in a time like today is that you don't have to be right on that call. You don't have to know whether or not rates are going to, you know, peak here and ultimately decline by the end of the year or whether they're going to stay higher for longer. So we try to position ourselves here at Clearbridge, you know, with an appreciation for obviously everything that's going on in the macro economy, but not in a way that we're dependent upon any one particular outcome in order to be successful. Michael, some of these names, it's hard, it can be hard to find them at good prices.

I mean, American Tower, Sembra, Enbridge. Do you think now is a moment of opportunity? Yeah, I think we do think that there are attractive opportunities in the marketplace today. Clearly, we're not at a point of significant distress like we have been at other points in the last couple of years, but we do see some unique opportunities. American Tower is one you mentioned, and we do think there's an attractive opportunity in the stock today. I think a lot of investors are aware. American Tower has been a terrific company and a terrific growth stock for a very long period of time.

And it's had a pretty significant pullback in the last six months. And so we think that it's a good entry point. It's not a table pounding by here, but in a stock where it's very hard to find attractive times to add to it, this is a good one. American Tower yields 3% today, so an attractive upfront yield. And this is a company that's compounded its dividends in the double digits for a very long period of time. The next 12 months or so are going to be tougher as higher interest rates and effects and foreign exchange headwinds make earnings growth much weaker than usual in 2023. But as we look beyond this year, the fundamentals are intact, and this will be a continuing. to be a terrific business one year from now, three years from now, five years from now.

All right. Michael, we'll leave it there. Thanks so much for your time today. We appreciate it. Thank you. Michael Garfeld. After the break, a couple of key analyst calls today. We'll cover them all in three stock lunch. Don't go anywhere. Welcome back, everybody. Time for three stock lunch. On today's menu, American Airlines down big after warning investors of some disappointing earnings ahead, possibly. The stock is down 9%. Cloud database provider MongoDB getting an upgrade. over at Morgan Stanley. That stocks up 8%. And dollar general with inflation showing signs of cooling is now a good time to buy.

Here to help us trade them all is Chris Grissanti. He is chief equity strategist at MAI Capital Management. Great to see you, Chris. All right, we haven't talked to airlines. What would you do with American or any of them here? Well, there's a good reason we haven't talked to airlines, Kelly. It's a very tough business and it's

certainly tough for long-term investing. You know, even though the stock's down a bunch today, I'd still consider selling it here. It's lagged the group. It's an incredibly tough business, as I mentioned, but things don't get better than they are now. Plains are full. And if any of the viewers have tried to take a summer vacation lately, the fares are sky high. So if you can't make money here, the American Airlines just said that they're going to make about five cents a share this quarter, you know, it's only going to get worse from here. So Delta earnings are coming out tomorrow morning.

I suspect I'll actually be better than expected, and that might buoy the whole group. And so I might use that as a chance to get out of American with a little better price than you get today. All right. Let's hear your thoughts on MongoDB, which reminds me of the one-hit wonder artist Mongo Jerry. Or blazing saddles with Mongo. Yeah. We're all dating ourselves. So the upgrade for Morgan Stanley, which is what's moving the stock today, Tyler, was a pretty thoughtful upgrade. This is a high-risk, high-reward name, but I think the reward here might be worth the risk.

The market was spooked last month with the low-revenue guidance from the company, but the company is a notoriously low-guider. So I think they're kind of sandbagging it. The movement to the cloud for so many businesses is a trend that can continue strongly, even if there is a recession later this year. So it's a speculation, but I like it. I would size it appropriately, but I like the MongoDB here. All right.

That brings us to Dollar General. What's the catalyst here? I mean, I know it was just moved, I think, from consumer discretionary to consumer staples. And what would you do with the stock? So, Kelly, I've liked this stock for a while because I've been relatively pessimistic on the economic future in the short term. So I think if we go into a recession later this year, it's going to be tough to find a retailer

that can buck a trend of a declining economy. But Dollar General is exactly that kind of retailer. I put it in the same category as like a Domino's Pizza where when times get tough, folks trade down to less expensive choices, whether it's pizza or whether it's shopping at Dollar General instead of, say, Walmart or Target. So that's nice.

And I would add for the viewers, it's also a perfect compliment to the Go-Go stock of MongoDB. So I like Dollar General here. DG and DB. All right. Chris, thank you. Chris Grisanti. Good to see you. Mongo Jerry in the summertime.

All right. Still to come. Some other stories catching our eyes today. And as we had to break, take a look at the Dow. It is now two-one-hundredths of a percent higher, having lost much of its earlier games. A transformation underway for Warner Brothers Discovery. The media giant launching a new combined streaming service. That's a year in the making. It combines HBO Max and Discovery Plus. Plus, Warner Brothers Discovery's max pricing plan includes $9.99 a month for ad light, that's L-I-T-E, two streams high-deaf, 1599 per month for ad-free two streams offline downloads.

You can following this, everybody taking notes here. And for 1999 a month, you can get the ultimate. That's four streams, downloads, and 4K ultra-high-deaf. Okay, the Max streaming service launches May 23rd in the U.S. Shares of Warner Brothers Discovery down more than 3% today. An exclusive interview, by the way, with Warner Brothers CEO David Zazlov coming up right here on CNBC with Scott Wobner in the next hour on closing bell. Very much looking forward to that. As complex, the transition as this been, by dropping HBO, just calling it Max and all the rest of it,

but no one wants to bet against David Zasloff. No, absolutely. Very eager to hear from him. All right, meanwhile, in recent years, social media has been a bit of a minefield, especially amid growing government regulation. TikTok, of course, the latest lightning rod in the space because of its Chinese ownership in particular. Many popular social stocks have been on the rise. While Congress and the White House are raising alarm bells on China's ties to TikTok,

it's not the only Chinese app that is super popular here in the U.S. Take a look at this, according to new research from Bernstein and Data.A.I. four of the top five most downloaded apps in the U.S. this year have Chinese ownership. TikTok is on that list. It's actually number three. Capcut is its sister there. We just turn from that, from showing this rundown for you. It's an editing platform for TikTok videos, so they kind of go hand in hand. Also on the list, though, are two other e-commerce platforms. They're called Timo and Shien, and they're surpassing even all the, you know, Amazon and all the rest of these companies, Tyler. their fast fashion. So you have to ask the question, what separates them from the kinds of sanctions that are being contemplated by the U.S. government and other governments? To think about the

alternative, this could have been a story where we said, hey, TikTok usage, maybe it falls in popularity, reels and other things in U.S. apps, you know, the end of the story. It all works out or we transfer its ownership. Well, it's so much more difficult now because four out of the top five apps are Chinese owned. So do you tackle this one problem? And if so, then do you have to play whack-a-mole by tackling all the rest. One of them, one of them, I think, maybe it was the cap-cut one, is also owned by bite-dance. So maybe that

would fall under the same level of sanctions as TikTok. And now they'll have to, listen, the issue with TikTok is not that it's owned by the Chinese. It's the surveillance that many have reported it is doing on our phones. If the others are now subject to such scrutiny and come with the same results, again,

the precedent has to apply to all of these. If TikTok turns out to be a unique case, fine, but it is hardly the only Chinese own app that's popular right now. Someone will have to school me because this is not my neighborhood. Maybe me too. Maybe, well, I don't know about you. You're much smarter on this. I am. On why TikTok is so favored over reels and Instagram. It's algorithm. You know, Eric was an accidental TikTok star person, sure. You can get on the platform and amass hundreds of thousands of views. I tried to do it with real. Very difficult. It's, the algorithms are not as good.

They're working on it, but it's not as good. That's interesting. Okay, well, there's the answer. All right, folks, go and make some TikTok videos. and find millions of followers. Thanks for watching Power Lund. Closing bell starts right now.